Quest Diagnostics Incorporated · NYSE:DGX
Quest Diagnostics — Investor Day (November 2018)
23 slides from Quest Diagnostics's investor day presentation, Nov 29, 2018
Slide 1: Quest by the Numbers
Quest by the Numbers Mark Guinan Executive Vice President and Chief Financial Officer
Slide 2: Safe Harbor Disclosure
SAFE HARBOR DISCLOSURE The statements in the following presentations that 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 cur
Slide 3: What we've delivered the last two years
What we’ve delivered the last two years What We Said: 3-5% revenue growth | Mid-to-high single-digit earnings growth What We Did: Revenues Adjusted EPS $8,500 $8,000 $7.00 >$6.30 >$7,570 $6.00 $5.40 $7,402 $5.09 $7,500 $5.00 $7,188 $4.00 $7,000 $3.00 $6,500 $2.00 $1.00 $6,000 $0.00 2016 2017 2018E 2
Slide 4: With balanced capital deployment overall
…With balanced capital deployment overall SINCE 2012 Cash Generated from Deployed ~$8 Billion Operations and Dispositions Share Repurchases ~$2.8 Returned to Shareholders $ ~ 8B Dividends ~$1.4 CAPEX ~$1.8 Invested M&A ~$2.0 4
Slide 5: We've returned the majority of FCF to shareholders through dividends and share repurchases
We’ve returned the majority of FCF to shareholders through dividends and share repurchases % of FCF returned to shareholders: Share Buybacks 280% 50% 62% 99% 77% >50% Repurchased $2.6B of shares since 2013 $1,222 ($ Millions) Existing authorization to buyback shares up to $923 ~$875 $767M $823 $
Slide 6: With a trend of consistent dividend growth
With a trend of consistent dividend growth... Raised dividend 8 times in last 7 years $0.60 $0.60 $0.53 $0.50 $0.50 $0.45 $0.50 $0.40 $0.40 $0.38 $0.40 $0.33 $0.30 $0.30 $0.30 $0.20 $0.17 $0.20 $0.10 10/25/11 11/16/12 1/30/14 1/29/15 1/28/16 11/11/16 2/1/18 11/29/18 $0.10 +70% +76.5% +10% +15.1% +5.
Slide 7: PAMA is finally here with ~$2 billion in reimbursement cuts scheduled for 2018-20
PAMA is finally here with ~$2 billion in reimbursement cuts scheduled for 2018-20 PAMA cuts CLFS reimbursement ~10% each year 2018-20 ~$700M Total cuts ~$650M ~$600M ~$2B Estimated 2017 Medicare Clinical Lab Fee ~$7B Schedule (CLFS) reimbursement 2017 2018 2019 2020 Source: OIG 7
Slide 8: PAMA expected to be a $200M+ EBITDA headwind over 2018-20
PAMA expected to be a $200M+ EBITDA headwind over 2018-20 ($ Millions) Approximate Year End CLFS Reimbursement Quest EBITDA CLFS Most PAMA cuts Year Revenue Impact Impact Revenue will be felt 2018 $900 -4% ~$40 ~$860 by 2020 IF data collection 2019 ~$860 -10% ~$86 ~$774 performed the same way for 20
Slide 9: PAMA price cuts are a catalyst for consolidation
PAMA price cuts are a catalyst for consolidation Smaller labs are disproportionately impacted by Medicare reimbursement cuts Rest of Industry absorbs 80% of PAMA cuts * EBITDA across the industry ranges between 0-20% 9
Slide 10: Current deployment strategy allows for ~$4B in capital while maintaining investment grade rating
Current deployment strategy allows for ~$4B in capital while maintaining investment grade rating Access to ~$4B Acquiring EBITDA at 10x multiple $1,600 ~3.5x leverage; maintain investment grade rating More than $300M available after ~3.5x leverage; capex, dividends, and share ~$2,000 maintain
Slide 11: PAMA should trigger further consolidation: hospital outreach acquisitions
PAMA should trigger further consolidation: Quick refresher on hospital outreach acquisitions Quest P&L following acquisition Target Outreach Lab Quest acquires for $80 million ~8x ~1x 25% $10,125 1,000 900 $75 $75,000 ~2x $45 $40,500 ~20x $3,750 5% Requisition Revenue per Revenue Operating Operating
