10-QPeriod: Q2 FY2021

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 23, 2021For Securities:DGX

Summary

Quest Diagnostics reported a strong financial performance for the second quarter and first half of 2021, with significant year-over-year increases in net revenues and net income, driven primarily by the recovery in base testing volumes and strong contributions from COVID-19 testing. The company saw a substantial revenue uplift in its Diagnostic Information Services (DIS) segment. Despite the strong top-line growth, a notable strategic move was the divestiture of the company's stake in Q2 Solutions, which resulted in a significant pre-tax gain and boosted non-operating income. Financially, the company demonstrated robust operating income growth. Shareholder returns were prioritized through substantial share repurchases, including a significant Accelerated Share Repurchase (ASR) program. The company maintained a strong liquidity position and cash flow from operations, enabling it to fund capital expenditures, debt obligations, and shareholder returns. Management expressed confidence in its ability to fund future operations and growth opportunities. Key operational highlights include the continued recovery of base testing volumes and the strategic acquisition of Mercy Health's outreach laboratory services business. While COVID-19 testing demand has declined from its peak, it has significantly contributed to revenue and profitability in the reporting periods. The company also noted progress on its multi-year 'Invigorate' program aimed at cost reduction and performance improvement.

Financial Highlights

57 data points
Beta

Revenue

$2.55B

38.6% Gross Margin

Net Income

$631.00M

24.7% Net Margin

EPS (Diluted)

$4.96

Total Assets

$12.86B

Cash & Equivalents

$560.00M

Free Cash Flow

$376.00M

Financial Statements
Beta
Revenue$2.55B
Cost of Revenue$1.56B
Gross Profit$985.00M
SG&A Expenses$429.00M
Operating Expenses$2.02B
Operating Income$533.00M
Interest Expense$38.00M
Net Income$631.00M
EPS (Basic)$5.05
EPS (Diluted)$4.96
Shares Outstanding (Basic)125.00M
Shares Outstanding (Diluted)127.00M

Key Highlights

  • 1Net revenues for the second quarter of 2021 surged by 39.5% to $2.55 billion compared to the prior year, with the DIS segment showing a 40.2% increase.
  • 2Net income attributable to Quest Diagnostics more than tripled, reaching $631 million for the second quarter of 2021, up from $185 million in the same period of 2020.
  • 3The company recorded a significant pre-tax gain of $314 million from the sale of its 40% ownership interest in Q2 Solutions in April 2021.
  • 4Diluted earnings per share (EPS) significantly increased to $4.96 in Q2 2021 from $1.36 in Q2 2020.
  • 5Quest Diagnostics repurchased 9.1 million shares of common stock for $1.5 billion under an Accelerated Share Repurchase (ASR) program in the second quarter of 2021.
  • 6Net cash provided by operating activities for the first six months of 2021 was $1.19 billion, a substantial increase from $602 million in the prior year period.
  • 7The company completed the acquisition of Mercy Health's outreach laboratory services business for $225 million on June 1, 2021.

Frequently Asked Questions

The substantial increase in revenue and net income was primarily driven by a strong recovery in base testing volumes, which exceeded 2019 levels for the first time, coupled with continued demand for COVID-19 testing. The acquisition of Mercy Health's outreach laboratory services business also contributed to revenue growth.

The sale of Quest Diagnostics' 40% ownership interest in Q2 Solutions for $760 million on April 1, 2021, resulted in a significant pre-tax gain of $314 million. This gain was recorded in 'Other income (expense), net' and boosted the company's net income and EPS for the quarter. Quest Diagnostics will continue to be a strategic preferred laboratory provider for Q2 Solutions' clients.

Quest Diagnostics is actively returning capital to shareholders through share repurchases. In the second quarter of 2021, the company entered into Accelerated Share Repurchase (ASR) agreements to repurchase $1.5 billion of its common stock and completed the initial phase of this program, acquiring 9.1 million shares for $1.5 billion. The company also declared and paid quarterly cash dividends.

While COVID-19 testing has significantly contributed to revenue and profitability, the company expects a continued decline in demand for COVID-19 molecular testing in the second half of 2021 due to increasing vaccination rates. However, the company remains capable of performing a high volume of tests and continues to manage supply chain challenges.