Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

American Science & Engineering, Inc. (NASDAQ:ASEI)

F2Q10 (Qtr End 09/30/09) Earnings Call Transcript

November 5, 2009 4:30 pm ET

Executives

Anthony Fabiano – President and CEO

Ken Galaznik – SVP, CFO and Treasurer

Analysts

Edward Marshall – Sidoti & Company

Brian Ruttenbur – Morgan Keegan

Steve Levenson – Stifel

Josephine Millward – Dougherty & Company

Sarah Catherine Phillips – Stephens

Operator

Good afternoon, ladies and gentlemen, and welcome to American Science and Engineering's second quarter of fiscal year 2010 results conference call. My name is Glen, and I will be your conference facilitator today. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. And we will be facilitating a question-and-answer session at the end of the presentation.

Mr. Anthony Fabiano, President and Chief Executive Officer will now begin the conference. Please go ahead.

Anthony Fabiano

Good afternoon, this is Anthony Fabiano. Welcome and thank you for joining us for our second quarter fiscal year 2010 results conference call. I'm joined by Ken Galaznik, our CFO and Treasurer. Ken will report the financial results, and I will follow with comments on the results for the quarter. I'll now turn the call over to Ken.

Ken Galaznik

Thank you, Anthony, and welcome everyone to our quarterly conference call. Today we released the results of our second quarter of fiscal year 2010, which ended September 30, 2009.

Before we begin, I am obliged to share our Safe Harbor guidelines with you. Forward-looking statements made during the course of this conference call are modified in their entirety by the risk factors we have identified in our press release and in our SEC filings.

Now I would like to discuss the results of the second quarter. Net sales and contract revenues in the September '09 quarter were $61.2 million, which represent a 9% increase over the second quarter revenues in the prior year of $56.3 million. This is attributable to increases from our Z Backscatter Systems, which includes the revenue from the mill trader contract and the fuel service product line, offset somewhat by decreases in our parcel and contract research and development product lines.

The cargo product line remained relatively constant in the current quarter. The breakout of revenue by product line for the quarter is as follows, cargo was $10,472,000, Z Backscatter Systems was $28,368,000, parcel was $1,127,000, fuel service was $20,374,000 and contract research and development was $907,000.

The gross profit in the September ’09 quarter was $29.5 million as compared to $22.5 million in the prior year quarter. This increase in gross margin resulted from the increased revenues previously noted and a margin contribution increase of eight percentage points in the current quarter as compared to the prior year quarter.

The improvement in gross margin as a percentage of revenues is attributable to product mix, continued attention to cost reduction, and a solid gross margin in fuel service due to lower costs required to service equipment in the current quarter.

Selling, general and administrative expenses were $8 million or 13% of revenue in the September ’09 quarter as compared to $7.4 million, also representing 13% of revenue in the September ’08 quarter. The $615,000 increase in SG&A over the prior year quarter is the result of increases in incentive compensation expense, sales and marketing related expenses, salaries and benefits related to headcount increases, offset by decrease in legal expenses related to patent litigation in which we were the plaintiff that was resolved to our satisfaction in the first quarter of the current fiscal year.

Company funded research and development expenditures in the current quarter of $5 million or 8% of revenue were 19% above the prior year expenditure of $4.2 million. The increased R&D spend over the past several quarters has enabled us to produce the new products we’ve introduced to the market place in recent quarters.

Interest and investment income in the current quarter was $138,000 as compared to $685,000 in the prior year quarter. This decrease is attributable to reduced yields on investments in the current market. The company recorded income tax provision of $5.9 million in the current quarter as compared to $4.1 million provision in the September ’08 quarter.

The increase from the September ’08 quarter is due to the increase in taxable income attributable to the factors noted earlier, offset by a slight decrease in the effective tax rate from 36% in the prior year quarter to 35.5% in the current year quarter. At this time, we anticipate this to be the effective tax rate for the reminder of FY10.

Fully diluted earnings per share in the September ’09 quarter were $1.18 as compared to earnings per share in the September ’08 quarter of $0.83.

