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Edited Transcript of BBOX earnings conference call or presentation 10-Aug-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2018 Black Box Corp Earnings Call

PITTSBURGH Aug 15, 2017 (Thomson StreetEvents) -- Edited Transcript of Black Box Corp earnings conference call or presentation Thursday, August 10, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Russo

Black Box Corporation - CFO, Senior VP & Treasurer

* Eslie C. Sykes

Black Box Corporation - CEO, President & Director

* Ronald Basso

Black Box Corporation - Executive VP, General Counsel & Secretary

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Conference Call Participants

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* Gregory John Burns

Sidoti & Company, LLC - Senior Equity Research Analyst

* Jeffrey R. Geygan

Global Value Investment Corp - President, CEO, and Chief Compliance Officer

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Presentation

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Operator [1]

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Good day ladies and gentlemen, and welcome to the Black Box Corporation First Quarter Fiscal 2018 Financial Results Call. (Operator Instructions) I would now like to introduce your host for today's conference, Executive Vice President, Ron Basso. Sir, you may begin.

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Ronald Basso, Black Box Corporation - Executive VP, General Counsel & Secretary [2]

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Thank you, James. Good evening, and welcome to Black Box Corporation's First Quarter of Fiscal 2018 Earnings Conference Call. With me today are E.C. Sykes, our President and CEO; and Dave Russo, our Senior Vice President and CFO.

Earlier today, we announced our first quarter fiscal 2018 results by issuing a press release and furnishing it to the SEC on Form 8-K. The Form 8-K also discusses an amendment for our credit agreement that E.C. and Dave will discuss. We also filed our first quarter fiscal 2018 Form 10-Q. We posted our earnings press release in the Investor Relations section of our website, blackbox.com. In addition to commentary from E.C. and Dave, we have a brief slide presentation supplementing the call. Those slides are available in the Investor Relations section of our website. For those of you who are accessing the webcast, the slides will present on your screen.

Before we begin, and as a reminder, matters discussed in this call may contain forward-looking statements that involve risks and uncertainties concerning our 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 the general market at large. Additional factors are included in our SEC filings and in today's press release.

On this call, and as presented in today's press release, we will discuss some non-GAAP financial measures. Please refer to the schedule that accompanied the press release for a reconciliation of these non-GAAP financial measurements for the most directly comparable GAAP financial measurement and other supplemental information.

With that, now I'd like to turn the call over to E.C.

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [3]

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Thanks, Ron. Good evening, and thank you for joining us. In the first quarter of fiscal 2018, our financial results were disappointing and impacted by 3 separate events. It's important to note that these events are not systematic. The fundamentals of the markets we serve and our business model are unchanged and we're confident in our transformation efforts and strategy to position Black Box into the growing IT edge market. Before I turn the call over to Dave, I wanted to talk for a moment about these events.

The first event involved a previously announced European supply chain and back-office centralization effort to simplify and drive OpEx savings in our international products division. The cut-over to the new team took place in early Q1 as the team took over operations from 13 country-based teams, some unique, country-specific legacy processes impacted order management and supply chain. We addressed the issues and the results steadily improved through the quarter. Based on my recent visit with the European team, I expect any residual impacts to be resolved in Q2. During that visit I saw firsthand how the centralized initiative will drive efficiency and operational savings.

In our North American products business, we had a decrease in our run rate business. I believe we have addressed the issue in Q2 with new sales and marketing leadership, and we implemented new management tools. Q1 bookings for North America products return to our planned rate.

For the second event we had a cash neutral issue related to the ERP project. The project was on budget but had more costs recognized as OpEx this quarter based on how the project evolved. Essentially, a delay in our ERP integration service provider resulted in the project remaining longer in the planning stage where costs are expense and impact current earnings. Since that issue was identified, I'm pleased with the recovery our team has made and this issue will not impact the timing of the completion of the project. Our efforts to date have validated our view that this investment is essential to our ability to improve management's visibility in the business and to decrease our operating expenses.

The third event involved the timing of bookings and resulting revenue in our Commercial Services business. We're starting to see very early signs of progress in shifting orders to longer duration agreements, which we view as favorable. With the shift impact to near-term revenues, longer duration agreements provide better revenue predictability. We are pleased to see these early signs even with the short-term impacts.

