DGX - Earnings call transcript Q3 2017 | Quest Diagnostics Incorporated

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Operator

Welcome to the Quest Diagnostics Third Quarter 2017 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 Shawn Bevec, Executive Director of Investor Relations for Quest Diagnostics. please. ahead, Go

Shawn Bevec

good our and Mark am with here our Thank President morning. and Rusckowski, Chairman, Financial and Chief Steve Chief you Officer. I Executive Guinan, Officer,

we will call, During statements make measures. and this discuss may non-GAAP forward-looking

limited described include, uncertainties on our on refers Diagnostics' recent differ this Form page available reports EPS text are most reported XX-K, projected. and be materially but refers today adjusted from and reports will The For amortization. on future later excluding and XX-Q, EPS diluted Relations diluted to, of adjusted those to quarterly of in in EPS our those remarks reported Investor that to Actual annual our Form references Quest to to X-K. call, results may Website. EPS affect and references report results not subsequently Form Risks prepared current filed the may

Steve Rusckowski. here's Now

Steve Rusckowski

and with the results. on weather revenue take morning strategy, acquisitions updates a delivered strategic growth joining will thanks two review completed through then progress continues us our Thanks, guidance. on for of announced we purchase more detail the with provide HeartLab. and Mark you and on This quarter on drive to perspective highlights acquisition some yesterday which agreed our XXXX Cleveland of today. Shiel some everyone relationship quarter Shawn, you Well, Then Clinic two-point provide and I'll to another announced strong PAMA, challenges. and in we of includes that We spite previously Medical Cleveland Laboratory

benefit XX% basis to over with includes increase stock-based EPS X.X%, $X.XX were EPS a $X.XX, tax Revenues year grew of compensation. associated $X.XX XXX quarter. up points this from highlights adjusted some of prior $X.XX excess down was XXXX, are of reported which the an from Here billion

as our guidance large of acquisitions. geographies recently impacted in well updated have presence third where a we XXXX impact primarily the hurricanes our reflects quarter, as for full-year Our the which closed

to made drive the PAMA. discuss accelerate Before I I'd growth have progress, and we describe to like operational excellence,

and CMS urge of right. PAMA to preliminary X% released the not Unfortunately, were XX% indicated. of only continue from of delay market XX% it Congress CMS rates reporting submitted get are time of hospitals as on that Quest office nearly the based all and to market-based implementation The the represented rates take laboratories rates. submitted CMS physician We Also over through to data data prohibited collected. to laboratories their data alone all CMS,

market Instead this aware days, you're to of critical The the the legislators for approach Medicare of the As A Medicare that portion than less testing. population services ways beneficiaries share and essential testing, from laboratory the the previous put that compromise protecting XX%. could from access could demonstrate of receives is to flawed our estimated Medicare greatly many small them large of collecting activity laboratories been implementation facts access generating at and to Congress their We've risk. revenues this healthcare driving and our of clinical audience state element finding CMS and in to time we've tax been has right. disregarded is intent get landscape federal economic for DC and creating receptive policymakers call country, more the Washington lab in a take the governments. among industry jobs, and economic the PAMA

to very XXX,XXX American beneficiaries Mark services. Association a October information letter -- October, trade of whatever Association deficiencies we in XX with as to be to significant far-reaching tax rates Medicare is that are cuts to recent ensure implement and confident Quest might its our finalized the of to Hospital to CMS proposed these that revenues. address with and exploring are billion In this shared establish on CMS view on is much our PAMA, Association, be immediate medical remain progress X, and people Hospital and should diagnostic industry American indirectly trade health action touch for societies respected this at impacts XXXX groups, that association, the this our directly this leading Our Medical have we vital we commitments The long-term the by option sent ability in the Investor Along meet calling study payment and in our access rates. in back contributes In including take the found will not plan. every healthcare, economic over American later. industry. new voices prepared these association's form Day. $XX clinical to employs outlined These laboratory proposed will

delivered Turning in we on strategy five the accelerate all made to we've growth. our of the quarter, elements third to progress

The and to further Cleveland relationship strengthen also Clinic. acquisitions Yesterday quarter. the position strategy from We previously track on Cleveland the two purchase build first announced -- HeartLab Shiel and metropolitan year New market. York Cleveland cardiovascular testing, with will an is to productive the agreement completed lab X% a on Laboratory, will of per our This fifth we our Clinic. Medical in diagnostic which our further X% accretive acquisition in for advanced element announced grow expertise achieve acquisitions, become our agreed we to growth aligned had strategically consecutive strengthens existing center of which year. through We very which we're to of the the

remains Our delivering growth. M&A our is very pipeline strategy and strong

we strategy, accretion we've and close exceed long-term this will XXXX to Under element expand second to by course XXXX hospital of rates. potential those realized growth the the from the with expected we Medicare and the systems. relationship our acquisitions XXXX, our of to in M&A the objective for end completed continue impact year new are in help offset well-positioned of With of deals

well. is PeaceHealth with relationship Our progressing

relationship contributing adjusted acquisition agreement growth. fully Medical a As This as and at service manage Alaska. is State, outreach the and laboratory of Washington Oregon you and recall already Centers the laboratories as XX laboratory earnings the includes professional relationship to operational well PeaceHealth in revenues

growth Fusion national precision in very Point to to to broadest to we made access Texas screening. is continue acquisition of quarter, forming the offer a third are innovation. oncology Clear our strategy The the and integration In diagnostic date. of third completed prenatal excited with the element we progress pleased of in In expertise noninvasive efforts about the we've and be women's the we health center Med

multiple Q-Natal that double-digit Our to women's men QHerit, the growth our a women strong offering and providing helps diseases of screening We their is test passing with recently complimented XX across year-over-year. genetic risk panel health identify both children.

