West Corporation Reports Third Quarter 2016 Results

OMAHA, Neb., Nov. 01, 2016 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a global provider of communication and network infrastructure services, today announced its third quarter 2016 results.
 Select Financial Information                      
Unaudited, in millions except per share amounts   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015     % Change     2016       2015     % Change
Revenue $ 571.4     $ 574.4       -0.5 %   $ 1,724.6     $ 1,711.8       0.7 %
Operating Income   109.5       124.4       -11.9 %     341.5       351.5       -2.8 %
Income from Continuing Operations   47.5       50.7       -6.3 %     125.1       148.6       -15.8 %
Earnings per Share from Continuing Operations - Diluted   0.56       0.60       -6.7 %     1.48       1.74       -14.9 %
Cash Flows from Continuing Operating Activities   104.1       126.7       -17.8 %     301.6       283.2       6.5 %
Cash Flows used in Continuing Investing Activities   (24.5 )     (30.1 )     -18.6 %     (67.1 )     (113.8 )     -41.1 %
Cash Flows used in Continuing Financing Activities   (111.0 )     (74.0 )     49.9 %     (223.5 )     (364.8 )     -38.7 %
                       
                       
Select Non-GAAP Financial Information 1                      
Unaudited, in millions except per share amounts   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015     % Change     2016       2015     % Change
EBITDA from Continuing Operations $ 158.5     $ 165.5       -4.3 %   $ 488.9     $ 491.3       -0.5 %
Adjusted EBITDA from Continuing Operations   165.3       171.3       -3.5 %     499.2       511.1       -2.3 %
Adjusted Operating Income   133.3       146.6       -9.1 %     402.1       420.8       -4.4 %
Adjusted Income from Continuing Operations   64.3       68.1       -5.6 %     193.7       202.3       -4.2 %
Adjusted Earnings per Share from Continuing Operations - Diluted   0.76       0.80       -5.0 %     2.29       2.36       -3.0 %
Free Cash Flow from Continuing Operating Activities 2   78.7       95.4       -17.5 %     202.3       187.0       8.2 %
                       

"Our non-conferencing businesses grew 5.3 percent, with particularly strong results in our UCaaS, healthcare advocacy and interactive services businesses," said Tom Barker, chairman and chief executive officer. "Conferencing revenue declined in the third quarter driving our consolidated revenue down 0.5 percent. Our adjusted organic revenue growth was 1 percent. We expect to finish the year with revenue and adjusted earnings per share within our original guidance ranges, albeit the low end, despite the decrease in conferencing revenue."

DividendThe Company today also announced a $0.225 per common share dividend. The dividend is payable on November 23, 2016 to shareholders of record as of the close of business on November 14, 2016.

Operating ResultsFor the third quarter of 2016, revenue was $571.4 million compared to $574.4 million for the same quarter of the previous year, a decrease of 0.5 percent. Revenue from acquired entities was $6.5 million during the third quarter of 2016. The Company had strong growth in its Unified Communications as a Services ("UCaaS"), healthcare advocacy and Interactive Services businesses. The Company's revenue was negatively impacted by $5.3 million from foreign currency exchange rate fluctuations and by $10.3 million from a lost Telecom Services client previously disclosed in 2015. Adjusted organic growth 5 for the third quarter was 1.0 percent. Details of the Company's revenue growth are presented in the selected financial data table below.

The Unified Communications Services segment had revenue of $352.4 million in the third quarter of 2016, a 3.7 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $10.3 million from the previously disclosed lost Telecom Services client, $5.3 million from the impact of foreign currency exchange rates and a decline in conferencing revenue, partially offset by growth in the UCaaS business and $2.1 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth 5 for the Unified Communications Services segment was flat for the third quarter of 2016.

During the third quarter, the Company had lower than expected revenue from its automated conferencing business, with July being the weakest month of the quarter. Conferencing clients also used fewer operator assisted calls and add-on services such as call recording and transcription in the third quarter.

Revenue in the Company's UCaaS line of business was up over 25 percent on an organic basis in the third quarter compared to the same quarter last year. This growth was partially due to higher than expected equipment sales during the quarter.

The Safety Services segment had revenue of $75.1 million in the third quarter of 2016, an increase of 1.7 percent from the third quarter of 2015. The increase in revenue was primarily due to clients adopting new technologies, partially offset by price compression and lower equipment sales compared to the same quarter last year.

The Interactive Services segment had revenue of $76.4 million in the third quarter of 2016, 12.0 percent higher than the same quarter last year. This increase included $4.4 million from the acquisitions of ClientTell and Synrevoice. Adjusted organic revenue 5 growth for the Interactive Services segment was 5.5 percent for the third quarter of 2016. Organic revenue growth was primarily due to new clients and increased volumes from existing clients.

The Specialized Agent Services segment had revenue of $70.3 million in the third quarter of 2016, an increase of 3.0 percent compared to the same quarter of the previous year. The increase in revenue was primarily due to double-digit revenue growth in the healthcare advocacy business, partially offset by slower than historical recoveries in the cost management services business.

