Earnings News and Notes

American Science & Engineering [ASEI]

Net income fell by more than half on the 11% decline in sales, a shift toward lower margin product mix, higher selling, general and administrative (SG&A) expenses and higher internal spending on research and development. Sales fell due to a delay in a pending order for 22 Z Backscatter Vans from the Army, which AS&E officials says is stalled because of a computer glitch by the procuring agency. The company continues to await acceptance by customers related to site preparation of cargo systems, which also dampened revenues. SG&A expenses increased due to higher marketing activity, a biannual sales meeting in the quarter, and higher compensation costs. While the sales and earnings were a disappointment, AS&E scored record bookings of $100M, which helped boost backlog 53% to a record $160M versus a year ago. Of the product bookings, 88% is international. The strong international order flavor is in line with AS&E’s plans to diversify its customer base in addition to its products. Stephens Inc. analyst Tim Quillin points out that “diversification is a doubled-edged sword.” On the one hand it supports long-term growth but on the other it is crimping margins, at least in the near- term. Remarking on the poor sales and earnings, Morgan Keegan analyst Brian Ruttenbur says “these negatives were more than balanced out by the surge in bookings and backlog.” In addition to the pending ZBV order, AS&E hopes it will still get an order for its ruggedized ZBV trailer from the Marine Corps this year, which would be for as many as 66 units worth up to $75M. This would provide “double-digit growth in FY10,” says Stanford Group analyst Josephine Millward. Of the total sales, AS&E posted increases in its parcel, field service, and contract R&D lines while cargo and Z Backscatter Systems revenues declined. The company spent $10.8M on share repurchases in the quarter and has completed its original $35M repurchase authorization. AS&E has spent $1.4 million of a potential $35M on its new buyback plan.

Cogent Systems [COGT]

Net income and sales were softer as expected but the company says that with its backlog and order intake it still expects to meet or exceed its 2008 financial guidance with all of the growth loaded in the second half. The Department of Homeland Security was the largest revenue contributor with the ongoing conversion to 10 fingerprints for U.S.-VISIT. The other revenue drivers were work for Rwanda, the Royal Canadian Mounted Police and the city of Winnipeg. Of particular note was Cogent’s announcement that the Defense Department has begun placing orders for a new handheld multi-modal device the company has developed that features fingerprint, face and iris capabilities. The device has been trialed by DoD, and the testers say it is “superior” to any other products currently on the market, according to James Jasinski, executive vice president for Federal and State Systems at Cogent. The introduction of the new handheld device, which isn’t featured on the company’s website, may offer direct competition to L-1 Identity Solutions’ [ID] HIIDE device, which is the product leader in the DoD multimodal space. Stanford Group analyst Jeremy Grant says that Cogent’s new device may also feature the ability to do chemical and biological detection. He says the company’s diversification beyond its focus on fingerprint technology is a good thing, particularly given the fact that it is lining up with DoD’s interest in multi-modal biometrics. “We think there’s room for multiple vendors, but this new product is no doubt a shot across L-1’s bow,” Grant says. With a healthy backlog, solid order intake and a strong pipeline of opportunities, Cogent says it is increasingly confident that it will grow in 2009 as well. The company says that Lockheed Martin [LMT], which previously won the FBI’s Next Generation Identification program to upgrade the agency’s AFIS system, has begun the process of selecting an AFIS provider. Demonstrations by select vendors should take place this fall with a selection likely next year, Jasinski says. Cogent continues to work through is stock repurchase program, acquiring another 570 million shares for $5.2M in the quarter. So far the company has spent $56M of the potential $100M buyback. The several analysts on the company’s earnings call generally liked the results.

ICx Technologies [ICXT]

Losses narrowed slightly due to absence of preferred stock dividends, which were $2.4M a year ago. Last year’s results also benefited from a $2.5M one time gain related to the sale of discontinued operations. The sharp decline in earnings per share is largely due to a more than three-fold increase in share count, which should remain steady going forward. The 12% sales gain was due to increases in the Detection and Solutions segments, driven by explosives products and the transportation solutions business. ICx affirmed its guidance for 2008, which should see sales accelerate in the second half. Among the strategic highlights in the quarter were the company’s first two large, multi-year program wins, one a $15.6M contract to provide intelligent transportation systems to California’s Orange County Transportation Authority and the other a $14M contract under the Army’s Base Expeditionary Targeting and Surveillance Sensors-Combined (BETSS-C) program. ICx believes it has further opportunities under BETSS-C, for which it is providing its Cerberus integrated mobile surveillance towers. The big wins helped lead to record bookings and a 63% increase in funded backlog to $75M. Unfunded backlog is $195M. ICx Chief Hans Kobler put the company’s win rate on the larger programs at one out of every three or four opportunities. There are still a lot of large program opportunities in the pipeline, he notes. Kobler says that the company continues to streamline its operations, which may still not be apparent but will soon show up in the financial results. Morgan Keegan analyst Brian Ruttenbur, who has a hold rating on ICx’ stock, says “We are pleased with the continued solid growth and cost cutting efforts which enabled the company to slightly beat our estimates this quarter.” Kobler also says he expects the Transportation Security Administration to ultimately split a planned order for 600 Bottled Liquid Scanners that the agency announced last month between two vendors. He expects the actual order to come late in the government’s fiscal year.