SOURCE: West Corporation

February 01, 2007 02:17 ET

West Corporation Reports Fourth Quarter and Full Year 2006 Results

Announces Agreement to Purchase TeleVox Software and CenterPost Communications

Company Provides 2007 Guidance

OMAHA, NE -- (MARKET WIRE) -- February 1, 2007 -- West Corporation, a leading provider of outsourced communication solutions, today announced its fourth quarter and full year 2006 results.

Financial Summary (unaudited)
(Dollars in millions)


                            Three Months Ended           Year Ended
                              December 31,             December 31,
                          ---------------------  -------------------------
                                          Percent                   Percent
                            2006    2005  Change   2006      2005    Change
                          -------  ------  ----  --------  --------  -----
Revenue                   $ 496.4  $404.8  22.6% $1,856.0  $1,523.9   21.8%
                          -------  ------  ----  --------  --------  -----
Adjusted EBITDA(1)        $ 141.5  $104.4  35.5% $  501.9  $  381.6   31.5%
                          -------  ------  ----  --------  --------  -----
Adjusted EBITDA Margin       28.5%   25.8%           27.0%     25.0%
                          -------  ------  ----  --------  --------  -----
Cash Flow from Operations $ (32.1) $ 92.9    NM  $  196.6  $  276.3  -28.8%
                          -------  ------  ----  --------  --------  -----


(1) See Reconciliation of Financial Measures.

"We are pleased with how we finished the year. Our 2006 consolidated revenue was in line with the updated guidance provided on April 6," said Thomas B. Barker, Chief Executive Officer of West Corporation. "The integration of our recent acquisitions is progressing well and we are achieving the synergies we expected."

Consolidated Operating Results

For the fourth quarter ended December 31, 2006, revenues were $496.4 million compared to $404.8 million for the same quarter last year, an increase of 22.6 percent. Revenue from acquired entities(2) accounted for $68.9 million of this increase. Organic growth in revenue for the fourth quarter was $22.7 million, an increase of 5.6 percent.

For the year ended December 31, 2006, revenues were $1,856.0 million compared to $1,523.9 million for 2005, an increase of 21.8 percent. Revenue from acquired entities(2) accounted for $235.1 million of this increase. Organic revenue growth for 2006 was $97.0 million, an increase of 6.4 percent.

Balance Sheet and Liquidity

At December 31, 2006, West Corporation had cash and cash equivalents totaling $214.9 million and working capital of $128.6 million. Stock purchase obligations of approximately $170.6 million related to the Company's recapitalization remain outstanding and are included in current liabilities. Fourth quarter depreciation expense was $25.7 million and amortization expense was $11.5 million. Cash flow from operating activities was $(32.1) million and was impacted by interest expense of $65.7 million and recapitalization transaction expense of $73.2 million for the fourth quarter. Adjusted EBITDA for the fourth quarter was $141.5 million, or 28.5 percent of revenue. A reconciliation of adjusted EBITDA to cash flow from operating activities is presented below.

Cash flow from operating activities for 2006 was $196.6 million, compared to $276.3 million for 2005. Interest expense for 2006 was $94.8 million. Recapitalization transaction expense for 2006 was $78.8 million. Adjusted EBITDA for 2006 was $501.9 million, an increase of 31.5 percent, versus $381.6 million in 2005. Adjusted EBITDA as a percent of revenue grew to 27.0 percent in 2006 from 25.0 percent in 2005. A reconciliation of adjusted EBITDA to cash flow from operating activities is presented below.

During the quarter, West incurred $3.2 billion of debt in connection with the recapitalization of the Company. The previous outstanding debt of $665 million was repaid at the closing of the recapitalization. At December 31, 2006, there were no borrowings under the $250 million revolving line of credit.

The Company is seeking an amendment to its existing term loan facility to reduce the margin over LIBOR that the Company pays as interest on its term loan. The amendment may also potentially increase the size of the term loan facility by up to $165 million. The balance of its outstanding term loan as of December 31, 2006 was $2.1 billion. Approval of the amendment may require approval of the existing lenders, and there can be no assurance that the Company will be able to obtain such approval.

