OMAHA, Neb., Feb. 01, 2016 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a leading provider of technology-enabled communication services, today announced its fourth quarter and full year 2015 results.
Key Quarterly Highlights:
Unaudited, in millions except per share amounts | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||||
Revenue | $ | 568.4 | $ | 562.9 | 1.0 | % | $ | 2,280.3 | $ | 2,218.6 | 2.8 | % | |||||||||||
Adjusted EBITDA from Continuing Operations1 | 165.1 | 173.4 | -4.8 | % | 676.1 | 668.3 | 1.2 | % | |||||||||||||||
EBITDA from Continuing Operations1 | 158.0 | 167.0 | -5.4 | % | 649.3 | 649.2 | 0.0 | % | |||||||||||||||
Adjusted Operating Income1 | 131.0 | 141.2 | -7.2 | % | 551.8 | 541.5 | 1.9 | % | |||||||||||||||
Operating Income | 105.0 | 116.7 | -10.1 | % | 456.5 | 461.4 | -1.1 | % | |||||||||||||||
Adjusted Income from Continuing Operations1 | 63.7 | 68.1 | -6.5 | % | 265.9 | 247.2 | 7.5 | % | |||||||||||||||
Income from Continuing Operations | 42.3 | 34.9 | 21.4 | % | 190.9 | 134.6 | 41.8 | % | |||||||||||||||
Adjusted Earnings per Share from Continuing Operations - Diluted1 | 0.75 | 0.79 | -5.1 | % | 3.11 | 2.89 | 7.6 | % | |||||||||||||||
Earnings per Share from Continuing Operations - Diluted | 0.50 | 0.41 | 22.0 | % | 2.24 | 1.57 | 42.7 | % | |||||||||||||||
Free Cash Flow from Continuing Operating Activities1,2 | 86.9 | 75.5 | 15.2 | % | 274.0 | 279.2 | -1.9 | % | |||||||||||||||
Cash Flows from Continuing Operating Activities | 127.5 | 106.9 | 19.3 | % | 410.8 | 409.5 | 0.3 | % | |||||||||||||||
Cash Flows used in Continuing Investing Activities | (118.7 | ) | (38.4 | ) | 208.7 | % | (232.4 | ) | (524.4 | ) | -55.7 | % | |||||||||||
Cash Flows used in Continuing Financing Activities | (23.5 | ) | (135.9 | ) | -82.7 | % | (388.2 | ) | (25.0 | ) | NM | ||||||||||||
“2015 was an important year for West Corporation. We had strong cash flow generation and continued refining our portfolio of services. We divested several agent-based services businesses, made three acquisitions, refinanced our term loan, paid down debt and repurchased two million shares of stock. We believe these actions will enhance the growth of the Company going forward,” said Tom Barker, chairman and chief executive officer.
“The adjusted organic growth5 in our core business was 4.1 percent in the fourth quarter of 2015 and 3.3 percent for the year. With the expected growth in our non-conferencing businesses, we believe we will finish 2016 in a stronger growth position. As we move through the year, we will continue to focus on capital generation and deployment. In addition, in an effort to provide investors with enhanced visibility into how our underlying businesses are performing, we will now report results in four segments,” Mr. Barker continued.
Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable on March 3, 2016, to shareholders of record as of the close of business on February 22, 2016.
Operating Results Reflect Previous Divestiture
As previously disclosed, on March 3, 2015, the Company completed the sale of several of its agent-based services businesses. The operating results for the businesses that were sold have been reflected as discontinued operations in the Company’s consolidated financial statements for all periods presented. Unless otherwise noted, the Company has presented herein its operating results from continuing operations, which excludes discontinued operations.
Change in Segment Reporting
During the fourth quarter of 2015, we implemented a revised organizational structure under which our reportable segments are as follows:
- Unified Communications, including conferencing and collaboration services, unified communications services and telecom services;
- Safety Services, including 9-1-1 network services, 9-1-1 telephony systems and services, 9-1-1 solutions for enterprise VoIP and UC and database management;
- Interactive Services, including proactive notifications and mobility, IVR self-service, cloud contact center and professional services; and
- Specialized Agent Services, including healthcare advocacy services, revenue generation and cost management services.
Consolidated Operating Results
For the fourth quarter of 2015, revenue was $568.4 million compared to $562.9 million for the same quarter of the previous year, an increase of 1.0 percent. Revenue from acquired entities3 was $5.2 million during the fourth quarter of 2015, contributing 0.9 percent to the Company’s revenue growth. The Company’s revenue growth rate was negatively impacted by $22.7 million, or 4.0 percent, from the impact of foreign currency exchange rate fluctuations and two previously disclosed client losses. Adjusted organic growth5 for the fourth quarter was 4.1 percent.
For the year ended December 31, 2015, revenue was $2,280.3 million compared to $2,218.6 million for 2014, an increase of 2.8 percent. Revenue from acquired entities3 was $71.9 million during 2015, contributing 3.2 percent to the Company’s revenue growth. The Company’s revenue growth rate was partially offset by $84.0 million, or 3.8 percent, from the impact of foreign currency exchange rate fluctuations and two previously disclosed client losses. Adjusted organic growth5 for 2015 was 3.3 percent. Details of the Company’s revenue growth are presented in the selected financial data table below.
The Unified Communications segment had revenue of $357.8 million in the fourth quarter of 2015, a 0.9 percent decrease compared to the same quarter of 2014. This decrease was partially due to $16.0 million from the two previously disclosed lost telecom services and conferencing clients and was offset by $1.4 million in revenue from Magnetic North, which was acquired on October 31, 2015.
The Safety Services segment had revenue of $72.9 million in the fourth quarter of 2015, a decrease of 1.9 percent from the fourth quarter of 2014.
The Interactive Services segment had revenue of $71.3 million in the fourth quarter of 2015, 13.5 percent higher than the same quarter last year. This increase included $3.8 million from the acquisitions of SchoolReach, SharpSchool and ClientTell.
The Specialized Agent Services segment had revenue of $73.1 million in the fourth quarter of 2015, an increase of 7.3 percent compared to the same quarter of 2014.
Adjusted EBITDA1 for the fourth quarter of 2015 was $165.1 million compared to $173.4 million for the fourth quarter of 2014, a decrease of 4.8 percent. EBITDA1 was $158.0 million in the fourth quarter of 2015 compared to $167.0 million in the fourth quarter of 2014. Adjusted EBITDA for 2015 was $676.1 million, or 29.7 percent of revenue, compared to $668.3 million, or 30.1 percent of revenue, in 2014. EBITDA was $649.3 million in 2015 compared to $649.2 million in 2014.
Adjusted operating income1 for the fourth quarter of 2015 was $131.0 million, or 23.0 percent of revenue, compared to $141.2 million, or 25.1 percent of revenue, in the same quarter of 2014, a decrease of 7.2 percent. Operating income was $105.0 million in the fourth quarter of 2015 compared to $116.7 million in the fourth quarter of 2014. For the full year 2015, adjusted operating income was $551.8 million compared to $541.5 million in 2014. Operating income for 2015 was $456.5 million compared to 2014 operating income of $461.4 million.