A review of our year-to-date results would reflect the following. Revenues increased 21% to $115.9 million in the first six months of fiscal 2010 as compared to $95.8 million in the prior year. This increase is attributable to increases in the Z Backscatter Systems, cargo and fuel service product lines, partially offset by decreases in the parcel and contract research and development product lines.

Gross profit increased to $55.1 million for the first six months of fiscal 2010 from $37.1 million in the prior year. The increase is due to increased revenues, product mix, and an increase of nine percentage points as a percent of revenue. In the current year, SG&A expenses are $16.7 million or 14% of revenues as compared to $15.1 million or 16% of revenues in the prior year. The increase is primarily attributable to increased incentive compensation expense, sales and marketing expense, salaries and benefits related to headcount increases, and legal expenses related to a patent litigation primarily incurred in the prior year.

Research and development expenses increased 39% to $10.8 million of 9% of revenues, up $7.7 million or 8% of revenues in the prior year. Interest and investment income decreased in the current year to $303,000 from $1.6 million reported in the prior year. This decrease is attributable to the reduced yields on cash investments. Fully diluted earnings per share in the current year is $2 compared to $1.13 in the prior year.

Now let us take a look at the balance sheet. The balance in cash, restricted cash, and short-term investments at September 30 was $149.2 million or $7.4 million above the March 31 balance. This increase is primarily attributable to $15.4 million of cash provided from operations, reduced by expenditures of $2.9 million related to the stock repurchase program, dividend payments of $3.5 million, and capital expenditures of $1.4 million.

Free cash in the current year period was $14 million compared to $7.6 million in the prior year period. DSO at September 30 was 46 days as compared to 58 days at March 31. Inventory decreased 5 million below the March 31 balance, and FY10 to date depreciation and amortization expense was $2.3 million.

As to the status of the stock repurchase program, we are currently operating under the second $35 million authorization by the board and to date we have repurchased and retired 203,947 shares for $11.2 million under this program, leaving $23.8 million available for future purchases.

Our backlog at September 30 was $187.4 million or 21% above the March 31 balance of $155.3 million. While not yet recorded in backlog, the company has $33 million of unfunded contracts, which are expected to be recorded in backlog in the next 12 months.

As noted in our press release, at the recent meeting the board voted to approve a cash dividend of $0.20 per share payable on December 3, 2009, to the holders of record at the close of business on November 23, 2009.

I will now turn the meeting back to Anthony for his comments.

Anthony Fabiano

Thank you, Ken. Team AS&E is pleased with its performance in the quarter and our continued progress in year-over-year growth in revenues, gross margins and earnings per share. We delivered on the key factors that drive growth and profitability, strong bookings, strong revenue, strong margins, and we were fortunate that customer schedules lead to a favorable revenue product mix that helped boost gross margins.

Starting with operating income and gross margins, our notable improvements in profitability are attributable to higher gross margins and tight expense management, higher revenues, coupled with continued success in reducing product and overhead expenses had a leveraged positive impact on gross margins.

Gross margin increased with strong revenue contributions from cargo, Z Backscatter, and service product areas. Execution, our on-time delivery to customer schedules was 97% in Q2, following 100% in Q1. Our continuous improvement initiatives to reduce product cost, process waste and overhead expenses and to improve quality in all of our work processes are paying off and resulting in improved margins.

To date this year, we have reduced our cost of quality at AS&E that is the price of non-conformance or non-quality by 1% of annual revenues or one percentage point below where we were a year ago. This is significant from a gross margin standpoint. IRAD, we continued our aggressive investment in R&D in the quarter with an increase of 19% over the same quarter in the prior fiscal year. Our IRAD focus continues to be on technologies that will drive revenue and earnings growth through the commercialization of existing product enhancements and new products.

We began to reap some of the rewards of our aggressive investments in R&D with the introduction of two new cargo products in this quarter, the Sentry Portal, high-energy, high-throughput, drive-through system and MobileSearch high-energy inspection system. We will discuss these products in more detail in a few minutes.

