Quest Diagnostics Reports Second Quarter 2020 Financial Results
SECAUCUS, N.J., July 23, 2020 /PRNewswire/ -- Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today financial results for the second quarter ended June 30, 2020, which are consistent with the preliminary results reported on July 13, 2020.
"In one of the most challenging periods in our history, Quest Diagnostics stepped up and rapidly expanded COVID-19 testing for the country and delivered stronger-than-expected performance in the second quarter," said Steve Rusckowski, Chairman, CEO and President, Quest Diagnostics. "Our base testing volume declined versus 2019 because of the pandemic and was partially offset by COVID-19 testing. I am proud of Quest's employees who have been on the frontlines of healthcare, answering the call in fighting the COVID-19 pandemic."
Mr. Rusckowski concluded: "Looking forward to the rest of the year, we will continue to expand COVID-19 testing capacity while also continuing to serve our customers as they continue to recover from the pandemic. We have re-established our financial outlook for the remainder of the year with a broad range that reflects uncertainty caused by the pandemic."
Three Months Ended June 30,
Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
(dollars in millions, except per share data)
Reported:
---
Net revenues $
1,827 $
1,953 (6.4) $
3,649 $
3,844 (5.1)
% %
Diagnostic Information Services revenues $
1,764 $
1,872 (5.7) $
3,508 $
3,684 (4.8)
% %
Revenue per requisition 15.3 6.4
% %
Requisition volume (17.7) (10.2)
% %
Organic requisition volume (18.2) (10.5)
% %
Operating income (a) $
283 $
307 (7.6) $
458 $
555 (17.5)
% %
Operating income as a percentage of net revenues (a) 15.5 15.7
% (0.2) 12.5
% 14.4 (1.9)
% % % %
Income from continuing operations attributable to Quest Diagnostics (a) $
185 $
206 (10.1) $
284 $
370 (23.3)
% %
Diluted EPS (a) $
1.36 $
1.51 (9.7) $
2.09 $
2.71 (23.0)
% %
Cash provided by operations $
355 $
321 10.4 $
602 $
596 0.9
% %
Capital expenditures $
82 $
85 (4.0) $
165 $
132 24.7
% %
Adjusted:
---
Operating income $
294 $
352 (16.2) $
519 $
638 (18.7)
% %
Operating income as a percentage of net revenues 16.1 18.0
% (1.9) 14.2
% 16.6 (2.4)
% % % %
Income from continuing operations attributable to Quest Diagnostics $
193 $
237 (18.3) $
321 $
427 (24.7)
% %
Diluted EPS $
1.42 $
1.73 (17.9) $
2.36 $
3.13 (24.3)
% %
(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,
see note 2 of the financial
tables attached below.
Outlook Reinstated for full year 2020
The company reinstated its financial outlook for full year 2020 after withdrawing it in April 2020. Current estimates for full year 2020 results are as follows:
Low High
Net revenues
$8.0 billion
$8.6 billion
Net revenues increase 3.5% 11.3%
Reported diluted EPS $5.66 $7.66
Adjusted diluted EPS $6.60 $8.60
Cash provided by operations At least $1.25
billion
Capital expenditures
$375 million
$400 million
Outlook ranges for full year 2020 reflect a number of assumptions that are subject to change based on uncertainties related to the impact of the COVID-19 pandemic. The company intends to provide further detail regarding these assumptions on its quarterly conference call today.
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, 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 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 888-566-0435 for domestic callers or 402-998-0605 for international callers. No passcode is required. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on July 23, 2020 until midnight Eastern Time on August 6, 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 47,000 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, 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.
