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Operator
Good morning. Welcome to the Quest Diagnostics fourth quarter, first quarter 2021 conference call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question and answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. Now, I'd like to introduce Sean Derrick, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.
Sean Derrick
Thank you, and good morning. I'm here with Steve Roszkowski, our Chairman, Chief Executive Officer and President, and Mark Guinan, our Chief Financial Officer. During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties, including the impact of the COVID-19 pandemic that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K, and subsequently filed quarterly reports on Form 10Q and current reports on Form 8K. The company continues to believe that the impact of the COVID-19 pandemic on future operating results, cash flows, and or its financial condition will be primarily driven by the pandemic severity and duration, healthcare insurer, government, and clientele reimbursement rates for COVID-19 molecular tests, the pandemic's impact on the U.S. healthcare system and the U.S. economy, and the timing, scope, and effectiveness of federal, state, and local government responses to the pandemic, which are drivers beyond the company's knowledge and control. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. References to base testing volumes or base business refer to testing volumes excluding COVID-19 testing. Growth rates associated with our long-term outlook projections, including total revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth, are compound annual growth rates. Finally, revenue growth rates from acquisitions will be measured against our base business. Now, here is Steve Ruskowski.
Steve Roszkowski
Thanks, Sean, and thanks, everyone, for joining us today. McQuest had a strong first quarter with our base business continuing to recover to near pre-pandemic levels. Contributions from acquisitions and PLS relationships accelerated growth in the base business and helped offset the reduction in demand for COVID-19 testing, which was in line with industry trends. In March, for the first time since the pandemic began, monthly organic revenue in the base business grew versus our 2019 baseline. As we noted in our recent investor day, Quest is well positioned to grow as the U.S. exits the pandemic and people return to normal activities and address the routine care issues that have been neglected over the past year. Also, as you saw in our press release this morning, Our board of directors increased the company's share repurchase authorization by $1 billion for the second time this year. And we expect to launch an accelerated share repurchase, or ASR, in the amount of $1.5 billion in the coming days. This morning, I'll discuss our performance for the first quarter of 2021, provide perspective on industry dynamics, and update you on our base business. And then Mark will provide more detail on our financial results. But before we get into the details of the quarter, we wanted to share our perspective on the ongoing role of COVID-19 testing more than a year into the pandemic, as well as provide our thoughts on recent news regarding PAMA. COVID-19 testing remains critical as supplies of vaccine continue to be available to all Americans. Testing will help control the spread of the virus. In addition to reducing hospitalization and saving lives, continued testing will be key to helping segments of the economy reopen as more Americans become vaccinated. You know, vaccination is front and center in the minds of most people now, and testing remains a critical element of safely returning to life. I'd also like to share our perspective on some of the most recent developments regarding PAMA. So we're encouraged that MedPAC recently reported that it is exploring alternative data collection methods under PAMA that are less burdensome for laboratories. One of the alternatives mentioned is surveying a representative sample of independent hospital and physician office laboratories instead of reporting all laboratories to submit data. You know, we've been saying for years that CMS got the data collection process wrong and didn't follow the intent of Congress. MedPath found that hospital outreach in physician office labs reported higher payer rates than independent labs and that independent labs were overrepresented in the first round of PAMDA data reporting. We agree on both counts. The independent analysis by MedPAC also provides evidence that the Medicare clinical FD schedule would have been 10% to 15% higher if CMS had used a more representative sample that included more data from hospitals and physician office labs. Departments refute the claim that CMS collecting more hospital outpatient and physician office lab data would not have impacted the rates calculated by CMS. We believe that access to accurate and reliable testing remains critical, not just as part of our nation's ongoing response to the pandemic, but also for the millions of seniors who have delayed routine screening and care over the past year. We need to fix PAMA to avoid the next round of caught on the horizon in 2022 and to help ensure seniors have continued access to critical lab services they need and rely on. Additionally, we were disappointed by the recent dismissal by a U.S. District Court of ACLA's challenge to PAMA. We are working with ACLA to determine next steps with respect to this litigation We continue to work with policymakers to establish a clinical laboratory fee schedule that is truly representative of the full market and supports continued innovation and access to vital laboratory services as Congress originally intended. Now turning to our results for the first quarter. Total revenues grew by more than 49% to $2.7 billion. Earnings per share increased by more than 375% on a reported basis to $3.46, and nearly 300% on an adjusted basis to $3.76. Cash provided by operations nearly tripled to $731 million. As I mentioned earlier, in the first quarter, our base business performed at its highest level since the start of the pandemic and continue to recover throughout the quarter. Demand for COVID-19 testing slowed in the quarter, reflecting an industry-wide trend. We performed an average of 101,000 COVID-19 molecular tests a day in the first quarter, which is well below our current capacity of approximately 300,000 tests per day. We are engaged on several fronts to bring needed testing to schools, businesses, and industries like travel and entertainment, which rely on bringing people back together safely and in large numbers. With a current focus on schools, Quest is well-positioned to help with our extensive logistics network as well as our ability to offer high-quality, cost-effective classroom PCR testing using pooling. We want to help get the kids back in school, and we're working with a range of partners to get it done quickly and efficiently. We continue to make progress on our two-point strategy to accelerate growth and drive operational excellence. We discussed our strategy in detail a few weeks ago at our investor