"During the quarter, we invested $21.1 million in capital expenditures for equipment and infrastructure and to expand facilities domestically," stated Paul Mendlik, Chief Financial Officer of West Corporation. "For the year, our capital expenditures totaled $83.4 million, or 4.5 percent of revenues, excluding the purchase of a building for $30.5 million which had previously been subject to a synthetic lease."

Acquisitions

The Company also announced today that it has agreed to acquire TeleVox Software, Inc. and CenterPost Communications in separate transactions.

TeleVox and CenterPost are fast-growing firms in the large and rapidly growing notifications market.

--  TeleVox is a leading provider of communication and automated messaging
    services to the healthcare industry, serving over 12,000 customers and 11
    of the nation's top 14 hospitals.  TeleVox offers a full suite of high-
    quality customer communication products, including message delivery,
    inbound inquiry, website design and hosting and secure online communication
    portals.  TeleVox helps its customers effectively communicate with their
    patients, reducing no-shows and improving the overall patient experience.
--  CenterPost Communications is a leading provider of self-service
    automated notification solutions.  The Company's applications allow clients
    to efficiently send automated communications to their customers via voice,
    email, fax, wireless text and instant messaging utilizing CenterPost's
    patented preference management functionality.  CenterPost's solutions are
    designed to help companies effectively acquire, retain and care for their
    customers by enabling timely and relevant communication.  CenterPost serves
    Fortune 500 companies in the pharmaceutical, travel, insurance and
    financial services industries.
    
Both TeleVox and CenterPost generate high-quality revenue with exceptional visibility. The multi-year nature of their customer relationships result in significant recurring revenue. Adding both firms to West further diversifies the Company's base of clients and brings additional vital and valuable transactions to West. The scale that West brings to these transactions along with the anticipated growth is expected to result in strong margins for the Company.

The total cost of both transactions before transaction expenses and working capital adjustments is approximately $161 million. The 2007 pro forma EBITDA for these acquisitions is expected to be approximately $16 million. The Company's pro forma leverage ratio after the acquisitions, as of December 31, 2006, is 6.2, compared to 6.0 without these acquisitions. The transactions are expected to be funded with cash on hand and the Company's existing line of credit. The CenterPost transaction is expected to close on February 1, 2007 and the TeleVox transaction is expected to close on March 1, 2007 and is subject to customary regulatory approval.

The Company has estimated that automated notifications will represent a market opportunity of over $1 billion by 2009. Although the market is currently fragmented with no clear leader, West is making a significant commitment to this market with today's announcement.

"This market and these two firms are a great fit with West's strengths. The businesses revolve around managing voice-oriented transactions and offer a strong recurring revenue model with solid margins. Both companies are growing fast and have great profitability. West brings economies of scale, access to critical capital investment and expertise in developing large and successful sales organizations. By adding TeleVox and CenterPost into the West Interactive suite of services, West has the products, scalability, systems and sales team firmly in place to be the leader in this industry. We expect this combination to drive value well into the future," stated Mr. Barker.

2007 Guidance

For 2007, the Company expects revenues of $2.05 to $2.13 billion, adjusted EBITDA of $540 to $560 million and capital expenditures of $90 to $110 million. This guidance includes TeleVox and CenterPost results and assumes no other acquisitions or additional changes in the current operating environment.

Conference Call

The Company will hold a conference call to discuss these topics on Thursday, February 1, 2007 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 also be available on the website.

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 29,000 employees based in North America, Europe and Asia. For more information, please 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. 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 the ability to consummate the TeleVox transaction due to the failure to satisfy conditions to the closing of the proposed transaction, West's ability to integrate or achieve the objectives of the TeleVox and CenterPost acquisitions, West's ability to complete future acquisitions, competition in West's highly competitive industries, extensive regulation in many of West's markets, West's ability to recover on its charged-off consumer receivables, capacity utilization of West's contact centers, the cost and reliability of voice and data services, availability of key personnel and employees, the cost of labor and turnover rates, the political, economic and other conditions in countries where West operates, the loss of any key clients, West's ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts, the nature of West's forward flow contracts, the non-exclusive nature of West's client contracts and the absence of any revenue commitments, the possibility of an emergency interruption to West's data and contact centers, acts of terrorism or war, security or privacy breaches of West's systems and databases, West's ability to protect proprietary information or technology, West's ability to continue to keep pace with technological developments, the cost of pending and future litigation and other risk factors described in documents filed by the company with the United States Securities and Exchange Commissions including West's annual report on Form 10-K for the year ended December 31, 2005 and subsequently filed quarterly reports on Form 10-Q. 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.

