BBOX

Black Box Corporation (BBOX)

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Black Box Corporation (BBOX)

F3Q08 (Qtr End 12/29/07) Earnings Call

January 29, 2008 5:00 pm ET

Executives

Terry Blakemore - President and CEO

Mike McAndrew- VP and CFO

Analysts

Jeff Beach - Stifel Nicolaus

Ed Brea - Sterling Capital

Liam Burke - Ferris Baker Watts

Presentation

Operator

Welcome to the Third Quarter Fiscal 2008 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions being given at that time (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, President and CEO of Black Box Corporation, Mr. Terry Blakemore. Please go ahead.

Terry Blakemore

Good evening from Pittsburgh, Pennsylvania. As you heard, my name is Terry Blakemore, President and CEO of Black Box Corporation. With me today is Mike McAndrew, our Vice President and Chief Financial Officer. Earlier today, we announced our third quarter fiscal year 2008 results by issuing a press release and furnishing it to the Securities and Exchange Commission on Form 8-K.

We also posted the press release on our website at www.blackbox.com. We will start today's call with a brief overview of our results and certain additional supplemental information. Following this, we will field all questions if time allows.

Before we begin, and as a reminder, matters discussed in this call may contain forward-looking statements that involve risks and uncertainties concerning Black Box's expected financial performance. Actual results may differ materially from expected results, and reported results should not be considered as an indication of future performance.

Potential factors that could affect our business and financial results include change in economic conditions in our end markets, and the general market at large. Additional factors are included in our most recent Form 10-K and the press release, including the ongoing SEC investigation and shareholder derivative lawsuit.

On this call, and as presented in today's press release, we will discuss some financial information that includes non-GAAP financial measures, including operating net income, operating earnings per share, free cash flow, EBITDA, adjusted EBITDA, and organic or same office comparisons. We will limit any non-GAAP financial discussions today to these specific measures.

As I said earlier, our press release was filed with the SEC and posted to our website prior to this call. Please refer to the schedules that accompany the press release for a reconciliation of non-GAAP financial measurements to the most directly comparable GAAP financial measurement and other supplemental information.

With that, let's take a look at our results. Third quarter revenues were $258 million, a 2% decrease from last year's $265 million and a 1% decrease over the last quarter's $261 million. The year-over-year decrease is driven by expected post transaction revenue attrition from the NextiraOne acquisition.

We are pleased with the 5% organic growth achieved in our third quarter of '08. By organic growth, we mean revenues excluding the effects of acquisitions in both periods. All excluded revenues relate to our North America Voice Service segments. Excluding the year-to-year currency impact, we achieved 2% organic growth in the quarter.

Looking more deeply at our third quarter revenues by the two segments, we report the highlights as follows. First, from a service type segment perspective, our third quarter revenues comprised of 58% or $149 million of voice services, 23% or $59 million of hot lines services, and 19% or $50 million of data services.

Secondly, from a geographic segment perspective our third quarter revenues were comprised of 82% or $211 million from North America, 14% or $37 million from Europe and 4% or $10 million from what we call all other which is primarily the Pac Rim and Latin America.

Total revenues for the first nine months totaled $771 million. This represents a 1% increase from last year's $767 million. This translates to 5% organic growth on a year-to-date basis and a 3% growth excluding currency impact.

Moving on to profits. Our third quarter operating earnings per share were $0.84, a $0.06 increase from last year's $0.78 and a $0.03 decrease over last quarter's $0.87. It should be noted that primarily as a result of the 409A Stock Option Remediation program effective during the third quarter, the company's current effective tax rate for fiscal 2008 is now 38% resulting in an effective tax rate of 39.7% in our third quarter. This increases in the effective tax rate impacted operating EPS during the third quarter by $0.03.

As noted in our press release, operating earnings per share does exclude restructuring, severance and other acquisition integration cost. Amortization of intangible assets on acquisitions, stock-based compensation expense, asset write-up depreciation expense on acquisitions, historical stock options granting practices, investigation costs, the change in fair market value of our interest rate swap and 409A expenses. Further details of these expenses can be found, however, in today's press release. In total, these excluded items represent $0.37 and $0.19 per share for third quarter '08 and third quarter '07 respectively.

GAAP diluted earnings per share for the third quarter of '08 were $0.47, a $0.12 decrease from last year's $0.59 and a $0.17 decrease over last quarter's $0.64. We are very pleased to report adjusted operating income as a percentage of revenue of 11.2% for our third quarter, an increase from last year's 9.5%. This is the fourth consecutive quarter of increased adjusted operating margin, which we can attribute primarily to the successful execution of our integration efforts related to the NextiraOne acquisition.

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