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West Corporation Reports First Quarter 2016 Results

West Corporation WSTC, +1.38% a leading provider of technology-enabled communication services, today announced its first quarter 2016 results.

Key Quarterly Highlights:

  • Adjusted organic revenue grew [5] 3.5 percent
  • Free cash flow [1,2] grew 7.3 percent
  • Announced long-term agreement with AT&T in Safety Services
  • Acquired Synrevoice to expand K-12 footprint
  • Reduced debt by $30.9 million
  • Repurchased one million shares

"Growth in our core services along with expense management led to better than expected results this quarter," said Tom Barker, chairman and chief executive officer. "One of the highlights of the first quarter was announcing a significant long-term agreement with AT&T in our Safety Services segment. We expect this partnership to drive faster adoption of next generation 9-1-1 across the country over the next several years."

Select Financial Information

Unaudited, in millions except per share amounts Three Months Ended March 31,
2016 2015 % Change
Revenue $ 570.8 $ 565.5 0.9 %
Adjusted EBITDA from Continuing Operations [1] 165.6 169.1 -2.0 %
EBITDA from Continuing Operations [1] 156.9 162.1 -3.2 %
Adjusted Operating Income [1] 134.1 134.1 0.0 %
Operating Income 108.9 110.7 -1.6 %
Adjusted Income from Continuing Operations [1] 63.9 66.9 -4.5 %
Income from Continuing Operations 44.6 48.6 -8.4 %
Adjusted Earnings per Share from Continuing Operations - Diluted [1] 0.75 0.78 -3.8 %
Earnings per Share from Continuing Operations - Diluted 0.53 0.56 -5.4 %
Free Cash Flow from Continuing Operating Activities [1,2] 23.7 22.1 7.3 %
Cash Flows from Continuing Operating Activities 60.1 58.4 2.8 %
Cash Flows used in Continuing Investing Activities (39.5 ) (38.4 ) 2.8 %
Cash Flows used in Continuing Financing Activities (70.2 ) (234.5 ) -70.0 %

Dividend
The Company today also announced a $0.225 per common share dividend. The dividend is payable on May 26, 2016, to shareholders of record as of the close of business on May 16, 2016.

Operating Results
For the first quarter of 2016, revenue was $570.8 million compared to $565.5 million for the same quarter of the previous year, an increase of 0.9 percent. Revenue from acquired entities [3 ] was $7.3 million during the first quarter of 2016. Organic revenue for the quarter decreased by 0.3 percent. The Company's revenue was negatively impacted by $3.7 million from foreign currency exchange rate fluctuations and by $18.2 million from two lost clients previously disclosed in 2014 and 2015. Adjusted organic growth [5] for the first quarter was 3.5 percent. Details of the Company's revenue growth are presented in the selected financial data table below.

The Unified Communications Services segment had revenue of $362.7 million in the first quarter of 2016, a 1.8 percent decrease compared to the same quarter of 2015. This decrease was primarily due to $18.2 million from the two previously disclosed lost clients and $3.7 million from the impact of foreign currency exchange rates, offset by $2.2 million in revenue from Magnetic North, which was acquired on October 31, 2015. Adjusted organic growth [5] for the Unified Communications Services segment was 3.5 percent for the first quarter of 2016.

The Safety Services segment had revenue of $71.2 million in the first quarter of 2016, an increase of 3.8 percent from the first quarter of 2015. The increase in revenue was primarily due to sales to clients adopting new technologies, partially offset by price compression.

The Interactive Services segment had revenue of $71.7 million in the first quarter of 2016, 14.8 percent higher than the same quarter last year. This increase included $5.1 million from the acquisitions of SharpSchool, ClientTell and Synrevoice. Adjusted organic growth for the Interactive Services segment was 6.7 percent for the first quarter of 2016. Organic growth was primarily due to new clients in the education and healthcare markets and increased volumes from existing clients, partially offset by price compression.

