Full Press Release Details
Quest Diagnostics Reports First Quarter 2022 Financial Results
Raises Guidance for Full Year 2022
First quarter revenues of $2.61 billion, down 4.0% from 2021
First quarter reported diluted earnings per share ( EPS ) of $2.92, down 15.6% from 2021 and adjusted diluted EPS of $3.22, down 14.4% from 2021
Base business revenues of $2.01 billion, up 6.3% from 2021
Full year 2022 reported diluted EPS now expected to be between $7.88 and $8.38 and adjusted diluted EPS expected to be between $9.00 and $9.50
SECAUCUS, N.J., April 21, 2022 - 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, 2022.
We're off to a good start in 2022, as we drove strong year-over-year growth in our base business, which excludes COVID-19 testing, said Steve Rusckowski, Chairman, CEO and President. COVID-19 volumes remained strong early in the quarter and decreased in February and March, in line with the market. We continue to make investments to further accelerate growth in the base business, while our efforts to improve productivity are helping us to offset inflationary pressures. Based on our strong performance in the quarter and our expectations for the remainder of 2022 we have raised our full year guidance.
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | Change | |||||||||||||||
| (dollars in millions, except per share data) | |||||||||||||||||
| Reported | |||||||||||||||||
| Net revenues | $ | 2,611 | $ | 2,720 | (4.0) | % | |||||||||||
| Base business revenues (a) | $ | 2,012 | $ | 1,892 | 6.3 | % | |||||||||||
| COVID-19 testing revenues | $ | 599 | $ | 828 | (27.6) | % | |||||||||||
| Diagnostic information services revenues | $ | 2,541 | $ | 2,643 | (3.9) | % | |||||||||||
| Revenue per requisition | (5.2) | % | |||||||||||||||
| Requisition volume | 1.3 | % | |||||||||||||||
| Organic requisition volume | - | % | |||||||||||||||
| Operating income (b) | $ | 513 | $ | 660 | (22.3) | % | |||||||||||
| Operating income as a percentage of net revenues (b) | 19.7 | % | 24.3 | % | (4.6) | % | |||||||||||
| Net income attributable to Quest Diagnostics (b) | $ | 355 | $ | 469 | (24.3) | % | |||||||||||
| Diluted EPS (b) | $ | 2.92 | $ | 3.46 | (15.6) | % | |||||||||||
| Cash provided by operations | $ | 480 | $ | 731 | (34.2) | % | |||||||||||
| Capital expenditures | $ | 63 | $ | 86 | (26.7) | % | |||||||||||
| Adjusted (b) | |||||||||||||||||
| Operating income | $ | 554 | $ | 708 | (21.8) | % | |||||||||||
| Operating income as a percentage of net revenues | 21.2 | % | 26.0 | % | (4.8) | % | |||||||||||
| Net income attributable to Quest Diagnostics | $ | 392 | $ | 508 | (23.0) | % | |||||||||||
| Diluted EPS | $ | 3.22 | $ | 3.76 | (14.4) | % |
(a)Excludes COVID-19 testing.
(b)For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage of net revenues, net income attributable to Quest Diagnostics, and diluted EPS, see note 2 of the financial tables attached below.
Updated Guidance for Full Year 2022
The company raises its Full Year 2022 guidance as follows
| Updated Guidance | Prior Guidance | ||||||
| Low | High | Low | High | ||||
| Net revenues | $9.2 billion | $9.5 billion | $9.0 billion | $9.5 billion | |||
| Net revenues decrease | (14.7)% | (11.9)% | (16.6)% | (11.9)% | |||
| Base business revenues (a) | $8.35 billion | $8.50 billion | $8.3 billion | $8.5 billion | |||
| Base business revenues increase | 4.1% | 6.0% | 3.5% | 6.0% | |||
| COVID-19 testing revenues | $0.85 billion | $1.00 billion | $0.7 billion | $1.0 billion | |||
| COVID-19 testing revenues decrease | (69.3)% | (63.9)% | (74.7)% | (63.9)% | |||
| Reported diluted EPS | $7.88 | $8.38 | $7.63 | $8.33 | |||
| Adjusted diluted EPS | $9.00 | $9.50 | $8.65 | $9.35 | |||
| Cash provided by operations | At least $1.6 billion | At least $1.6 billion | |||||
| Capital expenditures | Approximately $400 million | Approximately $400 million |
(a) Excludes COVID-19 testing
Note on Non-GAAP Financial Measures
As used in this press release the term "reported" refers to measures under 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, certain financial impacts resulting from the COVID-19 pandemic, amortization expense, excess tax benefits ( ETB ) associated with stock-based compensation, costs associated with donations, contributions, and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities), gains and losses associated with changes in the carrying value of our strategic investments, 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 non-GAAP 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 7895081 or via live webcast on our website at www.QuestDiagnostics.com investor. We suggest participants dial in approximately 10 minutes before the call.
