Quest Diagnostics Reports Record Fourth Quarter And Full Year 2019 Revenues And Earnings; Provides Guidance For Full Year 2020; Increases Dividend 5.7% To $0.56 Per Quarter
SECAUCUS, N.J., Jan. 30, 2020 /PRNewswire/ -- Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today financial results for the fourth quarter and full year ended December 31, 2019.
"We had a solid fourth quarter and ended the year by delivering record revenues, earnings and cash from operations," said Steve Rusckowski, Chairman, CEO and President. "Strong volume growth from expanded health plan network access, combined with outstanding execution of our Operational Excellence strategy, helped us offset significant reimbursement pressure.
"Quest is well positioned once again in 2020 to deliver on our commitment to grow revenues and earnings. We have a strong value proposition that supports health care's triple aim of improving medical quality and the patient experience while reducing the cost of care. Our guidance for 2020 reflects our continued momentum, partially offset by yet another year of meaningful reimbursement pressure."
Three Months Ended December 31, Twelve Months Ended December 31,
2019 2018 Change 2019 2018 Change
---
(dollars in millions, except per share data)
Reported:
---
Net revenues $
1,926 $
1,839 4.8 $
7,726 $
7,531 2.6
% %
Diagnostic information services revenues $
1,844 $
1,756 5.1 $
7,405 $
7,204 2.8
% %
Revenue per requisition 1.2 (1.3)
% %
Requisition volume 4.1 4.3
% %
Organic requisition volume 3.4 3.1
% %
Operating income (a) $
363 $
220 65.1 $
1,231 $
1,101 11.8
% %
Operating income as a percentage of net revenues 18.8 12.0
% 6.8 15.9
% 14.6
% 1.3
% % %
(a)
Income from continuing operations attributable to $
253 $
127 98.7 $
838 $
736 13.8
% %
Quest Diagnostics (a)
Diluted EPS from continuing operations (a) $
1.86 $
0.92 101.2 $
6.13 $
5.29 15.9
% %
Cash provided by operations $
348 $
295 17.7 $
1,243 $
1,200 3.6
% %
Capital expenditures $
172 $
151 14.2 $
400 $
383 4.6
% %
Adjusted (b):
---
Operating income $
329 $
295 11.5 $
1,316 $
1,315 0.1
% %
Operating income as a percentage of net revenues 17.0 16.0
% 1.0 17.0
% 17.5
% (0.5)
% % %
Income from continuing operations attributable to $
228 $
187 22.1 $
896 $
878 2.1
% %
Quest Diagnostics
Diluted EPS from continuing operations $
1.67 $
1.36 23.7 $
6.56 $
6.31 4.0
% %
(a)
For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage
of net revenues, income from continuing operations attributable to Quest Diagnostics, and diluted EPS from continuing
operations, 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 presented. 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.
Dividend and Share Repurchase Authority Increased
Quest Diagnostics' Board of Directors authorized a 5.7% increase in its quarterly dividend from $0.53 to $0.56 per share, or $2.24 per share annually, payable on April 21, 2020 to shareholders of record of Quest Diagnostics common stock on April 7, 2020. This dividend increase is the company's ninth since 2011.
The Board also increased the company's share repurchase authorization by $1 billion, bringing the total authorization available to $1.2 billion as of December 31, 2019.
