QUEST DIAGNOSTICS INCORPORATED MADISON, N.J., April 20, 2017 /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, 2017 and raised its full year 2017 diluted EPS outlook.
"We delivered strong growth across the board in the first quarter with gains in revenues, EPS, operating income, margins and operating cash flow," said Steve Rusckowski, Chairman, President and CEO. "Growth in the quarter was driven by expanding relationships with hospital health systems. Our agreement with PeaceHealth in the Pacific Northwest announced in the first quarter will further bolster growth later in the year."
Three Months Ended March 31,
2017 2016 Change
---- ---- ------
(dollars in millions, except per share data)
Reported:
---------
Net revenues (a)
(b) $1,899 $1,863 1.9%
Diagnostic
Information
Services
revenues $1,812 $1,756 3.2%
Revenue per
requisition (0.2)%
Requisition
volume 3.5%
Operating income
(a) (b) $279 $257 8.7%
Operating income
as a percentage
of net revenues
(b) 14.7% 13.8% 90 bps
Net income
attributable to
Quest
Diagnostics (b)
(c) $164 $103 58.8%
Diluted EPS (b)
(c) $1.16 $0.71 63.4%
Cash provided by
operations (d) $196 $153 28.2%
Capital
expenditures $42 $47 (11.6)%
Adjusted:
---------
Revenues on an
equivalent basis $1,899 $1,845 3.0%
Operating income
(a) $297 $281 5.7%
Operating income
as a percentage
of net revenues 15.6% 15.1% 50 bps
Net income
attributable to
Quest
Diagnostics (c) $175 $148 17.7%
Diluted EPS
excluding
amortization (c) $1.33 $1.13 17.7%
(a) For the three months ended March
31, 2016, net revenues and
operating income include $18
million and $8 million,
respectively, related to the
Focus Diagnostics products
business, which was sold on May
13, 2016.
(b) For further details impacting the
year-over-year comparisons
related to net revenues,
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.
(c) Excess tax benefit associated with
stock-based compensation
arrangements impacted income tax
expense and diluted EPS as
follows:
Three Months Ended
March 31,
2017 2016
---- ----
(dollars in millions, except
per share data)
Income tax benefit $16 $2
Diluted EPS $0.11 $0.01
(d) For details impacting the year-
over-year comparisons related
to cash provided by operations,
see note 4 of the financial
tables attached below.
Updated Outlook for Full Year 2017
The company revises diluted EPS estimates for full year 2017 results, reflecting higher than expected excess tax benefit related to stock-based compensation in the first quarter of 2017, and reaffirms the balance of its 2017 outlook, as follows:
Current Outlook Previous Outlook
Low High Low High
--- ---- --- ----
Revenues $7.64 billion $7.72 billion $7.64 billion $7.72 billion
Revenue increase
on a reported
basis 1.7% 2.7% 1.7% 2.7%
Revenue increase
on an equivalent
basis (e) 2% 3% 2% 3%
Reported diluted
EPS $4.73 $4.88 $4.65 $4.80
Adjusted diluted
EPS excluding
amortization $5.45 $5.60 $5.37 $5.52
Cash provided by
operations Approximately $1.1 billion Approximately $1.1 billion
Capital
expenditures $250 million $300 million $250 million $300 million
(e) Reported revenues for full year 2016 were $7.52
billion. Revenues on an equivalent basis for
full year 2016 were $7.49 billion which
represents the company's reported revenues,
excluding all Focus Diagnostics products
revenue.
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 the retirement of debt and related refinancing charges, restructuring and integration charges, and other items; (ii) the term "adjusted diluted EPS excluding amortization" represents the company's diluted EPS before the impact of special items and amortization; (iii) reference to "revenues on an equivalent basis" when comparing 2017 to 2016 represents 2016 reported revenues excluding all Focus Diagnostics products revenues.
