- Quest Diagnostics on Thursday reported first-quarter revenues of $2.72 billion, up 49.3% from 2020, as the base business continued its recovery to near pre-pandemic levels, helping to offset a decrease in demand for COVID-19 testing. Revenue beat the Street expectation of $2.64 billion.
- CEO Steve Rusckowski told investors on an earnings call that contributions from acquisitions and professional lab services relationships accelerated growth in the base business. In March, for the first time since the pandemic began, monthly organic revenue in the base business grew. At the same, he said the first-quarter reduction in coronavirus testing was "in line with industry trends."
- William Blair analysts estimate Quest performed about 9.2 million COVID-19 molecular tests, (short of the firm's target of 9.8 million) and 900,000 serology tests (below Blair's 1.2 million estimate). Rusckowski said he expects polymerase chain reaction testing, in particular, to continue to decline in subsequent quarters.
More than a year into the coronavirus pandemic, Quest executives still see a critical role for COVID-19 tests despite the rollout of vaccines in the U.S. Rusckowski contends that surveillance testing will be needed to control the spread of the virus and to help segments of the economy reopen as more Americans become vaccinated.
Quest in February introduced a new COVID-19 serology testing service that assesses relative changes in antibody blood levels in individuals, which the company contends "may aid" in indicating an immune response resulting from a recent or prior infection or vaccination.
Nonetheless, the lab giant acknowledges that demand for its COVID-19 tests slowed in the first quarter and may have peaked. CFO Mark Guinan told investors Thursday that Quest expects a "significant ramp down" in COVID-19 testing throughout the second quarter "based on our expectation that vaccines will continue to roll out."
Rusckowski added that the company expects PCR diagnostic test demand to decline throughout 2021. "We did see that in Q1 and we see it happening in the country," the CEO said.
The recovery in Quest's routine testing business is a welcome development given sagging coronavirus test demand. Guinan told investors that, compared to 2019 levels, total first-quarter base testing volumes increased 1.5% benefiting from acquisitions and professional lab services partnerships that began in 2020.
Quest raised first-half revenue guidance to $5 billion to $5.2 billion, up from $4.85 billion to $5.15 billion.
William Blair said the new guidance was "largely commensurate with the beat in the first quarter" but added they were "a bit surprised" that management did not issue a full-year outlook this far into 2021, which analysts attributed to "lingering uncertainty regarding COVID-19 testing demand and recovery in the base business in the back half of the year."
At Quest's virtual investor day in March, the lab giant said its base business is poised to fully recover by the end of 2021. Executives last month raised their long-term outlook to a 4% to 5% revenue compound annual growth rate for the base business, noting that more than a 2% revenue CAGR will be achieved through strategically aligned accretive acquisitions.
Quest's main rival LabCorp warned investors in February that COVID-19 testing revenues could fall by as much as 50% this year as mass-vaccination campaigns start to drive down cases. At the same time, executives predicted LabCorp's base business will achieve double-digit growth as the pandemic abates but the surging sales will be more than offset by the lost COVID-19 revenues.
LabCorp will release its first-quarter financial results on April 29.
With the pandemic accelerating interest in consumer-initiated testing, Quest last month said the company is expanding its existing direct-to-consumer operations in an effort to capture $250 million of the emerging DTC market, which it estimates will be worth $2 billion by 2025.
However, LabCorp has similar DTC designs and is making inroads with retailers looking to offer COVID-19 tests.
CVS on Monday announced the availability of LabCorp's over-the-counter PCR test home collection kit. Walgreens in February said it was making the LabCorp kit available for purchase without a prescription in nearly 6,000 stores nationwide.