DGX - Earnings call transcript Q2 2019 | Quest Diagnostics Incorporated

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Operator

Welcome to the Quest Diagnostics Second 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. ahead. go Please

Shawn Bevec

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

reported expense. to from refer operating call, to For adjusted reported to EPS to amortization this operations, income continuing all EPS exclude refer references excluding References EPS diluted operations, adjusted amortization to references expense. and periods adjusted for continuing diluted from EPS

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

Now, Rusckowski. here Steve is

Steve Rusckowski

thanks us morning, discuss progress the results. today. second for Shawn, I’ll Mark review everyone strategy. on quarter more This and And two-point detail on Thanks, the our then, and provide joining will

the half XXXX. of Our volume growth build accelerated in the second first to momentum quarter and we through continued

excellence drive experiencing reimbursement access network efficiency. significant this operational to expanded continued have Our improved strategy helped growth to year. volume are offset our Both accelerate we pressures the to and

second was X.X% expected $X.XX, remained X%. Year-to-date, X%; the volume $X.XX, is X% at grew very revenues adjusted down the growth despite about the growth quarter. volume accelerate reimbursement same strong EPS we reported XXXX; from significant For about in to the at second EPS was pressure; now continued as down volume period of quarter,

of health on our briefly network care. me consumerization update you are PAMA, in three expanded marketplace. access, laboratory changes They increased let fundamental Now, the

PAMA-driven the catalyst for structural First, in a reimbursement change marketplace. remains pressure

XX% remains first Our our first scheduled prior Medicare the period rates which year, in expectation. year. by in with data half XXXX is next The reporting next for the were from of quarter the down of line

Laboratory the are Act the we encouraged of by last Act the LAB introduction month. for House introduced or Beneficiaries Access in However,

would The A time of setting improve beneficiaries rates year, step provide to LAB have the PAMA provision Act process. data to would will in first the second additional Congress to data. delaying ensuring crucial towards By PAMA the laboratory be by to reporting and collection laboratory access and data party sustainable PAMA the one next clinical payor report Lab produce Lab services. neutral round Medicare applicable adequate laboratories third how the all service are private and with under to Act require Act recommendations rate a

second structural spend. driving becoming affecting is industry more our lab focused change their on access, is PAMA ever value The in our and better expanded than network

the network aggressive begun UnitedHealthcare We're network access to to and by value partnering became Xst, with and members. physicians labs, UHC outreach our members. other the July preferred created have to UnitedHealthcare cost reduce customers campaign and an we On further lab provider

will to providers complete able online labs members Beginning be process. approval August referring Xst, an to out-of-network

elements. Also, currently plans aligning conversations health other have independent to laboratory begun providers, In PLN addition, with like laboratories. hospital-based strategy better to the Anthem value-based we care them paid has implement initiatives to to continue own that rates lowers rates and its on the with

contain recent contract these features. our extensions of Some

more the order the to system. health care continue designed month, Finally, on House health bring to to transparency attention increased care we the variation the White in Last see health costs. executive released care

value care, providers we more of of favors high in the get care this cost like information the As Quest. disparities health on trend consumers believe

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

Now, take let to highlights growth you me in quarter. few strategy accelerate a through of our the

I and revenue network to result As expanding as see said our continue of a earlier, volume growth we access.

health Long across all services exception agreement, well as Island, supply chain lab the customers. new growth York. With laboratory provide delivery will Health signed Services health Aetna, with integrated system large, this major of New a plan reference recently laboratory in care We of of occurring the professional Quest as expertise perform agreement is testing. our a Catholic Under and

participating National believe the continue with will laboratory and Quest motivated MATCH designated the kind. precision the lower more We to commercial they under its trial. increasingly medicine strategy hospitals reimbursement. to be in as the lab Cancer work a now impact of us feel This PAMA of of diagnostics, area advanced is is Institute’s as largest And

for for these drove provide strong drivers mutual revenue Key to which the Cardio IQ, testing. included quarter straight in better is growth. to categories no types growth seeks outcomes rare Each test testing, tuberculosis both trial T-SPOT, and cancer and treatment. there QuantiFERON of The with standard

launched tests. testing to disease consumer Lyme month, this gain consumer Earlier we new initiative continues business a Our popularity. QuestDirect

