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Stanley, Inc. (SXE)

F3Q09 Earnings Call

January 29, 2009 5:00 pm ET


Phillip Nolan – Chairman, President, CEO

Brian Clark – Executive Vice President, CEO


Brian Kinstlinger – Sidoti & Co.

Cai von Rumohr – Cowen & Co.

William Loomis – Stifel, Nicolaus

Michael Lewis – BB&T Capital Markets

Edward Caso – Wachovia Securities

Brian Gesuale – Raymond James & Associates

Tim Quillan – Stephens Inc.

Chris Donaghey – SunTrust Robinson Humphrey

Jeff Houston – William Blair



Welcome to the Q3 fiscal year 2009 Stanley Incorporated earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Mr. Larry Delaney, Investor Relations council.

Larry Delaney

Good afternoon everyone and thanks for joining us today on Stanley's fiscal third quarter 2009 earnings call. Here today are Stanley's Chairman, President and CEO Phil Nolan and Executive Vice President and Chief Financial Officer, Brian Clark. Phil will begin with an overview of the company's third quarter operating results. Brian will then go through the financials and issue guidance for Stanley's fourth quarter 2009 and update full year 2009 guidance. We'll then take your questions.

Before we get started, I'd like to remind our listeners that our comments today will contain forward-looking statements and information based on management's current expectations. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about various risks that could affect the company's financial results is available in the risk factor of Stanley's From 10-K in the fiscal year ended March 31, 2008 and in the other reports the company files with the SEC.

In addition, today's call will include discussion of certain non-GAAP financial measures including EBITDA and organic revenue growth. Tables reconciling our non-GAAP financial measures are available on our earnings press release available under the investor relations section of the company's web site at With that, I'll turn the call over to Phil Nolan.

Philip Nolan

I'd like to thank you all for joining us this evening. Stanley posted another strong quarter of substantial revenue growth and continued margin improvement. Third quarter fiscal 2009 revenue came in at $203.6 million, representing year over year top line growth of 38%, 24% of which was organic. The revenue number exceeded the high end of the guidance we issued on our last earnings call by more than $1.5 million.

Net income for the quarter was $9.7 million versus $6.8 million a year ago which equals diluted earnings per share of $0.41, up from $0.29 for Q3 of last year. Q3 EPS exceeded the high end of our guidance by $0.04.

Bookings for the third quarter were $254.1 million, equating to a book to bill of 1.2 to 1. Our contract backlog at December 26 was approximately $2.1 billion, up slightly sequentially, and up approximately 65% year over year.

Our qualified pipeline currently exceeds $4.5 billion. As of today, we have almost $400 million in proposals submitted and awaiting decision, and we expect to submit another 16 proposals of $100 million or more each in the next six to nine months.

Clearly award activity was very slow during the later half of the third quarter since almost all of our bookings were acquired prior to our last call. At this point, we think you should expect bookings in the fourth quarter to be light as we do not feel that any of our larger submitted bids are near announcement.

I should add that our nine month book to bill was 1.5 to 1 and the full fiscal year 2009 book to bill will be well above 1 to 1.

During the period, Stanley benefited from increased revenues from our continued support to the Department of Homeland Security to provision IT services for various Department of Defense customers and increased revenue resulting from the acquisition of Oberon and Associates. We had expected additional growth in FY '09 from new army equipment RESET contracts and a surge in passport demand in advance of the western hemisphere travel initiative, or WHGI.

However, nine months in, it's not clear that these efforts will push to the right. Nonetheless, as we stated last quarter, we remain in our FY '09 guidance as growth and other areas of our business has been strong.

In the case of RESET, the Army's procurement infrastructure is taking longer than expected to migrate Legacy contracts to the first IDIQ vehicle. This delay has caused the contracts already in place to be extended while they gear up to generate new RP's under first. I should add however, that our existing RESET work in Fort Cannibal and Bluegrass, Kentucky continue to post solid year over year growth and our rest pipeline continues to grow.

As for passport, it now appears that any major surge in passport volumes as a result of land and sea provisions of WHGI if one occurs will resemble the earlier air travel cut in and nearer to or after the June deadline. As we told you to expect last quarter, passport services revenue was down both sequentially and year over year.

Since we spoke to you last quarter, we announced several key wins. These dollars values were included in our Q2 and Q3 bookings total at October 30, but which we could not describe until we received approval. I'd like to highlight a number of these awards and business areas because of their importance to our expected growth profile going forward.

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