OMAHA, Neb., Aug. 01, 2016 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its second quarter 2016 results.

Key Quarterly Highlights:
  • Revenue grew 1.8 percent; Adjusted organic revenue 5 grew 3.8 percent
  • Cash flows from continuing operating activities grew 40.1 percent; Free cash flow 1,2 grew 43.6 percent
  • Refinanced over half of debt portfolio
  • Sold real estate related to divested businesses

"The second quarter was very productive and significant for West Corporation," said Tom Barker, chairman and chief executive officer. "We refinanced approximately $1.9 billion of long-term debt and closed on the sale of the real estate associated with the divested agent-based businesses. We also had strong revenue growth in the Safety Services and Interactive Services segments."
 
Select Financial Information
 
Unaudited, in millions except per share amounts   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015     % Change     2016       2015     % Change
Revenue $   582.4     $   571.9       1.8 %   $  1,153.2     $  1,137.4       1.4 %
Operating Income     123.1         116.4       5.7 %       232.0         227.1       2.2 %
Income from Continuing Operations     33.0         49.2       -33.0 %       77.5         97.9       -20.8 %
Earnings per Share from Continuing Operations - Diluted     0.39         0.58       -32.8 %       0.92         1.14       -19.3 %
Cash Flows from Continuing Operating Activities     137.4         98.1       40.1 %       197.5         156.5       26.2 %
Cash Flows used in Continuing Investing Activities     (3.1 )       (45.3 )     -93.1 %       (42.6 )       (83.7 )     -49.1 %
Cash Flows used in Continuing Financing Activities     (42.3 )       (56.3 )     -24.8 %       (112.5 )       (290.7 )     -61.3 %
                       
                       
Select Non-GAAP Financial Information 1 
                       
Unaudited, in millions except per share amounts   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015     % Change     2016       2015     % Change
EBITDA from Continuing Operations     173.5         163.6       6.1 %       330.4         325.7       1.4 %
Adjusted EBITDA from Continuing Operations     168.3         170.7       -1.4 %       333.9         339.8       -1.7 %
Adjusted Operating Income     134.7         140.0       -3.8 %       268.8         274.1       -1.9 %
Adjusted Income from Continuing Operations     65.6         67.3       -2.6 %       129.4         134.2       -3.5 %
Adjusted Earnings per Share from Continuing Operations - Diluted     0.78         0.79       -1.3 %       1.53         1.56       -1.9 %
Free Cash Flow from Continuing Operating Activities 2     99.9         69.6       43.6 %       123.6         91.7       34.9 %
                                               

Dividend The Company today also announced a $0.225 per common share dividend. The dividend is payable on September 1, 2016, to shareholders of record as of the close of business on August 22, 2016.

Operating ResultsFor the second quarter of 2016, revenue was $582.4 million compared to $571.9 million for the same quarter of the previous year, an increase of 1.8 percent. Revenue from acquired entities was $7.1 million during the second quarter of 2016. The Company's revenue was negatively impacted by $2.4 million from foreign currency exchange rate fluctuations and by $16.0 million from a lost Telecom Services client previously disclosed in 2015. Adjusted organic growth 5 for the second quarter was 3.8 percent. Details of the Company's revenue growth are presented in the selected financial data table below.

The Unified Communications Services segment had revenue of $370.2 million in the second quarter of 2016, a 1.2 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $16.0 million from the previously disclosed lost Telecom Services client and $2.4 million from the impact of foreign currency exchange rates, partially offset by $2.2 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth 5 for the Unified Communications Services segment was 3.1 percent for the second quarter of 2016.

The Safety Services segment had revenue of $74.4 million in the second quarter of 2016, an increase of 12.5 percent from the second quarter of 2015. The increase in revenue was primarily due to clients adopting new technologies, partially offset by price compression.

The Interactive Services segment had revenue of $73.2 million in the second quarter of 2016, 15.1 percent higher than the same quarter last year. This increase included $4.9 million from the acquisitions of SharpSchool, ClientTell and Synrevoice. Adjusted organic revenue growth for the Interactive Services segment was 7.4 percent for the second quarter of 2016. Organic revenue growth was primarily due to new clients in the education market and increased volumes from existing clients.

The Specialized Agent Services segment had revenue of $67.5 million in the second quarter of 2016, a decrease of 1.6 percent compared to the same quarter of the previous year. The revenue shortfall in this segment was primarily driven by slower than historical recoveries in the cost management business and delayed program implementations due to challenging labor markets in the revenue generation business, offset by double-digit revenue growth in the healthcare advocacy business.

Operating income was $123.1 million in the second quarter of 2016 compared to $116.4 million in the second quarter of 2015, an increase of 5.7 percent. This increase was primarily due to the gain on the sale of the real estate associated with the Company's divested agent-based businesses. Adjusted operating income 1 was $134.7 million in the second quarter of 2016 compared to $140.0 million in the second quarter of 2015. Adjusted operating income as a percentage of revenue was 23.1 percent in the second quarter of 2016 compared to 24.5 percent in the same quarter of 2015.

