DGX - Earnings call transcript Q3 2018 | Quest Diagnostics Incorporated

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Operator

Welcome to the Quest Diagnostics Third Quarter 2018 Conference Call. At the request of the company, the 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 like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. ahead. go Please,

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 and our differ materially to, are XX-K those will on call, filed During affect statements that and not most those from reports on Report make results Quest Form Actual may measures. limited Diagnostics’ projected. and future this recent quarterly results Annual discuss may XX-Q on subsequently uncertainties non-GAAP in may current and Risks described Form forward-looking but include, X-K. Form reports

For adjusted refer to EPS this excluding reported to adjusted reported to references EPS, diluted and call, references refer amortization to diluted EPS expense. EPS

associated compensation. a with stock-based As diluted tax adjusted reminder, EPS excludes benefits excess

and Under that expenses of patient Additionally, X, bad effective the to associated which expenses. to selling, were restated for year administrative standard historically as with of impact amounts refer XXXX reflect basis. was the on general reports within recognition we expense reduction been became will and basis the revenue patient a have as uncollectible balances prior these retrospective company rules, comparisons as adopted January and new net the net revenues responsibility, a classified in when new SG&A debt concessions, now the revenues

Now, here is Steve Rusckowski.

Steve Rusckowski

were despite called effect earnings grew more deliver growth for progress performance of revenues I’ll thanks Thanks outlook industry and grew review EPS us quarter. two-point with in our Adjusted an you provide XX%. update morning, on XX% up EPS out XXXX. the highlights up Then for Reported third last to We the we more Shawn, on the Mark was XXXX. This give detail quarter everyone more and from Revenues on and today. the than quarter. will strategy. headwinds of continued quarter X%, nearly joining our than strong you provide and

to full-year by revenue this reflect lower we performance affected revenue than revised saw, guidance year, have which you As our primarily factors. was expected two

faced of hepatitis second the D First, as areas testing. we detailed drug in monitoring, quarter, in headwinds the we C, and vitamin prescription

progress, While revenue third impact we the quarter. these continued made to growth testing areas some in

third Mark in touch also a on rise Second, later. will saw in which concessions, patient we quarter, the

acknowledges Medicare the however, an it the context the tests our merits the we’ve the trade on opinion, quarter, a Court’s narrow under that Medicare is, update our over a beneficiaries. Before of getting into lab PAMA. potentially starting course, for pursue harmful progress association’s legislative and same provide new lawsuit trends, in ACLA’s the judge hearing Court I'd demanding a with US At merits. about Last for decision, arguments the ACLA PAMA. on raise This of the some grounds details made actions. on the pricing is to District to market disappointing on The to Last on time, District week, questions, Court’s like continues important appealed month, of procedural HHS’s industry; fix. implementation dismissed industry

together work PAMA the to on and issues. continues CMS Additionally, addressing industry our current

impact outreach pricing but hospital also is directly labs independent due indexed labs Medicare to So, sit are to market. financially, Increasingly, only an PAMA not lower as Medicare. here PAMA, to on lab smaller due the today, we the with of under and and rest struggling having reimbursement, Quest contracts

a exit PAMA business, to as factor. citing the have begun Some

employers. healthcare, and scrutiny for has employers, business Last been more than and can here more Quest. if in Wall of the that be that increasing who coupled the value makes for plans Quest offers same exceptional most manage experience, with an continuing hospital often press. to of time, health our market, customer reported providers are with two-to-five it there and stay. variation costly is month, We’re exclude to the price scale us less great plan efficiency, in pay times health At Journal a popular pricing compared wide Street the and the consumers care as outreach much becoming sensitive. charge and in which our expensive PAMA Consumers labs,

growth. short, three the there us are in believe opportunity will reasons continue to consolidate afford an and So, we to market therefore accelerate

First, laboratory beginning is Fee impact industry. reduced the reimbursement Schedule through the on have Medicare an Clinical to Lab

labs efficiency consumers employers national in health their And on variation in new spending. Second, to pricing. looking embarking plans drive and lab strategy, the the healthcare are a are to finally, to help attuned more

review I’ll to quarter, elements our five third of the the to our execution strategy against Turning growth. accelerate

our element aligned, which three several areas. X% quarter, strategy announced to accretive third acquisitions acquisitions. of X% strengthen The is strategically We in the key capabilities in our to grow first growth through

It First, Northwest. also Pacific the innovation, extend PhenoPath, and expands in own, complement several our presence acquisition has which of oncology. our molecular strong our record and in a that of capabilities the area pathology provides of particularly

the the Oxford disease Our services business And Immunotec bring infectious seek greater finally, our then to tickborne It also our choice of in who physicians blood-based extend testing. disease acquisition ReproSource innovative capabilities acquisition of as will case Since acquisition and expertise us pressure Medical deciding of Michigan. U.S. will laboratory indicated to diagnostics. tuberculosis Hurley Flint, in the outreach exit factor in the third lab a this seller also In reimbursement our expands reproductive quarter in close, of we operation business. diagnostics. the have Center’s announced

business. Provant the our employer to we Additionally, of assets strengthen Health acquired wellness

PAMA continue as XXXX, we to contribute growth Under relationships expand of the X% will we strategy, I plans for M&A in have X% systems. hospital our target strong and should health to position to us with and acquisitions second So, further element the year. pipeline. revenue growth our close health within our indicated, announced already next And,

customer become their of lab preparations our we providers experience continue when the offer on first-class opportunity in-network for We X. to UnitedHealthcare a and January take members an advantage provider to

by will their ramp members. ability customers use the for to transition to commercial Our physician We UnitedHealthcare their do about presented proactively contract team time. of this portion revenue reaching already educate out United opportunity quickly. over work expect has some been Quest new to The

to UnitedHealthcare next several lower spend lab be help is the expected drive However, the over opportunity larger years. realized to

The diagnostic is the innovation. to third strategy of our to offer element broadest growth access

Our of diagnostics, acquisitions in quarter the will Health our and Infectious advanced Women’s areas mentioned the earlier especially in enhance in capabilities announced Disease.