day, so we thought today would feature a few highlights of the plan. We are excited about our agreement to acquire the Outreach Laboratory Services business of Mercy, one of the nation's most highly-administrated, multi-state healthcare systems. And as we indicated yesterday, we're having more discussion with leaders of larger health systems like Mercy. The Mercy Outreach Laboratory Services business currently operates from 31 hospitals and clinical laboratories serving providers, and patients in Arkansas, Kansas, Missouri, and Oklahoma. And we're on track to complete this acquisition by mid-year. Our professional laboratory services relationship with Hackensack Viridian Health began in January and is also a good start contributing revenue for the quarter. We recently announced the sale of our 40% minority share in QSquared Solutions, to IQVIA for $760 million. IQVIA has a strategic vision and ability to lead Q-Split solutions on the next phase of its journey as a global leader in central lab services, and Quest will support it as a strategic lab partner. We made good progress taking advantage of health plan access in the first quarter. UnitedHealthcare implemented an initiative removing out-of-the-network benefits for insured groups in selective states. We also brought in leakage and redirection efforts with Anthem in eight more states from the quarter, and we're seeing benefits from these initiatives. And then finally, we renewed our long-standing strategic relationship with Emblem Health, provided comprehensive clinical laboratory services for more than 3 million members of Emblem Health, and it's affiliated with Medicare. Turning to our strategy to drive operational excellence, we are on track to once again deliver 3% savings across the business. In the process, we're also improving the customer experience and quality. And in the quarter, we achieved year-over-year improvement in 14 of 19 top-tier quality metrics which we track to gauge our operational performance. Now I'll turn it over to Mark to provide more details on the financial performance. Mark.
McQuest
Thanks, Steve. In the first quarter, consolidated revenues were $2.72 billion, up 49% versus the prior year. Revenues for diagnostic information services grew approximately 52% compared to the prior year. which reflected ongoing demand for COVID-19 testing services and, to a lesser extent, continued recovery in our base testing revenue, which increased versus the prior year. Volume, measured by the number of requisitions, increased 25.6% versus the prior year, with acquisitions contributing 4%. The impact of severe winter weather during the quarter negatively impacted volumes by approximately 2.5%. Compared to our first quarter 2019 baseline, total base testing volumes increased 1.5% and benefited from M&A and new PLS partnerships that began in 2020. Including the net impact of weather in the first quarter, as well as M&A and new PLS wins over the last year, base testing volumes declined approximately 7% in the first quarter versus the 2019 baseline. and down 5% in March. This represents more of a same-store view of the recovery in our base business since the pandemic began. While COVID-19 testing volumes declined faster than expected throughout Q1, the decline coincided with reduced demand across the industry. Importantly, these volumes have stabilized over the last several weeks. We resulted approximately 9.1 billion molecular tests and nearly 900,000 serology tests, contributing nearly 21% to volume growth in Q1 versus the prior year. We exited the first quarter averaging approximately 73,000 COVID-19 molecular tests and 8,000 serology tests per day. Revenue per acquisition increased 20.5% versus the prior year, driven largely by COVID-19 testing. Modest unit price headwinds were in line with our expectations. reported operating income in the first quarter was $660 million, or 24.3% of revenues, compared to $175 million, or 9.6% of revenues last year. On an adjusted basis, operating income in Q1 was $708 million, or 26% of revenues, compared to $225 million, or 12.3% of revenues last year. The year-over-year increase in operating margin was driven by the strong revenue growth in the first quarter due to continued demand for COVID-19 testing and the ongoing recovery in our base business. Reported EPS was $3.46 in the quarter compared to $0.73 a year ago. Adjusted EPS was $3.76 compared to $0.94 last year. Cash provided by operations was $731 million in the first quarter versus $247 million in 2020. We completed $410 million in share repurchases in Q1, and we ended the quarter with approximately $1.2 billion in cash on the balance sheet. Including the net proceeds from the Q2 divestiture in April, we currently have more than $1.8 billion in cash available for deployment. Following the $1 billion increase in our share repurchase authority that we announced today, we now have the ability to execute approximately $2.5 billion in additional buybacks this year. We expect to launch an accelerated share repurchase transaction of approximately $1.5 billion in the coming days. Turning to guidance, we've updated our outlook for the first half of 2021 as follows. Revenues expected to be between $5 and $5.2 billion, an increase of approximately 37% to 43% versus the prior year. Reported EPS expected to be in a range of $7.51 and $8.01, and adjusted EPS to be in the range of $6.30 and $6.80. Cash provided by operations is expected to be at least $1 billion, and capital expenditures are expected to be approximately $200 million. Before concluding, I'll briefly review some assumptions embedded in our updated first half outlook and considerations to think about for the remainder of 2021. We expect continued steady improvement in our base business throughout 2021. On a same-store view, Excluding M&A and new PLS wins, we see the base business remaining slightly below our 2019 baseline in the second quarter. We continue to anticipate a full recovery in our base business compared to our 2019 baseline in the second half of 2021. We are assuming COVID-19 molecular testing volumes will average roughly 50,000 tests per day in Q2 and no meaningful change in COVID-19 serology testing volumes compared to Q1. Given the significant progress of vaccination in the U.S., we continue to expect a decline in clinical demand for COVID-19 molecular testing in the second half of 2021 versus our expectations for the first half. Return to life testing, such as the K-12 school testing program, should partially offset declining clinical demand later in the year. And while we continue to believe strongly in the value of COVID-19 serology testing, we are not assuming a material increase in demand for serology testing going forward. Finally, COVID-19 molecular reimbursement held relatively steady in the first quarter, and we currently expect this trend to continue through Q2, with the public health emergency being extended through mid-July. This is likely to trend lower in the second half of the year as our mix of COVID-19 molecular volumes shift from clinical diagnostic testing to return-to-life surveillance testing. I will now turn it back to Steve.