                             WEST CORPORATION
                    CONDENSED STATEMENTS OF OPERATIONS
  (Unaudited, in thousands except per share and selected operating data)


                                        Three Months Ended
                                           December 31,             %
                                         2006         2005       Change
                                     -----------  -----------  -----------
Revenue                              $   496,377  $   404,764         22.6%
Cost of services                         214,375      181,908         17.8%
Selling, general and administrative
 expenses                                275,876      150,027         83.9%
                                     -----------  -----------  -----------
Operating income                           6,126       72,829        -91.6%
Other expense, net                        60,750        3,848       1478.7%
                                     -----------  -----------  -----------
Income before tax                        (54,624)      68,981       -179.2%
Income tax expense (benefit)              (7,605)      24,080       -131.6%
Minority Interest                          5,953        3,375         76.4%
                                     -----------  -----------  -----------
Net income                           $   (52,972) $    41,526       -227.6%
                                     ===========  ===========  ===========


SELECTED SEGMENT DATA:
Revenue:
   Communication Services            $   283,409  $   229,973         23.2%
   Conferencing                          158,691      123,421         28.6%
   Receivables Management                 55,880       52,778          5.9%
   Inter segment eliminations             (1,603)      (1,408)        13.8%
                                     -----------  -----------  -----------
   Total                             $   496,377  $   404,764         22.6%
                                     ===========  ===========  ===========

Operating Income:
   Communication Services            $     3,699  $    33,527        -89.0%
   Conferencing                            5,509       30,211        -81.8%
   Receivables Management                 (3,082)       9,091       -133.9%
                                     -----------  -----------  -----------
   Total                             $     6,126  $    72,829        -91.6%
                                     ===========  ===========  ===========

Operating Margin:
   Communication Services                    1.3%        14.6%       -91.1%
   Conferencing                              3.5%        24.5%       -85.7%
   Receivables Management                   -5.5%        17.2%      -132.0%
                                     -----------  -----------  -----------
   Total                                     1.2%        18.0%       -93.3%
                                     ===========  ===========  ===========


SELECTED OPERATING DATA:
Share-based compensation expense
 recognized ($M)                            17.6          0.1
Cash flow from operations ($M)             (32.1)        92.9
Revolving Line of Credit ending
 balance ($M)                                  -        220.0
Term loan facility                       2,100.0            -
Senior notes                               650.0            -
Senior subordinated notes                  450.0            -



                                       Twelve Months Ended
                                           December 31,             %
                                         2006         2005       Change
                                     -----------  -----------  -----------
Revenue                              $ 1,856,038  $ 1,523,923         21.8%
Cost of services                         818,522      687,381         19.1%
Selling, general and administrative
 expenses                                800,301      569,865         40.4%
                                     -----------  -----------  -----------
Operating income                         237,215      266,677        -11.0%
Other expense, net                        86,660       13,181        557.5%
                                     -----------  -----------  -----------
Income before tax                        150,555      253,496        -40.6%
Income tax expense (benefit)              65,505       87,736        -25.3%
Minority Interest                         16,287       15,411          5.7%
                                     -----------  -----------  -----------
Net income                           $    68,763  $   150,349        -54.3%
                                     ===========  ===========  ===========


SELECTED SEGMENT DATA:
Revenue:
   Communication Services            $ 1,020,242  $   873,975         16.7%
   Conferencing                          607,506      438,613         38.5%
   Receivables Management                234,521      216,192          8.5%
   Inter segment eliminations             (6,231)      (4,857)        28.3%
                                     -----------  -----------  -----------
   Total                             $ 1,856,038  $ 1,523,923         21.8%
                                     ===========  ===========  ===========

