OMAHA, Neb., Nov. 3, 2014 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its third quarter 2014 results.
Key Quarterly Highlights:
| Unaudited, in millions except per share | Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | ||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | |
| Consolidated Revenue | $ 713.2 | $ 665.4 | 7.2% | $2,080.4 | $1,998.3 | 4.1% |
| Platform-based Revenue1 | 502.6 | 483.0 | 4.1% | 1,504.4 | 1,459.4 | 3.1% |
| Adjusted EBITDA2 | 181.9 | 174.8 | 4.1% | 528.4 | 526.0 | 0.4% |
| EBITDA2 | 176.4 | 171.5 | 2.9% | 515.0 | 489.0 | 5.3% |
| Adjusted Operating Income2 | 144.7 | 140.6 | 2.9% | 422.6 | 430.4 | -1.8% |
| Operating Income | 121.0 | 123.4 | -2.0% | 364.7 | 351.5 | 3.8% |
| Adjusted Net Income2 | 70.5 | 59.7 | 18.0% | 189.2 | 165.2 | 14.6% |
| Net Income | 16.1 | 46.1 | -65.1% | 110.1 | 92.9 | 18.6% |
| Adjusted Earnings per Share - Diluted2 | 0.82 | 0.70 | 17.1% | 2.22 | 2.10 | 5.7% |
| Earnings per Share - Diluted | 0.19 | 0.54 | -64.8% | 1.29 | 1.18 | 9.3% |
| Free Cash Flow2,3 | 90.2 | 54.6 | 65.1% | 216.6 | 188.7 | 14.7% |
| Cash Flows from Operations | 128.4 | 83.1 | 54.6% | 330.3 | 276.7 | 19.3% |
| Cash Flows used in Investing | (82.9) | (28.2) | NM | (501.1) | (89.2) | NM |
| Cash Flows from (used in) Financing | (33.9) | (60.5) | NM | 110.9 | (154.2) | NM |
"West continued to perform well during the third quarter with organic revenue growth in both segments supplemented by our recent acquisitions," said Tom Barker, chairman and chief executive officer of West Corporation. "As we progress through the end of the year, we remain focused on achieving our prior 2014 guidance and positioning the company for growth next year."
Dividend
The Company today also announced a $0.225 per common share quarterly dividend. The dividend is payable on November 26, 2014 to shareholders of record as of the close of business on November 17, 2014.
Consolidated Operating Results
For the third quarter of 2014, revenue was $713.2 million compared to $665.4 million for the same quarter of 2013, an increase of 7.2 percent. Revenue from acquired entities4 was $30.3 million during the third quarter of 2014. Organic revenue growth for the quarter was 2.6 percent. The Company's platform-based businesses1 had revenue of $502.6 million in the third quarter of 2014, an increase of 4.1 percent over the same quarter of the previous year. Revenue from agent services1 increased 15.1 percent in the third quarter of 2014 to $213.6 million compared to $185.6 million in the third quarter of 2013.
The Unified Communications segment had revenue of $404.5 million in the third quarter of 2014, an increase of 2.0 percent compared to the same quarter of the previous year. The increase in Unified Communications revenue included $7.1 million from SchoolMessenger. Organic growth for the Unified Communications segment was 0.2 percent in the third quarter of 2014.
The Communication Services segment had revenue of $322.8 million in the third quarter of 2014, an increase of 15.1 percent compared to the third quarter of 2013. The increase in Communication Services revenue included $23.2 million from Health Advocate and 911 Enable. Organic growth for the Communication Services segment was 6.8 percent in the third quarter of 2014.
Adjusted EBITDA2 for the third quarter of 2014 was $181.9 million compared to $174.8 million for the third quarter of 2013, an increase of 4.1 percent. EBITDA2 was $176.4 million in the third quarter of 2014 compared to $171.5 million in the same quarter of the previous year, an increase of 2.9 percent.
Adjusted operating income1 for the third quarter of 2014 was $144.7 million compared to $140.6 million in the same quarter of 2013, an increase of 2.9 percent. Operating income was $121.0 million in the third quarter of 2014 compared to $123.4 million in the third quarter of 2013, a decrease of 2.0 percent.