Steve Roszkowski
Thanks, Mark. And to summarize, we're off to a very strong start in 2021. Our base business continues to recover back to near pre-pandemic levels as people address the routine care issues that they have neglected over the past year. And then finally, I'd just like to thank all Quest employees who continue to serve the needs of people who rely on Quest every day. And so with that, we happen to take your questions. Operator?
Operator
Thank you. We will now open it up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you please fall back in the queue. To be placed in the queue, press star 1 from your phone. To withdraw, press star 2. Again, to ask a question, press star 1. Our first question comes from Kevin Caliendo with UBS. Your line is open.
Kevin Caliendo
Hi, thanks for taking my call. Hey, good morning. So I guess some of the commentary around 2Q, I sort of want to understand the expectation. It looked like March, the base business was sort of up year over year, and your guidance is suggesting that 2Q would be down year over year. You don't expect it to recover fully. Is there anything that sort of changed with March and anomalies? So to take it through what you're seeing in the base business in terms of the volumes. Mark?
McQuest
Sure. So, Kevin, when we talk about the base business, and sorry for any confusion, you know, it being up in March, that included our new PLS wins, which were significant, and also M&A. So it's a total base business. It was not an organic number. What we tried to do was delineate where – the what we call same store. So kind of the apples and apples versus 2019 to give you a sense of where we think utilization is. So separate from, you know, new significant PLS wins and M&A, where that base business performance is. So when we talk about it expecting to be slightly down in Q2, that's that organic non-PLS, you know, kind of utilization, same store number, not our total base business performance.
Steve Roszkowski
Mark, it would be good to share kind of our implied view on looking at COVID testing in Q2.
McQuest
Yeah, so we talked about 100,000 a day in Q1. We talked about an expectation about 50,000. We also shared that we exited Q1 over 70,000. So that would imply a significant ramp down throughout the second quarter. And that's, you know, based on our expectation that vaccines will continue to roll out. We'll get more and more people who will be protected and less and less clinical demand. And, of course, we'll see how that plays out. But that is, you know, certainly within the guidance that we're providing today, how we see the next several months.
Steve Roszkowski
So we do assume, Kevin, that our base business, let's say base business, It would include acquisitions and PLS and organic growth, but let's just focus on organic growth. The steady improvement that we've seen in Q1 continues in Q2, and then it's somewhat offset by what we are anticipating with COVID, and that gives us the expectation of a range of guidance in the second quarter. So hopefully that's helpful.
McQuest
Yeah, and just to close it out, Kevin, I would point to the numbers that we quoted for Q1 of minus 7%. That's the same score performance number. And obviously March was stronger than that. You know, February was impacted by weather, as we said. But we expect that minus 7 to improve, as Steve said, throughout Q2, but not yet to get positive.
Operator
Our next question comes from Aaron Wright with Credit Suisse. Your line is open.
Aaron Wright
Great. Thanks. Capital deployment is still one of the biggest questions we're getting from investors. Are there any meaningful changes now in your view from an M&A pipeline perspective and what's assumed in guidance in terms of inorganic growth? And in longer term here over the next few years, do you anticipate the pace of consolidation across across the lab industry to accelerate, or do you anticipate at a similar pace to what we've seen historically? And just somewhat tied to that as well, I mean, how should we be thinking about the water excess capacity across the competitive landscape post-COVID, and how does that impact your positioning?
McQuest
Steve, let me take the guidance question first, and then I'll turn it over to you. So, Aaron, our current guidance, obviously, is only through the second quarter. And we're not counting on any M&A that hasn't already been transacted. And even the deal that we announced, Mercy, is not going to close and generate any significant volume of revenue in the second quarter. So the current guidance does not anticipate future M&A. Steve?
