ASEI

American Science and Engineering, Inc. (ASEI)

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American Science and Engineering, Inc. (ASEI)

F3Q10 (12/31/09) Earnings Call Transcript

February 9, 2010 4:30 pm ET

Executives

Anthony Fabiano – President and CEO

Ken Galaznik – SVP, CFO and Treasurer

Analysts

Steve Levenson – Stifel Nicolaus

Brian Ruttenbur – Morgan Keegan

Edward Marshall – Sidoti & Company

Josephine Millward – Benchmark Company

Sarah Catherine Phillips – Stephens

Michael Kim – Imperial Capital

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to American Science and Engineering's third quarter of fiscal year 2010 results conference call. My name is Chantille [ph] 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. 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, ladies and gentlemen and welcome to American Science & Engineering's third quarter of fiscal year 2010 results conference call. I'd like to welcome you for joining us and 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 of 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 third quarter of fiscal year 2010, which ended December 31st, 2009. 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 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 third quarter. Net sales and contract revenues in the December '09 quarter were $54.9 million, which represents a 16% decrease when compared to the third quarter revenues in the prior year of $65.3 million. It should be noted that the prior-year quarter remains our highest revenue quarter.

This decrease in revenue is attributable to decreases in Z Backscatter Systems, field services and contract research and development product, offset somewhat by increases in cargo and parcel product lines. It should be noted that the decrease in field services was due to a large spare parts order in the prior-year quarter and the decrease in contract research and development resulted from the CARS program being concluded prior to the current quarter.

The breakout of revenue by product line for the quarter were as follows; cargo was $14.1 million, Z Backscatter Systems was $16.5 million, parcel was $3.5 million, field service was $20.2 million, and contract research and development was $572,000. We are pleased to see the results – we are pleased to see the parcel product line return to a more representative run rate in this current quarter.

The gross profit in the December '09 quarter was $22.6 million as compared to $28.8 million in the December '08 quarter. This decrease in gross profit is a result of the lower revenues previously noted and the gross margin contribution decrease of 2.8 percentage points in the current quarter as compared to the prior-year quarter. The decrease in gross margin as a percentage of revenues is attributable to product mix, primarily between the cargo and Backscatter screening products.

Selling, generation, and administrative expenses were $9.6 million in the December '09 quarter as compared to $9.1 million in the December '08 quarter. The increase in SG&A is a result of increased incentive and stock compensation expense as the company – the company achieved certain performance-based incentive goals and expanded sales and marketing activities, offset somewhat by legal expenses as a successful patent litigation suit was concluded in the first quarter of this year.

Company funded research and development expenditures in the current year – in the current quarter were $4.2 million or 7.6% of revenue as compared to the prior-year expenditures of $4.8 million or 7.4% of revenues. While the current quarter run rate is $600,000 below the prior-year quarter, year-to-date, we are $2.3 million above last year. Interest income in the current quarter was $170,000 as compared to $477,000 in the prior-year quarter.

The decrease is attributable to reduced yields on cash investments. The company recorded an income tax provision of $3.2 million in the current quarter as compared to a $4.9 million provision in the December '08 quarter. The decrease from the December '08 quarter is due to the decrease in taxable income, attributable to the factors noted earlier, offset somewhat by an increase in the effective tax rate from 33% in the prior year to 35.5% in the current year.

A lower rate in the prior year was due to the exercise of options and the reinstatement of certain research and development tax credits in the third quarter of fiscal '09. Fully diluted earnings per share in the December '09 quarter were $0.64 as compared to $1.13 in the December '08 quarter.

A review of our year-to-date results reflects the following. Revenues increased 6% to $170.8 million in the current year from $161.1 million in the prior year. This increase is attributable to increases in cargo, Z Backscatter Systems, and field service, offset somewhat by decreases in parcel and contract research and development for the reasons previously noted.

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