DGX - Earnings call transcript Q1 2019 | Quest Diagnostics Incorporated

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Operator

Welcome to the Quest Diagnostics First Quarter 2019 Conference Call. At the request of the company, this call is being recorded. The entire contents of this 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 would like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. please. ahead, Go

Shawn Bevec

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

those discuss make During materially we to from but may earnings that comparable the Risks reconciliation forward-looking press non-GAAP in may in Diagnostics’ measures are on reports affect recent current not X-K. measures. measures report our described those include, to on and reports annual statements of and to, this projected. non-GAAP uncertainties We most may differ and and subsequently tables call, GAAP XX-K release. future limited a Form Quest Form provide XX-Q Form results results quarterly on we’ll our filed Actual

reported for to and refer excludes call, periods For excluding reported refer adjusted to income this to amortization references expense, diluted references operating all EPS, amortization adjusted to EPS, EPS adjusted now expense. to diluted references EPS

associated growth outlook revenue growth our rates organic earnings are growth, Finally, long-term adjusted acquisitions, total annual compound projections revenue revenue from and growth with rates. growth, growth including

here Rusckowski. Now, is Steve

Steve Rusckowski

$X.XX, one good X%. Adjusted start was in from period day X% revenue and less despite Shawn, strategy. progress results. significant everyone and was we the and us quarter joining Well, on morning, off to detail pressure. EPS we’re Thanks, Well first I’ll revenues XXXX; down of will first the EPS our down for for this two-point provide Mark And the discuss the grew $X.XX, reimbursement Reported then today. more quarter, thanks XXXX. review on a same

so you adjusted we at XXXX strong Volume and in mid-February. grow positioned deliver revenue EPS results growth well is volume our and patient very despite revenue business, with in and expectations reflects reimbursement concessions. with share was network We’ve to pressure Quest in given performance shared our improving in pleased the We’re favorable quarter access, the higher and significant progress the hospital expanded growth quarter reference from acquisitions, in weather. Performance growth. X.X%, made

growth As based in we marketplace. the for shared changes fundamental three poised on before, Quest is

is expect PAMA First, quarter driven we the reduction rates for XXXX. Medicare is similar and with in Reimbursement in catalyst reduction expected experience a the a reimbursement XX% structural first in pressure in line change.

of also more will said market and consolidation. We and the cuts independent, potentially We cuts eliminate on catalyst outreach a smaller, their will the believe of be impact laboratories. majority these could significant hospital provide the profit for

to to home According filed laboratory as Just Chapter cuts caused it in clinical reports, this reason major the company’s nursing quarter, Medicare wiped to services. states. XX,XXX press the the for slim was company facilities in than XX profits out more provided cited largest testing nation’s bankruptcy more back as and PAMA services for cut a lab operator reorganization. than The the bankruptcy XX

for patients, are on of laboratories, payers the plan than This which value and ever share. physicians, opening health spend, at more the Second, best is which supports quality our driving value payers. large to the evidenced focused by better clearly contracts provides lab national in plan their and major gain

We’re Quest Preferred service. Lab very to quality, provider were and only two XXXX, Preferred our a subsidiary criteria selected be effective labs of exceptional UnitedHealthcare the in Network X, data, participate access, pleased meeting named costs, Network. and for Lab AmeriPath to seven July

Quest help the its wide high of evidence in healthcare own transparency seeing low we’re understand costs in Massachusetts marketplace. find the more to payers. website than the cost. in Finally, by increasing patients and price prices consumers to their are healthcare nobody employers transparency price largest has leader been variation lab launching More a cares and service more about Diagnostics. country’s employees, the Increasingly, the like and providers variation in quality with motivated

pledged to care. our we Governor During Massachusetts’ consumers the Marlborough cost to help efforts Charlie recent continued Baker’s understand of our support lab, visit true to

for a positioned as well continue from will Quest which share. benefit are trends, serve these We to to to gain catalyst

Our strategic in-line health to information hospital the population expand strategy and with than plans innovation; services. provider to finally accelerate diagnostic of then the acquisitions; growth data analytics accretive, offer year X% recognized through elements: health systems; relationships in Grow care and has extended consumer-friendly as broadest health five more access services; be diagnostic per support and

our growth accelerate our as initial M&A Let laboratory in me announced from we strategy Boyce well we completed positioned business targets including shared and services of our several of year. XXXX Recall, we into meet highlights through XXXX, over acquisition nine of clinical The beginning quarter. and to recently X% the carried closed our growth in growth guidance Bynum. the to take since you that deals the the in

decade. strong, a growth health quarter. lab to pipeline attributable remains the we saw volume having several we and year-over-year outreach the We conversations strong organic over in a health where rise in had and through evaluating plans, gained systems to Our access rate thanks delivered recently lives has hospital we’re with January, strategy. throughout to the company accelerated In access the their insured best quarter, this growth

hard proposition, working whole Quest new group the a to of on value but it educate take time. does We’re physicians

gradual through share will As we access said, network a gaining process. expanded market be

in year. the growth improvement our making recent tuberculosis reflects progress consumer which progress received relative their health. well our pleased our has Trends improvement as relationships strong of the included QuestDirect, reference for service take last to by to reference in reference growth test and we’re access in of quarter charge Cardio our quarter. the testing, testing are making well testing, business in looking is our wins. shown testing all who testing consumers showed being initiating as hospital Key IQ, PLS testing, we’re cancer So by drug we’re revenue monitoring, drivers hemepath which and blood

month, packages get discretion. consumers we at are of launched this test with popular Earlier demographic consumers three spectrum, with coming largest their new to Our the entire XX tested STD the to the XX-year-olds. offerings from across percentage allowing