Operating income was $109.5 million in the third quarter of 2016 compared to $124.4 million in the third quarter of 2015, a decrease of 11.9 percent. This decrease was primarily due to a decline in minute growth as well as price compression in the conferencing and collaboration business, an increase in SG&A expenses related to acquisitions and higher labor-related costs, partially offset by cost savings initiatives. Adjusted operating income 1 was $133.3 million in the third quarter of 2016 compared to $146.6 million in the third quarter of 2015. Adjusted operating income as a percentage of revenue was 23.3 percent in the third quarter of 2016 compared to 25.5 percent in the same quarter of 2015.

Income from continuing operations decreased 6.3 percent to $47.5 million in the third quarter of 2016 compared to $50.7 million in the same quarter of 2015. Adjusted income from continuing operations 1 was $64.3 million in the third quarter of 2016, a decrease of 5.6 percent from the same quarter of 2015.

EBITDA 1 was $158.5 million in the third quarter of 2016 compared to $165.5 million in the third quarter of 2015. Adjusted EBITDA 1 for the third quarter of 2016 was $165.3 million compared to $171.3 million for the third quarter of 2015, a decrease of 3.5 percent. Adjusted EBITDA margin was 29 percent for the third quarter of 2016, compared to 30 percent for the third quarter of 2015.

Balance Sheet, Cash Flow and LiquidityAt September 30, 2016, West Corporation had cash and cash equivalents totaling $191.3 million and working capital of $228.5 million. Interest expense and other financing charges were $38.2 million during the third quarter of 2016 compared to $38.6 million during the comparable period of the prior year.

"During the third quarter, we repaid $91.3 million of debt, bringing the total for the year to $123.2 million, consistent with our guidance at the beginning of the year. This drove our debt covenant leverage ratio down to the lowest level since our IPO," said Jan Madsen, chief financial officer.

The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities 4, was 4.46x at September 30, 2016, down from 4.68x at December 31, 2015.

Cash flows from operations were $104.1 million for the third quarter of 2016 compared to $126.7 million in the same period of 2015, a decrease of 17.8 percent. Free cash flow 1,2 decreased 17.5 percent to $78.7 million in the third quarter of 2016 compared to $95.4 million in the third quarter of 2015. This decrease was primarily from timing differences in cash interest and working capital variances, partially offset by lower cash taxes.

During the third quarter of 2016, the Company invested $25.4 million, or 4.5 percent of revenue, in capital expenditures. 

Exploration of Financial and Strategic AlternativesWest also announced today the commencement of a process to explore the Company's range of financial and strategic alternatives, including, but not limited to, the sale or separation of one or more of its operating businesses, or a sale of the Company. West has retained Centerview Partners LLC as its financial advisor and Sidley Austin LLP as its legal advisor in connection with the analysis.

Mr. Barker added: "We are excited about our portfolio of industry-leading assets, both individually and as a component of our overall strategy. At the same time, as part of our ongoing evaluation of our portfolio of assets, we have decided to engage advisors to help us evaluate possible alternatives and strategies to maximize long-term shareholder value."

No decision has been made to enter into any transaction. There can be no assurance that this exploration will result in any transaction being announced or consummated or, if a transaction does occur, the terms or timing thereof. The Company does not intend to discuss or disclose further developments during this process unless and until the Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.

Conference CallThe Company will hold a conference call to discuss these topics on Wednesday, November 2, 2016 at 8:00 AM Eastern Time (7:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company's website at www.west.com.

About West CorporationWest Corporation (Nasdaq:WSTC) is a global provider of communication and network infrastructure services. West helps its clients more effectively communicate, collaborate and connect with their audiences through a diverse portfolio of solutions that include unified communications services, safety services, interactive services such as automated notifications, telecom services and specialized agent services.

For 30 years, West has provided reliable, high-quality voice and data services. West has sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific and Latin America. For more information, please call 1-800-841-9000 or visit www.west.com.

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

These forward-looking statements speak only as of the date on which the statements were made. West undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
   
  WEST CORPORATION    
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
(Unaudited, in thousands except per share data)  
             
    Three Months Ended Sept. 30,    
      2016           2015       % Change  
Revenue $ 571,407     $ 574,448       -0.5 %  
Cost of services   247,817       246,337       0.6 %  
Selling, general and administrative expenses   214,091       203,757       5.1 %  
Operating income   109,499       124,354       -11.9 %  
Interest expense, net   36,794       38,382       -4.1 %  
Accelerated amortization of deferred financing costs   1,234       -       NM    
Other expense (income), net   (445 )     6,322       NM    
Income from continuing operations before tax   71,916       79,650       -9.7 %  
Income tax expense attributed to continuing operations   24,381       28,931       -15.7 %  
Income from continuing operations   47,535       50,719       -6.3 %  
Income from discontinued operations, net of income taxes   -       (1,235 )     NM    
Net income $ 47,535     $ 49,484       -3.9 %  
             
Weighted average shares outstanding:            
Basic   82,870       82,931        
Diluted   84,607       84,834        
             
Earnings (loss) per share - Basic:            
Continuing operations $ 0.57     $ 0.61       -6.6 %  
Discontinued operations   -       (0.01 )     NM    
Total Earnings Per Share - Basic $ 0.57     $ 0.60       -5.0 %  
             
