CIBER Q4 2008 Earnings Call Transcript

CIBER, Inc. (CBR)

Q4 2008 Earnings Call

February 24, 2009 11:00 AM ET

Executives

Jennifer Matuschek - Vice President, Investor Relations

Mac J. Slingerlend - President and Chief Executive Officer

Peter H. Cheesbrough - Executive Vice President and Chief Financial Officer

Analysts

George Price - Stifel Nicolaus & Company Inc.

Timothy Brown - Roth Capital Partners LLC

Barbara Walchli - Aquila Investment Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CIBER Fourth Quarter and Year-End Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, February 24, 2009.

I would now like to turn the conference over to Ms. Jennifer Matuschek, Vice President of Investors Relations. Please go ahead.

Jennifer Matuschek

Thank you Kim and good morning, everyone. Thank you for joining CIBER's fourth quarter and year-end 2008 earnings call. With me today are Mac Slingerlend, our President and Chief Executive Officer; and Peter Cheesbrough, our Chief Financial Officer.

We distributed CIBER's fourth quarter and year-end 2008 earnings release before the market opened this morning. A copy is available on the company's website at ciber.com. We also published our quarterly financial scorecard this morning on the website, which provides selective metric information as well as revenue and income for our operating division for those of you that are interested.

During today's call the discussion may include certain non-GAAP financial measures in an effort to provide meaningful comparisons to investors. A reconciliation of non-GAAP measures to the related GAAP measures is provided in the Investor Relations section of our website.

Lastly, I would like to remind you that certain comments today may constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Please refer to the Safe Harbor language in today's press release and in CIBER's other public filings.

Now, I'll turn the call over to Mac.

Mac J. Slingerlend

Thank you, Jennifer. There was good and bad to the fourth quarter of 2008 operations. But overall, we overcame the tough things except for two. First was a couple of customer bankruptcies that led to $0.03 plus charges to the P&L, the biggest of which was a UK customer that was pleased with our work, but that was backed by a hedge fund and a major Wall Street bank that pulled its funding related to the financial crisis going on more or less in Manhattan.

The second item was a peculiar accounting rule that had us charge our UK P&L for nearly $1 million and an intra-company interest CIBER if you were borrowing well at that subsidiary to who the money was owed had no gain on its books; and even though nobody paid anybody anything. You would think there would be two P&Ls or two balance sheets but the negative one to the P&L and the offsetting positive didn't exist, as we helped to create this logic.

You rightfully would have noticed the announced 10 million equity offering, our first material offering in over a decade. I'd loved to tell you we believe the cash from operations was such as not the case. Although, we made more money in 2008 than 2007, and generated over $90 million in cash flow from operations. Our bank currently even have a covenant that would be strangling us in 2009, that is our debt to EBITDA covenant gets 22% more restrictive over 2009. This ratio is exacerbated by the strengthening of the U.S. dollar which holds down EBITDA as a denominator as our European results are reduced through translation into the stronger dollar.

To avoid the risk of (ph) being in default, our primary choices were to sign an extensive amendment with a somewhat those to covenant but they contained new constraints and another new covenant or raise capital and not finding amendment. We chose capital; the capital gave us less cost to shareholders and more flexibility that the amendment would have allowed.

We're happy well we're happy to issue the shares absolutely not. We're just happier to do that than the alternative. We want to thank Roth Capital with an assist from Kauffman Brothers for their arranging the shares quickly and efficiently and what I would consider to be hard market conditions.

With that Peter, would you report on 2008?

Peter H. Cheesbrough

Thank you, Mac and good morning everyone. As Mac has already mentioned, this was a challenging quarter. The quarter typically brings seasonal lower productivity, but this year we also saw clients constraint spending in response to weak economic conditions in the tight credit environment.

The unexpected strength of the U.S. dollar and a very weak UK pound had a negative impact on the quarter. Specifically, three items negatively impacted Q4 results. First, client bankruptcies about $0.03; second, currency translation loss on the intra-company loan about a penny; and thirdly, general currency translation of European results, another penny.

Partially offsetting this was the low tax rate for the quarter, largely driven by an R&D credit booked in the quarter, but relating to whole year. At the time of providing guidance in October, we knew about some of this credits, but not all of it.

For the full year, revenue of 1.19 billion was a record for CIBER, and $0.50 EPS was the highest since 1999. Strong cash flow enabled us to reduce long-term debt to a $166 million, a reduction of 36 million for the year. As anticipated, we repurchased all the remaining convertible debentures in the fourth quarter.

