SECAUCUS, N.J., Oct. 22,
2020 /PRNewswire/ -- Quest Diagnostics Incorporated (NYSE:
DGX), the world's leading provider of diagnostic information
services, announced today financial results for the third quarter
ended September 30, 2020.
"Quest had a very strong third quarter, benefiting from
continued demand for COVID-19 testing and the rapid recovery of
health care utilization," said Steve
Rusckowski, Chairman, CEO and President, Quest Diagnostics.
"Quest has performed over 22 million COVID-19 molecular and
serology tests to date, more than any other provider. We also
developed and introduced several new innovations that are
contributing to enabling the country's return to work, the
classroom, and the athletic field. I am extremely proud of
all that Quest Diagnostics has accomplished throughout the COVID-19
pandemic, and would like to thank our more than 47,000 employees
for their hard work and dedication.
"We've seen further signs of the health care system returning to
pre-pandemic levels, as our base testing volume, which excludes
COVID-19 molecular and antibody testing, continued to recover
throughout the third quarter. As we exited September, organic
volumes in our base business were down mid-to-high single digits
compared to last year. We are raising our full year 2020 outlook
given our year to date performance and a clearer line of sight for
both the base business and COVID-19 testing."
Mr. Rusckowski continued: "We are grateful for the CARES Act
funding that provided our company with support earlier this year at
a time of great uncertainty for our nation. Several months
into this pandemic, we do not require this funding. As a
result, we believe returning these funds to the government now is
the right thing to do."
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
Change
|
|
2020
|
|
2019
|
|
Change
|
|
|
(dollars in millions,
except per share data)
|
|
Reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
$
|
2,786
|
|
|
$
|
1,956
|
|
|
42.5
|
%
|
|
$
|
6,435
|
|
|
$
|
5,800
|
|
|
11.0
|
%
|
|
Diagnostic Information
Services revenues
|
$
|
2,709
|
|
|
$
|
1,877
|
|
|
44.3
|
%
|
|
$
|
6,217
|
|
|
$
|
5,561
|
|
|
11.8
|
%
|
|
Revenue per
requisition
|
|
|
|
|
20.9
|
%
|
|
|
|
|
|
12.4
|
%
|
|
Requisition
volume
|
|
|
|
|
19.7
|
%
|
|
|
|
|
|
(0.1)
|
%
|
|
Organic
requisition volume
|
|
|
|
|
16.6
|
%
|
|
|
|
|
|
(1.4)
|
%
|
|
Operating income
(a)
|
$
|
718
|
|
|
$
|
313
|
|
|
129.5
|
%
|
|
$
|
1,176
|
|
|
$
|
868
|
|
|
35.5
|
%
|
|
Operating income as a
percentage of net revenues (a)
|
25.8
|
%
|
|
16.0
|
%
|
|
9.8
|
%
|
|
18.3
|
%
|
|
15.0
|
%
|
|
3.3
|
%
|
|
Income from
continuing operations attributable to Quest Diagnostics
(a)
|
$
|
568
|
|
|
$
|
215
|
|
|
164.7
|
%
|
|
$
|
852
|
|
|
$
|
585
|
|
|
45.6
|
%
|
|
Diluted EPS (a)
(b)
|
$
|
4.14
|
|
|
$
|
1.56
|
|
|
164.6
|
%
|
|
$
|
6.25
|
|
|
$
|
4.27
|
|
|
46.0
|
%
|
|
Cash provided by
operations
|
$
|
862
|
|
|
$
|
299
|
|
|
189.0
|
%
|
|
$
|
1,464
|
|
|
$
|
895
|
|
|
63.6
|
%
|
|
Capital
expenditures
|
$
|
91
|
|
|
$
|
96
|
|
|
(4.9)
|
%
|
|
$
|
256
|
|
|
$
|
228
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
$
|
831
|
|
|
$
|
349
|
|
|
138.1
|
%
|
|
$
|
1,350
|
|
|
$
|
987
|
|
|
36.8
|
%
|
|
Operating income as a
percentage of net revenues
|
29.8
|
%
|
|
17.9
|
%
|
|
11.9
|
%
|
|
21.0
|
%
|
|
17.0
|
%
|
|
4.0
|
%
|
|
Income from
continuing operations attributable to Quest Diagnostics
|
$
|
591
|
|
|
$
|
241
|
|
|
144.9
|
%
|
|
$
|
912
|
|
|
$
|
668
|
|
|
36.5
|
%
|
|
Diluted EPS
(b)
|
$
|
4.31
|
|
|
$
|
1.76
|
|
|
144.9
|
%
|
|
$
|
6.69
|
|
|
$
|
4.89
|
|
|
36.8
|
%
|
|
|
|
(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.