A replay of the call may be accessed online at www.QuestDiagnostics.com investor or, from approximately 10 30 a.m. Eastern Time on April 21, 2022 until midnight Eastern Time on May 5, 2022, by phone at 800-583-8095 for domestic callers or 203-369-3815 for international callers. Anyone listening to the call is encouraged to read our 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 nearly 50,000 employees understand that, in the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. www.QuestDiagnostics.com.
Forward Looking Statements
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, impacts of the COVID-19 pandemic and measures taken in response, 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, 2022 and 2021
(in millions, except per share data)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net revenues | $ | 2,611 | $ | 2,720 | |||||||
| Operating costs and expenses and other operating income | |||||||||||
| Cost of services | 1,646 | 1,626 | |||||||||
| Selling, general and administrative | 425 | 407 | |||||||||
| Amortization of intangible assets | 27 | 27 | |||||||||
| Total operating costs and expenses, net | 2,098 | 2,060 | |||||||||
| Operating income | 513 | 660 | |||||||||
| Other income (expense) | |||||||||||
| Interest expense, net | (37) | (38) | |||||||||
| Other (expense) income, net | (24) | 4 | |||||||||
| Total non-operating expense, net | (61) | (34) | |||||||||
| Income before income taxes and equity in earnings of equity method investees | 452 | 626 | |||||||||
| Income tax expense | (110) | (153) | |||||||||
| Equity in earnings of equity method investees, net of taxes | 31 | 17 | |||||||||
| Net income | 373 | 490 | |||||||||
| Less Net income attributable to noncontrolling interests | 18 | 21 | |||||||||
| Net income attributable to Quest Diagnostics | $ | 355 | $ | 469 | |||||||
| Earnings per share attributable to Quest Diagnostics' common stockholders | |||||||||||
| Basic | $ | 2.97 | $ | 3.52 | |||||||
| Diluted | $ | 2.92 | $ | 3.46 | |||||||
| Weighted average common shares outstanding | |||||||||||
| Basic | 119 | 133 | |||||||||
| Diluted | 121 | 135 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 2022 and December 31, 2021
(in millions, except per share data)
| March 31, 2022 | December 31, 2021 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 712 | $ | 872 | |||
| Accounts receivable, net | 1,371 | 1,438 | |||||
| Inventories | 197 | 208 | |||||
| Prepaid expenses and other current assets | 195 | 223 | |||||
| Total current assets | 2,475 | 2,741 | |||||
| Property, plant and equipment, net | 1,668 | 1,707 | |||||
| Operating lease right-of-use assets | 620 | 597 | |||||
| Goodwill | 7,197 | 7,095 | |||||
| Intangible assets, net | 1,172 | 1,167 | |||||
| Investments in equity method investees | 155 | 141 | |||||
| Other assets | 155 | 163 | |||||
| Total assets | $ | 13,442 | $ | 13,611 | |||
| Liabilities and Stockholders' Equity | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued expenses | $ | 1,544 | $ | 1,600 | |||
| Current portion of long-term debt | 2 | 2 | |||||
| Current portion of long-term operating lease liabilities | 154 | 151 | |||||
| Total current liabilities | 1,700 | 1,753 | |||||
| Long-term debt | 3,985 | 4,010 | |||||
| Long-term operating lease liabilities | 522 | 494 | |||||
| Other liabilities | 742 | 792 | |||||
| Redeemable noncontrolling interest | 78 | 79 | |||||
| Stockholders' equity | |||||||
| Quest Diagnostics stockholders' equity | |||||||
| Common stock, par value $0.01 per share 600 shares authorized as of both March 31, 2022 and December 31, 2021 162 shares issued as of both March 31, 2022 and December 31, 2021 | 2 | 2 | |||||
| Additional paid-in capital | 2,226 | 2,260 | |||||
| Retained earnings | 7,926 | 7,649 | |||||
| Accumulated other comprehensive loss | (16) | (14) | |||||
| Treasury stock, at cost 45 and 43 shares as of March 31, 2022 and December 31, 2021, respectively | (3,761) | (3,453) | |||||
| Total Quest Diagnostics stockholders' equity | 6,377 | 6,444 | |||||
| Noncontrolling interests | 38 | 39 | |||||
| Total stockholders' equity | 6,415 | 6,483 | |||||
| Total liabilities and stockholders' equity | $ | 13,442 | $ | 13,611 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2022 and 2021
