10-QPeriod: Q1 FY2016

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed April 27, 2016For Securities:DGX

Summary

Quest Diagnostics reported solid first-quarter 2016 results, with net revenues increasing by 1.3% year-over-year to $1.86 billion. This growth was primarily driven by a 3.8% increase in revenue from the Diagnostic Information Services (DIS) segment, which constitutes over 90% of the company's revenue. The company also saw a significant improvement in profitability, with net income attributable to Quest Diagnostics stockholders rising by 66.7% to $102 million, translating to diluted earnings per share of $0.70, up from $0.42 in the prior year period. The company continued its strategic initiatives, including the acquisition of Clinical Laboratory Partners' outreach laboratory service business and progress on the planned divestiture of its Focus Diagnostics Products business. These moves underscore a strategic focus on core diagnostic information services. Additionally, Quest Diagnostics actively managed its debt, completing a tender offer to retire a portion of its senior notes, which, despite incurring an associated loss, is expected to reduce future interest expenses. The company also highlighted ongoing progress with its multi-year "Invigorate" program aimed at cost structure reduction.

Financial Highlights

57 data points
Beta

Revenue

$1.86B

38.6% Gross Margin

Net Income

$103.00M

5.5% Net Margin

EPS (Diluted)

$0.71

Total Assets

$10.10B

Cash & Equivalents

$128.00M

Free Cash Flow

$106.00M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.14B
Gross Profit$719.00M
SG&A Expenses$442.00M
Operating Expenses$1.61B
Operating Income$257.00M
Interest Expense$36.00M
Net Income$103.00M
EPS (Basic)$0.72
EPS (Diluted)$0.71
Shares Outstanding (Basic)143.00M
Shares Outstanding (Diluted)144.00M

Key Highlights

  • 1Net revenues grew 1.3% to $1.86 billion, driven by the core DIS segment's 3.8% revenue increase.
  • 2Net income attributable to stockholders surged 66.7% to $102 million, with diluted EPS rising to $0.70 from $0.42.
  • 3Acquired the outreach laboratory service business of Clinical Laboratory Partners for $135 million, strengthening the DIS segment.
  • 4Entered into an agreement to sell the Focus Diagnostics Products business for $300 million, aligning with a strategy to refocus on diagnostic information services.
  • 5Completed a debt tender offer, repurchasing $200 million of senior notes, which is expected to reduce future interest expenses.
  • 6Continued execution of the "Invigorate" program, focused on cost structure reduction and operational efficiency.
  • 7DIS volume (requisitions) increased by 2.6%, and revenue per requisition grew by 1.1%.

Frequently Asked Questions

Revenue growth was primarily driven by the Diagnostic Information Services (DIS) segment, which saw a 3.8% increase in revenue due to a 2.6% rise in volume (requisitions) and a 1.1% increase in revenue per requisition, supported by favorable test mix and contributions from acquisitions. The acquisition of Clinical Laboratory Partners' outreach laboratory service business was a notable contributor.

Quest Diagnostics completed a cash tender offer to purchase $200 million of its 6.95% Senior Notes due July 2037 and 5.75% Senior Notes due January 2040. This action, while resulting in a $48 million pre-tax loss on retirement of debt, is expected to reduce future interest expenses.

The "Invigorate" program is a multi-year initiative designed to reduce Quest Diagnostics' cost structure. The company is on track to achieve its goal of $1.3 billion in run-rate savings by the end of 2017 compared to 2011. In Q1 2016, the program continued to drive cost reductions, contributing to improved profitability, and also incurred certain charges related to systems conversion and integration.

The planned sale of the Focus Diagnostics Products business for $300 million is a strategic move to divest a non-core asset and refocus the company's efforts and resources on its core Diagnostic Information Services (DIS) business. This aligns with the company's five-point strategy to enhance operational focus and value creation.