Action from Insight: bringing our brand to life · WHAT’S NEW Growing revenues 3-5% beyond 2016,...
Transcript of Action from Insight: bringing our brand to life · WHAT’S NEW Growing revenues 3-5% beyond 2016,...
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Action from Insight: bringing our brand to life
Accelerating Growth, Building Value
Steve Rusckowski
President and Chief Executive Officer
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SAFE HARBOR DISCLOSURE
The statements in the following presentation 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 current
estimates, projections, expectations or beliefs and which involve risks and uncertainties that could
cause actual results and outcomes to be materially different. Risks and uncertainties that may
affect the future results of the Company include, but are not limited to, adverse results from
pending or future government investigations, lawsuits or private actions, the competitive
environment, changes in government regulations, changing relationships with customers, payers,
suppliers or strategic partners and other factors discussed in the Company's most recently filed
Annual Report on Form 10-K and in any of the Company's subsequently filed Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk
Factors,” “Cautionary Factors that May Affect Future Results” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” sections of those reports.
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Topics
Market Perspective
Progress to Date
Accelerate Growth
Drive Operational Excellence
Financial Summary
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Continuity: four years of delivering results together Steve Rusckowski
President & CEO
Jon Cohen MD SVP & Group
Executive
Diagnostic
Solutions
Everett
Cunningham SVP
Commercial
Jim Davis SVP & Group
Executive
Regional
Businesses
Dermot Shorten SVP
Strategy, M&A and
Ventures
Tim Sharpe VP
Compliance
Gary Samuels VP
Communications
John Haydon VP
Joint Ventures
and Strategic
Programs
Mike Prevoznik General Counsel &
SVP
International
Mark Guinan SVP & CFO
Jeff Shuman SVP
Chief Human
Resources
Lidia Fonseca SVP & Chief
Information Officer
Cathy Doherty SVP & Group
Executive
Clinical Franchise
Solutions
Jay Wohlgemuth MD SVP
Medical, Science and
Innovation, Chief Medical
Officer
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We’ve been on a journey since 2012…
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We said it would take time…
Share Price Performance 9/30/2011 – 12/31/2013
(does not include dividends)
80
100
120
140
160
180DGX LH S&P 500 S&P HC S&P HC svcs
Total Shareholder Return
9/30/2011 – 12/31/2013
13% 15%
71%
83% 77%
DGX LH S&P 500 S&P HC S&P HCsvcs
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…and we have been delivering value
67%
51%
25%
36%
44%
DGX LH S&P 500 S&P HC S&P HCsvcs
80
100
120
140
160
180
DGX LH S&P 500 S&P HC S&P HC svcs
Share Price Performance 12/31/2013 – 9/30/2016
(does not include dividends)
Total Shareholder Return
12/31/2013 – 9/30/16
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Quest is a major player in healthcare…
Serves 50% of hospitals
470,000 Physicians
connected to Care360 portal
Expanding retail presence
50% FDA-approved Oncology Precision Medicine drugs since 2014
Q2 Solutions helped
of all develop
675+ EMR interfaces
Access to
~80% of U.S.
insured lives
Serves 1/3 U.S. adult population
and ~50% within 3 years
of the
~$7.5B 2015 revenue
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…with unmatched capabilities
~100 Peer reviewed
publications published annually
2,200+ Patient service centers
20,000+
650+ Quest-employed MDs and PhDs
20B+ Patient
data points
~$7.5B
Quest owns or controls
~570 issued patents
worldwide 700
pending and Phlebotomists, paramedics and contract nurses
2015 revenue
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Quest is the clear leader in a fragmented market
Total
U.S. Lab Market
Outside the Hospital
Lab Segment
Independent
Lab Segment
$79 billion $50 billion $27 billion
DGX
LH
Other
Independent
Labs 56%
24%
20%
Independent
Labs
54%
Hospital
Outreach
35%
11%
POL and Other
Outside
the
Hospital
Inpatient
63% 37%
Total U.S. lab market growing ~2-3%
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Hospital Health Systems account for $48B (~60% of market) via three segments
Inpatient Professional
Laboratory Services
(PLS)
~$27 billion market
Hospital
Outreach
Acquire and/or partner on
outreach business
~$17 billion market
Grow advanced test send out
business
Reference
Testing
~$4 billion market
Quest #1
Market Characteristics DGX Opportunity
Reference
$4 billion
Hospital
Outreach Inpatient
$27 billion $17 billion
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Quest is positioned for continued market leadership during a time of significant change
Utilization Reimbursement Stakeholder Dynamics
Technology Evolution
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Our 5-Point Strategy as we shared it in 2012
Refocus: Refocus on diagnostic information services
1
2
3
4
5
Simplify: Simplify the organization to enable growth and productivity
Drive: Drive Operational Excellence
Restore: Restore Growth
Deliver: Deliver disciplined capital deployment and strategically
aligned accretive acquisitions
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1. Refocus on diagnostic information services
Generated $1 billion in proceeds
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2. Drive operational excellence