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, 2020 and 2019
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net revenues $
1,827 $
1,953 $
3,649 $
3,844
Operating costs and expenses and other operating income:
Cost of services 1,221 1,265 2,491 2,509
Selling, general and administrative 360 362 707 746
Amortization of intangible assets 25 25 50 49
Other operating income, net (62) (6) (57) (15)
Total operating costs and expenses, net 1,544 1,646 3,191 3,289
Operating income 283 307 458 555
Other income (expense):
Interest expense, net (41) (45) (82) (89)
Other income (expense), net 13 3 (3) 12
Total non-operating expenses, net (28) (42) (85) (77)
Income from continuing operations before income taxes and equity in earnings of equity method investees 255 265 373 478
Income tax expense (66) (63) (92) (113)
Equity in earnings of equity method investees, net of taxes 4 17 18 30
Income from continuing operations 193 219 299 395
Income from discontinued operations, net of taxes - 20 20
Net income 193 239 299 415
Less: Net income attributable to noncontrolling interests 8 13 15 25
Net income attributable to Quest Diagnostics $
185 $
226 $
284 $
390
Amounts attributable to Quest Diagnostics' common stockholders:
Income from continuing operations $
185 $
206 $
284 $
370
Income from discontinued operations, net of taxes - 20 20
Net income $
185 $
226 $
284 $
390
Earnings per share attributable to Quest Diagnostics' common stockholders - basic:
Income from continuing operations $
1.38 $
1.52 $
2.12 $
2.74
Income from discontinued operations - 0.15 0.15
Net income $
1.38 $
1.67 $
2.12 $
2.89
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted:
Income from continuing operations $
1.36 $
1.51 $
2.09 $
2.71
Income from discontinued operations - 0.15 0.15
Net income $
1.36 $
1.66 $
2.09 $
2.86
Weighted average common shares outstanding:
Basic 134 135 134 134
Diluted 136 136 135 136
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
June 30, 2020 and December 31, 2019
(in millions, except per share data)
(unaudited)
June 30, December 31,
2020 2019
Assets
---
Current assets:
Cash and cash equivalents $
988 $
1,192
Accounts receivable, net 1,126 1,063
Inventories 154 123
Prepaid expenses and other current assets 112 112
Total current assets 2,380 2,490
Property, plant and equipment, net 1,505 1,453
Operating lease right-of-use assets 522 518
Goodwill 6,789 6,619
Intangible assets, net 1,141 1,121
Investments in equity method investees 495 482
Other assets 158 160
Total assets $
12,990 $
12,843
Liabilities and Stockholders' Equity
---
Current liabilities:
Accounts payable and accrued expenses $
1,142 $
1,041
Current portion of long-term debt 555 804
Current portion of long-term operating lease liabilities 146 145
Total current liabilities 1,843 1,990
Long-term debt 4,020 3,966
Long-term operating lease liabilities 416 413
Other liabilities 753 711
Redeemable noncontrolling interest 77 76
Stockholders' equity:
Quest Diagnostics stockholders' equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both June 30, 2020 and
December 31, 2019; 217 shares issued as of both June 30, 2020 and December 31, 2019 2 2
Additional paid-in capital 2,764 2,722
Retained earnings 8,307 8,174
Accumulated other comprehensive loss (55) (39)
Treasury stock, at cost; 83 and 84 shares as of June 30, 2020 and December 31, 2019, respectively (5,187) (5,218)
Total Quest Diagnostics stockholders' equity 5,831 5,641
Noncontrolling interests 50 46
Total stockholders' equity 5,881 5,687
Total liabilities and stockholders' equity $
12,990 $
12,843
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2020 and 2019
(in millions)
(unaudited)
Six Months Ended June 30,
2020 2019
Cash flows from operating activities:
Net income $
299 $
415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 174 165
Provision for credit losses 13 5
Deferred income tax provision 23 13
Stock-based compensation expense 31 32
Other, net 3 (33)
Changes in operating assets and liabilities:
Accounts receivable (75) (81)
Accounts payable and accrued expenses 42 27
Income taxes payable 51 15
Termination of interest rate swap agreements 40
Other assets and liabilities, net 1 38
Net cash provided by operating activities 602 596
Cash flows from investing activities:
Business acquisitions, net of cash acquired (228) (56)
Capital expenditures (165) (132)
Increase in investments and other assets (18) (14)
Net cash used in investing activities (411) (202)
Cash flows from financing activities:
Proceeds from borrowings 749 1,484
Repayments of debt (1,001) (1,448)
Purchases of treasury stock (75) (103)
Exercise of stock options 117 66
Employee payroll tax withholdings on stock issued under stock-based compensation plans (13) (16)
Dividends paid (146) (143)