Adjusted income from continuing operations1 was $63.7 million in the fourth quarter of 2015, a decrease of 6.5 percent from the same quarter of 2014. Income from continuing operations increased 21.4 percent to $42.3 million in the fourth quarter of 2015 compared to $34.9 million in the same quarter of 2014. In 2015, adjusted income from continuing operations was $265.9 million, an increase of 7.5 percent compared to 2014. Income from continuing operations in 2015 was $190.9 million compared to $134.6 million in 2014, an increase of 41.8 percent. The growth in 2015 net income was primarily due to decreased interest expense as a result of the Company’s debt repayment in 2015 and refinancing activities in 2014.
Balance Sheet, Cash Flow and Liquidity
At December 31, 2015, West Corporation had cash and cash equivalents totaling $182.3 million and working capital of $243.1 million. Interest expense was $38.4 million during the three months ended December 31, 2015 compared to $42.9 million during the comparable period the prior year. Interest expense was $154.3 million in 2015 compared to $188.1 million in 2014.
The Company’s net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities4, was 4.68x at December 31, 2015.
Cash flows from operations were $410.8 million for the twelve months ended December 31, 2015 compared to $409.5 million in 2014. Free cash flow1,2 decreased 1.9 percent to $274.0 million in 2015 compared to $279.2 million in 2014.
During the fourth quarter of 2015, the Company closed on a new $250 million term loan due 2021. The loan will bear interest at a rate of LIBOR + 3.50% with a 0.75% LIBOR floor. Proceeds of the new term loan, together with cash on hand, were used to retire in full the $250 million remaining outstanding on the term loan due July 2016.
“We ended 2015 in a strong financial position, with more than $180 million of cash on our balance sheet and no funded debt maturities until mid-2018. During the year we generated more than $400 million of cash from operations and reduced our debt by nearly $260 million while lowering our interest expense by nearly $34 million,” said Jan Madsen, chief financial officer.
During the fourth quarter of 2015, the Company invested $40.6 million, or 7.1 percent of revenue, in capital expenditures, primarily for software and computer equipment. For the full year 2015, the Company invested $136.8 million, or 6.0 percent of revenue, in capital expenditures.
2016 Guidance
For 2016, the Company expects the results presented in the table below. This guidance assumes no acquisitions or changes in the current operating environment, capital structure or exchange rates. The two most significant exchange rates used for 2016 guidance are the British Pound Sterling at 1.43 and the Euro at 1.05. These foreign currency exchange rates, reflected in the guidance below, would negatively impact 2016 revenue by approximately $24 million and 2016 adjusted diluted earnings per share by $0.05 as compared to 2015 actual rates.
In millions except per share and leverage ratio | |||||
2015 Actual | 2016 Guidance | ||||
Revenue | $ | 2,280.3 | $2,276 - $2,346 | ||
Adjusted EBITDA from Continuing Operations1 | $ | 676.1 | $653 - $679 | ||
EBITDA from Continuing Operations1 | $ | 649.3 | $627 - $653 | ||
Adjusted Operating Income1 | $ | 551.8 | $524 - $551 | ||
Operating Income | $ | 456.5 | $433 - $458 | ||
Adjusted Income from Continuing Operations1 | $ | 265.9 | $249 - $264 | ||
Income from Continuing Operations | $ | 190.9 | $177 - $191 | ||
Adjusted Earnings per Share from Continuing Operations - Diluted1 | $ | 3.11 | $2.93 - $3.09 | ||
Earnings per Share from Continuing Operations - Diluted | $ | 2.24 | $2.08 - $2.24 | ||
Cash Flows from Continuing Operating Activities | $ | 410.8 | $390 - $420 | ||
Capital Expenditures | $ | 136.8 | $135 - $160 | ||
Free Cash Flow from Continuing Operating Activities1,2 | $ | 274.0 | $235 - $265 | ||
Net Debt to pro forma Adjusted EBITDA ratio | 4.68x | 4.48x - 4.68x | |||
Full year average diluted share count | 85.4 | 84.8 - 85.2 | |||
“We expect the Company to generate significant free cash flow again this year. We plan to use this cash, along with the $180 million in cash on our balance sheet, to make West Corporation more valuable with acquisitions, debt reduction, dividends and buybacks, while continuing to invest in the core business. We currently expect to use $75 million for dividends, $100-$150 million to pay down debt and an equal amount for acquisitions and stock buybacks in 2016. We expect to end the year with an improving growth profile, a more diverse stream of revenue and less debt,” said Tom Barker.
“The previously disclosed lost telecom services client is expected to negatively impact 2016 revenue by approximately $45 million, primarily in the first half of the year,” continued Mr. Barker.
Share Repurchase Program
The Company’s Board of Directors has approved a share repurchase program under which the Company may repurchase up to an aggregate of $75 million of its outstanding common stock. Purchases under the program may be made from time to time through open market purchases, block transactions or privately negotiated transactions. The Company expects to fund the program using its cash on hand and cash generated from operations. The program may be suspended or discontinued at any time without prior notice.
Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, February 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 Corporation
West Corporation (Nasdaq:WSTC) is a global provider of communication and network infrastructure solutions. West helps manage or support essential enterprise communications with services that include unified 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. The statements contained in the 2016 guidance and other statements concerning the Company’s prospects and potential uses of cash are forward-looking statements. These statements reflect only West's current expectations and are not guarantees of future performance or results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties include, but are not limited to, 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 OPERATIONS | ||||||||||||||||
(Unaudited, in thousands except per share data) | ||||||||||||||||
Three Months Ended December 31, | ||||||||||||||||
2015 | 2014 | 2015 | ||||||||||||||
Actual | Actual | % Change | Adjusted (1) | |||||||||||||
Revenue | $ | 568,430 | $ | 562,938 | 1.0 | % | $ | 568,430 | ||||||||
Cost of services | 239,389 | 234,419 | 2.1 | % | 239,389 | |||||||||||
Selling, general and administrative expenses | 224,071 | 211,809 | 5.8 | % | 198,043 | |||||||||||
Operating income | 104,970 | 116,710 | -10.1 | % | 130,998 | |||||||||||
Interest expense, net | 38,411 | 42,911 | -10.5 | % | 33,787 | |||||||||||
Debt call premium and accelerated amortization of | ||||||||||||||||
deferred financing costs | 2,304 | 21,574 | -89.3 | % | - | |||||||||||
Other expense (income), net | (1,178 | ) | (1,493 | ) | NM | (1,178 | ) | |||||||||
Income from continuing operations before tax | 65,433 | 53,718 | 21.8 | % | 98,389 | |||||||||||
Income tax expense attributed to continuing operations | 23,093 | 18,834 | 22.6 | % | 34,723 | |||||||||||
Income from continuing operations | 42,340 | 34,884 | 21.4 | % | 63,666 | |||||||||||
Income from discontinued operations, net of income taxes | 19,935 | 13,374 | 49.1 | % | 19,935 | |||||||||||
Net income | $ | 62,275 | $ | 48,258 | 29.0 | % | $ | 83,601 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 83,243 | 84,178 | 83,243 | |||||||||||||
Diluted | 84,809 | 86,033 | 84,809 | |||||||||||||
Earnings per share - Basic: | ||||||||||||||||
Continuing operations | $ | 0.51 | $ | 0.41 | 24.4 | % | $ | 0.76 | ||||||||
Discontinued operations | 0.24 | 0.16 | 50.0 | % | 0.24 | |||||||||||
Total Earnings Per Share - Basic | $ | 0.75 | $ | 0.57 | 31.6 | % | $ | 1.00 | ||||||||
Earnings per share - Diluted: | ||||||||||||||||
Continuing operations | $ | 0.50 | $ | 0.41 | 22.0 | % | $ | 0.75 | ||||||||
Discontinued operations | 0.24 | 0.15 | 60.0 | % | 0.24 | |||||||||||
Total Earnings Per Share - Diluted | $ | 0.74 | $ | 0.56 | 32.1 | % | $ | 0.99 | ||||||||
SELECTED FINANCIAL DATA: | ||||||||||||||||
Contribution | ||||||||||||||||
Changes in Revenue - 4Q15 compared to 4Q14: | to Rev. Growth | |||||||||||||||
Revenue for the three months ended Dec. 31, 2014 | $ | 562,938 | ||||||||||||||
Revenue from acquired entities3 | 5,163 | 0.9 | % | |||||||||||||
Revenue from previously disclosed lost conferencing client | (2,400 | ) | -0.4 | % | ||||||||||||
Revenue from previously disclosed lost telecom services client | (13,600 | ) | -2.4 | % | ||||||||||||
Estimated impact of foreign currency exchange rates | (6,680 | ) | -1.2 | % | ||||||||||||
Adjusted organic growth, net | 23,009 | 4.1 | % | |||||||||||||
Revenue for the three months ended Dec. 31, 2015 | $ | 568,430 | 1.0 | % | ||||||||||||
Three Months Ended December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
SELECTED REPORTABLE SEGMENT DATA: | Actual | Actual | % Change | |||||||||||||
Revenue: | ||||||||||||||||
Unified Communications | $ | 357,780 | $ | 361,001 | -0.9 | % | ||||||||||
Safety Services | 72,863 | 74,264 | -1.9 | % | ||||||||||||
Interactive Services | 71,332 | 62,839 | 13.5 | % | ||||||||||||
Specialized Agent Services | 73,143 | 68,146 | 7.3 | % | ||||||||||||
Intersegment eliminations | (6,688 | ) | (3,312 | ) | NM | |||||||||||
Total | $ | 568,430 | $ | 562,938 | 1.0 | % | ||||||||||
Depreciation: | ||||||||||||||||
Unified Communications | $ | 17,713 | $ | 18,338 | -3.4 | % | ||||||||||
Safety Services | 5,027 | 5,202 | -3.4 | % | ||||||||||||
Interactive Services | 3,978 | 3,303 | 20.4 | % | ||||||||||||
Specialized Agent Services | 2,566 | 1,343 | 91.1 | % | ||||||||||||
Total | $ | 29,284 | $ | 28,186 | 3.9 | % | ||||||||||
Amortization: | ||||||||||||||||
Unified Communications - SG&A | $ | 3,618 | $ | 3,968 | -8.8 | % | ||||||||||
Safety Services - SG&A | 5,436 | 4,816 | 12.9 | % | ||||||||||||
Safety Services - COS | 3,088 | 3,219 | -4.1 | % | ||||||||||||
Interactive Services - SG&A | 4,512 | 3,922 | 15.0 | % | ||||||||||||
Specialized Agent Services - SG&A | 5,411 | 5,336 | 1.4 | % | ||||||||||||
Deferred financing costs | 4,624 | 5,075 | -8.9 | % | ||||||||||||
Accelerated deferred financing costs | 2,304 | 3,853 | -40.2 | % | ||||||||||||
Total | $ | 28,993 | $ | 30,189 | -4.0 | % | ||||||||||
Share-based compensation: | ||||||||||||||||
Unified Communications | $ | 3,399 | $ | 3,516 | -3.3 | % | ||||||||||
Safety Services | 973 | 982 | -0.9 | % | ||||||||||||
Interactive Services | 611 | 606 | 0.8 | % | ||||||||||||
Specialized Agent Services | 1,157 | 415 | 178.8 | % | ||||||||||||
Total | $ | 6,140 | $ | 5,519 | 11.3 | % | ||||||||||
Cost of services: | ||||||||||||||||
Unified Communications | $ | 163,296 | $ | 163,629 | -0.2 | % | ||||||||||
Safety Services | 27,441 | 26,790 | 2.4 | % | ||||||||||||
Interactive Services | 15,926 | 13,097 | 21.6 | % | ||||||||||||
Specialized Agent Services | 37,400 | 32,216 | 16.1 | % | ||||||||||||
Intersegment eliminations | (4,674 | ) | (1,313 | ) | NM | |||||||||||
Total | $ | 239,389 | $ | 234,419 | 2.1 | % | ||||||||||
Selling, general and administrative expenses: | ||||||||||||||||
Unified Communications | $ | 107,346 | $ | 108,951 | -1.5 | % | ||||||||||