Consistent with this, our equipment shipments and short-term project revenue for the quarter were below historic levels. These short-term pains of transformation are part of the path to long-term sustainable growth.

The team has continued to address legacy cost issues from the branch model, including using our size and scale as a pricing advantage. We expect improved margins to start to show in Q3.

Now it is important to note that the completion of our ERP consolidation project, management will gain tools needed to improve analysis -- to improve analyst forecasting and decision making. The cumulative effect of these events lead us to amend our credit agreement, which continues to support our transformation efforts. We're grateful to our banks for working with us to structure an agreement which is consistent with our growth strategy. Part of that agreement involves a reallocation of our use of capital, including the suspension of our dividend for the foreseeable future. The agreement is structured to allow us to continue our ERP and other significant transformation efforts. Dave will speak more about the credit amendment later.

Another area we expect to see -- our federal business unit had solid performance with strong year-over-year revenue growth of 45%. This growth is part of the result of our success as a proven system integrator in the federal market segment with the Department of Defense, and in international programs in advance command, control, compute, communicate an intelligent system design and integration. We also had a favorable execution of several large projects with U.S. Marines, U.S. Army, Department of Energy, and Virginia Department of Correction Contracts. Looking forward, our market position continues to grow across a broad portfolio of projects and customers and we anticipate another strong performance in Q2.

Before I share my views on Q2, I'd like to note how the ERP implementation costs will be reported.

We are using a subscription-based application and hosting service. The majority of implementation costs for this type of system are expensed as they occur and are not deferred. Therefore, our OpEx numbers will be higher than our historic run rates. Costs associated with implementation are expected to peak in Q2. For the company as a whole, revenue in the second quarter is expected to be flat to slightly up sequentially. EBITDA is expected to improve sequentially, and when excluding ERP implementation-related expenses, EBITDA is expected to be positive. We remain focused on operational efficiencies and positioning Black Box for growth. I'll share more about our growth activities after the financial update from Dave.

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [4]

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Thank you, E.C. Our revenue for the first quarter of fiscal 2018 was $191.6 million, a decrease of $16.5 million or 8% from the prior quarter, due to a decline in both service and product revenues. The year-over-year decline was $26.8 million or 12%. Products revenue was $32.9 million, down $3.8 million or 10% from $36.7 million last quarter. The decline was due to lower demand in the legacy run rate business, and was also due to some disruptions to the international products business due to the centralization of supply chain and back office operations. Services revenue was $158.8 million, down $12.7 million or 7% from $171.4 million last quarter, principally due to a decline in commercial service revenues that was driven by lower installation activity for infrastructure, partially offset by an increase in federal revenues as a result of a continuing trend of higher volume of project [reserves].

Maintenance revenue which is derived primarily from long-term unified communication customer service agreements was flat at $38 million or 20% of revenue. Six-month order backlog, which consists of confirmed orders that we expect to convert to revenue in the next 180 days, was $152 million, down $1 million from last quarter and down $22 million from the same period last year. Both the sequential quarter and year-over-year declines are primarily due to a reduction of North American services backlog as a result of timing for new contract awards and declining UCC maintenance contract backlog as well as a certain amount of new customer agreements that are not adequately definitive to be counted as backlog.

Gross margin for the quarter decreased to 27.4% from 28.1% last quarter due to a decrease in both products and services gross margin. Products gross margin was 42.1%, down from 42.7% last quarter, primarily due to a decline in higher margin run rate sales in Europe that were negatively impacted by the European consolidation project discussed earlier by E.C. Services gross margin was 24.4%, down from 24.9% last quarter, primarily due to certain lower-margin projects that were completed in the quarter as well as a negative adjustment related to cost overruns for an ongoing implementation.

Additionally, the North American service business has trended toward a less favorable mix of lower-margin project work in both the commercial services and federal services businesses.

SG&A for the quarter was $63.3 million, up $6.9 million or 12% from $56.4 million last quarter, due to the following items illustrated on the waterfall chart. Restructuring expense has increased by $3.7 million for the quarter. Stock based compensation increased by $1.5 million, which is typical for the company's first quarter. And ERP costs increased by $1.7 million as we moved from the explore to build phase later than anticipated. We anticipate that excluding ERP implementation costs, SG&A will be flat in the second quarter and then step down 4% to 5% in Q3 and 4.

