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Stanley, Inc. (SXE)

F1Q09 Earnings Call

July 31, 2008 5:00 pm ET

Executives

Philip O. Nolan - Chairman, President and Chief Executive Officer

Brian J. Clark - Chief Financial Officer

Lawrence Delaney, Jr. - Investor Relations Counsel


Analysts

William R. Loomis - Stifel, Nicolaus & Co.

Cai von Rumohr - Cowen & Co.

Chris Donaghey - SunTrust Robinson Humphrey

Stefan Mikatuk

Michael S. Lewis - BB&T Capital Markets

Tim Quillin - Stephens Inc.

Brian D. Kinstlinger - Sidoti & Co.

Presentation

Operator

Welcome to the Q1 Fiscal Year 2009 Stanley, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Larry Delaney, Investor Relations Counsel.

Larry Delaney

Thanks for joining us today on Stanley’s fiscal first quarter 2009 earnings conference call. Here today are Stanley’s Chairman, President and CEO, Phil Nolan, and Chief Financial Officer, Brian Clark.

Phil will begin with an overview of the company’s first quarter operating results. Brian will then go through the financial results and issue guidance for Stanley’s fiscal second quarter 2009 and full year fiscal 2009. 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 section of Stanley’s Form 10K for fiscal year ended March 31st, 2008, and other reports that the company files with the SEC. In addition, today’s call will include discussions of certain non-GAAP financial measures, including EBITDA and organic revenue growth. Tables reconciling our non-GAAP financial measures are available in our earnings press release available under the Investor Relations section of the company’s website at www.stanleyassociates.com.

With that, I’ll turn the call over to Phil Nolan.

Phil O. Nolan

I’d like to thank all of you for joining us this evening. Stanley began fiscal year 2009 in solid fashion with Q1 revenue of $172.6 million, representing year over year top-line growth of 29%, all of which was organic. Net income for the quarter was a record $8.3 million versus $5.4 million a year ago, equating to diluted earnings per share of $0.35, up from $0.23 for Q1 of last year. Q1 revenue exceeded the top end of the guidance we issued on our Q4 ‘08 call by nearly $5 million. Diluted EPS exceeded the high end of guidance by $0.03.

Bookings for the first quarter were $384.7 million, equating to a Q1 book-to-bill of 2.2:1. Our contract backlog at June 27 was approximately $2 billion, up 12% sequentially over Q4 and more than 102% year over year.

Our qualified pipeline currently exceeds $4 billion and that includes opportunities that came with our most recent acquisition of Oberon Associates. As of today, we have nearly $600 million in proposals submitted and awaiting decision which also includes Oberon. Collectively, we expect to submit another 15 proposals of $100 million or more in the next 6-9 months. We do expect, however, the Q2 bookings will be light, probably well below 1:1 book-to-bill. I know you’ve heard me tell you that for the last two quarters and each time we exceeded expectations, but that was driven by the timing of two large recompetes. Now that both of those are successfully behind us we will see a lighter bookings quarter. But as I mentioned, we are sitting on the strongest qualified pipeline we’ve had in our history. So we look forward to bookings again picking up in the latter half of this fiscal year.

All in all, FY ‘09 is shaping up to be another strong year for Stanley. We expect that the drivers that produce our revenue in organic in FY ‘08 will continue to generate top-line growth and improve margins in FY ‘09. These include a new ramp in passport demand, continued improvements in contracts, one in FY ‘08 supporting the Army’s equipment reset mission as well as anticipated new awards later in FY ‘09, and revenue from the Department of Homeland Securities, Citizenship and Immigration Service Centers, or USCIS, contracts. We also expect our acquisition, Oberon, which closed earlier this month to be a strong contributor to this year’s overall growth.

As a refresher from when we announced the deal in June, the Oberon acquisition gives Stanley access to a new set of customers, including the Army’s Intelligence and Security Command, the Air Forces’ Electronic Systems Center, the Defense Information Systems Agency and other Department of Defense intelligence community and civilian agency customers. Oberon has outstanding engineering and integration services and solutions, supporting biometric systems, intelligence operations, training and analysis, communication systems and enterprise data management. Since we began work on the acquisition, Oberon has secured Prime position on ENCORE II acquisition and the INSCOM Futures contract. Both of these agency-specific ID/IQ contracts are expected to provide significant opportunities for new business. I should also add here that our acquisition of Oberon will expand Stanley’s Army RESET capabilities beyond our current focus on equipment reset. One of Oberon’s core competency is providing institutional training development and training support to military intelligence personnel at Fort Huachuca, Arizona. In effect, helping to reset the skill sets of personnel returning from Iraq and Afghanistan. So with equipment and personnel reset, Stanley is inevitably involved with the military’s efforts to systematically restore previously deployed units to the required level of personnel and equipment readiness. We have begun the process of integrating Oberon and expect to be largely finished by the end of this calendar year.

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