OMAHA, Neb., July 19 /PRNewswire-FirstCall/ -- West Corporation , a leading provider of outsourced communication solutions, today announced its second quarter 2006 results. Earnings for the quarter were in line with Company guidance prior to an after-tax expense of approximately $3 million, or $0.04 per diluted share, related to the Company's proposed recapitalization.
Financial Summary (unaudited)
(In millions, except per share amounts and percentages)
Three Months Ended Six Months Ended
June 30, June 30,
Percent Percent
2006 2005 Change 2006 2005 Change
Revenue $461.7 $369.8 24.8% $886.4 $729.3 21.5%
Operating income $76.5 $66.1 15.7% $147.9 $125.2 18.1%
Net income $37.8 $37.5 0.8% $78.8 $71.0 11.0%
Earnings per
share (basic) $0.54 $0.55 $1.12 $1.04
Earnings per
share (diluted) $0.52 $0.53 $1.08 $1.00
"We are pleased to report operating results in line with our expectations for the second quarter," said Thomas B. Barker, Chief Executive Officer of West Corporation. "We continue to make progress with the integration of the recently completed Raindance and Intrado acquisitions and are maintaining our operational focus throughout the recapitalization process."
Consolidated Operating Results
For the second quarter ended June 30, 2006, revenues were $461.7 million compared to $369.8 million for the same quarter last year, an increase of 24.8%. Revenue from acquired entities(1) accounted for $76.2 million of this increase. Operating income for the second quarter was $76.5 million, an increase of 15.7%, versus $66.1 million in the second quarter of 2005. Net income was $37.8 million, up 0.8% compared to $37.5 million in the same quarter last year. Diluted earnings per share were $0.52 versus $0.53 in the same period of 2005.
The company reported consolidated operating margin of 16.6% in the second quarter of 2006, compared to 17.9% in the comparable quarter last year. The decline in consolidated operating margin for the quarter was primarily the result of non-cash stock-based compensation expense of approximately $3.7 million and approximately $3.0 million of after-tax expense related to the announced recapitalization.
The effective income tax rate increased to 38.8% in the second quarter of 2006 from 36.8% in the same quarter of 2005 primarily due to the non-deductible recapitalization expense of $3.0 million.
Balance Sheet and Liquidity
At June 30, 2006, West Corporation had cash and cash equivalents totaling $33.4 million and working capital of $110.2 million. Net cash flows from operating activities were $84.7 million for the second quarter. Depreciation expense was $24.8 million for the quarter and amortization expense was $11.2 million for the quarter. Quarterly adjusted EBITDA(2) was $116.5 million. Interest expense was $12.2 million for the second quarter of 2006, an increase of $8.9 million over the second quarter of 2005 due to the debt incurred to fund the Intrado and Raindance acquisitions.
At June 30, 2006, borrowings under the revolving credit facility totaled $690.0 million. The current variable interest rate on the credit facility is approximately six percent.
"During the quarter, we invested $23.2 million, or 5% of revenues, in capital expenditures to upgrade equipment and infrastructure, as well as expand facilities domestically and in the Philippines," commented Paul Mendlik, Chief Financial Officer of West Corporation. "During the second quarter, we added 700 workstations, bringing our capacity to approximately 20,000 workstations."
Proposed Recapitalization
On May 31, 2006, West Corporation entered into a definitive agreement to recapitalize the Company in a transaction sponsored by an investor group led by Thomas H. Lee Partners and Quadrangle Group LLC.
Preliminary proxy materials were filed with the SEC on July 13, 2006. The transaction is currently expected to close in the fourth quarter of 2006 and is subject to customary closing conditions including the approval of West Corporation's stockholders.
Conference Call
The company will not host a conference call to discuss its second quarter results due to the proposed recapitalization. Several operating metrics normally discussed during the call are included in the attached tables.
About West Corporation
West Corporation is a leading provider of outsourced communication solutions to many of the world's largest companies, organizations and government agencies. West helps its clients communicate effectively, maximize the value of their customer relationships and drive greater profitability from every interaction. The company's integrated suite of customized solutions includes customer acquisition, customer care, automated voice services, emergency communications, conferencing and accounts receivable management services.
Founded in 1986 and headquartered in Omaha, Nebraska, West has a team of 28,000 employees based in North America, Europe and Asia. For more information, please visit http://www.west.com/ .
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these and other forward looking statements by the use of such words as "will," "expect," "plans," "believes," "estimates," "intend," "continue," or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.