Our operating loss for the quarter was $13 million or 6.7% of revenues, compared to an operating loss of $300,000 or 0.1% of revenue last quarter. Adjusted operating loss for the quarter was $6 million or 3.3% of revenues, down from adjusted operating income of $3 million or 1.3% of revenues last quarter. The diluted loss per share was $0.65 compared to a $0.12 loss in the prior sequential quarter. Operating loss per share was $0.33 compared to operating earnings per share of $0.07 last quarter. The GAAP effective income tax rate was 32% compared to 126% in the prior year due to a decreased write-off of deferred tax assets associated with our equity award program compared to the prior year. The operational income tax rate was 35%, consistent with prior year.

Cash used by operating activities for the quarter was $16.3 million compared to cash provided by operating activities of $15.2 million in the prior quarter and $10.9 million in the same period last year. The reduction in operating cash flow, as compared to the prior quarter, was largely due to expenditures for restructuring activities, the timing of salary and benefit payments as well as incentives and pension payments. Capital expenditures were $1.1 million in the current quarter compared to $1 million in the last quarter and $2.1 million in the first quarter of the prior year. The majority of this quarter spend was for computer hardware and tools and equipment.

As mentioned in our earnings release and filed in the 8-K earlier this afternoon, the company executed an amendment to its credit agreement on August 9 in order to provide the flexibility that the company needs to continue with its transformation process and ERP implementation. The amendment reduces the facility from $200 million to $170 million, which includes a $50 million term loan with an amortization feature that will require payments, commencing in the third quarter of fiscal 2018, of $1.25 million for the first 4 quarters and then $2.5 million per quarter thereafter.

The amendment also calls for the elimination of the leverage ratio through the first quarter of fiscal 2019. In its place, there will be a minimum EBITDA covenant commencing in the second quarter of fiscal 2018 as defined, which continues through the first quarter of fiscal 2019, after which, it is eliminated. Also added is a quarterly capital expenditure limitation beginning in the second quarter of fiscal 2018 and continuing through the first quarter of fiscal 2019. Commencing with the second quarter of fiscal 2019, there will be a fixed charge coverage ratio of 1.0 to 1 for the second and third fiscal quarters and then stepping up to 1.1 to 1 thereafter.

Also commencing in the second quarter of fiscal '19, the leverage ratio returns commencing at 4.0x and then stepping down to a limit of 3.0x by the second quarter of fiscal 2020. Additionally, the ability of the company to declare or pay dividends or repurchase company stock, other than a limited dollar amount for tax payments from vested equity awards, has been eliminated. Our amended and restated credit agreement has been filed with the Form 8-K for your review.

Turning to the balance sheet. Working capital, net of cash increased by $5.3 million. Accounts receivable decreased by $15.2 million. DSOs were 48 days, up from 46 days in the prior quarter and down from 53 days in the prior year. Inventory was flat, while accounts payable declined by $8.1 million. Cost in excess of billings, net of billings in excess of cost rose by $7.2 million. Net debt was $88.7 million, up $14.2 million from the prior quarter and down $4.8 million from the same period last year.

In closing, we continue to focus on working capital management improvement as we navigate through our continued transformation process, including the adoption of our intelligent edge solution growth strategies. With that, I'll turn the call back to E.C.

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [5]

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Thanks Dave. I wanted to talk a bit more about our investment in transformation and positioning for growth. There are 2 primary categories of investment. The first is to improve the way we do business. We are transforming the company internally and putting into place new systems that will reduce complexity and cost while also providing better visibility. The second investment involves our positioning away from a declining legacy market and towards the growing intelligent edge market, which aligns well with our core capabilities and the strength of our unique footprint.

I wanted to start by addressing the investment we're making in the way we do business. As you know, over the course of the last 20 years, Black Box completed more than 100 acquisitions. This resulted in dozens of legal entities with the disparate business processes and multiple ERPs, which complicates business management and decision making. Our transformation process has included investments in enterprise-wide efforts to reduce the number of legal entities, integrate our service teams and consolidate multiple ERPs. In addition to reducing costs and improving operational effectiveness, these efforts will provide our business with management tools that improve decision making and forecasting.