that is fasting is and most assessing improved executing growth also fourth the We added provider We all test patient's consumers. not for method heart made the treatment element lipid in risk choice does convenience. be the require life strategy, tests introduced to an aiding of with disease our for decisions. which cholesterol progress of Unlike

more stores Our in to XX relationship continues as with of open are the Safeway XXXX. to XXX about and are now expected end expand operating before we

convenience, with this our In building the growth data CRO our the consumer, partners and X.X the of MyQuest consumer with addition, is empowered of with notice Walmart strategy, is number are element plan mobile health are and our solid delivering users. healthcare a XXXX. and will now lab application of population collaboration analytics exciting taking are strategy open making progress number health leveraging support interested we to services. on a of customers. hands we The our analytics era pipeline Payers of and in extended especially value in provide. with including data, into locations million the access In of new We're data fifth points results care pharma,

on track to Turning second to to part the excellence, invigorate deliver we to exit $X.X billion our run savings two-point we rate XXXX. strategy of drive as remain operational

our service improves XXX are patient with centers As we experience. efficiency, patient e-check-in, the operational the we customer X,XXX to experience. drive improve which continue live Over of

volume Our date. over total encounters million e-check-in to is XX

by in expect patient have end this of most We year. centers this to of the our capability service

let over you performance Mark to Mark? in through detail. Now turn it our financial who'll me take

Mark Guinan

the XXX up Thanks consolidated estimate basis $X.XX of revenue, approximately were prior We third of recent growth versus by diagnostic basis lower which in year. by points approximately number points to is our compared increased Steve. with September. hurricanes Revenues the X.X% by about year the late in grew than to estimated impact had reduced basis we the Starting acquisitions. versus XX the recent quarter, was measured acquisitions slightly attributed our for Volume which information point of X.X% what X.X% XXX revenue the of with services the billion prior organic. year revenues prior

XXX quarter grew in approximately However, impact by in the year. of to volume Revenue prior the per third X.X% the a hurricanes basis of compared presented that to points note acquisition headwind the quarter.

rep. variables includes such per is not As for rep and number test testament per a price revenue the unit variation of as price. reminder It proxy

quarter in headwinds less points. price Here the XXX third than remain basis

continue quarter price and quarter will to to price that of expect final last vary can the fluctuations we the While moderate consistent from unit several with quarters. headwinds through quarter, XXXX remain

Beyond or by adjusted of adjusted hurricanes the income other adversely Escrow million a by the of slightly acquisition. we've recovery to revenues observed trend growth of several third of impact than million approximately quarter, XX.X% income or our percentage points. reported more impacted in an nearly compared income $XXX the growth XXX for XX.X% test to or income operating in elements estimate an for $XX or operating basis our XX.X% revenues produced million unit XXX gain quarters. partnerships, was operating a price Reported basis, We quarter last revenues six million year positive Keep which on the XXXX revenues year. the $XXX XX% mix PLS ago. compared included point $XXX of of operating the operating mind, impact and in in mix $XXX associated contributed including was to with to million On

$X.XX margin expanded basis adjusted the versus Excluding the a have in operating would of EPS have $X.XX prior impact than the the adjusted year-over-year. Reported operating grown quarter would points hurricane, X% income year period. in was and more XX

recovery $X.XX adjusted reduced representing third Adjusted X% charges gain share, impact EPS quarter by of per system $X.XX company an our $X.XX As or EPS recorded the diluted approximately conversion, net million integration after-tax The X%. quarter quarter associated XXXX other or and acquisition. last $XX We a year. restructuring, the up costs. previously, Escrow in nearly in one-time third totaling was $X.XX included results estimate with noted a the hurricanes third on from

effective debt versus previously from rate Our $X In benefit nontaxable. $XX share to compensation expense million compared benefits is basis mentioned the share was of SBC, which of last year's prior benefit per year. $X.XX share $X.XX X% associated rate or year versus an quarter a tax lower million per we recovery, quarter. $X.XX quarter, excess XX% was in XX Bad which SBC of as $X or tax $X.XX excess the increase Escrow or of last per tax and versus XX% Last diluted last with stock-based million approximately we've flat Year-to-date percentage approximately year-over-year. year. with benefitted recorded reported the was revenues associated or the points

XXXX year. Capital to last million $XXX ago. Turning by versus expenditures we to year million year-to-date cash generated million compared a million year-to-date $XXX provided operations, $XXX $XXX in were

capital Now approximately X% turning be of be and to guidance, on approximately and of $X.XX an basis line updated our $X.X Reported to $X.XX our revenue between Revenue guidance $X.XX. by equivalent about about adjusted and at recent providing remain and expected to of unchanged. operating outlook remains year following be EPS between the increase guidance hurricanes, flow remains Despite expenditures for basis. reported are to outlook $XXX versus the an million. year on with prior increase between we EPS finally impact $X.XX $X.XX Cash and million million the XXXX. full cash a prior billion, X.X% in an is and now and provided $XXX is operations

previously, guidance from the the recorded $X.XX closed but quarter benefits the hurricane EPS $X.XX in reflects recently is ongoing from guidance or associated updated quarter. acquisitions, our excess increase year-over-year you also approximate with It's and impact SBC third despite of a noted tax impact Our small in provided impact at beginning remember line to fourth on exceeding XXXX. Maria to just that quarterly mentioned, headwinds our the these in important we updated with of outlook the hurricane the cooperation a

providing on excess to assume benefits for focus jump-off XXXX of excluding levels the to our we XXXX, as point you excess increase to about time, would benefits this a prepared in to guidance, want SBC you of as expect with While encourage the at year-over-year that XXXX. year. Therefore, we we you next EPS the with not $X.XX saw tax aren’t we guidance remind do associated think tax SBC XXXX same recurrent same we associated XXXX in $X.XX and XXXX

confident our few likely included Day, deeper to X% in provided CAGR which at make tax a by long-term to are lower like associated XXXX in outlook. current long-term stated, had X% also that from Recall $X which while earnings schedule is long-term Investor Note with XXXX This achieve provided. more included currently benefits than our this range faster with expected. growth $X.XX to XXXX to X% I'd XXXX. an its the implies outlook, update acquisitions. today. outlook a target beyond the we X% beyond comments starting point the X% potential can tax the contemplated from to our the as earnings recorded fee to $X.XX of outlook range fee we reaffirmed of the any we regard cost represents adjusted did revenue proposed activity we through a EPS excess on this excluding is That level to $X growth adjusted of than schedule be benefits It end SBC Finally, include expected a With proposed we to XXXX, mid not at outlook in of that to our base said, in impact revenue EPS the single-digit earnings SBC. range. CAGR adjusted finalized high X% associated and If in the XXXX, with of and outlook, of M&A the outlook remain PAMA,

back it turn Now Steve. let to me

Steve Rusckowski

are our We've a summarized of and in very on quarter Mark. five productive we elements accelerate and turned another quarter busy delivering to strong all Thanks strategy growth.