The the is Lab lab The Marlborough, strategy of second two-point to builds excellence. Clifton, success flagship range Construction XX on is the of of underway. services new drive broad operational well our and at advanced our of than New our laboratory people. a in building part technology and design to uses of provide more to Future million information Massachusetts, innovative diagnostic incorporating of Jersey automated

the lab expect We XXXX. operational to be in

to drive also productivity. continue We increases in

to in have growth. growth our We while and Productivity the have the enabled headcount expenses we effectively ensuring volume areas rebalanced reduced needed that on manage resources we operational gains resources see. to have us deliver some

proof are here a points. So few

network volume productivity. lab electronic improves expanded from seeing our order We’re access improved which we rates as increase the

providing our centers. re-enable has the us We’ve the which number driven to workflow, increases in the calls then per enterprise acquisitions our to while first cost call and specimen And quarter continue our labor We pickups acquisition our through client reduce labor allowed increases supplies front-line our number productivity to finally, also gains efficiency. our employees. in reduce for enabled have of to of salary us

turn to to Mark? through over bring it like Mark, you will who the I’d Now financial performance.

Mark Guinan

In growth prior patient prior of prior increasing Revenues by versus year. Steve. X.X% offset were Information first year. Volume, year, requisitions, increased $X.XX the Services higher to and the up X.X% pressure reimbursement versus strong the driven billion, Thanks, number the revenues Diagnostic volume grew for and X.X% by weather, compared concessions. the favorable measured consolidated partially quarter, by

Favorable the basis quarter roughly of a acquisitions, points. Excluding grew first in volumes provided X.X%. tailwind weather XX

On by approximately However, versus patient first higher acquisition amounted approximately than a indirect there then PAMA compared a by volume impact XX.X% million pressure lab The the as of was quarter, or year. revenues margin as the an the XXX decline impacted basis revenues, concessions. higher by less basis in slightly $X.XX or attributable patient ago. both headwind to changes year price and the year, of EPS in to headwinds is that schedule reimbursement rate XX.X% of at PAMA, was our Medicaid reimbursement points. which and operating to includes operating X% first concludes provided less Year $XX was cuts EPS quarter, the small per one versus adjusted $X.XX, declined million pressure day the This $XXX quarter was quarter. compared line income by last roughly last year-over-year consistent basis, revenues day quarter negatively Capital year, revenue compared million of with points. million, XXX $XXX last million primarily we shared to $XXX in $XXX $XX prior or a price were revenues last million for million of in driven $XXX was roughly contracts. well year. year were with in year. fee one XX.X% modest concessions. higher X% growth X.X%. to from revenue last expectations of to operating the compared the income XX.X% less ago. quarter to Revenue in increasing of impact in number floating which direct the million and was Reported current Note, the $X.XX $X.XX approximately expectations a down $XXX Cash expenditures Adjusted operations Reported was

Now turning to guidance.

be $X.X $X.X between you as billion, to are $X.XX increase and expected to $X.XX and provided XXXX year. million $XXX remainder EPS and adjusted the versus billion, billion a We of by X% I’d as Cash expected to reaffirming $XXX XXXX. an than to think be the capital be expenditures be to our EPS and than like $X.XX. approximately greater greater about prior be X% leave for expected expected reminders few to operations with Reported follows. between of outlook Revenues million. to are approximately is

expect this First, to headwind million year. we throughout be reimbursement evenly should the $XXX continue year. relatively spread This pressure more of than

progress will first as Second, quarter. just as through gradually the that through increase expect continue to we we XXXX, we saw volumes

entirely third have quarter. one day year-over-year revenue and second the the will in Fourth, extra create Easter falling we quarter. headwind in the a passover Third, holidays in April modest approximately

fourth we to earnings of easier quarter expect comparison. the because back revenue it strongest turn and now an growth of XXXX the Steve I’ll in Finally,

Steve Rusckowski

Well to off start a in good XXXX. Thanks, to we’re Mark. summarize,

While our industry faces significant reimbursement pressure.

the pleased with our We in are results quarter.

on and based XXXX. of be lives of commitments share meet believe a We United well being insured to of positioned our XX% happy Operator? we’d that, We’re take States. in network questions. With the market we any the to driving your commercial in approximately volume are

Operator

Deutsche with comes Thank Leonard Bank. question Dan you. from [Operator Our Instructions] first

is Your line open.

Dan Leonard

you. Thank

So, for question… my one

Steve Rusckowski

morning. Good

Dan Leonard

help made throughout the elaborate think Good the it year. monthly you maybe thinking accelerated accelerating hoping you the morning. will throughout about I’m the that that the we performance, volume growth was comment quarter. I Steve, as could volume us on growth

Steve Rusckowski

we and Well, in given expect expected build XXXX XXXX the And as Dan. work we do the first year, build, we see in that continued access to out But all, word as build a month year what saw we’ll and did February that it in get we all we did the of equally, of in said it see improvement said, going is to pickup is will January expect first initial so you, QX an about growth we at have the the so opportunity and our we throughout we and changes, nice XXXX, but we also Thank continue continue into this Yes. also year, that. for in in an then March. said in the this we’ve to XXXX. beginning it in gradually to us opportunity to

Dan Leonard

you. thank Okay,

Operator

with comes question next Our Ross Muken Evercore. from

Your open. is line

Steve Rusckowski

Ross. Hey,

Mark Guinan

Ross. morning, Good

Ross Muken

one, of exciting someone their is So pretty think at in payers obviously, maybe I savings highlighted you how that PLN. news of this this now you in the selected sort of of guess, formalized, starting given do yourself other sort like terms kind look known yesterday included, will consumers, United, guess advantage? can getting having I peers some sort of your all you’re with Care the who members, of you other characterize easily probably doing today? similar something the cost to sort United how conversations do given then, what scale could for And is drive of plans, blues of the some Managed would and on and