Earnings (loss) per share - Diluted:            
Continuing operations $ 0.56     $ 0.60       -6.7 %  
Discontinued operations   -       (0.01 )     NM    
Total Earnings Per Share - Diluted* $ 0.56     $ 0.58       -3.4 %  
             
*Does not foot due to rounding            
             
SELECTED SEGMENT FINANCIAL DATA:            
    Three Months Ended Sept. 30,    
      2016           2015       % Change  
Revenue:            
Unified Communications Services $ 352,377     $ 365,822       -3.7 %  
Safety Services   75,061       73,812       1.7 %  
Interactive Services   76,439       68,237       12.0 %  
Specialized Agent Services   70,255       68,196       3.0 %  
Intersegment eliminations   (2,725 )     (1,619 )     NM    
Total $ 571,407     $ 574,448       -0.5 %  
             
Depreciation:            
Unified Communications Services $ 17,407     $ 17,477       -0.4 %  
Safety Services   4,008       4,448       -9.9 %  
Interactive Services   4,087       3,652       11.9 %  
Specialized Agent Services   3,009       2,160       39.3 %  
Total $ 28,511     $ 27,737       2.8 %  
             
Amortization:            
Unified Communications Services - SG&A $ 3,319     $ 3,257       1.9 %  
Safety Services - SG&A   3,559       4,468       -20.3 %  
Safety Services - COS   3,035       3,002       1.1 %  
Interactive Services - SG&A   5,317       4,018       32.3 %  
Specialized Agent Services - SG&A   4,594       4,770       -3.7 %  
Deferred financing costs   2,455       5,008       -51.0 %  
Total $ 22,279     $ 24,523       -9.2 %  
             
Share-based compensation:            
Unified Communications Services $ 3,435     $ 3,006       14.3 %  
Safety Services   976       854       14.3 %  
Interactive Services   614       538       14.1 %  
Specialized Agent Services   1,063       976       8.9 %  
Total $ 6,088     $ 5,374       13.3 %  
             
Cost of services:            
Unified Communications Services $ 171,168     $ 168,737       1.4 %  
Safety Services   24,921       28,118       -11.4 %  
Interactive Services   16,838       15,968       5.4 %  
Specialized Agent Services   36,366       34,239       6.2 %  
Intersegment eliminations   (1,476 )     (725 )     NM    
Total $ 247,817     $ 246,337       0.6 %  
             
Selling, general and administrative expenses:            
Unified Communications Services $ 101,803     $ 101,253       0.5 %  
Safety Services   32,992       35,446       -6.9 %  
Interactive Services   49,804       46,049       8.2 %  
Specialized Agent Services   29,517       27,215       8.5 %  
Corporate Other   1,224       (5,312 )     NM    
Intersegment eliminations   (1,249 )     (894 )     NM    
Total $ 214,091     $ 203,757       5.1 %  
             
Operating income:            
Unified Communications Services $ 79,406     $ 95,832       -17.1 %  
Safety Services   17,148       10,248       67.3 %  
Interactive Services   9,797       6,220       57.5 %  
Specialized Agent Services   4,372       6,742       -35.2 %  
Corporate Other   (1,224 )     5,312       NM    
Total $ 109,499     $ 124,354       -11.9 %  
             
Operating margin:            
Unified Communications Services   22.5 %     26.2 %      
Safety Services   22.8 %     13.9 %      
Interactive Services   12.8 %     9.1 %      
Specialized Agent Services   6.2 %     9.9 %      
Total   19.2 %     21.6 %      
             
SELECTED FINANCIAL DATA:            
             
        Contribution        
Changes in Revenue - 3Q16 compared to 3Q15:       to Rev. Growth        
Revenue for the three months ended Sept. 30, 2015 $ 574,448            
Revenue from acquired entities 3   6,547       1.1 %      
Revenue from previously disclosed lost client   (10,300 )     -1.8 %      
Estimated impact of foreign currency exchange rates   (5,290 )     -0.9 %      
Adjusted organic growth, net 5   6,002       1.0 %      
Revenue for the three months ended Sept. 30, 2016 $ 571,407       -0.5 %      
             

  WEST CORPORATION    
  CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
(Unaudited, in thousands except per share data)  
             
    Nine Months Ended Sept. 30,    
      2016           2015       % Change  
Revenue $ 1,724,583     $ 1,711,829       0.7 %  
Cost of services   738,255       731,304       1.0 %  
Selling, general and administrative expenses   644,804       629,045       2.5 %  
Operating income   341,524       351,480       -2.8 %  
Interest expense, net   112,989       115,657       -2.3 %  
Accelerated amortization of deferred financing costs   36,469       -       NM    
Other expense (income), net   (619 )     2,583       NM    
Income from continuing operations before tax   192,685       233,240       -17.4 %  
Income tax expense attributed to continuing operations   67,616       84,664       -20.1 %  
Income from continuing operations   125,069       148,576       -15.8 %  
Income from discontinued operations, net of income taxes   -       30,989       NM    
Net income $ 125,069     $ 179,565       -30.3 %  
             