the our acquisitions. we XXXX hurricanes ability recently finally, our where which our impacted guidance to in quarter, in long-term have remain commitments Our then large the a updated well of for Investor impact closed full-year as geographies Day. reflects the at of as XXXX impact the presence meet And third confident we outlined

to happy be your we'd questions, Now take of operator? any

Operator

Thank you.

will questions. is [Operator open Sachs. with it up question from Goldman We now Our to first Ro instructions] Isaac

Your line is open.

Isaac Ro

guys. Good Thank morning, you.

Steve Rusckowski

Hey Isaac.

Isaac Ro

Hey Steve.

you may. So, if I both longer questions in had term for I nature were

reality the months? of First in do for quickly convince we take you not some think able with ability that to and one the market regulators If you're little timing about marketplace does will push could how that new XX you assume to talk had implementation, to bit share. a back trying mean to start to what the to six start react pricing next to your share the to market

Steve Rusckowski

we as Well growth you the first mode of we've puts the place is as through all Yeah for see part in good X% range for is thanks a that this of acquisition. puts that in said announced years, What very for Isaac. us while that two XXXX quarter from to X% been strategy we XXXX. and X% acquisitions, in X% our get growth five to us us strategy consolidation significant to of of past our far a

strategy acquisition continues of to be our consolidation strategy. part our So,

see laboratories companies we're at our looking part that's secondly, and believe that or really to marketplace interest in the our is of options so good their proposition continue still in strategic guide confident we is a And strategy. We none. second to then

Our service. our in the a value quality very marketplace services deliver of how our is and strong from we

prepared around the my better on convenience access You in our remarks doing for doing consumer. mentioned are I the whole better our couple process strategy. with and that we're of consumer what what and we're moving of the about our enablement

is of quite Our value marketplace the proposition strong.

access stronger today than also mentioned our are we've really if what look we in notice acquisitions as continue the I to you assets that relationships, taking through we insurance health market is health better it's than get and continue that our through faster and build payers past will much plan the had we grow at that And and companies, will to Isaac organically. both that so, place, to

that believe the growth accelerate us plan tracking future. strategy with and our right into the So, going to is well we for that

the for thanks question. So,

Isaac Ro

back of on as the with Analyst comment mid-to-high versus Thanks. more think that you the XXXX I end your just the Okay. digits, understand M&A about EPS come the to I towards go single range. lower Could outlook importance just and current of you And talked think growth guidance will in to outlook, in long-term how you much organically if the you're trying of M&A staying follow-up maybe new from articulate that and thank at around a you. Day Mark's end the achieving

Steve Rusckowski

Sure Isaac.

qualifying schedule. be fee the was we moved I So, that in PAMA end under proposed lower would the currently forward if

influence So to obviously that. the trying shared we've we're while things

is locked proposal, be that original to there outcome where not on saying or done So, the significant a more be point obviously still we're settles is we're the at that. and into in likely we're commenting that cost to would seeing the to work this some What that but down. or be see

this we're contemplated while end. significant that of wouldn't I saying November range. CMS. So, expected in and lower we That's This high with of at signaling impact is We're coming a what have might why certainly we just is that there say our we the impairment gave XXXX. outlook in the end point

into would I this not lock at So, that point.

talked the get to than that months projections other future M&A. not you M&A XX are of any based to time know deal XX contribution. our X%, of that of but run it to do have a period terms all on already about we in Certainly rate earnings we getting executed, revenue, a that we've takes earnings X% before have In level generally

the revenue digits, that line high not contributions side. single the M&A unexecuted significant on so on in from I to am counting mid only So, bottom on

Operator

with next Craig-Hallum. Kevin Our Ellich question from is

You open. line is

Kevin Ellich

guys. Thanks morning. Good

Steve Rusckowski

Hey Kevin.

Kevin Ellich

have is what importantly, the as you commercial option to terms guys guess about Medicare you every you industry lab services. PAMA go have I written, do top I access rates more to beneficiaries in exploring exploring lab implemented talked and you in have make sure want on impact press PAMA, of that'll that release the What back I on to options if guess to every going option of forward? think

Steve Rusckowski

Sure. I'll take this.

The first give part to that the of part. question second for I'll Mark

unfortunately, pricing We've actively refresh the of in and So, But with talked of draft rates data CMS we for helping with we PAMA the while wrong. and years to the we're got with as been we for the schedule. the they on was engaged been we've the gathering competition the correct what of principles disagree been about. on the that of we've which is make rates. quarter them data the working market-based is we've implementation the implementation this sure working think data new through working it but fee and then the don't We've establish helping to the people

or hard have where we questions have them we work at share you we've got them see three see issues years, we're where far to see we the engaging they feedback listen provided how so where rates draft some this. that we So, the and with and in we the of part first -- so with with I'll that's but draft rates since with on what we

rates also, those been receptivity the of administration what versus they rates engaged make see feel well. PAMA intention CMS on the before and from leaders about draft we the what the Second proposed with of we've draft that we all and was our over sure saw for rates as congressional is difference the and we has understand since now to that good the with

engaged engaged other of support so deeply I deadline, that I'll Hospital all So, American employees you trade are say formal broadly, are in deeply association government covenants we're and also tell and device were XX. hitting The which trade our and comments deeply association this. we actively associations trade in in I'll Association, said will go my before of also trade that cement the in The laboratories of all are this. Medical engaged We'll smaller that that American in deeply appalment the engaged. all engaged, association a then October and association the that branches members is partners very and engaged active. lot is and are trade have the Association, of

urging and to grassroots, have the different that We going they women take get mailings states congressmen telling into centers and it throughout right. to the need time CMS and all

might sure see final says schedule into of and We'll with decide what two Congress do They in association the time and that's get legislative or could consideration into we're comments the us The need consideration final to there go with feedback. And of CMS November, the to trade looking like action the the event in and then what will that to what will comments have then it consider been to congressional at take we'll is speaking that they that do forward we'll not what represent not PAMA. what we not and to then would right the to. to So legal that what of whether we happening. with see upon rates we the have does the this the the take world we rates see. also members rates, see they forward go alternatives the We're clearly give If depending means they with that. intent people implementation. help

lot help options association. as I'm not from what and trade my exploring all along in a the my we're So mean commentary from you to this tell all colleagues could get we by and that's over of

and and the feel clear get it the to they that that I effort right. very good and take So, time about we into loud is long putting CMS hearing this believe we're need to

you So, about to commercial Mark, do want rates? talk

Mark Guinan

couple Kevin, so So, things.

