10-QPeriod: Q3 FY2018

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 24, 2018For Securities:DGX

Summary

Quest Diagnostics reported solid financial results for the third quarter and the first nine months of 2018. Net revenues increased year-over-year, driven by growth in the Diagnostic Information Services (DIS) segment, partly due to acquisitions. Despite facing some pricing pressures, particularly from the Protecting Access to Medicare Act (PAMA), the company managed to increase revenue per requisition slightly in the nine-month period. Profitability saw a significant boost, with net income attributable to Quest Diagnostics stockholders rising substantially due to a lower effective income tax rate following the Tax Cuts and Jobs Act (TCJA) and favorable tax adjustments. The company also demonstrated strong operational cash flow generation. Strategic initiatives, including partnerships and acquisitions, are progressing, and the company continues to execute its cost-reduction program (Invigorate). Overall, Quest Diagnostics appears to be navigating a complex healthcare landscape effectively, showing resilience in revenue and improved profitability.

Financial Highlights

56 data points
Beta

Revenue

$1.89B

35.3% Gross Margin

Net Income

$213.00M

11.3% Net Margin

EPS (Diluted)

$1.53

Total Assets

$10.99B

Cash & Equivalents

$263.00M

Free Cash Flow

$321.00M

Financial Statements
Beta
Revenue$1.89B
Cost of Revenue$1.22B
Gross Profit$667.00M
SG&A Expenses$354.00M
Operating Expenses$1.58B
Operating Income$304.00M
Interest Expense$42.00M
Net Income$213.00M
EPS (Basic)$1.56
EPS (Diluted)$1.53
Shares Outstanding (Basic)136.00M
Shares Outstanding (Diluted)139.00M

Key Highlights

  • 1Total net revenues increased by 1.8% to $1.89 billion for the third quarter of 2018 compared to the prior year.
  • 2Net income attributable to Quest Diagnostics stockholders increased by 32.1% to $213 million for the third quarter of 2018.
  • 3Diluted earnings per share (EPS) rose to $1.53 for the third quarter of 2018, up from $1.15 in the prior year period.
  • 4Net cash provided by operating activities increased by $53 million to $905 million for the first nine months of 2018.
  • 5The company completed several strategic acquisitions in the first nine months of 2018, including MedXM, Cape Cod Healthcare's outreach laboratory service business, and ReproSource.
  • 6The effective income tax rate significantly decreased from 35.7% to 18.1% for the third quarter, primarily due to the TCJA.
  • 7Volume (number of requisitions) in the DIS segment increased by 2.0% for the third quarter, indicating continued demand for services.

Frequently Asked Questions

Net revenues for the third quarter of 2018 increased by 1.8% to $1.89 billion. This growth was primarily driven by the Diagnostic Information Services (DIS) segment, which benefited from recent acquisitions. While volume increased, there was a slight decrease in revenue per requisition, partly due to pricing pressures from PAMA and other factors.

The TCJA significantly reduced Quest Diagnostics' effective income tax rate from 35.7% in Q3 2017 to 18.1% in Q3 2018. This, along with other tax benefits such as the release of tax reserves, led to a substantial increase in net income and diluted earnings per share.

Quest Diagnostics has been actively pursuing strategic acquisitions. In the first nine months of 2018, the company acquired MedXM, Cape Cod Healthcare's outreach laboratory service business, and ReproSource, all within the DIS segment. They also announced an agreement to acquire Oxford Immunotec's U.S. laboratory services business. These acquisitions are aimed at expanding the company's service offerings and market reach.

Quest Diagnostics is implementing its 'Invigorate' program, designed to reduce its cost structure and improve performance. While PAMA is noted to have a negative impact on DIS revenue growth, the company is also reinvesting savings from tax reform and focusing on operational efficiencies to mitigate cost pressures and maintain profitability.