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Quest Diagnostics Q4 Revenues Down 9 Percent, CEO Rusckowski Stepping Down

NEW YORK – Quest Diagnostics on Thursday morning reported a 9 percent year-over-year decline in revenues for the fourth quarter.

Revenue for the three months ended Dec. 31, 2021, was $2.74 billion, down from $3.00 billion in the same quarter last year but above the consensus Wall Street estimate of $2.67 billion.

Test volumes grew 1 percent during the quarter but revenue per test fell by 10 percent.

On a conference call following the release of the financial results, Steve Rusckowski, Quest's chairman, president, and CEO, announced that he would be stepping down with Jim Davis, currently executive VP of general diagnostics at Quest, taking over as CEO in November 2022. Rusckowski said he would remain executive chair of Quest's board through March 2023. Mark Guinan, executive VP and CFO of Quest, announced he would be retiring in 2022, as well.

Regarding the Q4 and full year 2021 results, Rusckowski noted that the decline in revenues during the quarter was due largely to a drop in COVID-19 testing demand compared to the year-ago period when, he noted, demand for testing was spiking.

Guinan said during the call that while COVID-19 volumes declined in Q4 2021 compared to the year-ago-period, base testing volumes were up more than 10 percent compared to Q4 2019, reflecting growth from pre-pandemic base testing volumes. The decline in COVID-19 molecular testing was largely responsible for the drop in revenues per requisition observed during the quarter.

Additionally, Guinan noted that COVID-19 testing costs were up due to an increase in demand from "nontraditional channels," which he said "carry additional expenses and logistics costs," as well as a decline in the use of pooled testing due to high COVID-19 positivity levels during the Omicron surge.

Quest, with its joint-venture partner Sonora Quest, performed roughly 7.9 million COVID-19 molecular tests during Q4, with Quest alone performing roughly 7.3 million tests. The company performed roughly 730,000 COVID-19 serology tests during the quarter.

Subsequent to the end of Q4 2021, in January, Quest averaged roughly 120,000 molecular COVID-19 tests per day and over 139,000 per day including tests done by Sonora Quest, Guinan said.

Net income for the quarter attributable to Quest was $390 million, or $3.12 per share, down from $579 million, or $4.21 per share, in the fourth quarter of last year. Adjusted EPS was $3.33 and beat the analyst average estimate of $3.18.

In the fourth quarter Quest spent $464 million on SG&A, up 4 percent from $447 million in the same quarter last year.

For full-year 2021, revenues were $10.79 billion, up 14 percent from $9.44 billion in 2020, and above the consensus Wall Street estimate of $10.69 billion. Test volumes increased 17 percent year over year while revenue per test fell 2 percent.

Net income attributable to Quest for 2021 was $2.00 billion, or $15.55 per share, compared to $1.43 billion, or $10.47 per share, in 2020. Adjusted EPS for the year was $14.24, beating the consensus analyst estimate of $14.05.

In 2021, Quest spent $1.73 billion on SG&A, up 11 percent from $1.55 billion in 2020.

The company ended 2021 with $872 million in cash and cash equivalents.

Guinan noted that labor costs were up between 3 percent and 4 percent in 2021 but were expected to be up less than 3 percent in 2022.

Looking at the full year, Rusckowski said the company had in 2021 built "strong momentum in our key growth drivers" including consumer and hereditary genetics, oncology, and pharma services. Revenues from these test categories were up more than 25 percent versus 2020 and nearly 33 percent versus 2019, Rusckowski said, adding that the company believed its investments in advanced diagnostics would allow it to "achieve high-single-digit revenue growth going forward."

Revenue from Quest's direct-to-consumer testing business nearly doubled year over year to more than $70 million in 2021, Rusckowski said, adding that the company aims to build this into a $250 million-per-year business by 2025. He cited Quest's recently announced collaboration with Walmart to provide customers access to consumer-initiated lab testing.

Rusckowski said acquisitions will continue to play a significant role in the company's strategy and added that it believes the lab industry will see continued consolidation in the aftermath of the COVID-19 pandemic that could provide buying opportunities. Quest generated 2 percent revenue growth in its base business from acquisitions in 2021. In Q4, the company acquired the assets of Anderson, South Carolina-based laboratory firm LabTech Diagnostics.

For full year 2022, the company provided revenue guidance of between $9.0 billion and $9.5 billion, which would be a decline of between 17 and 12 percent compared to 2021. Reported EPS is expected to be between $7.63 and $8.33 and adjusted EPS between $8.65 and $9.35.

Guinan said this guidance anticipates an average of between 65,000 and 80,000 COVID-19 molecular tests per day in Q1 2022 and 20,000 to 35,000 per day for full year 2022. It assumes approximately 3,000 COVID-10 serology tests per day for the full year.

Separately, Quest said that its board has authorized an increase to its quarterly dividend to $.66 per share from $.62 per share, effective with the dividend payable on April 20 to shareholders of record on April 6. The annual dividend will now be $2.64 per share.

In morning trading on the New York Stock Exchange, Quest's shares were up 2 percent to $138.56.