Second quarter revenues of $1.92 billion, up 3.0% from 2017
-- Second quarter revenues of $1.92 billion, up 3.0% from 2017
-- Second quarter reported diluted EPS of $1.57, up 14.4% from 2017
-- Second quarter adjusted diluted EPS excluding amortization of $1.75, up 20.5% from 2017
-- Narrows outlook for full year 2018 revenues and diluted EPS. Revenues now expected to be between $7.70 billion and $7.74 billion. Reported diluted EPS now expected to be between $5.50 and $5.64 and adjusted diluted EPS excluding amortization expense now expected to be between $6.53 and $6.67.
SECAUCUS, N.J., July 24, 2018 /PRNewswire/ -- Quest Diagnostics Inc. (NYSE: DGX), the world's leading provider of diagnostic information services, announced today financial results for the second quarter ended June 30, 2018.
"Once again, we grew revenues and delivered strong earnings growth in the second quarter," said Steve Rusckowski, Chairman, President and CEO. "We continue to strengthen our strategic relationship with UnitedHealth Group and are excited to serve as a national in-network lab provider for UnitedHealthcare members beginning January 1, 2019. Overall, we remain focused on delivering on our two-point strategy and have updated our outlook for the full-year 2018 to reflect our confidence in achieving our commitments for the year."
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 Change 2018 2017 Change
---- ---- ------ ---- ---- ------
(dollars in millions, except per share data)
Reported:
---------
Net revenues (a) $1,919 $1,864 3.0% $3,803 $3,681 3.3%
Diagnostic
Information
Services
revenues (a) $1,835 $1,776 3.3% $3,638 $3,506 3.7%
Revenue per
requisition 0.2% 0.9%
Requisition
volume 2.5% 2.4%
Operating income
(a) (b) $305 $319 (4.2)% $577 $598 (3.4)%
Operating income
as a percentage
of net revenues
(a) (b) 15.9% 17.1% (120) bps 15.2% 16.2% (100) bps
Net income
attributable to
Quest
Diagnostics (b) $219 $193 13.3% $396 $357 10.9%
Diluted EPS (b) $1.57 $1.37 14.4% $2.84 $2.53 12.3%
Cash provided by
operations $323 $294 10.2% $503 $490 2.7%
Capital
expenditures $78 $65 19.2% $151 $107 41.1%
Adjusted:
---------
Operating income
(a) $340 $343 (0.7)% $643 $640 0.5%
Operating income
as a percentage
of net revenues
(a) 17.7% 18.4% (70) bps 16.9% 17.4% (50) bps
Net income
attributable to
Quest
Diagnostics $225 $191 17.3% $417 $350 18.9%
Diluted EPS
excluding
amortization $1.75 $1.45 20.5% $3.27 $2.67 22.5%
(a) Net revenues and selling, general
and administrative expenses for
the three and six months ended
June 30, 2017 have been restated
to reflect the impact of new
revenue recognition rules that
became effective January 1, 2018
and were adopted on a
retrospective basis. Under the new
rules, the Company reports
uncollectible balances associated
with patient responsibility as a
reduction in net revenues;
historically these amounts were
classified as bad debt expense
within selling, general and
administrative expenses.
(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 Outlook for Full Year 2018
The company narrowed its full year 2018 outlook based on first half performance, as follows:
Current Outlook Previous Outlook
--------------- ----------------
Low High Low High
--- ---- --- ----
Revenues (a) $7.70 billion $7.74 billion $7.70 billion $7.77 billion
Revenue increase
(a) 4% 4.5% 4% 5%
Reported diluted
EPS $5.50 $5.64 $5.42 $5.62
Adjusted diluted
EPS excluding
amortization $6.53 $6.67 $6.50 $6.70
Cash provided by
operations Approximately $1.3 billion Approximately $1.3 billion
Capital
expenditures $350 million $400 million $350 million $400 million
(a) The updated outlook for 4% to 4.5%
revenue growth in 2018 represents
management's estimates for 2018
versus 2017 reported revenues
adjusted to reflect the impact of
new revenue recognition rules that
became effective January 1, 2018.
Full year 2017 revenues adjusted to
reflect the new rules were $7,402
million. See note 5 of the
financial tables attached below.
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 measures as follows: (i) for the purpose of income measures the term "adjusted" refers to operating performance measures that exclude special items such as restructuring and integration charges, excess tax benefit ("ETB") associated with stock based compensation and other items; and (ii) the term "adjusted diluted EPS excluding amortization" represents the company's diluted EPS before the impact of special items (described above) and amortization expense.