Slide 12: Broader expectations for reimbursement pressure
Broader expectations for reimbursement pressure Basis Points Pressure Peaks ~100bps PAMA ~50bps ~50bps Health plan PAMA access Reimbursement 50% pressure Health plans ~100bps expected to <100bps All other All other moderate 50% further in 2021 Client bill 2018 2019 2019 2020 2021 Usual reimbursement
Slide 13: Well positioned to grow revenue & earnings in 2019 despite headwinds
Well positioned to grow revenue & earnings in 2019 despite increasing reimbursement headwinds Tailwinds Headwinds Revenue • Expanded health • Reimbursement pressure & Earnings plan access Growth in 2019 • M&A • Carryover from • Invigorate 2018 test headwinds • SWB inflation 13
Slide 14: 2022 outlook: looking beyond 2018-19
2022 outlook: looking beyond 2018-19 Expect to continue accelerating top line growth – Total revenue 3-5% CAGR Acquisitions >2% CAGR Organic 1-3% CAGR Earnings growth faster than revenue in the 4-6% CAGR range FCF growth commensurate with earnings growth 14
Slide 15: Key takeaways
Key takeaways We will grow earnings and revenue in 2019 Structural changes coming to our industry provide an opportunity to consolidate and gain share Our strong cash flow and flexible balance sheet will allow us to execute more M&A We will continue to return a majority of FCF to shareholder
Slide 16: Appendix
Appendix Non-GAAP Reconciliations
Slide 17: Note on Non-GAAP Financial Measures
Note on Non-GAAP Financial Measures The non-GAAP measures for (i) equivalent revenue; (ii) adjusted diluted EPS excluding amortization expense; and (iii) free cash flow are presented because management believes those measures are useful adjuncts to measures under the accounting principles generally
Slide 18: Adjusted Diluted EPS Excluding Amortization Expense
Adjusted Diluted EPS Excluding Amortization Expense The following table reconciles adjusted diluted EPS excluding amortization expense to reported results under GAAP. Twelve Months Ended December 31, 2018 (a) 2017 2016 Diluted earnings per common share $ 5.34 $ 5.50 $ 4.51 Gain on disposition of b
Slide 19: Adjusted Diluted EPS Excluding Amortization Expense
Adjusted Diluted EPS Excluding Amortization Expense a) Represents estimated amounts for the full year. b) For the twelve months ended December 31, 2016, represents the gain on the sale of our Focus Diagnostics products business. Income tax expense associated with the gain resulted in a combined tax
Slide 20: Adjusted Diluted EPS Excluding Amortization Expense
Adjusted Diluted EPS Excluding Amortization Expense e) For the twelve months ended December 31, 2018, represents an income tax benefit associated with a change in a tax return accounting method that will enable the company to accelerate the deduction of certain expenses on its 2017 tax return at the
Slide 21: Equivalent Revenue
Equivalent Revenue The following table reconciles net revenues on an equivalent basis to the corresponding measures determined under GAAP: Twelve Months Ended December 31, 2017 2016 (dollars in millions) Net revenues as reported $ 7,709 $ 7,515 Adjustment for adoption of new revenue recognition st
Slide 22: Free Cash Flow
Free Cash Flow The following table reconciles free cash flow to the corresponding measure determined under GAAP. Year Ended December 31, 2018 (a) 2017 2016 2015 2014 2013 (dollars in millions) Net cash provided by operating activities as reported $ 1,250 $ 1,175 $ 1,069 $ 821 $ 944 $ 667 Adjustmen
Slide 23: Investor Meeting
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