Steve Roszkowski
Yeah, so we don't feel good about, you know, the discussions and the funnel of prospects we have. for what we have characterized as a hostile strategy. There continues to be a lot of pressure on integrated delivery systems. They are considering their lab strategy as one of the options to help them. And we have a number of examples over the past six months on delivering on the strategies that we've talked about for years. And so to answer your question, we do see a continuation of interest in the building funnel with more prospects to come. What we shared at investor days, we reaffirmed our outlook that we would grow through acquisition around 2% per year. What we shared is that we historically have delivered on that at the three years prior to 21, and we believe that's still a good guidance number for us for this year and going forward, and it's implied in our outlook for growth. So Finally, we do see the trends in general, just like all healthcare, around consolidation. We do see systems interested in thinking about what's most important to them and what's their strategy and in quest to help them with their lab strategy. And likewise, we see, if you will, fewer and fewer in-network providers with the health plans. And if you want to think about that, that is a consolidation play as well. And when those two forces are happening, there will be more share in the hands of fewer, and our plan is to gain share. So all the megatrends and changes that are happening in our industry, we believe, have actually improved to support what we've said for some time. And that, I would argue, is both for what's happening with hospitals and also what's happening with health plans.
Operator
Our next question comes from Peter Chickering with Deutsche Bank. Your line is open.
Peter Chickering
Good morning, guys. Just taking my question. Within the routine market, can you give us some more color on strengths and weaknesses at different parts of the country? Looking at your customers, can you give us some color on doc offices versus hospitals versus the baseline? And then within the routine tests, any details you can give us on what types of tests are normalizing? into one of the laggard areas.
Steve Roszkowski
Sure, sure. So let me take a run around all the different cuts of the way we look at the market. So geographically, we have seen, you know, good recovery in Texas and, you know, the Southwest. We're actually seeing, really, in the last, you know, several weeks, starting a much better recovery in California and the West Coast, which is good news. We see the, you know, the Southeast starting to recover and get us back to, you know, this 2019 level that we spoke to earlier. So, so I would say those are moving in the right direction. Now, the opposite of that is one is you've seen, you know, the spikes and the hotspots in the Midwest and when that happens and there's lockdowns and people are concerned about going into healthcare delivery, that's going to affect our business. So we've seen some of that, let's say in the, in the Midwest. And then finally, The Northeast, in the Northeast, including New York and Pennsylvania and going into New England, it's still behind, and it's recovering slowly, but we're the most off, if you will, in the Northeast. So that's the geographic swing. As far as physician business versus hospital business, the hospital business is actually very close to where we work. We're encouraged by that. We see admissions getting back to 19 levels. We see outpatient procedures getting back to 19 levels. So that business is tracking nicely compared to where we were. And then the physician side, it all depends on what type of physician. Primary care is starting to turn on. Oncology, particularly those that have postponed diagnosis and treatment for oncology, is starting to turn on. And at the same time, we still see our prescription drug monitoring business for mental health and behavioral health and drugs and abuse still down versus where we were at 19. And that's an issue that varies by state, but we're working on that. So that gives you a feel for what's going geographically, you know, what's going on by physician, but also by what we've described as our clinical franchises. Marvin, if you'd like to add to that.
McQuest
No, I think that's a good summary, Steve. Thanks.
Operator
Our next question comes from Rob Jacobi with Citi. Your line is open.
Rob Jacobi
Good morning. Thanks. Good morning. Morning. The higher revenue guidance, just want to understand, is that upside from 1Q? Because it sounded like COVID was maybe lower than you had expected. So just trying to understand. If it reflects assumption of better core or is it deals, just maybe color there reconciling the higher revenue. And then second, is the ASR included in the guidance? Because just based on the revenue increase and running through recent margin performance, it doesn't look like that's factored in or otherwise there would be an assumption of much lower margin. So just trying to reconcile that as well. Thanks.
McQuest
Yeah, so let me take a shot at that, Ralph. Thanks. The higher revenue is absolutely driven by, you know, stronger than expected recovery in the base business. So as you point out, you know, we've acknowledged and we record every couple weeks COVID testing has ramped down faster than we had anticipated throughout the first quarter. We continue to expect to have that ramp down, but the base business has recovered stronger, you know, certainly more than an offset on the revenue side. In terms of the ASR, it is in the guidance. I just want to remind everyone that we had committed to $900 million in share repurchases that was already in the guidance for the first half. We did $410 million in Q1. And then part of the ASR is related to the proceeds from the sale of 40% ownership in Q1. our JV with IQVIA, and that, you know, is slightly accretive when you consider the loss of the equity earnings. So, you know, you need to look at over $600 million of the ASR as really, you know, offsetting the, you know, foregoing those equity earnings. We had already committed to $900 million in the previous guide in the first half, so almost $500 million you know, there. So when you combine that, the share of purchases are really just up by several hundred million. So I want to make sure everyone's clear on the math there. So it is reflected in the guidance.
Operator
Our next question comes from Brian Finkeland with Jefferies. Your line is open.
