8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

Date of Report (Date of earliest event reported):  December 3, 2008

XETA Technologies, Inc.

(Exact name of registrant as specified in its charter)

Oklahoma	0-16231	73-1130045
(State or other jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)
1814 West Tacoma, Broken Arrow, Oklahoma		74012
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:  918-664-8200

(Former name or address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 2.02   Results of Operations and Financial Condition.

On December 3, 2008, the Company issued a news release reporting the Company’s financial results for the fourth quarter and fiscal year ended October 31, 2008.  A copy of the Company’s news release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01  Financial Statements and Exhibits.

(d)Exhibits

99.1—News Release dated December 3, 2008 entitled “XETA Technologies Reports Fourth Quarter and Fiscal 2008 Financial Results.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	XETA Technologies, Inc.
	(Registrant)
Dated:   December 3, 2008	By:	/s/ Robert Wagner
		Robert Wagner, Chief Financial Officer

2

EX-99.1

Exhibit 99.1

NEWS RELEASE

Date:	December 3, 2008
	FOR IMMEDIATE RELEASE
Contact:	Dave Mossberg
	Beacon Street Group
	817-310-0051

XETA Technologies Reports Fourth Quarter and Fiscal 2008 Financial Results

·Q408 Revenue: $22.4 million (increase of 17% year over year)

·Q408 EPS: $0.07 vs. Q407 EPS $0.07

·FY08 Revenue: $84.3 million (increase of 20% year over year)

·FY08 EPS: $0.20 vs. FY07 EPS of $0.14

XETA Technologies (NASDAQ:XETA) today reported fourth quarter earnings of $705,000, or $0.07 per diluted share, on revenue of $22,356,000 for the fourth fiscal quarter ended October 31, 2008.  This compares to earnings of $677,000, or $0.07 per diluted share, on revenue of $19,105,000 for the fourth fiscal quarter ended October 31, 2007.

For the fiscal year ended October 31, 2008, the Company reported earnings of $2,057,000, or $0.20 per diluted share, on revenue of $84,321,000 compared to net income of $1,432,000, or $0.14 per diluted share, on revenue of $70,093,000 for the same period ended October 31, 2007.  Earnings before interest, taxes, depreciation and amortization (EBITDA), which is a non-GAAP term as defined below, during fiscal 2008 were $5,477,000, or 6.5% of sales as compared to $3,675,000 or 5.2% of sales achieved during fiscal 2007.

The reported results are un-audited and, although no material changes are expected, are subject to change.  The audit is expected to be complete by the end of December 2008.

Revenue Table (in thousands)

	4Q08		4Q07
Line of Businesses	Revenue		Revenue		% Change
Commercial	$	7,095	$	6,588	8
Lodging	$	3,157	$	1,811	74
Total Equipment	$	10,252	$	8,399	22
Recurring (Contract & Time and Materials)	$	7,755	$	7,401	5
Implementation	$	2,796	$	2,224	26
Cabling	$	1,045	$	639	64
Total Services	$	11,596	$	10,264	13

During the fourth quarter of fiscal 2008, equipment revenue increased by 22 percent to $10,252,000 versus $8,399,000 recorded in the fourth quarter of 2007.  The increase in systems sales was primarily due to a combination of the previously announced large project with Miami-Dade County Public Schools (MDCPS) and growth in lodging systems sales.  Commenting on the growth in lodging equipment sales and the impact of the new Mitel product line, Greg Forrest, CEO said, “We continue to gain traction with the Mitel product line, which was evident in the 74% growth in lodging equipment sales during the fourth quarter.”

Fourth quarter implementation and cabling service revenue also benefited from the activity with MDCPS.  Combined with 5 percent year-over-year growth in recurring services revenue, total services revenue increased 13 percent to $11,596,000 versus $10,264,000 recorded during the fourth quarter of 2007.  “The pace of growth in our recurring services revenue, which is approximately 70 percent contract and 30 percent time and materials, has slowed over the past two quarters.  Growth of contract services was masked somewhat as our wholesale partners experienced some attrition in their managed programs.  Our wholesale service initiative remains a key growth strategy for our business and we are optimistic about its growth prospects.  We continue to add wholesale partners, deepen our relationship with existing partners, and are at various stages of on-boarding new managed service programs.  Our time and materials business showed a year-over-year increase during the fourth quarter, recovering nicely from declines in the prior two quarters,” Mr. Forrest commented.