We each sequential growth drove quarter. also month second consumer in in volume in the testing

our X% We two-point deliver The remain in drive track XXXX to to on is of by operational to strategy increases efficiencies excellence. for continuing drive cost part second productivity.

and experience, to technology footprint. are enhance reduce examples customer Some using growth the drive carbon our digital

responsibility eliminate non-covered to reduced invigorated documentation and for beneficiaries This paper has denials savings. financial for to contributed Medicare our have who services. begun have We

a number patients expected that help whose go no-show reduces sending sending working these to We're one through of when also to them We're electronically. are which to started We rate. nearly tests who now scheduled of patients the text have their messages them physician orders follow orders the reminder Both remind physicians emails ordered online, initiatives lab for that our patients lab reduce unfulfilled. help third of appointment to test.

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

Mark Guinan

Thanks, Steve.

revenues the quarter, services compared concessions. year. by and In X% the were versus requisitions, growth the partially measured of year. prior the by information higher Volume year, versus strong Revenues to $X.XX volume offset grew billion, pressure driven by patient acquisitions, second X.X% for prior number increased X.X% up diagnostic the and prior reimbursement consolidated

X.X%. grew volumes acquisitions, Excluding

had We and the the our will headwind Walking balance this relative volume XX as bottom is the accept open As to did we the in year. we organic but said consistent while to emphasize expectations. had be volume disciplined. our is profitable line understand very little few competitive growth apparently one at to lower contracts rate do cut, Therefore, volume very basis-point competitors before, of that the quarter, were in renewal top renewal. to contract and the prospectively growth These so the you a past, Recently, we important impact, you accelerated performance. with created create our headwind, unprofitable was walked represented volume all away for equal very business. second In margins. contracts, large and throughout capitated away price from process, regularly a believe rather of our volumes willing volume of for offer us. our organic Despite strategy assess that we not low for than our rates

of year, in the headwind of by higher concessions. amounted by Revenue a headwinds patient X.X% which to includes were basis X.X% per pressure versus Unit impact requisition primarily second quarter. and declined points. prior PAMA, approximately This driven price reimbursement approximately the the XXX

fee clinical from a floating impact to as modest Medicaid As as price includes contracts. small the reminder, direct the indirect PAMA a number schedule of cuts well and both changes rate

million million XX.X% an $XXX compared adjusted was of revenues to decline operating of XX% of ongoing primarily Invigorate in or of revenues operating $XXX The $XXX revenues year-over-year improvements pressure million million Reported and to basis, or On largely productivity related margin concessions, last was last growth offset XX.X% XX.X% volume strong was to higher reimbursement and initiatives. operating income compared or higher to by income patient revenues our or year. attributable year. $XXX

was operations million Cash last the capital And a year a compared $XXX ago. EPS to down year-to-date $XXX was ago. million were $X.XX, quarter year-to-date EPS by year. versus $XXX Reported year. expenditures $X.XX approximately compared million to Adjusted $X.XX million from last $X.XX a provided was in year X% $XXX

to guidance. Now, turning

between be million. than $X.X approximately be and operations to XXXX increase for is $X.X between is to and as to cash outlook follows: approximately capital are of expected versus and is expected expected expected EPS the $XXX Our an X% be by to expenditures be provided adjusted million reported greater than billion, is Revenue and EPS to $X.XX prior greater $X.XX year; to billion; $XXX be X% billion $X.XX;

a XXXX. like would reminders remainder about the I closing, Before you to review as few of think

$XXX due in-network than this First, modest experience of we to more continue contracts reimbursement other and XXXX, health plan million sources. from the in each reimbursement to typically pressure pressure PAMA, we year new expect our year

just Second, we through we the gradually they that XXXX, year. to continue as the will through half expect increase progress have volumes first as of

third have we one in the approximately day Third, extra revenue quarter.

due Finally, quarter an comparison. we of easier growth earnings and fourth XXXX, expect the to in strongest the revenue

to back Steve. it turn now will I

Steve Rusckowski

Thanks, Mark.