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 or 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 888-300-0211 for domestic callers or 719-325-2017 for international callers, passcode 7180587. 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 888-203-1112 for domestic callers or 719-457-0820 for international callers, passcode 7180587. Telephone replays will be available from approximately 11:30 a.m. Eastern Time on April 20, 2017 until 11:30 a.m. Eastern Time on April 25, 2017. 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 43,000 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 Months Ended March 31, 2017 and 2016
(in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
2017 2016
---- ----
Net revenues $1,899 $1,863
Operating costs and expenses and
other operating income:
Cost of services 1,165 1,144
Selling, general
and
administrative 437 442
Amortization of
intangible assets 17 19
Other operating
expense, net 1 1
--- ---
Total operating
costs and
expenses, net 1,620 1,606
----- -----
Operating income 279 257
Other income (expense):
Interest expense,
net (36) (36)
Other income
(expense), net 3 (49)
Total non-
operating
expenses, net (33) (85)
--- ---
Income before
income taxes and
equity in
earnings of
equity method
investees 246 172
Income tax expense (78) (67)
Equity in earnings
of equity method
investees, net of
taxes 7 10
--- ---
Net income 175 115
Less: Net income
attributable to
noncontrolling
interests 11 12
Net income
attributable to
Quest Diagnostics $164 $103
---- ----
Earnings per share attributable
to Quest Diagnostics' common
stockholders:
Basic $1.19 $0.72
----- -----
Diluted $1.16 $0.71
----- -----
Weighted average common shares
outstanding:
Basic 137 143
Diluted 141 144
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 2017 and December 31, 2016
(in millions, except per share data)
(unaudited)
March 31, December 31,
2017 2016
---- ----
Assets
------
Current assets:
Cash and
cash
equivalents $367 $359
Accounts
receivable,
net 960 926
Inventories 77 82
Prepaid
expenses
and other
current
assets 154 164
Total
current
assets 1,558 1,531
Property,
plant and
equipment,
net 1,027 1,029
Goodwill 6,001 6,000
Intangible
assets,
net 933 949
Investment
in equity
method
investees 443 443
Other
assets 147 148
Total
assets $10,109 $10,100
------- -------
Liabilities and
Stockholders' Equity
---------------------
Current liabilities:
Accounts
payable
and
accrued
expenses $979 $975
Current
portion of
long-term
debt 6 6
Total
current
liabilities 985 981
Long-term
debt 3,725 3,728
Other
liabilities 658 654
Redeemable
noncontrolling
interest 78 77
Stockholders' equity:
Quest Diagnostics
stockholders' equity:
Common
stock, par 31, 2016;
value 216 shares
$0.01 per issued as
share; 600 of both
shares March 31,
authorized 2017 and
as of both December
March 31, 31, 2016
2017 and
December 2 2
Additional
paid-in
capital 2,542 2,545
Retained
earnings 6,715 6,613
Accumulated
other
comprehensive
loss (68) (72)
Treasury
stock, at
cost; 79
shares as
of both
March 31,
2017 and
December
31, 2016 (4,561) (4,460)
------ ------
Total Quest
Diagnostics
stockholders'
equity 4,630 4,628
Noncontrolling
interests 33 32
--- ---
Total
stockholders'
equity 4,663 4,660
Total
liabilities
and
stockholders'
equity $10,109 $10,100
------- -------
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2017 and 2016
(in millions)
(unaudited)
Three Months Ended
March 31,
2017 2016
---- ----
Cash flows from operating
activities:
Net income $175 $115
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization 62 62
Provision for
doubtful
accounts 84 86
Deferred income
tax provision 11 8
Stock-based
compensation
expense 17 18
Other, net 1 1
Changes in operating assets and
liabilities:
Accounts
receivable (117) (145)
Accounts payable
and accrued
expenses (95) (69)
Income taxes
payable 63 62
Other assets and
liabilities, net (5) 15
Net cash provided
by operating
activities 196 153
--- ---
Cash flows from investing
activities:
Business
acquisitions,
net of cash
acquired (1) (135)
Escrow proceeds
associated with
disposition of
business 25 -
Capital
expenditures (42) (47)
Increase in
investments and
other assets (4) (8)
Net cash used in
investing
activities (22) (190)
--- ----
Cash flows from financing
activities:
Proceeds from
borrowings - 665
Repayments of
debt (2) (453)
Purchases of
treasury stock (150) (115)
Exercise of stock
options 46 7
Employee payroll
tax withholdings
on stock issued