Gross Margin Table

	4Q08		4Q07
Line of Business	Gross Margin		Gross Margin		Change
Systems		26.4%		25.0%	+ 140 basis points
Services		30.4%		33.2%	- 280 basis points
Overall Gross Margin		28.1%		28.9%	- 80 basis points

During the fourth quarter of 2008, gross margin was 28.1 percent of sales versus 28.9 percent during the fourth quarter of 2007.  “As a result of the changes we made in our service delivery model during the previous quarter, we delivered solid gross margin performance during the fourth quarter.  Gross margin performance was at the highest level of the year and both services and systems gross margin were within our targeted ranges,” said Mr. Forrest.

Commenting on the results, Mr. Forrest said, “Despite strong economic headwinds, XETA’s top line grew 20%, clearly outpacing the growth of the telephony equipment market and well above our targeted annual growth rate of 15%.  We also showed improvement in profitability, delivering a 49% growth in EBITDA year over year.  During the fourth quarter, we strengthened our balance sheet generating $5,210,000 in cash flow from operations, improving our ability to finance growth opportunities.”

“Looking forward, the degree of uncertainty surrounding information technology spending and the U.S. economy is unprecedented, which makes it challenging to give specific guidance for next year.  While we expect our organic growth may be flat in fiscal 09, we are confident in our market position and our strategies.  In this environment, we plan to take advantage of our Company’s strong balance sheet and core competencies to take market share and to further demonstrate our value proposition to our wholesale partners and customers.  We expect to generate profits of equal to or greater than fiscal 2008 as we maintain focus on cost management and continue to drive business efficiencies in our operating model,” continued Mr. Forrest.

The Company will host a conference call and webcast to discuss these results at 4:00 p.m. Central Time on Wednesday, December 3, 2008. Interested parties may access the conference call via telephone by dialing 877-407-8033. The call is being webcast and can be accessed at XETA’s website www.xeta.com under the investor relations portion of the website. A replay of the webcast will be archived on the Company’s website for 60 days.

About XETA Technologies

XETA is a leading provider of communication technologies with a comprehensive array of products and services available from industry leaders. The Company has earned and continues to maintain the industry's most prestigious certifications as an Avaya Platinum Business Partner, Nortel Elite Advantage Partner, and Mitel premiumPARTNER. Being able to provide solutions and service for these leading vendors is a unique value proposition for Fortune 1000 customers with multiple locations and complex networks. With a 27 year operating history and over 16,000 customers from coast to coast, XETA has maintained a commitment to extraordinary customer service. The Company's in-house 24/7/365 call center, combined with a nationwide service footprint offers customers comprehensive equipment service programs that ensure network reliability and maximized network up-time. More information about XETA (Nasdaq: XETA) is available at www.xeta.com. Click on the following link to join our e-mail alert list: http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0.