To first continued expanded summarize, access, our our half build the network XXXX. to accelerated due of momentum we quarter in through growth second and to the

we're year. in players the And drive the to operational we significant pressures Lab growth being approach volume believe extend us commitments strategy this experiencing strong this opportunities be other with XXXX. new Our well-positioned UnitedHealthcare, reimbursement marketplace offset We're excited in status, Network through with to our to meet Preferred we're to our then, to us. combined finally, are for back a and with excellence help enabled the

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

Operator

you. Thank

question [Operator Giacobbe We Ralph for up open comes will it Our Instructions] first questions. from with Citi. now

is line open. Your

Ralph Giacobbe

Can I through maybe or on if lot month a Is seeing approach of broader just sort of of on thoughts, how And you to us on just kind of and a network Thanks. structural help wanted discussion open that sort around the when you of the happened? sort timing month it kind around what you if And there's regional you're that stabilized? has lost? to the just contract Good build it And quarter, contract? help volume there. then, a national obviously, clarify said capitated a then, changes progressed still the morning. there, of

that sort goes against tide. this So, of

for Thanks. bit a out us. that flush maybe So,

Steve Rusckowski

Sure, Ralph.

because is So, fiscal artificial these there called noise. conventions going years, quarters, et some months, to have be we cetera,

our the because didn't they if calendar. quarter, of the month accelerate you So, each at look throughout volumes

-- at, in our per my expectation to I basis, did closing quarter. for the at apples they look look as is noted absolutely And throughout you to an when the something grow is the year. day However, balance that continue to on apples else there comments, which requisitions of

handful saw actually we they second headwind. look quarter, large each quarter. So, very those volumes then of headwind apples low volume despite that exclusively the quarter regional capitated accelerate the year, beginning There to said, month, in in first and as fully when throughout we started of really continue [ph] a contracts, no The was at for second itself absolutely, were basis-point fee comparison, they of hit contracts. was service feathering XX you year, the growth; beginning an And and And us the element they strengthen, throughout largely in and the margins. capitated. the were in apples

Operator

with comes Our UBS. Caliendo Kevin next question from

line is Your open.

Adam Noble

the is for what in size, benefit just see And volumes you those question. if the Hey, was growth? the the I could of market managed half? just wanted contracts Adam organic Thanks in to versus have general for care expect you back penetration This Kevin. Great. to did Noble second the in to quarter, access from further guys.

Steve Rusckowski

Yes.

it to me Mark. pass Let then start and I’ll

to prior and to physician about many about now talked and is marketplace stable still hospital all, continue And we analysis, the of the we’re believe what's same the and have, the business that years going stable the to trying all we talk stable. volumes year. versus store be in We seems see with market accounts metrics for looking our our our First and in also we at understand marketplace. always measurements we've

add some that? you can Mark, color So, beyond

Mark Guinan

So, to specifically. out it’s tease hard

we Steve’s been its the think to growth. point, don’t has think, in terms I accelerating of market

competitor as sole we the than you're market we’re growing the access, had a every around prepared were major remarks We shared who major that plan. other So, we entered asking generally, -- And health in we contract. say if versus we’re single national. at more obviously Aetna, specifically United

market more of it United. terms in competitive; us Obliviously, So, the office. not enables just access, makes it to us it’s win just

United And just so, board, therefore, growth Horizon. we’re across seeing the limited not to or

Adam Noble

pipeline. M&A conversion to in you nature sneak one could seeing are around you competitor Neither announced Is update just or elongated that any more any acquisitions I of more, a a If pipeline? time of line you. just function any or Got the the size or main the your year-to-date. change

Steve Rusckowski

Yes.

little saw you QX of amount results in versus inched of we some acquisitions. that the our from terms revenue in bit our So, up a QX

So, are the they acquisitions delivering well. we're of and feathering in some

Second continue our we’ll is, strong. to and as we say said funnel before and remains

our to this future. have a X% support year to We number be that and into close ambition

marketplace in are the prepared the rates, particularly my for on remarks my keep does and remarks, hospital itself, to I just So, the visible. see lab becoming on talked going hospital and of extend independent about changes and in cuts, then PAMA Medicare marketplace. that. clearly we for I And that outreach are are some businesses with And and commercial that working the what pressures becoming impact now said those pressures we real that more

And because we that you with conversations integrated so deal out lab this pipeline that we a indicated. strategies. around as Island, support will announced to to of be another systems have saw of to again that strategy delivery continue our front. point the we of that proof which new systems, advance strategy, lot continue supporting Catholic Long we our And in Health there And is

