American Science And Engineering CEO Discusses F2Q2011 Results - Earnings Call Transcript

American Science and Engineering Inc. ( ASEI)

F2Q2011 (Qtr End 09/30/2010) Earnings Call

November 9, 2010 4:30 pm ET

Executives

Anthony Fabiano - President and CEO

Ken Galaznik - CFO and Treasurer

Analysts

Tim Quillin - Stephens Inc.

Stephen Levenson -Stifel Nicolaus

Brian Ruttenbur - Morgan Keegan

Edward Marshall - Sidoti & Company

Josephine Millward - The Benchmark Company

Michael Kim - Imperial Capital

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to American Science and Engineering second quarter of fiscal year 2011 results conference call. (Operator Instructions)

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

Anthony Fabiano

Good afternoon. This is Anthony Fabiano. Welcome and thank you for joining us for our second quarter fiscal year 2011 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.

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

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 2011, which ended September 30.

As you are aware, a press release indicated that earnings would be released after the market closed today; however, at noon today, our printing firm inadvertently released the 8-K filing to the SEC. We would give the press release shortly after that. A copy of this press release was e-mailed or faxed to those of you on our mailing list, and it 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.

As we discuss the results of the quarter, you will see this has been a very exciting quarter for all of us here, as we have achieved new records in quarterly and year-to-date revenues, earnings per share, quarterly bookings and backlog.

Now I would like to discuss the results of the second quarter. Net sales and contract revenues in the September '10 quarter were a record $80.6 million or 32% above the second quarter revenues in the prior year of $61.2 million. This increase in revenue is attributable to increases in revenue across all product lines. We're very pleased with this across the board performance, as it demonstrates the acceptance of our product portfolio.

The breakout of revenue by product line for the quarter is as follows: Cargo was $20.9 million, up 99% over the prior year quarter. Z Backscatter systems were $34.2 million, up 21%. Parcel was $1.4 million, up 23%. Field service was $23.1 million, up 13%. And contract research and development was $1.1 million, up 19% over the prior year.

The gross profit in the September quarter was $39.8 million as compared to $29.5 million in the prior year quarter. This increase in gross margin resulted from the increased revenues and a margin contribution increase of 1.3 percentage points in the current quarter as compared to the prior year quarter. The margin improvement was primarily related to delivery to multiple cargo systems which had a comparatively lower unit cost due to streamlining efforts that have been achieved.

Selling, general and administrative expenses were $11 million or 13.6% of revenue in the September '10 quarter as compared to $8 million or 13.1% of revenue in the September '09 quarter. The $3 million increase in SG&A over the prior year quarter is a result of increases in incentive compensation expense attributable to the increased financial performance, travel expenses related to sales and marketing activities, salaries and benefits related to headcount increases and legal fees related to a terminated acquisition opportunity.

Company-funded research and development expenditures in the current quarter were $5.2 million or 6.5% of revenue, and they were 5.5% above the prior year expenditure of $5 million.

Other income and expense in the current quarter was an expense of $975,000 as compared to income of $87,000 in the prior year quarter. This change is primarily attributable to the mark-to-market loss related to a foreign currency put that was closed out in the second quarter. As you will recall, we reported a $1.1 million gain on this put in the first quarter. In the second quarter, we are recording a $1.1 million expense due to the volatility of the euro during this fiscal year.

The company recorded an income tax provision of $8 million in the current quarter as compared to $5.9 million provision in the September '09 quarter. The increase from the September '09 quarter is due to the increase in taxable income offset by a slight decrease in the effective tax rate from 35.5% in the prior year quarter to 35.2% in the current year quarter. At this time, we anticipate the effective tax rate for the remainder of the year to be 35%.

Fully diluted earnings per share in the September '10 quarter were $1.59 as compared to earnings per share in the September '09 quarter of $1.18.

A review of our year-to-date results would reflect the following. Revenues increased 16% to a new record of $134.3 million in the first six months of fiscal 2011 as compared to $115.9 million in the prior year. This increase is attributable to increases across all product lines.

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