Weighted average shares outstanding:            
Basic   82,873       83,479        
Diluted   84,486       85,554        
             
Earnings per share - Basic:            
Continuing operations $ 1.51     $ 1.78       -15.2 %  
Discontinued operations   -       0.37       NM    
Total Earnings Per Share - Basic $ 1.51     $ 2.15       -29.8 %  
             
Earnings per share - Diluted:            
Continuing operations $ 1.48     $ 1.74       -14.9 %  
Discontinued operations   -       0.36       NM    
Total Earnings Per Share - Diluted $ 1.48     $ 2.10       -29.5 %  
             
             
SELECTED SEGMENT FINANCIAL DATA:            
    Nine Months Ended Sept. 30,    
      2016           2015       % Change  
Revenue:            
Unified Communications Services $ 1,085,248     $ 1,109,931       -2.2 %  
Safety Services   220,648       208,528       5.8 %  
Interactive Services   221,400       194,332       13.9 %  
Specialized Agent Services   206,128       203,840       1.1 %  
Intersegment eliminations   (8,841 )     (4,802 )     NM    
Total $ 1,724,583     $ 1,711,829       0.7 %  
             
Depreciation:            
Unified Communications Services $ 52,243     $ 52,050       0.4 %  
Safety Services   13,057       13,814       -5.5 %  
Interactive Services   12,030       10,408       15.6 %  
Specialized Agent Services   8,639       5,659       52.7 %  
Total $ 85,969     $ 81,931       4.9 %  
             
Amortization:            
Unified Communications Services - SG&A $ 10,090     $ 9,794       3.0 %  
Safety Services - SG&A   10,514       13,618       -22.8 %  
Safety Services - COS   9,683       9,504       1.9 %  
Interactive Services - SG&A   15,699       11,698       34.2 %  
Specialized Agent Services - SG&A   13,782       14,370       -4.1 %  
Deferred financing costs   46,508       15,017       209.7 %  
Total $ 106,276     $ 74,001       43.6 %  
             
Share-based compensation:            
Unified Communications Services $ 11,256     $ 9,711       15.9 %  
Safety Services   3,196       2,730       17.1 %  
Interactive Services   1,995       1,721       15.9 %  
Specialized Agent Services   3,482       2,623       32.7 %  
Total $ 19,929     $ 16,785       18.7 %  
             
Cost of services:            
Unified Communications Services $ 511,015     $ 510,179       0.2 %  
Safety Services   78,925       81,301       -2.9 %  
Interactive Services   49,908       43,199       15.5 %  
Specialized Agent Services   103,277       98,272       5.1 %  
Intersegment eliminations   (4,870 )     (1,647 )     NM    
Total $ 738,255     $ 731,304       1.0 %  
             
Selling, general and administrative expenses:            
Unified Communications Services $ 316,997     $ 310,084       2.2 %  
Safety Services   103,731       110,523       -6.1 %  
Interactive Services   149,929       132,709       13.0 %  
Specialized Agent Services   91,055       81,299       12.0 %  
Corporate Other   (12,937 )     (2,415 )     NM    
Intersegment eliminations   (3,971 )     (3,155 )     NM    
Total $ 644,804     $ 629,045       2.5 %  
             
Operating income:            
Unified Communications Services $ 257,236     $ 289,668       -11.2 %  
Safety Services   37,992       16,704       127.4 %  
Interactive Services   21,563       18,424       17.0 %  
Specialized Agent Services   11,796       24,269       -51.4 %  
Corporate Other   12,937       2,415       NM    
Total $ 341,524     $ 351,480       -2.8 %  
             
Operating margin:            
Unified Communications Services   23.7 %     26.1 %      
Safety Services   17.2 %     8.0 %      
Interactive Services   9.7 %     9.5 %      
Specialized Agent Services   5.7 %     11.9 %      
Total   19.8 %     20.5 %      
             
             
SELECTED FINANCIAL DATA:            
             
        Contribution        
Changes in Revenue - 3Q16 YTD compared to 3Q15 YTD:       to Rev. Growth        
Revenue for the nine months ended Sept. 30, 2015 $ 1,711,829            
Revenue from acquired entities 3   20,950       1.2 %      
Revenue from two previously disclosed lost clients   (44,500 )     -2.6 %      
Estimated impact of foreign currency exchange rates   (11,426 )     -0.7 %      
Adjusted organic growth, net 5   47,730       2.8 %      
Revenue for the nine months ended Sept. 30, 2016 $ 1,724,583       0.7 %      
             

 
WEST CORPORATION
  CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited, in thousands)
           