Guidance for Full Year 2020
The company estimates full year 2020 results as follows:
Low High
Net revenues
$7.80 billion
$7.96 billion
Net revenues increase 1.0% 3.0%
Reported diluted EPS Greater than $5.51
Adjusted diluted EPS Greater than $6.60
Cash provided by operations
$1.25 billion
$1.30 billion
Capital expenditures
$375 million
$400 million
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, amortization expense, excess tax benefits ("ETB") associated with stock-based compensation, the gain associated with the sale and leaseback of a property, 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: 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 866-357-4210 for domestic callers or 203-369-0125 for international callers. No passcode is required. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on January 30, 2020 until midnight Eastern Time on February 13, 2020. 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 and Twelve Months Ended December 31, 2019 and 2018
(in millions, except per share data)
(unaudited)
Three Months Ended December 31, Twelve Months Ended December 31,
2019 2018 2019 2018
---
Net revenues $
1,926 $
1,839 $
7,726 $
7,531
Operating costs and expenses and other operating (income) expense:
Cost of services 1,264 1,235 5,037 4,926
Selling, general and administrative 349 356 1,457 1,424
Amortization of intangible assets 24 24 96 90
Other operating (income) expense, net (74) 4 (95) (10)
Total operating costs and expenses, net 1,563 1,619 6,495 6,430
Operating income 363 220 1,231 1,101
Other (expense) income:
Interest expense, net (42) (43) (175) (167)
Other income (expense), net 7 (10) 20 (8)
Total non-operating expenses, net (35) (53) (155) (175)
Income from continuing operations before income taxes and equity in 328 167 1,076 926
earnings of equity method investees
Income tax expense (72) (40) (247) (182)
Equity in earnings of equity method investees, net of taxes 9 12 57 44
Income from continuing operations 265 139 886 788
Income from discontinued operations, net of taxes - 20
Net income 265 139 906 788
Less: Net income attributable to noncontrolling interests 12 12 48 52
Net income attributable to Quest Diagnostics $
253 $
127 $
858 $
736
Amounts attributable to Quest Diagnostics' common stockholders:
Income from continuing operations $
253 $
127 $
838 $
736
Income from discontinued operations, net of taxes - 20
Net income $
253 $
127 $
858 $
736
Earnings per share attributable to Quest Diagnostics' common
stockholders - basic:
Income from continuing operations $
1.88 $
0.93 $
6.21 $
5.39
Income from discontinued operations - 0.15
Net income $
1.88 $
0.93 $
6.36 $
5.39
Earnings per share attributable to Quest Diagnostics' common
stockholders - diluted:
Income from continuing operations $
1.86 $
0.92 $
6.13 $
5.29
Income from discontinued operations - 0.15
Net income $
1.86 $
0.92 $
6.28 $
5.29
Weighted average common shares outstanding:
Basic 134 136 134 136
Diluted 136 137 136 139
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31, 2019 and 2018
(in millions, except per share data)
(unaudited)
December 31, December 31,
2019 2018
---
Assets
---
Current assets:
Cash and cash equivalents $
1,192 $
135
Accounts receivable, net 1,063 1,012
Inventories 123 99
Prepaid expenses and other current assets 112 144
Total current assets 2,490 1,390
Property, plant and equipment, net 1,453 1,288
Operating lease right-of-use assets 518
Goodwill 6,619 6,563
Intangible assets, net 1,121 1,207
Investment in equity method investees 482 436
Other assets 160 119
Total assets $
12,843 $
11,003
Liabilities and Stockholders' Equity
---
Current liabilities:
Accounts payable and accrued expenses $
1,041 $
1,021
Current portion of long-term debt 804 464
Current portion of long-term operating lease liabilities 145
Total current liabilities 1,990 1,485
Long-term debt 3,966 3,429
Long-term operating lease liabilities 413
Other liabilities 711 745
Redeemable noncontrolling interest 76 77
Stockholders' equity:
Quest Diagnostics stockholders' equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both December 31, 2019 2 2
and 2018; 217 shares issued as of both December 31, 2019 and 2018
Additional paid-in capital 2,722 2,667
Retained earnings 8,174 7,602
Accumulated other comprehensive loss (39) (59)
Treasury stock, at cost; 84 shares and 82 shares as of December 31, 2019 and 2018, respectively (5,218) (4,996)
Total Quest Diagnostics stockholders' equity 5,641 5,216
Noncontrolling interests 46 51
Total stockholders' equity 5,687 5,267
Total liabilities and stockholders' equity $
12,843 $
11,003
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December 31, 2019 and 2018
(in millions)
(unaudited)
Twelve Months Ended
December 31,
2019 2018
---
Cash flows from operating activities:
Net income $
906 $
788
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 329 309
Provision for doubtful accounts 11 6
Deferred income tax provision 15 73
Stock-based compensation expense 56 61
(Gains) losses on sale of property, plant and equipment (70) 6
Other, net (39) 6