Steve Rusckowski

part Well, Lab of all, be excited the Ross. we’re Preferred Yes. Network. of to first Thanks,

mentioned in out two seven. we comments, As of we’re our

start will was word when the word this And back all July network So know, is however, year. very the as in last you tight announced that and X, on network out. we’re we out

think we other from some we’ve what to continue interest other needless the say, see means of this we And the it’s regionals. that to payers that large to trend like a So had providers beginning lot the about quite in means what high-value relationships like this benefit to would a of of Quest get as patients volume What have. we but of we we incentives the lab through for more to clearly clear will it, indicated will there designs physicians more become be Diagnostics. in into move and national the

need perform. is to Second we to continue

in lab, then we’ll continuing we’ll in continue some to hospital hospital high-quality will outreach pick strategy, service that. in share, with up marketplace to And our see work to are those the picking quality, to both demonstrate providing be move labs. and and quarterly marketplace the of which opportunities the we statistics up So, finally, we for share consolidate include on

will trend So, be we think going first will this good payers not step continue. United with is to that just in a but a It’s follow. other

Mark Guinan

Yes.

So of made. Ross, were who’s willing separate a decision so a negotiations. preferred And if determined just health I was provide me could negotiated In lab obviously because the everyone’s the about price space, In prices to around past, lot certainly just from individual quickly providers areas. evaluating the And and contracts it’s I preferred in in this think there price, this had really and plans provider. generally other this bring. value add give lowest that that case, the that United call you were Obviously, are is that by them and I’ll important.

is and that by about drive most positively feel here But as and, application yes, shared, and are are And as while, talking price looked things that of at across physician, with agreeing will to a us options hard Steve an know of the both as of services, we that the service that. value. important the then they when quality we’ve obviously, and the acknowledgment we them market those providers by versus So differentiated we preferred the access, is an been for a component. payer, our compare patient various Because and it’s and so large recognize obviously, one naming behind getting and see for that that consumers the have.

we about about on play. well on this very road this down This they to this many better are we’re members. similar offering opportunity not and is concepts value other into because nationals and is well in conversations as recognize value a So you’re excited the several the so price an parameters, is the with bring

Steve Rusckowski

And Ross, I questions price no on some we are or there’s clear, contracted wanted is be was in I receiving to last one Lab just that of for the change that that make night, the to Preferred Network. – based things additional us change

that the We Lab we’ll have contracted with rates them the in with Network. live are United and rates Preferred those

additional So step there’s no down.

Ross Muken

follow-up, the this the the next side yourselves this maybe PAMA you fewer do as to volumes three how players you mean, see years? the largest on and competitive talked evolving between And I landscape? a kind the maybe your five bankruptcy, does about just over obviously, I competitively narrowing of quickly to and mean least probably independents of peer maybe a what do sort the fewer benefiting maybe pressures guess, I at among landscape lab and or with most.

Steve Rusckowski

roughly change is think So Ross, setup Investor to, the gain we at of just the PAMA profit you’re to big share. the underlying Day, unique the we were and the half profitability consolidate. we the have of our industry industry the to consolidation whenever When you we’re our it see and industry. backs to about in any comes it profit half we out a market changed going take we’re out going and coming industry, and leader of talked

what and quality about purchasing Mark is with finally, service to prices. visibility tighter on then competitive more payers Second terms the payers. in transparency by pushing for there and healthcare movement really the the driven other will following, much variation be Network members this just now Lab very, care is United at none of is health part see Quest you more in And or Preferred and do said second cost. back very of and wide cost Diagnostics with in high our to And the with

at So we’ve a we share. time opportunity gotten pick believe this is place up to a different and different an

Operator

Our with Goldman next Sachs. from comes question Patrick Donnelly

Your line is open.

Patrick Donnelly

an last us on you side? deal versus Shiel? that’s Can M&A. trending against of larger one the long-awaited talk Are model? how in just the Thanks, How the on the inflection point you consolidation Maybe you seeing lab just of like about late some Great. acquisitions kind pipeline, on then on And maybe guys. pieces give recent trending year? your that’s can that update

Steve Rusckowski

don’t why you Shiel? take the Mark, Yes,

Mark Guinan

Yes.

the you ability like [indiscernible] acquisitions ago around to – we’re especially I on year a what Shiel than we more confident core So we is but Shiel lab don’t don’t whether referenced since said know regional have our outreach Shiel. its specifically comment deals. in But space lab very closed that integrate or we individual

of progress growth. our with certainly, some it’s our contributing and pleased we’re So to

And several really integrations. got we’re these do volume really we infrastructure in So and centers this we our at organization. into that we’re that team one logistics in roll just a good of a every largely something that or got draw on these gotten last we’ve dedicated institutionalized time is out deals. playbook We’ve be is what We’ve time it laboratory. got doing or the our our over existing years. We spends moving

So pretty it’s play, easiest one to cost it’s as before, deliver. much we’ve a always said the

we’re ability about and things So our confident a synergies very integrations, volume. pay to attention quality of our we these deliver and vast all majority in maintaining because in the importantly, and talked our of been that service of we we amount the have then around to those successful

what So demonstrated years. our do the we’re we we’ve going on of forward confident ability that over couple based in last