We see testing. monitoring continue to strong prescription in and tuberculosis Quantiferon drug growth

Additionally, this improvement saw quarter in impacted drug headwinds well and in quarter as in monitoring, market we the saw Cardio second growth On several our third quarter. C sexually IQ, transmitted we that prescription modest testing. testing solid diseases. highlighted growth We hepatitis for call, D vitamin as

tests quarter started experience also have headwinds ago. C For we lap the approximately headwinds basis to to example, we these We’ve revenue year of issues PDM to this denials began have steadily hep related points this a XXX each year roughly year. against expectations. aggregate, contributed three our mentioned improved In original

is executing fourth feedback provider Quest strategy, make and our see generate increased be continue which to continue We choice of progress of from for our consumers. customers. great traffic element the growth to the Walmart locations to

fact, uptick to than months, locations more the replaced. compared for open centers an In they X service we’ve in patient seen volumes

XX with retail by digital have well of embrace centers Florida, partnership with locations to MyQuest analyze our is analytics Illinois. results, center stores finally experience. We view times, of on inside users our data combined store operating million see their our over patient app we schedule bills. currently health test have in and the in pay strategy now are that wait fifth support Consumers element our Safeway, XXXX. appointments, population more end expect and with now Texas patient X continue lets to We Walmart XXX then of their We care and services. them service extended service than to The growth

This interest recruitment service and a new in CROs to Trials Clinical continued of the new which Quest seeing we therapies. help pharma in patient launched increase We’re speed Connect, commercializing is June. companies

solution. We’re with and working pharma, companies new biotech CRO with several this

drive The the second utilizes excellence. the help is At of the a system launched Service strategy scheduling National our than element by new for appointments This location. alone, calls at drop to convenient patients. September, best-in-class Customer we patients system we of new two-point our appointment-related center into appointment XX%. end technologies week schedule of to deployment saw a In second operational more

York. XXXX. strong, our on been XX% handled simplicity, and leaders will Invigorate electronically Specimen of to compared Overall, making pickup we and and expected now confirmation a given our us held program excellence Pickup Investor on sharing efficiency, our progress a has finally, make in and XX, and nearly those the down And that be our our plans which for operational with Physicians savings requests to hit on to successes, versus phone with November Our continue insights, routine those customers the numbers. more will excellent physician remains have call. positive ease, big over-deliver on then with option be waiting Online New strategy on attend Day, feedback track we’re writing

it who me performance. turn Now, over Mark, financial you through Mark? let the will to take

Mark Guinan

Thanks, prior of billion were up X.X% Steve. the Consolidated year. versus $X.XX revenues

easier a for change prior of a revenue instead for as a bad patient of to revenues we As in debt, reminder, the compare, year, number effect of and by prior an the measured increased X% acquisitions last by year. compared year. Volume, or Revenues report services, concessions net accounting. X.X%, DIS versus now driven reduction as required due grew the requisitions, to short, due diagnostic recognition information to the hurricane

in XX versus the in points the quarter approximately Excluding acquisitions, basis prior requisition third grew declined by volumes the basis per quarter. year. Revenue XX points

test revenue for As business unit It mix, variables req. a price. such also mix, price a a includes proxy req not tests and per as reminder, of per is variation, number

price approximately full-year a points our unit approximately with quarter, and headwind from basis points XXX headwinds factors. of from remained other consistent the XX expectations all third the During basis for with PAMA

related $XXX adjusted full which will $XXX Adjusted well and of pressure the was of the factors, including: had $XXX XX.X% XX-basis XX.X% quarter of growth in to services mix approximately year. impact savings, in laboratory remained decline Reported last compared up adverse and adjusted integration of $X.XX reform revenues in or of EPS $XXX As income was reimbursement million, to operating to million, operating efforts time $X.XX we’ve point headwinds, Reported income deliver last The offset last a the year increase a margin was of Medicare take tax quarter, operating or acquisitions, as on PAMA. was the XX.X% $X.XX a compared million, million, positive partially an due previously, margin year. business. to to for due revenues, as impact XX% XX.X% or investments margin; or operating EPS XXXX, Other On of from in which elements revenues was professional to quarter $X.XX, year. our shared basis, compared PAMA. several contribution; in ago. the reimbursement revenues, to impact

were debt, of bad as of part as a year-over-year. recognized previously percentage up concessions, patient quarter, the During revenue

date continue operations uninsured an revenue, trend Cash revenues see as an deductibles the is in-line was date to patient to increase versus million $XXX to of year. ago, uptick a We $XXX of million patients. year the year million provided which rising in planned CapEx by last Capital $XXX percentage a ongoing for compared million, expenditures XXXX. in to $XXX and year were total to due patient with spend higher

Now, turning to guidance.

for as and and $X.XX, Cash and million outlook approximately now be $X.XX operations our to billion, the between prior continue be EPS expected X% $XXX Revenue capital be and expenditures million. updating XXXX $X.XX continues are approximately to by to between to of be between year. an billion; approximately is $X.XX. Reported be versus follows. $X.X $X.XX $XXX and to EPS adjusted increase We provided

industry Our in expectations reflects guidance headwinds updated we’ve our versus experienced the XXXX.

While are we XXXX to you there elements to like I’d share aren’t in guidance, keep mind. some prepared

UnitedHealthcare grow new opportunity our significant First, a we to contract. have with

However, UHC moving reimbursement network the provide with in patients network today. comes we out to of versus lower services

next Second, track growth already to to we mentioned X% revenue as M&A earlier, year. X% are Steve deliver on from

from we points points an Third, becoming are increase XXXX. expected of than points the PAMA in-network finally, from which XXX third-party aware, as year our XXX impact of already from approximately of approximately expect reimbursement the impact And PAMA you in XX Steve. headwinds beyond provider includes payers, hospitals you a basis headwind to pressure basis plan at in this is physicians and I We basis will more grow turn that it these for are Day. health to with earnings tailwinds, detail United all forward sharing revenue well look and to contract changes; we we XXXX. now well- Investor other more bill positioned as and directly. as considering and After back to to

Steve Rusckowski

growth are in quarter, Thanks, and revenues in and Mark. our and to XXXX. we well-positioned Well We're strong the in quarter. excited summarize, grew M&A delivered activity the top earnings bottom-line for about third

Finally, we look forward at XX. you upcoming our on many of to seeing Day Investor November