Income from continuing operations decreased 33.0 percent to $33.0 million in the second quarter of 2016 compared to $49.2 million in the same quarter of 2015. This decrease was primarily due to $35.2 million of accelerated amortization of deferred financing costs related to the Company's debt refinancing in the second quarter of 2016, partially offset by a $12.8 million gain on the sale of real estate associated with the Company's divested agent-based businesses. The net impact on income from continuing operations from the accelerated amortization and sale of real estate was a reduction of $14.3 million. Adjusted income from continuing operations 1 was $65.6 million in the second quarter of 2016, a decrease of 2.6 percent from the same quarter of 2015.

EBITDA 1 was $173.5 million in the second quarter of 2016 compared to $163.6 million in the second quarter of 2015. This increase includes $12.8 million gain on the sale of real estate associated with the Company's divested agent-based businesses. Adjusted EBITDA 1 for the second quarter of 2016 was $168.3 million compared to $170.7 million for the second quarter of 2015, a decrease of 1.4 percent.

Balance Sheet, Cash Flow and LiquidityAt June 30, 2016, West Corporation had cash and cash equivalents totaling $223.4 million and working capital of $269.5 million. Interest expense and other financing charges were $73.3 million during the second quarter of 2016 compared to $38.9 million during the comparable period of the prior year. The increase in financing charges was primarily due to $35.2 million of accelerated amortization of deferred financing costs related to the Company's debt refinancing in the second quarter of 2016.

The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities 4, was 4.47x at June 30, 2016.

Cash flows from operations were $137.4 million for the second quarter of 2016 compared to $98.1 million in the same period of 2015, an increase of 40.1 percent. Free cash flow 1,2 increased 43.6 percent to $99.9 million in the second quarter of 2016 compared to $69.6 million in the second quarter of 2015. This growth was driven by improvements in working capital partially offset by a decrease in income from continuing operations and slightly higher days sales outstanding compared to the first quarter of 2015.

"Our second quarter cash flows were strong and in-line with our expectations," said Jan Madsen, chief financial officer. "During the quarter, we closed on the sale of real estate related to our divested agent-based businesses. The after-tax cash proceeds of the sale were approximately $32 million."

During the second quarter of 2016, the Company invested $37.5 million, or 6.4 percent of revenue, in capital expenditures, primarily for software and computer equipment. 

Debt RefinancingDuring the second quarter of 2016, the Company successfully refinanced over half of its long-term debt. Approximately $1.9 billion of long-term debt and $300 million of revolver capacity previously scheduled to mature in 2018 and 2019 has been extended to 2021-2023.

On July 26, 2016, the Company entered into two 5-year interest rate swaps, a 1-month LIBOR swap and a 3-month LIBOR swap, both with a beginning notional of $275 million. The 1-month LIBOR swap is effective immediately and the 3-month LIBOR swap has a one year forward starting date.

As a result of the refinancing and hedges, the Company's floating rate debt as a percentage of total debt decreased from 70 percent at March 31, 2016 to 50 percent today and is expected to decrease to 42 percent when the delayed start swap becomes effective.

"I am very pleased with the result of our debt refinancing. We were able to achieve our goals of extending our maturities, reducing risk by increasing the fixed portion of our debt and maintaining a very attractive priced cost of debt," said Madsen. "Due to the accelerated amortization expense resulting from our debt refinancing and the sale of the real estate associated with the divested agent-based businesses, we now expect income from continuing operations to be $14 million lower than previous guidance with a corresponding decrease in diluted earnings per share from continuing operations and operating income and EBITDA are expected to be $12 million higher than previous guidance. We continue to be on track to achieve our other guidance metrics for the year." 

Conference CallThe Company will hold a conference call to discuss these topics on Tuesday, August 2, 2016 at 11:00 AM Eastern Time (10:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company's website at www.west.com.

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

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

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

These forward-looking statements speak only as of the date on which the statements were made. West undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. 
  WEST CORPORATION    
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
(Unaudited, in thousands except per share data)  
             
    Three Months Ended June 30,    
      2016           2015       % Change  
Revenue $ 582,397     $ 571,891       1.8 %  
Cost of services   249,426       245,266       1.7 %  
Selling, general and administrative expenses   209,870       210,192       -0.2 %  
Operating income   123,101       116,433       5.7 %  
Interest expense, net   37,712       38,433       -1.9 %  
Accelerated amortization of deferred financing costs   35,235       -       NM    
Other expense (income), net   (1,214 )     100       NM    
Income from continuing operations before tax   51,368       77,900       -34.1 %  
Income tax expense attributed to continuing operations   18,389       28,677       -35.9 %  
Income from continuing operations   32,979       49,223       -33.0 %  
Income from discontinued operations, net of income taxes   -       358       -    
Net income $ 32,979     $ 49,581       -33.5 %  
             
Weighted average shares outstanding:            
Basic   82,598       83,394        
Diluted   84,281       85,592        
             
Earnings per share - Basic:            
Continuing operations $ 0.40     $ 0.59       -32.2 %  
Discontinued operations   0.00       0.00       -    
Total Earnings Per Share - Basic $ 0.40     $ 0.59       -32.2 %  
             
Earnings per share - Diluted:            
Continuing operations $ 0.39     $ 0.58       -32.8 %  
Discontinued operations   0.00       0.00       -    
Total Earnings Per Share - Diluted $ 0.39     $ 0.58       -32.8 %  
             
             
             