Steve Rusckowski

And general interest of activity hospital do think, part I with laboratories hospitals referring has to our in more of and their Patrick, you’re – outreach particularly, to funnel business. second question is and the your selling just

has the we’ve a back were hospital says announced aware in is payment what year is made getting – year continue lab traction. been ago, year travels of ago. more in cuts in very their PAMA of PAMA we strategy our and If aware of it CEOs visible. you to having that through think few go said to much back it’s to first what are of That changed, our a What was push get continue it, more terms is

as in outreach. I dialogues, their my active which a so said And prepared of lab we’re around number our in with strategy, includes systems – remarks prepared

labs. with most Now Network Preferred the know, what the payers differential about you outreach on with putting PAMA typically Lab couple the hearing and you hospital as is price pressure significant you’re

hear their which side. we when you business, physicians also cut they then on this their patients a So Medicare pressure high cost. hearing that – out-of-pocket will see the for their their clearly conversation, XX% have from potentially certainly PAMA, is about thirdly And it’s payer are back on pushing are

is getting this of on more us. more of strategies in of consolidation in putting opportunities general, fire more the in So the front works our hospital logs and is and

Operator

Ricky question Morgan next from Goldwasser Our Stanley. comes with

Your line is open.

Steve Rusckowski

Hi, Ricky.

Ricky Goldwasser

Hi. Good morning.

have a network. United I on So the question follow-up

from Just testing. the half the of to look when you second factor are focused in labs on other kind And network part seem the of the them clarify, be preferred contribution that the included, any all we specialty did question, to second in like, most guidance? at of,

providing to So Quest kind also economic of, are is would Just understand regional incentives to other trying there to incentives that to some United routine over to come consumers routine side? to who the providers. come opt Quest their on like, patients

Mark Guinan

So to me turn guidance it address Ricky, just Steve. then the back let I’ll and

to broad pretty of a X%. X% have we know, you As range

play different things to of lot a come that. there’s that in So

we details. our details. order Lab not what Obviously, So counting guidance, certainly, this those volume in the significant don’t know Network. know from meet somewhere coming we’re to this at not at the Preferred is United middle, in yet I the point, announced point on has say would

So awaiting that. we’re

are be would some But XXXX. exactly naturally We’re something more get it’s impact. going to going need could wait you benefit announce XXXX. and and that’s But that in hopeful have significant that grow and We so to probably expect to what forth. work, certainly to some optimistic going those we until details they it’s in

the kind half counting a from we’re Network. volume Lab not Preferred on So the lift in of back

Steve Rusckowski

Yes.

compete general you anatomic If what that’s then pathology – you that and have that as for within what seven, us see then refer for, intensive you advanced our as more volume two essentially and if be Bio-Reference in business. clearly, are we AmeriPath around two to we let’s Bio-Reference If look by diagnostics. you, as at which diagnostic will. specifics at the and see will The drive we diagnostics national are of and all from subsidiary, broadly list so look in the it of And the Quest United. well with we as of reason and share is mentioned side. from drive purposes defined laboratories the still general we our seven, in incentives general incentives place diagnostics to least at two Quest find what we advanced is side say, when the to the But you can

Operator

question next Our with Mizuho. Hynes Ann from comes

line Your is open.

Steve Rusckowski

Good morning, Ann.

Ann Hynes

morning. Good morning. Good

update abuse wanted I bad So know the been C or let also of on much just drugs have organic What without volume some quickly, of Thanks. that headwind? last would impacted year trends And an to stabilized. day less you it debt, me growth? from maybe issued, it seemed were can testing, have one and that the how operational vitamin

Mark Guinan

Yes.

I to basis in – much one we third it’s less also not day that XXX going from As in, quarter. picked of impact and I we’re shared but the estimated pretty shared, points about up precise

the there’s for offset the year. So

In patient you’re to terms I bad of concessions. think referring debt,

bill actually a of impacted bad client probably about Certainly the bad one business one-off. Our had But of last seeing in headwind. saw with not concessions, within that, point expectation responsibility the it trend, ratio year, that that latter kind carrying was that debt we’re bankruptcy what a And we’re basis continue. slightly year, debt will our up. now patient the patient This XX some really is our we quarter. we forward trends of in half the a it’s

then first back. change get of the we marketplace that expectation in the things concessions that back and assuming dramatically half half in that in So maybe the patient some be some our therefore, we XXXX would have within don’t around headwinds

and drugs abuse, service payer what that’s Around day the the had of that same were frame of got that change definitive be to testing to writing some a get they’re and going trends. recent date got haven’t the that’s presumptive confirmation would has that. implemented. definitive we – But the for going of that and the national did when I we reimbursement we changed news the some denying So have been them

that good in then lapping we news. when those they was are So certainly terms And some of started. changes, beyond

comparables, move a Aetna then from us. we’re a big shared in but going that payer change we’ve the QX behind quarter to We’ve for the obviously, And year for D, it headwind D. So last year-over-year that lapped similar they’re approach us. screening in well QX now also vitamin on of is as to was vitamin second that that certainly in

difference the to the payer. as is with the working other we payer, that Aetna, with on a is we’re we there because for something Whereas bill had able to just with But which a do not bill. revert per we can contract, However, just test to patient. the were free, patient

not as of certainly to as other So that was it’s not Aetna while the going policy, they’re be thrilled a similar payer. to much moving with it a were headwind

Operator

comes with Meehan Our Barclays. Jack next from question

open. Your line is

Steve Rusckowski

Jack. morning, Good

Mitch Petersen

This Thank on Mitch actually this for is you. morning. Jack Petersen,

you share up XXXX? that think the – quarter to from environment environment where utilization both in your fell quarter utilization volumes but expectations a actually relative being relative a Just the perspective in view, from also do just curious picked perspective? first in And in gain your to

