West Corporation Reports First Quarter 2017 Results

West Announces Agreement to be Acquired by Certain Funds Affiliated with Apollo Global Management

West Cancels First Quarter Conference Call in Light of Transaction Announcement

OMAHA, Neb., May 09, 2017 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a global provider of communication and network infrastructure services, today announced its first quarter 2017 results.

The Company also today separately announced that it entered into a definitive merger agreement with affiliates of certain funds managed by affiliates of Apollo Global Management, LLC (NYSE:APO), a leading global alternative investment manager, to be acquired for $23.50 per share in cash.

Dividend
Due to the merger agreement, West Corporation’s Board of Directors has suspended the payment of dividends.

First Quarter Results
For the first quarter of 2017, revenue was $572.5 million, an increase of 0.3 percent. Adjusted organic revenue growth⁵ for the first quarter was 0.7 percent.

First quarter operating income was $108.2 million, a decrease of 0.6 percent. EBITDA¹ increased 0.6 percent to $157.8 million. Adjusted operating income¹ decreased 3.6 percent to $129.3 million and Adjusted EBITDA^[1] decreased 0.7 percent to $164.5 million.

Net income increased 21.4 percent to $54.1 million, primarily due to lower tax and interest expense. The reduction in the effective tax rate in the first quarter of 2017 was due primarily to several tax settlements impacting the balance in the Company’s uncertain tax position liability. Adjusted net income¹ was $68.8 million, an increase of 8.2 percent.

“Our first quarter revenue was slightly below our expectations, primarily due to changes in product mix and a decrease in the average rate per minute for automated conferencing services negatively impacting revenue in the Unified Communications Services segment,” said Tom Barker, chairman and chief executive officer. “West Corporation continued to grow its Safety Services, Interactive Services and Specialized Agent Services segments in the first quarter, as the Company won new clients, experienced increased volumes and saw further adoption of new technologies.”

First quarter results by segment were as follows:

• Unified Communications Services revenue decreased 3.2 percent; adjusted organic growth⁵ was negative 2.0 percent due to lower revenue in Conferencing, partially offset by low double-digit growth in UCaaS. Operating income decreased 8.6 percent primarily due to changes in product mix and a decrease in the average rate per minute for automated conferencing services. Adjusted operating income¹ decreased 10.5 percent.
   
• Safety Services revenue increased 7.2 percent; organic revenue increased 6.0 percent, primarily due to growth from clients adopting new technologies. Operating income increased $10.3 million to $19.3 million due to revenue growth and cost savings initiatives. Adjusted operating income¹ increased $9.5 million, or 70.0 percent, to $23.1 million.
   
• Interactive Services revenue increased 8.0 percent; organic revenue growth was 6.3 percent, primarily due to increased volumes from new and existing clients. Operating income increased 43.9 percent to $8.4 million and adjusted operating income¹ increased 15.6 percent to $14.1 million, primarily due to revenue growth.
   
• Specialized Agent Services revenue increased 4.9 percent primarily due to growth in healthcare advocacy services. Operating income decreased $1.0 million to $3.6 million and adjusted operating income¹ declined $1.6 million, primarily due to severance expense in the Revenue Generation line of business.

Balance Sheet, Cash Flow and Liquidity – First Quarter Highlights

• Cash flow from operations were $52.8 million, a decrease of 12.1 percent, primarily due to the timing of payroll and interest expense payments.
   
• Free cash flow^1,2 increased 10.2 percent to $26.1 million due to lower capital expenditures. The Company invested $26.7 million, or 4.7 percent of revenue, in capital expenditures during the first quarter of 2017.
   
• 4.45x net leverage (net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company’s senior secured term debt facilities⁴) unchanged from December 31, 2016.
   
• Repaid $15.7 million in debt; cash balance of $172.6 million at March 31, 2017.

Cancelling First Quarter Conference Call
In light of the announced merger agreement with funds affiliated with Apollo Global Management, West Corporation has cancelled its previously scheduled conference call.

About West Corporation
West 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, within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to the proposed transaction and business combination between Apollo and the Company, including statements regarding the benefits of the proposed transaction and the anticipated timing of the proposed transaction. Forward-looking statements can be generally 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 risk that the proposed transaction may not be completed in a timely manner, or at all, which may adversely affect the Company’s business and the price of the common stock of the Company; the failure to satisfy the conditions to the consummation of the proposed transaction, including the adoption of the merger agreement by the stockholders of the Company and the receipt of certain governmental and regulatory approvals; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the effect of the announcement or pendency of the proposed transaction on the Company’s business relationships, operating results, and business generally; risks that the proposed transaction disrupts current plans and operations of the Company and potential difficulties in the Company’s employee retention as a result of the proposed transaction; risks related to diverting management’s attention from the Company’s ongoing business operations; the outcome of any legal proceedings that may be instituted against the Company, its officers or directors related to the merger agreement or the proposed transaction; the possibility that competing offers or acquisition proposals for the Company will be made; risks regarding the failure to obtain the necessary financing to complete the proposed transaction; risks related to the equity and debt financing and related guarantee arrangements entered into in connection with the proposed transaction; 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.

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 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. 

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, significant restructuring 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. 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 net income from net income. 

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.

EBITDA and Adjusted EBITDA Reconciliation
The common definition of EBITDA is “Earnings Before Interest Expense, Taxes, Depreciation and Amortization.” In evaluating liquidity and performance, the Company uses “Adjusted EBITDA.” The Company defines Adjusted EBITDA as earnings before interest expense, share-based compensation, taxes, depreciation and amortization, gain on assets held for sale and transaction costs. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. Although the Company uses Adjusted EBITDA as a measure of its liquidity and performance, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as depreciation, amortization and interest, necessary to operate the business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operating activities or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here as the Company understands investors use it as a measure of its historical ability to service debt and compliance with covenants in its senior credit facilities. Further, Adjusted EBITDA is presented here as the Company uses it to measure its performance and to conduct and evaluate its business during its regular review of operating results for the periods presented. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA from cash flow from operating activities and net income.