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Quest Q1 Revenues Drop 4 Percent

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

For the three months ended March 31, total revenues fell to $1.82 billion from $1.89 but beat the analysts' average estimate of $1.75 billion. Revenues from the company's Diagnostic Information Services fell $1.74 billion from $1.81 billion.

On a conference call following release of the Q1 results, Quest President, CEO, and Chairman Steve Rusckowski said that the decline reflected the impact of the COVID-19 pandemic on the company's business, noting that while the company's revenues in January and February were consistent with its original guidance, during the last two weeks of March, it saw a 40 percent drop in test volumes inclusive of COVID-19 testing.

He added that the company saw continued testing declines in April, and that it was now seeing signs that these declines "are bottoming out at around 50 to 60 percent."

Quest CFO Mark Guinan said during the call that revenue per requisition declined 1.2 percent in Q1, "primarily driven by higher reimbursement pressure." He added that the Protecting Access to Medicare Act "amounted to a headwind of approximately 100 basis points" during the quarter.

The company withdrew its full-year 2020 guidance due to uncertainties related to the COVID-19 pandemic. Guinan said, though, that the company expects Q2 test volumes to be down between 50 percent and 60 percent year over year and that under these conditions the company would likely post a net loss for the quarter.

He noted that the company expects high demand for molecular COVID-19 testing would continue into the second quarter and foreseeable future and that the launch of serology testing, announced on Tuesday, could also positively impact test volumes, though questions remained about reimbursement levels and demand for these tests.

Rusckowski said Quest was moving from a serology testing pilot to making testing available to customers nationwide and that it anticipated having a capacity of over 200,000 serology tests per day by the middle of May. The company is able to run more 50,000 molecular tests for COVID-19 per day, he said.

Quest is using tests from Abbott Laboratories and PerkinElmer's Euroimmun business for coronavirus serology testing while it explores other platforms, as well.

Rusckowski said that the pandemic had put on hold several lab transactions the company had been close to announcing. "While they are on hold, our strong conviction is that these discussion will resume," he said, adding that he believed they would be in a good position to complete these transactions in the third quarter.

He also said that the pandemic could produce additional opportunities for acquisitions down the road. "Given the many challenges that hospitals will face, we expect many will be open to discussions about Quest and how we can help them achieve their lab strategy," he said. "At the same time we know that many smaller regional labs have had their own challenges. The crisis could be an additional catalyst to drive the consolidation we have been forecasting for several years."

The Secaucus, New Jersey-based lab company posted a profit of $99 million, or $.73 per share, compared to a profit of $164 million, or $1.20 per share, a year ago. Adjusted EPS for the recently completed quarter was $.94, above the consensus Wall Street estimate of $.89 per share.

In Q1, Quest's SG&A spending fell 10 percent year over year to $347 million from $384 million.

Quest finished the quarter with $342 million in cash and cash equivalents. The firm ended 2019 with $1.19 billion in cash and cash equivalents.

In early morning trading on the New York Stock Exchange Quest shares were up 7 percent to $100.82.