Adjusted net income2 was $70.5 million in the third quarter of 2014, an increase of 18.0 percent from the same quarter of 2013. Net income decreased to $16.1 million in the third quarter of 2014 from $46.1 million in the same quarter of 2013. The decrease was driven primarily by $51.7 million of debt call premiums and accelerated amortization of deferred financing costs incurred when the Company repurchased a portion of its senior notes (see next section for additional details).
Balance Sheet, Cash Flow and Liquidity
At September 30, 2014, West Corporation had cash and cash equivalents totaling $165.9 million and working capital of $284.7 million. Net interest expense was $47.6 million during the third quarter of 2014 compared to $51.2 million during the comparable period the prior year.
The Company's net debt to adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities5, was 4.66x at September 30, 2014.
On July 1, 2014, the Company issued $1.0 billion aggregate principal amount of 5.375 percent notes due 2022 (the "2022 Senior Notes"). A portion of the net proceeds from the 2022 Senior Notes was used to repurchase, pursuant to a tender offer, $270.8 million aggregate principal amount of the 8.625 percent Senior Notes due 2018 (the "2018 Senior Notes") and $200.0 million aggregate principal amount of the 7.875 percent Senior Notes due 2019 (the "2019 Senior Notes"). The aggregate repurchase price for the 2018 Senior Notes was $298.7 million including accrued interest of $10.8 million and a tender offer premium of $17.1 million. The aggregate repurchase price for the 2019 Senior Notes was $215.3 million including accrued interest of $2.0 million and a tender offer premium of $13.3 million. The Company also used a portion of the net proceeds from the 2022 Senior Notes to repay a portion of the senior secured term loan facility due 2018. The total aggregate principal amount repaid on the senior secured term loan facility due 2018 was $250.0 million. On July 17, 2014, the Company redeemed the remaining $229.2 million aggregate principal amount of the 2018 Senior Notes. The aggregate purchase price for these 2018 Senior Notes was $242.9 million including accrued interest of $0.1 million, a redemption premium of $9.9 million and a make whole premium of $3.7 million. Accelerated amortization of deferred financing costs associated with the tender offers was $7.7 million.
On October 16, 2014, the Company delivered a notice to redeem the remaining $450 million of its outstanding 2019 Notes. The redemption price will be 103.938 percent of the principal amount of the 2019 Notes. In addition, the Company will pay accrued and unpaid interest on the redeemed 2019 Notes from May 15, 2014 through, but not including, the redemption date of November 15, 2014.
"We continued to improve our capital structure during the quarter with our $1.0 billion refinancing in July," said Paul Mendlik, chief financial officer of West Corporation. "Our upcoming redemption will result in additional cash interest savings as we continue to take advantage of attractive financing options."
During the third quarter of 2014, the Company invested $32.6 million, or 4.6 percent of revenue, in capital expenditures primarily for software, computer equipment, the consolidation of data centers and related expansion of the Company's network infrastructure.
Acquisitions
On September 2, 2014, the Company completed the acquisition of the 911 Enable business of Connexon Group, Inc. ("911 Enable"), a leading provider of emergency communications solutions for IP-based enterprise customers across the United States and Canada. The purchase price was approximately $42.2 million and was funded with cash on hand. Results from 911 Enable after September 2, 2014 are included in the Company's Communication Services operating segment.
On November 3, 2014, the Company completed the acquisition of the assets of GroupCast, L.L.C., a provider of alert and notification services for corporations, government entities and K-12 school districts that operates under two brands, GroupCast and SchoolReach. SchoolReach is an award-winning provider of notification systems for thousands of smaller public school districts and private schools throughout the U.S. The purchase price was approximately $13.5 million and was funded with cash on hand. SchoolReach will be combined with the Company's SchoolMessenger business in the Unified Communication operating segment.
Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, November 4, 2014 at 11:00 AM Eastern Time (10:00 AM Central Time). Investors may access the call by visiting the Financials section of the West Corporation website at www.west.com and clicking on the Webcast link. A replay of the call will be available on the Company's website at www.west.com.