SELECTED SEGMENT FINANCIAL DATA:            
    Three Months Ended June 30,    
      2016           2015       % Change  
Revenue:            
Unified Communications Services $ 370,158     $ 374,651       -1.2 %  
Safety Services   74,423       66,138       12.5 %  
Interactive Services   73,232       63,628       15.1 %  
Specialized Agent Services   67,495       68,566       -1.6 %  
Intersegment eliminations   (2,911 )     (1,092 )     NM    
Total $ 582,397     $ 571,891       1.8 %  
             
Depreciation:            
Unified Communications Services $ 17,293     $ 17,344       -0.3 %  
Safety Services   4,495       4,499       -0.1 %  
Interactive Services   4,023       3,397       18.4 %  
Specialized Agent Services   2,846       1,852       53.7 %  
Total $ 28,657     $ 27,092       5.8 %  
             
Amortization:            
Unified Communications Services - SG&A $ 3,378     $ 3,282       2.9 %  
Safety Services - SG&A   3,572       4,501       -20.6 %  
Safety Services - COS   3,379       3,209       5.3 %  
Interactive Services - SG&A   5,327       3,885       37.1 %  
Specialized Agent Services - SG&A   4,594       4,773       -3.8 %  
Deferred financing costs   39,144       5,007       681.8 %  
Total $ 59,394     $ 24,657       140.9 %  
             
Share-based compensation:            
Unified Communications Services $ 3,493     $ 3,434       1.7 %  
Safety Services   993       957       3.8 %  
Interactive Services   620       602       3.0 %  
Specialized Agent Services   1,069       989       8.1 %  
Total $ 6,175     $ 5,982       3.2 %  
             
Cost of services:            
Unified Communications Services $ 173,651     $ 173,127       0.3 %  
Safety Services   26,689       26,678       0.0 %  
Interactive Services   16,918       13,569       24.7 %  
Specialized Agent Services   33,760       32,462       4.0 %  
Intersegment eliminations   (1,592 )     (570 )     NM    
Total $ 249,426     $ 245,266       1.7 %  
             
Selling, general and administrative expenses:            
Unified Communications Services $ 107,745     $ 102,566       5.0 %  
Safety Services   35,863       36,206       -0.9 %  
Interactive Services   50,356       43,429       16.0 %  
Specialized Agent Services   30,829       27,112       13.7 %  
Corporate Other   (13,604 )     1,401       NM    
Intersegment eliminations   (1,319 )     (522 )     152.7 %  
Total $ 209,870     $ 210,192       -0.2 %  
             
Operating income:            
Unified Communications Services $ 88,762     $ 98,958       -10.3 %  
Safety Services   11,871       3,254       264.8 %  
Interactive Services   5,958       6,630       -10.1 %  
Specialized Agent Services   2,906       8,992       -67.7 %  
Corporate Other   13,604       (1,401 )     NM    
Total $ 123,101     $ 116,433       5.7 %  
             
Operating margin:            
Unified Communications Services   24.0 %     26.4 %      
Safety Services   16.0 %     4.9 %      
Interactive Services   8.1 %     10.4 %      
Specialized Agent Services   4.3 %     13.1 %      
Total   21.1 %     20.4 %      
             
             
             
SELECTED FINANCIAL DATA:            
             
        Contribution        
Changes in Revenue - 2Q16 compared to 2Q15:       to Rev. Growth        
Revenue for the three months ended June 30, 2015 $ 571,891            
Revenue from acquired entities 3   7,067       1.2 %      
Revenue from previously disclosed lost client   (16,000 )     -2.8 %      
Estimated impact of foreign currency exchange rates   (2,446 )     -0.4 %      
Adjusted organic growth, net 5   21,885       3.8 %      
Revenue for the three months ended June 30, 2016 $ 582,397       1.8 %      
             

 
  WEST CORPORATION    
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
(Unaudited, in thousands except per share data)  
             
    Six Months Ended June 30,    
      2016           2015       % Change  
Revenue $ 1,153,176     $ 1,137,381       1.4 %  
Cost of services   490,438       484,967       1.1 %  
Selling, general and administrative expenses   430,713       425,288       1.3 %  
Operating income   232,025       227,126       2.2 %  
Interest expense, net   76,195       77,275       -1.4 %  
Accelerated amortization of deferred financing costs   35,235       -       NM    
Other expense (income), net   (174 )     (3,739 )     NM    
Income from continuing operations before tax   120,769       153,590       -21.4 %  
Income tax expense attributed to continuing operations   43,235       55,733       -22.4 %  
Income from continuing operations   77,534       97,857       -20.8 %  
Income from discontinued operations, net of income taxes   -       32,224       -    
Net income $ 77,534     $ 130,081       -40.4 %  
             
Weighted average shares outstanding:            
Basic   82,874       83,758        
Diluted   84,425       85,920        
             
Earnings per share - Basic:            
Continuing operations $ 0.94     $ 1.17       -19.7 %  
Discontinued operations   0.00       0.38       -    
Total Earnings Per Share - Basic $ 0.94     $ 1.55       -39.4 %  
             
Earnings per share - Diluted:            
Continuing operations $ 0.92     $ 1.14       -19.3 %  
Discontinued operations   0.00       0.37       -    
Total Earnings Per Share - Diluted $ 0.92     $ 1.51       -39.1 %  
             