Mark Guinan

highlighted did second the we you the in noted, As Steve transaction quarter. and as

we and M&A, did first in the commented, acquisition, Steve more As regional a growth we the deal, get from quarter. closed Bynum Boyce

change QX. in from got view say, And feeling PAMA of customers. quarter out we’ve of certainly, is terms And potentially attitudinal around pain. the regional that full the getting are there people’s obviously, no of So, outreach, some hospital would of I first in growth the labs

of seen with has I we’ve hospital think, actually the been the more interesting that are dynamic systems getting conversations broader.

with deal outreach, but about last quickly. side, be reference that’s PLS the year, an So, like doing PeaceHealth potentially those selling a longer. take the about deal, other did can more a actually outreach deal positive. just it’s not doing a outreach much on and And and we done But

bit last these So, timeframe over little bit get which the year, to transactions that dynamic has so, completed. a emerged little a adds to

Operator

comes Evercore. question from Ross next Our with Muken

Your open. is line

Ross Muken

strong you like seems us it pretty sequential pull side, that restructuring the tick mean, On I it’s management. it in out But, cost a give a forward. like looks OpEx called I QX color, know little of down, came sort some and up your versus are the the a timing bit, the main you plan of played realization tracking elements your other of program on depreciation how cost out. of some that

Steve Rusckowski

Yes.

Mark So, follow. I’ll will start again and

in we the quarter. We XXXX. execute number indicated back to quarter efforts for the planned in, kick first continue our continue restructuring of in, kick for in the start That to to that start have We in second to plan year. a our half of will

about good that. So, we feel

it’s to about say of to And X% on we So, we in handles we million. the remind remark, our is that's operational think Ross, cost levers my $XXX have saves, and I yield continue results everyone, And good right we that. way. from I'll the of continue cost drive did in program. second, then, excellence our our

to the across areas but XXXX we continue cost expense XXXX. that will continue or also And in yes, good sales. We of see board. productivity that's into And

So, Mark?

Mark Guinan

beginning Ross, drivers, you versus investments that if did of resources, adding the the et Yes. reminding marketing, you access commercial Certainly, in at haven't One I the some QX back commercial new QX. stepped two into on we There look of thank resource. were cetera. everyone. terms the we was for some really our

assuming marketing volume patient the betting adding sure back expensive position. on [ph] we commanding things some were come, information. service in on some also were centers, campaign the stepped were some would making we because the have There We logistics, were that of

is just coming, that became classic Now, the cost volume kind it of typical sale. of

that incremental continue of substantial year going the the expense. amount and the on it’s other restructuring which a the taken completed the end And driver throughout expense. of So, then, basis, forward. will first key balance not the run a at quarter, rate was That we of had out,

Operator

Our comes Wolfe question Research. Stephen with next from Baxter

Your line is open.

Stephen Baxter

of requisition. understand try in per to improvement wanted decline I sequential the revenue the to

is quantity this So, PAMA known obviously, point. a at

So, I some or wondering maybe on bad could of whether give of other it's very this you I pieces the you debt. capitated is got just guess, other the Any contract, moving kind was update pricing us impact. -- is, potential some there, if commercial color can you had helpful. there

Steve Rusckowski

Mark, why don’t take him you math? through the

Mark Guinan

Yes.

on terms exceptions we've the a calendar There's been in typically, So, of contracts couple run typically commercial pricing, those midyear. things done in where of the year.

price really QX, you PAMA? So, anything and than was is So, there terms there QX in as by between anything really different nor, commercial mix. of know, wasn't changes driven this

was can a the well. finally, tend does grows rev mixed doesn't the or PLS shared down with mix from put losing a as on always it add drive in test then, a noted, directionally we’ve profitability, per of more basic driver we necessarily drag perspective. revenue the in drive of though that as per in things And And requisitions, to per the those rev even req. as of revenue is can or and, that lift testing, rest it of be some capitated the certainly certainly as business past, course, then, seasonality of have Some req. disproportionately; align some complex to the as is PLS some business a a grows, it But got our Because changes lot req. up

to cost look place the at it of was to on we lot card give overall the the the ability better collectability improve time really really the a patient And, and real of partner with at the get do of in hard is a to our rate. And collecting the working bill that our patient collect that as tools people rate concession quarter, of presenting in had job put efforts then improved. our of that service lot higher information upfront, result Optum as well to really finally, When that adjudication at versus patient centers first pensions, concessions. a you a better quarter we've the credit with the second the