Operator? be any of take questions. happy your Now, to we’d

Operator

[Operator you. Evercore Ross Muken with first comes question from Instructions] ISI. Thank Our

open. is line Your

Ross Muken

Hi, good morning, gentlemen.

two like sort could from kind you patient sort business a added So, a getting that’s was give were little you of an year, bit just repriced bit sort what up? of across are as it popped picture maybe points? know give was network in the out get being inclusive you color, those incrementally the about, of United pricing sort Q-on-Q sort of the surprise updates, guidance one next to the I just some of of the concessions just don't us sort how want just the of the more color, that put seems of to of we of together you networks of headwind that concept playing trying sort and pressures, expecting incremental little on, full incremental of in why sort of, think more And vis-a-vis on a then, headwind,

Mark Guinan

un-collectability, patient call patient it from on patients. for sources larger we’ve past, in And is Ross, from you patients source. as coming we the much is much, the so shared than from others know proportioned Well, debt concessions revenue we higher bad of patients it concessions, what any from our other is have percentage a

X bad from other almost have revenue all sources. we all So, the debt

the and of comes largely concessions bills from large have from And insurances, a So, really it are medical really who and now their of a is from their again, little most who a is previously what they bit coinsurance. cost on factor uninsured bad is deductible so patients. was patient collecting it debt all is patients are proportion and the it paying of from in of or

of with Easy bad Pay concession our though centers And are the patient so, rate, also about in patient of chance and price know things improving as tool rate our cost, putting as improve talked amount phlebotomist or office such a payers as changes, some we’ve know and unfortunately with also that responsibility continue our they the done mix upfront. of to we even large and it debt more to the through giving have we gives transparency service us transparency patients collect ahead or the our in

know you To a changes operating margin, your Just we not know because cycle it mix with seeing the don't until the the takes of the and well. headwind start accounting we then having doing as the and that ultimately so really potentially just now you headwind has time. and billing on know question patient performing and revenues a a as to our to claims this couldn’t back-and-forth of adjudication, it’s service, given the why it’s coming, headwind been we and but some itself billing see collections some payer, I mean collectability,

their of who that the second a small that’s in don’t uninsured some serving. that changes Care was we whether patients for is a so the recent lot there in have if that. on don't what’s Obviously, of sources driving that, services there go what’s greater look the from number around especially by of And that’s a deductible, you amounts patients recently a one, proportion believe definitely information we’re is paying and of our when seen use obviously we that some we increase any Affordable but healthy at are regular know of so, factor or that out to are this, several driving for know the but patients checkup. we the definition a a healthcare, been has physician average, going Act large driven because Therefore, patients actually majority up come

patient on So that’s concessions. the

you that’s trying was On the do, pricing, moving was to I to what give the all pieces.

volume you a obviously for market access price, at we’re attractive come of a from and with the at when price look totality, more laboratory. it looking So, very comes it network does to a in-network opportunity United, with lower

the price, good their but make were in not which physicians people paid price, we we We previously. we other fair it market, of will less being bill just have third-party. a to the client and lower is of in is from that being is A also proportion directly third-party then hospital physician or basis talked it’s than points from So, where coming continue. or they to that very XXX the models payers party and wanted understanding and competitive opposed as billing bill third it about sure bill that us

So, that price. we sure all wanted are that people make the understood to dynamics driving

about PAMA and approximately from in pieces other points So, you basis up, XXX we’ll basis those to XXXX. be going is have all they said, points sources XXX when add

competitors, the of that that we along given have Investor we’ve already as some and our pipeline and we’re improvement to the some ability well deals grow revenue headwinds continued to M&A hitting grow closed Day. I’ll on in the very the at shed as color section that have market more access that and the are XXXX, in and recently, However, I and earnings ended our and with signed that confident of

Steve Rusckowski

And UnitedHealthcare on teamed the ago cycle Yes. with we is concession patient operations. management two or years thesis. revenue everyone close building where something I’m this our to reminding around and Optum up that

with could we as debt, do as bad on working what Optum to affect denials. well we're So, hand-in-hand

well. Matter We and about talk week of fact, be us what with have help team. really they can enjoyed as relationship. seeing the we’re working how this that We’ll I’ll here

to on be of more business. help relationship us as pressure side that and that’s going our continues there So, is this strong to and more

Ross Muken

know benefit, tax to have about, both on the you pushes, also margin that back some those guess on PAMA some hit the the you the potential that there supplier by how offset year quickly push made and maybe other a this you recapture the are pulls investments of try incremental are of so offset side, to you just had maybe are And the some I bit side, Thanks. that the to maybe you seeing you thinking [indiscernible]? and is

Steve Rusckowski

investments. at which will to I of this is beginning take related Well, that the

and for are are we at would will We continue granular about we where to therefore XXXX. volume need as real up think lives capacity shares. make is where United anticipate are prudent pick the This increases where in level we some we going up expect thinking those we is present, we investments to we're pick what with to going at the giving

happening our that’s numbers. and in So, it’s

we to our good and our that out to at sure workforce paying is the up it continue with about a commitment honor the business finally, that we grow to five a feels And good we that we in and have Quest November, continue we for come to an employees, Second employees share enter as working to outlined growth about bonus then our making feel out XXXX. good will this a investment come to that year continues. continue be us of strategies opportunity opportunity promising the is in

and So, excellent on all elements. we’re those progress none changing that making of is

Mark Guinan

Yes.

through not one-time that’s Those a So, Ross cost going to bonus, bonus investments access expansions. the for you become sales. so walk terms the three, was network when of you those know repeat of in

everything get the to decisions along results terms important that with that long-term, but in that over people Steve it of referenced, other into investments all I’ll make affordability across And turnover sales. cost laboratory decide else. when from on the adding then centers of Steve you’re piece. year. ahead, adding patient of course, of to and And So, also those most service our [indiscernible] the becomes will We is finally, we then investment then short-term

Steve Rusckowski

Yes.

with offset we our in with program. about excuse all had this me, an approach invigorate also yes, of providers, suppliers our and asked have ongoing working You the our is

for remarks, suppliers. in As what we exceeded this do year, with we goals our part I is mentioned our of that prepared our

with aware organization, well of trade device working This association. are AdvaMed legislative is a of PAMA, us the is which matter happening suppliers with Our what’s the they fact on through solution. are

the into though of billion operation much we at with that of in come opportunities what and So, we because outlining XXXX to continue efficiencies you be XXXX see as aware they see we quality goal, And this Day, over us are more on shared many pressure we front of be more with do beyond XXXX, did our are XXXX hope beyond actively suppliers, gains, there the and we even to run opportunities will more several $X.X working efficient very to us past will we this more Investor efficiency the hit years, we look to forward. industry. continue a with higher our and that going because of we’ll

forward more secure look we joining to us about that. you So, to

Mark Guinan

than And efficiency are appointment ordered items that those just very efficiency reduce prepared calls related quickly, in specimen his of pickups we and two of to call, about we dropping get by of you more remarks the and going forward. referenced continue being to the part more calls obviously expect the amount and online Steve XX% versus drive the phone actually

Shawn Bevec

next question. Operator,

Operator

from question next comes Our Credit Rice AJ with Suisse.