|
|
|
(b)
|
The sum of reported
and adjusted diluted EPS for the first three quarters of 2020 did
not equal the totals for the nine months ended September 30, 2020
due to quarterly fluctuations in the company's earnings and
weighted average common shares outstanding throughout the period as
a result of the impact of COVID-19 and the temporary cessation of
repurchases under the company's share repurchase
program.
|
Updated Outlook for Full Year 2020
The company updates its Full Year 2020 outlook as
follows:
|
Updated
Outlook
|
|
Previous
Outlook
|
|
Low
|
|
High
|
|
Low
|
|
High
|
Net
revenues
|
$8.8
billion
|
|
$9.1
billion
|
|
$8.4
billion
|
|
$8.8
billion
|
Net revenues
increase
|
13.9%
|
|
17.8%
|
|
8.7%
|
|
13.9%
|
Reported diluted
EPS
|
$8.22
|
|
$9.22
|
|
$7.42
|
|
$8.92
|
Adjusted diluted
EPS
|
$9.00
|
|
$10.00
|
|
$7.50
|
|
$9.00
|
Cash provided by
operations
|
At least
$1.75 billion
|
|
At least
$1.45 billion
|
Capital
expenditures
|
Approximately
$400 million
|
|
$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, certain financial impacts resulting from the COVID-19
pandemic, amortization expense, excess tax benefits ("ETB")
associated with stock-based compensation, a gain on remeasurement
of an equity interest, costs associated with the company's recently
announced initiative with the Quest Diagnostics Foundation to
reduce health disparities in underserved communities, 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 800-337-6568 for
domestic callers or 402-220-9660 for international callers. No
passcode is required. Telephone replays will be available
from approximately 10:30 a.m. Eastern
Time on October 22, 2020 until midnight Eastern Time on November 5, 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.
Forward Looking Statements
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
Nine Months Ended September 30, 2020 and 2019
(in millions,
except per share data)
(unaudited)
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net
revenues
|
$
|
2,786
|
|
|
$
|
1,956
|
|
|
$
|
6,435
|
|
|
$
|
5,800
|
|
|
|
|
|
|
|
|
|
Operating costs
and expenses and other operating income:
|
|
|
|
|
|
|
|
Cost of
services
|
1,580
|
|
|
1,264
|
|
|
4,071
|
|
|
3,773
|
|
Selling, general and
administrative
|
396
|
|
|
362
|
|
|
1,103
|
|
|
1,108
|
|
Amortization of
intangible assets
|
27
|
|
|
23
|
|
|
77
|
|
|
72
|
|
Other operating
expense (income), net
|
65
|
|
|
(6)
|
|
|
8
|
|
|
(21)
|
|
Total operating costs
and expenses, net
|
2,068
|
|
|
1,643
|
|
|
5,259
|
|
|
4,932
|
|
|
|
|
|
|
|
|
|
Operating
income
|
718
|
|
|
313
|
|
|
1,176
|
|
|
868
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
Interest expense,
net
|
(42)
|
|
|
(44)
|
|
|
(124)
|
|
|
(133)
|
|
Other income,
net
|
77
|
|
|
1
|
|
|
74
|
|
|
13
|
|
Total non-operating
income (expense), net
|
35
|
|
|
(43)
|
|
|
(50)
|
|
|
(120)
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income taxes and equity in earnings of
equity method investees
|
753
|
|
|
270
|
|
|
1,126
|
|
|
748
|
|
Income tax
expense
|
(177)
|
|
|
(62)
|
|
|
(269)
|
|
|
(175)
|
|
Equity in earnings
of equity method investees, net of taxes
|
15
|
|
|
18
|
|
|
33
|
|
|
48
|
|
Income from
continuing operations
|
591
|
|
|
226
|
|
|
890
|
|
|
621
|
|
Income from
discontinued operations, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Net
income
|
591
|
|
|
226
|
|
|
890
|