Brian Finkeland
Good morning, guys. Congrats on the quarter. I guess my question for you guys, Steve, as you think about What you saw in Q1, specifically in March with the resumption of volumes in the core, what do you see in terms of acuity levels, kind of like number of tests per REC or even revenue per REC that you saw in March? And is that carrying over already into April? Just any color you can share with us on that. Thank you.
Steve Roszkowski
Yeah, so thanks. Appreciate the question. You know, March was encouraging, and we're watching April carefully And we do look at the number of tests for requisition to see if we're getting more density, if you will, of testing for requisition. And we talked about the explanation for our increase in the calculation of revenue per rec had to do with the COVID mix, the straight calculation. But we have historically seen a modest expansion of the number of tests for a variety of reasons. We offer more. Second, there is a higher level of acuity and chronic disease and aging of the population. So we have generally seen a general increase in that. But nothing that was really notable that's standing out within March.
Operator
Our next question comes from Jack Meehan with Netrun Research. Your line is open.
Jack Meehan
Good morning. I was wondering if you could give us an update around your thinking around COVID testing for the second half of the year. You know, what do you expect kind of in terms of the base in terms of testing levels? And then also if you give us an update, you know, as to how you think the school testing opportunity could shake out. You referenced that at the beginning. How do you feel your positioning is for the upcoming awards there?
Steve Roszkowski
Yeah, yeah. So you go back to where we started off the year, and what we said is we do expect COVID PCR testing to decline throughout the year, and You know, we mentioned in our remarks, we didn't see that in Q1, and we see it happening in the country. So, you know, as Mark said earlier, we do expect, you know, that continuing trend in Q2, and that will continue into the second half. Now, with that all said, we do see this transition from what we describe as more clinical uses of the PCR testing, roll in and roll out COVID for hospitals, rural and rural patients seeing their physicians and moving it to return to life activities. And there's a lot of activity around that, Jack. A lot of activity. I mentioned in the remarks what's going on around schools. There's two funding mechanisms for that from the U.S. government. We've actively engaged with a number of what's called systems integrators that will be coordinating the efforts beyond the laboratory testing We're well positioned there. You know, secondly is corporations are now thinking about how do they get people back physically into their places of work. Maybe I'll be at not as full time as they want for it, but, you know, despite the vaccination progress, there's still going to be testing requirements for the return to work activities. And then let me just say the entertainment piece of this is big, too. We see the sports teams wanting to put fans back in the stands. We see New York City interestingly getting people back to tourism as they get into the fall and turning back on the city. We mentioned in our prior remarks and other calls and meetings that we participated in this pilot study with New York to provide you know, a check, if you will, to provide access for an individual in the course of the day. So that type of activity will be a larger portion of what we do for COVID testing in the back half. Now, with all that said, we're not providing guidance for the back half, but we do see continued PCR testing in the back half, but it's going to change in its nature. And also, we do believe COVID-19 testing and PCR testing will continue in 2022. This is not going away fast.
Operator
Next question comes from Matt LaRue with William Blair. Your line is open.
Matt LaRue
Hey, good morning, Matt. Yeah, good morning. Thanks for taking my question. I guess maybe a two-part of the first would just be a follow-up to Jack's question, Steve, in terms of how much of that return-to-life testing opportunity really is going to be in a sort of a reference lab setting with a day or two turnaround time versus a point-of-care setting. My question, though, was about... you know, the consumer market and just wanted to get your take on sort of the PWN-EverlyWell combination and if that changes any of your, you know, approach or the competitive dynamics in that space.
Steve Roszkowski
Yeah, yeah. So, first of all, as you know, not all tests are created equal, okay, and PCR still is the gold standard. And we do provide a solution with antigen testing, okay, as part of, you know, proper utilization of that testing, particularly for surveillance But as we know, the antigen testing sensitivity and specificity is good for, let's say, day two through day five of a potentially infected person. But the PCR test is really the gold standard to rule out if someone's been exposed in the early days or rule out if they're exposed in the late days. And so the sensitivity and specificity we have with our PCR testing is quite good. And so physicians know that. And therefore, that's why we're so confident that it will continue to be an important part of how we fight this pandemic. As far as the consumer, the consumer is trying to figure out to get easy access to testing. And they will get that access in a variety of forms. And oh, by the way, our turnaround times now for PCR testing are much better on average than the two-ish days that we often thought about several months ago. We're now delivering results in less than a day for many tests that come in. And the reason for that is that, remember the remarks I made, we're testing about 101,000 tests per day, and we have approximately 300,000 per day for capacity. So that allows us to have much better turnaround times, which we believe, as that becomes more and more visible, When people want to get good access to the gold standard, they're going to rely on those places they can get access. So we continue our relationships with retailers. We're expanding our relationship with CVS. That's gone quite well. CVS is active on promoting good access to PCR testing around the drive-ins and Walmart as well. And then also with our direct-to-quest capability that we talked about at our investor day, we have put on that platform both PCR testing as well as serology testing. And we are seeing high levels of interest from a consumer perspective of what they could do simply by getting a collection kit in the mail and a FedEx envelope to ship it back. And it could turn around the smart app like Quest. So that will continue to build. And if the consumers, as we start to return to life in a safe way, want to be assured that even if they are vaccinated or if they have natural immunity, they are not walking into a situation that they might have been exposed in some way because they fell through the cracks with all the caveats we have with the effectiveness of the vaccines and the questions about natural immunity. And then also with the new variants as well. So because of that, we keep on working on better and more efficient and easier ways for Americans to get access to PCR testing. And we've got now, I think, a lot of good chance to do that. And that will continue to be an opportunity for us to back out.
