Monday, February 12, 2007
Black Box Corporation Reports Preliminary Third Quarter and Year-To-Date Fiscal 2007 Results
View Details
Reports quarterly revenues of $265 million and quarterly operating EPS of 78¢
PITTSBURGH, PENNSYLVANIA, February 12, 2007 -- Black Box Corporation (NASDAQ:BBOX) today reported preliminary results for the third quarter Fiscal 2007 ended December 30, 2006. The financial information included in this press release is preliminary and subject to change as described in “Review of Stock Option Practices” below. For the third quarter Fiscal 2007, diluted earnings per share were 59¢ on net income of $10.6 million or 4.0% of revenues compared to diluted earnings per share of 70¢ on net income of $12.5 million or 6.9% of revenues for the same quarter last year. On a sequential quarter comparison basis, second quarter Fiscal 2007 diluted earnings per share were 74¢ on net income of $13.1 million or 4.8% of revenues. Excluding reconciling items, operating earnings per share (which is a non-GAAP term and is defined below) for third quarter Fiscal 2007 were 78¢ on operating net income (which is a non-GAAP term and is defined below) of $13.8 million or 5.2% of revenues compared to operating earnings per share of 75¢ on operating net income of $13.3 million or 7.3% of revenues for the same quarter last year. Management believes that presenting operating earnings per share and operating net income excluding reconciling items is useful to investors because it provides a more meaningful comparison of the ongoing operations of the Company.
During third quarter Fiscal 2007, the Company’s reconciling items included pre-tax charges of $2.6 million for amortization of intangible assets on acquisitions, $1.6 million for stock-based compensation expense, and $0.7 million for asset write-up depreciation expense on acquisitions. The impact of these reconciling items after tax on net income and EPS is $3.2 million and 18¢, respectively. During third quarter Fiscal 2006, as previously disclosed, the Company’s reconciling items included pre-tax charges of $1.1 million for amortization of intangible assets on acquisitions and $0.1 million for asset write-up depreciation expense on acquisitions. The impact of these reconciling items after tax on net income and EPS is $0.8 million and 5¢, respectively. See below for further discussion regarding management’s use of non-GAAP accounting measurements.
Third quarter Fiscal 2007 total revenues were $265 million, an increase of $83 million or 45% from $182 million for the same quarter last year. On a sequential quarter comparison basis, third quarter Fiscal 2007 total revenues decreased $7 million or 2% from second quarter Fiscal 2007 total revenues of $271 million.
During third quarter Fiscal 2007, the Company repurchased 60,000 shares of common stock for approximately $3 million. Since the inception of the program in April 1999, the Company has repurchased 7.4 million shares of common stock for approximately $318 million of consideration. The funding of this program has been provided primarily through the Company’s free cash flow generation.
Third quarter Fiscal 2007 cash provided by operating activities was $3 million or 30% of net income, compared to $16 million or 131% of net income for the same quarter last year. Third quarter Fiscal 2007 free cash flow (which is a non-GAAP term and is defined below) was $7 million compared to $24 million for the same quarter last year. On a sequential quarter comparison basis, second quarter Fiscal 2007 cash provided by operating activities was $9 million or 70% of net income and free cash flow was $12 million. Black Box utilized its third quarter Fiscal 2007 free cash flow to fund mergers and acquisitions of $3 million, repurchase $3 million of its common stock, and pay dividends of $1 million. Management believes that free cash flow, defined by the Company as cash provided by operating activities less net capital expenditures, plus proceeds from stock option exercises, plus or minus foreign currency translation adjustments, is an important measurement of liquidity as it represents the total cash available to the Company.
For the nine-month period ended December 30, 2006, diluted earnings per share was $1.77 on net income of $31.5 million or 4.1% of revenues compared to diluted earnings per share of $1.88 on net income of $32.7 million or 6.0% of revenues for the same period last year. Excluding reconciling items, operating earnings per share for the nine-month period ended December 30, 2006 were $2.27 on operating net income of $40.4 million or 5.3% of revenues compared to operating earnings per share of $2.28 on operating net income of $39.7 million or 7.3% of revenues for the same period last year.
