Full Press Release Details
QUEST DIAGNOSTICS REPORTS FIRST QUARTER 2019 FINANCIAL RESULTS
SECAUCUS, N.J., April 23, 2019 - Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today financial results for the first quarter ended March 31, 2019.
"We're off to a good start in 2019, with solid volume growth from our expanded health plan access," said Steve Rusckowski, Chairman, President and CEO. "As we anticipated, volume accelerated through the quarter, and we look forward to continued progress as a member of UnitedHealthcare's Preferred Lab Network beginning July 1. We continue to drive productivity to address ongoing reimbursement pressure, and are well positioned to meet our financial commitments for the remainder of 2019."
| Three Months Ended March 31, | ||||||||||
| 2019 | 2018 | Change | ||||||||
| (dollars in millions, except per share data) | ||||||||||
| Reported: | ||||||||||
| Net revenues | $ | 1,891 | $ | 1,884 | 0.4 | % | ||||
| Diagnostic Information Services revenues | $ | 1,812 | $ | 1,803 | 0.5 | % | ||||
| Revenue per requisition | (3.0 | )% | ||||||||
| Requisition volume | 3.6 | % | ||||||||
| Organic requisition volume | 2.4 | % | ||||||||
| Operating income (a) | $ | 248 | $ | 272 | (8.7 | )% | ||||
| Operating income as a percentage of net revenues (a) | 13.2 | % | 14.5 | % | (130) bps | |||||
| Net income attributable to Quest Diagnostics (a) | $ | 164 | $ | 177 | (7.3 | )% | ||||
| Diluted EPS (a) | $ | 1.20 | $ | 1.27 | (5.4 | )% | ||||
| Cash provided by operations | $ | 275 | $ | 180 | 53.4 | % | ||||
| Capital expenditures | $ | 47 | $ | 73 | (35.3 | )% | ||||
| Adjusted (b): | ||||||||||
| Operating income | $ | 286 | $ | 325 | (11.6 | )% | ||||
| Operating income as a percentage of net revenues | 15.1 | % | 17.2 | % | (210) bps | |||||
| Net income attributable to Quest Diagnostics | $ | 190 | $ | 211 | (9.9 | )% | ||||
| Diluted EPS | $ | 1.40 | $ | 1.52 | (7.9 | )% |
Outlook for full-year 2019
The Company's outlook for full-year 2019 remains unchanged as follows:
| Current Outlook | |||
| Low | High | ||
| Net revenues | $7.60 billion | $7.75 billion | |
| Net revenue increase | 1% | 3% | |
| Reported diluted EPS | Greater than $5.16 | ||
| Adjusted diluted EPS | Greater than $6.40 | ||
| Cash provided by operations | Approximately $1.3 billion | ||
| Capital expenditures | $350 million | $400 million |
Note on Non-GAAP Financial Measures
As used in this press release the term "reported" refers to measures under the accounting principles generally accepted in the United States ("GAAP"). The term "adjusted" refers to non-GAAP operating performance measures that exclude special items such as restructuring and integration charges, amortization expense, excess tax benefit ("ETB") associated with stock-based compensation, and other items.
Non-GAAP adjusted measures are presented because management believes those measures are useful adjuncts to GAAP results. Non-GAAP adjusted measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management may use these non-GAAP measures to evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe that these non-GAAP measures are useful to investors and analysts to evaluate our performance period over period and relative to competitors, as well as to analyze the underlying trends in our business and to assess our performance. The additional tables attached below include reconciliations of adjusted measures to GAAP measures.
Conference Call Information
Quest Diagnostics will hold its quarterly conference call to discuss financial results beginning at 8:30 a.m. Eastern Time today. The conference call can be accessed by dialing 888-455-0391 within the U.S. and Canada, or 773-756-0467 internationally, passcode: Investor; or via live webcast on the Company's website at www.QuestDiagnostics.com/investor. The company suggests participants dial in approximately 10 minutes before the call.
A replay of the call may be accessed online at www.QuestDiagnostics.com/investor or by phone at 866-480-3547 for domestic callers or 203-369-1551 for international callers. No passcode is required. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 23, 2019 until midnight Eastern Time on May 7, 2019. Anyone listening to the call is encouraged to read the company's periodic reports, on file with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in those reports.
About Quest Diagnostics
Quest Diagnostics empowers people to take action to improve health outcomes. Derived from the world's largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve health care management. Quest annually serves one in three adult Americans and half the physicians and hospitals in the United States, and our 46,000 employees understand that, in the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. www.QuestDiagnostics.com.
The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing,
changes in government regulations, changing relationships with customers, payers, suppliers or strategic partners and other factors discussed in the company's most recently filed Annual Report on Form 10-K and in any of the company's subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the "Business," "Risk Factors," "Cautionary Factors that May Affect Future Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of those reports.
For further information: Denny Moynihan, Quest Diagnostics (Media): 973-520-2800, Shawn Bevec, Quest Diagnostics (Investors): 973-520-2900
This earnings release, including the attached financial tables, is available online in the Newsroom section at www.QuestDiagnostics.com.