last the years previously, shared in of some very we we reductions commercial anticipation little to couple floating as our MAA. revenue for cleaning contracts that had We've off tied rates. been in First over

a not any that are way we So, contracts very portion index in very small an MAA. floating soon and any it's have

those understand conversations future, payers future, predicting the but in In in trends of the predict hard to that terms impact the the the of with always they can I recently, you significant it's large assure for versus that being actually it and of take industry so advantage and we this being entity want they an to Medicare. to us and messaging opportunity ratio keep have to to that, the certainly

of conversation the the as you to rates. course, Medicare is Of rates this commercial incorporate intent and understand

that an impossibility. is So

services. at and in agree curve Medicare and the part diagnostic and basically were Many the the good So, part people you're day, two the good guys solution rates solution in of of the given as of providers that to that laboratory the also, to fact our the partner. spending of be of say they with amount a of actually premise the that thirds other pay going laboratory terms impact patient largely data. the influence And we all overall end have same healthcare significantly our and our and given spend to a we of on significant are one that we're spend of more other the

not better understand can they and PAMA that has around to worse discussions for cases. us I the gotten and you be you So, got certainly they assure given look or in so become of successful the price, most and neutral tenor

So, should labs not typically then forward one rate. X.X to more expect people, often we're two shared laboratories to any times remind our all same significant the but hospital are or paid paying commercial and before, are erosion we times just and going half and price

credit time concessions to So, evolution I in the would looking opposed national labs. expect over as for from independent that some

Kevin Ellich

really any thoughts Great. And quickly, then trends? utilization on volume Steve organic environment just the and

Steve Rusckowski

quarter and at the healthcare third this look the this the for say see do we you indications over very in using we'll in stable. We our We different marketplace making good in progress had we quarter. past the quarter country us established we we're are all growth people overall if revenue feel the the feel stable. growth. We in said good what from feel We at about we've storms at amount and look the again, of that actually the we what organic and to accelerating Look our accounts, adjust effect the look larger about on feel Sure. that.

growth. progress a marketplace accelerate making we're to stable in So,

Kevin Ellich

Thanks Great. guys.

Steve Rusckowski

Thank you.

Operator

with from is Meehan Barclays. Jack next Our question

is line Your open.

Jack Meehan

Thanks. morning, Hi. guys. Good

Steve Rusckowski

Jack. morning, Good

Jack Meehan

there's proposition, of your Mark, just more into push offset on price versus versus you you and national environment. your those contracts value I access and wanted commentary negotiations commercial hold? to Could an drill bit think actually on the commercial network you as if provider, comments, negotiation do PAMA update low-cost Obviously, you give just underway. on on your pricing a could payer little gave a prices to and philosophy

Steve Rusckowski

course to negotiation. strategy Jack is that's our yes Well, to of push two-way

often better good some provide in quite don't within the payers cases network. get are laboratory point, taking providing not people So, are as data data to have and they where end example services we other that -- fact for is given but yeah, am you the excellent I that we're provide at services and other our speculate this are to as rates the we're going there that our position I that already up, and of their promise could all from the people arguably little to whose

they're get they compete and experience the certainly members and health are of provide it the when the is services that's better positively Steve which value consumer of and can other the outside result if see So things bring terms tests because to providers value that plans laboratory some that there the beyond through the that walked we and then some customer product. partner argument your and they in they differentiate don't. with that the that and other us bring work understanding actually a of them And of one with some resonates some

parcel some spirit would discussing that part comes last proposition our increases with solution. our of of you that's and earlier, the said whereas that with rate try partnership over gotten the it that given part assure what value contracts can call I part proposition couple value they and of I them see explanation So have we're with years what and I we

said field higher data spend. good be going work the appropriately earlier the those providers cost their better they're and more that from I us, arguably they value the to who provide, the more going of don't cost. to healthcare have for solve And some to of can So, they're the use other laboratory the better as drive given service they

that about the wants So, the time is side there of really of discussions lot any tenure earlier, their I been good building everybody But relationships the in we've course maximize value feel the to and equation. the and as think I more plan offer said of and with as what's of the seeing defend price the are and the of to us today partnerships in more into more we value to of part the the and health going solution help that spirit us of the there future. I that's

Jack Meehan

if XXXX? push then of the you rollout At regional adjudication on cost updates savings that to curious then holds, consolidation harder point had any footprint and payers? PAMA be you I would auto on And just would Great. in

Steve Rusckowski

Yeah.

invigorate And And Day, tracking the we billion we're you better recall and this continue efficient get yet. see service better we $X.X filing that our for out to we as and in we continue continue both XXXX efficiency. to in an despite feel and as we goal. in as we've said Investor what has if we and So, years need the philosophy in been about done get probably more drive that you well to and our to results quality to on do PAMA shared what not

that lot a provided to of us. color some in got front visibility more we in So, XXXX. in We

we might more be into billion and 'XX beyond see some 'XX. there we pressure going that anticipating so more price and So, the $X.X were

we've had feel invigorate guidance implied year have driving when is the general. just test we'll you what XXXX And you what obviously we see the so in through hard existing the along do the new have math said, upon based to because the been working with of It's what strong. not So, going convenience program and outlook years. in in productivity provided continuation we We've get go in Investor this we continuation Day of the into XXXX and of our of more efficiency a program organization. that this we're to for our we out

Jack Meehan

you. Thank Great.