Your is open. line

AJ Rice

would know everybody. them XXX just I with I you describe XX contribution you is work retail? pilot then an And Day stuff this Investor about the about of to also the any know that you the the about CVS, guys envisioning ultimately with and is some comments that? then where you're initiative. retail that? where on the Midwest over point, recently in on to timing that? working had Maybe update I needle place, to at Aetna you At have are ask Hi, in on revenues, the location, move how it And how of talked will expanding enough locations on Walmart much its any terms

Steve Rusckowski

happy We're there. the I First continue add all, of progress script, thanks. the in to we with stores. AJ mentioned

well. and XX And into of that much that higher build number big now the by as on year. also, are moved and the tell this at of that that I it and be we focus continues to you states end Illinois the I than Texas and we stores Florida said We will

this So, throughout other those beyond of the be will rest there year. states

to continues build. that So

you what is our Walmart from aligned view. heard with So,

been those in also likes is quite Walmart It’s experience is, Second employee experience volume are has good. or consumers. been good as for our serving in volumes an stores the an patients see we think Walmart the the sites patients; like the better. their the that And that open at geography. been in actually that on it we fact, customers have our effect market those does enough, share look volume we have when long within

were continue all there, this that integration our with Aetna We you CVS, healthcare will what to merger do to planned continuation So, given on good equally, as healthcare to with Investor we're about Day of detailing Walmart opportunity an relationship the work have walk more joint they as hear presence, we they opportunity is with with services of do stopping hopeful, hope with is around some not but color about we're the with well those in Walmart in our great continuing with around venture with will the see we and fact November. other at them those providing with Aetna relationship of their more MinuteClinic, services talked out Aetna, and some mortar a CVS, what locations, And they and our how then with brick that. of and basic and plans strategy now we services. the provide provided with those done capabilities great with in we’ve

diagnostic we curve. services to and which we walk data help how Quest of what through do what Day, is, bend cost capabilities will and use our our come we includes you call how when use we to the services, the So, we Investor

some partners CVS, it’s great for some that getting for be And growth the believe also we're will the Walmart opportunity but in it venture be started we frankly. our will because other but do with with of done like of near-term, a and done joint just long-term

more to for that that the and in Day November. we show hope you Investor come on So, up

AJ Rice

Alright, thanks.

Operator

from Patrick with Donnelly question Goldman Our next Sachs. comes

Your line is open.

Mark Guinan

Patrick. Hi,

Patrick Donnelly

the figure the persisting Hi, of the Maybe for on the know and just into three how trends out can on forward and throughout update you that us about think you here hep on just vitamin I'm leak end headwinds going next kind are year, numbers around, you? XXXX headwinds, maybe D, that just C, much year? to could visibility we turning as trying of how PDM,

Mark Guinan

Sure.

as to C know we starting mitigate you we’ve year hep started share. is take that the [indiscernible] because the significant when, On mentioned, to drug lapped

away drugs some business at maybe know might the or a the is landscape. even comeback, make most change stabilizes So, pricing point, some it competitive and or there competition an of goes I that that area

us. we’re So, be that to growth continue as PDM, more be want - engine be On to I should not continues a than are it Steve to into XXXX. clear mentioned, significant for revenues. Unfortunately, doing volume we

a of is I even guess that addressed not address So, though as near-term may at following growing, the denials. the headwind to these that may the important growing because is on the or thing that. faster is revenue put and of can't going in that’s I stake some we’re ground this get future. point how quickly

referenced, also stabilized. it’s Steve As

growing we're in So, denials. not

continuing higher a and still to it’s headwind. So, the some then early. tailwind certainly, denials much be where we be progress D, make much point we be are It’s be going than acceptable. actually we higher could year-over-year are than reaching And I’d find moving a say to should a forward. not still And it on there vitamin

of based long to As physician eligibility. miscoding these we a that patient mentioned, history because necessarily denials practices, and denials believe on coding we not a are number still of of

the how many so, when these physician community of understands. rectified be will things And

type you it’s actually their for now apply to versus is including, and of of either would use patients Medicare code a the vitamin a But screening as this be you appropriate has be a that that starting at move market others doing with and patients to some as prescribed other need coding I these we now instance, and denied D mentioned, For just eligible now this approaches Cigna to diagnosis mentioned, was behind and getting headwind appropriately it point, adjusts to historically. to again, are then it continues task. vitamin once the with all get market the been continues D the and as right you code

Steve Rusckowski

what we us. about basis that, it three remind So, we expectations to looked It’s XXX this in year the for have to affected as reinforce and said about has just just we’ve is script at together, before. how and our points the I’ll and we everyone, business talked our this that’s

market drug the monitoring. are leader prescription on We

very lot continues people So, space. we but exposure have more that in strong to clearly a that grow, than on category, of

three on us. any bigger therefore, those have of So, effect a impact

work Mark We’ve in points progress. as So, some to this. the modest made XXX started this estimated. basis said, QX. we continue is And our We working

we have that I different lap in throughout three this categories. in As then expected, impact these but continue of less to said again and growing but we will what start year-on-year, as we my we'll it, than still year remarks,

Mark Guinan

to patient add had basis what to negative points. versus expectations point XXX just three and mentioned, impact basis our then about another concessions the Steve then And those were XX