    September 30,       December 31,     %
      2016           2015       Change
Assets:          
Current assets:          
Cash and cash equivalents $ 191,317     $ 182,338       4.9 %
Trust and restricted cash   16,398       19,829       -17.3 %
Accounts receivable, net   388,165       373,087       4.0 %
Income taxes receivable   -       19,332       NM  
Prepaid assets   45,976       43,093       6.7 %
Deferred expenses   49,515       65,781       -24.7 %
Other current assets   29,800       22,040       35.2 %
Assets held for sale   -       17,672       NM  
Total current assets   721,171       743,172       -3.0 %
Property and Equipment:          
Property and equipment   1,114,214       1,053,678       5.7 %
Accumulated depreciation and amortization   (780,039 )     (718,834 )     8.5 %
Net property and equipment   334,175       334,844       -0.2 %
Goodwill   1,920,742       1,915,690       0.3 %
Intangible assets, net   325,262       370,021       -12.1 %
Other assets   175,990       191,490       -8.1 %
Total assets $ 3,477,340     $ 3,555,217       -2.2 %
Liabilities and Stockholders' Deficit:          
Current Liabilities:          
Accounts payable $ 71,682     $ 92,935       -22.9 %
Deferred revenue   165,147       161,828       2.1 %
Accrued expenses   220,202       219,234       0.4 %
Current maturities of long-term debt   35,675       24,375       46.4 %
Total current liabilities   492,706       498,372       -1.1 %
Long-term obligations   3,203,575       3,318,688       -3.5 %
Deferred income taxes   97,335       104,222       -6.6 %
Other long-term liabilities   174,675       186,073       -6.1 %
Total liabilities   3,968,291       4,107,355       -3.4 %
           
Stockholders' Deficit:          
Common stock   86       85       1.2 %
Additional paid-in capital   2,215,695       2,193,193       1.0 %
Retained deficit   (2,539,651 )     (2,607,415 )     -2.6 %
Accumulated other comprehensive loss   (79,855 )     (72,736 )     9.8 %
Treasury stock at cost   (87,226 )     (65,265 )     33.6 %
Total stockholders' deficit   (490,951 )     (552,138 )     -11.1 %
           
Total liabilities and stockholders' deficit $ 3,477,340     $ 3,555,217       -2.2 %
           

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income 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 Sept. 30,  
Consolidated:   2016       2015     % Change
Operating income $ 109,499     $ 124,354       -11.9 %
Amortization of acquired intangible assets   16,789       16,513       1.7 %
Share-based compensation   6,088       5,374       13.3 %
Gain on sale of real estate   (115 )     -       NM  
M&A and acquisition-related costs   997       397       151.1 %
Adjusted operating income $ 133,258     $ 146,638       -9.1 %
Adjusted operating income margin   23.3 %     25.5 %    
           
Unified Communications Services:          
Operating income $ 79,406     $ 95,832       -17.1 %
Amortization of acquired intangible assets   3,319       3,257       1.9 %
Share-based compensation   3,435       3,006       14.3 %
M&A and acquisition-related costs   434       2       NM  
Adjusted operating income $ 86,594     $ 102,097       -15.2 %
Adjusted operating income margin   24.6 %     27.9 %    
           
Safety Services:          
Operating income $ 17,148     $ 10,248       67.3 %
Amortization of acquired intangible assets   3,559       4,468       -20.3 %
Share-based compensation   976       854       14.3 %
Adjusted operating income $ 21,683     $ 15,570       39.3 %
Adjusted operating income margin   28.9 %     21.1 %    
           
Interactive Services:          
Operating income $ 9,797     $ 6,220       57.5 %
Amortization of acquired intangible assets   5,317       4,018       32.3 %
Share-based compensation   614       538       14.1 %
M&A and acquisition-related costs   563       396       42.2 %
Adjusted operating income $ 16,291     $ 11,172       45.8 %
Adjusted operating income margin   21.3 %     16.4 %    
           
Specialized Agent Services:          
Operating income $ 4,372     $ 6,742       -35.2 %
Amortization of acquired intangible assets   4,594       4,770       -3.7 %
Share-based compensation   1,063       976       8.9 %
Adjusted operating income $ 10,029     $ 12,488       -19.7 %
Adjusted operating income margin   14.3 %     18.3 %    
           
Corporate Other:          
Operating income (loss) $ (1,224 )   $ 5,312      
Gain on sale of real estate   (115 )     -      
M&A and acquisition-related costs   -       (1 )    
Adjusted operating income (loss) $ (1,339 )   $ 5,311      

           
  Reconciliation of Adjusted Operating Income from Operating Income  
Unaudited, in thousands            
    Nine Months Ended Sept. 30,  
Consolidated:   2016       2015     % Change
Operating income $ 341,524     $ 351,480       -2.8 %
Amortization of acquired intangible assets   50,085       49,480       1.2 %
Share-based compensation   19,929       16,785       18.7 %
Secondary equity offering expense   -       1,041       NM  
Gain on sale of real estate   (12,963 )     -       NM  
M&A and acquisition-related costs   3,486       1,977       76.3 %
Adjusted operating income $ 402,061     $ 420,763       -4.4 %
Adjusted operating income margin   23.3 %     24.6 %    
           
Unified Communications Services:          
Operating income $ 257,236     $ 289,668       -11.2 %
Amortization of acquired intangible assets   10,090       9,794       3.0 %
Share-based compensation   11,256       9,711       15.9 %
Secondary equity offering expense   -       247       NM  
M&A and acquisition-related costs   1,312       2       NM  
Adjusted operating income $ 279,894     $ 309,422       -9.5 %
Adjusted operating income margin   25.8 %     27.9 %    
           