| Three Months Ended March 31, | |||||||
| 2022 | 2021 | ||||||
| Cash flows from operating activities | |||||||
| Net income | $ | 373 | $ | 490 | |||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||
| Depreciation and amortization | 106 | 101 | |||||
| Provision for credit losses | - | 2 | |||||
| Deferred income tax benefit | (43) | (17) | |||||
| Stock-based compensation expense | 18 | 18 | |||||
| Other, net | 4 | (2) | |||||
| Changes in operating assets and liabilities | |||||||
| Accounts receivable | 72 | 138 | |||||
| Accounts payable and accrued expenses | (165) | (164) | |||||
| Income taxes payable | 95 | 163 | |||||
| Other assets and liabilities, net | 20 | 2 | |||||
| Net cash provided by operating activities | 480 | 731 | |||||
| Cash flows from investing activities | |||||||
| Business acquisitions, net of cash acquired | (105) | - | |||||
| Capital expenditures | (63) | (86) | |||||
| Increase in investments and other assets | (1) | (7) | |||||
| Net cash used in investing activities | (169) | (93) | |||||
| Cash flows from financing activities | |||||||
| Repayments of debt | (1) | (1) | |||||
| Purchases of treasury stock | (373) | (410) | |||||
| Exercise of stock options | 10 | 17 | |||||
| Employee payroll tax withholdings on stock issued under stock-based compensation plans | (27) | (21) | |||||
| Dividends paid | (74) | (75) | |||||
| Distributions to noncontrolling interest partners | (20) | (29) | |||||
| Other financing activities, net | 14 | (47) | |||||
| Net cash used in financing activities | (471) | (566) | |||||
| Net change in cash and cash equivalents and restricted cash | (160) | 72 | |||||
| Cash and cash equivalents and restricted cash, beginning of period | 872 | 1,158 | |||||
| Cash and cash equivalents and restricted cash, end of period | $ | 712 | $ | 1,230 | |||
| Cash paid during the period for | |||||||
| Interest | $ | 32 | $ | 32 | |||
| Income taxes | $ | 23 | $ | 7 |
Notes to Financial Tables
1)The computation of basic and diluted earnings per common share is as follows
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions, except per share data) | |||||||||||
| Amounts attributable to Quest Diagnostics' common stockholders | |||||||||||
| Net income attributable to Quest Diagnostics | $ | 355 | $ | 469 | |||||||
| Less earnings allocated to participating securities | 1 | 1 | |||||||||
| Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 354 | $ | 468 | |||||||
| Weighted average common shares outstanding - basic | 119 | 133 | |||||||||
| Effect of dilutive securities | |||||||||||
| Stock options and performance share units | 2 | 2 | |||||||||
| Weighted average common shares outstanding - diluted | 121 | 135 | |||||||||
| Earnings per share attributable to Quest Diagnostics' common stockholders | |||||||||||
| Basic | $ | 2.97 | $ | 3.52 | |||||||
| Diluted | $ | 2.92 | $ | 3.46 |
2)The following tables reconcile reported GAAP results to non-GAAP adjusted results
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||
| (dollars in millions, except per share data) | ||||||||||||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (e) | Equity in earnings of equity method investees, net of taxes | Net income attributable to Quest Diagnostics | Diluted EPS | |||||||||||||||||
| As reported | $ | 513 | 19.7 | % | $ | (110) | $ | 31 | $ | 355 | $ | 2.92 | ||||||||||
| Restructuring and integration charges (a) | 12 | 0.4 | (3) | - | 9 | 0.07 | ||||||||||||||||
| Gains and losses on investments (b) | - | - | (4) | - | 12 | 0.10 | ||||||||||||||||
| Other (c) | 2 | 0.1 | (1) | - | 1 | 0.01 | ||||||||||||||||
| Amortization expense | 27 | 1.0 | (7) | - | 20 | 0.16 | ||||||||||||||||
| ETB | - | - | (5) | - | (5) | (0.04) | ||||||||||||||||
| As adjusted | $ | 554 | 21.2 | % | $ | (130) | $ | 31 | $ | 392 | $ | 3.22 |
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||
| (dollars in millions, except per share data) | ||||||||||||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (e) | Equity in earnings of equity method investees, net of taxes | Net income attributable to Quest Diagnostics | Diluted EPS | |||||||||||||||||