These are major changes in our company and it takes time for them to flow through to results. The launch of our national service platform has shown improvement in the type of opportunities we are winning as well as the size. Our shift to a market-based sales approach, led by a new sales leader, is starting to show the move to increase reoccurring revenue. The completion of our previously announced ERP consolidation project will also provide more accurate forecasting and decision making. Our work in FY '17 to drive improvements in working capital efficiency, free cash flow and debt reduction have enabled a strategically important investment. Next, I wanted to talk about our investment in growth.

Fueled by the Internet of Things, clients are striving to keep up with the growing demand for connections and devices. To improve their competitiveness, clients must embrace digital transformation. Legacy IT architectures and deployment models must be upgraded. This need to integrate digital technology is helping to drive a new growth curve in IT with significantly long-term growth potentials. We have identified 2 spaces to pursue in FY '18: the smart office and retail IoT. The smart office represents a market of $2.6 billion in North America alone. The annual growth rate of this space is projected to be 7%, and 37% of the revenue is reoccurring with 30% gross margins.

Retail IoT is another focus. The North American market is $1.7 billion and is growing at a rate of 13%. Here, the reoccurring revenue is 34% with margins up to 35%. These markets are attractive because they are new and growing. And because we can leverage our existing deployment capabilities, technicians, day-to-day support and monitoring centers to become a key player. Our legacy of acquisitions has been consolidated to create a national technology team with the broadest reach in the industry that allows us to scale in a way no other company can. Our team of more than 1,100 highly trained technicians is strategically positioned throughout the U.S. to deliver a consistent, high performance experience whether deploying at 1 location or hundreds. With staging points in Latin America, Europe and Asia, our teams drive digital transformation across the globe. Once solutions are installed, we leverage proactive managed services to handle day-to-day operations like service desk, monitoring and maintenance.

Our focus on customer service and project excellence has built strong customer relationships across 9 strategic markets. To build on these strengths, we're investing in internal initiatives to prepare our teams for growth in the intelligent edge space.

These efforts include sales [enablement] training and a suite of marketing materials to enable our sales team for client discussions on how the power of the intelligent edge can improve their business outcomes. I am confident we now have the right activity, team and strategy in place to support our long-term success.

During FY '18, we will focus on 3 things: continued cost and operational efficiency; product innovation as we leverage last year's software acquisition to improve our KVM product set; and our growth strategy. Look for more information this September on our vision for growth.

With that, I'll open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Greg Burns with Sidoti.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [2]

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E.C., can you just give us some more color or better understanding about what's impacting the North American service business? You mentioned transitioning to more longer-term agreements. Can you just help us better understand what that means and why that's resulting in lower revenue?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [3]

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Certainly, Greg. So it's been our strategy all along to move from less from -- to less project-based business. Those types of business tend to be shorter term businesses, where we have to go back and replenish them from quarter-to-quarter. As a result of that, there is some revenue volatility in that. We wanted to move to a more reoccurring and better predictable revenue stream, which are longer-term, longer-duration projects. We have been making some progress in that area. We see early signs of that. But as a result of that, there is less short-term revenue for us to consume as we are driving more of the contracts in these longer-term activities. That was expected, but the timing of which we didn't have good clarity to. We're going through that progress of transformation now and expect we'll continue to go through that process. While we are seeing some strength in our markets right now in the shorter-term, over the long term, you should be thinking about us having a much higher percentage of reoccurring revenue.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [4]

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Okay. And in terms of the areas of growth, the smart office and the retail IoT, can you just help us better understand what each of those means, maybe provide an example of what you would be doing in the smart office and retail IoT?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [5]

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Certainly. So we're in both of those spaces now, and we'll be increasing our level of activity in them. The retail space is one of the 9 market segments that we had identified and aligned our sales force to last October. This is an investment in additional capabilities, both in technology and skill set in those markets. For example, we assist retail stores, particularly those that have a national footprint, to deploy new technologies in their stores to improve their customers' experience while shopping: that may be with digital signage; that may be with improved wireless capability so they can locate products; then maybe with sending coupons with them while they're in the store; and it may be other types of digital services while they're in the stores having a shopping experience. This helps retail stores to be more competitive with the online stores and give a better shopping -- or a similar shopping experience to consumers in the stores. For the smart office, this is a shift that's happening in the marketplace, where there's more collaboration that's happening in the office or that newer generation workforce is working more mobile. And so we provide to them the ability to do collaboration services that is particularly, like, in a conference room, for instance, that's there, or it may be location services. And remember, we also have been providing physical security, which is included as part of this smart office capability; that is, we're putting in the physical security systems, including cameras and software.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [6]