Safety Services:          
Operating income $ 37,992     $ 16,704       127.4 %
Amortization of acquired intangible assets   10,514       13,618       -22.8 %
Share-based compensation   3,196       2,730       17.1 %
Secondary equity offering expense   -       78       NM  
Adjusted operating income $ 51,702     $ 33,130       56.1 %
Adjusted operating income margin   23.4 %     15.9 %    
           
Interactive Services:          
Operating income $ 21,563     $ 18,424       17.0 %
Amortization of acquired intangible assets   15,699       11,698       34.2 %
Share-based compensation   1,995       1,721       15.9 %
Secondary equity offering expense   -       35       NM  
M&A and acquisition-related costs   2,174       1,741       24.9 %
Adjusted operating income $ 41,431     $ 33,619       23.2 %
Adjusted operating income margin   18.7 %     17.3 %    
           
Specialized Agent Services:          
Operating income $ 11,796     $ 24,269       -51.4 %
Amortization of acquired intangible assets   13,782       14,370       -4.1 %
Share-based compensation   3,482       2,623       32.7 %
Secondary equity offering expense   -       50       NM  
M&A and acquisition-related costs   -       150       NM  
Adjusted operating income $ 29,060     $ 41,462       -29.9 %
Adjusted operating income margin   14.1 %     20.3 %    
           
Corporate Other:          
Operating income $ 12,937     $ 2,415      
Secondary equity offering expense   -       631      
Gain on sale of real estate   (12,963 )     -      
M&A and acquisition-related costs   -       84      
Adjusted operating income (loss) $ (26 )   $ 3,130      
           

Adjusted Net Income, Adjusted Income from Continuing Operations and Adjusted Earnings per Share 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 Sept. 30,  
    2016       2015     % Change
Income from continuing operations $ 47,535     $ 50,719       -6.3 %
           
Amortization of acquired intangible assets   16,789       16,513      
Amortization of deferred financing costs   2,455       5,008      
Share-based compensation   6,088       5,374      
Gain on sale of real estate   (115 )     -      
M&A and acquisition-related costs   881       397      
Pre-tax total   26,098       27,292      
Income tax expense on adjustments   9,343       9,912      
Adjusted income from continuing operations $ 64,290     $ 68,099       -5.6 %
           
Diluted shares outstanding   84,607       84,834      
Adjusted EPS from continuing operations - diluted $ 0.76     $ 0.80       -5.0 %
           
           
DISCONTINUED OPERATIONS   Three Months Ended Sept. 30,  
    2016       2015      
Income from discontinued operations $ -     $ (1,235 )    
           
Adjusted income from discontinued operations $ -     $ (1,235 )    
           
Diluted shares outstanding   84,607       84,834      
Adjusted EPS from discontinued operations - diluted $ 0.00     $ (0.01 )    
           
           
CONSOLIDATED   Three Months Ended Sept. 30,  
    2016       2015     % Change
Net income $ 47,535     $ 49,484       -3.9 %
           
Amortization of acquired intangible assets   16,789       16,513      
Amortization of deferred financing costs   2,455       5,008      
Share-based compensation   6,088       5,374      
Gain on sale of real estate   (115 )     -      
M&A and acquisition-related costs   881       397      
Pre-tax total   26,098       27,292      
Income tax expense on adjustments   9,343       9,912      
Adjusted net income $ 64,290     $ 66,864       -3.8 %
           
Diluted shares outstanding   84,607       84,834      
Adjusted EPS - diluted $ 0.76     $ 0.79       -3.8 %

           
  Reconciliation of Adj. Income from Continuing Ops from Income from Continuing Ops  
  and Adjusted Net Income from Net Income  
Unaudited, in thousands except per share data          
CONTINUING OPERATIONS   Nine Months Ended Sept. 30,  
    2016       2015     % Change
Income from continuing operations $ 125,069     $ 148,576       -15.8 %
           
Amortization of acquired intangible assets   50,085       49,480      
Amortization of deferred financing costs   46,508       15,017      
Share-based compensation   19,929       16,785      
Secondary equity offering expense   -       1,041      
Gain on sale of real estate   (12,963 )     -      
M&A and acquisition-related costs   3,370       1,977      
Pre-tax total   106,929       84,300      
Income tax expense on adjustments   38,281       30,601      
Adjusted income from continuing operations $ 193,717     $ 202,275       -4.2 %
           
Diluted shares outstanding   84,486       85,554      
Adjusted EPS from continuing operations - diluted $ 2.29     $ 2.36       -3.0 %
           
           
DISCONTINUED OPERATIONS   Nine Months Ended Sept. 30,  
    2016       2015      
Income from discontinued operations $ -     $ 30,989      
           
Amortization of acquired intangible assets   -       41      
Share-based compensation   -       1,576      
M&A and acquisition-related costs   -       386      
Pre-tax total   -       2,003      
Income tax benefit on adjustments   -       767      
Adjusted income from discontinued operations $ -     $ 32,225      
           
Diluted shares outstanding   84,486       85,554      
Adjusted EPS from discontinued operations - diluted $ 0.00     $ 0.38      
           