Bookings and backlog, Q2 bookings were 90.3 million with a modest up-tick in parcel orders, which was good to see. With over 90 million in bookings, we added 28 million to 29 million to our backlog from the previous quarter as Ken mentioned earlier. Our backlog at the end of Q2 was $187 million. This is the sixth consecutive quarter that backlog has remained over $150 million.

Our sales pipeline. The pipeline continues to grow and is higher than past quarters with good market and product diversification, represented by both new and repeat customers throughout the world. We expect our enhanced product portfolio, particularly in the cargo and parcel areas to open up new opportunities to boost the pipeline.

Let us review some highlights and opportunities in our product areas starting with cargo. This was a fairly strong revenue quarter for cargo with solid contributions from our OmniView Gantry and Z Portal systems. Also it was an excellent bookings quarter for cargo products with some significant repeat orders from satisfied customers. Both the Z Portal and OmniView Gantry systems are clearly gaining traction in the marketplace as customers continue to see the clear and convincing advantages of the combination of high-energy transmission and Z Backscatter technology over conventional transmission only imaging systems.

Now let us review some of the orders received in the quarter. We received an $18.2 million order for multiple OmniView Gantry system from Saudi Arabia customs. This significant order from the Al Zamil Group, a global leader in industrial, petrochemical and service sectors, will provide our state-of-the-art technology to inspect high-risk containers on Saudi Arabia's borders.

And an unnamed government agency placed an $18.8 million order for our proprietary cargo inspection systems to scan vehicles and trucks at border crossings for explosive threats and contraband. New cargo products. In August, as discussed in the last call, we introduce the Sentry Portal high-throughput, high-penetration drive-through cargo inspection system for ports, borders and checkpoints.

This high-energy system can also be combined with a three sided Z Backscatter module as an option for customers requiring the Backscatter advantage for their specific obligations. I personally think that that combination is going to become a dynamite product combo for us.

The Sentry Portal system is generating a lot of interest in the market as we continue to conduct live demonstrations and respond to opportunities. Also in the second quarter, we introduced the MobileSearch high-energy system, a high-energy cargo and vehicle inspection system that offers a combination of transmission and Z Backscatter x-ray technology.

The decision to offer a combination of technologies on this system, albeit at a marginally higher price than conventional transmission only lower-priced high-energy mobile systems was based upon customer request for this type of system to fulfill their targeted need in specific conops [ph] or applications.

The system offers the advantage of multiple scan modes or high-speed scanning of passenger vehicles or oversized or odd-shaped cargo allowing the operational flexibility of the Z Backscatter Van in either drive by mode to scan stationary objects or portal mood to scan vehicles as they drive past. We believe that this is the industry’s most versatile and effective mobile scanning system now on the market, providing customers with the best technology for high penetration of complex cargo and the ability to differentiate and more clearly identify organic materials overall existing technology such as dual energy.

And when you really think about it, the product makes such sense from a commonsense standpoint. If you are on a dock, you are on a peer and you have a system that can provide what ZBV does is well as a high-energy scanning system, you can move very quickly from scanning dense cargo containers to scanning empties at very rapid speed with the same piece of equipment.

Now who can do that? No one has the capability to do that, except us. With the addition of these two new products, we have an expanded cargo product offering that gives our customers a comprehensive set of flexible detection systems to choose from and allows them to optimize their performance and cost efficiencies by selecting the systems that best fit their detection requirements. We expect this complete portfolio of cargo products to open new doors and allow us to participate in more RFPs than in the past, RFP, request for proposals.

We were pleased to recently receive our first order for the mobile search high-energy system from U.S. Customs. This $9.1 million order for multiple systems was booked in the current quarter, this quarter Q3. In addition, we also recently received and announced a $19.3 million order from customs for multiple ZBVs, for counter drug and counterterrorism missions on our borders. Both of these Q3 orders were funded by the DHS with stimulus money.

AS&E has thus far received a total of $28.4 million out of the total of $88 million of stimulus money spent by U.S. Customs, that is 32%, allotted for non-intrusive, NII inspection system equipment. Again these orders fall into the current quarter, and were not included into the $92 million Q2 bookings that I noted earlier.