Patrick Donnelly

know talked maybe a helpful. guess months to the XXXX, a opportunity? of you're that viewing fragment on do early market done work market shifting that Okay, few with few and a on of now one as that’s United I kind what quick just adopters, And opportunity, trying you’ve we're of just on you’ve that frame in that payer you in, more about just the quickly buckets itself, you United, framing think shifting different customers,

Steve Rusckowski

we those the laboratory United. majority another Yes. to already, is, might not us with The of but customers have are just testing coming that ours their business because in laboratory opportunity have network have we of

we’re we’ve shared So, doors, their the great the going starting are we them January knocked to with already down have X. network be in accounts news that those

us come of do in-house worked those XXXX. and early Those IT integration, of have to in we terms anything will customers. of those on We to types what need get we in orders

New the York, our of look that better, customers put customers second us is laboratories, of The gain share up for equal Florida, group I’ll our is make also states broadly to believe we XXXX, when this, might sure California, to that all north is be Texas, have this category multiple in we about opportunity gain customers really job Particularly is share. access we to pick have the given of share. remarkably those is you an XX%. going at and some to for there large And we’ve in that access starting talked have great beyond which we

those or So, an to great pick also and believe share pricing, in have value marketplace, quality the up in accounts. service, proposition opportunity access we great we

Shawn Bevec

Operator, next question.

Operator

comes Bruin de Bank America Lynch. Merrill question from with Next of Derik

Your line open. is

Derik de Bruin

A quarter morning. is the good what growth from M&A? on specific Hi, housekeeping, for I the One, organic couple contribution first and all-in number the my missed revenue of but questions. it, apologies, if

Mark Guinan

all in the So, the growth quarter. was revenue pretty much M&A

Derik de Bruin

Got it.

been get coming know questions, follow-up if quarter by effected some business, And testing? valuations, know going that genomics tailwind there two I this things consumer did are I deal is Okay. volumes and a – then your you seasonality guess, that’s follow-up – the that I is on for on a be one one and is in? this weak Thanks. some quarter to just for

Mark Guinan

question meaningful Derik? we the didn’t sorry change, in And your any second genetic due experience to seasonality so Yes, then, testing. around quarter

Derik de Bruin

people a that fact more deals attractive? on people – bit in the are involved they valuations getting just Basically,

Mark Guinan

I valuations in think headwinds. to really haven’t price you’ve Obviously, Yes. changed got the materially. No, PAMA the

can positively pricing will valuing that way are More this point. things. those that impact happen, cuts hopeful we are PAMA at things we as the that’s we Although, if

come down, anything, well. if seller the have potential valuations therefore, recognizes or seller, as that and So,

Steve Rusckowski

Yes, just, your believe consumer around question I genetics. is

we everyone, modest for us. for have genotyping ethnicity continue their remind Ancestry provide but of portion modest to get growth, a offering. it a and do with to It’s business and Just our is we a relationship

believe we Ancestry because everyone with with the an We’re importance opportunity to building the overall, around is that awareness optimistic around work knowing together about us the it for that opportunities still context, of health and a testing opportunity the it business consumer small with is growth quarter. with this terms history, but an in family the portion that’s modest just generic for future, our

Shawn Bevec

Operator, question. next

Operator

Our question next Meehan with comes Jack from Barclays.

line Your open. is

Jack Meehan

the my year-over-year? level year-over-year Hi, of would growth? volume more think suggest that you fourth weather your so guess little into quarter the I bit some issues, in I excluded did the utilization conviction have but it that thanks. the can what’s dig basis XXXX? the that just math talked underlying you know was about a I I improve down of much you contribute And around was wanted XX how when commentary, to to points in on mentioned M&A,

Mark Guinan

giving so call what ‘improvement’ fourth that’s improvement don’t the quarter we coming M&A We did, from really of we lift. most in step us So, utilization change a the is some in was we certainly material call wasn’t but same it us account And some volumes. out, then it of weather, to in headwind to have terms but impact, enough a slight quarter. expect the

Jack Meehan

a weather headwind? was Sorry,

Mark Guinan

hurricanes talking year. was I Sorry, the this about

favorable So, asking did talked out that the in us hurricanes had the in XXXX. had basis in Carolinas the we the you it we thought about there a and but about slight favorable fact XXX quarter, third call I were we negative year So, factors? a we impact in last from hurricanes weather points this significant took was were versus compare, was compare year place a quarter that that

Jack Meehan

XXX then the PAMA as your know on past in XXXX? if end Can of bit my I you Mark? is comments it talked about all the XX just single wanted stepping as related just script up, little see to unit for basis growth you’ve is United a kind and incremental digit to but mid-to-high then I think you beyond points of doable bips understand bips the normal Great, could follow-up, do and price, the size elaborate pricing at you XXX more PAMA, earnings up that the

Mark Guinan

Yes.

familiar you United to the So, pricing are tied there, the sure the the and way of isn’t XX-basis drivers point works. but I’m one certainly is directly United, major directionally with

provider what United from had in-network reimbursement takes United. typical and significantly of we than So, as we out an higher on with negotiated network what

give entirely I’m United. And to but going big So, guidance not point, driver, for at not yes a this XXXX. any it’s that’s

full-year from is that we outlook we our is X% within will work so CAGR CAGR, range through mid-to-high by a we I saying of what it EPS have what behind Investor that we’re when year that So, you single the X% XXXX years. Day and quarters guidance, and provided having to so a one at puts reconfirm of and XXXX, digits us look stand Obviously, and that. got topline a still us that three we two the next through

giving certainly a any without for deliver are year. specific confident within we given range guidance that still CAGR that can We

Steve Rusckowski

Yes.

and XXXX. in Just topline line grow to reiterate, bottom we will

X% that. and we get that line that and will that the us said we United to bottom also XXXX have say, M&A have we’ve confidence grow to will the said What gives to next our opportunity when us year. speaking that, comfortably shared with on ability yes, in in We about growth you X% have top we is already couple that

Jack Meehan

Steve. you, Thank

Shawn Bevec

next Operator, question.

Operator

from Our with Bill Piper Quirk Jaffray. comes question next

Your is open. line

Bill Quirk

Great. Good Thanks. morning everybody.

Steve Rusckowski

Hi morning. Bill, good

Bill Quirk

Good morning.