Steve Rusckowski

utilization. with start I’ll Well, Yes.

the volumes about talked stable. in what expected where is Mark but fit utilization with quarter, in we As

would a physician business and what as our said tell, the as utilization As we as we not and in all what look at I this Mark, is we different volumes that’s can well to in directions we business. and general you on relative for hospital from stable business past, expected? – argue hospital do our

Mark Guinan

Yes.

to we down, revenue. to know, we grew actually you had as So guided flat

I our large would attribute a were weather. to volumes So part slightly above that of expectations.

we we’ve weather. about talked in As predict the can’t the past,

and year. level build our into into an and of and always So basis that weather weather favorable average guidance, expectations points we XX take we kind this had our of of

Steve expected lift. pleased as So had we’re with volumes. very We significant a said,

something side. one fewer on volume the for not If at certainly, seen long long, time you adjust growth, especially the we’ve more impressive in Quest, organic even a day,

little and meeting a So our bit expectations weather. literally of better finally, because the

Operator

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

line Your is open.

Kevin Ellich

taking Good the question. for morning. Thanks

Steve Rusckowski

Kevin. morning. Hey, Good

Kevin Ellich

morning, Good guys.

If less was we net-net one X.X%. underlying and of I growth my even it looks Mark? day, the Did for the about weather So kind right do there. up organic though X.X% just like math following was reported there,

Mark Guinan

Close enough, Kevin, yes.

Kevin Ellich

just expanded organic growth then how access did business? from can United quantify And your you the help came of see see if to volume you Good. Okay. much us Jersey? then BlueCross network from New wanted to And Aetna of any and loss BlueShield

Mark Guinan

what? from loss volume any Sorry.

Steve Rusckowski

Aetna.

Kevin Ellich

Aetna. From

Mark Guinan

Yes.

of the winning payers the So We didn’t obviously, growth payers broad some get growing access. about other and talk our going as we’re the new certainly we’re really across the in as one we that have might seen not to specific into in go regions board because but are the lift in all come expect from accounts. access,

We gained with from getting we but And stabilized bringing some recently obviously are volume payers access our with in expect volume as well. we losses obviously actually quarter. we’re throughout so some Aetna. It’s within did outlook, it the see our did and those them accounts whom expectations the and and

some we’ve since and little better. won we gotten that only back saw of bit something actually then actually not and a then, got worse but that not any So early it’s

the as changes. terms I into of go in detail, So Kevin, that’s much as can access about

Steve Rusckowski

operator. question, Next

Operator

with from question UBS. Next Kevin comes Caliendo

Your line is open.

Kevin Caliendo

we pricing. mix? better bit Was Kevin meaningful anticipated Caliendo. but lighter to bit a it I despite a little it eye. than patient it it’s hugely talk little had Thanks. Hi, caught my margin not wanted It’s bit a concessions? was about just that gross little Was

Mark Guinan

Yes.

understand. different don’t significantly to what be in Kevin. actual actually were, – expectations bit I that issue geography SG&A. fair, But I area what only make a there wasn’t The know the there’s expectations expecting. were was So that a was people gross sure than your margin want our To little in we off

portfolio either We other portfolio have we gains accounting line. below or plan some to had the the the expense if offset that have investments offset actually expense $X in We in and dictates or There’s you losses there’s can line. retirement line. below that above that the expense or expense related that to above million an of have

that to investments. to It’s net have there’s decrease. we forth. based we million $X a no and And But our what year, impact these would million our our inflate actually geography expected last so relative SG&A on earnings and EPS $X.X So issue. had didn’t about

about change XX a So significant impact. basis points it’s year-over-year, of

So But make of sure pretty sort geography, wanted naturally gross any much a from I were a people we we in SG&A. to our not trend where standpoint, margin just understand, it’s expected.

Operator

comes Brian with next from Our question Jefferies. Tanquilut

open. line Your is

Brian Tanquilut

good Mark, on just Congratulations. follow-up Hey, to guys. that. morning,

As about I gross quarter, last the I in ramp second thinking you course kicks earnings I about And the know, of how think over laid should the we that out year, cost-cutting the a be think initiative margin? then quarter. in

us you. progression if year. of just So don’t Thank over you that the through of the course the mind walking

Mark Guinan

Sure.

the price, when of much think So pretty is which margin, it’s year. determinants the gross of you obviously, set for

equal Obviously, pretty the $XXX pricing not least at that As volume. terms every over proportionally is we’ve in four of million cycle should the quarter said quarters. headwinds of

but of offset through our of business. some of we terms advanced trend we as that grows as diagnostics But if test a had also mix, terms PLS our routine our in see faster that business than In we’ve will have well. mix continues better

point the be we’ll that is then And goes a both directions, see. other driver certainly one a mix within I’d quarter. volume that to So can

of short impact fixed. about a on margins lot when not we of time, the about of XX a fairly quarter having talk one fewer are costs because points in first our That’s all So in period SG&A. day our basis

cost is a you in within that of When about Patient a fixed cost. Some our of that’s Service sales. fairly time, period think Centers of short

even of variable. Our and although expense, and somewhat some some our logistics reagents are labor laboratory obviously

to headwind the the So quarter quarter, was and that margins a margin, we determinant we certainly as third back be to first tailwind so that. not one extra have overall other that’s our day just get fewer day to a gross in our in going

Operator

with next Erin question from comes Our Credit Suisse. Wright

line Your is open.

