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Executives

Larry Delaney – Investor Relations Counsel

Phil Nolan – Chairman, President and Chief Executive Officer

Brian Clark – Executive Vice President, Chief Financial Officer, Treasurer

Analysts

William Loomis – Stifel, Nicolaus & Co.

Brian Kinstlinger – Sidoti & Co.

Edward Caso – Wachovia Securities

Chris Donaghey – SunTrust Robinson Humphrey

Cai von Rumohr – Cowen & Co.

Sarah Catherine Phillips - Stephens Inc.

Mike Smith - BB&T Capital Markets

Unidentified Analyst

Mike Lewis - BB&T Capital Markets

Stanley, Inc. (SXE) F4Q08 Earnings Call May 14, 2008 5:00 PM ET

Operator

Welcome to the fourth quarter 2008 Stanley, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call Mr. Larry Delaney, Investor Relations Counsel.

Larry Delaney

Thanks for joining us on Stanley’s fiscal fourth quarter 2008 conference call. Here today are Stanley’s Chairman, President and CEO; Phil Nolan and Chief Financial Officer, Brian Clark. Phil is going to begin with an overview of the company’s fiscal fourth quarter operating results. Brian will then go through the financial results and issue guidance for Stanley’s fiscal first quarter 2009 and full year 2009. We’ll then take your questions.

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 10-K for the fiscal year ended March 31, 2008 and in other reports 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 and available in 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 Nolan

Stanley once again delivered a solid quarter and a strong finished to our fiscal year 2008. Q4 revenue grew by 49% over the same period last year to a single-quarter record $173.5 million with 39% of that growth coming organically.

Net income for the quarter was $7.7 million versus $4.5 million a year ago, equating to diluted earnings per share of $0.33 up from $0.20 from Q4 of last year. For the year revenue was $604.3 million up 48% from revenue of $409.4 million in FY07. Full year organic growth was 37%.

Net income for FY08 was $26.2 million versus $10.7 million for FY07 and diluted earnings per share was $1.12 compared to $0.55 a year ago. Revenue for both Q4 and FY08 came in at the high end of the guidance we issued in our Q3 call. Diluted earnings per share for both periods exceeded guidance by a penny.

We are encouraged by the trends we are seeing thus far in FY09. We believe the [inaudible] that helped produce record top line numbers in FY08 will continue to drive growth and improved performance in FY09.

These include increasing system demand for passport services especially as the June 2009 deadline for the Land and Sea provisions of the Western Hemisphere Travel Initiative approaches, additional demand for products and services through SPAWAR C4ISR contracts, ramp up of contracts won in FY08 supporting the Army’s equipment RESET mission as well as anticipated new awards in FY09 and a full year’s revenue on our relatively new contract supporting the Department of Homeland Security’s Citizenship and Immigration Service Centers in California and Vermont.

Bookings for the fourth quarter were $660.7 million and $1.3 billion for fiscal 2008 equating to a Q4 book-to-bill of almost 4:1 and better than 2:1 for the full fiscal year. Our contract backlog at March 31 was approximately $1.8 billion, up 38% sequentially from Q3 and 83% year-over-year.

Our qualified pipeline currently stands at well over $3 billion. As of today we have $435 million in proposals submitted and awaiting decision. We expect to submit another $2 billion in proposals over the next six to nine months.

The overriding focus of Q4 was to secure the re-compete and follow-on awards of two of our largest vehicles, Passport Services and Corporate Production. One March 17 we announced that we won the five year, $570 million contract to continue support of the U.S. State Department’s Bureau of Consular Affairs Passport Services Directorate.

Stanley services include production, operational and business process support, training, procurement, administration and evaluation of critical supplies and facilities management support at the five passport centers and 14 passport agencies nationwide along with the headquarter support offices. We have now led this effort for the past 15 years and have been the only contractor to do so.