|
|
641
|
|
Less: Net income
attributable to noncontrolling interests
|
23
|
|
|
11
|
|
|
38
|
|
|
36
|
|
Net income
attributable to Quest Diagnostics
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
605
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Quest Diagnostics' common
stockholders:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
585
|
|
Income from
discontinued operations, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Net income
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
605
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to Quest Diagnostics' common stockholders -
basic:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
4.20
|
|
|
$
|
1.59
|
|
|
$
|
6.33
|
|
|
$
|
4.33
|
|
Income from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
0.15
|
|
Net income
|
$
|
4.20
|
|
|
$
|
1.59
|
|
|
$
|
6.33
|
|
|
$
|
4.48
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to Quest Diagnostics' common stockholders -
diluted:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
4.14
|
|
|
$
|
1.56
|
|
|
$
|
6.25
|
|
|
$
|
4.27
|
|
Income from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
0.15
|
|
Net income
|
$
|
4.14
|
|
|
$
|
1.56
|
|
|
$
|
6.25
|
|
|
$
|
4.42
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
135
|
|
|
135
|
|
|
134
|
|
|
135
|
|
|
|
|
|
|
|
|
|
Diluted
|
137
|
|
|
137
|
|
|
136
|
|
|
136
|
|
Quest Diagnostics
Incorporated and Subsidiaries
Consolidated
Balance Sheets
September 30,
2020 and December 31, 2019
(in millions,
except per share data)
(unaudited)
|
|
|
|
September
30,
2020
|
|
December
31,
2019
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,605
|
|
|
$
|
1,192
|
|
Accounts receivable,
net
|
1,421
|
|
|
1,063
|
|
Inventories
|
205
|
|
|
123
|
|
Prepaid expenses and
other current assets
|
117
|
|
|
112
|
|
Total current
assets
|
3,348
|
|
|
2,490
|
|
Property, plant
and equipment, net
|
1,544
|
|
|
1,453
|
|
Operating lease
right-of-use assets
|
535
|
|
|
518
|
|
Goodwill
|
6,880
|
|
|
6,619
|
|
Intangible assets,
net
|
1,192
|
|
|
1,121
|
|
Investments in
equity method investees
|
480
|
|
|
482
|
|
Other
assets
|
164
|
|
|
160
|
|
Total
assets
|
$
|
14,143
|
|
|
$
|
12,843
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable and
accrued expenses
|
$
|
1,686
|
|
|
$
|
1,041
|
|
Current portion of
long-term debt
|
555
|
|
|
804
|
|
Current portion of
long-term operating lease liabilities
|
148
|
|
|
145
|
|
Total current
liabilities
|
2,389
|
|
|
1,990
|
|
Long-term
debt
|
4,018
|
|
|
3,966
|
|
Long-term
operating lease liabilities
|
428
|
|
|
413
|
|
Other
liabilities
|
782
|
|
|
711
|
|
Redeemable
noncontrolling interest
|
80
|
|
|
76
|
|
Stockholders'
equity:
|
|
|
|
Quest Diagnostics
stockholders' equity:
|
|
|
|
Common stock, par
value $0.01 per share; 600 shares authorized as of both September
30, 2020 and December 31, 2019; 217 shares issued as of both
September 30, 2020 and December 31, 2019
|
2
|
|
|
2
|
|
Additional paid-in
capital
|
2,801
|
|
|
2,722
|
|
Retained
earnings
|
8,800
|
|
|
8,174
|
|
Accumulated other
comprehensive loss
|
(42)
|
|
|
(39)
|
|
Treasury stock, at
cost; 82 and 84 shares as of September 30, 2020 and December 31,
2019, respectively
|
(5,161)
|
|
|
(5,218)
|
|
Total Quest
Diagnostics stockholders' equity
|
6,400
|
|
|
5,641
|
|
Noncontrolling
interests
|
46
|
|
|
46
|
|
Total stockholders'
equity
|
6,446
