West Corp (WSTC) Divestiture of Agent Services Call Transcript

The agent services businesses we are keeping include Health Advocate, which we just purchased in June 2014, our B-to-B group, and our healthcare cost containment services. These companies combined manage very valuable transactions with a combination of highly trained people, analytics, and technology. They have margins similar to what we report on this consolidated basis. They also participate in U.S. healthcare vertical market, which is an attractive market to West Corporation. We think West Corporation is in an enviable position in the healthcare marketplace and we remain focused on this market.We think it is important for our company.

Following the divestiture, we are going to have a strong, attractive portfolio of assets and we have no plans to divest any of our remaining businesses. While this move is consistent with our long-term strategy, we do expect it to have a transformative impact on West Corporation. Over the next few years, West will look much different than we have in the past. Faster revenue growth and margin expansion overtime should help West Corporation to become a more valuable organization as we become more favorably positioned with other transaction processing companies. We will be better aligned with them at a number of fronts. Our story will be cleaner, easier to understand and be more focused. We expect to have better revenue growth and economy as a scale that we have to improve profit margins and we will have much less client concentration than we previously had. We expect our largest customer to be between maybe 3% and 4% of our revenue. Our top ten clients will represent about 19% of our total revenue. This compares to about 24% before the sale.

We will also be a much more efficient company. After approximately 25,300 employees moved to Alorica, our revenue employee will increase from approximately $80,000 per employee to over $225,000 per employee.

Moving to the financials, the proforma impact of this divestiture at our 2014 results is approximately $580 million in revenue and approximately $48 million in adjusted EBITDA. The adjusted EBITDA is made up of about $35 million in the businesses we are selling on a fully allocated basis and $13 million incorporate and shared services cash expenses that are currently allocated to the businesses we are selling that will stay with West Corporation.

With respect to the $13 million estimated cost, we will work to reduce or repurpose these expenses throughout 2015. We have a transition service agreement in place with Alorica that will require us to provide services over the next 3 to 12 months. After which time, we will have more flexibility in how we address this cost to drive increased deficiencies.

As we stated in the press release, we will also look to sell some real estate that we own, that will be leased by Alorica. We estimate the total cash we will realize from the sale of the business and real estate net of fees and taxes will be approximately $285 million. West Corporation generates a significant amount of cash and we have been good stewards of that capital. Our priorities for capital allocations have not changed. We plan to use the proceeds of this sale to make the company more valuable. We will look at acquisition opportunities like we always do. We would like to find other companies like our recent acquisitions. We could find the next health advocate, the next 911 enable, I will be very excited. We will evaluate the impact of paying down debt. Our cost to capital is pretty low now, so we will carefully evaluate our cash position at closing, look at the debt markets, and evaluate our acquisition pipeline.