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

F4Q10 (Qtr End 03/31/10) Earnings Call Transcript

May 11, 2010 4:30 pm ET

Executives

Anthony Fabiano – President & CEO

Ken Galaznik – SVP, CFO & Treasurer

Analysts

Steve Levenson – Stifel Nicolaus

Brian Ruttenbur – Morgan Keegan

Edward Marshall – Sidoti & Company

Sarah Catherine [ph] – Stephens

Michael Kim – Imperial Capital

Josephine Millward – Benchmark Company

Operator

Good afternoon, ladies and gentlemen, and welcome to American Science and Engineering's fourth quarter of fiscal year 2010 results conference call. My name is Michelle 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 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 fourth quarter and fiscal year 2010 results conference call. I am 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 and for the year.

I will now turn the call over to Ken, our CFO and Treasurer.

Ken Galaznik

Thank you, Anthony, and welcome to everyone to our quarterly conference call. Today, we released the results of our fourth quarter of fiscal year 2010, which ended March 31st. A copy of this press release will be e-mailed or faxed to those of you on our mailing list and has been posted on our Website.

Before we begin, I am obliged to share 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 fourth quarter. Net sales and contract revenues in the March ’10 quarter were a new record high at $71.3 million, which represents a 24% increase when compared to the fourth quarter revenues in the prior year of $57.3 million. This increase in revenue is attributable to increases across all product lines except for contract, research and development, which was down $3.1 million, due to the absence of the CARS program in the current quarter.

The breakout of revenue by product line for the quarter was follows: cargo was $23.1 million, up 45% from the prior year; Z Backscatter Systems was $17.4 million, up 45%; parcel was $5.1 million, up 43%; Field Service was $25.4 million, up 6%; and contract research and development was $327,000, which was down from the prior-year quarter. The gross profit in the March 10 quarter was $33.4 million as compared to $27.1 million in the March ‘09 quarter. This increase in gross profit is a result of the increased revenues offset by the gross margin contribution decrease of 0.6 percentage points as a percent of revenues in the current quarter as compared to the prior-year quarter.

Selling, general and administrative expenses were $10.6 million or 15% of revenues in the March ’10 quarter as compared to $8.6 million or 15% of revenues in the March ’09 quarter. The increase in SG&A is a result of increased incentive and stock-compensation expense as the company achieved certain performance-based incentive goals, expanded bid and proposal activities and salaries and benefits related to headcount increases. Company-funded research and development expenditures in the current quarter were $4.9 million or 7% of revenues as compared to the prior-year expenditures of $5.5 million or 10% of revenues. While the current quarter spend is $661,000 below the prior-year quarter, for the year, expenditures were $1.7 million over the prior year.

The company recorded income tax provision of $5.5 million in the current quarter as compared to $4.8 million provision in the March ’09 quarter. The increase from the March ’09 quarter is due to the increase in taxable income attributable to the factors noted earlier, offset somewhat by a decrease in the effective tax rate from 36.6% in the prior-year quarter to 31% in the current quarter. The lower rate in the current quarter was primarily due to the reductions related to the reinforcement of revenues to states, probably recognizing nexus in states where we do perform services.

Fully diluted earnings per share in the March ’10 quarter were $1.34 as compared to $0.92 in the March ’09 quarter. A review of our annual results reflects the following. Revenues increased 11% to a new record-high of $242.1 million in the current year, from $218.4 million in the prior year. This is attributable to increases in cargo, Z Backscatter Systems, and Field Service, offset somewhat by decreases in parcel and contract research and development. Gross profit increased to $111.1 million in the current year from $93 million in the prior year. The increase is due to the increased revenues at an increase of 3.3 points in margin as a percent of revenue.

This improvement is due to a more favorable product mix and improved field service margins. SG&A expenses in the current year were $37 million or 15% of revenues as compared to $32.9 million or 15.1% of revenues in the prior year. This increase is primarily attributable to increased incentive in stock compensation expense, increased bidding proposal activities, and salaries and benefits related to headcount increases, offset somewhat by reduced legal expenses.

Research and development expenses increased 9% to $19.8 million or 8% of revenues from $18.1 million or 8.3% of revenues in the prior year. Interest income decreased in the current year to $701,000 from $2.4 million reported in the prior year. The company recorded a tax provision in the current year of $18.7 million as compared to $15.3 million provision in the prior year. This increase is attributable to the increase in taxable income due to the factors noted previously, offset somewhat by a decrease in the effective tax rate from 35.1% in the prior year to 34% in the current year. At this time, we anticipate the effective rate to be 34.5% going forward.