I to of just to Mark, horse a XXX but basis any question, trying dead or but related follow signaled tease you’ve First contracts that don’t some points down, you to to not XXXX, lot know just additional indicated nuances rates of have that beat is of that plans historically kind out of to are following any the that here a trying PAMA on here? you tied Medicare, for

Mark Guinan

PAMA. way There to it in was in any mean, isn’t. Ohio. No, made, you whether I specifically have that that changes some are related some argue rates small Medicaid states can

was certainly and wanted if some think at of as be, the to the There should for in Health dialogue trying around incremental isn’t fund a some PAMA. look no, in actually commercial but the budget many reimbursement rates laboratory of where was plans they to terms I are Medicare take commercial issues, any slammed not of states, Medicare there signal the had plans, them advantage of initiatives they where Women’s because going a they some rates. Medicaid headwinds

because the more period In know be get if having even to the that best plans we could recalculation an the as potential get the been therefore dialogue we commercial issue we more from more shared collection in other pressure in severe the because own from their interest sources, for fact, with as commercial they next the give it’s as we’ve them, that and see lower have that not they need we rights. to see them

patient of then app putting experience, but we service the ourselves need remarks, go some things their Steve is and rates through intent positively, other firm they price away. the increasingly between the definitely we’re the discussions move get data we’re to appropriate and things is whole so, data to to holding rates the the appreciate it where very we a that’s testing patient mass about and highlighted end important schedule to to the our feed necessary I one go that’s that walking technology a patients critical what I our want payers to to a and MyQuest have good we make also them appointments world make in fully all analytics to rates and data where the they assure world talk relationship market ways and in is you understand around done, more It’s The And easier the value ability are and Increasingly, commercial of in talking that significant certainly so the do of you beyond ways that therefore very have the sensitized going are Medicare the can then and doing. sure we type in which his easier. thing. Because for create we’re we a PAMA says management. the way the those population is difference centers, that other day, and a at build that about rate, to in government, differentiate

So, then providers best price those those and to value of want need with that’s finally of value market. is they providers who And value certainly better for the there and prices that really where and the better as a in going the as to and the cost curve. start extract best laboratories starting working are money recognized way volume high their mentioned is to a will that talk continuing they members to ways move save our a about or Steve have lot attractive cost look value out it drive we they have proposition. They into to already less versus the

Bill Quirk

you. Thank Got it.

Shawn Bevec

question. next Operator,

Operator

Question Morgan comes with Goldwasser from Ricky Stanley.

line Your is open.

Steve Rusckowski

morning, Good Ricky.

Ricky Goldwasser

morning Yes, thank for the hi, good all details. you and

sort lower opportunity in that term, Steve you question high price, network from one relationship? helpful in about about I have, longer United United to you framework data, provider with very of what if I might your we of think some sense that to a as that share be So, out about, the give something year out some able network I next of comments think price network an to very, us for do think we understand in would be have to share labs is the of if typically us UnitedHealthcare us ?And maybe give us can of your back the converting an out go for network of type not

Steve Rusckowski

people me the you the of talked about the us with Untied this. is, spend with $X see, maybe I which a recall, many that call health United about job and you year, we define the better the we about plans nationals see we one that if do of have of about so And Yes, opportunity of a billion it opportunity estimated what laboratory cost. billion let in the back by United, we’ve of they the estimates about with of have this what nationals them that their go of in $X can helping talked and providing laboratory on that. the is to front ourselves remind you spend reduce do talked of as billion we talked opportunities from working most anywhere many we a

there job different with think least reduce a one to job they membership spend. therefore, serving provider of and that about do big national a Quest is they better at as opportunity their So, other a how and

because in you accounts, earlier Quest we the as I will short that is after believe in billion for but is take XXXX, the that expensive early, or and opportunity go but doing be us. those great billion also we opportunity a opportunity, is the I biggest why look when billion health will XXXX United, this and true front you it’s X we going gain the as this to see just us XXXX do share away So, this of X more the well. And plans is, for argue, said time run at that affords to versus this that nice will to growth that move work some with but and other not X for labs, from

an So, it’s share. to to continue pick opportunity up

will opportunity we in given we reason, the but back we'll be hopefully kind front what sit would So, today. help us – believe the visibility provide within to together will you least size of remarks coming where November, at help be of we again more in those opportunity

Mark Guinan

And Ricky, United in it's network volumes. a little more complicated we being some with because had Quest and

better United to decade pathology if business, still we that So, some lost a in a were of a at prices of even share hospitals had the look large the that providers, our could as than And such been we in of our couple of payers, it's of you're that then look ago, obviously many out shared have labs' network, model the strong of trying and and historically, fact within business out a fact network national the we states never in-network. of others. all they that loyalty of for because

payers it's say, So, how of there if little than different at bit you other out a network. and hey, is much look volume to want

what only not relative have volume paid but because I we might out still of have network they insured it's get patients, provider, think of out when share to an a other Quest at of labs had disproportionate network, huge are certainly you don't all.

out-of-network plans try continue benefits administered volume us their when where to it for compete. that only keep it's to really sense to makes So, and have they

Ricky Goldwasser

Understood.

acquisition acquisitions, a but on That's us is had would data least give integration? the an can it help which will I And you it reach second that typical just us helpful from of really can one. you be out from to a take for floor was you acquisition does if for can negative And I impact establish and a a you more out network, can network point if understand us of build it follow-up, how us margin? long question a what quantify typical the the company margin had share that then on. So, remind is, regarding you for at as than

Mark Guinan

the them straightforward. cost months. quickly. tend serving It's in local purchases, to really other lot past integrating So, patients They're simple a XX the We've let answer into they question. of our is more the I'd say on and those the we currently shared me serving to the acquisition the more basically then outreach patients XX all in just laboratory, and markets. those of do happen cost

So, in quicker those might X a XX-month even window. to the happen little

Obviously, that the technology so other, issues test issues, locations. it I'll on and acquisitions, it's involve these to involve menu force working and so site of some And the multiple forth. moving through could them reimbursement could sales shutdown, and call

to longer notice XXXX be the outreach you'll to that So, in did and purchases. those we opposed were as part that tend the end, the like of that of deals more latter on number

So, bit then in large. volume All And on not we take tiny and of network were I volume little were not we specificity. is I Ricky, know there great certainly you'd some question, a payer longer. terms can typically the of share their out like that tiny, share share a is but within of lab an a national for we

Steve Rusckowski

that a Those And be that outlook acquisitions, on we helps we this in hopeful We're you that XXXX. to to of of we around a just in done But XXXX on and where that for on have we acquisitions X% on XXXX would X%. us, that the the already in X% that year integration again new XXXX. we some we're see our we XXXX. had going another in top acquisitions have perspective more nice belt, feathering the the regular giving The their numbers. acquisition, layer definitely have of you some bring acquisitions slug under that X% cadence get you remember,

take come with as years mature for up, they they with just are in, as the in time coupled that numbers So, our that's to showing already ones past the integration some well.