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 in listen-only mode by dialing 773-756-0467, passcode 3214469. 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 866-483-9044 for domestic callers or 203-369-1586 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on July 24, 2018 until midnight Eastern Time on August 7, 2018. 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 45,000 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, 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 and Six Months Ended June 30, 2018 and 2017
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
Net revenues $1,919 $1,864 $3,803 $3,681
Operating costs and expenses and
other operating income:
Cost of services 1,243 1,170 2,469 2,335
Selling, general and
administrative 351 358 714 713
Amortization of
intangible assets 22 18 44 35
Other operating income,
net (2) (1) (1) -
--- --- --- ---
Total operating costs
and expenses, net 1,614 1,545 3,226 3,083
----- ----- ----- -----
Operating income 305 319 577 598
Other income (expense):
Interest expense, net (42) (38) (83) (74)
Other income (expense),
net 1 11 (1) 14
Total non-operating
expenses, net (41) (27) (84) (60)
--- --- --- ---
Income before income
taxes and equity in
earnings of equity
method investees 264 292 493 538
Income tax expense (42) (94) (94) (172)
Equity in earnings of
equity method
investees, net of
taxes 11 9 23 16
--- --- --- ---
Net income 233 207 422 382
Less: Net income
attributable to
noncontrolling
interests 14 14 26 25
Net income attributable
to Quest Diagnostics $219 $193 $396 $357
---- ---- ---- ----
Earnings per share attributable to
Quest Diagnostics' common
stockholders:
Basic $1.60 $1.40 $2.90 $2.59
----- ----- ----- -----
Diluted $1.57 $1.37 $2.84 $2.53
----- ----- ----- -----
Weighted average common shares
outstanding:
Basic 136 137 136 137
Diluted 139 140 139 140
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
June 30, 2018 and December 31, 2017
(in millions, except per share data)
(unaudited)
June 30, December 31,
2018 2017
---- ----
Assets
------
Current assets:
Cash and cash
equivalents $132 $137
Accounts receivable,
net 1,055 924
Inventories 91 95
Prepaid expenses and
other current
assets 137 150
Total current assets 1,415 1,306
Property, plant and
equipment, net 1,168 1,145
Goodwill 6,414 6,335
Intangible assets,
net 1,166 1,119
Investment in equity
method investees 456 462
Other assets 128 136
Total assets $10,747 $10,503
------- -------
Liabilities and Stockholders'
Equity
-----------------------------
Current liabilities:
Accounts payable and
accrued expenses $957 $1,021
Current portion of
long-term debt 305 36
Total current
liabilities 1,262 1,057
Long-term debt 3,408 3,748
Other liabilities 738 663
Redeemable
noncontrolling
interest 76 80
Stockholders' equity:
Quest Diagnostics stockholders'
equity:
Common stock, par
value $0.01 per
share; 600 shares
authorized as of
both June 30, 2018 2 2
and December 31, 2017; 217 and
216 shares issued as of June 30,
2018 and
December 31, 2017, respectively
Additional paid-in
capital 2,633 2,612
Retained earnings 7,401 7,138
Accumulated other
comprehensive loss (57) (48)
Treasury stock, at
cost; 81 shares as
of both June 30,
2018 and December
31, 2017 (4,756) (4,783)
------ ------
Total Quest
Diagnostics
stockholders'
equity 5,223 4,921
Noncontrolling
interests 40 34
--- ---
Total stockholders'
equity 5,263 4,955
Total liabilities
and stockholders'
equity $10,747 $10,503
------- -------
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2018 and 2017
(in millions)
(unaudited)
Six Months Ended June 30,
2018 2017
---- ----
Cash flows from operating
activities:
Net income $422 $382
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization 151 128
Provision for
doubtful accounts - 4
Deferred income tax
provision 39 79
Stock-based
compensation
expense 34 37
Other, net 18 (8)
Changes in operating assets and
liabilities:
Accounts receivable (127) (24)
Accounts payable
and accrued
expenses (64) (93)
Income taxes
payable (7) (3)
Other assets and
liabilities, net 37 (12)
Net cash provided
by operating
activities 503 490
--- ---
Cash flows from investing
activities:
Business
acquisitions, net
of cash acquired (165) (112)
Capital
expenditures (151) (107)
(Increase) decrease
in investments and
other assets (14) 2
Net cash used in
investing
activities (330) (217)
---- ----
Cash flows from financing
activities:
Proceeds from
borrowings 1,520 -
Repayments of debt (1,553) (3)
Purchases of
treasury stock (50) (300)
Exercise of stock
options 71 97
Employee payroll
tax withholdings
on stock issued
under stock-based
compensation plans (20) (23)
Dividends paid (129) (124)
Distributions to
noncontrolling
interests (28) (20)
Sale of
noncontrolling
interest in
subsidiaries 4 -
Other financing