Actual results could differ materially from the expectations expressed in these statements. Factors that could cause actual results to differ include risks related to the satisfaction of the conditions to complete the proposed recapitalization, including the receipt of the required stockholder or regulatory approvals; the actual terms and availability of the financing that must be obtained for completion of the proposed recapitalization; substantial indebtedness incurred in connection with the consummation of the proposed recapitalization; the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed recapitalization and the payment of a termination fee by West; the outcome of any legal proceedings that may be instituted against us and others following announcement of the proposed recapitalization; the failure of the proposed recapitalization to close for any other reason; the amount of the costs, fees, expenses and charges relating to the proposed recapitalization; the difficulty in retaining employees or clients as a result of the proposed recapitalization; the risk of unforeseen material adverse changes to the business or operations; the disruption of current plans, operations, and technology and product development efforts caused by the proposed transaction; and other factors described in West's SEC reports, including its annual report on Form 10-K for the year ended December 31, 2005 and quarterly report on Form 10-Q for the quarter ended March 31, 2006. West Corporation assumes no obligation to update any forecast or forward-looking statements included in this document, except as required by law.
Additional Information and Where to Find It
In connection with the proposed transaction, West Corporation filed a preliminary proxy statement with the Securities and Exchange Commission ("SEC") on July 13, 2006. West Corporation will also file a definitive proxy statement and other relevant documents with the SEC in connection with the proposed transaction, and will furnish the definitive proxy statement to stockholders of West Corporation. BEFORE MAKING ANY VOTING DECISION WITH RESPECT TO THE PROPOSED TRANSACTION, STOCKHOLDERS OF WEST CORPORATION ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT MATERIALS BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement and other relevant materials, and any other documents filed by West Corporation with the SEC, may be obtained (when available) free of charge at the SEC's website at http://www.sec.gov/ . In addition, stockholders of West Corporation may obtain free copies of the documents filed with the SEC by directing a request through the Investors Relations portion of West Corporation's website at http://www.west.com/ or by mail to West Corporation, 11808 Miracle Hills Drive, Omaha, NE, 68154, attention: Investor Relations, telephone: (402) 963-1500. You may also read and copy any reports, statements and other information filed by West Corporation with the SEC at the SEC public reference room at 450 Fifth Street, N.W. Room 1200, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC's website for further information on its public reference room.
Participants in the Solicitation
West Corporation and certain of its executive officers and directors may, under the rules of the SEC, be deemed to be "participants" in the solicitation of proxies from West Corporation stockholders in favor of the proposed transaction. Certain executive officers and directors of West Corporation have interests in the transaction that may differ from the interests of stockholders generally. Information regarding the persons who may be considered "participants" in the solicitation of proxies, their interests in the transaction and their beneficial ownership of West Corporation common stock is set forth in the West Corporation proxy statement described above.
(1) Acquired entities include Sprint Corporation's conferencing assets
(acquired in June 2005) and Raindance (acquired in April 2006) in the
Conferencing segment and Intrado (acquired in April 2006) in the
Communications Services segment.
(2) See attached reconciliation of financial measures.
WEST CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share and selected operating data)
Three Months Ended Six Months Ended
June 30, % June 30, %
2006 2005 Change 2006 2005 Change
Revenue $461,678 $369,788 24.8% $886,416 $729,345 21.5%
Cost of services 200,126 165,297 21.1% 397,417 331,234 20.0%
Selling, general
and
administrative
expenses 185,049 138,386 33.7% 341,107 272,927 25.0%
Operating income 76,503 66,105 15.7% 147,892 125,184 18.1%
Other expense, net 10,784 2,678 302.7% 14,449 5,040 186.7%
Income before tax 65,719 63,427 3.6% 133,443 120,144 11.1%
Income tax expense 23,921 21,832 9.6% 48,005 41,312 16.2%