Shawn Bevec

question. next Operator,

Operator

Our Gill comes with Morgan. Lisa J.P. next from question

open. is line Your

Steve Rusckowski

Hi, Lisa.

Mark Guinan

morning, Good Lisa.

Steve Rusckowski

can't you. hear Lisa, we

Lisa Gill

the wanted of that. Can to just now? about a detail. you hear I on couple me Thank follow you Sorry for all up things.

efficiency EPS you the some think a gains think about the you XXXX, strategy remind into retail growth. talked think revenue Can does that that? talked growth about in You've of about beyond, we When fit and us XXXX retail if we setting about about about how Quest having lot as how centers? you're about is And thinking test more that just better are incremental XXXX the seeing economically two, and beyond. understand you through volume better own to your for think I that? versus patient service as XXXX, we you want

Steve Rusckowski

Yes.

the said location sites. we about these what in it's better retail strategy, So, a

happy the in beneficial case, as beneficial it serves case, patients to better our to So, our it's and are it's it's and our Walmart the In well. the patients, in therefore it's market employees, other partners. one Safeway;

Now, with using there two. all the difference that between we've the cost not a is rent in of past, perspective, a that, the big space, from shared

affords we're centers that's of into collapse an could Many This patient patient locations and location, However, for or put much or better phlebotomists. better stakeholders. down one getting centers better two service to our space. service a those that take with all again we them us opportunity and

volumes provides do savings, us where we quality cost what a enough we better months have of points it experience. And what I remarks, we what not in versus are my a believe but it's and six close what we so, the is those said in look data what open, locations. now patient better And we better

positive is it us ingredients gaining and the share. So, financially us of of for one it's

said, again, this for is Now, business. our we core

for locations cost working whatever us, is to with more to Walmart JV Walmart, with with. healthcare to particularly to local that bend the this be curve partners tag believe be we'll for working on an opportunity with also the those able We physical services partner we're

us affords beyond core opportunity diagnostic just our business. that So another service

that's So, helpful. hopefully

Mark Guinan

phlebotomists space, to in some is cost that smaller doesn't setting, but market, past we've cost is generally savings business But costs the attractive despite is for the savings, the footprint some the that shared fact is when a relatively small more same. comparable, Yes. that with a we we add, some us but go higher overhead, the greatest details. and the this there rents rates because there overall somewhat And in cost leveraged just of change have Safeway, is into the the retail

certainly expand. then combined So, especially of difference, Steve little some And JV. can with, cost Walmart as continue we mentioned, a as is make upside to volume savings bit a

definitely we versus phlebotomist their So, it a more within it together within and we outlet different. healthcare just service a independent Walmart intending is JV. a It's patient the one draw centers, of add build our are are to presence starting is with And retail phlebotomy, what putting to center not with services healthcare.

value we've going creation got to sharing therefore be who So, a venture are Walmart. economic the with position of to majority that

Shawn Bevec

Operator, next question.

Operator

from Hooker KeyBanc. Donald with question Next comes

Your line open. is

Donald Hooker

here. a Maybe just Great. Yes. inorganic bit question on year. to the comments, I'll guys growth XXX your of for sounded just basis points target little M&A obviously elaboration you lot one environment. still we annually. of there ask just like XXX real next have clarify, more I from you time. a already quick know are And to It

points growth update an of XXX basis for kind your you next potentially of potential Is there acquisition to year? exceed maybe that So, pipeline. on Thanks.

Steve Rusckowski

Yes.

at know X% we us what a be place you puts which, announced point. we've what this good far, X%, to it so is is that to So, said in

be that's this We will afford outreach also deal nice an We announced a come. given we see on an called Michigan, out buying and business in and said week, that that more the Hurley to Center to Medical catalyst given us we of activity outreach hospital outreach pipeline. there operations, just pressure the Flint, environment a of think the another

point that to So, yes, a X% this add into comfortably for but do going We're can we funnel X%. year, that we there to share will have XXXX. next

Shawn Bevec

next question. Operator,

Operator

comes Mizuho Securities. Our Ann next question from with Hynes

is line open. Your

Steve Rusckowski

Ann. Good morning,

Ann Hynes

Good morning. Hi.

you in from that and So, guess, the is I face basis in share gain of, much you expect pressure. pricing you said incremental obviously in the XXXX, One, let two know UNH questions. XXX market of and points top growth contract us line Can reduce my how And EPS share some Aetna weak repurchase. slightly. be assuming flow down stock to had you're earnings to been question today, it's very guidance second you to that? get last would the in the of cash and I your Obviously, when but since that loss around guess is quick

point great enhance the I repurchase? some share market and You into incremental balance, flow. cash did Thanks. have do what will you at a go you guess,

Mark Guinan

Sure, Ann.

about that's off, incremental lines next let of year. versus XXX of We clarify. was first don't going So, this basis XXX points price XXX year. total into have more we the in talked an me What a of something

basis other other sure and want to make of related I'm that. PAMA is points pricing on the related things. I that to about So, basis clear increased pressure XX And the points XX

into We're to need of last our get terms actively obviously level several been that working of got In don't of very who Aetna business. share, the have detail. for cognizant we people retain the We've months.

all work could our –argument differentiate in a meaningful we've our that believe through that in those earlier. it app, through, mentioned we draw possible and multiple to do much those proposition, us, is if lives quickly. to we We're have patient all into excited win-win providers about it’s we've is transparency, opportunity. a the whether are which some labs, Steve cost, sending we'll huge our of continue upfront, patients to how six to one go there with the sending sure that, value in would who We experience, with make other covered something five the you're customers many us as be we to retain way that and sending at of around and able from covered or the not as the accounts we Aetna a which you the all aren't very together very just as if the almost would want of And United, around do we mentioned, today, and to no were these simplicity, and labs with the business certainly of business centers for in pricing given expect with There walked United, more do geography. been therefore got multiple appropriately almost we can serve that. that certainly of got to work labs loyalist all that that why flip very network have much be accounts we and does us have providers things we physician

as have happen as don't the where pretty out don't worry not piece have the but we high to cost going we network first you today. to about with third for business And work. obviously that's quickly the So, then the problems that's compelling, is of patients And think piece.