Condensed Consolidated Statements of Income

		Three Months Ended						Fiscal Year Ended
		October 31,						October 31,
		2008			2007			2008			2007
Sales	Services	$	11,596		$	10,264		$	43,484		$	37,296
	Systems	10,252			8,399			38,900			31,846
	Other	508			442			1,937			951
	Total	22,356			19,105			84,321			70,093
Cost of Sales	Services	8,074			6,855			31,178			25,877
	Systems	7,545			6,297			28,720			24,216
	Other	460			425			2,167			1,792
	Total	16,079			13,577			62,065			51,885
Gross Profit		6,277			5,528			22,256			18,208
Gross Profit Margin		28		%	29		%	26		%	26		%
Operating Expense
Selling, General and Administrative		4,751			4,188			17,547			15,134
Amortization		296			186			1,018			657
Total Operating Expenses		5,047			4,374			18,565			15,791
Income from Operations		1,230			1,154			3,691			2,417
Interest Expense		(66		)	(54		)	(334		)	(93		)
Interest and Other Income (Expense)		(4		)	14			24			49
Total Interest and Other Expense		(70		)	(40		)	(310		)	(44		)
Income Before Provision for Income Taxes		1,160			1,114			3,381			2,373
Provision for Income Taxes		455			437			1,324			941
Net Income after Tax		$	705		$	677		$	2,057		$	1,432
Basic Earnings Per Share		$	0.07		$	0.07		$	0.20		$	0.14
Diluted Earnings Per Share		$	0.07		$	0.07		$	0.20		$	0.14
Wt. Avg. Common Shares Outstanding		10,254			10,215			10,250			10,215
Wt. Avg. Common Equivalent Shares		10,254			10,215			10,250			10,215

(The information is unaudited and is presented in thousands except percentages and per-share data.)

Consolidated Balance Sheet Highlights

			October 31, 2008		October 31, 2007
Assets	Current	Cash	$	64	$	403
		Receivables (net)	19,995		16,236
		Inventories (net)	5,237		4,297
		Other	2,615		1,944
		Subtotal	27,911		22,880
	Non-Current	PPE (net)	10,725		10,611
		Goodwill & Intangibles	27,654		26,469
		Other	103		136
		Subtotal	38,482		37,216
	Total Assets		$	66,393	$	60,096
Liabilities	Current	Revolving Line of Credit	$	2,524	$	2,759
		Accounts Payable	6,692		5,670
		Accrued Liabilities	4,913		3,736
		Unearned Revenue	3,237		2,212
		Subtotal	17,366		14,377
	Non-Current	Long Term Debt	1,183		1,355
		Noncurrent Deferred Tax Liability	5,546		4,632
		Other	461		293
		Subtotal	7,190		6,280
	Total Liabilities		24,556		20,657
Equity			41,837		39,439

(The information is unaudited and is presented in thousands.)

	Quarter Ending October 31,				Fiscal Year Ending October 31,
Reconciliation of EBITDA(1) to Net Income	2008		2007		2008		2007
Net Income (Loss)	$	705	$	677	$	2,057	$	1,432
Interest	66		54		334		93
Provision for Income Taxes	455		437		1,324		941
Depreciation	215		158		744		552
Amortization	296		186		1,018		657
EBITDA(1)	$	1,737	$	1,512	$	5,477	$	3,675

(The information is presented in thousands.)

(1)The Company uses EBITDA (earnings before interest, income taxes, depreciation and amortization) as part of its overall assessment and comparison of financial performance between accounting periods. XETA believes that EBITDA is often used by the financial community as a method of measuring the Company’s performance and of evaluating the market value of companies considered to be in similar businesses. EBITDA is a non-GAAP financial measure and should not be considered an alternative to net income or cash provided by operating activities, as defined by accounting principles generally accepted in the United States (“GAAP”). A reconciliation of EBITDA to net income is provided above.

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning growth prospects for the Company’s wholesale service initiative; overall organic growth for 2009; profitability; and earnings expectations. These and other forward-looking statements (generally identified by such words as "expects," "plans," "believes," "likely," "anticipates" and similar words or expressions) reflect management's current expectations, assumptions, and beliefs based upon information currently available to management. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict and that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the U.S. economic crisis and its impact on capital spending trends in the Company's markets; the Company's ability to maintain and improve upon current gross profit margins; continuing acceptance and success of the Mitel product and services offering; the Company's ability to acquire and retain the technical competencies needed to implement new advanced communications technologies; intense competition and industry consolidation; dependence upon a single customer for the recent growth in the Company's Managed Services offering; and the availability and retention of revenue professionals and certified technicians. Additional factors that could affect actual results are described in Item 1.A entitled "Risk Factors" contained in Part I of the Company's Form 10-K for its fiscal year ended October 31, 2007 and in its subsequent Form 10-Q reports filed during the 2008 fiscal year.