Now, I'll discuss some of the specific. Revenue for the fourth quarter was $279.6 million, a decrease of 3.8% year-over-year. Currency translation alone had a 3.8% negative effect. Quarter-over-quarter, the dollar strengthened by 25% versus the UK pound and 10% versus the euro.

For the year, revenue grew 10.1% over 2007, of that, 6.6% was organic with acquisitions and foreign exchange adding 1.7% and 1.8% respectively. Gross profit for the quarter was 26.5% an improvement of 40 basis points year-over-year. For the year, gross margin improved by 20 basis points to 27.2%.

SG&A expense for the quarter was 23% of revenue, an increase of 200 basis points quarter-over-quarter. And for the year, SG&A of 22.2% was an increase of 70 basis points. The largest single contributor to these increases was bad debt expense, which added 114 basis points for the quarter and 53 basis points for the year.

Operating income for the quarter was $8.4 million, 5 million lower quarter-over-quarter. The two largest components of this reduction was $3.2 million lower contribution from our CES Division, and a 3.2 million increased bad debt expense.

For the year, operating income was $53.9 million, and operating margin was 4.5%. Increased bad debt expense and the negative performance within CES had a combined negative impact of 120 basis points on operating margin. Without these two items, our operating margin would have improved by 70 basis points over last year.

The Commercial and European Division; both had strong performances in 2008, and improved our operating margin by 120 and 115 basis points respectively. Other income net $1.9 million for the quarter, was $700,000 lower than in Q4 of last year, primarily driven by lower interest expense. For the year, other expenses were $9.9 million, or 900,000 higher than in 2007, largely as a result of the higher interest costs during the first three quarters.

Income tax expense for the quarter was 8% or $500,000 down from 33% in the prior year's quarter. This low rate was largely the result of recognizing the R&E credit in the quarter. Although, the credit related to the entire 2008 year, we were only able to book it after it had been singed in lower in October last year.

For the 2008 year, tax expense was 32% compared to 36% in 2007. This lower rate was driven by the geographic mix of earnings, lower tax rate and improved results across Europe.

Net income for the quarter was $6 million, a $1.2 million decrease over the 7.1 million in Q4 of 2007. EPS of $0.10 compared to $0.12. And for the full year net income was $30 million and EPS $0.50 representing a 3% and 6% increase over the $29 million and $0.47 respectively in 2007.

Net cash flow provided by operating activities for the quarter was $29.4 million and for the full year 19.9 million as compared to 22.7 million in 2007.

CapEx for the quarter and the year were 3.8 million and 14.7 million respectively compared to 4.5 and 13.2 million in 2007. As a result, our free cash flow representing net cash flow from operating activities less CapEx was 24.3 million for the quarter and 76.2 million for the 2008 year.

Moving along to our balance sheet. Our cash position was $49 million at the end of 2008, an increase of 17 million for the year. We also reduced long-term debt by 36 million to the year to end the year at a 165.7 million. And although you can't see this on the condensed balance sheet provided with the press release, we also reduced short-term debt by a further $7 million to leave only $2 million in this category at year end.

Long-term debt-to-total capital ratio improved to 26.8% from 30.7 at the end of 2007. Accounts receivable; Services DSOs were 65 days, down 7 days from a year ago and down 3 days from the end of 2000... the third quarter. Overall DSOs were 72 days, down four days from a year ago.

The receivables from the City of New Orleans stood at $9 million down from 17 million a year ago. FEMA is progressing through its review process, but painfully slowly. We have announced an equity issue it refers to paying down our revolving credit facility and helping us stay within our covenants during these though economic times.

Our close agreement required significant tightening of leverage covenants during 2009 as well as step down from the overall facility, while these covenants seem tough but achievable a year ago. It looked increasingly challenging as we saw a slower growth due to the economy and the impact of the strengthening dollar in translating results form foreign operations.

Looking forward to 2009, we anticipate capital expenditures of $8 to $10 million, depreciation of approximately $9 to $10 million and amortization of $6 to $7 million and we expect the tax rate for 2009 of 35% to 36%. We plan to use any excess cash flows from CapEx and to pay down our revolving credit facility. And with the completion of our acquisition in India in January, and the limitations under our credit agreement, we do not expect any significant in our conversion for the balance of 2009.

That concludes my comments. Now back to you Mac.