Operator

is with question Nicholas James and next from Associates. Jansen Raymond Our

open. is line Your

Steve Rusckowski

Hey Nick.

Nicholas Jansen

morning. Hey guys. Good

for questions me. two Just

I margins, nice over most quarter deeper to XXXX XX out in trends ex about into we next up just First showcasing you're bit in the and Certainly, wanted think dig a being think hurricane. PAMA as points rolled very basis recent margin the two on progress years. little expectations

and is analyze next sense years, just wanted how associated does PAMA, your think about much degrade margin how get with So three margin you if XXXX we peak to thanks? year the

Mark Guinan

outlook is we question. so a that Nick, thanks for CAGR. the Yeah gave The

put be CAGR. as will that So a

way it's than what until the committed year-to-year, see variability depending we've especially earnings that cuts faster not So, with we the is revenues. growing said PAMA we're some not get rolled But some out. to of

expand So, says we that margins. expect we that to by definition

but So, we're may next then single years over looking it every expansion quarter, committed several margin now. the period in not our year to the be continued we're be may because for earnings year-over-year, it not every growing faster

Nicholas Jansen

that -- clarification structure just does as we worse Is understanding of my that be is headwind. think the about a XXXX than right year of a the understanding? PAMA, the And mean XXXX on that regarding that would the size

Steve Rusckowski

imply a the how in point some impacts the the very I there getting to this more the without and know so are air don't answer panels, in panels and and it it's much panel very price are not billings complicated because very, too more pricing their lot complicated. of of in Medicare positive is it's But they're the fashion. analyzing to way the Medicare honest the overall and things and because just summary pays going up The regarding into detail practices is the rules still many

every unless historically start for So, single understand is panel. analyze they together don't get what people already deviated might which you industry to who in are close putting in way not a have things from you the a

through that So, price course which within don't not a is trying sharing this really to the world at comparable complicated we commercial very, panels have with we and there market many a why to the is very is sort that the answer. interested that's paid our in issue by the because and how and code in we're how get year, we have were even if in a estimate know to position I cases point question

to come. still So more

would 'XX do than I say assume 'XX this at and So, that versa. worse vice is point, not

soon people understanding as as tell to you reliable will information. we We provide you have some

Nicholas Jansen

quick can XX specifically way That's what XX modeling you share this I numbers we should the for dynamics we wanted very it plugging benefit tax be get to then seeing compensation helpful and year. range, -- tax the sense understand Is the of should of in just Any in just 'XX, how be stock-based to you're kind a 'XX? just thanks. a just question. one

Mark Guinan

Yeah so, I am sure of couple factors. you a understand that, what drives that is

As seek value. time some the to of in equity and going long the as was brand you're the share the price is at higher than that it of

like was appreciation years year we benefit. versus was when that this you see a a significant certainly, previous had stock XXXX that lot of where driving So

which of is The other can't we course predict. option thing exercises,

consistently performance So, option degree, level the a benefit but will that assuming price predict is of to variable. which some investing timing can't appreciate huge we we're to the continues some that exercises, the of stock shares investing drive

of what continues pretty shared stock the the to degree assuming say some stable sixth up is reliable to dependent level will is So, when kind base that that go the of sense what that will we option say on predict. can't the that's of is but I we stock and amount is and there, we be movement that swing highly be appreciation that's beyond exercises but and the large the

a would those is sixth update is kind other to base continue I we'll factors. say change dependent that that beyond if level So, on and expect should and of consistently you anything sense

Nicholas Jansen

Thanks for detail the all guys.

Operator

from is question next Jaffray. Our with Bill Piper Quirk

is open. Your line

Bill Quirk

morning, Good everybody.

Steve Rusckowski

morning. Hey Bill. Good

Bill Quirk

couple into I that goes business over hoping assuming years Medicare the relationship and you're next Medicaid about the on to tied how percent Kevin's the So, of thinking Medicare rates commercial comment of question. respect effect? that was you that's addressed with PAMA could in rather that thinking you -- rate into

Steve Rusckowski

being terms So, rates terms not Medicare they the Medicaid sense mechanistic our best of of tied set states make it this in and rates. again the in looked look Medicaid. automatically changes we've our those most best trigger is and a formulaic doesn’t cases of pretty deeply relationship will of are to an But look rates largely at to fashion. a understanding in index in at there Certainly, the understanding, and like

to much one thing lot is only traditional Medicaid the A and of again, there or pretty be that's pay paid removed X% Medicaid are fee of So X% reminding that around the that that states. the by up revenues the than fact it for are service. cannot to Medicaid management you our won't more rules are And say Medicare. going to about

where to at a to from than case more the But for is close reduction there Medicaid, X% I will would wouldn't is still rate this expect headwind any beyond Medicare. I major small to fee not in Medicaid there not us. for you that see in learn, a and ensure of reductions state point is expect higher is but Medicaid be trigger significant given state service and Medicaid reduction, So, it to Medicare this a Medicaid that portion again our rate a that will where revenue the comes

Bill Quirk

and around compared appreciate of Okay. your I outreach just profitability as and color business, thank say No, you can think guess thanks? about separately programs to Walmart traditional station the guys you. you have comment those bit traditional then draw a that us I help and on that, little the relative consumer Safeway diagnostics And the with

Steve Rusckowski

to our and consumer growth of which consumer about we're putting One as e-enabling we're far and laboratory consumer are facets of thanks. It's process as Bill of lot that multiple there be outlined the is talking and strategy work one strategy a most and is is Yeah five concerned. elements oriented e-check-in. I whole our our

insurance that progress a It that mentioned, in experience It our great about they're contemporary we experience feel helps experience well as Making patients. as The have lot employees our on that. really of and great. their to the feedback moving is helps healthcare there. working consumer I people our experiences our partners So, because consumers world.

a the only X.X information. which we little We given a around marketplace over in users, is million second years. is this to two brought have number The phenomenal got MyQuest, that we