Distributions to noncontrolling interest partners (10) (27)
Other financing activities, net (16) (69)
Net cash used in financing activities (395) (256)
Net change in cash and cash equivalents and restricted cash (204) 138
Cash and cash equivalents and restricted cash, beginning of period 1,192 135
Cash and cash equivalents and restricted cash, end of period $
988 $
273
Cash paid during the period for:
Interest $
103 $
91
Income taxes $
20 $
83
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,
2020 2019 2020 2019
(in millions, except per share data)
Amounts attributable to Quest Diagnostics' common stockholders:
Income from continuing operations $
185 $
206 $
284 $
370
Income from discontinued operations, net of taxes 20 20
Net income attributable to Quest Diagnostics' common stockholders $
185 $
226 $
284 $
390
Income from continuing operations $
185 $
206 $
284 $
370
Less: earnings allocated to participating securities 1 1 1
Earnings available to Quest Diagnostics' common stockholders - basic and diluted $
184 $
206 $
283 $
369
Weighted average common shares outstanding - basic 134 135 134 134
Effect of dilutive securities:
Stock options and performance share units 2 1 1 2
Weighted average common shares outstanding - diluted 136 136 135 136
Earnings per share attributable to Quest Diagnostics' common stockholders - basic:
Income from continuing operations $
1.38 $
1.52 $
2.12 $
2.74
Income from discontinued operations 0.15 0.15
Net income $
1.38 $
1.67 $
2.12 $
2.89
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted:
Income from continuing operations $
1.36 $
1.51 $
2.09 $
2.71
Income from discontinued operations 0.15 0.15
Net income $
1.36 $
1.66 $
2.09 $
2.86
2) The following tables
reconcile reported GAAP
results to non-GAAP
adjusted results:
Three Months Ended June 30, 2020
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (d) earnings of continuing
percentage of equity method operations
net revenues investees, net attributable to
of taxes Quest
Diagnostics
As reported $
283 15.5
% $
(66) $
4 $
185 $
1.36
Restructuring and 9 0.6 (1) 8 0.06
integration charges (a)
COVID-19 impact (b) (23) (1.3) 10 (3) (17) (0.13)
Amortization expense 25 1.3 (7) 3 21 0.16
ETB (4) (4) (0.03)
As adjusted $
294 16.1
% $
(68) $
4 $
193 $
1.42
Six Months Ended June 30, 2020
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (d) earnings of continuing
percentage of equity method operations
net revenues investees, net attributable to
of taxes Quest
Diagnostics
As reported $
458 12.5
% $
(92) $
18 $
284 $
2.09
Restructuring and 25 0.7 (5) 20 0.15
integration charges (a)
COVID-19 impact (b) (14) (0.4) 7 (3) (13) (0.10)
Amortization expense 50 1.4 (14) 6 42 0.31
ETB (12) (12) (0.09)
As adjusted $
519 14.2
% $
(116) $
21 $
321 $
2.36
Three Months Ended June 30, 2019
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (d) earnings of continuing
percentage of equity method operations
net revenues investees, net attributable to
of taxes Quest
Diagnostics
As reported $
307 15.7
% $
(63) $
17 $
206 $
1.51
Restructuring and 26 1.3 (7) 19 0.14
integration charges (a)
Other (c) (6) (0.3) (6) (0.04)
Amortization expense 25 1.3 (7) 5 23 0.16
ETB (5) (5) (0.04)
As adjusted $
352 18.0
% $
(82) $
22 $
237 $
1.73
Six Months Ended June 30, 2019
(dollars in millions, except per share data)
Operating Operating Income tax Equity in Income from Diluted EPS
income income as a expense (d) earnings of continuing
percentage of equity method operations
net revenues investees, net of attributable to
taxes Quest
Diagnostics
As reported $
555 14.4
% $
(113) $
30 $
370 $
2.71
Restructuring and 48 1.3 (13) 35 0.26
integration charges (a)
Other (c) (14) (0.4) (1) (15) (0.10)
Amortization expense 49 1.3 (14) 10 45 0.32
ETB (8) (8) (0.06)
As adjusted $
638 16.6
% $
(149) $
40 $
427 $
3.13
(a) For both the three and six
months ended June 30, 2020 and
2019, 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,
2020 2019 2020 2019
(dollars in millions)
Cost of services $
3 $
11 $
10 $
22
Selling, general and administrative 6 15 15 26
Operating income $
9 $
26 $
25 $
48
(b) For both the three and six
months ended June 30, 2020,
represents the impact of
certain items resulting from
the COVID-19 pandemic
including $65 million of income
recognized attributable to the
receipt of the initial tranche
of funds from the government
that were appropriated to
healthcare providers under the
Coronavirus Aid, Relief, and
Economic Security Act ("CARES
Act"), partially offset by
expense associated with a one-
time payment to eligible
employees to help offset
expenses they incurred as a
result of COVID-19, certain
asset impairment charges, and
incremental costs incurred
primarily to protect the health
and safety of the company's
employees and customers.