             
             
SELECTED SEGMENT FINANCIAL DATA:            
    Six Months Ended June 30,    
      2016           2015       % Change  
Revenue:            
Unified Communications Services $ 732,871     $ 744,109       -1.5 %  
Safety Services   145,587       134,716       8.1 %  
Interactive Services   144,961       126,095       15.0 %  
Specialized Agent Services   135,873       135,644       0.2 %  
Intersegment eliminations   (6,116 )     (3,183 )     NM    
Total $ 1,153,176     $ 1,137,381       1.4 %  
             
Depreciation:            
Unified Communications Services $ 34,836     $ 34,573       0.8 %  
Safety Services   9,049       9,366       -3.4 %  
Interactive Services   7,943       6,756       17.6 %  
Specialized Agent Services   5,630       3,499       60.9 %  
Total $ 57,458     $ 54,194       6.0 %  
             
Amortization:            
Unified Communications Services - SG&A $ 6,771     $ 6,537       3.6 %  
Safety Services - SG&A   6,955       9,150       -24.0 %  
Safety Services - COS   6,648       6,502       2.2 %  
Interactive Services - SG&A   10,382       7,680       35.2 %  
Specialized Agent Services - SG&A   9,188       9,600       -4.3 %  
Deferred financing costs   44,053       10,009       340.1 %  
Total $ 83,997     $ 49,478       69.8 %  
             
Share-based compensation:            
Unified Communications Services $ 7,821     $ 6,705       16.6 %  
Safety Services   2,220       1,876       18.3 %  
Interactive Services   1,381       1,183       16.7 %  
Specialized Agent Services   2,419       1,647       46.9 %  
Total $ 13,841     $ 11,411       21.3 %  
             
Cost of services:            
Unified Communications Services $ 339,847     $ 341,442       -0.5 %  
Safety Services   54,004       53,183       1.5 %  
Interactive Services   33,070       27,231       21.4 %  
Specialized Agent Services   66,911       64,033       4.5 %  
Intersegment eliminations   (3,394 )     (922 )     NM    
Total $ 490,438     $ 484,967       1.1 %  
             
Selling, general and administrative expenses:            
Unified Communications Services $ 215,194     $ 208,831       3.0 %  
Safety Services   70,739       75,077       -5.8 %  
Interactive Services   100,125       86,660       15.5 %  
Specialized Agent Services   61,538       54,084       13.8 %  
Corporate Other   (14,161 )     2,897       NM    
Intersegment eliminations   (2,722 )     (2,261 )     20.4 %  
Total $ 430,713     $ 425,288       1.3 %  
             
Operating income:            
Unified Communications Services $ 177,830     $ 193,836       -8.3 %  
Safety Services   20,844       6,456       222.9 %  
Interactive Services   11,766       12,204       -3.6 %  
Specialized Agent Services   7,424       17,527       -57.6 %  
Corporate Other   14,161       (2,897 )     NM    
Total $ 232,025     $ 227,126       2.2 %  
             
Operating margin:            
Unified Communications Services   24.3 %     26.0 %      
Safety Services   14.3 %     4.8 %      
Interactive Services   8.1 %     9.7 %      
Specialized Agent Services   5.5 %     12.9 %      
Total   20.1 %     20.0 %      
             
             
             
SELECTED FINANCIAL DATA:            
             
        Contribution        
Changes in Revenue - 2Q16 YTD compared to 2Q15 YTD:       to Rev. Growth        
Revenue for the six months ended June 30, 2015 $ 1,137,381            
Revenue from acquired entities 3   14,403       1.3 %      
Revenue from two previously disclosed lost clients   (34,200 )     -3.0 %      
Estimated impact of foreign currency exchange rates   (6,136 )     -0.5 %      
Adjusted organic growth, net 5   41,728       3.7 %      
Revenue for the six months ended June 30, 2016 $ 1,153,176       1.4 %      
             

 
WEST CORPORATION
  CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited, in thousands)
           
    June 30,       December 31,     %
      2016           2015       Change
Assets:          
Current assets:          
Cash and cash equivalents $ 223,415     $ 182,338       22.5 %
Trust and restricted cash   17,205       19,829       -13.2 %
Accounts receivable, net   392,164       373,087       5.1 %
Income taxes receivable   -       19,332       NM  
Prepaid assets   52,279       43,093       21.3 %
Deferred expenses   54,130       65,781       -17.7 %
Other current assets   27,020       22,040       22.6 %
Assets held for sale   -       17,672       NM  
Total current assets   766,213       743,172       3.1 %
Property and Equipment:          
Property and equipment   1,096,009       1,053,678       4.0 %
Accumulated depreciation and amortization   (757,383 )     (718,834 )     5.4 %
Net property and equipment   338,626       334,844       1.1 %
Goodwill   1,920,707       1,915,690       0.3 %
Intangible assets, net   342,739       370,021       -7.4 %
Other assets   178,316       191,490       -6.9 %
Total assets $ 3,546,601     $ 3,555,217       -0.2 %
Liabilities and Stockholders' Deficit:          
Current Liabilities:          
Accounts payable $ 78,513     $ 92,935       -15.5 %
Deferred revenue   152,397       161,828       -5.8 %
Accrued expenses   227,867       219,234       3.9 %
Current maturities of long-term debt   37,918       24,375       55.6 %
Total current liabilities   496,695       498,372       -0.3 %
Long-term obligations   3,290,940       3,318,688       -0.8 %
Deferred income taxes   103,062       104,222       -1.1 %
Other long-term liabilities   178,336       186,073       -4.2 %
Total liabilities   4,069,033       4,107,355       -0.9 %
           