ADDITIONAL TABLES FOLLOW
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2019 and 2018
(in millions, except per share data)
| Three Months Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| Net revenues | $ | 1,891 | $ | 1,884 | |||
| Operating costs and expenses and other operating income: | |||||||
| Cost of services | 1,244 | 1,226 | |||||
| Selling, general and administrative | 384 | 363 | |||||
| Amortization of intangible assets | 24 | 22 | |||||
| Other operating (income) expense, net | (9 | ) | 1 | ||||
| Total operating costs and expenses, net | 1,643 | 1,612 | |||||
| Operating income | 248 | 272 | |||||
| Other income (expense): | |||||||
| Interest expense, net | (44 | ) | (41 | ) | |||
| Other income (expense), net | 9 | (2 | ) | ||||
| Total non-operating expenses, net | (35 | ) | (43 | ) | |||
| Income before income taxes and equity in earnings of equity method investees | 213 | 229 | |||||
| Income tax expense | (50 | ) | (52 | ) | |||
| Equity in earnings of equity method investees, net of taxes | 13 | 12 | |||||
| Net income | 176 | 189 | |||||
| Less: Net income attributable to noncontrolling interests | 12 | 12 | |||||
| Net income attributable to Quest Diagnostics | $ | 164 | $ | 177 | |||
| Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
| Basic | $ | 1.22 | $ | 1.30 | |||
| Diluted | $ | 1.20 | $ | 1.27 | |||
| Weighted average common shares outstanding: | |||||||
| Basic | 134 | 136 | |||||
| Diluted | 136 | 139 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 2019 and December 31, 2018
(in millions, except per share data)
| March 31, 2019 | December 31, 2018 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 464 | $ | 135 | |||
| Accounts receivable, net | 1,079 | 1,012 | |||||
| Inventories | 98 | 99 | |||||
| Prepaid expenses and other current assets | 137 | 144 | |||||
| Total current assets | 1,778 | 1,390 | |||||
| Property, plant and equipment, net | 1,277 | 1,288 | |||||
| Operating lease right-of-use assets | 497 | - | |||||
| Goodwill | 6,605 | 6,563 | |||||
| Intangible assets, net | 1,200 | 1,207 | |||||
| Investment in equity method investees | 454 | 436 | |||||
| Other assets | 126 | 119 | |||||
| Total assets | $ | 11,937 | $ | 11,003 | |||
| Liabilities and Stockholders' Equity | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 1,029 | $ | 1,021 | |||
| Current portion of long-term debt | 1,108 | 464 | |||||
| Current portion of long-term operating lease liabilities | 145 | - | |||||
| Total current liabilities | 2,282 | 1,485 | |||||
| Long-term debt | 3,131 | 3,429 | |||||
| Long-term operating lease liabilities | 393 | - | |||||
| Other liabilities | 713 | 745 | |||||
| Redeemable noncontrolling interest | 77 | 77 | |||||
| Stockholders' equity: | |||||||
| Quest Diagnostics stockholders' equity: | |||||||
| Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2019 and December 31, 2018; 217 shares issued as of both March 31, 2019 and December 31, 2018 | 2 | 2 | |||||
| Additional paid-in capital | 2,671 | 2,667 | |||||
| Retained earnings | 7,694 | 7,602 | |||||
| Accumulated other comprehensive loss | (55 | ) | (59 | ) | |||
| Treasury stock, at cost; 83 shares and 82 shares as of March 31, 2019 and December 31, 2018, respectively | (5,022 | ) | (4,996 | ) | |||
| Total Quest Diagnostics stockholders' equity | 5,290 | 5,216 | |||||
| Noncontrolling interests | 51 | 51 | |||||
| Total stockholders' equity | 5,341 | 5,267 | |||||
| Total liabilities and stockholders' equity | $ | 11,937 | $ | 11,003 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2019 and 2018
| Three Months Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 176 | $ | 189 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 84 | 74 | |||||
| Provision for doubtful accounts | 4 | 3 | |||||
| Deferred income tax provision | 3 | 24 | |||||
| Stock-based compensation expense | 17 | 19 | |||||
| Other, net | (18 | ) | (1 | ) | |||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (71 | ) | (97 | ) | |||
| Accounts payable and accrued expenses | 32 | (68 | ) | ||||
| Income taxes payable | 43 | 5 | |||||
| Other assets and liabilities, net | 5 | 32 | |||||
| Net cash provided by operating activities | 275 | 180 | |||||
| Cash flows from investing activities: | |||||||
| Business acquisitions, net of cash acquired | (56 | ) | (130 | ) | |||
| Capital expenditures | (47 | ) | (73 | ) | |||
| Increase in investments and other assets | (7 | ) | (1 | ) | |||
| Net cash used in investing activities | (110 | ) | (204 | ) | |||
| Cash flows from financing activities: | |||||||