Now let us turn to Z Backscatter Systems. As registered from Ken, and we had a very strong revenue quarter for Z Backscatter Systems with an increase of 31% over the same quarter in the prior fiscal year. We shipped 6 ZBVs and 20 Mil Trailers in the quarter. This was the second highest revenue quarter recorded for Z Backscatter Systems. The team's execution was outstanding, which was acknowledged in writing by one of our major customers. We received a beautiful letter from one of our customers to all of our employees telling them about the quality, reliability of the system and what a pleasure it was for them to work with our people, who were open, honest and fully supportive of them through the entire process.

There were light ZBV bookings in the quarter as we booked seven systems, but remember this continues to be a lumpy business as is evidenced by this point in the 28.4 million in US Custom orders that were anticipated in Q2, but actually fell in Q3. It actually came in 7 and 13 days respectively later than the end of the quarter. You just don’t know how things are going to fall, a lumpy business.

Parcel, sales continued to make inroads into several markets resulting in an increase in bookings activity for the quarter. The bookings have been for a mix of all tunnel sizes from both US and international clients, for those clients where detection is a priority over mere deterrence.

The fact that customers are buying the systems in multiple tunnel sizes is encouraging. From a customer-need perspective and it gives us clear near-term opportunities to assess the effectiveness of the products for various concepts of operations or conops. We continue to be encouraged by the increasing pipeline of opportunities. Gemini is an outstanding family of parcel detection systems that delivers as much or more detection capability than competing higher-priced systems currently on the market.

Turning to service, service continues to be a strong segment of our business with its high level of customer satisfaction and contributions to the bottom line. Some of our notable orders in the quarter were from the US Government. We received an $11.5 million service and maintenance renewal order to service ZBVs and ZBV Mil Trailers deployed for counterterrorism missions. And we received an order for 28.2 million with 24.4 million funded to date to provide service and maintenance for ZBVs that are also deployed for counterterrorism missions.

As our installed base of best-in-class products continues to grow rapidly and customers continue to be very satisfied with the quality of our products and service response, we can expect our service business to maintain robust growth. So in closing, we are pleased with our Q2 results and we want to thank our valued customers for their confidence in Team AS&E.

Much of this quarter's success was due to solid execution, which we expect to continue. Nevertheless, we were also favored with an unusually auspicious product mix, which we cannot expect each quarter. Our continued increase in the size and breadth of our product offerings is exciting and gives us more and more confidence about our future potential. AS&E' comprehensive product offerings for both cargo and parcel are designed to meet our customers complex inspection requirements.

In some instances, transmission x-ray solutions meet their requirements. In other environments, Backscatter x-ray provides unparalleled detection and operational benefits and is the only logical choice to meet customer unique requirements. While still in another scenarios a combination of these technologies has proven to be the optimal security solution.

AS&E has the advantage of offering all of these technologies in combinations to assist our valued customers in determining the most effective technology for their specific application. We have built a solid track record for annual growth, profitability and customer satisfaction, but remember that this remains a lumpy business due to the challenges on the front-end.

As I've said before, as we rely more heavily on international orders, timing and the ability to pinpoint quarterly bookings is challenging, due to the longer selling cycles and the more complex financing requirements that we are seeing. Our continued success over the past year is indicative of our ability to sustain financial strength even in these challenging economic times. We were very honored to be ranked by Forbes Magazine as the 10th among their list of America’s 200 Best Small Companies for 2009. That is small caps that they value from 5 million to 750 million in annual revenue.

We made this list based upon our track record for growth and profitability, because we're executing well and most importantly we are meeting the needs of repeat satisfied customers, the percentage of which continues to rise, which allows us the benefits of having come down the learning curve sufficiently to experience lower costs with these accounts, which translates into higher profits.

Last, I would like to thank all of our dedicated and hard-working people whose commitment to excellence and teamwork enabled us to receive this honor of the Forbes Number 10 ranking as well as the excellent results achieved in this quarter. Thank you.

I will now turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Fabiano. (Operator instructions) Our first question comes from Edward Marshall from Sidoti. Please proceed.