Our passport related efforts which include the build out and operation of the two new centers in Hot Springs, Arkansas and Tucson, Arizona are performing extremely well. The Tucson facility produced its first document on May 5 of this year and the center in Hot Springs now has more than 250 full-time employees and has produced nearly seven million passports since it opened in April 2007.

Last month we won a major follow-on contract in the SPAWAR corporate production vehicle. SPAWAR’s corporate production capabilities provide a highly flexible, responsive and affordable vehicle for the Navy to contract its C4ISR needs. It has generated a high volume of new and often unexpected quick turnaround task orders and we again look forward to being one of SPAWAR’s go-to companies and anticipate healthy performance from corporate production in FY09.

I’d now like to provide an update on the USCIS contract we began operations on last quarter. To refresh you on the background this is a $225 million three-year contract with fixed price and cost reimbursable elements. Stanley began on-site operations in early December 2007 at the centers in California and Vermont. This was a significant new win for us with a new company where we unseated an incumbent.

The initial phase of this contract continues to be challenging. From the first day of assuming the contract we faced unsettled labor situations and the prospect of a unionized workforce in both centers. In Q4 both sites held elections. Our employees in Vermont rejected the unionization effort while those in California approved it. This means that over the next several months Stanley will negotiate for a Collective Bargaining Agreement at the California facility.

We stated previously that we would not likely see steady state revenue and profitability for the USCIS contract until the June 2008 quarter at the earliest. Now it appears that it could take significantly longer before this occurs. We are encouraged, however, by the increased volume at both facilities and believe that USCIS will be a solid performer for us when steady state operations are achieved.

One other contract I’d like to discuss briefly is Stanley’s implementation of our maintenance management system for the U.S. Army’s Directorate of Logistics in support of the Army’s RESET efforts. The system was developed by Stanley to both manage transactions at the facility level and to provide all-important decision support visibility into the RESET effort at the Army Material Command and Department of the Army level.

This system is a good example of our strategy to leverage past and current Army investments in Stanley’s logistics automation systems to provide proven, low risk and cost effective solutions for today’s missions. We are encouraged by the Army’s use of Stanley’s IT solution to date and are looking forward to the possibility of establishing it as the core RESET system across all of the Army’s DOLs.

With that I’ll turn the call over to our CFO, Brian Clark.

Brian Clark

I am pleased to report that Stanley posted outstanding financial performance for the fiscal fourth quarter and year ended March 31, 2008.

Fourth quarter revenue was $173.5 million, up 49% from $116.6 million in the fourth quarter of fiscal 2007. Revenue growth for the fourth quarter came from the ramp up of recently awarded new contracts, the continued expansion of existing contracts and significant contract modifications as well as revenue added through the company’s acquisition of Techrizon in April 2007.

We continue to benefit from increased demand in U.S. passports, the ramp up on our USCIS contract with the Department of Homeland Security, ongoing demand for C4ISR related systems and services supporting the United States Navy and Marine Corps and the expansion of the U.S. Army’s Global Equipment RESET Mission.

Organic revenue growth was an outstanding 39% for the fourth quarter and a calculation has been provided in our earnings release issued earlier today.

For the March quarter, DOD contracts made up 60% of total revenue while Federal Civilian contracts comprised 40%. Federal Civilian share grew sequentially largely as the result of increased revenue from our USCIS contract which delivered a full quarter of revenue compared to just one month in the third quarter. We expect that Federal Civilian revenues will represent over 1/3 of our total revenues going forward.

The contracts on which Stanley acts as the prime contractor account for approximately 79% of revenue for the quarter, up slightly from last quarter. Our passport services contracts accounted for 15% of total revenue in the fourth quarter of fiscal 2008, down slightly from 16% of total revenue in the third quarter and unchanged from Q4 of last year. Passport services revenue grew 52% from the fourth quarter of last fiscal year and 56% for the full year.