| Proceeds from borrowings | 1,139 | 935 | |||||
| Repayments of debt | (802 | ) | (832 | ) | |||
| Purchases of treasury stock | (53 | ) | (50 | ) | |||
| Exercise of stock options | 20 | 34 | |||||
| Employee payroll tax withholdings on stock issued under stock-based compensation plans | (15 | ) | (20 | ) | |||
| Dividends paid | (72 | ) | (61 | ) | |||
| Distributions to noncontrolling interest partners | (12 | ) | (15 | ) | |||
| Contributions from noncontrolling interest partners | - | 2 | |||||
| Other financing activities, net | (41 | ) | 18 | ||||
| Net cash provided by financing activities | 164 | 11 | |||||
| Net change in cash and cash equivalents and restricted cash | 329 | (13 | ) | ||||
| Cash and cash equivalents and restricted cash, beginning of period | 135 | 137 | |||||
| Cash and cash equivalents and restricted cash, end of period | $ | 464 | $ | 124 | |||
| Cash and cash equivalents | $ | 464 | $ | 124 | |||
| Restricted cash | - | - | |||||
| Cash and cash equivalents and restricted cash, end of period | $ | 464 | $ | 124 | |||
| Cash paid during the period for: | |||||||
| Interest | $ | 28 | $ | 49 | |||
| Income taxes | $ | 3 | $ | 2 |
Notes to Financial Tables
| Three Months Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| (in millions, except per share data) | |||||||
| Amounts attributable to Quest Diagnostics' common stockholders: | |||||||
| Net income attributable to Quest Diagnostics | $ | 164 | $ | 177 | |||
| Less: earnings allocated to participating securities | 1 | 1 | |||||
| Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 163 | $ | 176 | |||
| Weighted average common shares outstanding - basic | 134 | 136 | |||||
| Effect of dilutive securities: | |||||||
| Stock options and performance share units | 2 | 3 | |||||
| Weighted average common shares outstanding - diluted | 136 | 139 | |||||
| Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
| Basic | $ | 1.22 | $ | 1.30 | |||
| Diluted | $ | 1.20 | $ | 1.27 |
| Three Months Ended March 31, 2019 (dollars in millions except per share data) | ||||||||||||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (c) | Equity in earnings of equity method investees, net of tax | Net income attributable to Quest Diagnostics | Diluted earnings per common share | |||||||||||||||||
| As reported | $ | 248 | 13.2 | % | $ | (50 | ) | $ | 13 | $ | 164 | $ | 1.20 | |||||||||
| Restructuring and integration charges (a) | 22 | 1.1 | (6 | ) | - | 16 | 0.12 | |||||||||||||||
| Other (b) | (8 | ) | (0.5 | ) | (1 | ) | - | (9 | ) | (0.06 | ) | |||||||||||
| Amortization expense | 24 | 1.3 | (7 | ) | 5 | 22 | 0.16 | |||||||||||||||
| ETB | - | - | (3 | ) | - | (3 | ) | (0.02 | ) | |||||||||||||
| As adjusted | $ | 286 | 15.1 | % | $ | (67 | ) | $ | 18 | $ | 190 | $ | 1.40 |
| Three Months Ended March 31, 2018 (dollars in millions except per share data) | ||||||||||||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (c) | Equity in earnings of equity method investees, net of tax | Net income attributable to Quest Diagnostics | Diluted earnings per common share | |||||||||||||||||
| As reported | $ | 272 | 14.5 | % | $ | (52 | ) | $ | 12 | $ | 177 | $ | 1.27 | |||||||||
| Restructuring and integration charges (a) | 31 | 1.6 | (8 | ) | - | 23 | 0.17 | |||||||||||||||
| Amortization expense | 22 | 1.1 | (7 | ) | 4 | 19 | 0.14 | |||||||||||||||
| ETB | - | - | (8 | ) | - | (8 | ) | (0.06 | ) | |||||||||||||
| As adjusted | $ | 325 | 17.2 | % | $ | (75 | ) | $ | 16 | $ | 211 | $ | 1.52 |
| Three Months Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| (dollars in millions) | |||||||
| Cost of services | $ | 11 | $ | 12 | |||
| Selling, general and administrative | 11 | 18 | |||||
| Other operating (income) expense, net | - | 1 | |||||
| Operating income | $ | 22 | $ | 31 |
| Three Months Ended March 31, | |||||||
| 2019 | 2018 | ||||||
| (dollars in millions) | |||||||
| Selling, general and administrative | $ | 1 | $ | - | |||
| Other operating (income) expense, net | (9 | ) | - | ||||
| Operating income | $ | (8 | ) | $ | - |
| Diluted earnings per common share | $ | 5.16 | |
| Restructuring and integration charges (a) | 0.68 | ||
| Other | (0.03 | ) | |
| Amortization expense (b) | 0.63 | ||
| ETB | (0.04 | ) | |
| Adjusted diluted EPS | $ | 6.40 |
| Amortization of intangible assets | $ | 99 | |
| Amortization expense included in equity in earnings of equity method investees, net of taxes | 15 | ||
| Total pre-tax amortization expense | $ | 114 | |
| Total amortization expense, net of an estimated tax benefit using a combined tax rate of 25.5% | $ | 85 |