IPO Preview: West Corp.

| About: West Corporation (WSTC)

Based in Omaha, NE, West Corp. (NASDAQ:WSTC) scheduled a $500 million IPO with a market capitalization of $1,980 million at a price range mid-point of $23.50 for Friday, March 22, 2013.

Eight IPOs are scheduled for the week of March 18th. The full IPO calendar is available here.

S-1 filed March 11, 2013.

Manager, Joint Managers: Goldman, Sachs; Morgan Stanley
Co-Managers: BofA Merrill Lynch; Barclays; Citigroup; Deutsche Bank Securities; Wells Fargo Securities; Baird; William Blair; Evercore Partners; Sanford C. Bernstein


  • WSTC provides conferencing and collaboration, unified communications, alerts and notifications, emergency communications, business process outsourcing and telephony / interconnect services.
  • At the price range mid-point of $23.50, WSTC expects to pay a 3.8% dividend.
  • Founded in 1986, the company is highly leveraged and will have a negative net worth of $810 million post-IPO.


  • Revenue increased during the past four years.
  • WSTC was profitable each year.


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At 15.6 times 2012 earnings, paying a 3.8% dividend, WSTC is okay to take on the IPO.

WSTC is a leading provider of technology-driven, communication services. WSTC offers a broad portfolio of services, including conferencing and collaboration, unified communications, alerts and notifications, emergency communications, business process outsourcing and telephony / interconnect services.

Clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. WSTC has sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific, Latin America and South America. WSTC was founded in 1986.

Scope of Operations
In 2012, WSTC managed 28 billion telephony minutes and 134 million conference calls, facilitated over 260 million 9-1-1 calls, and delivered over 1.2 billion notification calls and data messages.

With approximately 672,000 telephony ports to handle conference calls, 9-1-1 public safety calls, alerts and notifications and customer service at December 31, 2012, WSTC believes its platforms provide scale and flexibility to handle greater transaction volume than competitors, offer superior service and develop new offerings.

These ports include approximately 384,000 IP ports, which WSTC believes provide the only large-scale proprietary IP-based global conferencing platform deployed and in use today.

WSTC's technology-driven platforms allow WSTC, according to WSTC, to provide a broad range of complementary automated and agent-based service offerings to a diverse client base.

International Operations
In 2012, revenue attributed to foreign countries was 19% of consolidated revenue and long-lived assets attributed to foreign countries were 9% of total consolidated long-lived assets.

Intellectual Property
WSTC has been issued 213 patents and has 328 pending patent applications for technology and processes that WSTC has developed. Some of the patents will expire in 2013. WSTC does not expect these patent expirations to have a material adverse effect on the business.

WSTC continues to invest in new platform technologies, including IP-based cloud computing environments and to enhance the portfolio with patented technologies.

Unified communications principal competitors include AT&T (NYSE:T), Verizon (NYSE:VZ), PGi, BT Conferencing, NTT, Cisco Systems (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT), IBM and other premise-based solution providers.

Telephony / interconnect competitors include Inteliquent (formerly Neutral Tandem) and Peerless Network along with CLECs.

Competitors in the agent-based customer services industry include Convergys, TeleTech, Sykes, NCO, GC Services, Infosys Limited (NASDAQ:INFY) and Aegis Global.

WSTC also competes with the in-house operations of many of existing and potential clients.

Dividend Policy
3.8% annual dividend rate at price range mid-point of $23.50

WSTC intends to pay a quarterly cash dividend at a rate initially equal to $18.75 million per quarter (or an annual rate of $75.0 million).

Based on the 83.4 million shares of common stock to be outstanding after the offering, this dividend policy implies a quarterly dividend of $0.225 per share (or an annual dividend of $0.90 per share).

Dividend Funding
WSTC anticipates funding the dividend with cash generated by operations. In 2012, net cash flows from operating activities were $318.9 million, net cash flows used in investing activities were $201.6 million and net cash flows used in financing activities were $33.1 million.

WSTC anticipates an improvement in cash flows from operations for 2013, including the partial-year beneficial impact of reduced interest expense of $49.5 million (less $16.5 million of cost associated with the redemption) from the redemption of 11% senior subordinated notes due 2016 with the net proceeds from this offering and the termination of the $4.0 million annual fee paid under the management agreement with the Sponsors.

WSTC anticipates capital expenditures in 2013 of $130.0 million to $140.0 million.

As of December 31, 2012, WSTC had 35,700 total employees, of which 30,600 were employed in the Communication Services segment (including 9,270 home-based, generally part-time employees).

5% Stockholders Pre-IPO
Thomas H. Lee Equity Fund VI, L.P., 585
Quadrangle Capital Partners II LP, 12%
Gary West, 12%
Mary West, 12%

Use of Proceeds
WSTC expects to net $468 million from its IPO. Proceeds are allocated to redeem $450 million of 11% debt. Remaining proceeds and cash on hand are expected to fund $24.0 million payable Sponsors, and to pay $2.9 million of anticipated transaction-based IPO bonuses.

Disclaimer: This WSTC IPO report is based on a reading and analysis of WSTC's S-1 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.