The following table summarizes the pre-tax impact of these COVID-19 items on the company's consolidated
statements of operations:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(dollars in millions)
Cost of services $
34
$ $
35
$
Selling, general and administrative 5 8
Other operating income, net (62) (57)
Operating income $
(23)
$ $
(14)
$
Net income attributable to noncontrolling interest $
1
$ $
3
$
(c) For the three months ended June
30, 2019, the pre-tax impact
primarily represents a gain
associated with the decrease in
the fair value of the contingent
consideration accrual associated
with a previous acquisition. For
the six months ended June 30,
2019, the pre-tax impact
primarily represents a gain
associated with an insurance
claim for hurricane related
losses, and a gain associated
with the decrease in the fair
value of the contingent
consideration accrual associated
with a previous acquisition,
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 Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(dollars in millions)
Selling, general and administrative
$
$
$ $
1
Other operating income, net (6) (15)
Operating income
$ $
(6)
$ $
(14)
(d) For restructuring and integration
charges, COVID-19 impacts, other
items and amortization expense,
income tax impacts, where
recorded, were primarily
calculated using combined
statutory income tax rates of
25.5% for both 2020 and 2019.
For the gain associated with an
insurance claim for hurricane
related losses in 2019, there was
no net income tax expense as the
company was 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
accrual associated with a
previous acquisition, there was
no net income tax expense as the
gain is non-taxable.
3) Discontinued
operations, net of
taxes, for the
three and six
months ended June
30, 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 June
30, 2020, the
company did not
repurchase any
shares of its
common stock. For
the six months
ended June 30,
2020, the company
repurchased 0.7
million shares of
its common stock
for $75 million.
As of June 30,
2020, $1.2 billion
remained available
under the
company's share
repurchase
authorizations;
however the
company has
temporarily
suspended
additional share
repurchases under
the existing
authorization
through the end of
2020.
5) For the six months
ended June 30,
2020, net cash
provided by
operating
activities
includes $65
million that the
company received
from the initial
tranche of funds
that were
appropriated to
healthcare
providers under
the CARES Act.
6) The outlook for
adjusted diluted
EPS represents
management's
estimates for the
full year 2020
before the impact
of special items.
Further impacts to
earnings related
to special items
may occur
throughout 2020.
Both reported and
adjusted diluted
EPS exclude any
proceeds that we
may receive from
the secondary
tranche of funds
distributed to
healthcare
providers under
the CARES Act.
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:
Low High
Diluted EPS $
5.66 $
7.66
Restructuring and integration charges (a) 0.50 0.50
COVID-19 impact (0.10) (0.10)
Amortization expense (b) 0.65 0.65
ETB (0.11) (0.11)
Adjusted diluted EPS $
6.60 $
8.60
(a) Represents estimated full year
pre-tax charges of $90 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 of 25.5% $
88
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SOURCE Quest Diagnostics
