“Jonathan Raviv — Citigroup — Analyst
Hey thanks, good morning everyone. Roger, you talked about some of these items of — there’s demand disruption and then potentially in some areas, it could be demand destruction. Can you parse between those two dynamics here? It sounds like it’s mostly disruption, but you did mention some potential shortfall — could it be with us for longer?
Roger A. Krone — Chairman and Chief Executive Officer
- I’m trying to understand your question. Let me take a shot and if I don’t get it — so I think we were pretty clear both Jim and I, that we don’t see significant long-term impact as a result of COVID-19, which is what I think your question was. Most what we saw — a little bit in Q1, but mostly in the month of April, except for the 3610 fee, which we will never get back, because we’re only being reimbursed for costs, not fee, we see almost — all of that revenue and therefore earnings just moving to the right, and will either pick it up in third quarter or fourth quarter or a roll into ’21. For instance, as you all know, we do a lot of work at hospitals, right, our Defense Health program is installing the new Cerner Millennium software at hospitals. Those hospitals are now being used for COVID-19, even those at military bases. As such, we are not getting access to the hospital right now, and so we are slowing down our deployment. But those deployments will still occur, they’re just moved to the right by a quarter or so. And so our DHMSM program will pick back up, in fact, it’s already starting to gain momentum again and should be fully back in third or fourth quarter…”
“… Cai von Rumohr — Cowen — Analyst
“Yes, thank you very much. So, Roger, you talked about $270 million of COVID impact, and yet the guide has $370 million, which would imply about $100 million for other ‘market uncertainties.’ Could you give us some color on what those other market uncertainties are? And then of the $270 million of COVID related, walk us through some more specifics, like the DHMSM impact and some sense of the of the quarterly pattern, because it would suggest that COVID impacts could be bigger in the second quarter than the first? Thanks.”
Roger A. Krone — Chairman and Chief Executive Officer
“Yeah, Cai, let me get started on that and I’ll let Jim pick up on what I don’t talk about. So the $270 million, is that from a bottoms-up, we can tie directly to COVID-19, so 3610 Act slowdown on DHMSM. When we touch guidance, we sit back and go, OK, what are the unknown unknowns? And although it hasn’t happened yet, we think some of the procurements are going to slow down, and there is just going to be a little bit more drag on the business writ large, and when we touch guidance, we felt it was prudent to put another $100 million of revenue headwind in our guidance and it’s not specific, I can’t go into the additional — the $270 million, we can almost go contract by contract, and Jim may touch on the major pieces there. The additional $100 million for us is — I actually thought we were going to get an NDAA this year, and now, I don’t think we will. I think we’ll be in a continuing resolution. So our forecast assumes a continued growing federal budget and things operating in a normal way. And now, I don’t think that’s going to happen. I think procurements will slow down, that things will take longer, meetings take an extra week or two, there is no travel and we wanted to put in another $100 million of headwind to get us to a midpoint, which was indeed our 50-50.”
“James C. Reagan — Chief Financial Officer
… And finally, turning to our Health segment, revenues grew 14.5% over the prior year period, 18.5% organically, after adjusting for the divestiture of the commercial staff augmentation business. This strong organic growth was due primarily to increased program volumes, and expansion of scope on our existing programs.
Non-GAAP operating income for the Health segment grew 360 basis points to 15.5% from the prior year quarter, due to a shift in program mix. Our Health segment saw approximately $250 million in bookings in the quarter, driving a book to bill of 0.5 times, with a trailing 12-month book-to-bill of 0.9 times…” Read the full transcript here.
Source: Leidos Holdings Inc (LDOS) Q1 2020 Earnings Call Transcript – May 5, 2020. The Motley Fool.