About West Corporation
West Corporation (Nasdaq:WSTC) is a global provider of communication and network infrastructure solutions. West helps manage or support essential enterprise communications with services that include conferencing and collaboration, public safety services, IP communications, interactive services such as automated notifications, large-scale agent services and telecom 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 industries; increases in the cost of voice and data services or significant interruptions in these services; West's ability to keep pace with its clients' needs for rapid technological change and systems availability; the continued deployment and adoption of emerging technologies; the loss, financial difficulties or bankruptcy of any key clients; security and privacy breaches of the systems West uses to protect personal data; the effects of global economic trends on the businesses of West's clients; the non-exclusive nature of West's client contracts and the absence of revenue commitments; the cost of pending and future litigation; the cost of defending against intellectual property infringement claims; the effects of extensive regulation affecting many of West's businesses; West's ability to protect its proprietary information or technology; service interruptions to West's data and operation centers; West's ability to retain key personnel and attract a sufficient number of qualified employees; increases in labor costs and turnover rates; the political, economic and other conditions in the countries where West operates; changes in foreign exchange rates; West's ability to complete future acquisitions, integrate or achieve the objectives of its recent and future acquisitions; future impairments of our substantial goodwill, intangible assets, or other long-lived assets; and West's ability to recover consumer receivables on behalf of its clients. In addition, West is subject to risks related to its level of indebtedness. Such risks include West's ability to generate sufficient cash to service its indebtedness and fund its other liquidity needs; West's ability to comply with covenants contained in its debt instruments; the ability to obtain additional financing; the incurrence of significant additional indebtedness by West and its subsidiaries; and the ability of West's lenders to fulfill their lending commitments. West is also subject to other risk factors described in documents filed by the Company with the United States Securities and Exchange Commission.
These forward-looking statements speak only as of the date on which the statements were made. West undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
| WEST CORPORATION | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (Unaudited, in thousands except selected per share and operating data) | ||||
| Three Months Ended September 30, | ||||
| 2014 | 2013 | 2014 | ||
| Actual | Actual | % Change | Adjusted (2) | |
| Revenue | $ 713,201 | $ 665,366 | 7.2% | $ 713,201 |
| Cost of services | 338,778 | 310,533 | 9.1% | 338,778 |
| Selling, general and administrative expenses | 253,473 | 231,407 | 9.5% | 229,702 |
| Operating income | 120,950 | 123,426 | -2.0% | 144,721 |
| Interest expense, net | 47,606 | 51,242 | -7.1% | 42,400 |
| Subordinated debt call premium and accelerated amortization of deferred financing costs | 51,735 | -- | NM | -- |
| Other expense (income), net | (2,290) | (1,654) | NM | (2,290) |
| Income before tax | 23,899 | 73,838 | -67.6% | 104,611 |
| Income tax | 7,789 | 27,690 | -71.9% | 34,093 |
| Net income | $ 16,110 | $ 46,148 | -65.1% | $ 70,518 |
| Weighted average shares outstanding: | ||||
| Basic | 84,090 | 83,581 | 84,090 | |
| Diluted | 85,611 | 85,042 | 85,611 | |
| Earnings per share: | ||||
| Basic | $ 0.19 | $ 0.55 | -65.5% | $ 0.84 |
| Diluted | $ 0.19 | $ 0.54 | -64.8% | $ 0.82 |
| SELECTED SEGMENT DATA: | ||||
| Revenue: | ||||
| Unified Communications | $ 404,511 | $ 396,659 | 2.0% | |
| Communication Services | 322,777 | 280,399 | 15.1% | |
| Intersegment eliminations | (14,087) | (11,692) | NM | |
| Total | $ 713,201 | $ 665,366 | 7.2% | |
| Depreciation: | ||||
| Unified Communications | $ 19,727 | $ 18,665 | 5.7% | |