Changes in operating assets and liabilities:
Accounts receivable (63) (65)
Accounts payable and accrued expenses 73 (19)
Income taxes payable 29 4
Other assets and liabilities, net (4) 31
Net cash provided by operating activities 1,243 1,200
Cash flows from investing activities:
Business acquisitions, net of cash acquired (58) (421)
Proceeds from disposition of business - 2
Proceeds from disposition of property, plant and equipment 91 2
Capital expenditures (400) (383)
Increase in investments and other assets (44) (1)
Net cash used in investing activities (411) (801)
Cash flows from financing activities:
Proceeds from borrowings 2,281 2,090
Repayments of debt (1,449) (1,966)
Purchases of treasury stock (353) (322)
Exercise of stock options 119 99
Employee payroll tax withholdings on stock issued under stock-based compensation plans (16) (21)
Dividends paid (286) (266)
Distributions to noncontrolling interest partners (54) (54)
Contributions from noncontrolling interest partners - 16
Other financing activities, net (17) 23
Net cash provided by (used in) financing activities 225 (401)
Net change in cash and cash equivalents and restricted cash 1,057 (2)
Cash and cash equivalents and restricted cash, beginning of period 135 137
Cash and cash equivalents and restricted cash, end of period $
1,192 $
135
Cash and cash equivalents $
1,192 $
135
Restricted cash -
Cash and cash equivalents and restricted cash, end of period $
1,192 $
135
Cash paid during the period for:
Interest $
192 $
174
Income taxes $
202 $
84
Notes to Financial Tables
1) The computation of basic and diluted earnings per common share is as follows:
Three Months Ended December 31, Twelve Months Ended December 31,
2019 2018 2019 2018
---
(in millions, except per share data)
Amounts attributable to Quest Diagnostics' common stockholders:
Income from continuing operations $
253 $
127 $
838 $
736
Income from discontinued operations, net of taxes - 20
Net income attributable to Quest Diagnostics' common stockholders $
253 $
127 $
858 $
736
Income from continuing operations $
253 $
127 $
838 $
736
Less: Earnings allocated to participating securities 1 1 3 3
Earnings available to Quest Diagnostics' common stockholders - basic and $
252 $
126 $
835 $
733
diluted
Weighted average common shares outstanding - basic 134 136 134 136
Effect of dilutive securities:
Stock options and performance share units 2 1 2 3
Weighted average common shares outstanding - diluted 136 137 136 139
Earnings per share attributable to Quest Diagnostics' common
stockholders - basic:
Income from continuing operations $
1.88 $
0.93 $
6.21 $
5.39
Income from discontinued operations - 0.15
Net income $
1.88 $
0.93 $
6.36 $
5.39
Earnings per share attributable to Quest Diagnostics' common
stockholders - diluted:
Income from continuing operations $
1.86 $
0.92 $
6.13 $
5.29
Income from discontinued operations - 0.15
Net income $
1.86 $
0.92 $
6.28 $
5.29
2) The following tables reconcile reported GAAP results to non-GAAP adjusted results:
Three Months Ended December 31, 2019
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (c) earnings of continuing from
percentage of equity operations continuing
net revenues method attributable operations
investees, net to Quest
of taxes Diagnostics
---
As reported $
363 18.8
% $
(72) $
9 $
253 $
1.86
Restructuring and 14 0.7 (4) 10 0.07
integration charges (a)
Other (b) (72) (3.8) 18 (54) (0.39)
Amortization expense 24 1.3 (6) 3 21 0.15
ETB - (2) (2) (0.02)
As adjusted $
329 17.0
% $
(66) $
12 $
228 $
1.67
Twelve Months Ended December 31, 2019
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (c) earnings of continuing from
percentage of equity operations continuing
net revenues method attributable operations
investees, net to Quest
of taxes Diagnostics
As reported $
1,231 15.9
% $
(247) $
57 $
838 $
6.13
Restructuring and 78 1.0 (21) 57 0.42
integration charges (a)
Other (b) (89) (1.1) 18 (71) (0.50)
Amortization expense 96 1.2 (26) 15 85 0.61
ETB (13) (13) (0.10)
As adjusted $
1,316 17.0
% $
(289) $
72 $
896 $
6.56
Three Months Ended December 31, 2018
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (c) earnings of continuing from
percentage of equity operations continuing
net revenues method attributable operations
investees, net to Quest
of taxes Diagnostics
As reported $
220 12.0
% $
(40) $
12 $
127 $
0.92
Restructuring and 47 2.5 (12) 35 0.26
integration charges (a)
Other (b) 4 0.2 4 0.02
Amortization expense 24 1.3 (7) 4 21 0.16
ETB (1) (1) (0.01)
Certain income tax items 1 1 0.01
(d)
As adjusted $
295 16.0
% $
(59) $
16 $
187 $
1.36
Twelve Months Ended December 31, 2018
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (c) earnings of continuing from
percentage of equity operations continuing
net revenues method attributable operations
investees, net to Quest
of taxes Diagnostics
---
As reported $
1,101 14.6
% $
(182) $
44 $
736 $
5.29
Restructuring and 122 1.7 (31) 91 0.66
integration charges (a)
Other (b) 2 1 3 0.01
Amortization expense 90 1.2 (27) 17 80 0.57
ETB - (18) (18) (0.13)