Edward Marshall – Sidoti & Company

Good morning everyone or good evening. My first question – I did this last conference call as well. The delivery of new products that you have coming up, the MobileSearch and the Sentry Portal, my first question centers on the gross margin, you know as you start to deliver these products, should we expect to see any pressure on the gross margin that we have seen with similar rollouts in the product – in other products?

Ken Galaznik

Ed, as you know, we don't break out our margins by product line. It really would be very difficult to comment on that. But it’s a unique product. It is a very exciting product, and we will see where that takes us.

Edward Marshall – Sidoti & Company

I mean we should assume there is some learning curve issues with the new rollout, of the new program?

Anthony Fabiano

There is always some learning curve with new products. The more that we bring to market the more we learn how to reduce learning curves.

Ken Galaznik

If you look back in prior years, we have talked about learning curve issues during those days and it did impact us. We are bringing out at that time that was a larger more complex issues related to that product that are more complex than what we were seeing now, but to Anthony's point I mean to say we wouldn't experience learning curve issues would be pretty bold on our part.

Anthony Fabiano

(inaudible).

Ken Galaznik

We have been fortunate so far, we have done our learning curves one time, and that has been a nice experience for us.

Edward Marshall – Sidoti & Company

And I guess, of course, your product mix is a little bit better now than it was another in other rollout periods as well?

Anthony Fabiano

Correct.

Edward Marshall – Sidoti & Company

And then the next question, I guess, is the splits of the orders that you guys have taken in. Can you kind of – is there any way to break out the equipment versus the services that were booked in the quarter from dollars or revenue standpoint, dollar standpoint?

Ken Galaznik

Anthony just went through the summary of that breaking those out as far as (inaudible).

Edward Marshall – Sidoti & Company

For individual orders.

Ken Galaznik

Yes.

Edward Marshall – Sidoti & Company

I mean, did – okay, I will just go back and read the transcript. Thanks. And then you know R&D, looks like it was up year-over-year, but down sequentially is there anything that happened in the fourth quarter or the first quarter of this year that had reason for a little bit of higher R&D cost in those two quarters relative to the second quarter?

Ken Galaznik

Nothing really significant comes to mind between those two quarters. There may be a little more material content or something in that first quarter, but I really can’t think of anything that is majorly different, if you will.

Edward Marshall – Sidoti & Company

So, this would be the new run rate going forward?

Ken Galaznik

We're going to continue to be as aggressive as we could possibly be.

Anthony Fabiano

Absolutely.

Ken Galaznik

We are pleased with our – we are more pleased today than we were three years ago with our product set, but we're still not satisfied, and we are continuing to push on that number as hard as we can from a standpoint of what we see coming down the pipeline in revenues, and what we see coming down with earnings. We will continue to be aggressive with that.

Edward Marshall – Sidoti & Company

Thank you very much.

Ken Galaznik

Thank you.

Anthony Fabiano

Thank you.

Operator

Our next question comes from Brian Ruttenbur of Morgan Keegan. Please proceed.

Brian Ruttenbur – Morgan Keegan

Thank you. A very good quarter. The question I have is about SG&A. It looks like it is an $8 million, a good run rate going forward and you know sometimes there is a seasonal dip or there is a dip in the fourth quarter on SG&A, should we expect that in the fourth quarter this year?

Ken Galaznik

Brian, any kind of dip you may see in the fourth quarter maybe more conversational as to incentive compensation or something like a major shift in that quarter. Other than that I really wouldn't expect anything to shift dramatically in that.

Brian Ruttenbur – Morgan Keegan

Okay and so around the $8 million run rate there seems to be a logical level for you going forward on SG&A?

Ken Galaznik

The first two quarters were 20.

Brian Ruttenbur – Morgan Keegan

And then you said tax rate 35.5%, do you see that that is going to change at all going forward. Is there anything special happening in this fiscal year that wouldn't be repeatable next fiscal year?

Ken Galaznik

Tax rates by next fiscal year could take on new meanings depending on our current environment. I think all companies are waiting to see how that works out through the legislations. But at this time we are not aware of anything that would significantly impact that.