           
CONSOLIDATED   Nine Months Ended Sept. 30,  
    2016       2015     % Change
Net income $ 125,069     $ 179,565       -30.3 %
           
Amortization of acquired intangible assets   50,085       49,521      
Amortization of deferred financing costs   46,508       15,017      
Share-based compensation   19,929       18,361      
Secondary equity offering expense   -       1,041      
Gain on sale of real estate   (12,963 )     -      
M&A and acquisition-related costs   3,370       2,363      
Pre-tax total   106,929       86,303      
Income tax expense on adjustments   38,281       31,368      
Adjusted net income $ 193,717     $ 234,500       -17.4 %
           
Diluted shares outstanding   84,486       85,554      
Adjusted EPS - diluted $ 2.29     $ 2.74       -16.4 %

Free Cash Flow ReconciliationThe Company believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities, including the financing of acquisitions, debt service, stock repurchases and distribution of earnings to shareholders. Free cash flow is calculated as cash flows from operating activities less cash capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Free cash flow should not be considered in isolation or as a substitute for cash flows from operating activities or other liquidity measures prepared in accordance with GAAP. Free cash flow, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of free cash flow from cash flows from operating activities.
                       
  Reconciliation of Free Cash Flow from Operating Cash Flow  
Unaudited, in thousands                      
CONTINUING OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015     % Change     2016       2015     % Change
Cash flows from operating activities $ 104,115     $ 126,697       -17.8 %   $ 301,602     $ 283,221       6.5 %
Cash capital expenditures   25,439       31,319       -18.8 %     99,303       96,182       3.2 %
Free cash flow $ 78,676     $ 95,378       -17.5 %   $ 202,299     $ 187,039       8.2 %
                       
                       
DISCONTINUED OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015           2016       2015      
Cash flows from (used in) operating activities $ -     $ (1,235 )       $ -     $ (8,197 )    
Cash capital expenditures   -       -           -       1,930      
Free cash flow $ -     $ (1,235 )       $ -     $ (10,127 )    
                       
                       
CONSOLIDATED   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015     % Change     2016       2015     % Change
Cash flows from operating activities $ 104,115     $ 125,462       -17.0 %   $ 301,602     $ 275,024       9.7 %
Cash capital expenditures   25,439       31,319       -18.8 %     99,303       98,112       1.2 %
Free cash flow $ 78,676     $ 94,143       -16.4 %   $ 202,299     $ 176,912       14.4 %
                       

EBITDA and Adjusted EBITDA ReconciliationThe common definition of EBITDA is "Earnings Before Interest Expense, Taxes, Depreciation and Amortization." In evaluating liquidity and performance, the Company uses "Adjusted EBITDA." The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization, gain on assets held for sale and transaction costs. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. Although the Company uses Adjusted EBITDA as a measure of its liquidity and performance, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate the business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operating activities or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here as the Company understands investors use it as a measure of its historical ability to service debt and compliance with covenants in its senior credit facilities. Further, Adjusted EBITDA is presented here as the Company uses it to measure its performance and to conduct and evaluate its business during its regular review of operating results for the periods presented. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operating activities and net income.
               
  Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow  
Unaudited, in thousands              
CONTINUING OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $ 104,115     $ 126,697     $ 301,602     $ 283,221  
Income tax expense   24,381       28,931       67,616       84,664  
Deferred income tax expense   11,628       8,160       15,383       5,958  
Interest expense and other financing charges   38,223       38,642       150,475       117,120  
Provision for share-based compensation   (6,088 )     (5,374 )     (19,929 )     (16,785 )
Amortization of deferred financing costs   (2,455 )     (5,008 )     (46,508 )     (15,017 )
Gain on sale of real estate   115       -       12,963       -  
Other   (304 )     (4 )     (1,190 )     (224 )
Changes in operating assets and liabilities,              
net of business acquisitions   (11,141 )     (26,500 )     8,485       32,338  
EBITDA   158,474       165,544       488,897       491,275  
Provision for share-based compensation   6,088       5,374       19,929       16,785  
Secondary equity offering expense   -       -       -       1,041  
M&A and acquisition-related costs   881       397       3,370       1,977  
Gain on sale of real estate   (115 )     -       (12,963 )     -  
Adjusted EBITDA $ 165,328     $ 171,315     $ 499,233     $ 511,078  
               
               
Cash flows from operating activities $ 104,115     $ 126,697     $ 301,602     $ 283,221  
Cash flows used in investing activities $ (24,483 )   $ (30,061 )   $ (67,067 )   $ (113,782 )
Cash flows used in financing activities $ (110,989 )   $ (74,048 )   $ (223,535 )   $ (364,790 )
               
               
DISCONTINUED OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $ -     $ (1,235 )   $ -     $ (8,197 )
Income tax expense   -       (665 )     -       19,345  
Deferred income tax expense   -       -       -       (2,293 )
Provision for share-based compensation   -       -       -       (1,576 )
Other   -       -       -       29,596  
Changes in operating assets and liabilities,              
net of business acquisitions   -       -       -       13,500  
EBITDA   -       (1,900 )     -       50,375  
Provision for share-based compensation   -       -       -       1,576  
M&A and acquisition-related costs   -       -       -       386  
Gain on sale of business   -       -       -       (46,656 )
Adjusted EBITDA $ -     $ (1,900 )   $ -     $ 5,681  
               