Fully diluted earnings per share in the current year is $3.97 as compared to $3.18 reported in the prior year. The balance and cash, restricted cash and short-term investments at March 31st 2010 was $179.1 million or $37.3 million above the March 31st balance. This increase is primarily attributable to cash provided by operating activities of $46.3 million and proceeds of $6.4 million from the exercise of stock options, offset somewhat by expenditures of $2.9 million related to the stock repurchase program and dividend payments of $8 million.

Free cash in the current year was $43 million as compared to $33 million in the prior year. Accounts receivable has increased $779,000, resulting in DSO at March 31st of 48 days as compared to 58 days at March 31st, 2009. Inventory decreased $2.6 million or 5% from the prior-year balance. In fiscal year ’10, we have invested $3.3 million in CapEx, and depreciation and amortization expense was $4.5 million. As to the status of the stock repurchase program, we are operating under the second $35 million authorization by the Board, of which $23.8 million remains available.

In total, we have purchased and retired 874,000 shares for $46.2 million under this program. At a recent Board meeting, the Board authorized the continuation of the repurchase program with the remaining $23.8 million. There were no repurchases made in the current quarter.

Bookings for this quarter were $43.1 million, bringing backlog at March 31st, 2010 to $195.7 million or 26% above the March 31st, 2009 backlog balance of $155.3 million. While not yet recorded in backlog, the company has $10.5 million of unfunded contracts, which are expected to be recorded in backlog in the next 12 months.

I am pleased to inform you that at a recent meeting, the Board voted to approve a cash dividend of $0.30 per share payable on June 3rd, 2010 to the holders of record at the close of business on May 24th, 2010.

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

Anthony Fabiano

Thank you, Ken. Once again, team AS&E delivered outstanding results in the fourth quarter and fiscal year. With a focus on market penetration, new products, continuous quality improvement and lean initiatives, we were able to dramatically increase revenue while simultaneously driving down costs.

We increased our revenue to a record $242 million and with its increased gross margin of 19.5%, operating profit 29%, and increased EPS to $3.97 or 25% over the last fiscal year. Nice work. We met our strategic market initiatives, including diversifying our revenue stream especially internationally, with very strong contributions from cargo, Z Backscatter Systems and Field Service product areas. With our expanded product offerings, we continue to make significant inroads with strategic customers and with new and repeat orders from military, port and border security, law enforcement, and critical infrastructure, driving fiscal year 2010 bookings to a record $282.5 million.

We were able to sustain strong bookings throughout the year. This is due to our resolve to build stronger and stronger positive relationships with existing key customers who placed some significant orders during the year. Our increasing visibility in the marketplace has also attracted some important new customers. Let’s look at some of the details. Operating income and gross margins, we demonstrated an ability to increase revenue by driving down costs. Maintaining operating expenses of 23% for the fourth year in a row and increasing gross margin over 3 percentage points compared to last year, very proud of that one.

We are meeting our targets of continuous cost and quality improvement by increasing on-time delivery, reducing cost of quality, reducing time-to-market for new products, and reducing unit production costs on existing products. I know there is a mouthful there, but there is a lot of work that we have done. The margin results also benefitted from our diversified product mix, which we delivered to customers at a 98% on-time delivery rate for the year. First rule of customer satisfaction, ship with spec and ship it on time.

We increased our internal research and development investment again in FY10 by 9% or $1.7 million for a total of $19.8 million. This investment has allowed us to increase expenditures in research, an area where we have not really had the funds to invest as much in the past, in new technologies for generating X-rays, detector technology, as well as image processing and analysis. Also, it increased our ability to introduce more new products to development side to improve existing products and to add new optional features to these products. We introduced three important cargo products in the year, including the MobileSearch High Energy System, which is a truck, MobileSearch High Energy truck. The High Energy high throughput, Sentry Portal and the Z Gantry essentially a Z Portal on rails and several product enhancements or options like the top-down transmission X-ray capability of the Z Portal.