Brian Ruttenbur – Morgan Keegan

Okay. And share count, the shares has been holding steady right around $9 million; you have a new authorization out there. Do you get more aggressive at certain dollar amounts and buy more or is there market timing involved or not or is there a steady flow that you buy on a consistent basis?

Ken Galaznik

We have a matrix that is in place that yes, there are times when we are more aggressive than others. There are times when we are out of the market. We buy by that matrix, as we go through the year and that is our plan at this time.

Brian Ruttenbur – Morgan Keegan

And okay. Beyond the – this is more of a macro question, beyond the stimulus dollars is there anything else that is pushing things up in the near term, and when do expect all the stimulus dollars to be awarded?

Ken Galaznik

Well, you know, Brian, the window for the stimulus dollars is two years. So it is a pretty tricky situation. It depends, are you talking about the TSA and DHS overall or just U.S. Customs?

Brian Ruttenbur – Morgan Keegan

Well, I was talking about US and international. It seems like it beyond the stimulus, international and – was picking up also.

Ken Galaznik

We think – we see the international business as becoming more and more attractive to us, because we are just generating more customers. We are seeing more opportunities and we feel very secure that that is going to grow. As far as stimulus dollars, you know, it all hasn’t been spent. There are some more opportunities for us there as for our competitors as well.

Domestically, we have all been kind of warned that going into next year we could see some cuts in some of the US agencies spending in the DHS side because of some of the pressures with the economy. So we'll have to wait and see, but we're very optimistic that the products we have brought to the market are the products that the customer has in very high demand.

And if you look at what they purchase, for example, U.S. Customs lately they bought a brought pretty good cross-section of products with the stimulus dollars, but there is really a view that going forward they really, really need. And I think that we are well positioned.

Brian Ruttenbur – Morgan Keegan

Very good. Thank you very much.

Operator

Our next question comes from Steve Levenson of Stifel. Please proceed.

Steve Levenson – Stifel

Thanks. Good evening Anthony and Ken. Thanks for the nice news.

Anthony Fabiano

Good evening. Thank you.

Steve Levenson – Stifel

On the new orders as you talked about US and international, could you give us what the split is please if you got it?

Anthony Fabiano

Bookings, are you talking about bookings?

Steve Levenson – Stifel

Yes.

Anthony Fabiano

Well, right now, we are about 55% on the domestic side and you know that is on ZBV. I can give you this, on ZBV our domestic bookings through Q2 are 55% domestic and 45% international. Ken do you have some light on the total package split.

Ken Galaznik

Steve, if you give me some room for error on that. But you are getting close to a 50-50 split, and you are going to be a little bit heavier on the international a little over the 50%. If we look at the current backlog, you know it is sitting over 50% international at this point.

Anthony Fabiano

That is right.

Steve Levenson – Stifel

Okay, great. Thanks. On the military trailers, I guess you shipped 20. So I think that would leave what 16 or 18 to go on the current contract?

Anthony Fabiano

No, it would not be that many.

Steve Levenson – Stifel

(inaudible). Do you see potential for that going back up? I don't know what you are hearing as far as how they are being used in the field, and if they could end up ordering more?

Anthony Fabiano

(inaudible) every day you and I read in the Wall Street Journal or some other magazine about an explosion from a car bomb that has killed 30 people. It can only tell you that they need these types of systems, and they need them tomorrow.

So I'm optimistic about the system one, because of its performance, and two, because of the compelling need. Now you have to offset that by the fact that the government is going through a decision process as to what to do in Iraq, which we all suspect they're going to pull out over time. What to do about Afghanistan and to what extent?

So until those things are crystal clear, it is really hard for us to forecast, but I'm pretty bullish Steve on the product and our opportunities because it saves lives.

Steve Levenson – Stifel

Great. Thank you. On the MobileSearch high-energy, did you actually track the time it took from the day you announced it, to when you received the first order, because it seemed to be pretty quick?

Anthony Fabiano

It was quick, but I don't know the exact number off of the top of my head. We can get that information for you.

Steve Levenson – Stifel

I guess, what I'm trying to ask is, was that a product you developed by request?