Safety Services | 39,986 | 38,005 | 5.2 | % | ||||||||||||
Interactive Services | 48,968 | 40,292 | 21.5 | % | ||||||||||||
Specialized Agent Services | 29,785 | 26,560 | 12.1 | % | ||||||||||||
Intersegment eliminations | (2,014 | ) | (1,999 | ) | 0.8 | % | ||||||||||
Total | $ | 224,071 | $ | 211,809 | 5.8 | % | ||||||||||
Operating income: | ||||||||||||||||
Unified Communications | $ | 87,138 | $ | 88,421 | -1.5 | % | ||||||||||
Safety Services | 5,436 | 9,469 | -42.6 | % | ||||||||||||
Interactive Services | 6,438 | 9,450 | -31.9 | % | ||||||||||||
Specialized Agent Services | 5,958 | 9,370 | -36.4 | % | ||||||||||||
Total | $ | 104,970 | $ | 116,710 | -10.1 | % | ||||||||||
Operating margin: | ||||||||||||||||
Unified Communications | 24.4 | % | 24.5 | % | ||||||||||||
Safety Services | 7.5 | % | 12.8 | % | ||||||||||||
Interactive Services | 9.0 | % | 15.0 | % | ||||||||||||
Specialized Agent Services | 8.1 | % | 13.7 | % | ||||||||||||
Total | 18.5 | % | 20.7 | % | ||||||||||||
WEST CORPORATION | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited, in thousands except per share data) | ||||||||||||||||
Year Ended December 31, | ||||||||||||||||
2015 | 2014 | 2015 | ||||||||||||||
Actual | Actual | % Change | Adjusted (1) | |||||||||||||
Revenue | $ | 2,280,259 | $ | 2,218,594 | 2.8 | % | $ | 2,280,259 | ||||||||
Cost of services | 970,693 | 943,331 | 2.9 | % | 970,693 | |||||||||||
Selling, general and administrative expenses | 853,116 | 813,856 | 4.8 | % | 757,804 | |||||||||||
Operating income | 456,450 | 461,407 | -1.1 | % | 551,762 | |||||||||||
Interest expense, net | 154,068 | 187,834 | -18.0 | % | 134,427 | |||||||||||
Debt call premium and accelerated amortization of | ||||||||||||||||
deferred financing costs | 2,304 | 73,309 | NM | - | ||||||||||||
Other expense (income), net | 1,405 | (7,026 | ) | NM | 1,405 | |||||||||||
Income from continuing operations before tax | 298,673 | 207,290 | 44.1 | % | 415,930 | |||||||||||
Income tax expense attributed to continuing operations | 107,757 | 72,679 | 48.3 | % | 150,063 | |||||||||||
Income from continuing operations | 190,916 | 134,611 | 41.8 | % | 265,867 | |||||||||||
Income from discontinued operations, net of income taxes | 50,924 | 23,794 | 114.0 | % | 52,942 | |||||||||||
Net income | $ | 241,840 | $ | 158,405 | 52.7 | % | $ | 318,809 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 83,420 | 84,007 | 83,420 | |||||||||||||
Diluted | 85,394 | 85,507 | 85,394 | |||||||||||||
Earnings per share - Basic: | ||||||||||||||||
Continuing operations | $ | 2.29 | $ | 1.60 | 43.1 | % | $ | 3.19 | ||||||||
Discontinued operations | 0.61 | 0.29 | 110.3 | % | 0.62 | |||||||||||
Total Earnings Per Share - Basic | $ | 2.90 | $ | 1.89 | 53.4 | % | $ | 3.81 | ||||||||
Earnings per share - Diluted: | ||||||||||||||||
Continuing operations | $ | 2.24 | $ | 1.57 | 42.7 | % | $ | 3.11 | ||||||||
Discontinued operations | 0.59 | 0.28 | 110.7 | % | 0.62 | |||||||||||
Total Earnings Per Share - Diluted | $ | 2.83 | $ | 1.85 | 53.0 | % | $ | 3.73 | ||||||||
SELECTED FINANCIAL DATA: | ||||||||||||||||
Contribution | ||||||||||||||||
Changes in Revenue - 2015 compared to 2014: | to Rev. Growth | |||||||||||||||
Revenue for the fiscal year 2014 | $ | 2,218,594 | ||||||||||||||
Revenue from acquired entities3 | 71,905 | 3.2 | % | |||||||||||||
Revenue from previously disclosed lost conferencing client | (28,600 | ) | -1.3 | % | ||||||||||||
Revenue from previously disclosed lost telecom services client | (18,600 | ) | -0.8 | % | ||||||||||||
Estimated impact of foreign currency exchange rates | (36,720 | ) | -1.7 | % | ||||||||||||
Adjusted organic growth, net | 73,680 | 3.3 | % | |||||||||||||
Revenue for the fiscal year 2015 | $ | 2,280,259 | 2.8 | % | ||||||||||||
Year Ended December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
SELECTED REPORTABLE SEGMENT DATA: | Actual | Actual | % Change | |||||||||||||
Revenue: | ||||||||||||||||
Unified Communications | $ | 1,467,711 | $ | 1,491,639 | -1.6 | % | ||||||||||
Safety Services | 281,391 | 278,317 | 1.1 | % | ||||||||||||
Interactive Services | 265,664 | 235,481 | 12.8 | % | ||||||||||||
Specialized Agent Services | 276,983 | 224,621 | 23.3 | % | ||||||||||||
Intersegment eliminations | (11,490 | ) | (11,464 | ) | NM | |||||||||||
Total | $ | 2,280,259 | $ | 2,218,594 | 2.8 | % | ||||||||||
Depreciation: | ||||||||||||||||
Unified Communications | $ | 69,769 | $ | 71,677 | -2.7 | % | ||||||||||
Safety Services | 18,847 | 19,217 | -1.9 | % | ||||||||||||
Interactive Services | 14,385 | 12,167 | 18.2 | % | ||||||||||||
Specialized Agent Services | 8,213 | 4,242 | 93.6 | % | ||||||||||||
Total | $ | 111,214 | $ | 107,303 | 3.6 | % | ||||||||||
Amortization: | ||||||||||||||||
Unified Communications - SG&A | $ | 13,414 | $ | 17,771 | -24.5 | % | ||||||||||
Safety Services - SG&A | 19,055 | 16,682 | 14.2 | % | ||||||||||||
Safety Services - COS | 12,592 | 12,216 | 3.1 | % | ||||||||||||
Interactive Services - SG&A | 16,210 | 12,908 | 25.6 | % | ||||||||||||
Specialized Agent Services - SG&A | 19,779 | 13,657 | 44.8 | % | ||||||||||||
Deferred financing costs | 19,641 | 20,035 | -2.0 | % | ||||||||||||
Accelerated deferred financing costs | 2,304 | 11,601 | -80.1 | % | ||||||||||||
Total | $ | 102,995 | $ | 104,870 | -1.8 | % | ||||||||||
Share-based compensation: | ||||||||||||||||
Unified Communications | $ | 13,119 | $ | 9,649 | 36.0 | % | ||||||||||
Safety Services | 3,697 | 3,002 | 23.2 | % | ||||||||||||
Interactive Services | 2,328 | 1,822 | 27.8 | % | ||||||||||||
Specialized Agent Services | 3,781 | 1,101 | 243.4 | % | ||||||||||||
Total | $ | 22,925 | $ | 15,574 | 47.2 | % | ||||||||||
Cost of services: | ||||||||||||||||
Unified Communications | $ | 673,475 | $ | 685,593 | -1.8 | % | ||||||||||
Safety Services | 108,742 | 103,752 | 4.8 | % | ||||||||||||
Interactive Services | 59,125 | 49,118 | 20.4 | % | ||||||||||||
Specialized Agent Services | 135,672 | 109,584 | 23.8 | % | ||||||||||||