McQuest
And Steve, I'd like to add, I want to make sure that Matt and others understand how the surveillance works. And in this case, when you pool, you get the economics to where it's affordable to do more broadly and more regularly, because we're going to be putting, you know, up to 10 individual samples in a single well. And so hence, the cost will be 10% you know, or less per individual. And what you sacrifice is it's not a diagnostic because we're not going to have the individuals identified in that well. The school or the entity that provides us the sample will have pooled that they will know in test tube X who the 10 people are. And if we come back to them with a positive result, they will apply a real diagnostic to those 10 individuals. So with that, we also don't have the obligation or the ability to to retest. Whereas today, when we do pooling for clinical purposes, if we get a positive, we have to go back and retest the individual samples. So it actually is an inefficiency in our process. In order to get this to work, we don't do retesting of the sample. We don't have the capability of doing that. We notify the submitting entity that we had a positive in one of the pooled collection specimen tubes, and then they go forward and test those individuals.
Operator
Our next question comes from Tycho Peterson with JP Morgan. Your line is open.
Steve Roszkowski
Good morning.
spk03
Hey, Tycho. Tycho Young here. Hi. Sorry about that. This is Casey from Tycho. Can you give us some color as to what the implied operating margin is for the EPS guide and sort of what the upside is from the ASR? And then just on serology, can you talk a little bit about, you know, you're not modeling a decrease in 2Q from 1Q, but PCR is going down. Can we assume the same level of serology testing throughout the back half of the year and explain maybe what the resiliency is there? Thanks.
Steve Roszkowski
Mark, do you want to talk? The ASR?
McQuest
Well, the ASR is in our updated guide, so there's not upside per se. Relative to, you know, before we announced the ESR, as I tried to walk through the math, about a little less than 400 million of the repurchases are truly incremental in terms of a, you know, EPS lift, because we had already committed to the full 900, and we had about 500 million, you know, remaining in Q2 that was already in the guidance. So that 1.5 billion, you know, goes down to a billion incrementally. A little over $600 million of that is the proceeds from our divestiture of our stake in Q squared. That's slightly accretive, but not materially relative to the forfeiture of the equity earnings there. So it's really less than $400 million of share repurchases that are incremental to what we got into previously, and that is built into the updated guidance. In terms of implied operating margin, obviously we have a range. So, you know, we can't answer that with precision, but if, you know, you take the midpoint, you know, you can all do the math. As we get a lower mix of COVID testing at our assumption of the $100 reimbursement, obviously a realization in AWR that's less than that, but $100 price point, and that mixes toward the base business, that will erode the margin, you know, slightly. But kind of the offset to that is as the base business recovers, we're very leveraged. So the variable drop-through on that base business recovery is certainly much higher than our enterprise and historical fully loaded operating margin, but it's not quite as high as the COVID PCR.
Steve Roszkowski
Yeah, serology, we want to imply that it will continue at the same level. We are pushing on the value of serology going forward. We believe that... The semi-quant capability that we offer has nice insight into what response is happening in patients in general with the virus, and therefore that has value. We also believe that between PCR and serology, knowing that you've had the virus is important for Americans to know, so we keep on pushing on the value and And we will continue to look at new tests beyond that where the immune response long-term includes T cells. We don't have that, but we continue to look at that as being the prospect. So you should assume for now it's stable with what we've seen so far, but we continue to believe this is more and more valuable. And we continue to work on developing the tests to support that.
Operator
Our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.
Ricky Goldwasser
Yeah, hi. Good morning. So I have two questions because I wanted to follow up. So when we think about this first half guidance, it does imply that meaningful operating income sequential decline. I still realize you're still not giving second half guidance, but just to give maybe everybody on the call sort of some sort of a framework, as we think about a more normalized pace of the core business, how should we think about that margin headwind? I think it's just going to help us all as we think about the second half modeling. That's first. And then second, more of kind of like long-term strategically, we're hearing the payers talk a lot about, you know, digital first strategies and being sort of kind of like the front door to healthcare. You guys talked about expanding relationships with payers like Anthem. So are you having any conversations with payers on how you can be part of that digital first strategy in those kind of like digital networks? And if so, do you see that kind of like as an opportunity to accelerate sort of more narrow networks that will drive volumes toward you? And actually, would that require any additional investments, or do you think you have the infrastructure for that already?
