News Column

West Corporation Reports Fourth Quarter and Full Year 2013 Results and Provides 2014 Guidance

January 30, 2014

OMAHA, Neb. , Jan. 30, 2014 (GLOBE NEWSWIRE) -- West Corporation (Nasdaq:WSTC), a leading provider of technology-driven communication services, today announced its fourth quarter and full year 2013 results. Key Quarterly Highlights: Unaudited, in millions except per share Three Months Ended Dec. 31 , Twelve Months Ended Dec. 31 , 2013 2012 % Change 2013 2012 % Change Consolidated Revenue $ 687.6 $ 680.2 1.1% $2,685.9 $2,638.0 1.8% Platform-based Revenue 1 495.8 479.9 3.3% 1,955.2 1,886.5 3.6% Adjusted EBITDA 2 178.4 186.5 -4.3% 704.4 686.9 2.6% EBITDA 2 175.8 182.0 -3.4% 664.7 663.1 0.2% Adjusted Operating Income 2 144.9 146.3 -1.0% 575.3 567.8 1.3% Operating Income 128.8 125.1 2.9% 480.2 478.2 0.4% Pro Forma Adjusted Net Income 2,3 N/A N/A N/A 244.8 N/A N/A Adjusted Net Income 2 63.6 47.0 35.6% 229.3 190.2 20.6% Net Income 50.3 32.7 53.9% 143.2 125.5 14.1% Pro Forma Adjusted EPS - Diluted 2 N/A N/A N/A 2.88 N/A N/A Adjusted Earnings per Share - Diluted 2 0.75 0.74 1.4% 2.86 2.99 -4.3% Earnings per Share - Diluted 0.59 0.51 15.7% 1.78 1.98 -10.1% Free Cash Flow 2,4 66.9 37.3 79.3% 255.7 193.4 32.2% Cash Flows from Operations 107.4 75.0 43.2% 384.1 318.9 20.4% Cash Flows used in Investing (46.3) (36.3) 27.6% (135.5) (201.6) -32.8% Cash Flows used in Financing (42.7) (9.3) NM (196.8) (33.1) NM " West Corporation finished 2013 with its 27 th consecutive year of revenue growth, record adjusted EBITDA and record cash flows from operations," said Tom Barker , CEO. "The strong profitability and cash flow generation of the Company reinforces the strength of our business model and provides us with the flexibility to return capital to our shareholders and fund our growth initiatives." Dividend The Company today also announced a $0.225 per common share quarterly dividend. The dividend is payable February 20, 2014 , to shareholders of record as of the close of business on February 10 , 2014. Consolidated Operating Results For the fourth quarter of 2013, revenue was $687.6 million compared to $680.2 million for the same quarter of the previous year, an increase of 1.1 percent. For the year ended December 31, 2013 , revenue was $2,685.9 million compared to $2,638.0 million for 2012, an increase of 1.8 percent. Growth in consolidated revenue was driven by the Company's platform-based businesses, 1 which had revenue of $495.8 million in the fourth quarter of 2013, an increase of 3.3 percent over the same quarter of the previous year. Revenue from platform-based businesses increased 3.6 percent in 2013 to $1,955.2 million while revenue from agent-based businesses decreased 2.6 percent in 2013 to $742.2 million . The Unified Communications segment had revenue of $377.0 million in the fourth quarter of 2013, an increase of 3.8 percent over the same quarter of the previous year. The Communication Services segment had revenue of $324.4 million in the fourth quarter of 2013, an increase of 1.2 percent over the same quarter of the previous year. For 2013, the Unified Communications segment had revenue of $1,498.2 million , an increase of 3.2 percent over 2012. The Communication Services segment had revenue of $1,223.9 million in 2013, an increase of 2.1 percent over 2012. Adjusted EBITDA 2 for the fourth quarter of 2013 was $178.4 million compared to $186.5 million for the fourth quarter of 2012. Adjusted EBITDA for 2013 was $704.4 million , or 26.2 percent of revenue, compared to $686.9 million , or 26.0 percent of revenue, in 2012. EBITDA 2 was $175.8 million in the fourth quarter of 2013 compared to $182.0 million in the fourth quarter of 2012, a decrease of 3.4 percent. EBITDA was $664.7 million