Quest Diagnostics Reports First Quarter 2019 Financial Results
- First quarter revenues of $1.89 billion, up 0.4% from 2018
- First quarter reported diluted EPS of $1.20, down 5.4% from 2018; and adjusted diluted EPS of $1.40, down 7.9% from 2018
- Cash provided by operations was $275 million, up 53.4% from 2018
- Outlook for full-year 2019 remains unchanged.

SECAUCUS, N.J., April 23, 2019 /PRNewswire/ -- 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.

Quest Diagnostics Incorporated logo. (PRNewsFoto/Quest Diagnostics Incorporated)

"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)

%



(a)   

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.



(b)    

Beginning in 2019, the company has changed how it presents adjusted income measures to additionally exclude amortization expense for all periods.  We believe this presentation provides investors with additional insight to evaluate our performance period over period and relative to competitors, as well as to analyze the underlying trends in our business.

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.

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)  

(unaudited)



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)

(unaudited)



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

(in millions)

(unaudited)



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



1)

The computation of basic and diluted earnings per common share is as follows:



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






2)

The following tables reconcile reported GAAP results to non-GAAP adjusted results:




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


 

(a)   

For the three months ended March 31, 2019, represents costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business.  For the three months ended March 31, 2018, represents costs primarily associated with workforce reductions, 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 the company's consolidated statements of operations:




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


 

(b)     

For the three months ended March 31, 2019, the pre-tax impact primarily represents a gain associated with an insurance claim for hurricane related losses partially offset by non-cash asset impairment charges.  The following table summarizes the pre-tax impact of these other items on the company's consolidated statements of operations:




Three Months Ended
March 31,


2019


2018


(dollars in millions)

Selling, general and administrative

$

1



$


Other operating (income) expense, net

(9)




Operating income

$

(8)



$


 

(c)    

For restructuring and integration charges, other items, and amortization expense, income tax impacts, where recorded, were primarily calculated using combined tax rates of 25.5% for both 2019 and 2018.  For the gain associated with an insurance claim for hurricane related losses in 2019, there was no net income tax expense as the company is able to utilize net operating loss carryforwards for which a valuation allowance had previously been established.



3)

For the three months ended March 31, 2019, the company repurchased 0.6 million shares of its common stock for $50 million.  As of March 31, 2019, $0.5 billion remained available under the company's share repurchase authorizations.         



4)

The outlook for adjusted diluted EPS represents management's estimates for the full-year 2019 before the impact of special items, including ETB and amortization expense.  Further impacts to earnings related to special items may occur throughout 2019.  Additionally, the amount of ETB is dependent upon employee stock option exercises and the company's stock price, which are difficult to predict.  The following table reconciles our 2019 outlook for adjusted diluted EPS to the corresponding amounts determined under GAAP:





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






(a)   

Represents estimated full-year pre-tax charges of $125 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 tax rate of 25.5%.



(b)    

Represents the estimated impact of amortization expense for 2019 on the calculation of adjusted diluted EPS.  Amortization expense used in the calculation is as follows (dollars in millions):



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


 

SOURCE Quest Diagnostics Incorporated

For further information: For further information: Denny Moynihan, Quest Diagnostics (Media): 973-520-2800, Shawn Bevec, Quest Diagnostics (Investors): 973-520-2900