For the nine-month period ended December 30, 2006, the Company’s reconciling items included pre-tax charges of $5.9 million for amortization of intangible assets on acquisitions, $4.8 million for stock-based compensation expense, $1.9 million for asset write-up depreciation expense on acquisitions, and $1.1 million for restructuring charges / severance costs. The impact of these reconciling items after tax on net income and EPS is $9.0 million and 50¢, respectively. During the nine-month period ended December 31, 2005, as previously disclosed, the Company’s reconciling items included pre-tax charges of $5.3 million for restructuring charges / severance costs, $3.4 million for amortization of intangible assets on acquisitions, and $2.0 million for asset write-up depreciation expense on acquisitions. The impact of these reconciling items after tax on net income and EPS is $7.0 million and 40¢, respectively. See below for further discussion regarding management’s use of non-GAAP accounting measurements.
For the nine-month period ended December 30, 2006, total revenues were $767 million, an increase of $220 million or 40% from $546 million for the same period last year.
Cash provided by operating activities for the nine-month period was $25 million or 78% of net income compared to $39 million or 119% of net income for the same period last year. Free cash flow was $33 million compared to $53 million for the same period last year. Black Box utilized its nine-month period free cash flow to fund mergers and acquisitions of $16 million, repurchase $14 million of its common stock, and pay dividends of $3 million.
The Company’s 6-month order backlog was $162 million at December 30, 2006 compared to $94 million for the same quarter ended last year. On a sequential quarter end comparison basis, the Company’s 6-month order backlog was $165 million at September 30, 2006.
For FY08, the Company is targeting total year reported revenues of approximately $1.0 billion; corresponding operating earnings per share in the range of $3.45 to $3.65; and cash provided by operating activities in the range of 80% to 90% of operating net income.
All of the above ranges exclude acquisition-related expense and stock option-based expense (including the impact of SFAS 123(R)), any restructuring and severance expenses related to the NextiraOne integration plan, and are before any new mergers and acquisition activity that has not been announced.
Commenting on the quarter and the FY08 outlook, Fred C. Young, Chief Executive Officer, said, “We are very pleased to report revenues of $265 million for our December quarter. This level of revenues represents 45% growth over last year’s $182 million. It also represents the second highest quarterly revenues we have ever reported. In addition, our nine-month revenues have grown 40%, setting a new record at $767 million. We have generated more revenues in nine months this year than we did for our entire previous fiscal year ($721 million). This type of significant growth and associated increase in market share are what we have been and continue to be focused on.”
Mr. Young went on to say, “With Black Box now at the $1.0 billion level of revenues, we are tuning our associated cost structure accordingly. To this end, we are making good progress with the NextiraOne integration. Our goal is to finish the bulk of this integration within the next 6 to 9 months. The contributing results of this integration program are consistent with our goal to achieve our operating earnings per share and cash flow targets for FY08, which starts in April.”
The Company will conduct a conference call beginning at 5:00 p.m. Eastern Standard Time today, February 12, 2007. Fred C. Young, Chief Executive Officer, will host the call. To participate in the call, please dial 612-332-1025 approximately 15 minutes prior to the starting time and ask to be connected to the Black Box Earnings Call. A replay of the conference call will be available for one week after the teleconference by dialing 320-365-3844 and using access code 862344.
Review of Stock Option Practices
As previously announced, the Audit Committee of the Board of Directors of the Company, with the assistance of outside legal counsel, is conducting an independent review of the Company’s historical stock option grant practices and related accounting for stock option grants. At this time, the Audit Committee has not completed its assessment, and its review of such practices is continuing. That investigation currently includes all stock option grants since 1992, including an examination of option grants that could affect the historical financial statements for all of the fiscal years and fiscal quarters contained in the Company's most recent annual report on Form 10-K for the fiscal year ended March 31, 2006 and its Forms 10-Q for the fiscal year ending March 31, 2007.
Although the Audit Committee’s review is ongoing, the Company believes that it will need to record additional non-cash charges for stock-based compensation expense relating to certain stock option grants. The Company has not yet determined the aggregate amount of such expense or the periods in which such expense would be recorded. Accordingly, the Company has not yet determined whether it will need to restate its historical financial statements. Further, the Company has not determined, in the event of any such restatement, which historical financial statements may need to be restated, the magnitude of any such restatement, or the tax impact that may result. The preliminary results provided in this release do not include any such additional charges and are subject to adjustments based on the outcome of the review. The Company currently expects, however, that any such restatement would not have a material impact on Fiscal 2007 earnings.