|
|
|
5,687
|
|
Total liabilities
and stockholders' equity
|
$
|
14,143
|
|
|
$
|
12,843
|
|
Quest Diagnostics
Incorporated and Subsidiaries
Consolidated
Statements of Cash Flows
For the Nine
Months Ended September 30, 2020 and 2019
(in
millions)
(unaudited)
|
|
|
|
Nine Months
Ended
September 30,
|
|
2020
|
|
2019
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
890
|
|
|
$
|
641
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
263
|
|
|
247
|
|
Provision for credit
losses
|
18
|
|
|
9
|
|
Deferred income tax
provision
|
12
|
|
|
15
|
|
Stock-based
compensation expense
|
63
|
|
|
44
|
|
Other, net
|
(60)
|
|
|
(44)
|
|
Changes in operating
assets and liabilities:
|
|
|
|
Accounts
receivable
|
(355)
|
|
|
(113)
|
|
Accounts payable and
accrued expenses
|
514
|
|
|
80
|
|
Income taxes
payable
|
95
|
|
|
9
|
|
Termination of
interest rate swap agreements
|
40
|
|
|
—
|
|
Other assets and
liabilities, net
|
(16)
|
|
|
7
|
|
Net cash provided
by operating activities
|
1,464
|
|
|
895
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Business
acquisitions, net of cash acquired
|
(329)
|
|
|
(56)
|
|
Capital
expenditures
|
(256)
|
|
|
(228)
|
|
Increase in
investments and other assets
|
(19)
|
|
|
(27)
|
|
Net cash used in
investing activities
|
(604)
|
|
|
(311)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from
borrowings
|
749
|
|
|
1,484
|
|
Repayments of
debt
|
(1,002)
|
|
|
(1,448)
|
|
Purchases of treasury
stock
|
(75)
|
|
|
(153)
|
|
Exercise of stock
options
|
144
|
|
|
98
|
|
Employee payroll tax
withholdings on stock issued under stock-based compensation
plans
|
(13)
|
|
|
(16)
|
|
Dividends
paid
|
(222)
|
|
|
(215)
|
|
Distributions to
noncontrolling interest partners
|
(34)
|
|
|
(39)
|
|
Other financing
activities, net
|
6
|
|
|
4
|
|
Net cash used in
financing activities
|
(447)
|
|
|
(285)
|
|
|
|
|
|
Net change in cash
and cash equivalents and restricted cash
|
413
|
|
|
299
|
|
Cash and cash
equivalents and restricted cash, beginning of period
|
1,192
|
|
|
135
|
|
Cash and cash
equivalents and restricted cash, end of period
|
$
|
1,605
|
|
|
$
|
434
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
Interest
|
$
|
136
|
|
|
$
|
149
|
|
Income
taxes
|
$
|
168
|
|
|
$
|
148
|
|
Notes to Financial Tables
1) The
computation of basic and diluted earnings per common share is as
follows:
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(in millions, except
per share data)
|
Amounts
attributable to Quest Diagnostics' common
stockholders:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
585
|
|
Income from
discontinued operations, net of taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Net income
attributable to Quest Diagnostics' common stockholders
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
605
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
568
|
|
|
$
|
215
|
|
|
$
|
852
|
|
|
$
|
585
|
|
Less: earnings
allocated to participating securities
|
2
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Earnings available to
Quest Diagnostics' common stockholders - basic and
diluted
|
$
|
566
|
|
|
$
|
214
|
|
|
$
|
849
|
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding - basic
|
135
|
|
|
135
|
|
|
134
|
|
|
135
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
Stock options and
performance share units
|
2
|
|
|
2
|
|
|
2
|
|
|
1
|
|
Weighted average