Mac J. Slingerlend

Thank you, Peter, nice job. We were and are pleased to have closed the Iteamic acquisition, the first week of January. Tony Hadzi has done a very nice job for us in India and Raghurama Kote and he have really got this finally and fully straight away, completely ready to take on more offshore ADM projects this year.

You may have noticed the smallest deal we recently did with Canon Technology Systems to take over an activity of theirs, one that they were not scaling and one that fit nicely with our ITO division. Both of these are good positive for CIBER for 2009.

We expect the first quarter to be challenging given the down graph of the fourth quarter and early 1Q '09. We're not pessimistic about 2009 overall. We see a better year in several of our operations.

First our Federal Division, had huge renewal efforts in 2008, but more of its revenue is in backlog as we head into 2009, so more time will be spent this year and new wins, new business wins. As An example they have won three IDIQ vehicles since the 1st of January, part of our efforts to win more business as a prime contractor. This division is also recently trimmed about $1 million from its overhead structure.

Second, our U.S. SAP Practice is in much better shape than a year ago; is a much better focused leadership team, a streamlined cost structure and it's most difficult project of 2008 is completed and hence gone line And I will add that the customers are happy with us and looking to adding more modules. This practice is simply a better run business at the offset of 2009.

Third India, with a previously referred to Iteamic acquisition we have both started delivery skill and leadership offshore at a time of saving money has never been more important driver for our global customers.

Lastly Europe, which experienced two bankruptcies, two bankrupt customers in last half of 2008, and an another struggling customer that cut back dramatically on its spending. There are no guarantees, but we hope that less of these bankruptcy type matters in Europe and in all of our divisions in 2009.

Down just we remain from the overall perspective, U.S. spending on hardware, software and services has contracted and forecasts are choppy. About 70% of state governments have budget deficits, however all states will benefit from the recently passed stimulus package.

Unless we forget the strong U.S. dollar's illusionary; obviously huge budget deficits and lower interest rates and that support our strong status. And those of us who have the material global operations reporting in U.S. dollars will get squeezed in 2009 with currency translation. The financial table we have included in all of our press releases for last few years including today's, has highlighted the components of growth for each period, so we could focus on organic changes. Obviously, our focus is on the organic numbers.

While we have not announced any major personnel actions, we have reduced our personnel in several of our divisions, overhead personnel that is; and at our corporate office. We began these actions last August, about 30 days before the Lehman Brothers bankruptcy kicked off the financial crisis in mid September. And while we may reduce further, we certainly believe we have already made responsible moves for these economic times.

On the financing front, we're comfortable with our liquidity as solid. We have positive cash flow and of course we are profitable as well. We've been profitable in each of the 15 years we have been a public company, and have an increasing profit in seven of the last eight years. That said, we would love to see capital markets returning to attractive terms, so companies like ourselves in getting place in more permanent financial structures both debt and equity.

We see 2009 as a tale of two periods, the first three or four months in the last eight or nine. We currently think that first three or four will be tough given the first quarter curtailments from 2008, the current strength of the dollar, the presidential changeover and continuing financial market saga.

Likewise, we will ask eight or nine months will be more promising. We see opportunity with high a few ROI projects in both; public sectors and private sectors. And we believe, the stability of our domestic and European management teams will help us further perform better than our peers.

In today's press release, we have guided to a tight first quarter. But overall, another year of meaningful results primarily diluted only by the share issuance in foreign exchange.

That concludes our comments. Kim, would you find out if you have any questions for us.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of George Price with Stifel Nicolaus. Please go ahead.

George Price - Stifel Nicolaus & Company Inc.

Thanks very much. Good morning, every body.

Mac Slingerlend

Hey George.

Peter Cheesbrough

Hi, George.

George Price - Stifel Nicolaus & Company Inc.

I guess Mac, I'd like to kind of save way off your last comment there about 2009 as a tale of two periods, looking basically for the first quarter to be pretty choppy. And then in improvement in the rest of the year and that's what we see when we look your guidance coming off the tough first quarter and then being lot a quarter-over-quarter ramp and a much more back and loaded expectation.

Can you take us through, what your assumptions are behind that guidance and what kind of visibility you have to those opportunities as you move through the year because, at first blush, given the environment that we're, it just was awfully optimistic to assume that the year that we're going to have this year is only going to be tough in the first couple of months, and then it's going to get much better?