| As reported | $ | 660 | 24.3 | % | $ | (153) | $ | 17 | $ | 469 | $ | 3.46 | ||||||||||
| Restructuring and integration charges (a) | 17 | 0.6 | (4) | - | 13 | 0.10 | ||||||||||||||||
| Gains and losses on investments (b) | - | - | (3) | 8 | 5 | 0.04 | ||||||||||||||||
| COVID-19 impact (d) | 4 | 0.1 | (1) | - | 3 | 0.03 | ||||||||||||||||
| Amortization expense | 27 | 1.0 | (7) | 2 | 22 | 0.16 | ||||||||||||||||
| ETB | - | - | (4) | - | (4) | (0.03) | ||||||||||||||||
| As adjusted | $ | 708 | 26.0 | % | $ | (172) | $ | 27 | $ | 508 | $ | 3.76 |
(a)For both the three months ended March 31, 2022 and 2021, represents costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business. The following table summarizes the pre-tax impact of restructuring and integration charges on our consolidated statements of operations
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (dollars in millions) | |||||||||||
| Cost of services | $ | 3 | $ | 7 | |||||||
| Selling, general and administrative | 9 | 10 | |||||||||
| Operating income | $ | 12 | $ | 17 |
(b)For the three months ended March 31, 2022, the pre-tax impact represents $16 million of net losses associated with changes in the carrying value of our strategic investments recorded in other (expense) income, net. For the three months ended March 31, 2021, the pre-tax impact represents a non-cash impairment to the carrying value of an equity method investment, recorded in equity in earnings of equity method investees, net of taxes.
(c)For the three months ended March 31, 2022, the pre-tax impact primarily represents costs associated with donations, contributions and other financial support through Quest for Health Equity, recorded in selling, general and administrative.
(d)For the three months ended March 31, 2021, represents the impact of certain items resulting from the COVID-19 pandemic including incremental costs incurred to protect the health and safety of our employees and customers, recorded in cost of services.
(e)For restructuring and integration charges, gains and losses on investments, other items, amortization expense and COVID-19 impacts, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2022 and 2021.
3)For the three months ended March 31, 2022, we repurchased 2.6 million shares of our common stock for $350 million. In February 2022, our Board of Directors increased the size of our share repurchase program by $1 billion. As of March 31, 2022, $1.3 billion remained available under our share repurchase authorization.
4)The outlook for adjusted diluted EPS represents management's estimates for the full year 2022 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2022. Additionally, the amount of ETB is dependent upon employee stock option exercises and our stock price, and changes in the carrying value of our strategic investments are based on fluctuations in the investee's stock price, both of which are difficult to predict. The following table reconciles our 2022 outlook for diluted EPS under GAAP to our outlook for adjusted diluted EPS
| Low | High | ||||||
| Diluted EPS | $ | 7.88 | $ | 8.38 | |||
| Restructuring and integration charges (a) | 0.27 | 0.27 | |||||
| Amortization expense (b) | 0.68 | 0.68 | |||||
| Costs associated with Quest for Health Equity (c) | 0.22 | 0.22 | |||||
| Gains and losses on investments (d) | 0.10 | 0.10 | |||||
| ETB | (0.15) | (0.15) | |||||
| Adjusted diluted EPS | $ | 9.00 | $ | 9.50 |
(a)Represents estimated pre-tax charges of $45 million primarily associated with systems conversions and integration costs incurred in connection with further restructuring and integrating our business. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.
(b)Represents estimated pre-tax amortization expenses of $110 million. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.
(c)Represents estimated pre-tax charges of $35 million associated with donations, contributions and other financial support through Quest for Health Equity. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.
(d)Represents $16 million of pre-tax losses associated with changes in the carrying value of our strategic investments. Income tax impacts were calculated using a combined statutory income tax rate of 25.5%.