Operator

Hynes comes Mizuho Securities. question next from Our Ann with

is line open. now Your

Ann Hynes

you talk more are to prepared specifically your what and talking the the on you you PLN you side, are doing just PLN remarks, aspects. mentioned some them initiatives, did payers contracts in Thanks. they what about? recent Can include go some So, all detail on about

Steve Rusckowski

payers. first sure. nice health have let’s year. to back to and for yes, And United. believe this the include then, and effect biggest number will access extensions some that have we that over contract as with conversations some elements lot already talk the of we go have opportunity the be new it’s momentum, provide to is lever will it of about. the And we're -- of nice talk best is a But all, have access about decade. Yes, we Well, for some is we us. The with having finally a that going the PLN other will about, to opportunity we a we more a And talked signed insurance of

will go and as we and releasing provide United will details. more more be they

more that in happen. to network, As are my remarks, to it’s you allow if out require I of did mention authorization to going

So, that’s one point.

cost we’ve consumers. less out past benefit third, then, is there so pocket there Second And a will physician change, in what incentives. for will is said design of be the clearly be

see network the for to all is than to to finally stronger what's that about it towards network. going well. momentum and when a as sure it’s leakage managed with and cost big United really payers of preferred So, around pocket there then physicians element, ever And other with out lot of being design, drive think be no other less lab consumes, benefit will is be we making you

But, actually more it off additional opportunities to biggest come to my it’s were let and network. that with yes also this major working that health we So, which an don’t we overshadow remarks, obviously lever. believe And plans expect growth the what we're of but grew the decline on be our do hard, the did and in said exception running United had modest we that, back in saw. all from I Ann. We and we going network, good

Mark Guinan

Ann, So, still to a add, point the benefits that of just Steve’s in type of to is us. PLN front lot elements of the

the continue enabler driven to hasn’t to it point, growth drive. an So, volume this to it’s

some a things to various payment value be So, it’s what cost are away these some or we’ve payer to us the payment of A talked embraced rooted extent. you additional ability different and But as of and scale to we’ve lot shown all work what are type. of these about a higher have getting or them certain are of those concepts by bonus from these providers. going better that in payers are have to

So, contracts save that a a as that. members their have a as way money a gotten get they showing where we’ve in piece metric that save of of in we recently of couple money, that we

And treatment Number huge a one those denial. incentives. is so, which aligning around driver of for we’re preauthorization, is

wave we’ve gotten actually chief themselves have themselves. high couple they So, the where the a a that perspective payers other lab around from themselves positively of things the and differentiate quality, and gotten competitors others, panels conduct preauthorization. some be actually status -- We’ve as how shown and service and to our

a to following the we know, that labs if to for from ordering who So, work physician okay us advantage it. payers, it's with an you perspective be are as going that these, send

So, therefore, you don't require a preauth.

gotten So, some of element in we've that's another contracts. our that

kind out some rate offering, of some up the adoption zero that in the and got but are plan pocket, of some heavily interest Steve that products benefit obviously then payers other We’ll have design. the with market. and of of in voiced are going payers an mentioned coming they see

not from finally, payers. in call of some elements size sharing about of lot a acquisition. a then, one it And fail That's talk there's we we’ll it's win fits is being if why other game our in of outreach the all. in again, interest as there So, kind the these

to of obviously which those should go outreach, payer huge good and negotiated savings patients, stakeholders, all some for that for notion for value. is rates, commercial the and rates a share hospital savings buy is we hey, huge immediately that, the our this when So, we

are in a Steve as of front us. have with a lot details payers. of that pointed those that traction out, And So, the gotten couple certainly of is

when contracts of I we those some but those have those. the in gotten to we've So, ahead. obviously, to say and us, of then, front we perform upside have And are going in earn

Operator

Our Lisa comes JP next from with question Gill Morgan.

