Looking to smooth out the lumpiness in American Science and Engineering’s [ASEI] revenues and create sustainable growth in the next two to three years, the company’s new chief has outlined two key growth areas.
Charles Dougherty, who became AS&E’s president and CEO in April, tells investors that at $250 million to $300 million in annual sales, the company can gain “tremendous leverage” from the business as it scales.
“So clearly enhancing our financial profile as we scale the business is a real key fundamental objective,” Dougherty says on the company’s first quarter earnings call.
One of the core growth areas highlighted by Dougherty is ports and borders security, an area where the company is already strong but has room to grow. He is targeting three areas within the ports and borders market, including expanding into areas that are currently underserved.
This effort at geographic expansion was bolstered by the creation in May of a new customer development and support organization, a customer facing unit that the company is putting resources behind. Dougherty says the company is already seeing benefits from the new organization.
AS&E is also strengthening its indirect sales channel network globally to focus on near-term opportunities, he says.
The company offers a diverse portfolio of X-Ray systems that can screen vehicles like trucks and cars, as well as cargo containers in primary and secondary applications. Dougherty wants to take greater advantage of the broad portfolio and its service expertise to offer customers more capabilities.
Late last year AS&E received a $24.6 million contract from Abu Dhabi customs to provide additional X-Ray scanning systems, as well as radiation portal monitors and other port security equipment supplied by other vendors to create an integrated solution. That work represents a higher level of integration than the company has previously done and is the kind of offering Dougherty wants to become a core part of its business.
Dougherty also said that to better take advantage of AS&E’s product portfolio, the company is in the process of defining what it needs in hardware, software and services to be a leader in the market segments it is targeting and to enhance its position by extending its capabilities.
There are also potential near-term market stimulants such as immigration reform, which could be a catalyst for border security technology investment, Dougherty says. Another near-term catalyst is a growing pipeline of opportunities for Z Backscatter Van (ZBV) product line in international markets for port and border security, he says.
Other core areas for targeted growth are under penetrated markets such as aviation security, Dougherty says. He notes that the company’s recent selection by the Transportation Security Administration (TSA) to compete for work to provide whole body imagers to the nation’s airports is an opportunity for a “beachhead” in the aviation market..
TSA is currently testing AS&E’s Advanced Imaging Technology units for qualification.
In its first quarter, AS&E posted $43.1 million in sales, down 9 percent from $47.3 million a year ago. Declines in its ZBV product line and to a lesser degree field services more than offset a gain in its cargo product line. Bookings were $29.9 million and backlog stood at $173 million, down 7 percent from a year ago.
Field service accounted for $22.5 million of sales, cargo $13.6 million, mobile cargo $4.8 million, parcel systems $1.8 million, and contract research and custom products $300,000.
Net income jumped 16 percent to $4.9 million, 62 cents earnings per share (EPS), from $4.2 million (47 cents EPS), aided by a significant drop in research and development expenses and to a lesser degree general operating expenses.
Per share earnings were up 24 percent due to a lower share count as the company completed a $35 million share repurchase program. AS&E’s board has authorized a new $35 million buyback plan with no time limits for purchases.
Free cash flow was $10.9 million.
During the quarter AS&E lost a contract to Science Applications International Corp. [SAI] provide services to the Marine Corps for its fleet of installed ZBVs. AS&E says SAIC under bid them for the work.
AS&E also expects to lose out on work to service its ZBV fleet with the Army as that work is being shifted as a small business set aside. The company could still become a subcontractor for this work, company officials say.
The officials also say that AS&E’s recent win of a $60 million contract with Customs and Border Protection to maintain the company’s X-Ray systems used to screen cars and trucks will help preserve its service revenues.