Revenues earned under TASK orders on our total production contracts aggregated to slightly less than 10% of total revenue in the quarter and were driven primarily by integration and installation of C4ISR systems for the United States Navy and Marine Corps. For the full fiscal year corporate production revenue represented 12% of total revenue.

EBITDA in the fourth quarter of fiscal 2008 was $15.8 million, up 57% from $10.0 million in the fourth quarter of last year. EBITDA margin was 9.1% for Q4 and for full fiscal 2008, up from 6% for both periods a year ago. A 50 basis point improvement for FY08 EBITD margin exceeded our prior guidance of 25 to 30 basis points of margin improvements for the full fiscal 2008.

GAAP operating income was $14 million, up 64% from $8.5 million in the same quarter of last year. Operating margin was 8.1% versus 7.3% in the fourth quarter of fiscal 2007. Operating margin improved year-over-year due primarily to continued realization of efficiencies in our general and administrative infrastructure as well as depreciation and amortization representing a lower percentage of revenues.

For the full year, operating margin was 7.9% compared with 6.0% in fiscal 2007. The improvement in full year operating margin was attributable to general administrative expenses and depreciation and amortization representing a lower percent of revenues as well as the $4.2 million of accelerated amortization of deferred compensation related to our initial public offering in October 2006 which pulled down operating margins in that year.

The operating margin gains for both the quarter and full fiscal year were offset slightly by the amortization of purchase intangibles related to the acquisition of Techrizon and FAS 123R stock compensation expense related to equity grants made in fiscal 2008.

Net interest expense for the fourth quarter 2008 versus fourth quarter 2007 was largely unchanged. However, the full year net interest expense was $3.8 million in fiscal 2008 compared to $5.9 million in fiscal 2007 which was the result of an overall lower weighted average borrowing rate and lower average outstanding borrowings on our amended senior credit facility.

Net income for the quarter was $7.7 million versus $4.5 million a year ago. The increase in net income year-over-year is attributable to the factors affecting operating income and reduced interest expense offset by a slightly higher income tax rate. Diluted earnings per share were [33%] in the fourth quarter of fiscal 2008 compared with $0.20 in the year ago quarter exceeding the high end of our guidance by a penny.

Day sales outstanding (DSO) was 81 days in the fourth quarter of fiscal 2008, down from 86 days last quarter. The decrease in DSO was attributable to headways two of our customers made with newly implemented payment processing systems. We expect DSO to fluctuate throughout the year and eventually settle in at the high 70’s.

Cash flow from operations for fiscal year 2008 was $21.1 million which included $17.8 million of operating cash flow in the fourth quarter. Cash generated by operations resulted from increased net income and the timing of payments to subcontractors and other vendors offset by overall growth in receivables in the quarter. Operating cash flow came in at approximately .8x net income for fiscal 2008 which exceeded our prior guidance of 0.5 to 0.7x net income.

Moving now to guidance. For the past few years we have maintained our view that we can continue to grow our revenues organically at a rate of 10% to 15% per year over a three to five year period and we would seek to supplement that organic growth with strategic acquisitions that would add on average about 5% to 10% per year.

As we completed our fiscal 2007 year with 18% organic growth and completed the acquisition of Techrizon, we believe we are poised to hit our organic and total revenue growth targets in fiscal 2008. Our actual and organic growth rates of 48% and 37% respectively certainly exceeded our own expectations as we look back to this time a year ago.

As we discussed before, when we issue guidance we seek to do so with a number of scenarios which will enable us to meet or exceed our revenue and earnings targets. In fiscal 2008 those scenarios played out quite favorably allowing us to deliver significantly better than expected operating results. Our goal continues to be an accurate, but hopefully somewhat conservative approach to our guidance.

As we formulate our guidance for fiscal 2009 we have taken the same approach as we have in the past and evaluated a number of scenarios to place us in the range of our guidance. Although slightly more challenging we believe we have a solid visibility in our sources of revenue which gives us confidence in our ability to achieve our targeted growth rates.

