10-QPeriod: Q2 FY2018

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 25, 2018For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported its second-quarter 2018 financial results, demonstrating solid revenue growth and improved profitability compared to the prior year. Total net revenues increased by 3.0% to $1.9 billion, primarily driven by the Diagnostic Information Services (DIS) segment, which saw a 3.3% increase, bolstered by recent acquisitions. This growth was partially offset by a 0.5% negative impact from the Protecting Access to Medicare Act (PAMA). Net income attributable to Quest Diagnostics stockholders rose to $219 million ($1.57 per diluted share) from $193 million ($1.37 per diluted share) in the prior year's quarter. This improvement was significantly aided by the lower corporate income tax rate resulting from the Tax Cuts and Jobs Act (TCJA). The company also generated strong operating cash flow, with $503 million in net cash provided by operating activities for the first six months of 2018, an increase from the prior year, reflecting the positive impact of TCJA on tax payments. The company continued its strategic initiatives, including a significant partnership with UnitedHealthcare and acquisitions aimed at expanding its service offerings.

Financial Highlights

56 data points
Beta

Revenue

$1.92B

35.2% Gross Margin

Net Income

$219.00M

11.4% Net Margin

EPS (Diluted)

$1.57

Total Assets

$10.75B

Cash & Equivalents

$132.00M

Free Cash Flow

$245.00M

Financial Statements
Beta
Revenue$1.92B
Cost of Revenue$1.24B
Gross Profit$676.00M
SG&A Expenses$351.00M
Operating Expenses$1.61B
Operating Income$305.00M
Interest Expense$43.00M
Net Income$219.00M
EPS (Basic)$1.60
EPS (Diluted)$1.57
Shares Outstanding (Basic)136.00M
Shares Outstanding (Diluted)139.00M

Key Highlights

  • 1Total net revenues increased by 3.0% to $1.9 billion in Q2 2018.
  • 2Net income attributable to Quest Diagnostics stockholders grew to $219 million, or $1.57 per diluted share, up from $193 million, or $1.37 per diluted share, in Q2 2017.
  • 3The Diagnostic Information Services (DIS) segment revenue increased by 3.3% to $1.8 billion, driven by acquisitions.
  • 4Operating income saw a slight decrease to $305 million from $319 million in the prior year's quarter, impacted by increased cost of services and non-operating expenses.
  • 5Net cash provided by operating activities for the six months ended June 30, 2018, was $503 million, up from $490 million in the prior year period.
  • 6The company adopted new accounting standards for revenue recognition and cash flow statement presentation.
  • 7Quest Diagnostics completed two strategic acquisitions: Mobile Medical Examination Services, Inc. (MedXM) and the outreach laboratory service business of Cape Cod Healthcare, Inc.

Frequently Asked Questions

The primary driver of revenue growth was the Diagnostic Information Services (DIS) segment, which saw a 3.3% increase, largely attributed to contributions from recent acquisitions. Total net revenues increased by 3.0%.

The TCJA led to a lower corporate income tax rate, which positively impacted the company's net income and diluted earnings per share. It also contributed to a decrease in income tax expense and an increase in net cash provided by operating activities due to lower tax payments.

PAMA, implemented in 2018, is estimated to have negatively impacted DIS revenue growth by 0.5% in the second quarter. The company anticipates further reductions in its Medicare fee-for-service revenues in future years due to PAMA.

Quest Diagnostics established a long-term strategic partnership with UnitedHealthcare, effective January 1, 2019, to be a contracted provider for their plans. Additionally, the company completed two key acquisitions: Mobile Medical Examination Services, Inc. (MedXM) and the outreach laboratory service business of Cape Cod Healthcare, Inc.