We also introduced the state-of-the-start software package for Backscatter-based products to assist operators by enhancing their accuracy and speed of detection very important to our testing. We continue to expand our reach across the globe, broadening but also strengthening strategic relationships, both domestic and international. 51% of our product bookings were domestic this year. Our systems are meeting the stringent performance requirements of the US government. With 49% of international product bookings, we continue to win competitively-bid contracts in the international marketplace and are expanding its new sales channels with positive results in Europe, Asia-Pacific and Central and Latin America.

Our sales and marketing group together with our products group have done an outstanding job of adding new customers while increasing both the dollar value and number of orders from repeat customers. Bookings in the fourth quarter were lower than planned, as few orders slipped into Q1 of FY10. One particular order that we expected in Q4 was the $34 million order for the ZBV Mil Trailers from the US government, which would have increased our actual bookings closer in line with our expectation for Q4. Nevertheless, as you know, we recently announced $53.9 million in new orders since the beginning of this quarter, which is a great start this early in Q1, and which includes the Mil Trailer order. All of these key orders were from the US government.

Backlog increased in 2010 of 26% or $40 million to $196 million from the end of the last fiscal year. Our pipeline of sales opportunities remain strong with both domestic and international opportunities and represents a mix of new and existing customers worldwide whose requirements reflect a healthy mix of all of our products.

Let’s review some highlights and opportunities of our product areas. Z Backscatter Systems, the ZBV or Z Backscatter Van, Z Backscatter products which includes the ZBV Mil Trailer were the largest contributors to revenue in the last year, and should continue to be very strong as is evidenced by the recent orders announcement in the current quarter Q1. If we look at bookings for Z Backscatter products for FY10, we booked 54 Z Backscatter Vans in the year, bringing the total to date to over 460 ZBV systems booked since the introduction of this blockbuster product.

In Q4, we booked 8 ZBVs and shipped 24. We now have 52 international ZBV customers in 47 countries, with many of these being repeat customers. 56% of ZBVs shipped since the inception has been sold to the US government or other US customers, including state law enforcement. Note, this figure does not include the ZBC Mil Trailer. The first ZBV Mil Trailers were deployed in the year with great success, meaning that they received very high customer satisfaction ratings for quality and reliability especially in harsh environments in the field. These results directly led to the follow-on ZBV Mil Trailer order recently announced in the current quarter, valued up to $48.8 million and currently funded at $34 million.

Our customers including US Customs on Southwest borders and Maritime Ports, DoD in theater, and our international clients are experiencing great success, success as defined as seizure rates with our products. It’s very gratifying that every week, we hear new instances of seizures in the field. Again, this is a clear testament of the system’s capability to meet the US and international government’s rigorous force protection, explosives, and contraband detection and requirements.

Moving to cargo, this was an outstanding year for both cargo bookings and revenues. Cargo revenue increased 40% and bookings increased 86% in the year. Both the Z Portal and OmniView were key contributors to our bookings success in FY10. Sales across market verticals including the military critical infrastructure, maritime ports and customs border applications with a good mix of both domestic and international bookings. We are very optimistic about the potential for our new cargo products introduced during the year.

First, the MobileSearch HE or Mobile Search truck, High Energy truck, which provides high energy transmission X-ray as well as Backscatter Van scanning in the same vehicle at an affordable price. And the Sentry Portal which provides high-speed high energy transmission scanning at a competitive price. There appears to be strong demand for both products based upon the quoting activity since their introductions. Additionally, we continue to work very closely with clients to add product enhancements to meet their specific detection or operational requirements. This is an area where our growing annual IRAD budget has been very useful and enabling.

At a recent trade show in the Middle East, we debuted a new top-down transmission option on the Z Portal screening system. It complements the system’s three Z Backscatter views for enhanced metallic detection in vehicles. The option offers our customers a competitively priced transmission X-ray capability combined with our three-sided Z Backscatter technology and enhances the overall contraband detection capability in vehicles passing through the Z Portal.

Turning to parcel, Gemini bookings are starting to get legs with bookings for the year increasing over 100% from the prior year. We have added new sales and marketing resources to boost partial sales, and we are starting to see a good cross-section of customers with the mix of three Gemini offerings. We are very pleased that the TSA added all three of our Gemini X-ray inspection systems with their cargo screening qualified technology list. Inclusion on the QTL allows certified air cargo facilities to purchase systems directly from AS&E, to meet the requirements of the 9/11 Commission Act of 2007 mandate to expect 100% of air cargo carried on passenger airplanes by August 2010.

