The 1993 Buick Le Sabre parked at American Science & Engineering Inc. (AS&E) looks innocent enough. But when a mobile X-ray system made by AS&E pulls up next to the tan sedan, a computer screen reveals a chilling scene: 120 pounds of explosives and 60 pounds of drugs and cigarettes hidden in the trunk, fenders, doors, bumper, and speakers. The objects are hidden in plastic drums and behind panels, making it difficult for standard screening systems to identify them. At a border crossing, it’s likely the car “would pass right through,” says Doug Palmer, AS&E’s technical marketing manager.
The Buick’s illicit payload is just a simulation--sugar is used in place of drugs, for instance -- but the profits from AS&E’s X-ray systems are real. A three-year turnaround effort has transformed the 48-year-old company from an also-ran to a sought-after provider of technology for scanning cargo, luggage, and vehicles. With an influx of orders from the U.S. government, a huge but unpredictable client, AS&E’s average annual profit has skyrocketed 324% since 2002.
BRING ON BACKSCATTER. Despite a profit dip in the most recent quarter due to a one-time gain the previous year, AS&E’s revenues in the fiscal year ended Mar. 31 jumped 85%, to $163.6 million, and profits rose 166.3%, to $29.8 million. The Billerica (Mass.) company holds the No.12 spot on BusinessWeek’s annual ranking of Hot Growth Companies.
The product that’s driving AS&E’s growth is called the Z Backscatter Van. The vehicle, roughly the size of a delivery truck, houses X-ray technology that sees right into everything it passes. The images appear in real time on a computer monitor in the van’s front seat.
Unlike traditional scanners, which create images of their targets by shooting X-ray beams straight through them, Backscatter reflects the beams from the target back to a detector. That process creates an image that is almost as clear as a photo. In 2005 alone, the U.S. government placed orders for 79 of the vans for a total of more than $80 million.
KEY TO SUCCESS. AS&E’s technology is playing a key role in more than just homeland security. In 2002, Hong Kong Customs seized several packs of heroin buried in a truck carrying fruit to Kwai Chung Port. In a picture created by an AS&E product that scans large cargo loads, the heroin packs stuck out like square pegs.
AS&E owes its recent success to Chief Executive Anthony R. Fabiano, a turnaround artist who was brought in to get the company out of a funk in 2002. After September 11, demand for security products soared, but AS&E was left in the dust. The company’s sky-high production costs forced it to price products at premiums many customers refused to pay. And AS&E had only one active salesperson.
“We had these gee-whiz products and no way to get them into the marketplace,” Fabiano says. So he introduced lean manufacturing practices, slashing the production time on the vans from three months to three weeks, and built a sales and marketing staff of 26.
"STRIP SEARCH." Now, AS&E is tweaking its technology so it can scan the biggest threat of all: people. The company’s new SmartCheck system performs a virtual strip search. AS&E is perfecting software that allows the X-ray to pick up security threats while at the same time obscuring the most private parts of a person’s anatomy. The privacy feature is vital to the U.S. Homeland Security Dept.’s Transportation Security Administration (tsa), which is planning to test the technology in airports.
Like any other company that relies on sales to the U.S. government, AS&E risks suffering a disappointing earnings outlook at the hands of a flaky client. “We don’t know if the tsa is going to order 10 scanners or hundreds,” says J. Patrick Fuhrman, an analyst at Ladenburg Thalman & Co. in New York.
To hedge that risk, Fabiano has hustled to diversify both AS&E’s product line and its geographic reach. It’s working. In March, AS&E won a $45 million contract from an unnamed Middle Eastern customs agency. And Fabiano is considering adapting AS&E’s technology so it can find flaws in products. “That could be a market maker,” Fabiano predicts. Meantime, homeland security anxieties are sure to keep the Z Backscatter Vans rolling out of AS&E’s parking lot.