To further illustrate this point at the mid point of our annual guidance we have approximately 85% of our forecasted revenues coming from existing contract backlog, 5% from re-compete contracts and 10% from identified new business opportunities. This breakdown is consistent with where we have been at the start of each of the last several years.

With that being said, for the first quarter of fiscal 2009 we expect revenue to be in the range of $160 to $168 million with diluted earnings per share of $0.30 to $0.32 on a weighted average diluted share count of 23.6 to 23.7 million shares. For the full fiscal 2009 year we expect revenues to be in the range of $665 to $695 million and diluted earnings per share of $1.26 to $1.34 on a weighted average diluted share count of 23.8 to 23.9 million shares.

Based on equity grants of stock options of restricted stock for fiscal 2009, as well as the two prior fiscal years we have included approximately $1.1 million in the first quarter and approximately $5.8 million for the full fiscal year in FAS 123R equity based expenses. Included in earnings per share for the first quarter and full fiscal 2009 are FAS 123R expenses of $0.03 to $0.04 per quarter which rounds to about $0.15 for the full fiscal year.

Earnings guidance for fiscal 2009 also include the impact of the amortization of purchase intangibles of approximately $3.3 million related to our prior acquisitions. Finally, as we continue to see a higher mix coming from T&M and fixed price contracts and as we realize additional leverage in our G&A coming from prior investments and the growing revenue base we expect to see 10 to 20 basis points of margin improvement over the course of fiscal 2009 and further expect the margins will continue to show improvement over the next several years.

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

Phil Nolan

All in all I am very pleased with the strong finish to our fiscal year and the momentum we have as we head into FY09. I would like to add a word or two about acquisitions. As you are aware we have consistently said that acquisitions would be an important part of our growth story and we continue to look for opportunities to exploit our substantial de-levered balance sheet and deploy the [inaudible] we have available.

We are encouraged by the noticeable improvement we have seen in the acquisition pipeline over the past couple of months both in terms of the number of candidates available and the quality of the companies coming to market. We are optimistic we will have the opportunity to add additional customers, contracts and capabilities through strategic acquisitions in FY09.

With that, operator, we’re happy to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from William Loomis - Stifel, Nicolaus & Co.

William Loomis – Stifel, Nicolaus & Co.

Looking at the USCIS contract how much revenue was in the quarter from that and are you making money or losing? What type of margin? You say it could take significantly longer. What do you mean by that in terms of margins getting up to corporate average margins? Obviously your full year guidance implies some margin expansion even with this potential drag.

Brian Clark

For the quarter that contract I think was as you expect probably a little bit better than $10 million in revenue. As we talked about on the last call and Phil will probably elaborate a little bit here as well, we said we probably needed a good couple of quarters (i.e. the June quarter) to really get that contract up to full steam in order to be able to really talk about how we view the performance from a revenue and margin standpoint going forward.

I think to date we can say it has gone pretty well as we had anticipated it would and we continue to work through that as we go forward here and I think as we get through the June quarter we will have more to talk about at that time.

Phil Nolan

Also, the reason why we just said it would take longer is the fact of going through the collective bargaining process. That is getting started up here at the end of this month and that could take several months to complete. It is one of those things where obviously it is a negotiation and we’re not sure how quickly that will go so that is why we hedged our bets a little bit with our remarks.

Operator

Your next question comes from Brian Kinstlinger - Sidoti & Co.

Brian Kinstlinger – Sidoti & Co.

Are you actually losing money on that contract? That is what I was confused by as well. Or is it at a breakeven and you have got to wait and see how the rate going forward will play out?

Brian Clark

We’re still kind of in the wait to see mode, as we said. That contract is expected, as we talked about last time, will at any case be at margins that are less than the rest of the company but we are still in the mode of sorting all that out as the contract continues to ramp up.

Brian Kinstlinger – Sidoti & Co.