common shares outstanding - diluted
|
137
|
|
|
137
|
|
|
136
|
|
|
136
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to Quest Diagnostics' common stockholders -
basic:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
4.20
|
|
|
$
|
1.59
|
|
|
$
|
6.33
|
|
|
$
|
4.33
|
|
Income from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
0.15
|
|
Net income
|
$
|
4.20
|
|
|
$
|
1.59
|
|
|
$
|
6.33
|
|
|
$
|
4.48
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to Quest Diagnostics' common stockholders -
diluted:
|
|
|
|
|
|
|
|
Income from
continuing operations
|
$
|
4.14
|
|
|
$
|
1.56
|
|
|
$
|
6.25
|
|
|
$
|
4.27
|
|
Income from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
0.15
|
|
Net income
|
$
|
4.14
|
|
|
$
|
1.56
|
|
|
$
|
6.25
|
|
|
$
|
4.42
|
|
2) The
following tables reconcile reported GAAP results to non-GAAP
adjusted results:
|
|
|
Three Months Ended
September 30, 2020
|
|
(dollars in
millions, except per share data)
|
|
Operating
income
|
|
Operating
income as a
percentage of
net revenues
|
|
Income tax
expense (e)
|
|
Equity in
earnings of
equity
method
investees, net
of taxes
|
|
Income from
continuing
operations
attributable
to Quest
Diagnostics
|
|
Diluted
EPS
|
As
reported
|
$
|
718
|
|
|
25.8
|
%
|
|
$
|
(177)
|
|
|
$
|
15
|
|
|
$
|
568
|
|
|
$
|
4.14
|
|
Restructuring and
integration charges (a)
|
18
|
|
|
0.6
|
|
|
(4)
|
|
|
—
|
|
|
14
|
|
|
0.10
|
|
COVID-19 impact
(b)
|
68
|
|
|
2.5
|
|
|
(18)
|
|
|
1
|
|
|
52
|
|
|
0.39
|
|
Gain on remeasurement
of equity interest (c)
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
(63)
|
|
|
(0.46)
|
|
Amortization
expense
|
27
|
|
|
0.9
|
|
|
(7)
|
|
|
3
|
|
|
23
|
|
|
0.16
|
|
ETB
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
(0.02)
|
|
As
adjusted
|
$
|
831
|
|
|
29.8
|
%
|
|
$
|
(202)
|
|
|
$
|
19
|
|
|
$
|
591
|
|
|
$
|
4.31
|
|
|
Nine Months Ended
September 30, 2020
|
|
(dollars in
millions, except per share data)
|
|
Operating
income
|
|
Operating
income as a
percentage of
net revenues
|
|
Income tax
expense (e)
|
|
Equity in
earnings of
equity
method
investees, net
of taxes
|
|
Income from
continuing
operations
attributable
to Quest
Diagnostics
|
|
Diluted
EPS
|
As
reported
|
$
|
1,176
|
|
|
18.3
|
%
|
|
$
|
(269)
|
|
|
$
|
33
|
|
|
$
|
852
|
|
|
$
|
6.25
|
|
Restructuring and
integration charges (a)
|
43
|
|
|
0.7
|
|
|
(9)
|
|
|
—
|
|
|
34
|
|
|
0.25
|
|
COVID-19 impact
(b)
|
54
|
|
|
0.8
|
|
|
(11)
|
|
|
(2)
|
|
|
39
|
|
|
0.29
|
|
Gain on remeasurement
of equity interest (c)
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
(63)
|
|
|
(0.46)
|
|
Amortization
expense
|
77
|
|
|
1.2
|
|
|
(21)
|
|
|
9
|
|
|
65
|
|
|
0.47
|
|
ETB
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
(15)
|
|
|
(0.11)
|
|
As
adjusted
|
$
|
1,350
|
|
|
21.0
|
%
|
|
$
|
(318)
|
|
|
$
|
40
|
|
|
$
|
912
|
|
|
$
|
6.69
|
|
|
Three Months Ended
September 30, 2019
|
|
(dollars in
millions, except per share data)
|
|
Operating
income
|
|
Operating
income as a
percentage of
net revenues
|
|
Income tax
expense (e)
|
|
Equity in
earnings of
equity
method
investees, net
of taxes
|
|
Income from
continuing
operations
attributable
to Quest
Diagnostics
|
|
Diluted
EPS
|
As
reported
|
$
|
313
|
|
|
16.0
|
%
|
|
$
|
(62)
|
|
|
$
|
18
|
|
|
$
|
215
|
|
|
$
|
1.56
|
|
Restructuring and
integration charges (a)
|
16
|
|
|
0.8
|
|
|
(4)
|
|
|
—
|
|
|
12
|
|