So, where go value compete proposition now of we some feel strong strongly and we in accounts very that have any not very with those we all. can more have in same at much than that may we and past the we can or work flip could

to So, that's longer. going take even

strategies multi-year and a growth So, all to to have those, It's comes. we each hard XXXX, that sure plans of go and have this that make and place is opportunity. all in about after not we working we're

excited very confident and about certainly that about So, that.

Shawn Bevec

price basis pressure that And price year incremental of to just outside of the primarily that's XX going be headwinds. United coming clarify, PAMA, to next from points

Ann Hynes

Okay.

total is the XXX? So, incremental or XX

Steve Rusckowski

XXX.

Shawn Bevec

XX from PAMA and XX from primarily United.

Ann Hynes

Okay. And share please. on repurchase question, just

Mark Guinan

Yes.

coming of given share have are number be those we're quarter, talk transactions specific repurchases, this plans are and up. on can't about I obviously spending fair a closing but to we amount and announced deals the that we certainly So, the about a going of pipeline fact cash excited around any

year, make versus announced M&A returns continue which attractiveness not of the our opportunities of haven't decisions strategy, repurchases. our We'll with at half every our on cash the free says flow situational and point, shareholders this So, committed to to share depending that's we're going follow anything specific. we to those

Shawn Bevec

Operator, next question.

Operator

next Our Jefferies. from Tanquilut comes with Brian question

Your open. line is

Brian Tanquilut

Hi, good morning. that Mark, just color. a quick all on Thanks question for United.

So, as together, we out the positive and revenue in think contributor going net it XXXX? a ramp, in about that XXXX, United in then network you of is the network, all have expectations putting volume

Mark Guinan

absolutely. Yeah,

Brian Tanquilut

Thank Got Okay. it. Alright. you.

Shawn Bevec

Operator, next question.

Operator

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

Your open. is line

Kevin Ellich

guys. Hi,

… Just

Steve Rusckowski

morning. Good

Kevin Ellich

focus given the to what things as like hi you your do about pipeline, done, that M&A pipeline? Steve, you've I we at have With you'd strong strategic any, think Steve guess, add,

Steve Rusckowski

nice just a with do Number that continue health opportunity deal run capabilities. Pacific we opportunity saw think that PhenoPath us of add. the tick-borne the we've capability it's that – Continue you market build. announced a another and focused capabilities we testing acquisitions been we acquisition And blood talk was to ReproSource number just continue nice to we'll two, as I gives Yeah. also with this outreach. capabilities. about That Northwest Immunotec what women's said, molecular. announced One to is, that gives course of We week. has we it's afford hospital a pathology in on. around consolidate The capability the tuberculosis believe and a then up and new some us us nice to

So, to and third are look And time times hospital piece difficult you'll we – more is, that the regional have capabilities. regional believe some still then opportunities. we'll we there's see than difficult always outreach, going laboratories for than new

creation we've the path look hopefully been we So, years and that continue strategically we acquisitions, that's back you but we they're at the in to the a built categories. look last and and to do what to all if us ebbs agree five and you generally, around those you to in that. fit aligned look value There's flows three, each of three and of they have what credibility have with up

nice will funnel year. money we pursue to that we that hit X%, and make a on got go work that to next can we've to X% ideas So, of. continue We already and to continue into

Shawn Bevec

question. Operator, next

Operator

Leonard next with Deutsche Our Dan comes Bank. question from

is line Your open.

Dan Leonard

you. Thank

one volume opportunity. Just the one on UnitedHealth final

talked flipping you increased into potential previously for you're no? something the contemplating year think your I or about Is in XXXX. that volumes some guidance

Mark Guinan

Yes.

So, out, X. there January to It's is till certainly on everything you enough some we're early waiving call I transitions. didn't significant not want to but think

are So move, yes, still some relatively small. point, accounts absolutely and we this that moved accounts committing some it's at but to have already that have

Dan Leonard

you. Thank Okay.

Shawn Bevec

question. last Operator,

Operator

last with Baird. comes Our from Coldwell Eric question

Your line is open.

Eric Coldwell

other obviously of I'm a is, is thanks. of swath covered, one a seeing doing. contingent but if been the is on just off there your we then I'm on footnotes, and been just M&A today that broader Most how mine that and have consideration kind which have acquisitions maybe Hi, get you're can writing value acquisition curious the piece MedXM. update fair an of in on big call

Thanks. You've the announced months. quite few a in few last here

Mark Guinan

Sure.

happy we're MedXM. with So,

you're views the two deal and transactions reason the shares put have the buyer into seller to the I'm of potential, that when one in different the you As get coined markedly a risk it's way appropriately. sure an earnout familiar, was

into an point, it's from where earnout. of It out the seller this That what a quite go. had very to achieved that months that expecting that we at unlikely to view X not might we haven't feel the mean doesn't means just So, acquisition, achieve. pay that different we were accounting highly standpoint the

that as we're into thus you a very And great testing, with read We're another testing really laboratory happy help ways our great can I that talking to should laboratory population opportunity about about to payers the beyond to MedXM talk on. to can with and we're is there. our all we and so doing this tell and just far. you them so reach been that's It's health them addition portfolio,

to So, it's another they why do business with point want Quest.

Eric Coldwell

That's much. great. very Thanks

Steve Rusckowski

Okay.

joining I appreciate your support. We you for think we've thank today. questions. the all us We of all handled

to our at many hope day a of see and great have You in Day Investor November. you

Operator

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

Quest Diagnostics (DGX) 23 Oct 182018 Q3 Earnings call transcript