The ongoing pandemic has slowed business for Leidos’ [LDOS] new security, detection and automation business, the company is putting more focus on integrating the business into its overall structure, Roger Krone, the company’s chairman and CEO, said earlier this month.
“For us, that’s almost good, because we get a chance to really focus on integration, and get those systems and processes into what we call the Leidos business framework, and where we want them before we see any significant ramp up,” Krone said during the Leidos third quarter earnings call about the security, detection and automation business.
Leidos in early May closed on its $1 billion acquisition of the security, detection and automation business from L3Harris Technologies [LHX], adding significant capabilities in aviation and cargo security to go with a strong ports and border security business. Revenue from the new business added $74 million to the top line results in the quarter, a quarterly rate well below the expected $500 million in projected annual sales from the new security, detection and automation operations.
In the second quarter, the former L3Harris business generated $80 million in sales for Leidos for the two months it was part of the company’s portfolio.
Krone said that the slowdown in passenger traffic for the airlines and expectations for delays in orders is impacting the security business. He pointed out that the Transportation Security Administration continues to press forward with plans for another round of next-generation checkpoint baggage scanner purchases.
TSA has contracted with Smiths Detection for the first 300 checkpoint computed tomography (CT) scanners and ultimately plans to acquire well over 2,000 of the systems, which will allow travelers to leave their personal electronic devices, laptops, and liquids inside their carry-on bags. The second round of awards is expected sometime next summer, TSA Administrator David Pekoske said in October at a virtual event hosted by the Global Business Travel Association.
Pekoske said he hopes “we can get going a little bit faster with it over the course of the next several months.”
Smiths, Analogic, Integrated Defense & Security Solutions, and Leidos are all competing for the checkpoint CT work.
With a new wave of the coronavirus sweeping across the U.S. and parts of the world, Krone said this “is going to be problematic,” adding, “And I think we’re very circumspect about that. And its effect it will have on our business.”
James Reagan, Leidos’ chief financial officer, commented on the call that COVID hasn’t interfered as “much with win rates, but more how some awards and some deliveries have been pushed out as a result of the pandemic.”
Krone said that now is the time for Leidos to get its checkpoint CT product through TSA’s qualification testing to be ready for the new procurement.
Leidos’ comments on the pandemic’s impacts on the security and detection business echo those made by OSI Systems [OSIS] at the end of October in that company’s first quarter earnings call. OSI’s Security segment posted a 57 percent decline in operating income and 29 percent drop in revenue, mostly due to COVID impacts.
Still, Deepak Chopra, OSI’s chairman and CEO, said that while “the aviation market faces significant challenges due to the COVID-19 impact on passenger air travel, we are seeing signs of improvement as certain international airports are taking this opportunity to upgrade their infrastructure” with “new screening technologies.”