|
0.09
|
|
Other (d)
|
(3)
|
|
|
(0.1)
|
|
|
1
|
|
|
—
|
|
|
(2)
|
|
|
(0.01)
|
|
Amortization
expense
|
23
|
|
|
1.2
|
|
|
(6)
|
|
|
2
|
|
|
19
|
|
|
0.14
|
|
ETB
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
(0.02)
|
|
As
adjusted
|
$
|
349
|
|
|
17.9
|
%
|
|
$
|
(74)
|
|
|
$
|
20
|
|
|
$
|
241
|
|
|
$
|
1.76
|
|
|
Nine Months Ended
September 30, 2019
|
|
(dollars in
millions, except per share data)
|
|
Operating
income
|
|
Operating
income as a
percentage of
net revenues
|
|
Income tax
expense (e)
|
|
Equity in
earnings of
equity
method
investees, net
of taxes
|
|
Income from
continuing
operations
attributable
to Quest
Diagnostics
|
|
Diluted
EPS
|
As
reported
|
$
|
868
|
|
|
15.0
|
%
|
|
$
|
(175)
|
|
|
$
|
48
|
|
|
$
|
585
|
|
|
$
|
4.27
|
|
Restructuring and
integration charges (a)
|
64
|
|
|
1.1
|
|
|
(17)
|
|
|
—
|
|
|
47
|
|
|
0.35
|
|
Other (d)
|
(17)
|
|
|
(0.3)
|
|
|
—
|
|
|
—
|
|
|
(17)
|
|
|
(0.11)
|
|
Amortization
expense
|
72
|
|
|
1.2
|
|
|
(20)
|
|
|
12
|
|
|
64
|
|
|
0.46
|
|
ETB
|
—
|
|
|
—
|
|
|
(11)
|
|
|
—
|
|
|
(11)
|
|
|
(0.08)
|
|
As
adjusted
|
$
|
987
|
|
|
17.0
|
%
|
|
$
|
(223)
|
|
|
$
|
60
|
|
|
$
|
668
|
|
|
$
|
4.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For both the three
and nine months ended September 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
(dollars in
millions)
|
|
|
|
|
Cost of
services
|
$
|
11
|
|
|
$
|
7
|
|
|
$
|
21
|
|
|
$
|
29
|
|
|
|
|
|
Selling, general and
administrative
|
7
|
|
|
9
|
|
|
22
|
|
|
35
|
|
|
|
|
|
Operating
income
|
$
|
18
|
|
|
$
|
16
|
|
|
$
|
43
|
|
|
$
|
64
|
|
|
|
|
|
|
|
(b)
|
For both the three
and nine months ended September 30, 2020, represents the
impact of certain items resulting from the COVID-19 pandemic.
For the three months ended September 30, 2020, principally
includes the reversal of $65 million of income previously
recognized during the second quarter of 2020 attributable to the
receipt of funds from the government that were appropriated to
healthcare providers under the CARES Act and, to a lesser extent,
incremental costs incurred primarily to protect the health and
safety of the company's employees and customers. For the nine
months ended September 30, 2020, principally includes 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
(dollars in
millions)
|
|
|
|
|
Cost of
services
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
|
|
|
Selling, general and
administrative
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
|
|
|
Other operating
expense (income), net
|
65
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
|
|
|
Operating
income
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
equity method investees, net of taxes
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to noncontrolling interest
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
(c)
|
For the three and
nine months ended September 30, 2020, the pre-tax impact
represents a gain of $70 million recognized in other income, net
based on the difference between the fair value and the carrying
value of an equity interest. On August 1, 2020, the company
completed its acquisition of the remaining 56% interest in Mid
America Clinical Laboratories, LLC ("MACL") from its joint venture
partners. As a result of the transaction, the company remeasured
its previously held minority interest in MACL to fair value and
recognized a gain.