Certain income tax items - (14) (14) (0.09)
(d)
As adjusted $
1,315 17.5
% $
(271) $
61 $
878 $
6.31
(a)
For the three and twelve months ended December 31, 2019, represents costs primarily associated with systems
conversions and integration incurred in connection with further restructuring and integrating our business. For the
three and twelve months ended December 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 Twelve Months Ended
December 31, December 31,
2019 2018 2019 2018
---
(dollars in millions)
Cost of services $
6 $
20 $
35 $
56
Selling, general and
administrative 8 27 43 65
Other operating
(income) expense,
net 1
Operating income $
14 $
47 $
78 $
122
(b)
For the three months ended December 31, 2019, primarily represents a gain associated with the sale and leaseback of a property. For
the twelve months ended December 31, 2019, the pre-tax impact primarily represents a gain associated with the sale and leaseback of
a property, a gain associated with the decrease in the fair value of the contingent consideration accruals associated with
previous acquisitions, and a gain associated with an insurance claim for hurricane related losses, partially offset by
costs incurred related to a data security incident and non-cash asset impairment charges.
For the three months ended December 31, 2018, primarily represents the loss on the sale of a foreign subsidiary. For
the twelve months ended December 31, 2018, primarily represents costs incurred related to certain legal matters and a
loss on the sale of a foreign subsidiary, which were partially offset by a gain associated with the decrease in the fair
value of the contingent consideration accrual associated with a previous acquisition and an insurance claim for
hurricane related losses.
The following table summarizes the pre-tax impact of these other items on the company's consolidated statement of
operations:
Three Months Ended Twelve Months Ended
December 31, December 31,
2019 2018 2019 2018
---
(dollars in millions)
Cost of services
$
$
$ $
12
Selling, general and
administrative 1 6
Other operating
(income) expense,
net (73) 4 (95) (10)
Operating income $
(72) $
4 $
(89) $
2
(c)
For restructuring and integration charges, other items and amortization expense, income tax impacts, where recorded,
were primarily calculated using combined statutory income 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. For the gain in 2019 associated with the decrease in the fair value of the contingent consideration accruals
associated with previous acquisitions, there was no net income tax expense related to acquisitions in which the gain is
non-taxable.
(d)
For the three months ended December 31, 2018, represents an income tax expense associated with finalizing the
impact of the enactment of the Tax Cut and Jobs Act ("TCJA"). For the twelve months ended December 31, 2018,
represents an income tax benefit associated with a change in a tax return accounting method that enabled 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, partially offset by an income tax expense associated with finalizing the impact of the enactment of TCJA.
3) Discontinued operations, net of taxes, for the twelve months ended December 31, 2019 includes discrete tax
benefits of $20
million associated with the favorable resolution of certain tax contingencies related to Nichols Institute
Diagnostics, a test kit
manufacturing subsidiary whose operations were discontinued in 2006.
4) For the three months ended December 31, 2019, the company repurchased 1.9 million shares of its common stock
for $200
million. For the twelve months ended December 31, 2019, the company repurchased 3.5 million shares of its
common stock for
$350 million. As of December 31, 2019, $1.2 billion remained available under the company's share repurchase authorizations.
5) The outlook for adjusted diluted EPS represents management's estimates for the full year 2020 before the
impact of special items,
including ETB and amortization expense. Further impacts to earnings related to special items may occur
throughout 2020.
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 2020 outlook for adjusted diluted EPS to the
corresponding amounts
determined under GAAP:
Diluted earnings per common share $
5.51
Restructuring and integration charges (a) 0.55
Amortization expense (b) 0.64
ETB (0.10)
Adjusted diluted EPS $
6.60
(a)
Represents estimated full year pre-tax charges of $100 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 the estimated impact of amortization expense for 2020 on the calculation of adjusted diluted EPS.
Amortization expense used in the calculation is as follows (dollars in millions):
Amortization of intangible assets $
107
Amortization expense included in equity in earnings of equity method investees, net of taxes 11
Total pre-tax amortization expense $
118
Total amortization expense, net of an estimated tax benefit using a combined statutory income tax rate $
88
of 25.5%
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SOURCE Quest Diagnostics Incorporated