Mac Slingerlend

Yeah. I understand your question. I think a reminder is to be realistic but optimistic i.e. not early part (ph). First of all, our head counts for the year are kind of net, net stable at the moment. We have had a little bit of attrition, but we've also picked up a few combinations of both Iteamic and from the Canon transaction. And at the moment, I am roughly a push, and in fact it didn't stable for the last couple of weeks.

I know you noticed that we've announced an acquisition I may say this to rest of the audience but in your backyard, of a public sector multi million dollar European implementation project that has just kicked off and we're very pleased to be doing that.

We have another similar year project that we're kicking off kind of towards the Northwest a few parts of the Northwest to view that is helpful. Much as new vehicles if you will much came in Federal the three new IDIQ vehicles are helpful. I've looked at their pipeline and backlog. The fact which we ended last year was about 35% in backlog and this year it was about 75% in backlog is helpful to how they're going to spend it.

It basically, one of the things and I called it in the last week or so, a tailwind and its awkward for me to refer to it as a tailwind that our U.S. SAP business was not a very -- was a poor business in 2008. Its going to be a much better business in 2009 and in comparison call it quarter-over-quarter comparisons if you will, I have a much better situation there that I had a year ago.

So I think it's a combination of the fact and by the way we picked up some people from Satyam, some people from them (ph) who would like to talk to us. One of our vendors in Europe is consolidating vendors from approximately 1000 down to a few, we were one of the 1000, we're also one of the few and we're talking to them. And in fact working and picking up some additional people in the U.S related to a Dutch based multi-continent company.

So there is business out there, there is opportunity out there. There is another client that where we're talking about picking up some of their folks as they abandon a sector. And I just think overall I whatever's there what you judge I am proud of our business model, I am proud of our management teams and our people in Europe and America that are trying to deliver this for us and that gives me the confidence to put out the outlook today.

George Price - Stifel Nicolaus & Company Inc.

Mac, would I guess maybe if you and Peter could maybe give us a sense of what would have to happen breach guidance to the down side?

Mac Slingerlend

I will chip in here first, Peter can add some thing separate if he wishes. I'll call an American meltdown I summarized the second item would be that the U.S dollar in August was going to get stronger than it currently is today. I can't sit here and believe... we have factored roughly 50 million off the top line for an American dollar and roughly $0.035 off the bottom line for a stronger American dollar. I can't sit here and tell you, I think it's going to get stronger; but would have to be a further meltdown of American clients in my opinion. And right now I am feeling okay about our client portfolio and the opportunities we have. Peter?

Peter Cheesbrough

All right. I have much to add to that other than perhaps, I mean one of the things that hurt us badly in the fourth quarter in 2008 was bad debt, which was obviously driven by the economy, if we have significant hits there that could certainly hurt us, so rather than that I think its driven by really driven by the economy and foreign exchange.

George Price - Stifel Nicolaus & Company Inc.

Okay. And I guess last question, then I'll just circle back over around, let a few people in. How much of the 49 million in cash is in the U.S?

Mac Slingerlend

About $0.06 in Europe.

George Price - Stifel Nicolaus & Company Inc.

I'm sorry could you repeat...

Mac Slingerlend

Basically we sweep our cash daily to pay down the debts, so I mean each day you kind of have nothing net, net in U.S...

Peter Cheesbrough

Correct.

Mac Slingerlend

And all the currency would be in Europe.

George Price - Stifel Nicolaus & Company Inc.

Okay, all right. Thanks very much.

Mac Slingerlend

Yeah George.

Operator

Thank you. Our next question comes from line of Ed Caso with Wachovia. Please go ahead.

Unidentified Analyst

Hi, good morning, this is Chris Buckland (ph) for Ed Caso.

Mac Slingerlend

Good morning Chris.

Unidentified Analyst

I was wondering if you could talk about the change in the conversation since the stimulus bill is passed with regards to state and local?

Mac Slingerlend

You know there is a little bit, I am not going to tell you its material, we certainly seen one or two line items in this stimulus package that we believe can be a direct benefit. I think the real benefit to CIBER is an indirect one. For example Colorado has got roughly $600 million budget deficit forecast for this year, and the stimulus package has $600 million for Colorado for balancing its budget. If you extrapolate that 49 more times, I don't know if you can, but in general what you find is the state governments that either may not do something or may have to cut, may not be in a position where they do have to cut. So we do see an indirect benefit, and it's interesting because I've heard some... I saw one press release in particulars that says we're going to do well in the second half of '09 because of the stimulus package. We are not here saying that the company is going to be performing in 2009 based on the stimulus package. But I do believe that there is mainly slight indirect benefits to us from a stimulus standpoint.