Intersegment eliminations | (6,321 | ) | (4,716 | ) | NM | |||||||||||
Total | $ | 970,693 | $ | 943,331 | 2.9 | % | ||||||||||
Selling, general and administrative expenses: | ||||||||||||||||
Unified Communications | $ | 415,815 | $ | 441,912 | -5.9 | % | ||||||||||
Safety Services | 150,064 | 144,092 | 4.1 | % | ||||||||||||
Interactive Services | 181,384 | 151,132 | 20.0 | % | ||||||||||||
Specialized Agent Services | 111,022 | 83,468 | 33.0 | % | ||||||||||||
Intersegment eliminations | (5,169 | ) | (6,748 | ) | -23.4 | % | ||||||||||
Total | $ | 853,116 | $ | 813,856 | 4.8 | % | ||||||||||
Operating income: | ||||||||||||||||
Unified Communications | $ | 378,421 | $ | 364,134 | 3.9 | % | ||||||||||
Safety Services | 22,585 | 30,473 | -25.9 | % | ||||||||||||
Interactive Services | 25,155 | 35,231 | -28.6 | % | ||||||||||||
Specialized Agent Services | 30,289 | 31,569 | -4.1 | % | ||||||||||||
Total | $ | 456,450 | $ | 461,407 | -1.1 | % | ||||||||||
Operating margin: | ||||||||||||||||
Unified Communications | 25.8 | % | 24.4 | % | ||||||||||||
Safety Services | 8.0 | % | 10.9 | % | ||||||||||||
Interactive Services | 9.5 | % | 15.0 | % | ||||||||||||
Specialized Agent Services | 10.9 | % | 14.1 | % | ||||||||||||
Total | 20.0 | % | 20.8 | % | ||||||||||||
WEST CORPORATION | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(Unaudited, in thousands) | |||||||||||
December 31, | December 31, | % | |||||||||
2015 | 2014 | Change | |||||||||
Assets: | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 182,338 | $ | 115,061 | 58.5 | % | |||||
Trust and restricted cash | 19,829 | 18,573 | 6.8 | % | |||||||
Accounts receivable, net | 373,087 | 355,625 | 4.9 | % | |||||||
Income taxes receivable | 19,332 | - | NM | ||||||||
Prepaid assets | 43,093 | 45,242 | -4.8 | % | |||||||
Deferred expenses | 65,781 | 65,317 | 0.7 | % | |||||||
Other current assets | 22,040 | 30,575 | -27.9 | % | |||||||
Assets held for sale | 17,672 | 304,605 | -94.2 | % | |||||||
Total current assets | 743,172 | 934,998 | -20.5 | % | |||||||
Property and Equipment: | |||||||||||
Property and equipment | 1,053,678 | 1,045,769 | 0.8 | % | |||||||
Accumulated depreciation and amortization | (718,834 | ) | (695,739 | ) | 3.3 | % | |||||
Net property and equipment | 334,844 | 350,030 | -4.3 | % | |||||||
Goodwill | 1,915,690 | 1,884,920 | 1.6 | % | |||||||
Intangible assets | 370,021 | 388,166 | -4.7 | % | |||||||
Other assets | 248,552 | 259,961 | -4.4 | % | |||||||
Total assets | $ | 3,612,279 | $ | 3,818,075 | -5.4 | % | |||||
Liabilities and Stockholders' Deficit: | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 92,935 | $ | 91,353 | 1.7 | % | |||||
Deferred revenue | 161,828 | 144,413 | 12.1 | % | |||||||
Accrued expenses | 220,926 | 228,424 | -3.3 | % | |||||||
Current maturities of long-term debt | 24,375 | 16,246 | 50.0 | % | |||||||
Liabilities held for sale | - | 84,788 | NM | ||||||||
Total current liabilities | 500,064 | 565,224 | -11.5 | % | |||||||
Long-term obligations | 3,375,750 | 3,642,540 | -7.3 | % | |||||||
Deferred income taxes | 102,530 | 96,632 | 6.1 | % | |||||||
Other long-term liabilities | 186,073 | 173,320 | 7.4 | % | |||||||
Total liabilities | 4,164,417 | 4,477,716 | -7.0 | % | |||||||
Stockholders' Deficit: | |||||||||||
Common stock | 85 | 84 | 1.2 | % | |||||||
Additional paid-in capital | 2,193,193 | 2,155,864 | 1.7 | % | |||||||
Retained deficit | (2,607,415 | ) | (2,772,775 | ) | -6.0 | % | |||||
Accumulated other comprehensive loss | (72,736 | ) | (37,506 | ) | 93.9 | % | |||||
Treasury stock at cost | (65,265 | ) | (5,308 | ) | NM | ||||||
Total stockholders' deficit | (552,138 | ) | (659,641 | ) | -16.3 | % | |||||
Total liabilities and stockholders' deficit | $ | 3,612,279 | $ | 3,818,075 | -5.4 | % | |||||
Supplemental Financial Information
The following is a summary of the unaudited quarterly results by reportable segment for the year ended December 31, 2015 and annual results for the previous three years.
Year Ended | Year Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||
Dec. 31, | Dec. 31, | March 31, | June 30, | Sept. 30, | Dec. 31, | Dec. 31, | ||||||||||||||||||||||
SELECTED SEGMENT DATA: | 2013 | 2014 | 2015 | 2015 | 2015 | 2015 | 2015 | |||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||
Unified Communications | $ | 1,475,016 | $ | 1,491,639 | $ | 369,458 | $ | 374,651 | $ | 365,822 | $ | 357,780 | $ | 1,467,711 | ||||||||||||||
Safety Services | 259,120 | 278,317 | 68,578 | 66,138 | 73,812 | 72,863 | 281,391 | |||||||||||||||||||||
Interactive Services | 224,440 | 235,481 | 62,467 | 63,628 | 68,237 | 71,332 | 265,664 | |||||||||||||||||||||
Specialized Agent Services | 170,345 | 224,621 | 67,078 | 68,566 | 68,196 | 73,143 | 276,983 | |||||||||||||||||||||
Intersegment eliminations | (7,949 | ) | (11,464 | ) | (2,091 | ) | (1,092 | ) | (1,619 | ) | (6,688 | ) | (11,490 | ) | ||||||||||||||
Total | $ | 2,120,972 | $ | 2,218,594 | $ | 565,490 | $ | 571,891 | $ | 574,448 | $ | 568,430 | $ | 2,280,259 | ||||||||||||||
Cost of services: | ||||||||||||||||||||||||||||
Unified Communications | $ | 672,407 | $ | 685,593 | $ | 168,315 | $ | 173,127 | $ | 168,737 | $ | 163,296 | $ | 673,475 | ||||||||||||||
Safety Services | 94,464 | 103,752 | 26,505 | 26,678 | 28,118 | 27,441 | 108,742 | |||||||||||||||||||||
Interactive Services | 46,465 | 49,118 | 13,662 | 13,569 | 15,968 | 15,926 | 59,125 | |||||||||||||||||||||
Specialized Agent Services | 84,551 | 109,584 | 31,571 | 32,462 | 34,239 | 37,400 | 135,672 | |||||||||||||||||||||
Intersegment eliminations | (3,259 | ) | (4,716 | ) | (352 | ) | (570 | ) | (725 | ) | (4,674 | ) | (6,321 | ) | ||||||||||||||
Total | $ | 894,628 | $ | 943,331 | $ | 239,701 | $ | 245,266 | $ | 246,337 | $ | 239,389 | $ | 970,693 | ||||||||||||||
Selling, general and administrative expenses: | ||||||||||||||||||||||||||||
Unified Communications | $ | 444,018 | $ | 441,912 | $ | 107,230 | $ | 103,324 | $ | 97,915 | $ | 107,346 | $ | 415,815 | ||||||||||||||