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Okay. For the credit agreement, what's the minimum EBITDA that you need to maintain?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [7]

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So Greg, the minimum EBITDA amounts vary as we move along. For 2Q, it starts at '17 and they do vary but there -- it's an add-defined term, right, so we are adding back the ERP implementation costs that are hitting OpEx. So it'd be kind of hard to model that but -- so there's -- we are planning on having, over a several quarters, not just this year, upwards of $15 million hitting OpEx related to ERP implementation. And we're going to be able to add the preponderance of that back.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [8]

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Okay. So the ERP, the cost in this quarter, how much was that cost?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [9]

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So the amount that related to implementation was approximately $3 million.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [10]

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And that's going out in the second quarter and then falling off in the third and fourth quarters?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [11]

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That is our expectation, yes.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [12]

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Okay. And when do you plan on having the implementation phase done and have this new ERP system launched?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [13]

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Well, there's several phases to that. So the first phase -- understand, we still have numerous ERPs out there. So primarily 2 to 3 ERP owners, but there are still, of each ERP, there's multiple instances. So we're going to do the first one towards the end of this year or very early next year will be the first one, where we'll take 4 to 5 instances of a legacy ERP and cut it over to the new one.

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [14]

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Greg, I think we've given some guidance before that this program will be completed about 18 months from when it started and it started in Q1 -- or Q4 of last year.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [15]

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Okay. Can you quantify how much the disruption in Europe, how much revenue that cost you, and do you expect to get that all back in the second quarter?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [16]

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Yes. So from a revenue recovery standpoint, we're tracking well on that side. We think it's going to have minimal impact this quarter as we go forward. The team there put a lot of methods and systems in place already. So while there's some impact that we think it'll have, we think that'll be pretty nominal at Q2 and a go forward standpoint. From a total impact, it's tough to judge what -- how much of it was due to the new people coming on board versus the new quoting method, et cetera. So we haven't tried to assign specific numbers to that but I think we do provide in our statements as to what the revenue is for products in Europe.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [17]

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Okay. When I look back historically, the September quarter is typically a little seasonally stronger than June. The guide is for, I guess, roughly flat revenue. Why aren't you seeing that typical seasonality in the business?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [18]

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I think it goes back to your earlier question, is we're making this transition to a more long-term, more sustainable revenue pattern than the short-term pattern. So as we go through that transformation, there's some shortness in revenue in the front-end quarters as we build on those longer-term contracts.

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Operator [19]

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Our next question comes from Jeff Geygan with Global Value Investment.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [20]

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Just a couple of questions in no particular order. Do I understand that you're taking $50 million of your credit facility and terming it out? So next quarter, presumably, you'll have a $140 million or so under long-term debt?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [21]

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It's really all except for a very small piece under long-term debt today and will still that way. Just the, obviously, the amount that amortizes over the next 12 months will be current. But yes, there'll be a $50 million term loan and the rest of it will be under a -- about $70 million under the revolver.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [22]

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Why did you decide now to make this $50 million draw?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [23]

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It's really not a draw. We just took our current facility and broke it into 2 pieces. So a $50 million term and a $120 million revolver gets us to the same number, just that there are mandatory term -- amortization payments on a quarterly basis now.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [24]

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I see. Your bank contracted your revolver from $200 million to $170 million. What concerns do they have?