With Gemini’s comprehensive threat to detection capabilities, including explosives, we believe that Gemini is an ideal solution to scan air cargo, and we have already started to see quoting activity for this application.

Personal scanning, no new updates here except to say that we are continuing to work very hard to get our personal screening system or AIT systems, other known as Advanced Imaging Technology tested and listed on TSA’s qualified product list. We proposed it. So, service once again had a record year with record revenue and bookings. Our continuous improvement initiatives and focus on quality and training is paying dividends in service as we have been able to increase gross margins this year to various cost-reduction methods in the field.

Additionally, spare parts sales remain very strong, adding to our strong bookings in the year. Our service teams in war zones continue to exceed all contractual commitments, with 96% uptime availability in very high customer satisfaction ratings. We are very proud of our field service teams and their outstanding customer satisfaction ratings in every product category.

As our revenue growth continues to accelerate, our installed base of products is growing proportionately and consequently is boosting annual revenue in the most stable area of our business. Parts and service revenue now accounts with 36% of our total annual revenues. So, there is our total reach portion of our business.

Now, to summarize, team AS&E did an outstanding job this year, we are very proud of everyone. We had an outstanding year and are most grateful to our customers, employees, and shareholders for helping us to deliver record bookings, revenue and earnings. We believe that we have met or exceeded the expectations many of you had for us on many levels including one, market diversity, a better balance of sales throughout all market vertical; two, product portfolio expansion; three, financial strength, profit, backlog, cash flow and balance sheet improvements; and last but not least and as in this side, revenue per employee for FY 2010 was $590,000 versus $545,000 per employee for the last year.

This is an excellent deficiency ratio for a company that uses our manufacturing model of AIT or sample integrating test in our industry. I can assure you that we will work hard to continue you down this path of success. I am optimistic about our future for several reasons. One, we have significant catalyst for accelerated growth, where we have already proven our ability to serve and support key customers in growing the markets.

Two, we continue to introduce new and exciting products at a rapid pace which are selling well and demonstrating our excellent return on shareholder capital, something I am very proud of, for our company. Our value proposition has stood the test of time and confirmed that knowledgeable customers who value superior detection will pay a reasonable price for the Backscatter advantage, and one-two punch of a product that combines Backscatter with transmission X-ray into a single system with best-in-class operator controls and software.

And let me give you another analogy here folks, because this value proposition is really a key thing. So, why would people pay a slight premium for two systems in one. A look at it this way, if your son or daughter has a cold, you could take them to any doctor and will get treated pretty well, the emergency clinic, that doesn’t really matter. But if they have a very serious debilitating illness, let’s face it, we will find the best doctors in the world. But when it comes to detection when it really matters, when life and death is at risk, the Backscatter advantage, the combination that we discussed our value proposition is really where it is at, and we think we have the best products on the market.

We have added some top-notch technical people to our science and engineering departments to develop innovative new technologies and products that promise to expand our markets. You and I both know that it’s all about people and we are really happy that we have added some top notch technical people just recently to our team. We have high expectations for them. We have the financial resources to further boost our growth, win attractive opportunities surfaced in the industry, and you can be confident that we are continually looking for these opportunities.

I am very pleased to announce as Ken did repeating that our Board has voted to reward our loyal shareholders with a $0.30 cash dividend for Q4. I am also very proud of our team’s accomplishments this year. It’s a great sense of optimism at AS&E, and it’s not only the results of our financial success, but desired by our people to execute flawlessly and to continue to delight our customers and grow our business.

I want to take this opportunity to thank all of our people here at team AS&E for making these outstanding results possible. We couldn’t have done it without you; you have done a great job. Going forward, team AS&E remains focused on customer satisfaction, our long-range vision and our commitment to increasing shareholder value.

I will now turn the call back to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Steve Levenson of Stifel Nicolaus. Please proceed.

Steve Levenson – Stifel Nicolaus

Thanks a lot. Good afternoon Anthony and Ken.

Anthony Fabiano

Hi Steve, how are you doing?

Steve Levenson – Stifel Nicolaus

Thank you. I am sure you are, too. Were you able to accomplish the good revenue with a single shift, or do you have a second shift going right now?

Anthony Fabiano

Single shift.

Steve Levenson – Stifel Nicolaus

Single shift? Is there any intent to add a second shift?

