A few weeks back, The Motley Fool's Rich Smith spoke with Ken Galaznik, CFO of
Motley Fool Rule Breakers
recommendation American Science & Engineering
Rich Smith: Ken, for those of us not yet familiar with American Science & Engineering, can you give us a thumbnail sketch of what the company does?
Ken Galaznik: We produce a variety of X-ray scanning equipment for security purposes, using patented technology, selling to a global customer base, and utilizing a worldwide service and support group. Our operations break down into cargo, parcel, and personnel scanning, mobile scanning, and of course, contract research and development, such as the CAARS program.
Smith: In layman's terms, can you explain the difference between the kind of X-rays we get at the dentist's office and AS&E's backscatter technology?
Galaznik: Sure. I've been talking with our CTO to try and come up with the best way to describe this in layman's terms. Basically, the difference is this: When you get a dental X-ray, a powerful blast of X-rays is transmitted from outside your head, and there's a detector -- the dental plate -- inside your mouth that records an image left by the radiation. So the image you get at the end of the process is an image formed by X-rays that pass through the tissue.
Now, the X-ray blast is localized and brief in that instance. Consequently, it is a lot more powerful than what we use in backscatter. To put things in perspective, the radiation dosage used in a dental X-ray is approximately 16,000 times that used in a backscatter scan. The reason for the difference in magnitude is that in backscatter, what we're doing is reading the X-rays that are "scattered" off the target, rather than those that pass through it. We're reading the image formed by the X-rays that bounce back. These lower energy levels also enable the system to produce the more photo-like images that we have demonstrated.
Smith: Kind of like how radar forms images from bouncing sound waves off a target?
Galaznik: Yes, I think that's a pretty close analogy.
Smith: Along with L-3 Communications
Galaznik: Not a lot, unfortunately. That's just the nature of the contract and the customer. I can tell you that it's a $28.8 million IDIQ [indefinite-delivery, indefinite-quantity] contract to perform research and development. I can tell you that we're making progress, and that the customer is pleased with what we've accomplished. And I can say that we're excited about this win because it was a highly competitive program. As you said, only SAIC, L3, and AS&E made it through. I think there were eight other entrants, some big names that I'm sure you would recognize, who did not.
Smith: Your 10-K doesn't go into a lot of detail about AS&E's competition. From what I can gather, it looks like the most credible rivals include General Electric
Galaznik: NucTech in China, for one. We both collaborate and compete with them. And Smiths Group in the U.K. You may have noticed that they teamed up with GE to form a joint venture in the detection and homeland protection markets earlier this year.
Smith: The Electronic Privacy Information Center has criticized SmartCheck as an unreasonable invasion of the privacy of air travel passengers. It has even gone so far as to imply that backscatter X-ray technology is intended to be "more than just a means of detecting terrorists" -- a lightly veiled reference, I take it, to the technology's potential to detect illicit drugs carried on a passenger's body. Can you shed any light on the government's intentions here? Is it really just interested in security, or are there, shall we say, ulterior motives?