Stockholders' Deficit:          
Common stock   86       85       1.2 %
Additional paid-in capital   2,210,910       2,193,193       0.8 %
Retained deficit   (2,568,068 )     (2,607,415 )     -1.5 %
Accumulated other comprehensive loss   (78,134 )     (72,736 )     7.4 %
Treasury stock at cost   (87,226 )     (65,265 )     33.6 %
Total stockholders' deficit   (522,432 )     (552,138 )     -5.4 %
           
Total liabilities and stockholders' deficit $ 3,546,601     $ 3,555,217       -0.2 %
           

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income ReconciliationAdjusted operating income is not a measure of financial performance under generally accepted accounting principles ("GAAP"). The Company believes adjusted operating income provides a relevant measure of operating profitability and a useful basis for evaluating the ongoing operations of the Company. Adjusted operating income is used by the Company to assess operating income before the impact of acquisitions and acquisition-related costs and certain non-cash items. Adjusted operating income is used by the Company as a benchmark for performance and compensation by certain executives. Adjusted operating income should not be considered in isolation or as a substitute for operating income or other profitability data prepared in accordance with GAAP. Adjusted operating income, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of adjusted operating income from operating income. 
           
  Reconciliation of Adjusted Operating Income from Operating Income  
Unaudited, in thousands            
    Three Months Ended June 30,  
Consolidated:   2016       2015     % Change
Operating income $   123,101     $   116,433       5.7 %
Amortization of acquired intangible assets     16,871         16,441       2.6 %
Share-based compensation     6,175         5,982       3.2 %
Secondary equity offering expense     -          334       NM  
Gain on sale of real estate     (12,848 )       -        NM  
M&A and acquisition-related costs     1,401         802       74.7 %
Adjusted operating income $   134,700     $   139,992       -3.8 %
Adjusted operating income margin   23.1 %     24.5 %    
           
Unified Communications Services:          
Operating income $   88,762     $   98,958       -10.3 %
Amortization of acquired intangible assets     3,378         3,282       2.9 %
Share-based compensation     3,493         3,434       1.7 %
Secondary equity offering expense     -          201       NM  
M&A and acquisition-related costs     387         -           
Adjusted operating income $   96,020     $   105,875       -9.3 %
Adjusted operating income margin   25.9 %     28.3 %    
           
Safety Services:          
Operating income $   11,871     $   3,254       264.8 %
Amortization of acquired intangible assets     3,572         4,501       -20.6 %
Share-based compensation     993         957       3.8 %
Secondary equity offering expense     -          64       NM  
Adjusted operating income $   16,436     $   8,776       87.3 %
Adjusted operating income margin   22.1 %     13.3 %    
           
Interactive Services:          
Operating income $   5,958     $   6,630       -10.1 %
Amortization of acquired intangible assets     5,327         3,885       37.1 %
Share-based compensation     620         602       3.0 %
Secondary equity offering expense     -          29       NM  
M&A and acquisition-related costs     1,059         717       47.7 %
Adjusted operating income $   12,964     $   11,863       9.3 %
Adjusted operating income margin   17.7 %     18.6 %    
           
Specialized Agent Services:          
Operating income $   2,906     $   8,992       -67.7 %
Amortization of acquired intangible assets     4,594         4,773       -3.8 %
Share-based compensation     1,069         989       8.1 %
Secondary equity offering expense     -          40       NM  
Adjusted operating income $   8,569     $   14,794       -42.1 %
Adjusted operating income margin   12.7 %     21.6 %    
           
Corporate Other:          
Operating income (loss) $   13,604     $   (1,401 )    
Secondary equity offering expense     -           
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     (45 )       85      
Adjusted operating income (loss) $   711     $   (1,316 )    
           

 
           
  Reconciliation of Adjusted Operating Income from Operating Income  
Unaudited, in thousands            
    Six Months Ended June 30,  
Consolidated:   2016       2015     % Change
Operating income $   232,025     $   227,126       2.2 %
Amortization of acquired intangible assets     33,296         32,967       1.0 %
Share-based compensation     13,841         11,411       21.3 %
Secondary equity offering expense     -          1,041       NM  
Gain on sale of real estate     (12,848 )       -        NM  
M&A and acquisition-related costs     2,489         1,580       57.5 %
Adjusted operating income $   268,803     $   274,125       -1.9 %
Adjusted operating income margin   23.3 %     24.1 %    
           
Unified Communications Services:          
Operating income $   177,830     $   193,836       -8.3 %
Amortization of acquired intangible assets     6,771         6,537       3.6 %
Share-based compensation     7,821         6,705       16.6 %
Secondary equity offering expense     -          247       NM  
M&A and acquisition-related costs     878         -        NM  
Adjusted operating income $   193,300     $   207,325       -6.8 %
Adjusted operating income margin   26.4 %     27.9 %    
           