Anthony Fabiano

Yes.

Steve Levenson – Stifel

That you were working on, then you enhanced it and you sort of had something not quite in the bag but close?

Anthony Fabiano

Let me says this. The competition and there are several competitors here. There are a lot of high-energy mobile systems, and it is a real commodity and they sell them at a low price, and I doubt they make much money at it. And we're always looked at this and said, you know, we really would like to have a mobile system, but we got to have some form of differentiation if we intend to make any money at it. And we have been looking for a long time at where an end-user would want to buy such a system, and recently after a couple of years of campaigning, a few customers have stepped up and said you know what, our conops are such they have matured to a level that we just can see a tremendous amount of efficiency if you had this product, based upon what we’ve achieved with your other products.

Can you come up with a composite unit and the answer was yes, and we did. So I would say that within two or three weeks of announcing the product on September 21st, is that right, we received our first order. So that is pretty darn good.

Steve Levenson – Stifel

Great, thanks. Last question, I know you have got the buyback authorization in place, but you still have quite a bit of additional cash, any plans, anything you can tell us on that?

Ken Galaznik

Nothing we can talk about specifically obviously. But we continue to, we have the dividend program, the repurchase program remains alive and we continue to look for other opportunities to be in appropriate use of shareholder cash. As we have talked before in other calls, it is really a difficult market to look at, you know. You see a lot of three-year hockey sticks that get exiting, but those are very challenging in our industry as you know, but we do continue to look and we will see how we do going forward.

Anthony Fabiano

Yes, Steve. If there is clear adjacencies and there are a few for us where companies are available at a reasonable price that can be accretive to us rather quickly, we are very interested and we are vigilantly out there looking. So, it is almost acquisition sales [ph]. So we want to do it right.

Steve Levenson – Stifel

Got it. Thank you very much.

Anthony Fabiano

Thank you.

Operator

Our next question comes from Josephine Millward of Dougherty & Company. Please proceed.

Josephine Millward – Dougherty & Company

Hi, Anthony. Hi, Ken.

Anthony Fabiano

Hello, Josephine.

Josephine Millward – Dougherty & Company

Congratulations, great quarter.

Ken Galaznik

Thank you very much.

Josephine Millward – Dougherty & Company

I just have a clarification on your backlog, the 187 million; does that include the 18 million from Saudi Arabia, because that was announced on October 1st?

Anthony Fabiano

Yes, it does.

Josephine Millward – Dougherty & Company

It does. Okay. And can you give us a sense on timing for shipment on the contracts you won from border protection? Will you be shipping most of them, I guess in the next 12 months or before year-end?

Anthony Fabiano

I think probably within the next 12 months will be a safe statement.

Josephine Millward – Dougherty & Company

Okay.

Anthony Fabiano

Because we have two types of saying [ph].

Josephine Millward – Dougherty & Company

Right, what about in terms of your backlog. In the past you have always talked about how you expect to ship the majority of that in the coming year. Is that still the case?

Anthony Fabiano

As we said before, we’ve always talked about the next 12 months. If you go back to the end of our last fiscal year, I think my estimate at that time was about 80% of that would ship in the next 12 months. You know with the type of orders we are seeing right now, I think we are probably still in that 75% to 80% range in the next 12 months.

Josephine Millward – Dougherty & Company

Great and you have won some very nice orders from CBP recently, can you talk about CBP’s strategy, maybe over time to secure the borders and how this might impact your business going forward?

Ken Galaznik

Well, I can't talk about CBP strategy. One is I'm probably not privy to all of it, and two, I don't think it would be appropriate for me to do that. But clearly, you know just reading the newspapers there is trouble in River City on the southwest border, and that remains a high area of risk for US, and so we would expect that that would be one area that they would give terrible attention to, and there are other areas as well. So I would hope that we will have an opportunity to participate in that.

Josephine Millward – Dougherty & Company

Great. And in terms of your new product introduction, the Sentry Portal, Anthony, can you give us a little more color on what, and it sounds like you had a great border crossing application, if you are targeting any specific opportunities there?