| Communication Services | 11,747 | 10,730 | 9.5% | |
| Total | $ 31,474 | $ 29,395 | 7.1% | |
| Amortization: | ||||
| Unified Communications - SG&A | $ 7,927 | $ 6,730 | 17.8% | |
| Communication Services - COS | 3,078 | 2,475 | 24.4% | |
| Communication Services - SG&A | 10,385 | 7,199 | 44.3% | |
| Corporate - deferred financing costs | 5,206 | 4,532 | 14.9% | |
| Corporate - accelerated amortization of deferred financing costs | 7,748 | -- | NM | |
| Total | $ 34,344 | $ 20,936 | 64.0% | |
| Share-based Compensation | ||||
| Unified Communications | $ 2,180 | $ 1,721 | 26.7% | |
| Communication Services | 1,795 | 1,383 | 29.8% | |
| Total | $ 3,975 | $ 3,104 | 28.1% | |
| Cost of services: | ||||
| Unified Communications | $ 171,455 | $ 161,586 | 6.1% | |
| Communication Services | 180,053 | 159,397 | 13.0% | |
| Intersegment eliminations | (12,730) | (10,450) | NM | |
| Total | $ 338,778 | $ 310,533 | 9.1% | |
| Selling, general and administrative expenses: | ||||
| Unified Communications | $ 137,890 | $ 129,826 | 6.2% | |
| Communication Services | 116,940 | 102,823 | 13.7% | |
| Intersegment eliminations | (1,357) | (1,242) | NM | |
| Total | $ 253,473 | $ 231,407 | 9.5% | |
| Operating income: | ||||
| Unified Communications | $ 95,166 | $ 105,247 | -9.6% | $ 106,122 |
| Communication Services | 25,784 | 18,179 | 41.8% | 38,599 |
| Total | $ 120,950 | $ 123,426 | -2.0% | $ 144,721 |
| Operating margin: | ||||
| Unified Communications | 23.5% | 26.5% | 26.2% | |
| Communication Services | 8.0% | 6.5% | 12.0% | |
| Total | 17.0% | 18.6% | 20.3% | |
| SELECTED OPERATING DATA1: | ||||
| Revenue from platform-based services | $ 502,647 | $ 483,023 | 4.1% | |
| Revenue from agent services | $ 213,644 | $ 185,581 | 15.1% | |
| WEST CORPORATION | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (Unaudited, in thousands except selected per share and operating data) | ||||
| Nine Months Ended September 30, | ||||
| 2014 | 2013 | 2014 | ||
| Actual | Actual | % Change | Adjusted (2) | |
| Revenue | $ 2,080,416 | $ 1,998,285 | 4.1% | $ 2,080,416 |
| Cost of services | 985,828 | 931,539 | 5.8% | 985,828 |
| Selling, general and administrative expenses | 729,867 | 715,292 | 2.0% | 671,995 |
| Operating income | 364,721 | 351,454 | 3.8% | 422,593 |
| Interest expense, net | 144,923 | 181,310 | -20.1% | 129,963 |
| Subordinated debt call premium and accelerated amortization of deferred financing costs | 51,735 | 23,105 | 123.9% | -- |
| Other expense (income), net | (5,397) | (1,555) | NM | (5,397) |
| Income before tax | 173,460 | 148,594 | 16.7% | 298,027 |
| Income tax | 63,313 | 55,723 | 13.6% | 108,780 |
| Net income | $ 110,147 | $ 92,871 | 18.6% | $ 189,247 |
| Weighted average shares outstanding: | ||||
| Basic | 83,950 | 77,274 | 83,950 | |
| Diluted | 85,400 | 78,720 | 85,400 | |
| Earnings per share: | ||||
| Basic | $ 1.31 | $ 1.20 | 9.2% | $ 2.25 |
| Diluted | $ 1.29 | $ 1.18 | 9.3% | $ 2.22 |
| SELECTED SEGMENT DATA: | ||||
| Revenue: | ||||
| Unified Communications | $ 1,221,328 | $ 1,200,161 | 1.8% | |
| Communication Services | 903,136 | 820,968 | 10.0% | |
| Intersegment eliminations | (44,048) | (22,844) | NM | |
| Total | $ 2,080,416 | $ 1,998,285 | 4.1% | |
| Depreciation: | ||||
| Unified Communications | $ 57,937 | $ 53,547 | 8.2% | |
| Communication Services | 32,555 | 31,625 | 2.9% | |
| Total | $ 90,492 | $ 85,172 | 6.2% | |
| Amortization: | ||||
| Unified Communications - SG&A | $ 21,449 | $ 20,151 | 6.4% | |
| Communication Services - COS | 8,995 | 7,571 | 18.8% | |
| Communication Services - SG&A | 23,038 | 21,684 | 6.2% | |
| Corporate - deferred financing costs | 14,960 | 13,710 | 9.1% | |
| Corporate - accelerated amortization of deferred financing costs | 7,748 | 6,603 | 17.3% | |
| Total | $ 76,190 | $ 69,719 | 9.3% | |
| Share-based Compensation | ||||
| Unified Communications | $ 5,670 | $ 4,567 | 24.2% | |
| Communication Services | 4,509 | 3,587 | 25.7% | |
| Total | $ 10,179 | $ 8,154 | 24.8% | |
| Cost of services: | ||||
| Unified Communications | $ 515,970 | $ 493,692 | 4.5% | |
| Communication Services | 508,972 | 457,033 | 11.4% | |
| Intersegment eliminations | (39,114) | (19,186) | NM | |
| Total | $ 985,828 | $ 931,539 | 5.8% | |
