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Quest Diagnostics Q1 Revenues Down 4 Percent as COVID-19 Testing Declines

NEW YORK – Quest Diagnostics reported on Thursday that revenues for its first quarter were down 4 percent year over year.

For the three months ended March 31, total revenues fell to $2.61 billion from $2.72 billion, short of the consensus Wall Street estimate of $2.63 billion.

Revenue from the company's Diagnostic Information Services business was $2.54 billion, down 4 percent from $2.64 billion in Q1 2021. Revenue from its base testing business was $2.01 billion, up 6 percent from $1.89 billion in the year ago period, while COVID-19 testing revenue was $599 million, down 28 percent from $828 million in Q1 2021.

Test volume as measured by requisitions was up 1 percent in the quarter, with organic volume flat and revenue per requisition down 5 percent.

On a conference call following the release of the Q1 results, Steve Rusckowski, chairman and CEO of Quest, noted that the company's base testing business continued to recover and cited as drivers the strong growth of its health plan business and value-based care relationships as well as its partnerships with healthcare systems.

Rusckowski also highlighted Quest's advanced diagnostics business, saying that the company had "accelerated growth by several hundred basis points" and expects to see 8 percent growth in this business earlier than its previously provided timeline of 2024.

He said the company expects productivity improvements would help offset the ongoing inflationary environment, noting that Quest has seen "incremental productivity gains from the investment we have made in automation and artificial intelligence."

Quest also announced on Wednesday several organizational and leadership changes. The company appointed Catherine Doherty senior VP, regional businesses; Carrie Eglinton Manner, senior VP, advanced and general diagnostics clinical solutions; Patrick Plewman, senior VP, diagnostic services; Mark Delaney, senior VP and chief commercial officer; and Richard Adams, VP and general manager, consumer initiated testing.

Mark Guinan, executive VP and CFO of Quest, said on the call that the company saw a "modest softening" in its base testing business during the January Omicron surge, but that those volumes rebounded in February and March. Conversely, COVID-19 testing volumes peaked in January then declined in February and March. Quest and its joint venture partner Sonora Quest performed 7.2 million molecular COVID-19 tests during the quarter, with Quest alone performing 6.3 million molecular COVID-19 tests, down roughly 2 million tests year over year. Guinan said COVID-19 molecular volumes excluding Sonora Quest have stabilized over the last four weeks at a level of roughly 30,000 per day. The company did roughly 450,000 COVID-19 serology tests during the quarter.

Guinan added that the Health Resource and Services Administration's move to stop as of March 22 accepting claims for COVID-19 testing from uninsured individuals left Quest with more than $20 million in COVID-19 testing work that it was unable to bill. He said the company is now billing uninsured individuals directly for COVID-19 testing upfront, which has led to a decline in uninsured COVID-19 testing volumes. Uninsured individuals had made up 14 percent of the company's COVID-19 testing volume.

Rusckowski said that given the extension of the public health emergency into July and expected continuing demand for COVID-19 testing into 2023, Quest has raised the lower end of its COVID-19 testing revenue guidance for full year 2022 to between $850 million and $1 billion from its previous guidance of between $700 million and $1 billion. The guidance assumes COVID-19 molecular testing volumes of between 10,000 and 20,000 tests per day for the rest of the year with average reimbursement holding steady.

Guinan said Quest expects to spend roughly $160 million investing in its advanced diagnostics and direct-to-consumer businesses in 2022, including the launch of a new consumer website later in the year as well as new headcount to support this consumer offering.

The Secaucus, New Jersey-based lab company posted a profit of $355 million, or $2.92 per share, compared to a profit of $469 million, or $3.46 per share, a year ago. Adjusted EPS for the recently completed quarter was $3.22, above the consensus Wall Street estimate of $2.97 per share.

In Q1, Quest's SG&A spending rose 4 percent year over year to $425 million from $407 million.

Quest updated its outlook for full year 2022, projecting net revenues of between $9.2 billion and $9.5 billion, which would be down year over year between 12 percent and 15 percent. Adjusted EPS is expected to be between $9.00 and $9.50. Previously the company projected net revenues of between $9.0 billion and $9.5 billion and adjusted EPS of between $8.65 and $9.35.

Quest finished the quarter with $712 million in cash and cash equivalents.

In early morning trading on the New York Stock Exchange, Quest shares were up 3 percent to $142.15.