Operating Income:
   Communication Services            $    89,065  $   122,076        -27.0%
   Conferencing                          119,437      105,793         12.9%
   Receivables Management                 28,713       38,808        -26.0%
                                     -----------  -----------  -----------
   Total                             $   237,215  $   266,677        -11.0%
                                     ===========  ===========  ===========

Operating Margin:
   Communication Services                    8.7%        14.0%       -37.9%
   Conferencing                             19.7%        24.1%       -18.3%
   Receivables Management                   12.2%        18.0%       -32.2%
                                     -----------  -----------  -----------
   Total                                    12.8%        17.5%       -26.9%
                                     ===========  ===========  ===========




                                     Condensed Balance Sheets
                                     December 31, December 31,      %
                                         2006         2005       Change
                                     -----------  ------------ -----------
Current assets:
   Cash and cash equivalents         $   214,932  $     30,835       597.0%
   Trust cash                              7,104         3,727        90.6%
Accounts and notes receivable, net       285,087       217,806        30.9%
   Portfolio receivables, current         64,651        35,407        82.6%
   Other current assets                   54,382        28,567        90.4%
                                     -----------  ------------ -----------
      Total current assets               626,156       316,342        97.9%
Net property and equipment               294,707       234,871        25.5%
Portfolio receivables, net                85,006        59,043        44.0%
Goodwill                               1,186,375       717,624        65.3%
Other assets                             343,612       170,782       101.2%
                                     -----------  ------------ -----------
      Total assets                   $ 2,535,856  $  1,498,662        69.2%
                                     ===========  ============ ===========
Current liabilities                  $   497,586  $    206,295       141.2%
Long term obligations                  3,206,590       233,245      1274.8%
Other liabilities                         45,279        71,945       -37.1%
                                     -----------  ------------ -----------
      Total liabilities                3,749,455       511,485       633.1%
Minority interest                         10,299        15,309       -32.7%
Class L common stock                     899,917             -          NM
Stockholders' equity (deficit)        (2,123,815)      971,868          NM
                                     -----------  ------------ -----------
   Total liabilities and
    stockholders' equity (deficit)   $ 2,535,856  $  1,498,662        69.2%
                                     ===========  ============ ===========
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 expense, taxes, depreciation and amortization, share based compensation, minority interest, recapitalization transaction costs, after acquisition synergies and excluding unrestricted subsidiaries 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.

                                    Three months
Amounts in thousands                ended Dec. 31,     Year ended Dec. 31,
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Cash flow from operating
 activities                     $ (32,120) $  92,912  $ 196,638  $ 276,314
Income tax expense                 (7,605)    24,081     65,505     87,736
Deferred income tax (expense)
 benefit                            4,703        711    (11,184)     2,645
Interest expense                   65,731      4,441     94,804     15,358
Minority interest in earnings,
 net of distributions              (1,402)     1,784      2,814     (1,721)
Share based compensation          (17,643)      (108)   (28,738)      (538)
Other                              (3,276)      (418)    (4,287)    (1,557)
Changes in operating assets and
 liabilities, net of business
 acquisitions                      33,973    (24,226)    50,498    (15,313)
EBITDA                             42,361     99,177    366,050    362,924
Minority interest                   5,953      3,374     16,287     15,411
Provision for share based
 compensation                      17,643        108     28,738        538
Recapitalization transaction
 costs                             73,210          -     78,835          -
Synthetic lease interest                -        408      1,305      1,385
Acquisition synergies               1,800          -      7,000          -
Vertical Alliance Adjustment          552      1,366      3,727      1,366
                                ---------  ---------  ---------  ---------
Adjusted EBITDA                 $ 141,519  $ 104,433  $ 501,942  $ 381,624
                                =========  =========  =========  =========
(2) Acquired entities include Raindance (acquired in April 2006) in the Conferencing segment, and Intrado (acquired in April 2006) and InPulse (acquired in October 2006) in the Communications Services segment.

Contact Information

  • Contact at the company:
    David Pleiss
    Investor RelationsWest Corporation
    (402) 963-1500

    11808 Miracle Hills Drive
    dmpleiss@west.comOmaha, NE 68154