Q3 2009 Black Box Network Services Earnings Conference Call - Final.(Broadcast transcript)

OPERATOR: Ladies and gentlemen, thank you for standing by, and welcome to the Black Box Corporation third quarter fiscal 2009 earnings call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for questions and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. I'll now turn the conference over to Gary Doyle. Please go ahead, sir.

GARY DOYLE, DIRECTOR OF IR, BLACK BOX NETWORK SERVICES: Good evening. Welcome to Black Box Corporation's third quarter fiscal 2009 earnings conference call. My name is Gary Doyle, and I am the Director of Investor Relations for Black Box. With us today are Terry Blakemore, President and CEO of Black Box Corporation, and Mike McAndrew, our Vice President and Chief Financial Officer. Earlier today, we announced our third quarter fiscal 2009 results by issuing a press release and furnishing it to the Securities and Exchange Commission on Form 8-K. We also posted this press release to our website at blackbox.com. We will start today's call with an overview of our results from Terry Blakemore, followed by a more detailed discussion from Mike and Terry. Following this, we will field questions as 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 changes in economic conditions in our end markets and in the general market at large. Additional factors are included in our most recent Form 10-K and today's press release, including the ongoing SEC investigations and shareholder derivative lawsuits. 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 revenue comparisons. We will limit any non-GAAP financial discussions today to the specific measures in our press release.

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 accompanied the press release for a reconciliation of non-GAAP financial measurements to the most directly comparable GAAP financial measurement and other supplemental information. On the IR calendar, I would like to let everyone know that Mike McAndrew will be attending the Next Generation Equity Research Third Annual Industrials Conference on March 3 in Chicago. Please check our website as that date approaches for a press release with more specific information on the conference. Now I would like to turn the call over to Mr. Terry Blakemore.

TERRY BLAKEMORE, PRESIDENT & CEO, BLACK BOX NETWORK SERVICES: Thanks, Gary. I am pleased to report that our results for the third quarter demonstrate that in a challenging economic environment, Black Box was able to generate diversified revenues and deliver double-digit margins and positive cash flow. Revenues for our third quarter were $262 million, a 1% increase from last year's $258 million and a 3% increase over last quarter's $254 million. Year-to-date revenues were $758 million, a 2% decrease from last year's $771 million. Our third quarter operating earnings per share were $0.88, up $0.03 from last year's $0.85 and down $0.06 from last quarter's record $0.94. Year to date operating earnings per share were $2.55 versus $2.45 for the same period last year. Our third quarter free cash flow was $11 million compared to $23 million last year. On a sequential basis, comparison basis, our second quarter free cash flow was $26 million. Year-to-date free cash flow stands at $49 million versus $38 million for the same period last year. I'll turn it over to Mike now for a more detailed discussion on our financial results.

MIKE MCANDREW, VP & CFO, BLACK BOX NETWORK SERVICES: Thanks, Terry. As Terry just mentioned, we posted quarterly revenues of $262 million versus $258 million for the same period last year. Excluding the $32 million of revenue contribution in the third quarter related to acquisitions, and a negative $6 million impact from foreign currency, same-office revenues for the third quarter are down $19 million or 8% over the third quarter of the prior year. This $19 million revenue decrease is partially driven by a $6 million decrease in revenues resulting from the loss of the Avaya distribution agreement we announced in August of 2007. In the past, we've also adjusted for the impact of customer attrition related to the NextiraOne acquisition. Last quarter, 2Q '09, was the final adjustment for that item. In addition, at a more macro level, we believe the remainder of the decrease in same-office revenues is attributable to continued signs of caution from certain of our clients related to capital investments. In particular, we continue to see reduced capital spending in the retail and banking verticals.

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