The Specialized Agent Services segment had revenue of $68.4 million in the first quarter of 2016, an increase of 1.9 percent compared to the same quarter of the previous year. Growth in this segment was primarily driven by the Company's revenue generation and healthcare advocacy businesses.

Adjusted EBITDA [1] for the first quarter of 2016 was $165.6 million compared to $169.1 million for the first quarter of 2015, a decrease of 2.0 percent. EBITDA [1] was $156.9 million in the first quarter of 2016 compared to $162.1 million in the first quarter of 2015.

Adjusted operating income [1] was $134.1 million in both the first quarter of 2016 and 2015. Adjusted operating income as a percent of revenue was 23.5 percent in the first quarter of 2016 compared to 23.7 percent in the same quarter of 2015. Operating income was $108.9 million in the first quarter of 2016 compared to $110.7 million in the first quarter of 2015.

Adjusted income from continuing operations [1] was $63.9 million in the first quarter of 2016, a decrease of 4.5 percent from the same quarter of 2015. Income from continuing operations decreased 8.4 percent to $44.6 million in the first quarter of 2016 compared to $48.6 million in the same quarter of 2015.

Balance Sheet, Cash Flow and Liquidity
At March 31, 2016, West Corporation had cash and cash equivalents totaling $133.3 million and working capital of $231.2 million. Interest expense and other financing charges were $39.0 million during the three months ended March 31, 2016 compared to $39.5 million during the comparable period of the prior year.

The Company's net debt to pro forma adjusted EBITDA ratio, as calculated pursuant to the Company's senior secured term debt facilities [4] , was 4.72x at March 31, 2016.

Cash flows from operations were $60.1 million for the first quarter of 2016 compared to $58.4 million in the same period of 2015. Free cash flow [1,2] increased 7.3 percent to $23.7 million in the first quarter of 2016 compared to $22.1 million in the first quarter of 2015. This growth was driven by an increase in cash flows from operating activities which was positively impacted by net improvements in working capital partially offset by a decrease in income from continuing operations, higher days sales outstanding and the funding of one additional payroll in the first quarter of 2016 compared to the first quarter of 2015.

"West Corporation started 2016 with another strong quarter of free cash flow," said Jan Madsen, chief financial officer. "We deployed the cash the Company generated last quarter to make West more valuable. In the first quarter, we paid down $30.9 million in debt and we invested $22.0 million to buy back stock and $9.3 million for the acquisition of Synrevoice."

During the first quarter of 2016, the Company invested $36.4 million, or 6.4 percent of revenue, in capital expenditures, primarily for software, computer equipment and to support the AT&T ESInet partnership.

AT&T Partnership
During the first quarter, the Company announced a long-term agreement with AT&T to deploy a standardized, scalable nationwide architecture designed to support IP communications for public safety answering points (AT&T ESInet). This platform will be the next generation 9-1-1 offering for AT&T's 21-state footprint and elsewhere in the U.S.

Revenue expected in 2016 from this agreement is included in the Company's guidance which was provided with its fourth quarter results in February.

Acquisition
On March 14, 2016, the Company acquired substantially all of the assets of Synrevoice Technologies, Inc. ("Synrevoice"), a leading provider of K-12 notifications in Canada. Synrevoice serves approximately three million K-12 students in Canada and approximately 1.2 million students in the U.S. Synrevoice will be combined with the Company's SchoolMessenger solutions in the Education group of its Interactive Services operating segment. The purchase price was approximately $9.3 million and was funded with cash on hand.

Share Repurchase Program
During the first quarter of 2016, the Company's Board of Directors 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.

During the first quarter of 2016, the Company repurchased one million shares of common stock for an aggregate purchase price of approximately $22.0 million, funded with cash on hand.

Conference Call
The Company will hold a conference call to discuss these topics on Tuesday, May 3, 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 WSTC, +1.38% is a global provider of technology-enabled communication services. 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...


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