Unidentified Analyst

Okay. And then given the two acquisitions, can you tell us what's incorporated on the top line with regards to revenue contribution from the two acquisitions?

Mac Slingerlend

I would say the total is somewhere around 10 or 15. And if you ask me to be more precise, I'll probably tell you I can't do it. And it's a combination of the, if you will, 10-ish Canon, five-ish India, and those are just ballpark numbers. Please know that Indian acquisition wasn't really driven to help the top line; it was... we had very good delivery in India, but we enhanced our delivery and enhanced our leadership within the country by the Iteamic acquisition. So I would have been virtually just as happy if they had no revenue, i.e. I was really looking for bench strength from a delivery standpoint to help our U.S. clients more than I was looking for top line individual revenue contribution from the business combination.

Unidentified Analyst

Okay. And lastly, I believe you offered some tax rate assumptions. Does that include with the R&E credit was extended already for 2009? Is that included?

Mac Slingerlend

Yes. Yes, it is. Yes.

Unidentified Analyst

Okay, thanks. I will get back in queue.

Mac Slingerlend

Okay.

Jennifer Matuschek

Thanks.

Operator

Thank you. Our next call comes from the line of Tim Brown with Roth Capital. Please go ahead.

Timothy Brown - Roth Capital Partners LLC

Hi. Good morning.

Mac Slingerlend

Good morning, Tim.

Peter Cheesbrough

Good morning, Tim.

Timothy Brown - Roth Capital Partners LLC

Just a couple of questions. I want to start out with the demand side. Q4 bookings came in generally in line with 2007 Q4. Can you tell us what you're seeing in Q1 and are you going to see the normal uptick in bookings?

Peter Cheesbrough

Tim, thanks for the question. There are two quick comments to you. January was okay. The numbers that I've been given on January are very steady state with respect to maintaining top line. I do recall that last year's first quarter bookings, if my memory is still anywhere as near intact, was somewhere around 370 million, i.e. 1.25 or so our book to bill ratio. I don't see a 1.25, but I can only tell you January was very solid. And I don't, at this point believe, will be less than one to one for the first quarter. And so not as robust as a year ago, but not something that's kind of falling off a cliff either.

Timothy Brown - Roth Capital Partners LLC

You're still... you think more than one to one then?

Peter Cheesbrough

If I took the first quarter times three, it will be more than one to one. I will get back to you in April on the last few months.

Timothy Brown - Roth Capital Partners LLC

Okay. And then the CES, I mean to me, that's one of the areas that is going to be... I wouldn't think of as being hurt by the decision making. You've got two big contracts already. Are those coming on in Q1? Are they coming on in Q2 and are those enough to make CES relatively flat on the top line for 2009?

Mac Slingerlend

Both of the two that I've referred to have already kicked off. They didn't kick off in early January, but I would say, by the 1st of February, they've kicked off. And by the way, on our Lawson practice, we had a nice little roughly $5 million hospital sector kick off in the first quarter. And so I'll give you that. That would be stable with respect to that business as well. I think the main thing you're going to see, and your question was top line, but I think I've got to take you to the bottom line. By delivering the first week of February when we said we would, the tough project that cost us money in 2008, we really put ourselves in a position to reduce the costs, the direct costs on a project that was not helping us and was hurting us. So top line, I see as basically pretty stable for... with respect to the fourth quarter sequentially. And I think the bottom line I think will be improved over the fourth quarter sequentially.

Timothy Brown - Roth Capital Partners LLC

Okay. And then just on the cost side you mentioned, you've already instituted some head count reductions. Have those cost cuts... have they... have we seen those already in Q4 or do you expect more going forward, the benefits of them?

Mac Slingerlend

Yes, you've seen some of it, it really started in August but carried on into the fourth quarter and in fact continued this week. Perhaps not as great this week is you had earlier this quarter, but nonetheless continued. I think you will see some additional improvement in the first quarter. Some of that improvement showed up in the fourth quarter already and I think you'll see additional improvement related to it in the first quarter. I don't know that I want to sit here and tell you that the magnitude is... the overall magnitude, I mean on the overhead side is 10, 10 plus million with another 5 in the direct category that, what I call, is a typical direct cuts as opposed to typical direct cuts, i.e. things where we just got more streamlined from a productivity standpoint.