Steve Roszkowski
Mark, I'll take the first one. I'll take the second one.
McQuest
Sure, Steve. Thanks for the question, Ricky. So, again, just to reiterate, you know, the first half, we delivered over 100,000 PCR COVID tests per day, we're assuming half that in Q2. So that's certainly contributing to the margin decline, as you talked about, implied in the guidance for the first half, implicitly in Q2. When you think about the base business, we're still uncertain how all those moving parts will play out in the second half, which is why we've not provided second half guidance yet. We want to wait until we can confidently give guidance that we're highly confident will be delivered. So what I would point to is that's a transition period. Really look at our investor day and how we talked about 2022 and talking about getting our base business fully recovered by the end of this year back to growth through the growth pillars and back to a margin level pre-pandemic and then obviously improving beyond that as we talked about a CAGR where our bottom line grows significantly faster than our top line by 700 basis points. So we feel very confident in the earnings power of the base business. Certainly we're going to have a step down from the pandemic bubble where we did several billion dollars of COVID testing last year and significant COVID testing this year. But the base business should be very healthy coming out of the pandemic. Once COVID testing drops to a minimal level, we'll be right back to the operating rhythm. Our expectation is that you saw early in 2019 when we were growing a business January, February, more than 5% on a volume basis, and you saw strong improvements in our operating margin. Steve?
Steve Roszkowski
Yeah, yeah, just a transition. So as you recall in our investor day, we went through a walk, if you will, to bridge you from The pandemic here is at 20 and 21 into 22. Mark went through a chart with some math, which gave you kind of our indication here for 22. And also, as I said earlier, is we do believe there will be some COVID testing, but the base business will be recovering and will get growth going forward in 22 based upon our outlook. So the last question you had, Rick, you had to deal with the digital front end and the digital first. And we're excited about this because we're very well positioned. This isn't something that we have just started working on. We've been working at it for a while. First of all, if you go back to a large provider like Quest, we're very much embedded in the ecosystem of connectivity already. We have over 500 interfaces of all the different electronic medical records, obviously, that's the big players like Epic and Cerner, but there's hundreds of others. And so therefore, we have a real strong interoperability capability. And that's helpful because when you're in the workforce, particularly from a physician perspective, it allows you to more streamline the different service offerings like laboratory to fewer players. And then secondly, this past year, we've seen you know, the acceptance, if you will, of telehealth. It has been growing nicely but not explosively. And we did see explosive growth in 2020. And we believe that overall that acceptance, if you will, of that front end being an acceptable way to first engage would help your system will continue. And, you know, the payers are working on that and providers are working on that. And they're working with other partners. And we're very well positioned with those other partners. Now, who are those partners? Those partners are some of the telehealth companies that you know. And those telehealth companies, as they become much more embedded in health care delivery, let's call it the digital brethren, will rely on a fewer number of laboratory service providers. And therefore, we're very well positioned as sort of the small handful of what's described as the preferred lab network that we are already with United, but for this new world that we see. And with all that, we do believe that our direct-to-consumer initiative will have an opportunity as well, because consumers equally are wanting to engage with us through delivery. They not always need to engage with this position. And therefore, with the prospects we see of growing that business and got to change for us. As far as investment, we are investing. We were fortunate enough to have the capabilities in 2020 and 21. If you again go back to what we shared in Investor Day, we said we were investing about $75 million over a period of the last two years, 2021. Some portion of that is related to what we're discussing here. And so we're not rate limited by investments. We're rate limited by it just takes time. to get some traction, and we're very well positioned with the telehealth companies, very well positioned with the plans, and yes, we do see a change, and yes, this will allow us, again, to gain share as we go forward, because they can't do this with tens of laboratories. They could only do it with a select group like us. So, we have another question? Operator?
Operator
Our next question comes from Derek DeBrown with Bank of America. Your line is open.
spk04
Hi, good morning. Thanks for the question. Hey, so two questions. One is, you know, I was on the Danaher call just before this, and they actually, you know, pretty sharply raised their COVID testing guidance for the year and also surprisingly gave a very bullish outlook for 2022 and sort of backing that number. So I think the first question goes to, this is the question on the point of care shifting from decentralized testing shifting to point of care. Is some of the volume you're seeing coming down just because there are more of these point of care platforms out there and just as they ramp capacity, you're seeing volume shifting out of the central lab? That's the first question. And then I think the second question is, when you look at your You know, you're at, you know, 100,000-ish tests. You've got 300,000 capacity. How are you utilizing that capacity? Is it more, you know, are you ramping down your IBD platforms versus your LDT platforms? Just to assume that it's more the IBD because the LDTs are more profitable. But just would love some ideas on how you're utilizing your installed. Yeah. Thank you.