under stock-
based
compensation
plans (22) (8)
Dividends paid (62) (55)
Distributions to
noncontrolling
interests (9) (9)
Other financing
activities, net 33 -
Net cash (used
in) provided by
financing
activities (166) 32
---- ---
Net change in
cash and cash
equivalents 8 (5)
Cash and cash
equivalents,
beginning of
period 359 133
--- ---
Cash and cash
equivalents, end
of period $367 $128
---- ----
Cash paid during the period
for:
Interest $46 $53
Income taxes $8 $4
Notes to Financial Tables
1) The computation of basic and
diluted earnings per common
share is as follows:
Three Months Ended
March 31,
2017 2016
---- ----
(in millions, except per
share data)
Amounts attributable to Quest
Diagnostics' common stockholders:
Net income attributable to Quest
Diagnostics $164 $103
Less: earnings allocated to
participating securities 1 -
Earnings available to Quest
Diagnostics' common stockholders -
basic and diluted $163 $103
---- ----
Weighted average common shares
outstanding -basic 137 143
Effect of dilutive securities:
Stock options and performance share
units 4 1
Weighted average common shares
outstanding -diluted 141 144
--- ---
Earnings per share attributable to
Quest Diagnostics' common
stockholders:
Basic $1.19 $0.72
----- -----
Diluted $1.16 $0.71
----- -----
2) The following tables
reconcile reported GAAP
results to non-GAAP
adjusted results:
Three Months Ended
March 31,
2017 2016
---- ----
(dollars in millions, except
per share data)
Adjusted operating
income:
------------------
Operating income $279 $257
Restructuring and
integration charges
(a) 18 19
Other (b) - 5
--- ---
Adjusted operating
income $297 $281
---- ----
Adjusted operating
income as a percentage
of net revenues:
-----------------------
Operating income as a
percentage of net
revenues 14.7% 13.8%
Restructuring and
integration charges
(a) 0.9 1.0
Other (b) - 0.3
--- ---
Adjusted operating
income as a percentage
of net revenues 15.6% 15.1%
---- ----
Adjusted net income:
--------------------
Net income attributable
to Quest Diagnostics $164 $103
Retirement of debt and
related refinancing
charges (c) - 48
Restructuring and
integration charges
(a) 18 21
Other (b) - 6
Income tax expense
(benefit) associated
with the special items
above (d) (7) (30)
--- ---
Adjusted net income $175 $148
---- ----
Adjusted diluted EPS
excluding amortization
expense:
-----------------------
Diluted earnings per
common share $1.16 $0.71
Retirement of debt and
related refinancing
charges (c) (d) - 0.21
Restructuring and
integration charges
(a) (d) 0.08 0.09
Other (b) (d) - 0.02
Amortization expense
(e) 0.09 0.10
---- ----
Adjusted diluted EPS
excluding amortization
expense $1.33 $1.13
----- -----
Revenue on an
equivalent basis:
------------------
Net revenues $1,899 $1,863
Excluded revenue (f) - (18)
--- ---
Revenue on an
equivalent basis $1,899 $1,845
------ ------
(a) For the three months ended March 31,
2017 and 2016, 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
March 31,
2017 2016
---- ----
(dollars in millions)
Cost of services $10 $7
Selling, general and
administrative 8 12
--- ---
Operating income $18 $19
--- ---
Equity in earnings of equity
method investees, net of taxes $ - $2
--- --- ---
(b) For the three months ended March
31, 2016, primarily represents
costs associated with winding
down subsidiaries, non-cash
asset impairment charges 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
March 31,
2017 2016
---- ----
(dollars in millions)
Selling, general and
administrative $ - $3
Other operating expense, net - 2
--- ---
Operating income $ - $5
--- --- ---
Other non-operating expense, net $ - $1
--- --- ---
(c) For the three months ended March
31, 2016, represents charges
associated with the March 2016
cash tender offer where the
company purchased $200 million of
its 6.95% Senior Notes due July
2037 and 5.75% Senior Notes due
January 2040. The following
table summarizes the pre-tax
impact of retirement of debt and
related refinancing charges on
the company's consolidated
statements of operations:
Three Months Ended
March 31,
2017 2016
---- ----
(dollars in
millions)
Other non-operating
expense, net - 48
--- ---
(d) For the retirement of debt and
related refinancing charges,
income tax benefits were
calculated using a combined tax
rate of 38.9%. For the
restructuring and integration
charges and other items, income
tax impacts, where recorded,
were calculated using combined
tax rates of 38.7% and 38.9% for
2017 and 2016, respectively.