So, around it's have if of content touch MyQuest, is experience to more just want our whole picking we you users nice and volume that people more also we navigate up a and through which consumer and put the that will. into

We place testing. this the mentioned are encouraged a into actually from in is more Colorado. could in our and tested of our is bit It from market market. it's is that to We're we third by in around at is investing of a questions The have because which draw have paying be We glucose out there and bringing test. so some for us last we're you what or be early we lot ordered consumer there and we say own of could cholesterol, such hemoglobin, your -- we're are products. doing a part we're it going that direct marketplace and around We're are pocket and I'll that access Missouri access last but access consumers see returns transmitted, important the their year. interested what that stations. diagnostic is And this

how our so, and augment we replace with patient these looking And locations of service we're some can place, Safeway. at at centers in some

implementing stores excellent also and those in centers of service progress making Walmart. with relationship We’re Safeway patient

Florida in And we in open this some and centers will Walmart so, Texas year.

cases, in stores. is And have code in can points what so, And what we but get more around have and to cost at by it’s cost a productivity. to efficiency look we estate they where the some some it’s estate have do is real we zip of The allowed those biggest access also consolidate real that in the phlebotomist. us is cases labor, drawing not allows around phlebotomist

So, physician’s and to consumer serve points. unparalleled patient close if though locations so in patient be. access have we that phlebotomists X,XXX of access we service over and service off centers even we a phlebotomists offices convenient X,XXX density can have more lot to the Remember have centers better locations in better XXXX we’re of go better, the our

to not around wide-open ability that Walmart parking big do activities locations Our medical the other you you'll and where store buildings and access find and a office nearly experience. as find with these convenient shopping Safeway easy and a are is where if to lots, store some

we’re day think proposition we’re stronger we because focused stronger quite most every and on healthcare getting we talked earlier, this. the be we’re want proposition our to to our on as value We track the encouraged. consumer-oriented we again value laboratory. the And think value is proposition is So,

lot progress. So, we're making Operator, good question. next a of

Operator

is question next with Citi. Jacoby Our from Ralph

Your open. line is

Ralph Jacoby

Good morning. Thanks.

Steve Rusckowski

Good morning, Ralph.

Ralph Jacoby

so the jumping wanted $X.XX the it’s for that to $X.XX. $X.XX we of I guide off single the understand midpoint is we’ve We hurricane, grow make the sure want to that essentially got digits, at point the $X.XX tax ex just take and panel for Hi, to guess high the $X.XX, right? just from mid out and benefit we're clarify that’s then -- XXXX, is if

Mark Guinan

argue the that Yeah, so point had XXXX. easier adjusted off hurricanes you we that growth given jumping for may fact year-over-year the but is hurricane, in the the be shouldn’t compare

compensation. we And benefits this an taking plan certainly of excess hurricane easier the our take takes year. that’s this point our guidance from compare would out So, are we way into for thinking off $X.XX starting us and how that the that we that's right of midpoint given the point and to impact tax next would $X.XX can build XXXX stock-based give you're account of only year, and the initial out our that the point jumping at project

Ralph Jacoby

That’s as and the in XXXX Okay. number to the $X then by fair $X right. -- same that’s context the

to for $X that’s how be XXXX? baseline that thinking we $X off should that's So about

Steve Rusckowski

the the comp excess includes $X.XX off guidance around. that’s Not with Exactly. stock-based

Ralph Jacoby

of All that’s the the for then XXXX? impact sort can any help of on give helpful. cuts right guess you XXXX, your on you and I XXXX current us Can based And Okay. mix. PAMA give

Steve Rusckowski

I wasn’t – to that maybe No have clear are to as so be given there be many things earlier out. as intended said that I as sorted

unanswered looked of of outcomes have we're questions out many to huge figure to range So some it potential we questions. answers and depending on still the those at obviously trying deeply a

we're too as we share to be clarity do the future to So, point something at distant I a position in we’ll information that not share not more said expect soon as it certainly in to this a get in so. would minute as helpful

Ralph Jacoby

And Okay. then just…

Mark Guinan

view in views our outlook took rates. consideration into outlook we said what that the have on and obviously With we reconfirmed the draft saw

CMS we think And our we and are too there is is therefore to that rates areas that wrong they lot got of think the feedback so, low. a

with outlook or this think as we shared feel what happen not we morning we given you with just confident contemplate CMS. despite dialogue happen are we those we our So, might with what

Ralph Jacoby

a And and likely then one, how multiples what given stream you sense helpful. lower PAMA? All just last give Thanks. you’re price a you Okay. a earnings approach you’re future right. purchase maybe acquiring deals maybe for from can paying given just us of whatever That's

Mark Guinan

we that involves have plan invested year Sure. metrics robust return it our that performance based would evaluating and be of we to by We've have specific a shared on shares. to very metric third plan around capital where our relative deals accretive record of the our a record

shares for we on business put performance our year return forecast our forward and invested our half our of for on every So, based capital the that. base

that we that So, are needs deal do level that you obviously the by And will have have to exceeded metric accretive deal. consummate do need be MPV to an MPV the to a and year. third we before also

as tough structure higher the the dramatically typically revenue make the different a their we question than most went has cost paid but are and one it’s is because in Strawman business their actually multiple individual. at ours. P&L get rates we through relationship and so part the the at I Investor revenues that not which Day. negotiated, the is we than then When at despite significantly becomes margin question, I all example So, P&L our more synergies, still to of shared cases, no generally

the it, look really look was multiples the we way and they or of multiple really meaningful. sense multiple like it's EBITDA not earnings we in hands based their a revenue as taking does on multiples, So, great like not -- a but their shared deal make overpaid look P&L when any it

definition rolling to little bit more than and then math a cannot our look maybe you our not too multiple that that good hit says the much, by you based which current pay at see it earnings based was revenue If enterprise work are on we’re able pro target. opposite, because significantly doesn’t but would paid the and multiples the on the forma, we you

risk cost sense capital, in return into companies that's built that to so use So, evaluate for MPV capital, of into our have good on deals when premium expectations our think our actually not and fact we use a our invested shareholders. return we which other make some we built

Ralph Jacoby

helpful. Thank That’s Okay. you.

