10-QPeriod: Q2 FY2020

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 24, 2020For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported financial results for the second quarter and first half of 2020, a period significantly impacted by the COVID-19 pandemic. Total net revenues for the second quarter decreased by 6.4% year-over-year to $1.83 billion, while for the first half, revenues declined 5.1% to $3.65 billion. This decline was primarily driven by a substantial drop in base testing volumes due to the pandemic, though partially offset by increased COVID-19 testing and higher revenue per requisition. The company experienced a decrease in operating income for both periods. Despite revenue headwinds, Quest Diagnostics received approximately $65 million in CARES Act funds, bolstering cash flow from operations, which increased slightly to $602 million for the first half. The company also made strategic acquisitions, including Blueprint Genetics and Memorial Hermann Diagnostic Laboratories, and announced plans to acquire a remaining stake in Mid America Clinical Laboratories. Management has implemented cost-saving measures and emphasized flexibility in its credit facilities to navigate the uncertain economic environment, while also noting ongoing legal matters and the potential for future impacts from the pandemic.

Financial Highlights

57 data points
Beta

Revenue

$1.83B

33.2% Gross Margin

Net Income

$185.00M

10.1% Net Margin

EPS (Diluted)

$1.36

Total Assets

$12.99B

Cash & Equivalents

$988.00M

Free Cash Flow

$273.00M

Financial Statements
Beta
Revenue$1.83B
Cost of Revenue$1.22B
Gross Profit$606.00M
SG&A Expenses$360.00M
Operating Expenses$1.54B
Operating Income$283.00M
Interest Expense$42.00M
Net Income$185.00M
EPS (Basic)$1.38
EPS (Diluted)$1.36
Shares Outstanding (Basic)134.00M
Shares Outstanding (Diluted)136.00M

Key Highlights

  • 1Total net revenues for Q2 2020 decreased 6.4% to $1.83 billion, and 5.1% to $3.65 billion for the first half, largely due to a significant drop in base testing volumes caused by COVID-19.
  • 2Revenue per requisition increased by 15.3% in Q2 and 6.4% in the first half, primarily driven by reimbursement for COVID-19 molecular testing.
  • 3Net cash provided by operating activities increased slightly to $602 million for the first six months of 2020, aided by $65 million in CARES Act funds.
  • 4The company completed two strategic acquisitions in Q1 and Q2 2020: Blueprint Genetics for $108 million and Memorial Hermann Diagnostic Laboratories for $120 million.
  • 5Quest Diagnostics reported $185 million in income from continuing operations attributable to stockholders for Q2 2020, down from $206 million in the prior year period.
  • 6Diluted earnings per share from continuing operations were $1.36 for Q2 2020, compared to $1.51 in Q2 2019.
  • 7The company temporarily suspended share repurchases in April 2020 and implemented temporary cost management measures due to the pandemic's impact.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted Quest Diagnostics' financial performance. While demand for COVID-19 testing surged, it was not enough to offset a substantial decline in base testing volumes (which excludes COVID-19 tests). This led to a 6.4% decrease in total net revenues for the second quarter of 2020 compared to the prior year. Base testing volumes declined approximately 34% in Q2 2020 compared to the prior year period. However, revenue per requisition saw an increase, largely due to reimbursement for COVID-19 molecular testing.

Quest Diagnostics expects the COVID-19 pandemic to continue impacting its results of operations, financial position, and cash flows. The severity and duration of the pandemic, its effect on the healthcare system and economy, and the effectiveness of governmental responses are key drivers. Volatility in testing volumes, potential cash collection issues, and supply chain disruptions are anticipated risks. The company is unable to reasonably estimate the full extent of the future adverse impact, which could be material.

Yes, Quest Diagnostics completed two strategic acquisitions in the first half of 2020: Blueprint Genetics Oy for $108 million and the outreach laboratory services business of Memorial Hermann Health System for $120 million. The company also entered into agreements to acquire the remaining 56% interest in Mid America Clinical Laboratories, LLC. In terms of debt, Quest Diagnostics completed a senior notes offering of $550 million in May 2020 and redeemed certain existing senior notes in January 2020.

In response to the pandemic's impact, Quest Diagnostics implemented temporary cost management measures in April 2020, including salary reductions, benefit suspensions, reduced hours, and furloughs for some employees. The company also temporarily suspended share repurchases. To ensure liquidity, Quest Diagnostics amended its senior unsecured revolving credit facility to provide for increased flexibility and utilized its available borrowing capacity. The company received $65 million in CARES Act funds, which positively impacted operating cash flow.