|
|
|
|
|
|
|
(d)
|
For the three months
ended September 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, partially offset by costs incurred related to a data
security incident. For the nine months ended
September 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 accruals associated with previous
acquisitions, partially offset by non-cash asset impairment
charges, and costs incurred related to a data security
incident.
|
|
|
|
|
|
|
|
The following table
summarizes the pre-tax impact of these other items on the company's
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
(dollars in
millions)
|
|
|
|
|
Selling, general and
administrative
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
|
|
|
Other operating
expense (income), net
|
—
|
|
|
(7)
|
|
|
—
|
|
|
(22)
|
|
|
|
|
|
Operating
income
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
—
|
|
|
$
|
(17)
|
|
|
|
|
|
|
|
(e)
|
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 on remeasurement of equity
interest, income tax expense was calculated based on an effective
income tax rate on the transaction of 11.8%, which is lower than
the statutory income tax rate due to a permanent difference in the
financial reporting and tax basis of goodwill. 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 accruals associated with previous
acquisitions, there was no net income tax expense related to
acquisitions in which the gain is non-taxable.
|
|
|
|
|
3)
|
Discontinued
operations, net of taxes, for the nine months ended
September 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 September 30, 2020, the company did not repurchase any
shares of its common stock. For the nine months ended
September 30, 2020, the company repurchased 0.7 million shares
of its common stock for $75 million. As of September 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.
|
|
|
5)
|
For the nine months
ended September 30, 2020, net cash provided by operating
activities includes $138 million that the company received
from the funds that were appropriated to healthcare providers under
the CARES Act, which is included in accounts payable and accrued
expenses. The company has determined that it will return the
CARES Act funds.
|
|
|
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.
Additionally, the amount of ETB is dependent upon employee stock
option exercises and the company's stock price, which are difficult
to predict. The outlook for diluted EPS and adjusted diluted EPS is
subject to the risks and uncertainties described under "Forward
Looking Statements". The following table reconciles our 2020
outlook for adjusted diluted EPS to the corresponding amounts
determined under GAAP:
|
|
|
|
|
Low
|
|
High
|
|
Diluted
EPS
|
$
|
8.22
|
|
|
$
|
9.22
|
|
|
Restructuring and
integration charges (a)
|
0.39
|
|
|
0.39
|
|
|
COVID-19
impact
|
0.29
|
|
|
0.29
|
|
|
Gain on remeasurement
of equity interest
|
(0.46)
|
|
|
(0.46)
|
|
|
Amortization expense
(b)
|
0.63
|
|
|
0.63
|
|
|
Initiative to reduce
health disparities in underserved communities (c)
|
0.05
|
|
|
0.05
|
|
|
ETB
|
(0.12)
|
|
|
(0.12)
|
|
|
Adjusted diluted
EPS
|
$
|
9.00
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
(a)
|
Represents estimated
full year pre-tax charges of $71 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
|
$
|
103
|
|
|
Amortization expense
included in equity in earnings of equity method investees, net of
taxes
|
11
|
|
|
Total pre-tax
amortization expense
|
$
|
114
|
|
|
|
|
|
Total amortization
expense, net of an estimated tax benefit using a combined statutory
income tax rate of 25.5%
|
$
|
85
|
|
|
|
|
|
|
|
(c)
|
Represents estimated
full year pre-tax charges of $10 million associated with the
company's recently announced initiative with the Quest Diagnostics
Foundation to reduce health disparities in underserved communities
including through a combination of donated testing services,
education programs, partnerships, and financial support.
Income tax benefits were calculated using a combined statutory
income tax rate of 25.5%.
|
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SOURCE Quest Diagnostics