When I take a look at the announcement you made on the DOL WMS System, can you just clarify, I know the DOL’s you were one of a couple that were trying to vie for being the core logistics system there. Is this now being implemented in one DOL or many? I was just a little bit confused on what you have won there.

Phil Nolan

What we are doing so far, Brian, is we have implemented that into I believe half a dozen DOL’s right now. We have another half a dozen to go so far.

Brian Kinstlinger – Sidoti & Co.

Then like you said in your comments you are hoping to get to all of them? What is the goal and what is the opportunity longer-term on the support side? What is the earmarked opportunity?

Phil Nolan

The opportunity there is one, as we have talked about, the overall RESET business we have always talked about in terms of our IT systems and our maintenance management systems as being the cord the provides us the knowledge of what goes on in the [inaudible] season in the DOL’s in the first place. It gives us entry to be able to go in and bid the larger maintenance operations support type of work.

The WMS DOL system that we’ve got in half a dozen and expanding that to a dozen is really one of those things where we will go in there take a look and see whether or not we’ll be able to continue to expand that. We think that is a good opportunity but obviously again we said the possibility of getting that in because the Army has to take a look at it, but we’ll have the prevalent system out there that is for sure.

Brian Kinstlinger – Sidoti & Co.

Is the real opportunity the implementation or is the real opportunity afterwards like you are doing at Bluegrass, supporting that and managing the whole process for them?

Phil Nolan

Those are the bigger opportunities. These are areas where you get in there and you obviously learn more about that specific [inaudible] DOL but bigger opportunities are the things that mirror what we are doing at the [inaudible] in Fort Stewart.

Brian Kinstlinger – Sidoti & Co.

Can you give us how much revenue was from overall this quarter from the big picture Army RESET opportunities you have or programs? You mentioned it was one of the growth drivers. I’m just curious year-over-year what the numbers look like.

Brian Clark

It comes from a number of different contract vehicles but I think maybe if we talked about it in general maybe about $15 million or so.

Brian Kinstlinger – Sidoti & Co.

I was wondering if you were able to provide those, in the last couple of conference calls your deal pipeline $100 million plus. You had eight last quarter. Have most of those worked through? Have you addressed the RFP and how many do you have maybe right now?

Brian Clark

Some are still out there, Brian. We’re up to about a dozen right now that we look at kind of the 6-9 month time horizon. Twelve.

Brian Kinstlinger – Sidoti & Co.

Is that more heavily weighed to the Defense side or the Civilian side?

Phil Nolan

I’d say that is a fairly even split but if you looked at the opportunities I will tell you broken down between those twelve about half of them are related to the RESET business and the half other items.

Operator

Your next question comes from Edward Caso - Wachovia Securities.

Edward Caso – Wachovia Securities

With the Tucson facility coming on does that have implications for your run rate and depreciation and amortization going forward?

Brian Clark

No, not at all. Just like in our facility in Hot Springs part of that contract was we were paid to complete the construction and build out those facilities so to say it another way those are not assets that are on our books.

Edward Caso – Wachovia Securities

The tax rate would seem high in this quarter. Any reason for that and what is the go-forward rate?

Brian Clark

The go-forward rate I would tell you about 40.5%. The reason for the step up this quarter, as you may be aware, typically you true up your tax rates in your fourth quarter when you actually file your returns so that was about half of the increase in the tax rate. The other half was attributable to a change in our stated portion of rates. When we did that true-up at the end of the year that resulted in higher expense as well.

Edward Caso – Wachovia Securities

The DSO’s remain sticky on the upside. Can you give us a little bit more color? I think you said it was going to go back into the high 80’s or high 70’s over time? Maybe some time frame and some reason for the stickiness?

Brian Clark

We are continuing to have issues with the two customers we talked about last quarter in terms of their DSO’s continuing to remain high. At least from a bottom line standpoint they do pay us interest on overdue invoices so we don’t lose any bottom line as the result of this it just makes the DSO scorecard not look so good.