$500 million
Invigorate target
SAVINGS
2011 2014
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2. Drive operational excellence
$600 million
Invigorate target
SAVINGS
2011 2012 2014 INVESTOR DAY
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2. Drive operational excellence
Invigorate target
SAVINGS
2011 2012 2014 INVESTOR DAY INVESTOR DAY
$1.3 billion
$700 million
2017
SAVINGS
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2. Drive operational excellence
Invigorate target
SAVINGS
2011 2012 2014 INVESTOR DAY INVESTOR DAY
$1.3 billion
$700 million
2017
SAVINGS
2016 INVESTOR DAY
On track
SAVINGS $1.1 billion
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-4.6%
-1.6%
0.7% 1.8%
-5%
-3%
-1%
1%
3%
5%
7%
2013 2014 2015 2016
Organic, Equivalent Revenues
3. Restore growth
2016 2015 2014 2013 2016E through 3Q
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1.4%
5.6%
1.3% 1.0%
-5%
-3%
-1%
1%
3%
5%
7%
2013 2014 2015 2016
Revenue Growth from Acquisitions
3. Restore growth
2016 2015 2014 2013 2016E through 3Q
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2013
-3.2%
4.0%
2.0% 2.8%
-5%
-3%
-1%
1%
3%
5%
7%
2013 2014 2015 2016E
Total Equivalent Revenue
3. Restore growth
2016 2015 2014 2016E
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4. Simplify the organization
Revised incentives for
executives and sales reps
60%
65%
70%
75%
2012 2013 2014 2015 2016
Increased employee engagement
Removed excess layers
from org structure
Created Leading Quest Academy,
trained >300 leaders
New structure built to drive
growth
Established Quest Management
System based on common tools
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5. Deliver disciplined capital deployment
CAPEX
Since 2012 Since 2012
Cash Generated from Operations
and Dispositions since 2012:
~$5 billion
~$1
~$1
~$1
~$2
M&A
Dividends
Share repurchases
($ Billions)
Returned to
Shareholders
Invested
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Our 5-Point Strategy as we shared it in 2012…
5 5-POINT STRATEGY
Refocus: Refocus on diagnostic information services 1
4 Simplify: Simplify the organization to enable growth and productivity
2 Drive: Drive operational excellence
3 Restore: Restore growth
5 Deliver: Deliver disciplined capital deployment and strategically aligned
accretive acquisitions
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OPERATING
PRINCIPLES
…We’re building on our progress by narrowing our focus
Refocus on diagnostic information services
Simplify the organization to enable growth and productivity
Deliver disciplined capital deployment and strategically aligned
accretive acquisitions
2 2-POINT STRATEGY
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Our strategy
General Diagnostics. Routine testing provides steady growth and strong cash
Advanced Diagnostics. Faster growth through innovation model
Diagnostic Services. Faster growth through a range of opportunities
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At a glance
~$5.5 billion in 2015 revenues
Basic blood and urine testing; and anatomic pathology testing
Preventive screenings for heart disease, diabetes, HCV, etc.
Low single-digit market growth
Essential portion of health care delivery
Quest value proposition
Scale
Operational excellence
Access and convenience
General Diagnostics.
Routine testing provides steady growth and strong cash
28
Advanced Diagnostics.
Faster growth through innovation model
29
At a glance
~$1 billion in 2015 revenues
Genetic and molecular advanced testing
An important part of precision medicine
A growing set of unique, innovation-based competitors
Mid-to-high single-digit growth
Quest value proposition
Rich clinical, scientific and medical innovation expertise
Quality and reliability of new assays
Ability to manage potential, new regulatory requirements
Diagnostic Services.
Faster growth through a range of opportunities
30
At a glance
~$1 billion in 2015 revenues
Employer, Insurer, Wellness, Data Analytics & Extended Care
Services and Professional Lab Services (PLS)
Mid-to-high single-digit growth
Services support population health
Enables partners to deliver healthcare more efficiently
Quest value proposition
Partnerships with industry leaders across healthcare landscape
Extensive diagnostic capability
Large and growing database and analytics expertise
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1 Grow 1-2% per
year through
accretive,
strategic
acquisitions
Be recognized as the
consumer-friendly
provider of diagnostic
information services
4
Offer the broadest
access to diagnostic
innovation 3
Strategies
31
Partner with health
plans, hospital health
systems and other
risk-bearing entities
2
5 Support
population
health with data
analytics and
extended care
services
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Strategic Relationships
position us for growth at the center of the healthcare ecosystem
Consumer Public Health
Provider Partner
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$1.3 billion
SAVINGS
2017
IN RUN-RATE SAVINGS
$1.3 Billion By end of 2017
More opportunity for cost savings beyond 2017
Through enhanced quality and customer experience
beyond
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Quest showed a significant increase in ratings with physicians*
6.6
6.9
6.6
6.1
6.6
Quest Diagnostics Competitor A Competitor B Local Hospital
Quality and efficiency
go hand in hand; recent market research bears it out
* Independently conducted, blinded, customer sentiment survey