activities, net 7 30
Net cash used in
financing
activities (178) (343)
---- ----
Net change in cash
and cash
equivalents and
restricted cash (5) (70)
Cash and cash
equivalents and
restricted cash,
beginning of
period 137 384
--- ---
Cash and cash
equivalents and
restricted cash,
end of period $132 $314
---- ----
Cash and cash
equivalents $132 $314
Restricted cash - -
Cash and cash
equivalents and
restricted cash,
end of period $132 $314
---- ----
Cash paid during the period for:
Interest $86 $77
Income taxes $41 $113
Notes to Financial Tables
1) The computation of basic
and diluted earnings per
common share is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(in millions, except per share data)
Amounts attributable
to Quest
Diagnostics' common
stockholders:
Net income
attributable to
Quest Diagnostics $219 $193 $396 $357
Less: earnings
allocated to
participating
securities - - 1 1
Earnings available to
Quest Diagnostics'
common stockholders
-basic and diluted $219 $193 $395 $356
---- ---- ---- ----
Weighted average
common shares
outstanding -basic 136 137 136 137
Effect of dilutive
securities:
Stock options and
performance share
units 3 3 3 3
Weighted average
common shares
outstanding -
diluted 139 140 139 140
--- --- --- ---
Earnings per share
attributable to
Quest Diagnostics'
common stockholders:
Basic $1.60 $1.40 $2.90 $2.59
----- ----- ----- -----
Diluted $1.57 $1.37 $2.84 $2.53
----- ----- ----- -----
2) The following tables
reconcile reported GAAP
results to non-GAAP
adjusted results:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(dollars in millions, except per share data)
Adjusted operating
income:
------------------
Operating income $305 $319 $577 $598
Restructuring and
integration
charges (a) 25 22 56 40
Other (b) 10 2 10 2
--- --- --- ---
Adjusted operating
income $340 $343 $643 $640
---- ---- ---- ----
Adjusted operating
income as a
percentage of net
revenues:
------------------
Operating income
as a percentage
of net revenues 15.9% 17.1% 15.2% 16.2%
Restructuring and
integration
charges (a) 1.3 1.2 1.5 1.1
Other (b) 0.5 0.1 0.2 0.1
--- --- --- ---
Adjusted operating
income as a
percentage of net
revenues 17.7% 18.4% 16.9% 17.4%
---- ---- ---- ----
Adjusted net
income:
------------
Net income
attributable to
Quest Diagnostics $219 $193 $396 $357
Restructuring and
integration
charges (a) 25 23 56 41
Other (b) 10 (5) 10 (5)
Income tax benefit
associated with
special items (c) (29) (20) (45) (43)
--- --- --- ---
Adjusted net
income $225 $191 $417 $350
---- ---- ---- ----
Adjusted diluted
EPS excluding
amortization
expense:
----------------
Diluted earnings
per common share $1.57 $1.37 $2.84 $2.53
Restructuring and
integration
charges (a) (c) 0.13 0.10 0.30 0.18
Other (b) (c) 0.05 (0.02) 0.05 (0.02)
Amortization
expense (d) 0.14 0.10 0.28 0.19
ETB (e) (0.04) (0.10) (0.10) (0.21)
Certain income tax
benefits (c) (f) (0.10) - (0.10) -
----- --- ----- ---
Adjusted diluted
EPS excluding
amortization
expense $1.75 $1.45 $3.27 $2.67
----- ----- ----- -----
(a) For the three and six months
ended June 30, 2018, represents
costs primarily associated with
workforce reductions, systems
conversions and integration
incurred in connection with
further restructuring and
integrating our business. For
the three and six months ended
June 30, 2017, 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 the
company's consolidated
statements of operations:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(dollars in millions)
Cost
of
services $14 $9 $26 $19
Selling,
general
and
administrative 11 13 29 21
Other
operating
income,
net - - 1 -
--- --- ---
Operating
income $25 $22 $56 $40
--- --- --- ---
Equity
in
earnings
of
equity
method
investee,
net
of
taxes $ - $1 $ - $1
--- --- --- --- --- ---
(b) For the three and six months
ended June 30, 2018, primarily
represents costs incurred
related to certain legal
matters partially offset by a
gain associated with an
insurance claim for hurricane
related losses. For the three
and six months ended June 30,
2017, primarily represents gain
on sale of an interest in an
equity method investee and
costs incurred related to
certain legal matters. The
following table summarizes the
pre-tax impact of these other
items on the company's
consolidated statements of
operations:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(dollars in millions)
Cost of sales $11 $ - $11 $ -
Selling, general and
administrative - 2 - 2
Other operating
income, net (1) - (1) -
--- ---
Operating income $10 $2 $10 $2
--- --- --- ---
Other non-operating
income (expense),
net $ - $(7) $ - $(7)
--- --- --- --- --- ---
(c) For restructuring and integration
charges and other items, income
tax impacts, where recorded,
were calculated using combined
tax rates of 25.5% and 38.7% for
2018 and 2017, respectively.