| Selling, general and administrative expenses: | ||||
| Unified Communications | $ 413,172 | $ 407,100 | 1.5% | |
| Communication Services | 321,629 | 311,850 | 3.1% | |
| Intersegment eliminations | (4,934) | (3,658) | NM | |
| Total | $ 729,867 | $ 715,292 | 2.0% | |
| Operating income: | ||||
| Unified Communications | $ 292,186 | $ 299,369 | -2.4% | $ 321,068 |
| Communication Services | 72,535 | 52,085 | 39.3% | 101,525 |
| Total | $ 364,721 | $ 351,454 | 3.8% | $ 422,593 |
| Operating margin: | ||||
| Unified Communications | 23.9% | 24.9% | 26.3% | |
| Communication Services | 8.0% | 6.3% | 11.2% | |
| Total | 17.5% | 17.6% | 20.3% | |
| SELECTED OPERATING DATA1: | ||||
| Revenue from platform-based services | $ 1,504,375 | $ 1,459,395 | 3.1% | |
| Revenue from agent services | $ 586,817 | $ 548,681 | 7.0% | |
| WEST CORPORATION | |||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||
| (Unaudited, in thousands) | |||
| September 30, | December 31, | % | |
| 2014 | 2013 | Change | |
| Current assets: | |||
| Cash and cash equivalents | $ 165,933 | $ 230,041 | -27.9% |
| Trust and restricted cash | 23,671 | 21,679 | 9.2% |
| Accounts receivable, net | 487,115 | 450,189 | 8.2% |
| Deferred income taxes receivable | 7,969 | -- | NM |
| Prepaid assets | 52,681 | 36,032 | 46.2% |
| Other current assets | 90,428 | 83,629 | 8.1% |
| Total current assets | 827,797 | 821,570 | 0.8% |
| Net property and equipment | 372,471 | 364,765 | 2.1% |
| Goodwill | 2,044,928 | 1,823,921 | 12.1% |
| Other assets | 684,029 | 476,008 | 43.7% |
| Total assets | $ 3,929,225 | $ 3,486,264 | 12.7% |
| Current liabilities | $ 543,128 | $ 457,642 | 18.7% |
| Long-term obligations | 3,755,681 | 3,513,470 | 6.9% |
| Other liabilities | 315,327 | 255,324 | 23.5% |
| Total liabilities | 4,614,136 | 4,226,436 | 9.2% |
| Stockholders' deficit | (684,911) | (740,172) | 7.5% |
| Total liabilities and stockholders' deficit | $ 3,929,225 | $ 3,486,264 | 12.7% |
Reconciliation of Non-GAAP Financial Measures
Adjusted Operating Income Reconciliation
Adjusted operating income is not a measure of financial performance under generally accepted accounting principles ("GAAP"). The Company believes adjusted operating income provides a relevant measure of operating profitability and a useful basis for evaluating the ongoing operations of the Company. Adjusted operating income is used by the Company to assess operating income before the impact of IPO-related expenses, expenses terminated in connection with the IPO, M&A and acquisition-related costs and certain non-cash items. Adjusted operating income should not be considered in isolation or as a substitute for operating income or other profitability data prepared in accordance with GAAP. Adjusted operating income, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of adjusted operating income to operating income.
| Reconciliation of Adjusted Operating Income from Operating Income | |||
| Unaudited, in thousands | |||
| Three Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Operating income | $ 120,950 | $ 123,426 | -2.0% |
| Amortization of acquired intangible assets | 18,312 | 13,929 | |
| Share-based compensation | 3,975 | 3,104 | |
| M&A and acquisition related costs | 1,484 | 187 | |
| Adjusted operating income | $ 144,721 | $ 140,646 | 2.9% |
| Nine Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Operating income | $ 364,721 | $ 351,454 | 3.8% |
| Amortization of acquired intangible assets | 44,487 | 41,835 | |
| Share-based compensation | 10,179 | 8,154 | |
| Sponsor management/termination fee | -- | 25,000 | |
| IPO bonus | -- | 2,975 | |
| M&A and acquisition related costs | 3,206 | 938 | |
| Adjusted operating income | $ 422,593 | $ 430,356 | -1.8% |
Adjusted Net Income and Adjusted Earnings per Share Reconciliation
Adjusted net income and adjusted earnings per share (EPS) are non-GAAP measures. The Company believes these measures provide a useful indication of profitability and basis for assessing the operations of the Company without the impact of IPO-related expenses, expenses terminated in connection with the IPO, bond redemption premiums, M&A and acquisition related costs and certain non-cash items.