Safety Services:          
Operating income $   20,844     $   6,456       222.9 %
Amortization of acquired intangible assets     6,955         9,150       -24.0 %
Share-based compensation     2,220         1,876       18.3 %
Secondary equity offering expense     -          78       NM  
Adjusted operating income $   30,019     $   17,560       71.0 %
Adjusted operating income margin   20.6 %     13.0 %    
           
Interactive Services:          
Operating income $   11,766     $   12,204       -3.6 %
Amortization of acquired intangible assets     10,382         7,680       35.2 %
Share-based compensation     1,381         1,183       16.7 %
Secondary equity offering expense     -          35       NM  
M&A and acquisition-related costs     1,611         1,345       19.8 %
Adjusted operating income $   25,140     $   22,447       12.0 %
Adjusted operating income margin   17.3 %     17.8 %    
           
Specialized Agent Services:          
Operating income $   7,424     $   17,527       -57.6 %
Amortization of acquired intangible assets     9,188         9,600       -4.3 %
Share-based compensation     2,419         1,647       46.9 %
Secondary equity offering expense     -          50       NM  
M&A and acquisition-related costs     -          150       NM  
Adjusted operating income $   19,031     $   28,974       -34.3 %
Adjusted operating income margin   14.0 %     21.4 %    
           
Corporate Other:          
Operating income (loss) $   14,161     $   (2,897 )    
Secondary equity offering expense     -          631      
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     -          85      
Adjusted operating income (loss) $   1,313     $   (2,181 )    
           

Adjusted Net Income, Adjusted Income from Continuing Operations and Adjusted Earnings per Share ReconciliationAdjusted net income, adjusted income from continuing operations and adjusted earnings per share (EPS) are non-GAAP measures. The Company believes these measures provide a useful indication of profitability and basis for assessing the operations of the Company without the impact of bond redemption premiums, acquisitions and acquisition-related costs and certain non-cash items. Adjusted net income and adjusted income from continuing operations should not be considered in isolation or as a substitute for net income or other profitability metrics prepared in accordance with GAAP. Adjusted net income and adjusted income from continuing operations, as presented, may not be comparable to similarly titled measures of other companies. The Company utilizes these non-GAAP measures to make decisions about the use of resources, analyze performance, measure management's performance with stated objectives and compensate management relative to the achievement of such objectives. Set forth below is a reconciliation of adjusted income from continuing operations from income from continuing operations and adjusted net income from net income. 
           
  Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops  
  and Adjusted Net Income from Net Income  
Unaudited, in thousands except per share data          
CONTINUING OPERATIONS   Three Months Ended June 30,  
    2016       2015     % Change
Income from continuing operations $   32,979     $   49,223       -33.0 %
           
Amortization of acquired intangible assets     16,871         16,441      
Amortization of deferred financing costs     39,144         5,007      
Share-based compensation     6,175         5,982      
Secondary equity offering expense     -          334      
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     1,401         802      
Pre-tax total      50,743         28,566      
Income tax expense on adjustments     18,166         10,516      
Adjusted income from continuing operations $   65,556     $   67,273       -2.6 %
           
Diluted shares outstanding     84,281         85,592      
Adjusted EPS from continuing operations - diluted $   0.78     $   0.79       -1.3 %
           
           
DISCONTINUED OPERATIONS   Three Months Ended June 30,  
    2016       2015      
Income from discontinued operations $   -      $   358      
           
Amortization of acquired intangible assets     -          -       
Share-based compensation     -          -       
M&A and acquisition-related costs     -          30      
Pre-tax total      -          30      
Income tax benefit on adjustments     -          12      
Adjusted income from discontinued operations $   -      $   376      
           
Diluted shares outstanding     84,281         85,592      
Adjusted EPS from discontinued operations - diluted $   0.00     $   0.00      
           
           
CONSOLIDATED   Three Months Ended June 30,  
    2016       2015     % Change
Net income $   32,979     $   49,581       -33.5 %
           
Amortization of acquired intangible assets     16,871         16,441      
Amortization of deferred financing costs     39,144         5,007      
Share-based compensation     6,175         5,982      
Secondary equity offering expense     -          334      
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     1,401         832      
Pre-tax total      50,743         28,596      
Income tax expense on adjustments     18,166         10,528      
Adjusted net income  $   65,556     $   67,649       -3.1 %
           
Diluted shares outstanding     84,281         85,592      
Adjusted EPS - diluted $   0.78     $   0.79       -1.3 %

 
           
  Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops  
  and Adjusted Net Income from Net Income  
Unaudited, in thousands except per share data          
CONTINUING OPERATIONS   Six Months Ended June 30,  
    2016       2015     % Change
Income from continuing operations $   77,534     $   97,857       -20.8 %
           
Amortization of acquired intangible assets     33,296         32,967      
Amortization of deferred financing costs     44,053         10,009      
Share-based compensation     13,841         11,411      
Secondary equity offering expense     -          1,041      
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     2,489         1,580      
Pre-tax total      80,831         57,008      
Income tax expense on adjustments     28,937         20,688      
Adjusted income from continuing operations $   129,428     $   134,177       -3.5 %
           
Diluted shares outstanding     84,425         85,920      
Adjusted EPS from continuing operations - diluted $   1.53     $   1.56       -1.9 %
           