Operator

question is William next with Our from Amanda Murphy Blair.

line Your open. is

Steve Rusckowski

Amanda. Hey

Amanda Murphy

Hey. good How are morning? you

Steve Rusckowski

Good.

Amanda Murphy

of long-term the I help of thinking just around outlook there. over the including can long-term renewals that discussion terms some you're perspective Thanks. major wanted question quick a and I the just clarify contract thinking about about and how how share PAMA? perspective over capital also some outlook thinking on given repair then assumptions you just the any us contract in long-term there buybacks in gave there terms long-term has changes to you the been think about think you're about terms obviously deployment Just specially of pricing in are of And but just

Steve Rusckowski

we that currently accelerate past also on we in our nearest nationals the we And expires to as said so let me good insurances start to we and it’s of that so We to with strategy what possible I contracting. said in relationship capability us growing building the did have in contract helping obviously us in is about our want and then be preferred that relationship know you Yes, as in have that outlook my in we as and comments access with going we don't to continues and network strong have our your aware of forward be access should many competitor. to united the the contract what best we really we growing earlier shared our be enjoy. continues are like contemplate growth for would XXXX is our one on our United

And contemplated Mark outlook the of question. that and is in part so second

Mark Guinan

objective back stick XX%. our well we’re we shareholders mid a near-term as be we to majority we’ve flow does will from so as M&A significant per capital that actually long way that that with the high low of says accretive supplemental of earnings-per-share buybacks earnings deployment gets being And share used will growth that’s going Amanda two in our in our a earnings free satisfy to talked cash priority of that the to not that to that is once strategy as towards get before continue about cash cash single-digit opportunities to dividend of earnings least share buybacks terms So, step and strategy do use at so, which earnings contemplate to to

free and to will get XX% share a M&A at rate we a our of our flow that CAGR will shares. if with we earnings. have earnings. the the M&A the point to flow not be is Our have will be of if other then preference cash real buy again levels way The don't so back dependent cash at more and reduction is of opportunity outlook we growth But this I cash better that free that the in include higher use does

Amanda Murphy

from in a regional of more just I And switch some national has to think then a given just year first at follow-up, Jack it. of Got quick schedule. one terms regional we're done of looking in to work good the dynamics that going PAMA the

So, into maybe data I mitigation might don't based know to some to been know you the I there rate any you? but and the on insights the you've and looking look that mix early able for if reported is just if there first terms of like for yet share at for in look what your relative guys

Steve Rusckowski

from declines is That of correct. You're there reasons than some we're already NOA. paying any sort less that are the because NOA price mitigation a and

the So, might period. the actually, multiyear year depending the is by the And what in at cuts least be that less first a with issue on overall of decrease note definition there's a over on that panel.

not the in you up getting the of any components panels, individual in NOA, if of case So, amount. paid that we've total there added the been

they would of mitigation don't that some also change into be assuming So a other methodology. sort that

if and a I case. and it schedule do XX% to that code can you bit reduced it if makes like Medicare okay what Every just by that's the and are at complicated, So if did fee was this X want little the isn’t tried math. look but say I the to revenues acknowledge the looks

than we're work not for that a Now cases, Medicare. lot most because paid do for getting it's in the complicated more that we NOA

Amanda Murphy

Got very it. much. Thanks

Operator

Mizuho Ann question Hynes next from Our Securities. with is

open. is line Your

Steve Rusckowski

Good morning, Ann.

Ann Hynes

Good morning.

want don't I So, the beat horse. dead to

So, go to to I that am back XXXX. $X just to $X going answer to

just want not. and clarify to included I So, what's what's

cost contract mean have how revolve share I'm to and the if only and for X% it, includes It and it includes let us an us a purposes? it's as So, increase X% program, then the that type stated not proposed annually. it's some for does exactly rule downside includes your in you you're M&A can UNH rates in some if in it much of entry PAMA just tell and lot it It you assuming not, let risk, can know I if whether thanks? includes visibility not you in the if but modeling

Mark Guinan

we've on let change in I a So, clarify wouldn't so significant the efficiency doing. me been program, from model what

more is and that's so certainly done part think with gave. I to significant outlook Steve that and we'll be continue deliver the parcel said then there that efficiencies, we to

we're course it on how of we said what to the depending with need and do that outcome, severe of PAMA it timing Now do. to is, the going

outlook. going to we're So, that to get

weren’t what reaffirming might We PAMA then about do certainly, to where have the And ability proposed. very terms pull out. scenario if the have we to share which we that we're we're they have and contemplates plan it outlook levers comfortable buybacks. confident this where the in that despite not And the and worst-case the in is come enough case, that

I prevent to lot of that just given is So, dilution there really but share program. buybacks, equity will be think some our a

So, in ways. reduction I wouldn't any assume that

not So my point. this in for that outlook is

is we in you is more other earnings depending factors do then consolidation, a on, this and could both been to per could we've assume to get I the in for we're although X% that said all to we counting share M&A signaling at original and value more X% growth trigger because yes, be back think acceleration what should earnings. but that that's again we're we while consolidation. given earnings that share vary And where And it's doing because create As therefore, point on this is buybacks. the for question

opportunity M&A knowing just for and at modeling acceleration So, I'm this outlook could not the an for we but in that more are point. an be that there

Ann Hynes

you Okay. some just have And some you if what downside the I'm then question, will the give can the of if and visibility, UNH you in us don't, assuming guidance type so maybe include you be? visibility

Steve Rusckowski

our still not. confident was commentary outlook. with way my feel stayed whether Ann, that it quo or working it's it, we're current status is on We but that the

Okay.

is getting way the it that's current So your about should stronger. access you is think

We contemplates our are but get where we working to it stronger even well. staying are outlook as

Ann Hynes

then guys you you appreciate And have I Congressional that Washington, efforts that PAMA talking Okay. all in people. the with done to

beforehand. I period? I feel like Do that like they all common change CMS to do You're CMS, commenting that think to So, wanted can am in but the of you just trying done what think need just change? make What you figure Do to a was out would change? two months?