The following table summarizes
the income tax expense (benefit)
associated with the special
items:
Three Months Ended
March 31,
2017 2016
---- ----
(dollars in millions)
Retirement of debt and related
refinancing charges $ - $(18)
Restructuring and integration
charges (7) (9)
Other - (3)
--- ---
$(7) $(30)
--- ----
(e) 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 a combined tax
rates of 38.7% and 38.9% for
2017 and 2016, 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
March 31,
2017 2016
---- ----
(dollars in millions)
Amortization of intangible
assets $17 $19
Equity in earnings of equity
method investees, net of taxes 4 4
--- ---
$21 $23
--- ---
(f) For the three months ended
March 31, 2016, excluded
revenue represents reported
revenues from the Focus
Diagnostics products
business, which was sold on
May 13, 2016.
3) For the three months ended March 31, 2017, the
company repurchased 1.6 million shares of its
common stock for $150 million. At March 31,
2017, $1.2 billion remained available under
the company's share repurchase authorizations.
4) For the three months ended March 31, 2016, net
cash provided by operations included $47
million of pre-tax cash charges related to
the retirement of debt in connection with the
March 2016 cash tender offer.
5) The outlook for adjusted diluted EPS excluding
amortization expense represents management's
estimates for the full year 2017 before the
impact of special items and amortization
expense. Further impacts to earnings related
to special items may be incurred throughout
the remainder of the year. The following
table reconciles our 2017 outlook for adjusted
diluted EPS excluding amortization expense to
the corresponding amounts determined under
GAAP:
Low High
--- ----
Adjusted diluted EPS excluding
amortization expense:
------------------------------
Diluted earnings per common share $4.73 $4.88
Restructuring and integration
charges (a) 0.35 0.35
Amortization expense (b) 0.37 0.37
---- ----
Adjusted diluted EPS excluding
amortization expense $5.45 $5.60
----- -----
(a) Represents estimated full year
pre-tax charges of $80 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 38.7%.
(b) Represents the full year impact
of amortization expense 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 $69
Amortization expense included in
equity in earnings of equity
method investees 16
---
Total pre-tax amortization
expense $85
---
Total amortization expense, net
of an estimated tax benefit $53
---
6) The outlook for 2% to 3% revenue
growth on an equivalent basis in
2017 represents management's
estimates for 2017 versus reported
2016 revenues adjusted to exclude
the 2016 revenues from the Focus
Diagnostics products business.
The company completed its exit
from the products business as a
result of the sale of Focus
Diagnostics products on May 13,
2016. Consequently, our 2017
revenues will not include revenues
associated with that business.
The following table reconciles our
2016 net revenues determined under
GAAP with equivalent revenue for
2016:
Three Months Ended Year Ended
----------
March 31, June 30, September 30, December 31, December 31,
2016 2016 2016 2016 2016
---- ---- ---- ---- ----
(dollars in millions)
2016 Revenue on
an equivalent
basis:
---------------
Net revenues $1,863 $1,906 $1,885 $1,861 $7,515
Excluded
revenue (a) (18) (8) - - (26)
--- --- --- --- ---
2016 Revenue on
an equivalent
basis $1,845 $1,898 $1,885 $1,861 $7,489
------ ------ ------ ------ ------
2017 Revenue
outlook: Low High
------------ --- ----
2016 Revenue on
an equivalent
basis $7,489 $7,489
2017 Equivalent
revenue growth 2% 3%
---
2017 Revenue
outlook $7,640 $7,720
------ ------
(a) The 2016 excluded revenue is
comprised of all of Focus
Diagnostics products revenues
reported in 2016.
Quest Diagnostics
Denny Moynihan, Quest Diagnostics (Media): 973-520-2800
Shawn Bevec, Quest Diagnostics (Investors): 973-520-2900
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SOURCE Quest Diagnostics