As we look through the year I would tell you to expect DSO’s at least from how we calculate them to be quite high in Q1 and we expect that would tail down over the course of the year and hopefully with those customers with the new payment system which ahs been the source of the problem in terms of them being able to get bills paid we are hoping that over the course of the year that is going to resolve itself and we’ll return to a more normal payment timing.

Edward Caso – Wachovia Securities

It looks like your SG&A was down sequentially. Since you had a good year I assume it wasn’t less bonus accrual. Can you give me a handle on what it might be?

Brian Clark

I think you may remember back to last year the fourth quarter sometimes you end up, it was an opposite situation last year and as you round out the year and true-up all your indirect rates that have to do with how our revenue and billings are run on government contracts you end up with some changes in your G&A and usually it just a shift between the mix of G&S and cost of revenue so it doesn’t really affect the operating margin but you end up with some shift around there in the fourth quarter. You saw that last year as well.

Operator

Your next question comes from Chris Donaghey - SunTrust Robinson Humphrey.

Chris Donaghey – SunTrust Robinson Humphrey

Phil I wanted to ask a little bit first of all on the pace of Army RESET activity, specifically under the first contract. Is it coming in a little bit slower than you had anticipated? Is that just tied to the pending part of the supplemental that has not been approved?

Phil Nolan

I don’t really think it is tied to the supplemental. I think that they are continuing pretty much at pace. They are probably a little bit backlogged in the regional contracting center. We still hear that. But that has been pulling out pretty good. I think they have done three of the [inaudible] FRC efforts now. We’re expecting a pretty good flood of those this summer. But I don’t really think any delay in that is tied to what people are anticipating with the supplemental.

Chris Donaghey – SunTrust Robinson Humphrey

On the corporate production contract, it seems like it moves around quite a bit. How should we think about that from a percentage standpoint going forward?

Phil Nolan

I would say if you look at it right around the 10% range that is probably a good number on it as you correctly stated you have some pretty good pass-through stuff that can buff that around a little bit but I think about the 10% mark would be a decent way to look at that.

Chris Donaghey – SunTrust Robinson Humphrey

What is your historical win rate on new competitions?

Phil Nolan

We said in open competitions we are winning about 56%. That number has been holding for awhile.

Operator

Your next question comes from Cai von Rumohr - Cowen & Co.

Cai von Rumohr – Cowen & Co.

A follow-up on the SPAWAR question. If I take your numbers, 12% for the year, it looks like it was $14 to $15 million for the fourth quarter. Is that the correct number?

Brian Clark

That’s about right Cai. We’re better than $15.

Cai von Rumohr – Cowen & Co.

Is it going to grow in 2009? If you are saying 10% it is basically going to be down in 2009.

Phil Nolan

If you apply a strict 10% to that I guess we’re giving you a ballpark average.

Cai von Rumohr – Cowen & Co.

You said 10%. Is it basically going to be flat? Is the [inaudible] business coming down?

Phil Nolan

The [INAUDIBLE] business is just about wrapped up for this past quarter, maybe we have a little bit of that happening in that next quarter. As we look at that we show it going up a little bit over the year and we say a little bit because that is a lumpy contract and as we said in our remarks we get lots of TASK orders that come through that which is sometimes unexpected. So I can’t really predict the unexpected on that.

Cai von Rumohr – Cowen & Co.

Was there any impact in this quarter from the fact you didn’t kind of get it until the end of the quarter? You had that ceiling problem at one point and now that you don’t have the ceiling problem we should expect it to pick up again? Is that how we should think about it?

Phil Nolan

We had probably a couple million or so that may not have materialized because of the fact that our customer was procuring materials when we didn’t have an order to save ceiling, which we talked about, but that wasn’t any surprise. That was all known when we had our last call and that was factored in our guidance so we came in pretty much right on target with what we had expected.