               
Cash flows used in operating activities $ -     $ (1,235 )   $ -     $ (8,197 )
Cash flows from investing activities $ -     $ 6,275     $ -     $ 275,815  
Cash flows used in financing activities $ -     $ -     $ -     $ -  
               
  Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, cont.  
CONSOLIDATED   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Cash flows from operating activities $ 104,115     $ 125,462     $ 301,602     $ 275,024  
Income tax expense   24,381       28,266       67,616       104,009  
Deferred income tax expense   11,628       8,160       15,383       3,665  
Interest expense and other financing charges   38,223       38,642       150,475       117,120  
Provision for share-based compensation   (6,088 )     (5,374 )     (19,929 )     (18,361 )
Amortization of deferred financing costs   (2,455 )     (5,008 )     (46,508 )     (15,017 )
Gain on sale of real estate   115       -       12,963       -  
Other   (304 )     (4 )     (1,190 )     29,372  
Changes in operating assets and liabilities,              
net of business acquisitions   (11,141 )     (26,500 )     8,485       45,838  
EBITDA   158,474       163,644       488,897       541,650  
Provision for share-based compensation   6,088       5,374       19,929       18,361  
Secondary equity offering expense   -       -       -       1,041  
M&A and acquisition-related costs   881       397       3,370       2,363  
(Gain) loss on sale of business and real estate   (115 )     1,900       (12,963 )     (46,656 )
Adjusted EBITDA $ 165,328     $ 171,315     $ 499,233     $ 516,759  
               
CONSOLIDATED              
Cash flows from operating activities $ 104,115     $ 125,462     $ 301,602     $ 275,024  
Cash flows from (used in) investing activities $ (24,483 )   $ (23,786 )   $ (67,067 )   $ 162,033  
Cash flows used in financing activities $ (110,989 )   $ (74,048 )   $ (223,535 )   $ (364,790 )
               

               
  Reconciliation of EBITDA and Adjusted EBITDA from Net Income  
Unaudited, in thousands                
CONTINUING OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Income from continuing operations $ 47,535     $ 50,719     $ 125,069     $ 148,576  
Interest expense and other financing charges   38,223       38,642       150,475       117,120  
Depreciation and amortization   48,335       47,252       145,737       140,915  
Income tax expense   24,381       28,931       67,616       84,664  
EBITDA   158,474       165,544       488,897       491,275  
Provision for share-based compensation   6,088       5,374       19,929       16,785  
Secondary equity offering expense   -       -       -       1,041  
M&A and acquisition-related costs   881       397       3,370       1,977  
Gain on sale of real estate   (115 )     -       (12,963 )     -  
Adjusted EBITDA $ 165,328     $ 171,315     $ 499,233     $ 511,078  
               
               
DISCONTINUED OPERATIONS   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Income from discontinued operations $ -     $ (1,235 )   $ -     $ 30,989  
Depreciation and amortization   -       -       -       41  
Income tax expense   -       (665 )     -       19,345  
EBITDA   -       (1,900 )     -       50,375  
Provision for share-based compensation   -       -       -       1,576  
M&A and acquisition-related costs   -       -       -       386  
Gain on sale of business   -       -       -       (46,656 )
Adjusted EBITDA $ -     $ (1,900 )   $ -     $ 5,681  
               
               
CONSOLIDATED   Three Months Ended Sept. 30,       Nine Months Ended Sept. 30,  
    2016       2015       2016       2015  
Net income $ 47,535     $ 49,484     $ 125,069     $ 179,565  
Interest expense and other financing charges   38,223       38,642       150,475       117,120  
Depreciation and amortization   48,335       47,252       145,737       140,956  
Income tax expense   24,381       28,266       67,616       104,009  
EBITDA   158,474       163,644       488,897       541,650  
Provision for share-based compensation   6,088       5,374       19,929       18,361  
Secondary equity offering expense   -       -       -       1,041  
M&A and acquisition-related costs   881       397       3,370       2,363  
(Gain) loss on sale of business and real estate   (115 )     1,900       (12,963 )     (46,656 )
Adjusted EBITDA $ 165,328     $ 171,315     $ 499,233     $ 516,759  
               

1 See Reconciliation of Non-GAAP Financial Measures below.

2 Free cash flow is calculated as cash flows from operating activities less cash capital expenditures.

3 Revenue growth attributable to acquired entities includes Magnetic North, ClientTell and Synrevoice.

4 Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.

5 Adjusted organic revenue growth is provided on the Selected Financial Data tables and excludes revenue from acquired entities, revenue from previously disclosed lost clients and the estimated impact of foreign currency exchange rates. The Company believes adjusted organic revenue growth provides a useful measure of growth in its ongoing business.

NM: Not Meaningful
AT THE COMPANY:	Dave PleissInvestor RelationsWest Corporation(402) 963-1500DMPleiss@west.com

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