As previously disclosed, the Company will delay the filing of its Form 10-Q for the quarter ended December 30, 2006. As soon as practical following the completion of the Audit Committee’s review, the Company will file its Form 10-Q for the quarter ended December 30, 2006 and any necessary restatements and amended filings.
The Company continues to express caution with respect to investors' ability to rely on its historical financial statements until the Company can determine with certainty whether a restatement will be required and, if so, the extent of any such restatement and the periods affected.
Black Box is the world’s largest technical services company dedicated to designing, building, and maintaining today’s complicated data and voice infrastructure systems. Black Box services 175,000 clients in 141 countries with 173 offices throughout the world. To learn more, visit the Black Box website at www.blackbox.com.
Black Box and the Double Diamond logo are registered trademarks and DVH is a trademark of BB Technologies, Inc.
Any forward-looking statements contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "target," "may," "will," "project," "intend," "plan," "believe," and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all risk factors, they may include the outcome of the review of the Company’s stock options practices, including the related informal SEC inquiry and shareholder derivative lawsuit, levels of business activity and operating expenses, expenses relating to corporate compliance requirements, cash flows, global economic conditions, successful integration of acquisitions, including the Norstan, NextiraOne, and Nu-Vision Technologies businesses, the timing and costs of restructuring programs, successful marketing of DVH (Data, Voice, Hotline) services, and successful implementation of our M&A program, including identifying appropriate targets, consummating transactions, and successfully integrating the businesses. Additional risk factors are included in the Company’s Annual Report on Form 10-K. We can give no assurance that any goal, plan, or target set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
BLACK BOX CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine-months ended
December 30 and 31 December 30 and 31
-------------------- -------------------
In thousands, except per share
amounts 2006 2005 2006 2005
----------------------------------------------------------------------
Revenues:
Hotline products $ 57,770 $ 52,771 $ 165,058 $160,279
On-Site services 207,036 129,364 601,468 386,188
-------------------- -------------------
Total 264,806 182,135 766,526 546,467
Cost of sales:
Hotline products 29,887 26,308 83,195 79,011
On-Site services 138,234 82,425 401,766 249,232
-------------------- -------------------
Total 168,121 108,733 484,961 328,243
Gross profit 96,685 73,402 281,565 218,224
Selling, general &
administrative expenses 73,712 50,441 215,069 152,008
Restructuring and other
charges -- -- -- 5,290
Intangibles amortization 2,677 1,349 6,114 4,235
-------------------- -------------------
Operating income 20,296 21,612 60,382 56,691
Interest expense (income), net 4,148 2,397 11,914 6,686
Other expenses (income), net (122) 114 65 79
-------------------- -------------------
Income before provision for
income taxes 16,270 19,101 48,403 49,926
Provision for income taxes 5,695 6,590 16,942 17,224
-------------------- -------------------
Net income $ 10,575 $ 12,511 $ 31,461 $ 32,702
==================== ===================
Earnings per common share:
Basic $ 0.61 $ 0.72 $ 1.80 $ 1.92
==================== ===================
Diluted $ 0.59 $ 0.70 $ 1.77 $ 1.88
==================== ===================
Weighted average common shares
outstanding:
Basic 17,398 17,286 17,451 17,050
==================== ===================
Diluted 17,780 17,786 17,809 17,362
==================== ===================
BLACK BOX CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands December 30, 2006 March 31, 2006
----------------------------------------------------------------------
Assets
Cash and cash equivalents $ 15,362 $ 11,207
Accounts receivable, net 184,403 116,713
Inventories, net 74,077 53,926
Costs and estimated earnings in
excess of billings on
uncompleted contracts 59,200 23,803
Deferred tax asset 10,456 8,973
Prepaid and other current assets 26,045 16,502