One other thing that's a wildcard in your question is FX. Europe's... who has done a great job of containing it's overhead costs in the last 12 months ironically gets further credit by a strong dollar with respect to how their numbers show up inside of our numbers.

Timothy Brown - Roth Capital Partners LLC

Okay. And then the Katrina receivable, I don't know how much visibility, but is that something that you think comes in the first half of 2009?

Mac Slingerlend

Working hard on it, haven't had an email on it since about 7 o'clock this morning. And there is another meeting in DCN that same subject matter this morning. I think about a third of it is in process for payment at the moment. But let's just say that's not good enough. When Peter referred to 9 million of receivable, roughly, that's... and again these are round numbers for you, Tim, the 3 million is kind of regular monthly ongoing operations and 6 is older prior timeframes. It's that 6 that I continue to work on probably three times a week. And that's the part we are working on. Some of that is in the process I understand of being paid, the rest of it is just a continuing dialogue with those guys.

Timothy Brown - Roth Capital Partners LLC

Okay, and just from Peter's comments, it sounded like any excess cash flow above your capital needs are going to be used to pay down the debt. Is there... I mean is there a target ratio that you are looking to get down to?

Peter Cheesbrough

Well we obviously... the first target is to live within our leverage covenants, which, as Mac said, tighten as the year goes on. But I don't know that we are particularly uncomfortable from a corporate point of view with our leverage where it is today, although I think the important thing is we've got $167 million of debt and it's all in a revolving credit facility. I think what we would like to do is take... just pulling a number out of the sky right now, don't quote me on this... 125 million and figure out a longer term capital structure for that and have let's say a $50 million revolver. But obviously the capital markets right now aren't conducive to that.

Mac Slingerlend

Tim, let me add. I'm going to take your question as an opening. We've paid debt down over 50 million in the last couple of years, 36 million long term last year, 7 million short term, 43 million. We added to the cash balance. Cut our debt to cap ratio, improved our current ratio, had 90... close to 91 million in cash flow from operations in 2008. I think we've had a hell of a liquidity period including profitable and otherwise positive cash flow. So as I've said in my earlier comments, liquidity is not what's concerning me so much. But I will agree with what Peter just said. I wouldn't mind seeing a more permanent capital structure with a little bit less tied up with the bank-related facility.

Timothy Brown - Roth Capital Partners LLC

Sure. Okay, thanks.

Mac Slingerlend

Thank you.

Peter Cheesbrough

Thanks Tim.

Operator

Thank you. (Operator Instructions) Our next question is a follow-up question from George Price at Stifel, Nicolaus. Please go ahead.

George Price - Stifel Nicolaus & Company Inc.

Hi. Thanks very much. I was wondering if maybe you guys would go through some of your expectations for some of the other metrics were implied in the guidance in terms of the... for first quarter '09 and 2009 in terms of margin expectations and how you expect margins to kind of trend through the year, may be cash flow. And, I don't know if you already mentioned this, and I apologize if I missed it. But, could you indicate how much debt you intend to pay down in the first quarter?

Peter Cheesbrough

No, we haven't spoken about that. I mean, I think we've talked about the strong cash flow we had in 2008. But I think it's only appropriate to say, it's about probably not sustainable at that level, when your earnings of $30 million, it's tough to maintain a $90 million net cash from operation. So, I think more realistically, a $40 million cash flow from operations is probably what we're thinking of for 2009. And although, we certainly haven't got the point of breaking that down by quarter George.

George Price - Stifel Nicolaus & Company Inc.

Okay. What about may be on the margin side, operating margins?

Mac Slingerlend

George, this is Mac. I think my comment is that the bottom of guidance would be must or may no pretty flat margins with respect to '08. And, as you get to the higher margins, it's a function of getting benefit from A; Overhead cost containment. B; an improved result from SAP Practice and C; federal which again, a few years ago was our best growing business unit or division, which has been kind of languishing for the last two, three years.

We're seeing a steady to slightly better improvement on our federal group this year. So, I think again, the bottom line of guidance would be more or less the same margins, simply diluted by FX and the issuance, the higher end of guidance would be an improvement in margins.

George Price - Stifel Nicolaus & Company Inc.

Okay. And, what about debt, how much debt should we assume you are going to pay down in this quarter, first quarter?

