Executive Vice President & Chief Financial Officer, OSI SYSTEMS INC
Edrick Says Security `Trumping' Privacy in Travel Safety: Video
Dec. 30 (Bloomberg) -- Alan Edrick, chief financial officer of OSI Systems Inc., talks with Bloomberg's Matt Miller and Zahra Burton ...
About Alan Edrick
In a 2012 Bloomberg interview, Alan Edrick discussed the growing adoption of full-body scanners following the Christmas Day terror attack. He stated that OSI Systems had received a $25 million order from the TSA as part of a $173 million IDIQ contract and was one of only two certified companies to sell the scanners. Edrick said the company's advantage was its "imaging resolution" and that it was making money on the product with "reasonable margins." He noted that the security division was approaching 35 to 40% of total revenues and that he expected it to become about half of the company. Edrick also expressed the view that "security is trumping privacy," saying most people are more concerned about personal safety than privacy concerns. In a 2016 testimonial, Edrick said he chose to work with PRP after an "impressive sales presentation" that presented a "no-lose proposition" with potential cost savings and minimal risk. He stated that PRP saved the company "quite a bit of money" and that he had been a "very satisfied client" who continued to work with them year after year.
Transcript (18 segments)
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Narrator0:00
President Obama is expecting a preliminary report tomorrow on the Christmas Day terror attack on a Northwest jet headed for Detroit. That flight originated, of course, in Amsterdam. Today, the government of the Netherlands announced it will start using full-body scanners to screen all passengers on flights to the US. Officials say they are installing new software in the scanners that will address privacy concerns by projecting a stylized image on the computer screen. Nigeria also says it's planning to use these scanners, so they're starting to pick up some steam. As you can imagine, as a result, makers of security devices and biometric technologies soared today in global trading. Here you can see ICX Technologies up 35%, L3 Communications up 1.5%, and OSI Systems rising as well, up 10%. All rising as the push for full-body scanners at airports continues to gain momentum.
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Host0:55
Now let's talk more about these body scanners with a company that makes them. Joining us from Los Angeles is OSI Systems Chief Financial Officer Alan Edrick. Sticking around for the interview is Bloomberg's Zara Burton, who's been covering the performance of airport security stocks over the past few days. Alan, thanks for joining us. Let me first ask you about these privacy issues. How serious are they? Because I can't imagine that when you're confronted with landing alive or dead, you're really going to be too concerned about whether somebody you don't know from the TSA sees a blurred digital image of you with no clothes on.
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Alan Edrick1:31
Well, that would certainly be our take as well. I think we're seeing now that security is trumping privacy. There have been some concerns over privacy over the recent past, but I believe most people are more concerned about their own personal safety and the safety of their loved ones, and would rather go through an image such as this than put themselves at personal risk.
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Zara Burton1:50
And Alan, it's Zara here. So what's the ramp for this technology? Because from just talking to one of your PR people a while ago, she was saying maybe 19 airports come January. So this is a starter program here. Where does it go from here, and do you worry that the privacy concerns are going to eventually trump security?
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Alan Edrick2:06
Well, we're quite confident that there might be an acceleration of the deployment. We received the first order from the TSA, a $25 million order in October, as part of a $173 million IDIQ. We are one of only two certified companies enabled to sell the body scanners. As the $25 million representing about 150 systems would suggest, there's a nice opportunity to roll this out further, both nationwide as well as globally.
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Host2:35
And what's the advantage, say, of your system versus say an L3 Communications?
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Alan Edrick2:40
Both systems are good quality systems. We believe the advantage of our system is the imaging resolution, which is quite clear.
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Zara Burton2:48
How quickly can you get these things out, and will we still have to take off our shoes?
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Alan Edrick2:54
Very good question. Unfortunately, we do believe we'll be able to get these out quite rapidly. The first 150 will be coming out in early 2010. Some of them have been shipped already, and we have tremendous production capacity to ramp this up as the needs arise to deploy on an expedited basis.
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Host3:13
Are you making money on the body scanners at this point?
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Alan Edrick3:16
We are. It's a very nice product for us, incremental to our top line and our bottom line. We should enjoy some reasonable margins on this product.
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Zara Burton3:27
Assuming that all US airports end up using this technology, which seems fairly inevitable, what do you see as far as your revenues at OSI?
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Alan Edrick3:35
Well, it certainly would depend upon what portion of the contract came to OSI. There are about 2,000 lanes. We have received a $25 million award so far. If you look at the market potential, it's certainly several hundred million just in the US alone, probably a little bit higher than that. So very nice potential for us both on the top line and the bottom line side as we move into 2010.
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Host4:02
All right, but if you look at your overall revenues, the security division is like maybe a third of your overall revenues. I'm just wondering, in a year or two, the security division becomes what, 50% of your overall revenues? Where do you stand on that?
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Alan Edrick4:13
Great question. We've been seeing that Rapid Scan, which is our security division, has been our fastest-growing division and is now approaching 35 to 40% of our total revenues. A couple of years ago, it would have been closer to 30%. I think as we look out, we continue to expect it to be our fastest-growing division, and I think your estimate of it approaching half of our company as we look to the future is a very realistic one, especially given the ramp on products such as this.
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Zara Burton4:39
Then maybe an interesting opportunity for a spin-off or a sale, Alan?
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Alan Edrick4:43
Well, we certainly look at what is the best opportunity for our shareholders. We evaluate all options. Our other two divisions, our Healthcare Division and our Opto Division, are performing quite nicely too, in one of the most challenging economies we've seen in decades. In our fiscal '09, we still grew our earnings by 23%, and we think we're poised for very solid growth even before this latest episode here in our fiscal 2010.
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Host5:05
All right, hey Alan, thanks so much for joining us. Alan Edrick there, Chief Financial Officer of OSI Systems, and Zara, always a pleasure spending a little more time with you on set here as well.