Erin Wright

Network around are of And sort industry that relative initial should of any Preferred how meaningful labs that any timing? the units on about I front? PAMA thanks. surprise of should assumed be is or And it And relief the included previously contemplated Hi, the or update any efforts How your we side, the and on release. sort then be of in was on of XXXX occur guess Lab much sort movement expectations. number to there thinking labs would outcome PAMA of any

Mark Guinan

address Preferred take the Lab me PAMA. and Let will then Steve the Network

in we mentioned, that contemplate significant be would guidance I because as the change don’t positive for and our yet. So XXXX have details obviously didn’t we

didn’t but were, not Obviously, guess would for I United’s to of that lot of quality list fairly included, we in application, criteria and pleasantly So meet we that surprised because a industry, knew access it’s sense requirements. we terms we high the the people we number certainly been the the out of knew filled looking labs completely terms because have it short for In what surprised difficult around the know. was be a have and of the of bar and service, pretty around we enough

So United, where tailwind to hear from and we’ll and and the comment that’s a it we we what extent. stand this quickly what think kind we be more details, some to once will become about able exactly of means of how

In terms of PAMA.

Steve Rusckowski

Yes.

outcome. So are better to worse we working – PAMA, far a planning the as as on and are we’ve we as said, get

we’ve guidance through planned is our oral appeal. impact we me, what argument Excuse full as a XXXX. assumes hearing happening in XXXX. in of speak outlook what’s and we’ve of what PAMA planned actually they’re today, And So the of our our

decided of this we’ll But if District the on year and our a then That to hear case something argument digest heard. our be saw our make follow that then case, that issues, it’s Court not a able recall that will outcome senses appealed because and today. it so in the court favorable on the rule begin, will oral our jurisdiction we’re They you and will that having If we decision. argument and thereafter. be behalf we’ll to

Second data it what the intended, time right. We push parallel that’d it. that, the In the all it given to of And fix get will on sure was the make positive intent data. period and essentially, CMS is we what of And We the get take that congressional that could be it is mean XXXX that for need all was out cross with period in strong. a to everyone’s because the to make again, right of that bridge sure get don’t to then Supreme we we the to of push to appeal get so amount the when to Congress data. continue we to outcome that Court for time got to collection Congress members submit take working we’re right. that need legislative some time time that data, to was with we would the members future get

what first for make is but we’re to XXXX sure data will the So that’s pushing of be half delayed. submitted,

PAMA where So stands. that’s

Operator

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

Your line open. is

Ivy Ma

Ma morning. for good Ivy Hey, Derik today. is This

Steve, to, update get consumer-facing wanted QuestDirect you the program just So can there. if an on

or So there? you. characterize far into any you can impact on so year. update that an this we extension this year the then can retail Thank get order beyond also And partners

Mark Guinan

– question Sorry, with on Can speak you up we hear couldn’t regarding QuestDirect? your you.

Ivy Ma

get to just Sorry, that update on wanted program. an

there’s see Just characterize if trying order impact we or to can year beyond? that any this

Steve Rusckowski

Yes.

the off would introduced good new to year. last for our quarter It’s just we I So say, start. fourth offering

mention number prepared a transmitted did We’re growth. the sexually in the bundles diseases. progression remarks, seeing around a Nice our month-to-month few adoption test inclusion categories. of in of We of nice

our for progress did year. far, with that so we contemplate in the and So guidance we’re pleased full

Operator

Quirk comes Our Piper from next question Bill with Jaffray.

open. is line Your

Bill Quirk

Good morning you. everyone. Great. Thank

Mark Guinan

Good morning.

Bill Quirk

Couple questions.

in that should the around how second topic data beyond talked labs I touched PAMA, the question, collection comments. period this secondly, is, off, think participating have couple First in and XXXX here we following-up you should period? in a of pricing on might Massachusetts. guess Steve, your this question expanded I that is impact given how that rolling what are you’ve number XXXXthrough Aaron’s about into about prepared And picture we then And guess out bigger past. on we transparency of think the the times about

Steve Rusckowski

Yes.

all, transparency general. in of First

yes, wide payers, national And pushed about of number educating variation I would their it’s and say regional have the of it’s membership everything. healthcare on and payers costs. So lab about on a too,

of So every a lot of visibility visibility around kind radiology, of lot procedures. about a

So some insurance depending you who have with, upon probably have of us. you your might seen

to work have lot drum Quest employers is care of with but where that hearing we we the hear cost pushback XX,XXX about lives, to their from Quest beaten health And continue lot about a their will out cost In we’ve for has they’re actually been that done it a reason their it of the are built doing parallel we’ve employees in pocket. curve. is Diagnostics and of And about prevent our on managed health costs. beat. back to so, what pushing that the employees Diagnostics, of the paying for it – are employers that actually of and So talked We at care. cost haven’t

deductible. this a It’s is So a premium cost. high

the and co-pays it’s So insurances. full

their lot And on physicians physicians on or those also and administration. and they back you a patients of are so back pushing pushing noise give

United And really we and follow. quality, lot our the facts, the when be look I’ll price encouraged there’ll performance medical look you service has are So and second you to picked with and a that’s steam, Preferred you none. at payers up we’re look points, the look other say because this at reinforced what is our Healthcare Network at at that of with you

has So there, think We the as state it payers more about will out states follow that will continue. follow we more more and will put lowest part will best as the and but path can talked Massachusetts company you more really of a around prices like from this down go of Diagnostics. get at the Quest service Network, quality, be best this a Preferred payers Lab

So pick going opportunities one share. to to up take it’s we that the be of of advantage