Safety Services | 140,750 | 144,092 | 39,122 | 36,411 | 34,545 | 39,986 | 150,064 | |||||||||||||||||||||
Interactive Services | 134,421 | 151,132 | 43,405 | 43,552 | 45,459 | 48,968 | 181,384 | |||||||||||||||||||||
Specialized Agent Services | 60,551 | 83,468 | 27,078 | 27,427 | 26,732 | 29,785 | 111,022 | |||||||||||||||||||||
Intersegment eliminations | (4,690 | ) | (6,748 | ) | (1,739 | ) | (522 | ) | (894 | ) | (2,014 | ) | (5,169 | ) | ||||||||||||||
Total | $ | 775,050 | $ | 813,856 | $ | 215,096 | $ | 210,192 | $ | 203,757 | $ | 224,071 | $ | 853,116 | ||||||||||||||
Operating income: | ||||||||||||||||||||||||||||
Unified Communications | $ | 358,590 | $ | 364,134 | $ | 93,913 | $ | 98,200 | $ | 99,170 | $ | 87,138 | $ | 378,421 | ||||||||||||||
Safety Services | 23,907 | 30,473 | 2,951 | 3,049 | 11,149 | 5,436 | 22,585 | |||||||||||||||||||||
Interactive Services | 43,554 | 35,231 | 5,400 | 6,507 | 6,810 | 6,438 | 25,155 | |||||||||||||||||||||
Specialized Agent Services | 25,243 | 31,569 | 8,429 | 8,677 | 7,225 | 5,958 | 30,289 | |||||||||||||||||||||
Total | $ | 451,294 | $ | 461,407 | $ | 110,693 | $ | 116,433 | $ | 124,354 | $ | 104,970 | $ | 456,450 | ||||||||||||||
Operating margin: | ||||||||||||||||||||||||||||
Unified Communications | 24.3 | % | 24.4 | % | 25.4 | % | 26.2 | % | 27.1 | % | 24.4 | % | 25.8 | % | ||||||||||||||
Safety Services | 9.2 | % | 10.9 | % | 4.3 | % | 4.6 | % | 15.1 | % | 7.5 | % | 8.0 | % | ||||||||||||||
Interactive Services | 19.4 | % | 15.0 | % | 8.6 | % | 10.2 | % | 10.0 | % | 9.0 | % | 9.5 | % | ||||||||||||||
Specialized Agent Services | 14.8 | % | 14.1 | % | 12.6 | % | 12.7 | % | 10.6 | % | 8.1 | % | 10.9 | % | ||||||||||||||
Total | 21.3 | % | 20.8 | % | 19.6 | % | 20.4 | % | 21.6 | % | 18.5 | % | 20.0 | % | ||||||||||||||
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 acquisitions 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 from operating income.
Reconciliation of Adjusted Operating Income from Operating Income | |||||||||||
Unaudited, in thousands | |||||||||||
Three Months Ended December 31, | |||||||||||
2015 | 2014 | % Change | |||||||||
Operating income | $ | 104,970 | $ | 116,710 | -10.1 | % | |||||
Amortization of acquired intangible assets | 18,977 | 18,040 | |||||||||
Share-based compensation | 6,140 | 5,519 | |||||||||
Secondary equity offering expense | (186 | ) | - | ||||||||
M&A and acquisition-related costs | 1,097 | 909 | |||||||||
Adjusted operating income | $ | 130,998 | $ | 141,178 | -7.2 | % | |||||
Year Ended December 31, | |||||||||||
2015 | 2014 | % Change | |||||||||
Operating income | $ | 456,450 | $ | 461,407 | -1.1 | % | |||||
Amortization of acquired intangible assets | 68,458 | 61,018 | |||||||||
Share-based compensation | 22,925 | 15,574 | |||||||||
Secondary equity offering expense | 855 | - | |||||||||
M&A and acquisition-related costs | 3,074 | 3,467 | |||||||||
Adjusted operating income | $ | 551,762 | $ | 541,466 | 1.9 | % | |||||
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 bond redemption premiums, acquisitions 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 from net income.
Reconciliation of Adjusted Net Income from Net Income | |||||||||||
Unaudited, in thousands except per share data | |||||||||||
CONTINUING OPERATIONS | Three Months Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Income from continuing operations | $ | 42,340 | $ | 34,884 | 21.4 | % | |||||
Amortization of acquired intangible assets | 18,977 | 18,040 | |||||||||
Amortization of deferred financing costs | 4,624 | 5,075 | |||||||||
Accelerated amortization of deferred financing costs | 2,304 | 3,853 | |||||||||
Share-based compensation | 6,140 | 5,519 | |||||||||
Debt call premiums | - | 17,721 | |||||||||
Secondary equity offering expense | (186 | ) | - | ||||||||
M&A and acquisition-related costs | 1,097 | 909 | |||||||||
Pre-tax total | 32,956 | 51,117 | |||||||||
Income tax expense on adjustments | 11,630 | 17,921 | |||||||||
Adjusted income from continuing operations | $ | 63,666 | $ | 68,080 | -6.5 | % | |||||
Diluted shares outstanding | 84,809 | 86,033 | |||||||||
Adjusted EPS from continuing operations - diluted | $ | 0.75 | $ | 0.79 | -5.1 | % | |||||
DISCONTINUED OPERATIONS | Three Months Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Income from discontinued operations | $ | 19,935 | $ | 13,374 | 49.1 | % | |||||
Amortization of acquired intangible assets | - | 6,191 | |||||||||
Share-based compensation | - | 30 | |||||||||
M&A and acquisition-related costs | - | 1,268 | |||||||||
Pre-tax total | - | 7,489 | |||||||||
Income tax benefit on adjustments | - | (10,314 | ) | ||||||||
Adjusted income from discontinued operations | $ | 19,935 | $ | 31,177 | -36.1 | % | |||||
Diluted shares outstanding | 84,809 | 86,033 | |||||||||
Adjusted EPS from discontinued operations - diluted | $ | 0.24 | $ | 0.36 | -33.3 | % | |||||
CONSOLIDATED | Three Months Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Net income | $ | 62,275 | $ | 48,258 | 29.0 | % | |||||
Amortization of acquired intangible assets | 18,977 | 24,231 | |||||||||
Amortization of deferred financing costs | 4,624 | 5,075 | |||||||||
Accelerated amortization of deferred financing costs | 2,304 | 3,853 | |||||||||
Share-based compensation | 6,140 | 5,549 | |||||||||
Debt call premiums | - | 17,721 | |||||||||
Secondary equity offering expense | (186 | ) | - | ||||||||
M&A and acquisition-related costs | 1,097 | 2,177 | |||||||||
Pre-tax total | 32,956 | 58,606 | |||||||||
Income tax expense on adjustments | 11,630 | 7,607 | |||||||||
Adjusted net income | $ | 83,601 | $ | 99,257 | -15.8 | % | |||||
Diluted shares outstanding | 84,809 | 86,033 | |||||||||
Adjusted EPS - diluted | $ | 0.98 | $ | 1.15 | -14.8 | % | |||||
Reconciliation of Adjusted Net Income from Net Income | |||||||||||
Unaudited, in thousands except per share data | |||||||||||
CONTINUING OPERATIONS | Year Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Income from continuing operations | $ | 190,916 | $ | 134,611 | 41.8 | % | |||||