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David J. Russo, Black Box Corporation - CFO, Senior VP & Treasurer [25]

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I really can't speak for them. But we obviously, as our SAP costs were hitting our P&L and our sales were coming down, obviously, that brought our EBITDA down. And so obviously, current performance below expectations. So we -- obviously there was give and take in this amendment process. We got the flexibility we believe we need to continue on with our strategy. And any time you take down a bank's commitment, certainly, they're -- they have to set aside capital for that, right. So it actually helps them set aside less capital to reserve for a deal such as ours.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [26]

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Fair enough. You indicated you had 100 acquisitions or so the last 20 years that has put the company in this position. It's a yeoman's task for you to try to bring all this together, no doubt. But what is the ultimate timing of the completion of this consolidation, where we might have a conference call from you indicating that the consolidation is done and now you're purely focused on looking ahead instead of fixing the sins of the past?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [27]

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That's a very fair question. So that consolidation activity started a little bit before I actually joined the company, Jeff. We've continued to make very good progress on it. But I think this process of putting up a new ERP system is going to be a key milepost along that path, and that we get the opportunity to re-establish all of the business methods and processes into a single consolidated system that's there. While we're making progress for instance, their type of revenue is already shifting, that's there. I think at that point would [hard] to put a firm stake on the ground, where many of the historical issues have been cleaned out.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [28]

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It sounds like you're correlating the fixing of your infrastructure with the securing of recurring revenue business. Are they necessarily tied together?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [29]

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No, I don't want to make it sound like those are tied together at all. But the change in the reoccurring revenue has already started taking place. That's one of the issues that impacted us in Q1. And we expect that, that reoccurring revenue will continue to grow as we go forward. That's where our efforts and part of the change of our business model is. But there's other activities that we need to do to get the historical issue of those acquisitions behind us. And I was referring to that in the timing of that with the ERP.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [30]

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And I presume most of those fixes are operating cost type of fixes. If that's the case, how would you characterize your operating margin on a forward basis, assuming a steady gross margin?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [31]

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Yes, I mean, those fixes help us in a couple of ways. Not only does it help us from a cost structure standpoint but it also gives us some tools to management to have better visibility into the systems and the behaviors of our clients, and so we can adjust our business systems faster. However, putting the system in place in addition to the growth initiatives we have are intended to do 2 things: shrink our cost; and to expand our top line and margins that are there. And so we haven't modeled out, what all those would look like yet for the market place, but we're obviously going on a path towards expanding our margins while we grow our revenue.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [32]

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And I can appreciate that you haven't modeled that out for the benefit of the guys on this side of the phone. But presumably, internally, you have a pretty clear idea what you think your fixed costs in absolute dollars will be, as well as percentage of revs. I have to assume that you'd at least be willing to say you expect your SG&A, sales marketing, however you classify it, as a percentage, to decline in time?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [33]

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Certainly.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [34]

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All right. E.C, I thought you mentioned, when you talked about your growth strategy, in addition to the smart office and the retail IoT, that the retail IoT was 1 of 9 segments identified. Was that what you said?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [35]

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We have 9 segments that we have identified and we've invested into. But in addition to those 9 and the leaders we have over those 9, we've picked 2 particular areas to drive a stronger focus into. The strategic growth initiatives have been mentioned in a couple of the prior conference calls that we had. In this particular call, we're stating out what they are that we're making those investments into. We think those particular markets have longer-term growth potential, and therefore, we're investing more into them than we would necessarily in the other ones.

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Jeffrey R. Geygan, Global Value Investment Corp - President, CEO, and Chief Compliance Officer [36]

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And the scale of those opportunities is tremendous, as you've identified. But I presume in order to be successful, you have to take market share from other people. What makes you think that your product and/or offering is superior that it will allow you to take share?

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Eslie C. Sykes, Black Box Corporation - CEO, President & Director [37]

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So I mean, 2 things, to make sure to point out here. One is that we've got some unique capabilities, particularly with the national tech team that was positioned here, which we're getting a very strong reception from, from our client base; that we are positioned with our own people rather than contract people to deploy these types of services to people. But -- and we've intentionally picked markets that are nascent and so these markets are growing and do not have established providers at present. The purpose of getting in front of these is so that we're not out trying to take pieces away from others, but for us to be able to position ourselves to enable a market that's beginning to mature.

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Operator [38]

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I'm not showing any further questions in queue. So I'll turn the call back over to Mr. Basso for closing remarks.

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Ronald Basso, Black Box Corporation - Executive VP, General Counsel & Secretary [39]

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Thank you, James, and we thank everyone for your time today. As a reminder, our press release has been filed on Form 8-K. It is available on blackbox.com. And this concludes this evening's conference call. Thank you very much.

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Operator [40]

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Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.