Mark Guinan

And clear period the fall. therefore, delayed benefit work on as lobbying that that to I it’s And that, submit to see is trade agree mentioned XXXX actually the just want year. the Steve to we’re in time. going mentioned it them of a Bill, is not to a not changes, did that for the to we’re why get first the data comes hospital and market in of and the changes delated later many last get because those much for as the collection it’s get chance that that And because to submission know done we’re be they to half but But we do them we Steve comply. fashion. expand that’s give that others actually of collection going do challenging how representative association that in do also to the impact the make it that can the working and we the to add commercial sure of to that more to and in overall try quality be but It’s in earlier, to and that the the

rationale year. slowing the until in for of thing So there’s lot a this it happen later down. But doesn’t

Operator

Stephen next Baxter Research. with comes from Our Wolfe question

is line open. Your

Stephen Baxter

in like ability passed impact pay provisions Can based some goals. the how context impacting of last the year, structure act your late be provide future? to on support us part to there’s whether that’s would that And any on for looks as sales some industry’s business changes incentive if today? So compensation help the would the effect foreseeable you required it remains your lab compensation law

Mark Guinan

the Yes. we’ve it that, unintended. you believe was that question, potential Thanks had, for the I impact imply what recognize conversations this on to could said industry. We based point, Stephen. At that lab the

dialogue that. in around addressing we’re So

comfortable. to not have changed our we’re program we response and feeling compensation anything So that, in to

ensure that, doing right not obviously amended. gets to the We’re intent. That that was the things

Operator

question next with Gill Our Lisa JPMorgan. from comes

Your line open. is

Lisa Gill

Just a couple of quick follow-ups.

and think being quarter, of below us MLR So you in Steve, report when many first I expectations. about normalized the talked seen United have utilization

you what percentage So you just a basis? can define maybe on normalizes think

Steve Rusckowski

same-store stable. at use our measurement keep Yes. XXX look is we doing I’d term on The or when We accounts. same-account

stable We Diagnostics, well portion, you Quest hospital the both the believe for of volumes equally for look what is it’s nonhospital the that’s and at at we’ve And for And see portion and stable out in year-on-year. believe the look see this accounts they’re market. we And know we there we our their is tracked of stable. that are if marketplace. as a years. You environment, this volumes we

Lisa Gill

a put number around that? you can Is there

Steve Rusckowski

Because – that, general, we’re NO, a the feeling say normal bit. that But of seen variation is I bounces that within a would around range it no. historically. that it in little we’ve

So a see. way stable of what characterizing we is good

Mark Guinan

it lab growing could in quantify And that the price and talked mean, the I volumes market X% headwinds on, we revenue tightest about are which I is market pretty given the I flat. to the growth based about that Lisa, think take much guess demographics a we’ve on so

consumption in saw play as would and so the suggested all performance quarter our against it, quarter laboratory of first were we there’s a expecting at we overall overall if what deviation into call in the significant utilization, in expectations that And nothing market from we you first our the the including look factors terms that the that competitiveness, of services.

Operator

with Larew Matt question next Our from comes Blair. William

is Your line open.

Matt Larew

today. my I which Any in additional here for retail see footprint the growth in plans thanks where the profitability? and to of strategy expansion questions. morning us incremental terms update to And then good wanted the extent this can actually driving you for of you Hi, terms taking XXXX? strategy, if in and ask stands

Steve Rusckowski

those we’ve stores, started that, Yes. Several that’s takeaway going results things. the One stores. past Good well. shared with is from when in we

joint is results been has progressively That venture we’ve Second good. building have with very been started and Walmart. a

recall, started you’ll we’re As we with and now and Florida, Florida. Texas Texas beyond

states. multiple in We’re

consolidate real greater throughout we productive And we’ve shared We’re We an stores approaching benefits we’re it’s Diagnostics. XX opportunity more for what in all the to as stores, that with location. those savings stakeholders. is for XX phlebotomists us get estate. it not States. Quest about It’s in finding one our is that in XX past United to this think actually Again, good than our the

location. Second better is its

it’s for for better better employees, serve. also we it’s our patients So that

are locator. So give script them They at store. they Quest. walk do your those people shopping, the We fasting. in can other conveniently. They to for again walk get way filled, a stop by in come the Many purposes of some they grocery

to like would they eat So before they leave.

we’re good their then we we’ve And have do experience good experience. location it an it’s And done because it’s that some to this, more ZIP it’s share again volume – up finally, because in and us for it’s Walmart convenient patient much where in finding in likes stores. pick So patient marketplace. codes a what those a more opportunity

to going the So the patient has going the be they’re to location. convenient choice

like if retail-like so the have we’re Patient eventually setting. throughout to to is driving we’d in And have what Service Centers more of you the at we look Centers a that of Service United Patient States, about X,XXX those XX%

we medical it Centers locations environment So our strategy. because that, of say an Safeway a I when you Service Patient and our And already gives a more beyond in of a idea the strategy than the Walmart have extent retail already some retail-like environment. of we’ve had of

one. a the – be to progress so good far – is of continues So

We’re there progress encouraged year. and this by would it be made

Mark Guinan

Matt, volume the a the around put and regardless much But And much that we the fixed paid because add of play different. leverage cost is where it’s to not get. as the the them is phlebotomist so same overall cost that, obviously gets we really not it’s just rent to

So highly these Walmart. sites, especially are in productive

bring to hey the convenience done. that this they of some them the when great about, And further that, obviously, reasons because get want it’s of stakeholders, the like patient for access you testing our payers and said, and key but as some actually Steve hear the physicians, can

about about we differentiated our being vast cost. not retail locations, all majority the So from of positively market, talk a it’s certainly as

Some commercially. key want work to those And it decisions more from being driving stakeholders, volume and the of get done. their attractive or influencing we’re more getting around really some lab is where they of