in 2013 compared to $663.1 million in 2012. Adjusted operating income 2 for the fourth quarter of 2013 was $144.9 million , or 21.1 percent of revenue, compared to $146.3 million , or 21.5 percent of revenue in the same quarter of 2012, a decrease of 1.0 percent. Operating income was $128.8 million in the fourth quarter of 2013 compared to $125.1 million in the fourth quarter of 2012, an increase of 2.9 percent. For the full year 2013, adjusted operating income was $575.3 million compared to $567.8 million in 2012, an increase of 1.3 percent. Operating income for 2013 was $480.2 million , 0.4 percent higher than 2012 operating income of $478.2 million . Adjusted net income 2 was $63.6 million in the fourth quarter of 2013, an increase of 35.6 percent from the same quarter of 2012. Net income increased 53.9 percent to $50.3 million in the fourth quarter of 2013, compared to $32.7 million in the same quarter of 2012. In 2013, adjusted net income was $229.3 million , an increase of 20.6 percent over 2012. Net income in 2013 was $143.2 million compared to net income of $125.5 million in 2012, an increase of 14.1 percent. The improvement in profitability was driven by lower interest expense resulting from deleveraging and lower cost of debt. Balance Sheet, Cash Flow and Liquidity At December 31, 2013 , West Corporation had cash and cash equivalents totaling $230.0 million and working capital of $363.9 million . Interest expense was $51.4 million during the three months ended December 31, 2013 compared to $77.1 million during the comparable period the prior year. Interest expense was $232.9 million in 2013 compared to $269.2 million in 2012. The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities, was 4.62x at December 31, 2013 . " West Corporation finished the year with a stronger balance sheet and improved profitability. During 2013, we reduced our interest expense by $36 million and improved our leverage from 5.34x to 4.62x," said Paul Mendlik , CFO. "In January 2014 , we completed a repricing amendment to our senior secured credit agreement which will decrease our annual cash interest expense by approximately $12 million . We will continue to evaluate opportunities to further reduce our debt and interest expense during 2014." Cash flows from operations were $384.1 million for the twelve months ended December 31, 2013 compared to $318.9 million in 2012. Free cash flow 2,4 increased 32.2 percent to $255.7 million in 2013 compared to $193.4 million in 2012. During the fourth quarter of 2013, the Company invested $49.6 million , or 7.2 percent of revenue, in capital expenditures primarily for software and computer equipment. For the full year 2013, the Company invested $127.7 million , or 4.8 percent of revenue, in capital expenditures. 2014 Guidance For 2014, the Company expects the results presented below. This guidance assumes no acquisitions or changes in the current operating environment, capital structure or exchange rates, but does include the January 2014 repricing amendment to the Company's senior secured credit agreement. The two most significant exchange rates used for 2014 guidance are the British Pound Sterling at 1.6158 and the Euro at 1.3258. In millions except per share and leverage ratio 2013 Actual 2014 Guidance Consolidated Revenue $2,685.9 $2,700 - $2 ,755 Platform-based Revenue 1 $1,955.2 $2,000 - $2 ,033 Agent-based Revenue $742.2 $710 - $730 Adjusted EBITDA 2 $704.4 $690 - $719 EBITDA 2 $664.7 $677 - $706 Adjusted Operating Income 2 $575.3 $547 - $576 Operating Income $480.2 $488 - $517 Adjusted Net Income 2 $229.3 $232 - $247 Net Income $143.2 $185 - $200 Adjusted Earnings per Share - Diluted 2 $2.86 $2.72 - $2 .89 Earnings per Share - Diluted $1.78 $2.17 - $2 .34 Free