The following table summarizes
the income tax expense (benefit)
associated with special items:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(dollars in millions)
Restructuring and
integration
charges $(6) $(9) $(14) $(16)
Other (3) 2 (3) 2
ETB (e) (5) (13) (13) (29)
Certain income tax
benefits (f) (15) - (15) -
--- ---
$(29) $(20) $(45) $(43)
---- ---- ---- ----
(d) Represents the impact of
amortization expense on diluted
earnings per common share, net
of the income tax benefit. The
income tax benefit was primarily
calculated using combined tax
rates of 25.5% and 38.7% for
2018 and 2017, respectively.
The pre-tax amortization
expense that is excluded from
the calculation of adjusted
diluted EPS excluding
amortization expense is recorded
in the company's statements of
operations as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
---- ---- ---- ----
(dollars in millions)
Amortization
of
intangible
assets $22 $18 $44 $35
Equity
in
earnings
of
equity
method
investees,
net
of
taxes 4 4 8 8
--- --- --- ---
$26 $22 $52 $43
--- --- --- ---
(e) Represents the impact of ETB
recorded in income tax
expense.
(f) Represents an income tax
benefit associated with a
change in a tax return
accounting method that will
enable the company to
accelerate the deduction of
certain expenses on its 2017
tax return at the federal
corporate statutory tax rate
in effect during 2017.
3) For the three months
ended June 30,
2018, the company
did not repurchase
any shares of its
common stock. For
the six months
ended June 30,
2018, the company
repurchased 0.5
million shares of
its common stock
for $50 million. As
of June 30, 2018,
$0.9 billion
remained available
under the company's
share repurchase
authorizations.
4) The outlook for
adjusted diluted
EPS excluding
amortization
expense represents
management's
estimates for the
full year 2018
before the impact
of special items,
including ETB, and
amortization
expense. Further
impacts to earnings
related to special
items may be
incurred throughout
the remainder of
the year.
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 2018
outlook for
adjusted diluted
EPS excluding
amortization
expense to the
corresponding
amounts determined
under GAAP:
Low High
--- ----
Diluted earnings per common share $5.50 $5.64
Restructuring and integration
charges (a) 0.62 0.62
Amortization expense (b) 0.58 0.58
Other 0.05 0.05
Certain income tax benefits (0.10) (0.10)
ETB (c) (0.12) (0.12)
----- -----
Adjusted diluted EPS excluding
amortization expense $6.53 $6.67
----- -----
(a) Represents estimated full year
pre-tax charges of $115
million primarily associated
with systems conversions,
integration and workforce
reductions 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
2018 on the calculation of
adjusted diluted EPS excluding
amortization expense.
Amortization expense used in
the calculation is as follows
(dollars in millions):
Amortization of intangible assets $91
Amortization expense included in
equity in earnings of equity
method investees, net of taxes 16
---
Total pre-tax amortization
expense $107
----
Total amortization expense, net
of an estimated tax benefit $80
---
(c)
Represents
the estimated
full year
impact of
ETB.
5) The outlook
for 4% to
4.5% revenue
growth in
2018
represents
management's
estimates for
2018 versus
2017 reported
revenues
adjusted to
reflect the
impact of new
revenue
recognition
rules that
became
effective
January 1,
2018. Under
the new
rules, the
company will
report
uncollectible
balances
associated
with patient
responsibility
as a
reduction in
net revenues
when
historically
these amounts
were
classified as
bad debt
expense
within
selling,
general and
administrative
expenses.
The following
tables
reconcile our
2017 net
revenues
determined
under
previous
revenue
recognition
rules with
2017 net
revenue
adjusted to
reflect the
impact of the
new revenue
recognition
rules:
Three Months Ended Year Ended
----------
March 31, June 30, September 30, December 31, December 31,
2017 2017 2017 2017 2017
---- ---- ---- ---- ----
(dollars in millions)
2017 Revenue on an adjusted basis:
----------------------------------
Net revenues $1,899 $1,943 $1,931 $1,936 $7,709
Adjustment for
adoption of
new revenue
recognition
standard (82) (79) (75) (71) (307)
--- --- --- --- ----
2017 Revenue
on an
adjusted
basis $1,817 $1,864 $1,856 $1,865 $7,402
------ ------ ------ ------ ------
2018 Revenue outlook:
---------------------
2017 Revenue on an adjusted
basis $7,402 $7,402
2018 Equivalent revenue
growth 4% 4.5%
--- ---
2018 Revenue outlook $7,698 $7,735
------ ------
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SOURCE Quest Diagnostics
