10-QPeriod: Q3 FY2020

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 23, 2020For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported strong financial performance for the third quarter and first nine months of 2020, largely driven by increased demand for COVID-19 testing. Net revenues saw a significant increase of 42.5% year-over-year for the third quarter, reaching $2.79 billion. This surge was primarily fueled by high volumes of COVID-19 molecular and antibody testing, which more than offset a decline in testing volumes within their base business due to the pandemic's impact on elective procedures and physician visits. Despite the operational challenges posed by COVID-19, the company demonstrated robust profitability, with income from continuing operations attributable to stockholders increasing substantially. The company also maintained a strong cash flow position, with net cash provided by operating activities significantly higher for the first nine months of 2020 compared to the prior year. Quest Diagnostics also made strategic acquisitions during the period, further strengthening its market position. The company is actively managing the financial impacts of the pandemic, including the temporary return of CARES Act funds received, and has adjusted its cost structure and credit facility covenants to enhance flexibility.

Financial Highlights

57 data points
Beta

Revenue

$2.79B

43.3% Gross Margin

Net Income

$568.00M

20.4% Net Margin

EPS (Diluted)

$4.14

Total Assets

$14.14B

Cash & Equivalents

$1.60B

Free Cash Flow

$771.00M

Financial Statements
Beta
Revenue$2.79B
Cost of Revenue$1.58B
Gross Profit$1.21B
SG&A Expenses$396.00M
Operating Expenses$2.07B
Operating Income$718.00M
Interest Expense$42.00M
Net Income$568.00M
EPS (Basic)$4.20
EPS (Diluted)$4.14
Shares Outstanding (Basic)135.00M
Shares Outstanding (Diluted)137.00M

Key Highlights

  • 1Total net revenues increased by 42.5% to $2.79 billion in Q3 2020, primarily due to high demand for COVID-19 testing.
  • 2Diagnostic Information Services (DIS) revenue grew by 44.3% in Q3 2020, driven by COVID-19 testing volumes and recent acquisitions, despite a 5% decline in base business testing volumes.
  • 3Income from continuing operations attributable to Quest Diagnostics' stockholders surged to $568 million ($4.14 per diluted share) in Q3 2020, a significant increase from $215 million ($1.56 per diluted share) in Q3 2019.
  • 4Net cash provided by operating activities increased by $569 million to $1.46 billion for the first nine months of 2020 compared to the same period in 2019.
  • 5The company completed three strategic acquisitions in 2020: Blueprint Genetics Oy, select assets of Memorial Hermann Diagnostic Laboratories, and the remaining interest in Mid America Clinical Laboratories, LLC.
  • 6Quest Diagnostics temporarily suspended share repurchases in April 2020 but ended the period with $1.2 billion remaining under its authorizations.
  • 7The company announced plans to return $138 million in CARES Act funds received for COVID-19 related expenses or lost revenues.

Frequently Asked Questions

COVID-19 testing was a primary driver of Quest Diagnostics' revenue growth in the third quarter of 2020. The surge in demand for COVID-19 molecular and antibody testing more than offset a decline in testing volumes within the company's base business, contributing to a 42.5% year-over-year increase in total net revenues.

Quest Diagnostics anticipates that the COVID-19 pandemic will continue to impact its financial performance. The extent of this impact will be primarily driven by the pandemic's severity and duration, its effect on the U.S. healthcare system and economy, and the effectiveness of governmental responses. While COVID-19 testing has boosted revenue, the company expects continued declines in its base testing volumes and potential impacts on cash collections.

Yes, Quest Diagnostics completed three strategic acquisitions in the first nine months of 2020: Blueprint Genetics Oy (specialty genetic testing), select assets of Memorial Hermann Diagnostic Laboratories (outreach laboratory division), and the remaining interest in Mid America Clinical Laboratories, LLC (clinical laboratory provider). These acquisitions are expected to enhance the company's service offerings and market reach.

Quest Diagnostics has actively managed its debt, including redeeming certain senior notes and issuing new ones. As of September 30, 2020, the company had substantial borrowing capacity available under its credit facilities and sufficient cash and cash equivalents. They also temporarily suspended share repurchases and adjusted credit facility covenants to enhance financial flexibility during the uncertain economic environment.