Cai von Rumohr – Cowen & Co.

It was on target but it was impacted by the ceiling issue and so now that the ceiling issue has been resolved it should start to pick up?

Brian Clark

That is accurate.

Cai von Rumohr – Cowen & Co.

How should we think about growth on the passport contract? What drives it? Is this the peak year? Is it going to continue to grow? How should we think about that going forward?

Phil Nolan

I think that as we look at this year over last year what we’ve said right now is Passport is up a little bit but not at the huge volumes we saw last year and really that is attributable to the WHTI being pushed off to June 2009 by June of 2008 so our expectation as looking at Passport is if we are going to see that ramp coming into June 2009 which we fully expect to see, that is going to happen and you’ll start to see the effects of that in the December quarter and certainly the March quarter of the year.

Cai von Rumohr – Cowen & Co.

So the second half would be bigger than the first half?

Phil Nolan

The second half should be bigger than the first as that ramp comes in as we expect.

Cai von Rumohr – Cowen & Co.

One of the things you have done pretty well is being able to pull things which were not on the radar screen like the USCIS and some of these Marine recruiting. Do you see other comparable potentials that are kind of bluebirds during those twelve you talked about? Do you have other things that are not in the numbers that will make these numbers come in better than we are talking about here?

Phil Nolan

Yes.

Operator

Your next question comes from Sarah Catherine Phillips - Stephens Inc.

Sarah Catherine Phillips - Stephens Inc.

What was the revenue from your SPAWAR corporate production contract from FY08 and FY07? Do you have the passport contract revenue breakdown for the Tucson versus Hot Springs sites?

Phil Nolan

The answer is yes.

Brian Clark

But you are not going to get it. When we talk about Passport we talk about all those vehicles together and we don’t put much credence in the revenue breakdown in those things as we have talked about it because the way those contracts are set up the customer has the ability to move that production work between the facilities and the main passport contract so looking at the revenue from one to the other doesn’t really define anything that is meaningful. So we really have talked about the entire passport effort as our passport franchise, if you will, and the revenue we get from the whole.

Phil Nolan

I think the thing you want to focus on from the trend standpoint is the fact that we had about $6 million or so related to one-time revenue in the fourth quarter related to build out in the Tucson facility. That is a piece you definitely want to know.

On your other question on corporate production for FY08 the contract came in at a little better than $75 million for the full year and that was up about 50% for the prior year.

Sarah Catherine Phillips - Stephens Inc.

What are your [inaudible] revenue expectations for 2009?

Phil Nolan

Not much.

Brian Clark

Negligible, that effort was really an FY08 effort. Most of that wrapped up with this last quarter. I would be surprised if it was even $1 million.

Operator

Your next question comes from Mike Smith - BB&T Capital Markets.

Mike Smith - BB&T Capital Markets

Brian, did you have the CapEx for the quarter?

Brian Clark

CapEx from Q4 should have been right about $900,000 for the quarter and $3.8 million for the year.

Mike Smith - BB&T Capital Markets

For 2009 your expectations?

Brian Clark

About ¾ of a percent of revenue and roughly about $5 million or so based on the mid-point of guidance we’ve got.

Mike Smith - BB&T Capital Markets

In terms of the acquisition strategy of the company are you looking at an acquisition to penetrate into a specific AC or perhaps open up a new technology? Can you elaborate a little bit more on that?

Phil Nolan

I think as we look at the acquisitions our concentration is much more on looking at the customer set that we have and those places where we think we have holes in terms of customers. That is what we like to fill as opposed to technical capabilities or technologies.

Operator

The next question comes from the line of [inaudible].

[Not Identifiable]

Could you give us any view on what is going on in the acquisition environment and whether you still have some kind of these bid spreads, some of which was because of the small business set asides and all that stuff.