Competitor A
(n=654)
Competitor B
(n=539)
Local Hospital
(n=450) (n=649/655)
2015 2016 2016 2016 2016
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WHAT’S NEW
Growing revenues 3-5% beyond 2016, earnings to grow faster than
revenues in mid-to-high single digit range
Exiting 2016 with $1.1B+ Invigorate run rate cost savings; on track to reach
$1.3B by end of 2017 with further savings opportunities beyond
Increasing dividend by 12.5% to an annual rate of $1.80 per share
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KEY TAKEAWAYS
Laser-focused on accelerating growth and driving operational excellence
Excellent progress delivering on commitments and creating value
Strategic partnerships provide clear competitive advantage
Appendix
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Non-GAAP Reconciliations
The following non-GAAP measures for: (i) equivalent revenue growth; and (ii) cash
generated from operations and dispositions are presented because management believes
those measures are useful adjuncts to GAAP results. Non-GAAP, or “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 or 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 following tables reconcile reported GAAP measures to non-GAAP
adjusted measures:
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Year Ended December 31, 2015
$ % Growth
Equivalent %
Growth
(dollars in millions)
Prior year net revenues $ 7,435
Revenue growth/(decline) impacts:
Organic (a) 51 0.7 % 0.7 %
Business acquisitions (b) 94 1.3 1.3
Business dispositions (c) (87 ) (1.2 ) N/A
Current year net revenues $ 7,493 0.8 % 2.0 %
Nine Months Ended September 30, 2016
$ % Growth
Equivalent %
Growth
(dollars in millions)
Prior year net revenues $ 5,644
Revenue growth/(decline) impacts:
Organic (a) 98 1.8 % 1.8 %
Business acquisitions (b) 57 1.0 1.0
Business dispositions (d) (145 ) (2.6 ) N/A
Current year net revenues $ 5,654 0.2 % 2.8 %
Year Ended December 31, 2013
$ % Growth
Equivalent %
Growth
(dollars in millions)
Prior year net revenues $ 7,383
Revenue growth/(decline) impacts:
Organic (a) (341 ) (4.6 )% (4.6 )%
Business acquisitions (b) 104 1.4 1.4
Business dispositions — — N/A
Current year net revenues $ 7,146 (3.2 )% (3.2 )%
Year Ended December 31, 2014
$ % Growth
Equivalent %
Growth
(dollars in millions)
Prior year net revenues $ 7,146
Revenue growth/(decline) impacts:
Organic (a) (113 ) (1.6 )% (1.6 )%
Business acquisitions (b) 402 5.6 5.6
Business dispositions — — N/A
Current year net revenues $ 7,435 4.0 % 4.0 %
a) Represents the estimated revenue growth/(decline) excluding the impact of business acquisitions and business dispositions. b) Represents the estimated impact of our business acquisitions on revenue growth. c) Represents clinical trials testing revenues reported in the third and fourth quarters of 2014 as a result of the contribution of our clinical clinical trials testing business to Q2 Solutions, the clinical trials joint
venture with Quintiles Transnational Holdings Inc, effective July 1, 2015. d) Represents clinical trials testing reported revenues for the first and second quarters of 2015, Celera products reported revenues for the first, second and third quarters of 2015 and Focus Diagnostics products
revenues subsequent to April 2015 through the third quarter of 2015. In 2015, the company contributed its clinical trials testing business to the Q2 Solutions joint venture. In 2016, the company wound down its Celera products business and completed its exit from the products business as a result of the sale of its Focus Diagnostics products business on May 13, 2016.
Equivalent Revenue Growth The following tables reconcile equivalent revenue growth/(decline) and its components to the
corresponding measures determined under GAAP:
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Cash Generated from Operations and Dispositions
a) In the second quarter of 2016, the company elected to early adopt the accounting standard update that simplifies several aspects of the accounting for stock-based compensation award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and accounting for forfeitures, effective January 1, 2016. As a result, certain reclassifications have been made to the prior year amounts to conform with the current period presentation.
b) Primarily represents proceeds from the sale our HemoCue and Enterix products businesses in 2013 and Focus Diagnostics products business in 2016 included in cash flows from investing activities. c) Represents proceeds from the sale of our ibrutinib royalty rights in July 2013 included in cash flows from investing activities.
The following table reconciles cash generated from operations and dispositions to the corresponding
measures determined under GAAP:
Year Ended December 31,
Nine Months Ended
September 30,
Cumulative Total 2012 (a) 2013 (a) 2014 (a) 2015 (a) 2016
(dollars in millions)
Cash generated from operations and dispositions:
Net cash provided by operating
activities $ 1,211
$ 667
$ 944
$ 822
$ 765
$ 4,409
Add: Proceeds from
dispositions:
Proceeds from sale of
businesses (b) —
296
—
—
270
566
Proceeds from sale of royalty
rights (c) —
474
—
—
—
474
Total proceeds from
dispositions —
770
—
—
270
1,040
Cash generated from
operations and dispositions $ 1,211
$ 1,437
$ 944
$ 822
$ 1,035
$ 5,449
Net cash (used in) provided by
investing activities $ (217 ) $ 328
$ (1,025 ) $ (362 ) $ (45 )
Net cash (used in) provided by
financing activities $ (846 ) $ (1,121 ) $ 86
$ (519 ) $ (447 )
INVESTOR MEETING
2016