Anthony Fabiano

Let me correct that. We did have one Gemini order where we actually went on a partial second shift for a period of three months. But at this time, no, we don’t have any plans to move to a second shift. Not necessary as our throughout goes through our plan.

Steve Levenson – Stifel Nicolaus

Okay, thanks. In terms of the bid and proposal process you said it’s picking up, is it skewed more towards international or domestic business?

Anthony Fabiano

Right now, Steve, it’s pretty balanced. I mentioned catalyst. With the defense bill being plus up, with the SFI initiative being cut but money is being shifted to other areas in DHS, we are seeing some pretty good strength there, DoD, with what’s happening in the Middle East. Internationally, things look really strong in the places that we have been. And there is a lot of market forces that are causing that. So, we feel pretty good across the Board, and I think the balance that we have had is about what we expect going forward.

Steve Levenson – Stifel Nicolaus

Okay, thanks. On the deadline for standing 100% of cargo on passenger flights, do you think that’s going to result in any sort of spike for Gemini?

Anthony Fabiano

I wouldn’t say a spike for us. As you know, most air cargo is already being screened and through 15 or 20 major hub airports, and that’s been going on for some time. So, the balance of it is from smaller airports, smaller freight forwards who have no money. In fact, I don't know if you heard about it, but they had actually petitioned Congress to put a 5% tax on the good shift from the retailers, wholesalers, whoever, and that didn’t go over too well. So, I would expect what we are going to see is spotty requirements and we are going to add to them and we will get some business. I don’t think that it’s a big market.

Steve Levenson – Stifel Nicolaus

Okay, good number. And last question, are you seeing any pricing pressure at all or people are still willing to pay the premium for Backscatter technology?

Anthony Fabiano

Backscatter is, you know, people see the value proposition. That’s why I made such a strong point about it, and if the job gets done and the seizure rates are increased dramatically over competitor’s equipment, people don’t mind paying a slight premium for that equipment. So, in that area, no.

Steve Levenson – Stifel Nicolaus

Okay, great. Thanks very much.

Anthony Fabiano

Welcome.

Operator

Your next question comes from the line of Brian Ruttenbur of Morgan Keegan. Please proceed.

Brian Ruttenbur – Morgan Keegan

Thank you very much. Great quarter, always a surprisingly high quarter sometimes hits us. Maybe you can talk a little bit about SG&A, some costs going forward. Since we can’t predict revenue or profitability, maybe we can try to predict R&D and SG&A on a quarterly basis. Can you help with that a little bit where you see 2011, how those numbers are going to trend?

Ken Galaznik

Brian, as you know, it’s always a challenge.

Brian Ruttenbur – Morgan Keegan

Right.

Ken Galaznik

I guess the best I could tell you is the key components relate instead of compensation, which are based on performance goals and how we do against those goals is a significant piece of that. In addition, the current quarter, we had some significant impacts with the increased bid and proposal activities which is a nice high class problem to have. But it does, yes, it reflects – it manifests itself and you can see in the less-than-expected run rate from internal expectations for R&D run rate, because we pull people from those projects to work on bid and proposal activities. And then there’s always the excitement in legal like we had last year that impacts those costs. So, it’s a tough one. I can’t say that, you know, take this year and it should be x% plus or minus, that’s really about the best I can do for you.

Brian Ruttenbur – Morgan Keegan

Okay, now – I am sorry, Anthony, were you going to say something?

Anthony Fabiano

No, I just was going to say Ken and his people have done an excellent job though or controlling costs. He has outstanding budgeting procedures and real good regimen to monitor our costs. It’s done a great job. It just hasn’t happened automatically.

Brian Ruttenbur – Morgan Keegan

Well, thank you. The R&D maybe that’s on a quarterly basis, it will be $4 million to $5 million, is that a fair range?

Ken Galaznik

I would like to say that is we did $18 million last year and $19.8 million this year. One thing I would comment on is if you look at our run rate, in the last three quarters, we have been in the 4 points something ranges. As Anthony commented, we are reaching a point, we are able to focus more on our – we have been in such a race for products in prior years. It is nice to be looking other technologies, other activities. With that being said, we have been in the $4 million to $5 million rage now for seven quarters.

Brian Ruttenbur – Morgan Keegan

Okay. And there is no reason that –?

Anthony Fabiano

No. And the reason for that share price, but I wanted to go up.