Phil Nolan

The multiples are still high on the quality products. We’ve seen it be a little softer for the small businesses that really have true set-aside work. There has been movement on that now with some customers where they have really gone through and decertifying folks and stuff like that who had small business work so that has certainly got everybody’s attention and what we are seeing is most people who are looking at those companies due diligence out the small business work is something that is going to get converted and lost.

[Not Identifiable]

So it sounds like it is still kind of dry or shouldn’t expect anything in the near-term in terms of acquisitions?

Phil Nolan

I don’t know about that. What I said at the end of my remarks was that we do think the pipeline looks much better than it has over the last year. If you just take the last couple of months I think it has gotten much better I think in terms of the number of companies that are out there and really quality ones we are looking at. I would say the pipeline looks better. I would say we would be active in FY09.

[Not Identifiable]

What is the availability for funding for acquisitions?

Brian Clark

It is a two-step. We have $150 million line of credit which at the end of the quarter was net. That’s a funded line of credit that is fully available to us. We’ve got $125 million accordion feature on top of that if we need to go into that. In terms of drive power that we have today if you include the accordion think about that as maybe a little less than $250 million in acquisitions we could do and we are allowed additional room for working capital needs.

Operator

Your next question comes from Brian Kinstlinger - Sidoti & Co.

Brian Kinstlinger – Sidoti & Co.

On the acquisition front in the past one of your strategies has been to focus on geographies where there has been some realignment. Is that something we should look for and is that one of your strategies because there is bigger growth opportunities when you take a look at it from that perspective?

Phil Nolan

That is certainly on the list of criteria that we are looking at Brian. I wouldn’t say our next acquisition would absolutely cater to that but that is certainly something that is important to us in terms of looking at practice placements and where we want to be.

Brian Kinstlinger – Sidoti & Co.

When you mention your guidance, can I assume that you have 5% renewals right now based on what you said for the rest of the year based on your current revenue base? Is that what you have for this year?

Phil Nolan

That is pretty much what we assume, yes.

Brian Kinstlinger – Sidoti & Co.

In terms of the SG&A if I don’t only look at this quarter but I look at the last three quarters as your revenue has scaled SG&A has not. How should we look at that next year? Is that going to start scaling? Are you going to start to add indirect costs as revenue growth 10% to 15% or are most of the costs going to be direct and you’ll see a shift?

Brian Clark

You’re going to see that number come up a little bit for two reasons. First it is going to be just as we continue to add that kind of revenue growth we’ve got to add some incremental costs for things like people to prepare bills and recruiters to hire additional people and things like that. They are not significant dollars but are incremental and match up with revenue growth.

The other piece would be as I highlighted each year when you grant equity you layer on a new layer of FAS 123R expanse and you’ll see that come up as well in the order of about $1 million a quarter. So additional this year coming in as a result of equity compensation.

Brian Kinstlinger – Sidoti & Co.

Did I hear you right in you submitted $435 million in bids this past quarter? Is that right? Is that the number you said?

Phil Nolan

Yes, $435 million outstanding right now.

Brian Kinstlinger – Sidoti & Co.

If you can just give us funded backlog we’d really appreciate it.

Brian Clark

$299 million.

Operator

Your final question comes from Mike Lewis - BB&T Capital Markets.

Mike Lewis - BB&T Capital Markets

Can you talk a little bit about how the protocols for your passport business have changed over the past few months following the breaches that have occurred?

Phil Nolan

We worked closely with the State Department on that. As far as what we did as a company is we went back and had training for all of our people again and we had everybody go through and resign acknowledgements on the Privacy Act and those kinds of things in terms of how they are supposed to act with these files. The way this stuff works is if there is some breach we do not know that until the State Department comes back and tells us and once we do that then you saw the actions we took in every case.

Phil Nolan

For those of you on the call who might not have got all your questions answered I would be happy to follow up with you. If you do have additional questions please go through Larry Delaney and one of us would be happy to follow-up with you. Thanks everybody and good night.

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Source: Stanley, Inc. F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

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