----------------- ------------------
Total current assets 369,543 231,124
Property, plant and equipment,
net 39,252 35,124
Goodwill, net 588,556 468,724
Intangibles:
Customer relationships, net 55,962 24,657
Other intangibles, net 36,493 30,783
Deferred tax asset 2,386 4,231
Other assets 4,192 5,091
----------------- ------------------
Total assets $1,096,384 $ 799,734
================= ==================
Liabilities
Accounts payable $ 75,982 $ 44,943
Accrued compensation and benefits 23,443 13,954
Deferred revenue 48,998 22,211
Restructuring reserve 10,168 3,292
Billings in excess of costs and
estimated earnings on
uncompleted contracts 21,444 8,648
Current maturities of long-term
debt 587 1,049
Other liabilities 58,913 33,771
----------------- ------------------
Total current liabilities 239,535 127,868
Long-term debt 253,938 122,673
Other liabilities 26,754 8,293
----------------- ------------------
Total liabilities 520,227 258,834
Stockholders' Equity
Common Stock 25 25
Additional paid-in capital 380,279 362,810
Treasury stock (317,030) (296,824)
Accumulated other comprehensive
income 22,717 13,036
Retained earnings 490,166 461,853
----------------- ------------------
Total stockholders' equity 576,157 540,900
----------------- ------------------
Total liabilities and
stockholders' equity $1,096,384 $ 799,734
================= ==================
BLACK BOX CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Nine-months ended
December 30 and 31 December 30 and 31
------------------ --------------------
In thousands 2006 2005 2006 2005
----------------------------------------------------------------------
Operating Activities
Net income $ 10,575 $ 12,511 $ 31,461 $ 32,702
Adjustments to reconcile net
income to net cash provided
by (used for) operating
activities:
Intangibles amortization and
depreciation 5,880 3,633 15,333 11,013
Deferred taxes (817) (30) 349 (2,083)
Stock compensation expense 1,612 -- 4,804 --
Tax benefit from exercised
stock options (92) (1,376) (524) (3,347)
Changes in operating assets
and liabilities:
Accounts receivable, net 2,874 8,986 (644) 73
Inventories, net (1,895) (31) (6,629) 5,673
All other current assets
excluding deferred tax asset 2,271 1,430 1,755 3,016
Liabilities exclusive of
long-term debt (17,535) (8,685) (21,309) (8,135)
------------------ --------------------
Net cash provided by (used
for) operating activities $ 2,873 $ 16,438 $ 24,596 $ 38,912
Investing Activities
Capital expenditures $ (1,363)$ (1,551) $ (3,475)$ (3,151)
Capital disposals 140 231 543 1,232
Acquisition of businesses
(payments) / recoveries (5,476) (13,828) (132,878) (40,682)
Prior merger-related
(payments) / recoveries (42) (213) (1,431) (378)
------------------ --------------------
Net cash provided by (used
for) investing activities $ (6,741)$(15,361) $(137,241)$ (42,979)
Financing Activities
Proceeds from borrowings $ 55,502 $ 51,332 $ 314,021 $ 157,280
Repayment of borrowings (53,710) (59,463) (184,946) (164,698)
Repayment on discounted lease
rentals (3) (180) (27) (847)
Proceeds from exercise of
options 5,530 8,892 12,141 16,344
Payment of dividends (1,041) (1,028) (3,157) (3,049)
Purchase of treasury stock (2,619) (4) (20,206) (14)
------------------ --------------------
Net cash provided by (used
for) financing activities $ 3,659 $ (451) $ 117,826 $ (5,016)
Foreign currency exchange
impact on cash $ (187)$ (408) $ (1,026)$ (398)
------------------ --------------------
Increase / (decrease) in cash
and cash equivalents $ (396)$ 218 $ 4,155 $ 551
Cash and cash equivalents at
beginning of period $ 15,758 $ 11,925 $ 11,207 $ 11,592
------------------ --------------------
Cash and cash equivalents at
end of period $ 15,362 $ 12,143 $ 15,362 $ 12,143
================== ====================
Non-GAAP Financial Measurements
The Company provides non-GAAP ("adjusted financial measurements")
such as free cash flow, cash provided by operating activities
excluding restructuring payments, operating net income, operating
earnings per share (EPS), Earnings Before Interest, Taxes,
Depreciation, and Amortization ("EBITDA"), and Adjusted EBITDA, as a
supplement to United States Generally Accepted Accounting Principles
("GAAP") regarding the Company's operational performance. These
adjusted financial measurements exclude the impact of certain items
and, therefore, have not been calculated in accordance with GAAP.