Minority Interest 4,048 4,137 -2.2% 6,624 7,834 -15.4%
Net income $37,750 $37,458 0.8% $78,814 $70,998 11.0%
Earnings per share:
Basic $0.54 $0.55 -1.8% $1.12 $1.04 7.7%
Diluted $0.52 $0.53 -1.9% $1.08 $1.00 8.0%
Weighted average
common shares
outstanding:
Basic 70,499 68,579 70,238 68,513
Diluted 72,932 71,052 72,968 70,958
SELECTED SEGMENT
DATA:
Revenue:
Communication
Services $248,298 $212,026 17.1% $477,727 $430,526 11.0%
Conferencing 155,853 103,932 50.0% 292,717 192,124 52.4%
Receivables
Management 59,020 55,008 7.3% 119,176 108,960 9.4%
Inter segment
eliminations (1,493) (1,178) 26.7% (3,204) (2,265) 41.5%
Total $461,678 $369,788 24.8% $886,416 $729,345 21.5%
Operating Income:
Communication
Services $27,048 $29,444 -8.1% $56,172 $60,057 -6.5%
Conferencing 39,491 26,760 47.6% 70,531 44,913 57.0%
Receivables
Management 9,964 9,901 0.6% 21,189 20,214 4.8%
Total $76,503 $66,105 15.7% $147,892 $125,184 18.1%
Operating Margin:
Communication
Services 10.9% 13.9% -21.6% 11.8% 13.9% -15.1%
Conferencing 25.3% 25.7% -1.6% 24.1% 23.4% 3.0%
Receivables
Management 16.9% 18.0% -6.1% 17.8% 18.6% -4.3%
Total 16.6% 17.9% -7.3% 16.7% 17.2% -2.9%
SELECTED OPERATING
DATA:
Share-based
compensation expense
recognized ($M) 3.7 0.1 NM
Cash flow from
operations ($M) 84.7 76.8 10.2%
Revolving Line of
Credit ending
balance ($M) 690.0 340.0 NM
Receivables
Management
Metrics ($M):
Revenue from
portfolios sales 2.7 2.1 28.6%
Cash collections
applied to principal
portfolio
receivables 14.6 15.5 -5.8%
Ending portfolio
receivables 98.5 88.1 11.8%
Ending non-recourse
debt 46.6 30.8 51.3%
Ending number of
workstations 20,000 16,900 18.3%
Ending number of
international
workstations 3,400 3,000 13.3%
Ending number of
active West at
Home agents 7,300 6,500 12.3%
Ending number of
Communication
Services ports 121,500 132,600 -8.4%
Ending number of
Conferencing
ports 150,500 109,800 37.1%
CONDENSED BALANCE
SHEET
June 30, December 31, %
2006 2005 Change
Current assets:
Cash and cash
equivalents $33,368 $30,835 8.2%
Trust cash 5,483 3,727 47.1%
Accounts and notes
receivable, net 263,188 217,806 20.8%
Portfolio
receivables,
current 39,269 35,407 10.9%
Other current
assets 45,005 28,567 57.5%
Total current
assets 386,313 316,342 22.1%
Net property and
equipment 275,753 234,871 17.4%
Portfolio
receivables, net 59,213 59,043 0.3%
Goodwill 1,146,289 717,624 59.7%
Other assets 241,558 170,782 41.4%
Total
assets $2,109,126 $1,498,662 40.7%
Current
liabilities $276,098 $206,295 33.8%
Long Term
Obligations 704,197 233,245 201.9%
Other liabilities
& minority
interest 44,396 87,254 -49.1%
Stockholders'
equity 1,084,435 971,868 11.6%
Total
liabilities
and
stockholders
equity $2,109,126 $1,498,662 40.7%
Reconciliation of Financial Measures
The common definition of EBITDA is "Earnings Before Interest Expense, Taxes, Depreciation and Amortization." In evaluating financial performance, we use earnings before interest, taxes, depreciation and amortization, share based compensation and minority interest or Adjusted EBITDA. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under generally accepted accounting principles ("GAAP"). EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitution for net income, cash flow from operations 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 as we understand certain investors use it as one measure of our historical ability to service debt. Adjusted EBITDA is also used in our debt covenants. Set forth below is a reconciliation of EBITDA and adjusted EBITDA to cash flow from operations. We use EBITDA and adjusted EBITDA for its debt covenants as these are viewed as measures of liquidity.
Amounts in thousands
Three Months Ended June 30, 2006 2005
Cash flow from operating activities $84,620 $76,807
Income tax expense 23,921 21,832
Deferred income tax (expense) benefit (21,114) 1,135
Interest expense 12,205 3,314
Minority interest in earnings, net of
distributions 579 (1,309)
Stock based compensation (3,663) (148)
Other (320) (590)
Changes in operating assets and
liabilities, net of business
acquisitions 13,417 (12,016)
EBITDA 109,645 89,025
Minority interest 4,048 4,137
Interest income (824) (434)
Provision for share based compensation 3,663 148
ADJUSTED EBITDA $116,532 $92,876
Six Months Ended June 30, 2006 2005
Cash flow from operating activities $148,200 $136,324
Income tax expense 48,005 41,312
Deferred income tax (expense) benefit (17,480) 1,145
Interest expense 16,426 6,144
Minority interest in earnings, net of
distributions 3,138 (3,408)
Stock based compensation (7,287) (297)
Other (569) (860)
Changes in operating assets and
liabilities, net of business
acquisitions 16,809 (9,695)
EBITDA 207,242 170,665
Minority interest 6,624 7,834
Interest income (1,163) (749)
Provision for share based compensation 7,287 297
ADJUSTED EBITDA $219,990 $178,047