Anthony Fabiano

Well, it's a good question. It is really an all-purpose system, and it is not a whole lot different from what the competition has offered for some time, except that we expect to have a competitively priced product, that is a high throughput, super high-quality, very reliable product with a low cost of ownership with what we believe from what we have seen is better imaging than the competition.

Josephine Millward – Dougherty & Company

And what is the average…

Anthony Fabiano

(inaudible)

Josephine Millward – Dougherty & Company

What is the average selling price on the Sentry Portal?

Ken Galaznik

Too early to tell. Too competition sensitive to give that out, but after we have sold a few, sure we would be happy to share that.

Josephine Millward – Dougherty & Company

Thank you.

Anthony Fabiano

Sure.

Operator

Our next question comes from Sarah Catherine Phillips of Stephens.

Sarah Catherine Phillips – Stephens

Good evening. Nice results.

Ken Galaznik

Thank you.

Sarah Catherine Phillips – Stephens

Just a few quick questions, and are the Mil Trailers being deployed primarily in Afghanistan?

Anthony Fabiano

Sarah, I am not allowed to talk about that. But their intended purpose of design was for very rugged terrain as opposed to the terrain in Iraq, which was not nearly as mountainous and as rugged.

Sarah Catherine Phillips – Stephens

Okay. So, then how should we think about levels of field service on those compared to service on the ZBV in Iraq given this difference in terrain?

Anthony Fabiano

None other than the fact that we have to have trained people in the field just like we did in Iraq that are qualified to service the equipment, keep it up and running. It will be a little bit more challenging, and we will have to do more pushups and sit-ups than the other guys. But I think they will be okay.

Sarah Catherine Phillips – Stephens

Okay, and quick clarification. I think you said you have got seven ZBVs in the quarter, but how many were shipped?

Anthony Fabiano

We shipped 6 in the quarter.

Sarah Catherine Phillips – Stephens

Okay, thank you. And then it looks like the whole body imaging might be resurfacing as kind of a priority technology for TSA, are you seeing any potential opportunities for smart tech [ph]?

Anthony Fabiano

Yes, we are.

Sarah Catherine Phillips – Stephens

Any that you can talk about like magnitude and maybe the timing of them?

Anthony Fabiano

Well, you know, if you just look at the number of checkpoints, and you look at the number of systems that were purchased from the competitor recently, which were about 150, and the fact that prior to that 40 systems were purchased, the ProScan systems from L3 with millimeter-wave that is 190. So that would be about 15% to 20%, and I am just interpolating here of what the requirements would be overall. So, I think there is a real good opportunity there, and you know we had developed this system.

We were pretty close to compliance at one time, and decided to disengage for certain reasons, but those reasons have now changed, and I think it is a short path for us.

Sarah Catherine Phillips – Stephens

Great. Thank you.

Anthony Fabiano

You are welcome.

Operator

Our next question is a follow up from Brian Ruttenbur of Morgan Keegan. Please proceed.

Brian Ruttenbur – Morgan Keegan

Okay. Thank you very much. I just have one quick follow up, can – I may have missed this but did you state the number of ZBV vans booked in the quarter and how many shipped in the quarter, and you may have said one of those, but I don’t know if you have told us both.

Anthony Fabiano

Yes, Brian, we booked seven and shipped six.

Brian Ruttenbur – Morgan Keegan

And is that including Mil Trailers?

Anthony Fabiano

Yes.

Brian Ruttenbur – Morgan Keegan

And can you tell us that number?

Anthony Fabiano

We shipped 20 of those.

Brian Ruttenbur – Morgan Keegan

Okay. And you booked none, right?

Anthony Fabiano

Correct.

Brian Ruttenbur – Morgan Keegan

Okay. Thank you very much.

Anthony Fabiano

Thank you.

Operator

There are no further questions. Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-286-8010 for US callers and 617-801-6888 for international callers with the conference identification number is 885-690-588. An audio replay will also be available on the AS&E web site at www.as-e.com in the investor information section. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: American Science & Engineering, Inc. F2Q10 (Qtr End 09/30/09) Earnings Call Transcript
This Transcript
All Transcripts