Pursuant to the requirements of Regulation G, the Company has provided
Management explanations regarding their use and the usefulness of
adjusted financial measurements, definitions of the adjusted financial
measurements, and reconciliations to the most directly comparable GAAP
financial measures which are provided below.
Management uses adjusted financial measurements (a) to evaluate
the Company's historical and prospective financial performance as well
as its performance relative to its competitors, (b) to set internal
sales targets and associated operating budgets, (c) to allocate
resources, (d) to measure operational profitability, and (e) as an
important factor in determining variable compensation for Management
and its team members. Moreover, the Company has historically reported
these adjusted financial measurements as a means of providing
consistent and comparable information with past reports of financial
results.
While Management believes these adjusted financial measurements
provide useful supplemental information to investors, there are
limitations associated with the use of adjusted financial
measurements. The limitations include (i) the non-GAAP financial
measures are not prepared in accordance with GAAP, are not reported by
all of the Company's competitors, and may not be directly comparable
to similarly titled measures of the Company's competitors due to
potential differences in the exact method of calculation, (ii) the
non-GAAP financial measures exclude certain non-cash amortization of
intangible assets on acquisitions, however, do not specifically
exclude the added benefits of these costs, such as revenue and
contributing operating margin, (iii) the non-GAAP financial measures
exclude restructuring and severance related costs incurred during the
periods reported that will impact future operating results, (iv) the
non-GAAP financial measures exclude non-cash stock-based compensation
charges, which is similar to cash compensation paid to employees and
is an integral part of achieving our operating results, (v) the
non-GAAP financial measures exclude non-cash asset write-up
depreciation expense on acquisitions related to acquisitions made
during recent years which is derived from the book value to fair
market value write-up on acquired assets, and (vi) there is no
assurance the excluded items in the non-GAAP financial measures will
not occur in the future. The Company compensates for these limitations
by using these non-GAAP financial measures as supplements to GAAP
financial measures and by reviewing the reconciliations of the
non-GAAP financial measures to their most comparable GAAP financial
measures.
Adjusted financial measurements are not in accordance with, or an
alternative for, GAAP. The Company's adjusted financial measurements
are not meant to be considered in isolation or as a substitute for
comparable GAAP financial measurements, and should be read only in
conjunction with the Company's consolidated financial statements
prepared in accordance with GAAP.
Free Cash Flow
Free cash flow is defined by the Company as cash provided by
operating activities less net capital expenditures, plus proceeds from
stock option exercises, plus or minus foreign currency translation
adjustments. Management's reasons for exclusion of each item are
explained in further detail below.
Net capital expenditures
The Company believes net capital expenditures must be included
with cash provided by operating activities to more properly reflect
the actual cash available to the Company. Net capital expenditures are
typically material and directly impact the availability of the
Company's operating cash. Net capital expenditures are comprised of
capital expenditures and capital disposals.
Proceeds from stock option exercises
The Company believes that proceeds from stock option exercises
should be added to cash provided by operating activities to more
accurately reflect the actual cash available to the Company. The
Company has demonstrated a recurring inflow of cash related to its
stock-based compensation plans and since this cash is immediately
available to the Company, it directly impacts the availability of the
Company's operating cash. The amount of proceeds from stock option
exercises is dependent upon a number of variables, including the
number and exercise price of outstanding options and the trading price
of the Company's common stock. In addition, the timing of stock option
exercises is under the control of the individual option holder and is
not in the control of the Company. As a result, there can be no
assurance as to the timing or amount of any proceeds from stock option
exercises.
Foreign currency translation adjustment
Due to the size of the Company's international operations, and the
ability of the Company to utilize cash generated from foreign
operations locally without the need to convert such currencies to US
dollars on a regular basis, the Company believes that it is
appropriate to adjust its operating cash flows to take into account
the positive and / or negative impact of such charges as such
adjustment provides an appropriate measure of the availability of the
Company's operating cash on a world-wide basis. A limitation of
adjusting cash flows to account for the foreign currency impact is
that it may not provide an accurate measure of cash available in US
dollars.