           
DISCONTINUED OPERATIONS   Six Months Ended June 30,  
    2016       2015      
Income from discontinued operations $   -      $   32,224      
           
Amortization of acquired intangible assets     -          41      
Share-based compensation     -          1,576      
M&A and acquisition-related costs     -          386      
Pre-tax total      -          2,003      
Income tax benefit on adjustments     -          767      
Adjusted income from discontinued operations $   -      $   33,460      
           
Diluted shares outstanding     84,425         85,920      
Adjusted EPS from discontinued operations - diluted $   0.00     $   0.39      
           
           
CONSOLIDATED   Six Months Ended June 30,  
    2016       2015     % Change
Net income $   77,534     $   130,081       -40.4 %
           
Amortization of acquired intangible assets     33,296         33,008      
Amortization of deferred financing costs     44,053         10,009      
Share-based compensation     13,841         12,987      
Secondary equity offering expense     -          1,041      
Gain on sale of real estate     (12,848 )       -       
M&A and acquisition-related costs     2,489         1,966      
Pre-tax total      80,831         59,011      
Income tax expense on adjustments     28,937         21,456      
Adjusted net income  $   129,428     $   167,636       -22.8 %
           
Diluted shares outstanding     84,425         85,920      
Adjusted EPS - diluted $   1.53     $   1.95       -21.5 %
                       

Free Cash Flow Reconciliation The Company believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities, including the financing of acquisitions, debt service, stock repurchases and distribution of earnings to shareholders. Free cash flow is calculated as cash flows from operating activities less cash capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Free cash flow should not be considered in isolation or as a substitute for cash flows from operating activities or other liquidity measures prepared in accordance with GAAP. Free cash flow, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of free cash flow from cash flows from operating activities.
                       
  Reconciliation of Free Cash Flow from Operating Cash Flow  
Unaudited, in thousands                      
CONTINUING OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015     % Change     2016       2015     % Change
Cash flows from operating activities $   137,433     $   98,128       40.1 %   $   197,485     $   156,524       26.2 %
Cash capital expenditures     37,507         28,557       31.3 %       73,864         64,864       13.9 %
Free cash flow $   99,926     $   69,571       43.6 %   $   123,621     $   91,660       34.9 %
                       
                       
DISCONTINUED OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015           2016       2015      
Cash flows from (used in) operating activities $   -      $   (1,683 )       $   -      $   (6,962 )    
Cash capital expenditures     -          -              -          1,930      
Free cash flow $   -      $   (1,683 )       $   -      $   (8,892 )    
                       
                       
CONSOLIDATED   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015     % Change     2016       2015     % Change
Cash flows from operating activities $   137,433     $   96,445       42.5 %   $   197,485     $   149,562       32.0 %
Cash capital expenditures     37,507         28,557       31.3 %       73,864         66,794       10.6 %
Free cash flow $   99,926     $   67,888       47.2 %   $   123,621     $   82,768       49.4 %
                       

EBITDA and Adjusted EBITDA Reconciliation The common definition of EBITDA is "Earnings Before Interest Expense, Taxes, Depreciation and Amortization." In evaluating liquidity and performance, the Company uses "Adjusted EBITDA." The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization, gain on assets held for sale and transaction costs. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. Although the Company uses Adjusted EBITDA as a measure of its liquidity and performance, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate the business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operating activities or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here as the Company understands investors use it as a measure of its historical ability to service debt and compliance with covenants in its senior credit facilities. Further, Adjusted EBITDA is presented here as the Company uses it to measure its performance and to conduct and evaluate its business during its regular review of operating results for the periods presented. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operating activities and net income.
               
  Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow  
Unaudited, in thousands              
CONTINUING OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $   137,433     $   98,128     $   197,485     $   156,524  
Income tax expense     18,389         28,677         43,235         55,733  
Deferred income tax expense     6,132         759         3,755         (2,202 )
Interest expense and other financing charges     73,267         38,941         112,252         78,478  
Provision for share-based compensation     (6,175 )       (5,982 )       (13,841 )       (11,411 )
Amortization of deferred financing costs     (39,144 )       (5,007 )       (44,053 )       (10,009 )
Gain on sale of real estate     12,848         -          12,848         -   
Other     (712 )       (4 )       (886 )       (220 )
Changes in operating assets and liabilities,              
  net of business acquisitions     (28,496 )       8,071         19,628         58,838  
EBITDA     173,542         163,583         330,423         325,731  
Provision for share-based compensation     6,175         5,982         13,841         11,411  
Secondary equity offering expense     -          334         -          1,041  
M&A and acquisition-related costs     1,401         802         2,489         1,580  
Gain on sale of real estate     (12,848 )       -          (12,848 )       -   
Adjusted EBITDA $   168,270     $   170,701     $   333,905     $   339,763  
               
               
Cash flows from operating activities $   137,433     $   98,128     $   197,485     $   156,524  
Cash flows used in investing activities $   (3,124 )   $   (45,318 )   $   (42,584 )   $   (83,721 )
Cash flows used in financing activities $   (42,301 )   $   (56,260 )   $   (112,546 )   $   (290,742 )
               