Cash Flow 2,4 $255.7 $225 - $250 Cash Flows from Operations $384.1 $375 - $400 Capital Expenditures $127.7 $140 - $160 Net Debt to pro forma Adjusted EBITDA ratio 4.62x 4.4x - 4.5x Full year average diluted share count 80.318 85.3 - 85.5 "Our focus for revenue growth in 2014 is in our IP-based UC solutions, emergency communications and interactive services businesses. This growth is expected to be offset by a slight decrease in agent-based revenue, the loss of a large conferencing client and several one-time items we had in 2013. The revenue impact in 2014 of the client loss and one-time items is expected to be approximately $52 million and the EBITDA impact is expected to be approximately $26 million ," said Tom Barker . "Our platform-based businesses continue to grow and we anticipate another year of strong earnings and operating cash flow which will allow us to continue to fund future growth and maintain our dividend." Conference Call The Company will hold a conference call to discuss these topics on Friday, January 31, 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 leading provider of technology-driven communication services. West offers its clients a broad range of communications and network infrastructure solutions that help them manage or support critical communications. West's customer contact solutions and conferencing services are designed to improve its clients' cost structure and provide reliable, high-quality services. West also provides mission-critical services, such as public safety and emergency communications. Founded in 1986 and headquartered in Omaha, Nebraska , West serves Fortune 1000 companies and other clients in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. West has 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 2014 guidance 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 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 West against intellectual property infringement claims; 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 and 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 December 31, 2013 2012 2013 Actual Actual % Change Adjusted (2) Revenue $ 687,570 $ 680,171 1.1% $ 687,570 Cost of services 329,040 317,772 3.5% 329,040 Selling, general and administrative expenses 229,770 237,257 -3.2% 213,632 Operating income 128,760 125,142 2.9% 144,898 Interest expense, net 51,296 76,995 -33.4% 46,760 Other expense (income), net (703) (9,730) NM (703) Income before tax 78,167 57,877 35.1% 98,841 Income tax 27,836 25,170 10.6% 35,198 Net income $ 50,331 $ 32,707 53.9% $ 63,643 Weighted average shares outstanding: Basic 83,627 61,802 83,627 Diluted 85,088 63,521 85,088 Earnings per share: Basic $ 0.60 $ 0.53 13.2% $ 0.76 Diluted $ 0.59 $ 0.51 15.7% $ 0.75 SELECTED SEGMENT DATA: Revenue: Unified Communications $ 377,025 $ 363,120 3.8% Communication Services 324,440 320,509 1.2% Intersegment eliminations (13,895) (3,458) NM Total $ 687,570 $ 680,171 1.1% Depreciation: Unified Communications $ 17,105 $ 15,104 13.2% Communication Services 12,422 12,352 0.6% Total $ 29,527 $ 27,456 7.5% Amortization: Unified Communications - SG&A $ 5,878 $ 6,827 -13.9% Communication Services - COS 2,676 2,377 12.6% Communication Services - SG&A 7,625 9,909 -23.0% Corporate - deferred financing costs 4,536 4,016 12.9% Total $ 20,715 $ 23,129 -10.4% Share-based Compensation Unified Communications $ 1,121 $ 1,198 -6.4% Communication Services 1,280 1,375 -6.9% Total $ 2,401 $ 2,573 -6.7% Cost of services: Unified Communications $ 163,605 $ 156,292 4.7% Communication Services 178,606 164,351 8.7% Intersegment eliminations (13,171) (2,871) NM Total $ 329,040 $ 317,772 3.5% Selling, general and administrative expenses: Unified Communications $ 114,153 $ 115,550 -1.2% Communication Services 116,341 122,295 -4.9% Intersegment eliminations (724) (588) NM Total $ 229,770 $ 237,257 -3.2% Operating income: Unified Communications $ 99,267 $ 91,279 8.8% $ 106,287 Communication Services 29,493 33,863 -12.9% 38,611 Total $ 128,760 $ 125,142 2.9% $ 144,898 Operating margin: Unified Communications 26.3% 25.1% 28.2% Communication Services 9.1% 10.6% 11.9% Total 18.7% 18.4% 21.1% SELECTED OPERATING DATA: Revenue from platform-based services (1) $ 495,808 $ 479,884 3.3% Revenue from agent-based services $ 195,085 $ 203,196 -4.0% WEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands except selected per share and operating data) Twelve Months Ended December 31, 2013 2012 2013 2013 Adj. Actual Actual % Change Adjusted (2) Pro Forma (2,3) Revenue $ 2,685,855 $ 2,638,024 1.8% $ 2,685,855 $ 2,685,855 Cost of services 1,260,579 1,224,459 2.9% 1,260,579 1,260,579 Selling, general and administrative expenses 945,062 935,390 1.0% 850,022 850,022 Operating income 480,214 478,175 0.4% 575,254 575,254 Interest expense, net 232,606 268,828 -13.5% 214,360 189,650 Subordinated debt call premium and accelerated amortization of deferred financing costs 23,105 2,715 NM -- -- Other expense (income), net (2,258) (977) NM (2,258) (2,258) Income before tax 226,761 207,609 9.2% 363,152 387,862 Income tax 83,559 82,068 1.8% 133,819 143,086 Net income $ 143,202 $ 125,541 14.1% $ 229,333 $ 244,776 Weighted average shares outstanding: Basic 78,875 61,528 78,875 83,543 Diluted 80,318 63,523 80,318 84,986 Earnings per share: Basic $ 1.82 $ 2.04 -10.8% $ 2.91 $ 2.93 Diluted $ 1.78 $ 1.98 -10.1% $ 2.86 $ 2.88 SELECTED SEGMENT DATA: Revenue: Unified Communications $ 1,498,213 $ 1,451,301 3.2% Communication Services 1,223,855 1,198,320 2.1% Intersegment eliminations (36,213) (11,597) NM Total $ 2,685,855 $ 2,638,024 1.8% Depreciation: Unified Communications $ 65,027 $ 59,851 8.6% Communication Services 49,672 47,604 4.3% Total $ 114,699 $ 107,455 6.7% Amortization: Unified Communications - SG&A $ 24,600 $ 28,403 -13.4% Communication Services - COS 10,247 9,119 12.4% Communication Services - SG&A 30,738 37,445 -17.9% Corporate - deferred financing costs 18,246 14,606 24.9% Corporate - accelerated amortization of deferred financing costs 6,603 2,715 NM Total $ 90,434 $ 92,288 -2.0% Share-based Compensation Unified Communications $ 4,911 $ 7,190 -31.7% Communication Services 5,644 8,499 -33.6% Corporate -- 10,160 NM Total $ 10,555 $ 25,849 -59.2% Cost of services: Unified Communications $ 639,105 $ 616,899 3.6% Communication Services 655,380 616,894 6.2% Intersegment eliminations (33,906) (9,334) NM Total $ 1,260,579 $ 1,224,459 2.9% Selling, general and administrative expenses: Unified Communications $ 472,672 $ 449,836 5.1% Communication Services 474,697 487,818 -2.7% Intersegment eliminations (2,307) (2,264) NM Total $ 945,062 $ 935,390 1.0% Operating income: Unified Communications $ 386,436 $ 384,565 0.5% $ 433,741 Communication Services 93,778 93,610 0.2% 141,513 Total $ 480,214 $ 478,175 0.4% $ 575,254 Operating margin: Unified Communications 25.8% 26.5% 29.0% Communication Services 7.7% 7.8% 11.6% Total 17.9% 18.1% 21.4% SELECTED OPERATING DATA: Revenue from platform-based services (1) $ 1,955,202 $ 1,886,504 3.6% Revenue from agent-based services $ 742,222 $ 762,132 -2.6% WEST CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) December 31, December 31, % 2013 2012 Change Current assets: Cash and cash equivalents $ 230,041 $ 179,111 28.4% Trust and restricted cash 21,679 14,518 49.3% Accounts receivable, net 450,189 444,411 1.3% Deferred income taxes receivable -- 13,148 NM Prepaid assets 36,032 42,129 -14.5% Other current assets 83,629 67,775 23.4% Total current assets 821,570 761,092 7.9% Net