A reconciliation of cash provided by operating activities to free
cash flow is presented below:
3Q07 2Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Cash provided by operating
activities $ 2,873 $ 9,116 $16,438 $24,596 $38,912
Capital expenditures (1,363) (589) (1,551) (3,475) (3,151)
Capital disposals 140 373 231 543 1,232
Foreign currency exchange
impact on cash (187) (182) (408) (1,026) (398)
------------------------ ----------------
Free cash flow before stock
option exercises $ 1,463 $ 8,718 $14,710 $20,638 $36,595
Proceeds from stock option
exercises 5,530 3,081 8,892 12,141 16,344
----------------------- ----------------
Free cash flow $ 6,993 $11,799 $23,602 $32,779 $52,939
----------------------------------------------------------------------
Cash provided by operating activities excluding restructuring
payments
Cash provided by operating activities excluding restructuring
payments is defined by the Company as cash provided by operating
activities plus restructuring payments. The Company believes that
restructuring payments should be added to cash provided by operating
activities to more accurately reflect the cash flow from operations.
A reconciliation of cash provided by operating activities to cash
provided by operating activities excluding restructuring payments is
presented below:
3Q07 2Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Cash provided by operating
activities $2,873 $ 9,116 $16,438 $24,596 $38,912
Restructuring payments 5,297 4,460 1,537 14,467 9,165
----------------------- ----------------
Cash provided by operating
activities excluding
restructuring payments $8,170 $13,576 $17,975 $39,063 $48,077
----------------------------------------------------------------------
Operating net income and operating earnings per share (EPS)
Management believes that operating net income, defined as net
income less reconciling items including restructuring charges /
severance costs, amortization of intangible assets on acquisitions,
stock-based compensation expense, and asset write-up depreciation
expense on acquisitions and operating EPS, defined as operating net
income divided by weighted average common shares outstanding
(diluted), provides investors additional important information to
enable them to assess, in a way Management assesses, the Company's
current and future operations. Management's reason for exclusion of
each item is explained in further detail below:
Restructuring charges / severance costs
The Company believes that incurring costs in the current period(s)
as part of a formal restructuring plan or as a result of economies of
scale from acquisitions will result in a long-term positive impact on
financial performance in the future. Restructuring charges and
non-restructuring severance costs are presented in accordance with
GAAP in our Condensed Consolidated Statements of Income. However, due
to the material amount of additional costs incurred during a single or
possibly two successive periods, Management believes that exclusion of
these costs and their related tax impact provides a more accurate
reflection of the Company's ongoing financial performance.
Amortization of intangible assets on acquisitions
The Company incurs non-cash amortization expense from intangible
assets related to various acquisitions it has made in recent years.
Management excludes these expenses and their related tax impact for
the purpose of calculating non-GAAP financial measures when it
evaluates the continuing operational performance of the Company
because these costs are fixed at the time of an acquisition, are then
amortized over a period of several years after the acquisition, and
generally cannot be changed or influenced by Management after the
acquisition.
Stock-based compensation expense
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R")
as of April 1, 2006, the first day of the Company's Fiscal 2007, using
the modified prospective transition method. This transition method
requires non-cash compensation expense to be recognized for all
share-based payments granted after the date of adoption and for all
unvested awards existing on the date of adoption. Stock-based
compensation expense is now an integral part of ongoing operations
since it is considered similar to other types of compensation to
employees. However, Management believes that the application of the
modified prospective transition method may result in misleading
period-over-period comparisons during the transition year of Fiscal
2007 and is providing an adjusted disclosure, which excludes
stock-based compensation and its related tax impact in the current
period.
Asset write-up depreciation expense on acquisitions
The Company incurs non-cash asset write-up depreciation expense on
acquisitions related to acquisitions made during recent years.
Specifically, this non-cash expenditure is derived from the book value
to fair market value write-up on acquired assets. Asset write-ups are
depreciated over their remaining useful life which generally falls
between one to five years. Management excludes these expenses and
their related tax impact for the purpose of calculating non-GAAP
financial measures when it evaluates the continuing operational
performance of the Company because these costs are fixed from
acquisition to the end of the asset's useful life, and generally
cannot be changed or influenced by Management after the acquisition.