Brian Ruttenbur – Morgan Keegan

Okay. So, there shouldn’t be any dramatic increases, we shouldn’t see a $7 million, there is nothing in the pipeline that should get us dramatically out of the range either way on R&D.

Ken Galaznik

The real challenge frankly and thinking of those types of ranges is R&D is primarily driven by labor content, and we would have the resources to accomplish that type of a number. If Anthony just alluded to, he would love telling you that sort of thing, but we thing we have some things in place, that we will keep it in this other range.

Brian Ruttenbur – Morgan Keegan

Okay. And then gross margins, around the 47%, I know that depends on your mix and service contracts and other things like that. But on the year, do you see that kind of going forward. The goal is to the next couple of years to keep that around the 45% to 50% range of that what you said.

Ken Galaznik

We will have to see what it turns out to be, but that would be fairly aggressive. Yes, if you look at last year, we were at 42.6% gross margins. So, it depends on product mix, it depends on projects, it depends on the competitive environment that we are in, where do we have to propose that. So, we kind of had a high-class problem this year. We will see how we will do going forward.

Brian Ruttenbur – Morgan Keegan

Okay. The ZBV shipped in the quarter, can you repeat that?

Ken Galaznik

It was 24.

Brian Ruttenbur – Morgan Keegan

24, and the number of those Mil Trailer ships in the quarter?

Anthony Fabiano

Zero.

Ken Galaznik

Yes, no Mil Trailers this quarter.

Brian Ruttenbur – Morgan Keegan

Okay. So, the timeframe of the Mil Trailer shipments within this fiscal year? Is it going to be this fiscal year at least, next 12 months?

Ken Galaznik

No, you would have to look at it. I mean, it’s the nature of who is acquiring those. I mean, they are going to want them pretty quick.

Brian Ruttenbur – Morgan Keegan

Okay. And then last question, well, I got two more. One is tax rate going forward; you are at 31%, which is a little bit lower. Is that due to mix?

Ken Galaznik

No, the 31% as I said was really was due to a reapportionment of the states. We have established nexus in several states that we need to be reporting those. So, you don’t have to throw back to Massachusetts. You have a pretty good chance that’s going to be the lowest rate any time you leave Massachusetts and go to another state. That will have that, but in my script, I commented that I think we are anticipating 34.5% at this time going forward.

Brian Ruttenbur – Morgan Keegan

Okay. And then the target over the next three years internal revenue growth and earnings growth, can you talk about that, you want to grow in the mid teens and 20% to the bottom line; I am throwing out the numbers, maybe you can help me out with?

Ken Galaznik

Brian, I would always love to help you man. We have a plan; we have a target; we will see if we hit it.

Brian Ruttenbur – Morgan Keegan

Okay. You wouldn’t mind sharing that with us, right?

Ken Galaznik

Well, I would love to, but it’s just things restrict us we all live under.

Brian Ruttenbur – Morgan Keegan

Okay. Thank you very much.

Anthony Fabiano

Thanks, Brian.

Operator

Your next question comes from Edward Marshall from Sidoti & Company. Please proceed.

Edward Marshall – Sidoti & Company

Good afternoon guys. The new products you guys have rolled out over the last couple of quarters here, what percentage of the bookings for the year was attributable to those new products, have you broken that out?

Anthony Fabiano

No, we haven’t broken it out, but we do something called the freshness index and I don’t have the numbers in front of me, but we went through it last Board meeting. It’s pretty significant. We have been getting good bang for buck out of those products, and I can’t give you statistical numbers, but good content.

Edward Marshall – Sidoti & Company

Okay. And then on the cash deployment, stock repurchase plan in place, do you have plans to repurchase shares?

Ken Galaznik

We have a metrics, Ed, as you know in place. And we look at that periodically, and we will see what we look at, at our next meeting. As I said in my part, we did not repurchase any shares this past quarter. We will see how the metrics performs going forward.

Edward Marshall – Sidoti & Company

And acquisitions is another potential there or –?

Ken Galaznik

Absolutely. As Anthony commented in his call, we are always looking; we are always paying attention to what’s going on out there. It is a tough, tough market to look at acquisitions. Evaluations are very challenging, right fits, right opportunities; we are not just going to do it, because we can. It’s going to have to be a right fix, right fit before we move forward on something, but we would definitely like to find something.

Edward Marshall – Sidoti & Company

Okay, thank you very much.