property and equipment 364,765 364,896 0.0% Goodwill 1,823,921 1,816,851 0.4% Other assets 476,008 505,314 -5.8% Total assets $ 3,486,264 $ 3,448,153 1.1% Current liabilities $ 457,642 $ 457,668 0.0% Long-term obligations 3,513,470 3,992,531 -12.0% Other liabilities 255,324 247,640 3.1% Total liabilities 4,226,436 4,697,839 -10.0% Stockholders' deficit (740,172) (1,249,686) 40.8% Total liabilities and stockholders' deficit $ 3,486,264 $ 3,448,153 1.1% 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 and 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 December 31, 2013 2012 % Change Operating income $ 128,760 $ 125,142 2.9% Amortization of acquired intangible assets 13,503 16,736 Share-based compensation 2,401 2,573 Sponsor management/termination fee -- 1,035 M&A and acquisition related costs 234 843 Adjusted operating income $ 144,898 $ 146,329 -1.0% Twelve Months Ended December 31, 2013 2012 % Change Operating income $ 480,214 $ 478,175 0.4% Amortization of acquired intangible assets 55,338 65,848 Share-based compensation 10,555 25,849 Sponsor management/termination fee 25,000 4,123 IPO bonus 2,975 -- M&A and acquisition related costs 1,172 1,652 Acquisition earnout reversal -- (7,887) Adjusted operating income $ 575,254 $ 567,760 1.3% Adjusted Net Income, Adjusted EPS, Pro forma Adjusted Net Income and Pro forma Adjusted EPS Reconciliation Adjusted net income, adjusted EPS, pro forma adjusted net income and pro forma adjusted 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, the expiration of an earn-out payment obligation related to an acquisition and 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. Pro forma adjusted net income represents adjusted net income after giving effect to pro forma adjusted interest expense. Pro forma adjusted interest expense reflects the impact of lower debt balances and lower interest rates post IPO. This includes the pro forma savings for the full periods from the redemption of the $450 million senior subordinated notes and the pricing amendment to the senior secured term loan facilities completed in February 2013 as if these transactions had been completed January 1, 2013 . Pro forma results also present shares outstanding as if the Company's IPO had been completed January 1, 2013 . Set forth below is a reconciliation of adjusted net income and pro forma net income to net income. Reconciliation of Adjusted Net Income & Pro forma Net Income from Net Income Unaudited, in thousands except per share Three Months Ended December 31, 2013 2012 % Change Net income $ 50,331 $ 32,707 53.9% Amortization of acquired intangible assets 13,503 16,736 Amortization of deferred financing costs 4,536 4,016 Share-based compensation 2,401 2,573 Sponsor management/termination fee -- 1,035 M&A and acquisition related costs 234 843 Pre-tax total 20,674 25,203 Income tax expense on adjustments 7,362 10,960 Adjusted net income $ 63,643 $ 46,950 35.6% Diluted shares outstanding 85,088 63,521 Adjusted EPS - diluted $ 0.75 $ 0.74 1.4% Twelve Months Ended December 31, 2013 2012 % Change Net income $ 143,202 $ 125,541 14.1% Amortization of acquired intangible assets 55,338 65,848 Amortization of deferred financing costs 18,246 14,606 Accelerated amortization of deferred financing costs 6,603 2,715 Share-based compensation 10,555 25,849 Sponsor management/termination fee 25,000 4,123 IPO bonus 2,975 -- Subordinated debt call premium 16,502 -- M&A and acquisition related costs 1,172 1,652 Acquisition earnout reversal -- (7,887) Pre-tax total 136,391 106,906 Income tax expense on adjustments 50,260 42,228 Adjusted net income $ 229,333 $ 190,219 20.6% Diluted shares outstanding 80,318 63,523 Adjusted EPS - diluted $ 2.86 $ 2.99 -4.3% Pro forma interest expense change, net of tax $ 15,443 Pro forma adjusted net income $ 244,776 N/A Pro forma diluted shares outstanding 84,986 Pro forma adjusted EPS - diluted $ 2.88 N/A 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 December 31, 2013 2012 % Change Cash flows from operations $ 107,358 $ 74,969 43.2% Cash capital expenditures 40,418 37,629 7.4% Free cash flow $ 66,940 $ 37,340 79.3% Twelve Months Ended December 31, 2013 2012 % Change Cash flows from operations $ 384,087 $ 318,916 20.4% Cash capital expenditures 128,398 125,489 2.3% Free cash flow $ 255,689 $ 193,427 32.2% 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, 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 Dec. 31, Twelve Months Ended Dec. 31, 2013 2012 2013 2012 Cash flows from operating activities $ 107,358 $ 74,969 $ 384,087 $ 318,916 Income tax expense 27,836 25,170 83,559 82,068 Deferred income tax benefit (expense) (4,657) 8,999 (8,325) (1,318) Interest expense and other financing charges 51,904 77,566 257,696 273,117 Provision for share-based compensation (2,401) (2,573) (10,555) (25,849) Amortization of deferred financing costs (4,536) (4,016) (18,246) (14,606) Accelerated amortization of deferred financing costs -- -- (6,603) (2,715) Asset impairment -- -- -- (3,715) Other (6) 617 (99) 432 Changes in operating assets and liabilities, net of business acquisitions 279 1,280 (16,773) 36,818 EBITDA 175,777 182,012 664,741 663,148 Provision for share-based compensation 2,401 2,573 10,555 25,849 Sponsor management/termination fee and IPO bonus -- 1,035 27,975 4,123 M&A and acquisition related costs 234 843 1,172 1,652 Acquisition earnout reversal -- -- -- (7,887) Adjusted EBITDA $ 178,412 $ 186,463 $ 704,443 $ 686,885 Reconciliation of EBITDA and Adjusted EBITDA from Net Income Unaudited, in thousands Three Months Ended Dec. 31, Twelve Months Ended Dec. 31, 2013 2012 2013 2012 Net income $ 50,331 $ 32,707 $ 143,202 $ 125,541 Interest expense and other financing charges 51,904 77,566 257,696 273,117 Depreciation and amortization 45,706 46,569 180,284 182,422 Income tax expense 27,836 25,170 83,559 82,068 EBITDA 175,777 182,012 664,741 663,148 Provision for share-based compensation 2,401 2,573 10,555 25,849 Sponsor management/termination fee and IPO bonus -- 1,035 27,975 4,123 M&A and acquisition related costs 234 843 1,172 1,652 Acquisition earnout reversal -- -- -- (7,887) Adjusted EBITDA $ 178,412 $ 186,463 $ 704,443 $ 686,885 Unaudited, in thousands Three Months Ended Dec. 31, Twelve Months Ended Dec. 31, 2013 2012 2013 2012 Cash flows from operating activities $ 107,358 $ 74,969 $ 384,087 $ 318,916 Cash flows used in investing activities $ (46,349) $ (36,335) $ (135,508) $ (201,622) Cash flows used in financing activities $ (42,666) $ (9,287) $ (196,828) $ (33,130) 1 Platform-based businesses include the Unified Communications segment, Intrado, West Interactive and HyperCube. Platform and agent-based revenue are presented prior to intercompany eliminations. 2 See Reconciliation of Non-GAAP Financial Measures below. 3 Reflects the impact of post-IPO reduced debt balances and lower interest rates resulting from the Company's pricing amendments to its senior secured term loan facilities completed in February 2013 and redemption of the $450 million senior subordinated notes as if these transactions had been completed on January 1 , 2013. Pro forma results also present shares outstanding as if the Company's IPO had been completed on January 1, 2013 . 4 Free cash flow is calculated as cash flows from operations less cash capital expenditures. N/A: Not Applicable NM: Not Meaningful CONTACT: AT THE COMPANY: David Pleiss Investor Relations (402) 963-1500 dmpleiss@west.com Source: West Corporation


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