Doctors were dismayed. Speech therapists tore out their hair. We thought the patient was cured, but this week, it suffered a relapse.

From time immemorial, the folks at American Science & Engineering (NASDAQ:ASEI) have been afflicted by a verbal tic. It seemed they just couldn't make it through an earnings release without dropping the "L-bomb" -- reminding us that no matter how good things get (or how bad things looked), AS&E suffered from "lumpy" earnings. Last quarter, I thought the patient had been cured, buoyed by the complete absence of reference to "lumpiness" in AS&E's Q2 earnings conference call.

But no such luck.

Whereas CEO Anthony Fabiano almost visibly restrained himself from using the "L" word three months ago, this time his self-control lapsed, and we found three separate mentions of just how "lumpy" AS&E's business can be. Then again, if ever a quarter deserved the word, this was it:

  • Revenue dropped 16% in comparison with last year's Q3.
  • Per-share profits fell 43% to $0.64.
  • Operating profit margins shed 660 basis points to end at 16.1%.

Investors reacted with horror to the news. They gave AS&E a few "lumps" of their own, selling off the stock to the tune of 2%. But they were dead wrong to do so. AS&E looks better than ever.

First off, even after its profit margins walked the plank, AS&E is still generating operating profit at a rate that puts X-ray rivals like L-3 Communications (NYSE:LLL), OSI Systems (NASDAQ:OSIS), and General Electric (NYSE:GE) to shame. L-3 comes closest to matching AS&E's performance, but still lags with a trailing-12-month average of 10.6%.

What's more, these are high-quality profits. Free cash flow backs up nearly 90% of reported net income, and at $21.2 million generated year to date, that cash output has grown 18% since last year.

In addition, I have every confidence that AS&E will keep on growing. Consider that even as AS&E pushed $54.9 million in products out the door last quarter, it brought in more than $91.3 million in new orders. Backlog now stands at $223.9 million (a figure that does not even include $22.3 million in new unfunded contracts), so AS&E now has more than one full year's worth of revenue "in the bag."

Foolish takeaway
The more AS&E brings in new orders faster than it fulfills old orders, the more we can expect revenue (and profit) to accelerate. And the more backlog AS&E collects, the more secure its future becomes.

This patient ain't just alive. It's set to thrive.