A reconciliation of net income to operating net income is
presented below:
3Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Net income $10,575 $12,511 $31,461 $32,702
% of revenues 4.0% 6.9% 4.1% 6.0%
Reconciling items, after tax 3,215 815 8,951 6,968
---------------- ----------------
Operating Net Income $13,790 $13,326 $40,412 $39,670
% of revenues 5.2% 7.3% 5.3% 7.3%
----------------------------------------------------------------------
A reconciliation of diluted earnings per common share (EPS) to
operating EPS is presented below:
3Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Diluted EPS $0.59 $0.70 $1.77 $1.88
EPS impact of reconciling items 0.18 0.05 0.50 0.40
----------- ---------------
Operating EPS (1) $0.78 $0.75 $2.27 $2.28
----------------------------------------------------------------------
(1) Operating EPS may not sum due to rounding.
EBITDA and Adjusted EBITDA
Management believes that EBITDA, defined as income before
provision for income taxes plus interest, depreciation, and
amortization, is a widely accepted measure of profitability that we
believe may be used to measure our ability to service our debt.
Adjusted EBITDA, defined as EBITDA plus stock compensation expense,
may also be used to measure our ability to service our debt.
A reconciliation of net income to EBITDA is presented below:
3Q07 2Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Income before provision for
income taxes $16,270 $20,123 $19,101 $48,403 $49,926
Interest 4,148 4,126 2,397 11,914 6,686
Depreciation / Amortization 5,880 5,647 3,633 15,333 11,013
------------------------ ----------------
EBITDA $26,298 $29,896 $25,131 $75,650 $67,625
Stock Compensation Expense 1,612 1,572 -- 4,804 --
------------------------ ----------------
Adjusted EBITDA $27,910 $31,468 $25,131 $80,454 $67,625
----------------------------------------------------------------------
Supplemental Information:
The following supplemental information including geographical
segment results, service type results, same office comparisons, and
significant balance sheet ratios and other information is being
provided for comparisons of reported results for third quarter Fiscal
2007 and 2006, second quarter Fiscal 2007, and / or third quarter
Fiscal 2007 and 2006 year-to-date. All dollar amounts are in thousands
unless noted otherwise.
Geographical Segment Results:
Management is presented with and reviews revenues, operating
income, and adjusted operating income by geographical segment.
Adjusted operating income is defined as operating income less
reconciling items, including restructuring charges / severance costs,
amortization of intangible assets on acquisitions, stock-based
compensation expense, and asset write-up depreciation expense on
acquisitions. See above for additional details provided by Management
regarding adjusted financial information. Revenues, operating income,
and adjusted operating income for North America, Europe, and All Other
are presented below:
3Q07 2Q07 3Q06 3QYTD07 3QYTD06
----------------------------------------------------------------------
Revenues:
North America $220,391 $231,297 $143,173 $644,260 $426,788
Europe 34,610 30,844 29,950 94,799 92,899
All Other 9,805 9,184 9,012 27,467 26,780
--------------------------- ------------------
Total $264,806 $271,325 $182,135 $766,526 $546,467
Operating income:
North America $ 13,913 $ 18,937 $ 15,740 $ 43,876 $ 44,136
% of North America
revenues 6.3% 8.2% 11.0% 6.8% 10.3%
Europe $ 4,502 $ 3,489 $ 4,101 $ 11,134 $ 7,161
% of Europe revenues 13.0% 11.3% 13.7% 11.7% 7.7%
All Other $ 1,881 $ 1,895 $ 1,771 $ 5,372 $ 5,394
% of All Other revenues 19.2% 20.6% 19.7% 19.6% 20.1%
--------------------------- ------------------
Total $ 20,296 $ 24,321 $ 21,612 $ 60,382 $ 56,691
% of Total revenues 7.7% 9.0% 11.9% 7.9% 10.4%
Reconciling items
(pretax):
North America $ 4,946 $ 4,657 $ 1,245 $ 13,771 $ 6,898
Europe -- -- -- -- 3,742
All Other -- -- -- -- --
--------------------------- ------------------