Mac Slingerlend

I think you just asked that question.

George Price - Stifel Nicolaus & Company Inc.

I am sorry if I missed the answer.

Mac Slingerlend

I think we didn't give you one.

Jennifer Matuschek

We haven't broke out cash flow from operations that we're anticipating in 2009 on a quarterly basis.

Mac Slingerlend

I think I'd say the net offering is about $23 million, so outside of 23, and hopefully it's better than that.

George Price - Stifel Nicolaus & Company Inc.

Okay, okay. Fair enough. And, I guess the... well I think that my other questions have been answered. So, thanks very much.

Mac Slingerlend

Yes, thanks very much for your question. Kim?

Operator

Thank you. Our next question comes from the line of Barbara Walchli with Aquila Investment Management. Please go ahead.

Barbara Walchli - Aquila Investment Management

Thank you. In terms of... we're seeing a lot of trailer out of the Obama administration about improving government efficiencies by spending on technology. And we're also seeing it move towards healthcare, computerization of records. Could you comment on opportunities that you see over the next couple of years, both of the areas?

Mac Slingerlend

Yeah, Barbara, thanks for your question. We... historically, healthcare has been roughly 8, may be even I'll say 6 to 8% of our domain expertise, i.e. how are revenues would breakdown across industry sectors. It's not been a bigger sector for us, but it's been a growing sector, it was 5% a few years ago; it's up to about 8% at this point. We have a very strong health and human services group with insight of our federal government practice.

And we have in our state local practice for a combination of women and for children and child assisted, a status as to child welfare systems, a strong practice as well, multi-state delivery of systems.

I think it's harder for me to give you a precise answer to your question. It is an area that we have interest in. I'd probably say it's an area of growing emphasis. Our whole business unit however is not tied to this specific way. But I will say that we recently made a change with respect to the civilian agencies and how we protect them in Washington DC area. And healthcare is on our list of things we are trying to nose our way in to Center for Disease Control in Atlanta is an area we've done a lot of work, continue to do work specially with respect to their websites and how they reach out different hospitals around the country when they see something going on.

So it's our scenario where I could tell you Blue Cross in Michigan, Blue Cross in Western Pennsylvania other places we've done a lot of good work. But your question is in an area that I would like to see us go further and we continue to look at how can we possibly do that.

Barbara Walchli - Aquila Investment Management

Okay. And in terms of general government efficiencies, this whole fiscal summit they just had there was a lot of chatter about running a technology to improve efficiencies and reduce costs in the government. And even a lot of the government systems aren't they quite un-equated I think there are quite a bit of opportunities there potentially?

Peter Cheesbrough

You get two issues there. You'll not only have some systems where CIBER particularly has been helpful for the government last several years as on military basis and we have helped run the IT function of different basis including switching but well on Army hospitals and thanks a lot this line. So between hospitals and military bases, we've done lot of IT work and that work is simply been in maintenance mode while more money was on guns and bullets.

So any switch towards bringing the military base and some of the hospital structures that are maintenance mode to more and modern systems, not only plays into your question but plays into the strength of where a part of our deliver model is. You've also get an age factor, where civil servant agents continue to increase and as they increase the government likely looking for alternatives to doing things externally instead of internally. So we like your question, we were following that opportunity as well.

Barbara Walchli - Aquila Investment Management

Okay, thank you.

Mac Slingerlend

Thank you, Barbara.

Operator

Thank you. At this time, there are no further questions in the queue. I would like to turn the call over to management for closing remarks.

Mac Slingerlend

Well, Kim thanks. You've done a nice job today. I just want to say that again on the insight we like our businesses model, we like the leadership, we like the spirit and all the effort from all of our folks.

We're dealing a little bit with some tough economic times out there, but I'd also want to again complement Roth with the assist from Kauffman to help us with the offering...that we're in a process of completing of between pricing and closing I think its tomorrow, but we appreciate their support in a tough time.

We are around, Peter, Jennifer and I, if you have questions for us give us call or otherwise we'll, we just finished our 60th positive cash flow quarter and our 15th rather profitable years of public company in a row. And we look forward to talking to you at our 61st quarter about 60 days from now. Take care.

Operator

Ladies and gentlemen, this does concludes the CIBER fourth quarter and year-end 2008 earnings conference call. If you would like to listen to the replay of today's conference please dial 1800-405-2236 access code number 11126801. ACT would like to thank you for participation. You may now disconnect.

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