On April 22, 2020 Quest Diagnostics Incorporated (NYSE: DGX), the world’s leading provider of diagnostic information services, reported financial results for the first quarter ended March 31, 2020 (Press release, Quest Diagnostics, APR 22, 2020, View Source [SID1234556495]).
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"We were very pleased with Quest’s results in January and February, which were consistent with the full-year guidance we provided in January," said Steve Rusckowski, Chairman, CEO and President. "However, in March, we experienced a material decline in testing volumes due to the COVID-19 pandemic. During the last two weeks of March, volumes declined in excess of 40%, including COVID-19 testing."
Mr. Rusckowski continued: "We are managing the company for the long term and have taken a series of actions to protect our financial flexibility. These include pay cuts for me, the board, and my team; suspension of certain benefits, such as our 401(k) match; reduced hours for employees whose work has significantly declined; and approved furloughs for employees with diminished work who expressed interest. The temporary actions we are taking, combined with our cash position and access to additional capital, put us in a strong financial position to operate in a range of scenarios as we navigate the COVID-19 crisis.
"I am proud that the Quest team has stepped up to bring crucial COVID-19 testing capacity to the nation during this crisis. To date, we have performed approximately one million molecular tests and have begun to perform blood-based antibody testing. We believe antibody testing will become a critical tool to understand who has been exposed to the virus and who may have immunity. Quest has been at the tip of the spear in responding to this crisis, and we continue to play a critical role in the next phase of containing COVID-19.
"While there is uncertainty in the near term, we look forward to gradually improving conditions. Eventually, the healthcare system will start to return to normal. When that happens, Quest will emerge from the crisis stronger with significant opportunities in front of us."
(a) For further details impacting the year-over-year comparisons related to 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.
Financial Position
As of March 31, 2020, Quest Diagnostics had cash on hand of $342 million and had $1.3 billion of borrowing capacity available under existing credit facilities, including $529 million available under a secured receivables credit facility and $750 million available under a senior unsecured revolving credit facility. There were no outstanding borrowings under these facilities as of March 31st. In April, the Company borrowed $100 million under the secured receivables credit facility and $100 million under the senior unsecured revolving credit facility.
The Company’s secured receivables facility is subject to certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. The unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. In particular, the unsecured revolving credit facility requires the Company to maintain a leverage ratio of no more than 3.5 times EBITDA as of the last day of each fiscal quarter. As of March 31, 2020, the Company was in compliance with all applicable financial covenants.
The COVID-19 pandemic is likely to impact the Company’s ability to comply with applicable financial covenants, beginning as early as the end of the second quarter. In this scenario, the Company would not be able to borrow against these credit facilities and the lenders would have the right to demand payment of any amounts outstanding. The Company has been in advanced discussions with its lead lender regarding an amendment to certain financial covenants of its unsecured revolving credit facility. The Company believes this would provide it with the necessary flexibility to remain in compliance for the remainder of 2020. The Company is confident that it will be able to enter into this amendment later in the quarter. The Company also believes that its investment grade credit rating would provide it with access to alternate sources of financing should they become necessary.
Share repurchase program and quarterly dividend
For the three months ended March 31, 2020, the company repurchased 0.7 million shares of its common stock for $75 million but has suspended additional share repurchases through the end of the year under its existing authorization.
The company’s Board of Directors remains committed to its quarterly dividend at this time.
Outlook for full year 2020 withdrawn
On March 31, 2020, Quest Diagnostics filed a Current Report on Form 8-K with the Securities and Exchange Commission to outline the impact of the COVID-19 pandemic on its operating results, cash flows and financial condition and withdraw its previously announced guidance for full year 2020. The company is unable to accurately forecast the near term impact of the pandemic on its business given the rapidly evolving uncertainties and likely outcomes but intends to provide an updated outlook at an appropriate time.
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, amortization expense, excess tax benefits ("ETB") associated with stock-based compensation, 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 800-839-1170 for domestic callers or 402-998-0559 for international callers. No passcode is required. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 22, 2020 until midnight Eastern Time on May 6, 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.