Adjusted net income should not be considered in isolation or as a substitute for net income or other profitability metrics prepared in accordance with GAAP. Adjusted net income, as presented, may not be comparable to similarly titled measures of other companies.
Set forth below is a reconciliation of adjusted net income to net income.
| Reconciliation of Adjusted Net Income from Net Income | |||
| Unaudited, in thousands except per share | |||
| Three Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Net income | $ 16,110 | $ 46,148 | -65.1% |
| Amortization of acquired intangible assets | 18,312 | 13,929 | |
| Amortization of deferred financing costs | 5,206 | 4,532 | |
| Accelerated amortization of deferred financing costs | 7,748 | -- | |
| Share-based compensation | 3,975 | 3,104 | |
| Debt call premiums | 43,987 | -- | |
| M&A and acquisition related costs | 1,484 | 187 | |
| Pre-tax total | 80,712 | 21,752 | |
| Income tax expense on adjustments | 26,304 | 8,156 | |
| Adjusted net income | $ 70,518 | $ 59,744 | 18.0% |
| Diluted shares outstanding | 85,611 | 85,042 | |
| Adjusted EPS - diluted | $ 0.82 | $ 0.70 | 17.1% |
| Nine Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Net income | $ 110,147 | $ 92,871 | 18.6% |
| Amortization of acquired intangible assets | 44,487 | 41,835 | |
| Amortization of deferred financing costs | 14,960 | 13,710 | |
| Accelerated amortization of deferred financing costs | 7,748 | 6,603 | |
| Share-based compensation | 10,179 | 8,154 | |
| Sponsor management/termination fee | -- | 25,000 | |
| IPO bonus | -- | 2,975 | |
| Debt call premiums | 43,987 | 16,502 | |
| M&A and acquisition related costs | 3,206 | 938 | |
| Pre-tax total | 124,567 | 115,717 | |
| Income tax expense on adjustments | 45,467 | 43,394 | |
| Adjusted net income | $ 189,247 | $ 165,194 | 14.6% |
| Diluted shares outstanding | 85,400 | 78,720 | |
| Adjusted EPS - diluted | $ 2.22 | $ 2.10 | 5.7% |
Free Cash Flow Reconciliation
The Company believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities, including the financing of acquisitions, debt service, stock repurchases and distribution of earnings to shareholders. Free cash flow is calculated as cash flows from operations less cash capital expenditures. Free cash flow is not a measure of financial performance under GAAP. Free cash flow should not be considered in isolation or as a substitute for cash flows from operations or other liquidity measures prepared in accordance with GAAP. Free cash flow, as presented, may not be comparable to similarly titled measures of other companies. Set forth below is a reconciliation of free cash flow to cash flows from operations.
| Reconciliation of Free Cash Flow from Operating Cash Flow | |||
| Unaudited, in thousands | |||
| Three Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Cash flows from operations | $ 128,422 | $ 83,065 | 54.6% |
| Cash capital expenditures | 38,248 | 28,453 | 34.4% |
| Free cash flow | $ 90,174 | $ 54,612 | 65.1% |
| Nine Months Ended September 30, | |||
| 2014 | 2013 | % Change | |
| Cash flows from operations | $ 330,250 | $ 276,729 | 19.3% |
| Cash capital expenditures | 113,682 | 87,980 | 29.2% |
| Free cash flow | $ 216,568 | $ 188,749 | 14.7% |
EBITDA and Adjusted EBITDA Reconciliation
The common definition of EBITDA is "earnings before interest expense, taxes, depreciation and amortization." In evaluating liquidity and performance, the Company uses earnings before interest expense, share based compensation, taxes, depreciation and amortization, M&A and acquisition-related costs and one-time IPO-related expenses, or "adjusted EBITDA." EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP. EBITDA and adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations or other income or cash flows data prepared in accordance with GAAP. EBITDA and adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. EBITDA and adjusted EBITDA are used by certain investors as measures to assess the Company's ability to service debt. Adjusted EBITDA is also used in the Company's debt covenants, although the precise adjustments used to calculate adjusted EBITDA included in the Company's credit facility and indentures vary in certain respects among such agreements and from those presented below. Certain adjustments to adjusted EBITDA were excluded from the calculations below consistent with the adjustments made for adjusted operating income and adjusted net income. Set forth below is a reconciliation of EBITDA and adjusted EBITDA to cash flows from operations and net income.
| Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow | ||||
| Unaudited, in thousands | ||||
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||
| 2014 | 2013 | 2014 | 2013 | |
| Cash flows from operating activities | $ 128,422 | $ 83,065 | $ 330,250 | $ 276,729 |
| Income tax expense | 7,789 | 27,690 | 63,313 | 55,723 |
| Deferred income tax benefit (expense) | 15,078 | 5,339 | 24,627 | (3,668) |
| Interest expense and other financing charges | 99,644 | 51,850 | 197,579 | 205,792 |
| Provision for share-based compensation | (3,975) | (3,104) | (10,179) | (8,154) |
| Amortization of deferred financing costs | (5,206) | (4,532) | (14,960) | (13,710) |
| Accelerated amortization of deferred financing costs | (7,748) | -- | (7,748) | (6,603) |
| Other | (3) | (55) | (9) | (93) |
| Changes in operating assets and liabilities, net of business acquisitions | (57,594) | 11,234 | (67,860) | (17,052) |
| EBITDA | 176,407 | 171,487 | 515,013 | 488,964 |
| Provision for share-based compensation | 3,975 | 3,104 | 10,179 | 8,154 |
| Sponsor management/termination fee | -- | -- | -- | 25,000 |
| IPO bonus | -- | -- | -- | 2,975 |
| M&A and acquisition related costs | 1,484 | 187 | 3,206 | 938 |
| Adjusted EBITDA | $ 181,866 | $ 174,778 | $ 528,398 | $ 526,031 |
| Reconciliation of EBITDA and Adjusted EBITDA from Net Income | ||||
| Unaudited, in thousands | ||||
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||
| 2014 | 2013 | 2014 | 2013 | |
| Net income | $ 16,110 | $ 46,148 | $ 110,147 | $ 92,871 |
| Interest expense and other financing charges | 99,644 | 51,850 | 197,579 | 205,792 |
| Depreciation and amortization | 52,864 | 45,799 | 143,974 | 134,578 |
| Income tax expense | 7,789 | 27,690 | 63,313 | 55,723 |
| EBITDA | 176,407 | 171,487 | 515,013 | 488,964 |
| Provision for share-based compensation | 3,975 | 3,104 | 10,179 | 8,154 |
| Sponsor management/termination fee | -- | -- | -- | 25,000 |
| IPO bonus | -- | -- | -- | 2,975 |
| M&A and acquisition related costs | 1,484 | 187 | 3,206 | 938 |
| Adjusted EBITDA | $ 181,866 | $ 174,778 | $ 528,398 | $ 526,031 |
| Unaudited, in thousands | Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | ||
| 2014 | 2013 | 2014 | 2013 | |
| Cash flows from operating activities | $ 128,422 | $ 83,065 | $ 330,250 | $ 276,729 |
| Cash flows used in investing activities | $ (82,903) | $ (28,157) | $ (501,132) | $ (89,159) |
| Cash flows from (used in) financing activities | $ (33,882) | $ (60,469) | $ 110,855 | $ (154,162) |
1 Platform-based businesses include the Unified Communications segment, public safety and telecom services. Platform-based and agent services revenue are presented prior to intercompany eliminations.
2 See Reconciliation of Non-GAAP Financial Measures below.
3 Free cash flow is calculated as cash flows from operations less cash capital expenditures.
4 Revenue from acquired entities includes SchoolMessenger in the Unified Communications segment after April 21, 2014, Health Advocate in the Communications Services segment after June 13, 2014, and 911 Enable in the Communication Services segment after September 2, 2014.
5 Based on loan covenants. Covenant leverage ratio is net of cash and excludes accounts receivable securitization debt.
NM: Not Meaningful