Amortization of acquired intangible assets | 68,458 | 61,018 | |||||||||
Amortization of deferred financing costs | 19,641 | 20,035 | |||||||||
Accelerated amortization of deferred financing costs | 2,304 | 11,601 | |||||||||
Share-based compensation | 22,925 | 15,574 | |||||||||
Debt call premiums | - | 61,708 | |||||||||
Secondary equity offering expense | 855 | - | |||||||||
M&A and acquisition-related costs | 3,074 | 3,467 | |||||||||
Pre-tax total | 117,257 | 173,403 | |||||||||
Income tax expense on adjustments | 42,306 | 60,792 | |||||||||
Adjusted income from continuing operations | $ | 265,867 | $ | 247,222 | 7.5 | % | |||||
Diluted shares outstanding | 85,394 | 85,507 | |||||||||
Adjusted EPS from continuing operations - diluted | $ | 3.11 | $ | 2.89 | 7.6 | % | |||||
DISCONTINUED OPERATIONS | Year Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Income from discontinued operations | $ | 50,924 | $ | 23,794 | 114.0 | % | |||||
Amortization of acquired intangible assets | 41 | 7,700 | |||||||||
Share-based compensation | 1,576 | 154 | |||||||||
M&A and acquisition-related costs | 386 | 1,916 | |||||||||
Pre-tax total | 2,003 | 9,770 | |||||||||
Income tax benefit on adjustments | (15 | ) | (4,375 | ) | |||||||
Adjusted income from discontinued operations | $ | 52,942 | $ | 37,939 | 39.5 | % | |||||
Diluted shares outstanding | 85,394 | 85,507 | |||||||||
Adjusted EPS from discontinued operations - diluted | $ | 0.62 | $ | 0.44 | 40.9 | % | |||||
CONSOLIDATED | Year Ended December 31, | ||||||||||
2015 | 2014 | % Change | |||||||||
Net income | $ | 241,840 | $ | 158,405 | 52.7 | % | |||||
Amortization of acquired intangible assets | 68,499 | 68,718 | |||||||||
Amortization of deferred financing costs | 19,641 | 20,035 | |||||||||
Accelerated amortization of deferred financing costs | 2,304 | 11,601 | |||||||||
Share-based compensation | 24,501 | 15,728 | |||||||||
Debt call premiums | - | 61,708 | |||||||||
Secondary equity offering expense | 855 | - | |||||||||
M&A and acquisition-related costs | 3,460 | 5,383 | |||||||||
Pre-tax total | 119,260 | 183,173 | |||||||||
Income tax expense on adjustments | 42,291 | 56,417 | |||||||||
Adjusted net income | $ | 318,809 | $ | 285,161 | 11.8 | % | |||||
Diluted shares outstanding | 85,394 | 85,507 | |||||||||
Adjusted EPS - diluted | $ | 3.73 | $ | 3.33 | 12.0 | % | |||||
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 December 31, | Year Ended December 31, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||||
Cash flows from operating activities | $ | 127,547 | $ | 106,899 | 19.3 | % | $ | 410,768 | $ | 409,491 | 0.3 | % | |||||||||||
Cash capital expenditures | 40,628 | 31,432 | 29.3 | % | 136,810 | 130,318 | 5.0 | % | |||||||||||||||
Free cash flow | $ | 86,919 | $ | 75,467 | 15.2 | % | $ | 273,958 | $ | 279,173 | -1.9 | % | |||||||||||
DISCONTINUED OPERATIONS | Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
Cash flows from operating activities | $ | 15,419 | $ | 25,574 | $ | 7,222 | $ | 53,232 | |||||||||||||||
Cash capital expenditures | - | 5,602 | 1,930 | 20,398 | |||||||||||||||||||
Free cash flow | $ | 15,419 | $ | 19,972 | $ | 5,292 | $ | 32,834 | |||||||||||||||
CONSOLIDATED | Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||||
Cash flows from operating activities | $ | 142,966 | $ | 132,473 | 7.9 | % | $ | 417,990 | $ | 462,723 | -9.7 | % | |||||||||||
Cash capital expenditures | 40,628 | 37,034 | 9.7 | % | 138,740 | 150,716 | -7.9 | % | |||||||||||||||
Free cash flow | $ | 102,338 | $ | 95,439 | 7.2 | % | $ | 279,250 | $ | 312,007 | -10.5 | % | |||||||||||
EBITDA and Adjusted EBITDA Reconciliation
The common definition of EBITDA is “Earnings Before Interest Expense, Taxes, Depreciation and Amortization.” In evaluating liquidity and performance, the Company uses “Adjusted EBITDA.” The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization 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, 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. The Company utilizes this non-GAAP measure to make decisions about the use of resources, analyze performance and measure management’s performance with stated objectives. 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 Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Cash flows from operating activities | $ | 127,547 | $ | 106,899 | $ | 410,768 | $ | 409,491 | |||||||
Income tax expense | 23,093 | 18,834 | 107,757 | 72,679 | |||||||||||
Deferred income tax benefit (expense) | (14,888 | ) | (1,052 | ) | (8,930 | ) | 26,632 | ||||||||
Interest expense and other financing charges | 41,236 | 63,825 | 158,356 | 261,404 | |||||||||||
Provision for share-based compensation | (6,140 | ) | (5,519 | ) | (22,925 | ) | (15,574 | ) | |||||||
Amortization of deferred financing costs | (4,624 | ) | (5,075 | ) | (19,641 | ) | (20,035 | ) | |||||||
Accelerated amortization of deferred financing costs | (2,304 | ) | (3,853 | ) | (2,304 | ) | (11,601 | ) | |||||||
Other | (448 | ) | 323 | (672 | ) | 316 | |||||||||
Changes in operating assets and liabilities, | |||||||||||||||
net of business acquisitions | (5,454 | ) | (7,392 | ) | 26,884 | (74,081 | ) | ||||||||
EBITDA | 158,018 | 166,990 | 649,293 | 649,231 | |||||||||||
Provision for share-based compensation | 6,140 | 5,519 | 22,925 | 15,574 | |||||||||||
Secondary equity offering expense | (186 | ) | - | 855 | - | ||||||||||
M&A and acquisition-related costs | 1,097 | 909 | 3,074 | 3,467 | |||||||||||
Adjusted EBITDA | $ | 165,069 | $ | 173,418 | $ | 676,147 | $ | 668,272 | |||||||
Cash flows from operating activities | $ | 127,547 | $ | 106,899 | $ | 410,768 | $ | 409,491 | |||||||
Cash flows used in investing activities | $ | (118,651 | ) | $ | (38,438 | ) | $ | (232,433 | ) | $ | (524,376 | ) | |||
Cash flows used in financing activities | $ | (23,453 | ) | $ | (135,882 | ) | $ | (388,243 | ) | $ | (25,027 | ) | |||
DISCONTINUED OPERATIONS | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Cash flows from operating activities | $ | 15,419 | $ | 25,574 | $ | 7,222 | $ | 53,232 | |||||||