Steve Roszkowski
So the first part, yes, we did see an increase in, the availability and use of antigen testing and point of care testing throughout the last 12 months. It clearly has picked up in the back half of 2020. We see that continuing with 2021. So if you look at the industry trackers of how much testing we are doing in this country, clearly it has dropped off, and therefore volumes have dropped off as well. We believe in those tracking mechanisms. It's predominantly PCR. However, we think there could be some point-of-care antigen testing in there, but we believe it does not include all the testing that's happening. So if you look at, well, you know, testing for PCR testing throughout the United States, And if you look at the estimates that are coming from these point-of-care and antigen providers, you see that the actual level of testing is almost at the same level that we were in the summer, but in different forms. So to answer your question, yes, there is a transition from, you know, from PCR is exclusively what we have to more of the capabilities around point-of-care and antigen testing. However, going back to what I said, all tests are not created equal. And so we're also working with clients to make sure they realize where antigen testing can be helpful for a period of time, and also what you need to reflect into PCR, and where you can use blood and care, and costs are not all pretty equal. So it has come down because of what we described, but there continues to be a strong role for PCR through the remainder of 21 and also into 22.
Operator
Our next question comes from Peter Chickering with Deutsche Bank. Your line is open.
Peter Chickering
Hey, guys. Thanks for the follow-up question here. Could you give us a little more details on the changes of what the UnitedHealthcare did for out-of-network providers in the quarter? What markets did they make this change in? And what impacts did you see in your volumes from the changes? Thanks so much.
Steve Roszkowski
Yeah, yeah. So what we have been working on is a journey to pick up share, if you will, with the United. What we shared in March, in our investor days, we really kicked off the network program in 2019. We saw good progress there. We were actually very encouraged by what we saw in 2020, the early days, and then we had the pandemic. But it didn't stop our activity, so what we shared is we actually – picked up some share over that period of time, but we have more share to gain. And there's a list of activities we're working with United to support picking up share and getting it to at least that 25% level, one of which is what we're providing of limiting the audit network policy and benefit design for the fully insured book. And where that has happened, because we have other examples of this happening, it does move SHARE to us. We don't provide specifics on states and specifics on how much this contributes to the SHARE, but it did have a nice impact for us to allow us to pick up SHARE, and so we continue that march. But I'll also share that, you know, we didn't share everything we're doing. We have many other programs, and, you know, some of this is working with their planning sponsors, their employers. Some of this is working with their regions. you know, and specific opportunities with providers. You know, when we do an outreach purchase in relationship with an geography whose work out of an expensive venue to a less expensive venue, which is Quest, and all those are active relationships that we have to continue to build share with United and other payers, because equally we're continuing to work programs with Anthem and others.
Operator
Our last question comes from Eugene Kim with Wolf Research. Your line is open.
Eugene Kim
Hello. Hi, good morning. Just quickly on 2022, at the investor day, the company provided a baseline EPS range of $740 and $8, and I believe pointed to the higher end of that range. And that was with the assumption that face business recovery returns to pre-pandemic levels toward the end of the year. With the potentially, I mean, the recovery coming faster than expectation, how should we think about that range that provided at the investor day? Thank you.
Steve Roszkowski
Mark?
McQuest
Mark, are you there? Yep. Yep. So the, what I would say is, you know, I'm not in a position to update that what we provided investor day, you know, because we could get in a rhythm of constantly getting asked to update that. So the next time we'll comment will be when we provide guidance for 2022. But of course, you know, as we have that broader range, there's a lot of different considerations. What's the remaining level of COVID testing? What's the reimbursement level? Where's the base business at? When we gave the $748, as we said, we're expecting the base business to be fully recovered this year, to be back to 2019 baseline and starting to grow. But depending on the pace of some of these initiatives that are, you know, being rolled out by several payers, not just United, but Anthem and some of the other major payers, depending on the economy, you know, depending on, you know, obviously potential expansion of covered lives. There's a lot of variables that we'll know a lot more about by the end of the year before we give guidance for 2022. So, you know, stronger recovery-based business, good facts. I wouldn't say at this point that the faster decline in COVID testing yet necessarily implies anything for 2022 around our comments because, you know, we assumed it would still be around and, you know, you heard from others as well. Nobody thinks it's going away. And we were not expecting it to be anywhere near the significance that it was in 2020 and in 2021. So, and then, you know, you've got the ASR we just announced. So there's a lot of different moving pieces. So we'll give you an update on 2022 when we provide our guidance for 2022. We just wanted to ground people at Investor Day because the pandemic really confounded everyone's ability to understand our long-term earnings power, and that's why we thought it was important to make a specific comment on 2022. Okay.
Steve Roszkowski
So I think we've covered all the questions. We appreciate you joining the call. We appreciate your continued support. And have a great day, everybody. Take care.
Operator
Thank you for participating in the Quest Diagnostics first quarter 2021 conference call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com slash investor or by phone at 888- 566-0490 for domestic callers, or 203-369-3053 for international callers. Telephone replays will be available from approximately 10.30 a.m. Eastern Time on April 22, 2021, until midnight Eastern Time, May 6, 2021. Goodbye.
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