               
DISCONTINUED OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $   -      $   (1,683 )   $   -      $   (6,962 )
Income tax expense     -          193         -          20,010  
Deferred income tax expense     -          2,041         -          (2,293 )
Provision for share-based compensation     -          -          -          (1,576 )
Other     -          -          -          29,596  
Changes in operating assets and liabilities,              
  net of business acquisitions     -          -          -          13,500  
EBITDA     -          551         -          52,275  
Provision for share-based compensation     -          -          -          1,576  
M&A and acquisition-related costs     -          30         -          386  
Gain on sale of business     -          -          -          (48,556 )
Adjusted EBITDA $   -      $   581     $   -      $   5,681  
               
               
Cash flows used in operating activities $   -      $   (1,683 )   $   -      $   (6,962 )
Cash flows from investing activities $   -      $   5,734     $   -      $   269,540  
Cash flows used in financing activities $   -      $   -      $   -      $   -   
               
  Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.  
CONSOLIDATED   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $   137,433     $   96,445     $   197,485     $   149,562  
Income tax expense     18,389         28,870         43,235         75,743  
Deferred income tax expense     6,132         2,800         3,755         (4,495 )
Interest expense and other financing charges     73,267         38,941         112,252         78,478  
Provision for share-based compensation     (6,175 )       (5,982 )       (13,841 )       (12,987 )
Amortization of deferred financing costs     (39,144 )       (5,007 )       (44,053 )       (10,009 )
Gain on sale of real estate     12,848         -          12,848         -   
Other     (712 )       (4 )       (886 )       29,376  
Changes in operating assets and liabilities,              
  net of business acquisitions     (28,496 )       8,071         19,628         72,338  
EBITDA     173,542         164,134         330,423         378,006  
Provision for share-based compensation     6,175         5,982         13,841         12,987  
Secondary equity offering expense     -          334         -          1,041  
M&A and acquisition-related costs     1,401         832         2,489         1,966  
Gain on sale of business     -          -          -          (48,556 )
Gain on sale of real estate     (12,848 )       -          (12,848 )       -   
Adjusted EBITDA $   168,270     $   171,282     $   333,905     $   345,444  
               
CONSOLIDATED              
Cash flows from operating activities $   137,433     $   96,445     $   197,485     $   149,562  
Cash flows from (used in) investing activities $   (3,124 )   $   (39,584 )   $   (42,584 )   $   185,819  
Cash flows used in financing activities $   (42,301 )   $   (56,260 )   $   (112,546 )   $   (290,742 )
               

 
               
  Reconciliation of EBITDA and Adjusted EBITDA from Net Income  
Unaudited, in thousands                
CONTINUING OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Income from continuing operations $   32,979     $   49,223     $   77,534     $   97,857  
Interest expense and other financing charges     73,267         38,941         112,252         78,478  
Depreciation and amortization     48,907         46,742         97,402         93,663  
Income tax expense     18,389         28,677         43,235         55,733  
EBITDA     173,542         163,583         330,423         325,731  
Provision for share-based compensation     6,175         5,982         13,841         11,411  
Secondary equity offering expense     -          334         -          1,041  
M&A and acquisition-related costs     1,401         802         2,489         1,580  
Gain on sale of real estate     (12,848 )       -          (12,848 )       -   
Adjusted EBITDA $   168,270     $   170,701     $   333,905     $   339,763  
               
               
DISCONTINUED OPERATIONS   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Income from discontinued operations $   -      $   358     $   -      $   32,224  
Depreciation and amortization     -          -          -          41  
Income tax expense     -          193         -          20,010  
EBITDA     -          551         -          52,275  
Provision for share-based compensation     -          -          -          1,576  
M&A and acquisition-related costs     -          30         -          386  
Gain on sale of business     -          -          -          (48,556 )
Adjusted EBITDA $   -      $   581     $   -      $   5,681  
               
               
CONSOLIDATED   Three Months Ended June 30,       Six Months Ended June 30,  
    2016       2015       2016       2015  
Net income $   32,979     $   49,581     $   77,534     $   130,081  
Interest expense and other financing charges     73,267         38,941         112,252         78,478  
Depreciation and amortization     48,907         46,742         97,402         93,704  
Income tax expense     18,389         28,870         43,235         75,743  
EBITDA     173,542         164,134         330,423         378,006  
Provision for share-based compensation     6,175         5,982         13,841         12,987  
Secondary equity offering expense     -          334         -          1,041  
M&A and acquisition-related costs     1,401         832         2,489         1,966  
Gain on sale of business     -          -          -          (48,556 )
Gain on sale of real estate     (12,848 )       -          (12,848 )       -   
Adjusted EBITDA $   168,270     $   171,282     $   333,905     $   345,444  
               

1 See Reconciliation of Non-GAAP Financial Measures below.  2 Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.  3 Revenue growth attributable to acquired entities includes SharpSchool, Magnetic North, ClientTell and Synrevoice.   4 Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.  5 Adjusted organic revenue growth is provided on the Selected Financial Data tables and excludes revenue from acquired entities, revenue from previously disclosed lost clients and the estimated impact of foreign currency exchange rates. The Company believes adjusted organic revenue growth provides a useful measure of growth in the Company's ongoing business.NM: Not Meaningful
AT THE COMPANY:       Dave PleissInvestor RelationsWest Corporation(402) 963-1500DMPleiss@west.com

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