Ken Galaznik

Thank you.

Anthony Fabiano

You are welcome.

Operator

Your next question comes from the line of Sarah Catherine [ph] from Stephens. Please proceed.

Sarah Catherine – Stephens

Good afternoon.

Ken Galaznik

Good afternoon.

Sarah Catherine – Stephens

Great quarter. Just going back on to the Army Mil Trailers, when do you think you could see the final option of get funded from the Army from that order?

Anthony Fabiano

It’s a tough call. Anywhere from soon to the end of the year. It really depends upon how to deploy, what their needs on the user side are, Sarah Catherine, and they change constantly. So, I wish I could tell you. Your guess is as good as mine. I am optimistic that we will see the option, but I can’t really tell you when.

Sarah Catherine – Stephens

Got you. And then just on the Field Service, you did have a nice bump-up in the quarter, was that a function of more spare parts than usual in the quarter?

Ken Galaznik

We did have substantial spare parts in the current quarter, yes.

Sarah Catherine – Stephens

For fiscal ’11, do you see that kind of stepping down to a lower rate?

Ken Galaznik

Hard to say, hard to say. It’s depends as we deploy more equipment, we have more opportunities for the spare parts sales. We just had a good year, that equipped us being deployed now, and the refurbishment of those spare parts could go either way. What I am trying to be coy here, but there’s definitely an opportunity there.

Sarah Catherine – Stephens

Okay. Thanks. Those are my questions.

Ken Galaznik

Thank you.

Operator

Your next question comes from the line of Michael Kim of Imperial Capital. Please proceed.

Michael Kim – Imperial Capital

Hi good afternoon, it’s me, Kim.

Anthony Fabiano

Hi, Michael.

Michael Kim – Imperial Capital

Just going back to the people screening side, I know you are working on getting on the QPL, but can you talk a little bit about the international opportunity, is that predicated on getting on the QPL first, does that hamper your efforts to penetrate some of these international airport, and any color you can provide on pricing given that you have two early competitors there.

Anthony Fabiano

I think you gave us the answer. It really depends upon as being qualified by the US Government of TSA. That’s the merit badge we really need to sell internationally.

Michael Kim – Imperial Capital

And after getting on the QPL, will you need to at least be awarded at least one contract or some initial units into domestic airports before you can market that more effectively?

Anthony Fabiano

Not at all.

Michael Kim – Imperial Capital

Okay. And then recently you announced an order with CBP for MobileSearch High Energy, it sounded like some of that was driven by stimulus funds. Do you see any other stimulus rated opportunities in the balance of the year?

Anthony Fabiano

Boy, it’s hard to say. I can’t tell you, I mean, we are waiting I guess like some of our competitors are to see how things shake out with the additional what’s left at the AARE funds and what happens with the money that could slide over from it with cuts in SPI. But I can’t really say.

Michael Kim – Imperial Capital

And then just on SPI, do you have sense of how that program is shifting direction now that it appears to be on hold for the time being?

Anthony Fabiano

Could you be a little clear shifting in a way –?

Michael Kim – Imperial Capital

My understanding is SPI certainly has had its share of challenges and I am curious you are seeing any opportunities as a result of that?

Anthony Fabiano

No, only that like I said, there is opportunities for some of that funding. We reallocated into areas that we are working on and in some of our competitors I think areas like cyber security and screening, military training, asymmetrical warfare, I mean there is a lot of other areas where that money can flow.

Michael Kim – Imperial Capital

Okay. And then one question for you, Ken, the DSOs looked being in the high-40 range, do you expect to sustain that sort of going on a go-forward number?

Ken Galaznik

If you look at it, Michael, it was 48 compared to 58 last year, and receivables were only up $700,000, but the big difference was comparing a $71 million quarter to a $57 million quarter. So, I think every time we do a $71 million quarter, we have a high potential of having a low DSO. So, I think it’s maintaining itself well. It’s something we track very closely. But I mean, the 48, it’s definitely, part of that is due to the high revenue in the quarter in addition to some progress billing timing.

Michael Kim – Imperial Capital

Okay. Very good. Thank you very much.

Operator

The next question comes from the line of Josephine Millward of the Benchmark Company. Please proceed.

Josephine Millward – Benchmark Company

Good afternoon.

Ken Galaznik

Good afternoon Josephine.

