Earnings News and Notes

American Science and Engineering [ASEI]

Net income more than doubled on a strong up tick in margins and a 53% increase in revenues to a new record. Sales soared in four out five revenue lines–Cargo (11.7M, up 86%), Z Backscatter Systems ($22.5M, up 83%), Contract R&D ($3.7M, up 57%), and Field Service ($24.2M, up 44%)–with the parcel ($3.2M, down 33%) product line the exception. AS&E has been able to improve margins by lowering overhead costs as a percentage of sales and obtaining better pricing for some of its products, cargo in particular, because of the value proposition customers are finding, company officials say. Gross margins were 44%, up 8%, and far stronger than the 20%-30% norm in the industry, they say. AS&E shipped 30 Z Backscatter Vans in the quarter, which accounted for 34% of sales, with just 10 destined for DoD customers and the remainder for domestic and international customers. AS&E Chief Anthony Fabiano says that most of the military’s ZBVs are being used in Iraq with few units in Afghanistan. He sees a need for the ZBV and the company’s new ZBV Military Trailer in Afghanistan with the expected build up of U.S. forces there but wouldn’t say if the demand is there and if so, whether systems might be transferred from Iraq or purchased new. He did say that the operating conditions in Afghanistan are harsher than in Iraq, requiring more rugged systems. Citing sources, Stanford Group analyst Josephine Millward believes the Army will order between 20 to 60 ZBVs later this year for use in Afghanistan. Backlog stood at $150.4 million at the end of December. That figure excludes the $67M ZBV military trailer award from the Marine Corps that slipped into January and is now under protest. Company officials say the pipeline of domestic and international opportunities for its products remains robust. AS&E sees opportunities in the air cargo security market as well although none of its products have been certified for this area yet, Fabiano says.

L-1 Identity Solutions [ID]

The huge loss is attributed to a massive non-cash charge of $528.6 million in the quarter due to impairment of goodwill and intangibles related to the acquisition of Identix several years ago and the steep drop in L-1’s stock price last year. Organic sales growth for the quarter was 4% and for the year 13%. L-1 says that all of its divisions except Biometrics posted 20% organic sales gains for the year. Biometrics was off 15% due to a tough comparison with a year ago when it shipped a large order of HIIDE and live scan devices. The company had also anticipated shipping its current-generation HIIDE device to U.S. troops in Afghanistan in the quarter but the order has been delayed until next month. Despite the rough quarter and a souring global economy L-1 Chief Robert LaPenta believes his company is “positioned as well” as it’s ever been, citing the 13% organic growth for the year and a backlog that is $1.1 billion versus $715 million at the end of 2007. About 85% of L-1’s 2009 revenue guidance comes from the backlog. The company expects 2009 sales to be between $725M and $750M, with most of the revenue back-end loaded. The guidance range is slightly lower than preliminary projections but LaPenta says it’s cautious due to the backend loading. Earnings for the year, excluding the impact of stock-based compensation, are expected to be in the range of 20 to 27 cents EPS. Analysts gave the quarter’s performance mixed results. Stanford Group’s Jeremy Grant, who rates L-1 a buy, says the bad news is already priced into the stock and believes the company’s growth prospects remain compelling. On the other hand, Tim Quillin of Stephens, Inc., who has a hold rating qualified with “volatile” designation on the stock, believes the company’s sales guidance for 2009 is aggressive. Morgan Keegan analyst Brian Ruttenbur, who also has a hold on L-1’s stock, calls the recent quarter “disappointing” overall, believes the company may have overpaid for some of its acquisitions and has concerns about its ability to accurately make financial forecasts.