Income tax expense | (19,717 | ) | (11,637 | ) | (372 | ) | (2,169 | ) | |||||||
Deferred income tax expense | 4,516 | 5,571 | 2,223 | 2,514 | |||||||||||
Provision for share-based compensation | - | (30 | ) | (1,576 | ) | (154 | ) | ||||||||
Other | - | (2 | ) | 29,596 | (4 | ) | |||||||||
Changes in operating assets and liabilities, | |||||||||||||||
net of business acquisitions | - | (7,238 | ) | 13,500 | (8,409 | ) | |||||||||
EBITDA | 218 | 12,238 | 50,593 | 45,010 | |||||||||||
Provision for share-based compensation | - | 30 | 1,576 | 154 | |||||||||||
M&A and acquisition-related costs | - | 1,268 | 386 | 1,916 | |||||||||||
Gain on sale of business | (182 | ) | - | (46,838 | ) | - | |||||||||
Adjusted EBITDA | $ | 36 | $ | 13,536 | $ | 5,717 | $ | 47,080 | |||||||
Cash flows from operating activities | $ | 15,395 | $ | 25,574 | $ | 7,222 | $ | 53,232 | |||||||
Cash flows from (used in) investing activities | $ | - | $ | (5,336 | ) | $ | 275,815 | $ | (20,530 | ) | |||||
Cash flows used in financing activities | $ | - | $ | - | $ | - | $ | - | |||||||
Reconciliation of EBITDA and Adjusted EBITDA from Operating Cash Flow, continued | |||||||||||||||
CONSOLIDATED | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Cash flows from operating activities | $ | 142,966 | $ | 132,473 | $ | 417,990 | $ | 462,723 | |||||||
Income tax expense | 3,376 | 7,197 | 107,385 | 70,510 | |||||||||||
Deferred income tax benefit (expense) | (10,372 | ) | 4,519 | (6,707 | ) | 29,146 | |||||||||
Interest expense and other financing charges | 41,236 | 63,825 | 158,356 | 261,404 | |||||||||||
Provision for share-based compensation | (6,140 | ) | (5,549 | ) | (24,501 | ) | (15,728 | ) | |||||||
Amortization of deferred financing costs | (4,624 | ) | (5,075 | ) | (19,641 | ) | (20,035 | ) | |||||||
Accelerated amortization of deferred financing costs | (2,304 | ) | (3,853 | ) | (2,304 | ) | (11,601 | ) | |||||||
Other | (448 | ) | 321 | 28,924 | 312 | ||||||||||
Changes in operating assets and liabilities, | |||||||||||||||
net of business acquisitions | (5,454 | ) | (14,630 | ) | 40,384 | (82,490 | ) | ||||||||
EBITDA | 158,236 | 179,228 | 699,886 | 694,241 | |||||||||||
Provision for share-based compensation | 6,140 | 5,549 | 24,501 | 15,728 | |||||||||||
Secondary equity offering expense | (186 | ) | - | 855 | - | ||||||||||
M&A and acquisition-related costs | 1,097 | 2,177 | 3,460 | 5,383 | |||||||||||
Gain on sale of business | (182 | ) | - | (46,838 | ) | - | |||||||||
Adjusted EBITDA | $ | 165,105 | $ | 186,954 | $ | 681,864 | $ | 715,352 | |||||||
CONSOLIDATED | |||||||||||||||
Cash flows from operating activities | $ | 142,966 | $ | 132,473 | $ | 417,990 | $ | 462,723 | |||||||
Cash flows from (used in) investing activities | $ | (118,651 | ) | $ | (43,774 | ) | $ | 43,382 | $ | (544,906 | ) | ||||
Cash flows used in financing activities | $ | (23,453 | ) | $ | (135,882 | ) | $ | (388,243 | ) | $ | (25,027 | ) | |||
Reconciliation of EBITDA and Adjusted EBITDA from Net Income | |||||||||||||||
Unaudited, in thousands | |||||||||||||||
CONTINUING OPERATIONS | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Income from continuing operations | $ | 42,340 | $ | 34,884 | $ | 190,916 | $ | 134,611 | |||||||
Interest expense and other financing charges | 41,236 | 63,825 | 158,356 | 261,404 | |||||||||||
Depreciation and amortization | 51,349 | 49,447 | 192,264 | 180,537 | |||||||||||
Income tax expense | 23,093 | 18,834 | 107,757 | 72,679 | |||||||||||
EBITDA | 158,018 | 166,990 | 649,293 | 649,231 | |||||||||||
Provision for share-based compensation | 6,140 | 5,519 | 22,925 | 15,574 | |||||||||||
Secondary equity offering expense | (186 | ) | - | 855 | - | ||||||||||
M&A and acquisition-related costs | 1,097 | 909 | 3,074 | 3,467 | |||||||||||
Adjusted EBITDA | $ | 165,069 | $ | 173,418 | $ | 676,147 | $ | 668,272 | |||||||
DISCONTINUED OPERATIONS | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Income from discontinued operations | $ | 19,935 | $ | 13,374 | $ | 50,924 | $ | 23,794 | |||||||
Depreciation and amortization | - | 10,501 | 41 | 23,385 | |||||||||||
Income tax expense | (19,717 | ) | (11,637 | ) | (372 | ) | (2,169 | ) | |||||||
EBITDA | 218 | 12,238 | 50,593 | 45,010 | |||||||||||
Provision for share-based compensation | - | 30 | 1,576 | 154 | |||||||||||
M&A and acquisition-related costs | - | 1,268 | 386 | 1,916 | |||||||||||
Gain on sale of business | (182 | ) | - | (46,838 | ) | - | |||||||||
Adjusted EBITDA | $ | 36 | $ | 13,536 | $ | 5,717 | $ | 47,080 | |||||||
CONSOLIDATED | Three Months Ended Dec. 31, | Year Ended Dec. 31, | |||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income | $ | 62,275 | $ | 48,258 | $ | 241,840 | $ | 158,405 | |||||||
Interest expense and other financing charges | 41,236 | 63,825 | 158,356 | 261,404 | |||||||||||
Depreciation and amortization | 51,349 | 59,948 | 192,305 | 203,922 | |||||||||||
Income tax expense | 3,376 | 7,197 | 107,385 | 70,510 | |||||||||||
EBITDA | 158,236 | 179,228 | 699,886 | 694,241 | |||||||||||
Provision for share-based compensation | 6,140 | 5,549 | 24,501 | 15,728 | |||||||||||
Secondary equity offering expense | (186 | ) | - | 855 | - | ||||||||||
M&A and acquisition-related costs | 1,097 | 2,177 | 3,460 | 5,383 | |||||||||||
Gain on sale of business | (182 | ) | - | (46,838 | ) | - | |||||||||
Adjusted EBITDA | $ | 165,105 | $ | 186,954 | $ | 681,864 | $ | 715,352 | |||||||
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 for the fourth quarter of 2015 includes SchoolReach, SharpSchool, Magnetic North and ClientTell. Revenue growth attributable to acquired entities for the full year 2015 includes SchoolMessenger, Health Advocate, 911 Enable, SchoolReach, SharpSchool, Magnetic North and ClientTell.
4 Based on loan covenants. Covenant loan ratio is debt net of cash and excludes accounts receivable securitization debt.
5 Adjusted organic 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.
NM: Not Meaningful