Total $ 4,946 $ 4,657 $ 1,245 $ 13,771 $ 10,640
Adjusted Operating
Income:
North America $ 18,859 $ 23,594 $ 16,985 $ 57,647 $ 51,034
% of North America
revenues 8.6% 10.2% 11.9% 8.9% 12.0%
Europe $ 4,502 $ 3,489 $ 4,101 $ 11,134 $ 10,903
% of Europe revenues 13.0% 11.3% 13.7% 11.7% 11.7%
All Other $ 1,881 $ 1,895 $ 1,771 $ 5,372 $ 5,394
% of All Other revenues 19.2% 20.6% 19.7% 19.6% 20.1%
--------------------------- ------------------
Total $ 25,442 $ 28,978 $ 22,857 $ 74,153 $ 67,331
% of Total revenues 9.5% 10.7% 12.5% 9.7% 12.3%
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Service Type Results:
Management is presented with and reviews revenues and gross profit
by service type. Revenues and gross profit information for Data
Services, Voice Services, and Hotline Services are presented below:
3Q07 2Q07 3Q06 3QYTD07 3QYTD06
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Revenues:
Data Services $ 46,350 $ 46,447 $ 47,083 $137,328 $152,568
Voice Services 160,686 169,815 82,281 464,140 233,620
Hotline Services 57,770 55,063 52,771 165,058 160,279
--------------------------- ------------------
Total $264,806 $271,325 $182,135 $766,526 $546,467
Gross profit:
Data Services $ 14,236 $ 13,907 $ 14,794 $ 41,460 $ 45,800
% of Data Services
revenues 30.7% 29.9% 31.4% 30.2% 30.0%
Voice Services $ 54,566 $ 57,913 $ 32,145 $158,242 $ 91,156
% of Voice Services
revenues 34.0% 34.1% 39.1% 34.1% 39.0%
Hotline Services $ 27,883 $ 27,216 $ 26,463 $ 81,863 $ 81,268
% of Hotline Services
revenues 48.3% 49.4% 50.1% 49.6% 50.7%
--------------------------- ------------------
Total $ 96,685 $ 99,036 $ 73,402 $281,565 $218,224
% of Total revenues 36.5% 36.5% 40.3% 36.7% 39.9%
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Same-office comparisons:
Management is presented with and reviews revenues on a same-office
basis which excludes the effects of revenues from acquisitions since
the earliest reported period thus allowing the comparison of
same-office revenues from the earliest to current period under review.
While the information provided below is presented on a consolidated
basis, the revenue from acquisitions from first quarter Fiscal 2006 to
third quarter Fiscal 2007 relates to North America Voice Services.
Information on revenues on a same-office basis compared to the
same quarter last year is presented below:
3Q07 3Q06 % Change
----------------------------------------------------------------------
Revenues as reported $264,806 $182,135 45%
Less revenues from offices added since
1Q06 (98,054) (14,952)
--------- ---------
Revenues on same-office basis $166,752 $167,183 0%
----------------------------------------------------------------------
Information on revenues on a same-office basis compared to the
sequential quarter is presented below:
3Q07 2Q07 % Change
----------------------------------------------------------------------
Revenues as reported $264,806 $271,325 (2)%
Less revenues from offices added since
2Q07 (1,343) --
--------- ---------
Revenues on same-office basis $263,463 $271,325 (3)%
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Significant balance sheet ratios and other information:
Information on certain balance sheet ratios, backlog, and
headcount is presented below. Dollar amounts are in millions.
3Q07 2Q07 3Q06
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Accounts receivable:
Gross accounts receivable $198.2 $200.1 $133.9
Reserve $ / % $ 13.8 7.0% $ 14.8 7.4% $ 8.3 6.2%
------- ------- -------
Net accounts receivable $184.4 $185.3 $125.6
Net days sales outstanding 58 57 57
days days days
Inventory:
Gross inventory $ 99.2 $ 96.8 $ 66.9
Reserve $ / % $ 25.1 25.3% $ 24.9 25.7% $ 13.5 20.2%
------- ------- -------
Net inventory $ 74.1 $ 71.9 $ 53.4
Net inventory turns 7.6x 7.6x 6.8x
Six-month order backlog $ 162 $ 165 $ 94
Team members 4,564 4,649 3,273
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Investor Contact:
Mike McAndrew
Chief Financial Officer
Black Box Corporation
724-873-6788
E-mail: investors@blackbox.com