Josephine Millward – Benchmark Company

Great quarter. Anthony and Ken, did your backlog include the $11.8 million contracts on CBP for High Energy mobile, because my understanding is that contract is under protest or have you taken that out?

Ken Galaznik

It is in our backlog at this time, Josephine.

Josephine Millward – Benchmark Company

Okay.

Ken Galaznik

We are waiting for final resolution on that.

Josephine Millward – Benchmark Company

Okay. Thanks. In terms of your Field Services revenue, it looks like it held pretty steady around $90 [ph] million for the last couple of years, how should we think about that next year? Do you think it’s going to grow in line with product sales or maybe around the same run rate?

Ken Galaznik

As you know, our model is the more quick that we deploy out there, the more opportunities we have for those Field Service contracts. So, we would like to see that continue on in that fashion.

Josephine Millward – Benchmark Company

Right. Now, I agree with you, Ken, but I haven’t seen your services support revenue grow in line with the number of systems deployed in fiscal year ’10. I just was wondering if you have a view about how that may play out going forward.

Ken Galaznik

I think if you look at it, you are looking at a couple of million from the prior year, with a distortion in there with training, spare parts, those types of anomaly.

Josephine Millward – Benchmark Company

Okay. And nice growth in the parcel business, can you help us understand what’s driving the uptake? It doesn’t sound like it’s from air cargo, because that’s not accelerating that quickly. If you can help us understand what’s driving that business?

Anthony Fabiano

Critical infrastructure internationally.

Josephine Millward – Benchmark Company

Okay. Your new cargo products, Anthony you sound very excited about them, you have added high energy to Backscatter. It looks like you are going after more traditional cargo market and to compete with the likes of SAIC Smith and L-3, can you talk about how that’s – your competitive advantages and what kind of feedback you are getting?

Anthony Fabiano

Yes, I don’t look at it as competing. We rarely develop a product to compete. Develop a product because customers have a compelling need or we feel like we have created something that provides customers with a user opportunity they don’t have before. What we were told is that some customers wanted to see us with a high energy mobile system, because some of the systems that are out there aren’t performing very well, and they said, gee, you guys going to take a crack at it. And we said, yes, but after we talked to a few of them, the answer was really great. I you put Backscatter on that system and we had two-on-one. So, that’s how we did. So, it was basically a compelling customer need that drove us to do that. And it’s a great product, really is. I mean, you can do anything with it.

Josephine Millward – Benchmark Company

So, it sounds like there is nothing like it out there in terms of the detection capability, because of the combination of high energy and Backscatter.

Anthony Fabiano

You are correct.

Josephine Millward – Benchmark Company

Great. You know, Anthony, I always have this question for you. Looking ahead, looking at your pipeline, what are you most excited about? Where do you see the growth opportunities and do you feel that your pipeline today is much stronger than where it was a year ago?

Anthony Fabiano

I wouldn’t say it’s much stronger, Josephine. I would say that it’s robust and it’s growing, but not as quickly as I saw it in the past, and I think a lot of it has to do probably with a lot of uncertainty in the world right now. I mean, Greece and all the other things that are occurring seem to be pretty damper on a few things, but to give you a direct answer to your questions, the markets that we have been pursuing, the market verticals of critical infrastructure, I see tremendous potential still there. I see strong growth with the DoD or at least continued strong business with the DoD in a couple of sectors.

US Customs Border Protection is especially big not only in our country but just around the world. And just Middle East is very sensitive to the problems in Iran. So, just from a global perspective, everything is looking like we are in the right business at the right time.

Josephine Millward – Benchmark Company

Do you think the failed bomb in Times Square, has that increased quotation activities for you, are you seeing increased interest because of what happened recently?

Anthony Fabiano

Across the Board, yes.

Josephine Millward – Benchmark Company

Okay. And Anthony, when you talk about critical infrastructure, is it mostly in the Middle East and are we talking about refineries, nuclear power plant or just the whole gamut.

Anthony Fabiano

Whole gamut.

Josephine Millward – Benchmark Company

Okay. Great. Thank you very much for the update.

Anthony Fabiano

You are welcome.

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 U.S. callers and 617-801-6888 for international callers with the conference identification number of 27567846. An audio replay will also be available on the AS&E website at www.as-e.com in the Investor Information section. This concludes our conference for today. Thank you all for participating and have a great day. All parties may now disconnect.

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