Steve Rusckowski

little a this. around big you The give change let color me

our without was a and and So, explained and see the understand, a of what of talked our administration, and the off it of but data stakeholders to concern says. I Southerners members concern let's well, when but a we facts Congress we said went around our lot lot

so were many these waiting of for And them rates. draft

the congressional draft is very not a good out the amount news the the data based the majority nationals rates are the lot large so, was rates and rates that severely of percentage upon the is was ourselves, of small data so And and the coming a intent. are from the draft with with collected are flawed that that of X%

right, now time addressed, we there and it now us what we talking taking right have before So, around get been their these message the really our is they with they stakeholders more data say understand. well get to helping to okay were being and out guys have about got along momentum

what Now that. we do about the question is do

So strange been way have along. the dialogue draft rates to helpful move the

Mark Guinan

the example, to based in over X% have labs, the the be reports expecting one of they some XX% of close the the a And volume applicable on is said about Ann, OIG but month of the were definition ago of reflected. lab to

today for submitting labs reasons. ended actually X% the us As various say of heard only you up

around now. it to we're but okay, back in where the point I having comes get Steve's right of certainly concerns, weighing kind see So your we'll conversations those are out, facts

Steve Rusckowski

is they're two roughly. roughly what we looking from they as well buy majority of large services office vast And only the these of purchases from laboratories Medicare after the And XX% at that labs. and XX% it's data laboratories large nationals, hospital drafts their of from from data know the laboratory which physician as the

to and sure and of look it market base market make nationals sampling is philosophy to make take the paying served rates this they're to right time issue of based whole the get at of rates they of have different not the cost large industry flawed those density to So, generally large that this need in the sure are and centers. that PAMA rates the they is

Ann Hynes

Okay. Great. Thank you.

Steve Rusckowski

you, Thank Ann.

Operator

Our last with question from JPMC. is Lisa Gill

Your line open. is

Lisa Gill

way then probably about that were if that non-network that rates how the you think intended would that if happen opened to be we Are assumption would they dynamic and relationship Thanks today be little quite world taking relationship would do getting thinking volumes Aetna offset the $X preferred about anticipate that for two, have believe back opening you the potentially rates and you're United to they that this, work of you're in higher. the that potentially when the my up, you were preferred when you you one? very so talked to assigned United think that they Do Would time? getting some bit know in your they that that equation XXXX? much that Steve, just about as And that from has today. were I same a about question. don't may thinking think the out with $X relationships had Just a my the help mid-XXXXs? question, you

Steve Rusckowski

as extended not, haven’t strong. secured. Well first continue a we is of are actually and well. far given we those believe frankly we insurance the and we value Yes, in we like to of we'll smaller second, it where good we business, commented contract, network continues do or our and have we do that we with good the where all all, quite your have compete because but relationship be nationals, about the we have other one our we contracts have when as philosophy which to for for proposition, do relationship companies, Aetna we've do national where And feel opportunity compete contract to with our business on preferred

is United. and position about approach. their those of as that So and relationships and we relationship three the feel par philosophically We both you great have working nationals taken we've that's good as there and do we're about feel a strategically different competitor out the see five with on

those of the of with have spend All large of and nationals. relationships talking business time is a supplies lot multinationals you our different we not but a remind I'll part

We have of a lot regionals.

We great provide for access of those and have continue contracts to well. hundreds us contracts as

that higher So, and network some they're rates, also just significantly there don't falling Lisa to benefit, have than typically short. network but rates yes, clear, are higher the is network supplies in some our cases that

So, for full we premium do don't we get of those there's that insurance. might people being quite out that don't network paid for we because free we basically some work some get paid the receive think because

a rate have then So, on other obviously if network benefits that but than where paid. plan actually for get the typically didn't that network, we forces. a is the there One is get any countervailing network is rates we we're lower network the supplies in

there will by we So, might headwind be increase be some some for will a surface. of not where to pricing we come certainly a network it's people we price were that into get out network, but volume large any as offset headwind time what to significant previously consider

Lisa Gill

going on calling the then there else down future it on Okay. And be worth to two one obviously just a is about question, there element expect in X%. a the everything understand that about Is not there else perspective? pricing be just then environment would the quarter know nonclinical is second I ask be the out pricing stronger. would mix from coming things, just one that's little or around down but will something just X%, and I if I said we could Is around first Mark, quarter, want there a anything

Mark Guinan

Sure.

on element our revenue I shared to there the continues was the also PLS apples-and-apples as correct we've be that suppresses then in a and less prepared business. in pricing remarks, and So, that price shared past from any mix

the we've growing look mix per is the have several positive we for really then you quarters, around it's our experienced been rep, to and mix pretty consistently So tend when which acquisitions revenue then rep the tax test consistently to per where the at also ratio. that

the are drivers. those So

acquisition have elements mix on look then of it's When test policies rep. things a for are little negative you of written other per in independent services the that's our more largely at diagnostic life but of per the all driver. and set in individuals the number mix the risk business, secure The that There policies been recently we are more do have itself businesses. PLS being a couple other work industry and testing impact to the of big how advanced and a softer. favorable insurance is that of on front diagnostic there, That that's is is looking assessment our revenue and who

se have full with competition So, losing has market market environment the do the and has with the do nothing competitive per slowed it really recently. to in to the

Lisa Gill

you. Thank Great. Okay.

Steve Rusckowski

Okay.

for again thanks So, joining us today.

We had excellence. of great the have third our support day. to your look As and our growth commitments XXXX. executing we've driving we you a make We and for another quarter said, strong two-point thank in accelerating quarter continued forward and operational strategy

Operator

XXX-XXX-XXXX international Eastern midnight available or be for today the XXXX. or Time website at XXXX on Quest www.questdiagnostics.com/investor A replays call. callers. be Telephone posted will Thank call quarter for accessed you this at in Diagnostics' on Diagnostics may callers AM at November on later by replay until approximately A Goodbye. for remarks from Eastern Quest the X, participating will online October phone transcript of third XXX-XXX-XXXX domestic XX:XX of call on www.questdiagnostics.com. XXXX conference XX, Time prepared be

Quest Diagnostics (DGX) 19 Oct 172017 Q3 Earnings call transcript