Steve Rusckowski

services. Yes with strategy, health we’re support as data and using part as population of our you’ll care recall, to our extended

we for those beyond that so what health services as care population. More to of go services come And Quest also it’s but you’ll in that is we’re a to on draw forward. providing basic Diagnostics manage hear stores more

Operator

Mark Genuity. question next Canaccord with Our from comes Massaro

Your open. line is

Mark Massaro

Mark. Mark -Mark Guinan Good Hey. morning, A

Mark Massaro

the come guide of That guys of you of the benefit the with X.X%. volumes up X% organic is headwind to day have strip X%. in Thanks quarter from and Good morning. for I the less questions. away long-term one weather, the above I When

can second to So what additional part one us that? help you’ve back just the got this need to you’re my especially doing they you is the throughout the update of question, potential And sustainability you have see coming given then think that And year? Colorado? do expand HCA with work trend, half, there you in in any building to the think the about day volumes of

Mark Guinan

points, the So days, XXs as if our adjust to provided and outlook basis was the points, volume. question, answer revenue for of X%, the And remember our Mark, four-year was while outlook the north the not not you single-digit basis – revenue, was of in volume, I high. weather obviously – your

to think obviously, eliminated, of we as I will if in relative build. we’ve four-year the expect these mentioned, expecting that to time the we’re which And help revenue the get significantly So continue to some to frame, not lowered, headwinds volume. pricing

On that and answers your first outlook HCA, question the hopefully around So I quarter. that – our in the Steve? think performance

Steve Rusckowski

if HCA Division. Continental Yes. it’s On the Remember, you believe in HCA, would believe that they their give this same you well. going We is question, feedback. ask that we

their it’s hospital So efficient more Services Professional one we where actually help our of with laboratories. Lab engagements them become

money, and years, now quality they’re for them and we’ve are saving it So deteriorated. way been we anywhere a – we now that that by of has into not the couple again demonstrate, that pleased

there take we locations model throughout it success So HCA. we’re try other hopeful, could in that and some that given the

But indication it us expand actively possibility system. expect. But within profit you beyond it. firm that very a is no for as core that discussing will would story We’re they success large

Mark Guinan

know quickly, can points north us XXX that growth, you just all the for if basis I math. adjust factors to you points. of mentioned, revenue you basis the With add two gets And XX about do of

obviously CAGR So that where when hits the headwinds it three-year the of in Day. pricing revenue low at ends, extreme, the provided within I growth Investor year are but that

Operator

last Baird. Coldwell question with Our Eric comes from

open. is line Your

Mark Guinan

Hey, Eric.

Eric Coldwell

you mentioned. the of Trident a on good Hey, Kind here and that Thanks morning. bankruptcy very three-parter much.

they third, still mention heard possession situation see you would I I’m customer when customer announces you’ve are given conservative But or a did done have was this you us a to you diversified more expect in in prepared since for you gain remind a bankruptcies company? just bigger correctly. bankruptcy modeled that Trident how curious in Thanks bankruptcy? holding player financing planned operational. then approach you they XXXX? volume just how a us and generally debtor you with I Have year, if off, like I’m have if what that on you’ve curious First taken a much. all, a of remind that Second so And your what’s But could higher that remarks, are – just going there. PAMA?

Steve Rusckowski

us in then to the of take guidance, that what’s will. tell Mark I’ll and Yes. it you beginning to our turn if

is related business where marketplace. referred So read Trident. lab What served the yes, home we can it their what nursing is yourself to to you they

a tough market. It’s business. home nursing the to exposure little very have We

nursing of a market bit It’s little a have home for not business. us. We big opportunity

So would of we out to can question, can the we pick If consider some we of volume. the up we and serve whether answer your it. all it money well marketplace, make it the depends

at laboratories you serve depends all facilities price are. the Mark, well we want presence of what and where So where their and define market volume the to… really is it and can points whether on to the our

Mark Guinan

Yes.

actually significant out a bad remaining we client have of that But separated – on it up of will where you physician actually our revenue, permitted. we’re is and billing and and business The have the small bad is our certainly, from commercial here. have that occasionally hospital physician debt that marking charging then that is bad hospital physician. A of pretty patient be a any into to blip expectations it’s debt, in are the chunk States and So don’t headwinds the and concessions going majority vast and payer, debt. bill is we

they we’re commercial any risk So at to not the certainly assuming that of by ourselves. for payers, lack continue payment paid get

our we driving getting that taking expect going in steps our are it to bill bankruptcy, said more base, to anticipation any wouldn’t when base see you’re more I payment within of client are So that be conservative, you impact. customer

So not can there’s beyond. anything we do do really should or

patients. involving one. and We’re not as very as monitoring bill the collections around our that’s client diligent near anywhere from the third-party the and complicated easiest It’s billing

and or headwinds necessary into built expected no contemplated nothing So guidance. certainly significant our

Operator

Yes.

questions. further no have We

Shawn Bevec

appreciate thanks for great have your We Well, joining everyone us support, a today. and day.

Operator

be later www.questdiagnostics.com. First participating on at Eastern Time Thank at A the Call. callers XXXX will accessed for www.questdiagnostics.com/investor A or posted call you of Diagnostics AM Telephone on midnight XXXX-XXX-XXXX call international Eastern be from phone Quest XX:XX X, in Goodbye. prepared of Diagnostics replays replay today Conference for line XXX-XXX-XXXX XXXX domestic the website remarks by April callers. may May the will available on at Quest the Quarter on approximately for on XX, be Time until XXXX. transcript

Quest Diagnostics (DGX) 23 Apr 192019 Q1 Earnings call transcript