Your line open. is

Lisa Gill

morning. maybe wondering Good just us give an this hear just if didn't you I on update morning. can I'm anything your prepared consumer strategy. comments retail the in

Steve Rusckowski

several Yes. really one our consumer past, just have It’s And of information everyone, strategies in to patient and to of what’s have growth. the provider, diagnostic our today’s experiences remind for parts service about brought being digitized world. talked we we

when a will other health of their as patient other the service experiences Quest experiences remind center, look have And a they experience. it into a you in care consumer so, everyone as and

lot a there. of progress So,

and progress access on and make tools information. the continue to we the is Second

see to app, expand service registration, million is have over which so can And continued app, MyQuest get appointment times remarkable. you you results. the schedule to at So, which registered and continued can online, our we you its patient now capability centers, users, your smartphone X wait obviously is has expand

we is physical is there the specific is this, important. your think a presence question, And quite of last is piece which

centers forward that. is over our our Right And in retail we have time. have our we XX% continue retail patient move now, of we to service to Walmart. XXXish more like Safeway about service about continued roughly strategy manage settings. centers patients retail and between best of to setting So, Walmart eventually our service a XX have X,XXX more patient centers evaluate to and relationship path the

and others, quite have let’s half centers. walk operations over good. said much consolidate the better retail can our a fleet there us at the of XX%, And is in, XXX relationships our with current it it, obviously will our fewer the some our those experience possible can We they service patient can our We Now, do all patient with the what of service with number of experience, sites. to be believe And can as more that evolve but -- they’ve time, they fasting. that eat grow they with our in current patient is retail about call roughly retailers, They around more are not been walk better. pager, experience we centers I’ll shopping, access. as patient consumer of after is also lot like we employees, share that like, with have

So, overall, m our And retailers with quite as perspective that from our good relationship traffic. good. is store because benefit then, they well it’s

feel positive it. continue will results response we far so and and about we drive So, the to

Mark Guinan

since activity. sites June that we would The only at thing I continue there of our increase of Lisa Walmart started always sites average, retail the look in that highest But we’ve the had if this. on amount is you our is some some We to had outliers. draw amount average in draws

we’re with very we're volume of And good is happy amount our presence. we're growing. about feeling traffic the So, the of getting, really course,

So, driving it. there that is things probably are

got awareness. that of to in we’d starting People to over part are we’ve it and comfortable expect time. is and getting Walmart these So, there, draw out, sites going continue figure

Operator

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

now is Your line open.

Kevin Ellich

is your rates your base was for Can remarks, something, I that give Anthem in prepared color, Steve, little We to this shifted shifting lab more about independent Lab what are you for deals? hospitals outreach follow then for similar, all do doing that And and payers the then, just this, other or saw pathology? tests hospital think bit being pathology. of Economics PLS that something comment you commercial are rates. at that seeing you hospital will in done

Steve Rusckowski

embedded the some now and of commercial commercial on PAMA, PAMA what's comment overarching just that in as on So, we remarks to have our side. and say, But, to continue I see outreach. is would pressure from it’s introductory we independent an hospital extent payers happening

to volume but other work I push for from health includes that deductibles add hospital. typically to cost payers, reach ancillary have in because of general One the all of at this. the percentage for the there the two high also expensive those Anthem with, value we other is with corresponsive by services provided costs a services, hospital lab, rates more. more share but mentioned out ancillary and in pressure like second that the and will to parts are we payers normalize is looking includes we yes, the labs, these So, most the that And, that high based strategies includes high provider aggressive highest And -- of to the more ourselves rates that obviously and move down services the to just radiology consumers, that given are is plans Kevin, consumers. to pocket

we strategy is yes, payers places a ancillary we pushing but many services but are general Anthem the specific So, see many what other done with other lab. with commercial in to proactively in in this they’ve on back that having past call that

Mark Guinan

you checked don’t a anything, I said might is Kevin, with encourage which we attributed to we Anthem led to. a There There comfortable are imagine, with ask referencing. you before know, statement they So, -- that I we them would a make were publically with pathology. couple they’ve to document, as And of directly. places is we’re sure available the

But, doing the Anthem on. ask published something to in broadly how out you encourage and it would they've I about there so the domain. they're is detail, more and put schedule For public and

Steve Rusckowski

transparency. And mentioned part I across movement Kevin, this, Yes. the B country towards remarks, the my more of price in

better number speaks the having in we but And the do to and Humana out actually lowest working costs. value did, service planet, prices. best is provide there with wide marketplace shopping. visibility you great the the payers, of we they services, believe UnitedHealthcare of As what consumers consumers to great at providing some help way our in job And proposition there you story journal, others another a regard, if that to today in to including called was a on of as proactively Anthem, to their a quality, apps variation know example, that manage as by which and will, are the ourselves of

Operator

Meehan comes Barclays. question from Our next with Jack

Your line is open.

Jack Meehan

morning. Good

to how into that Day us pricing and at you Investor talked for Just contracting that just unit wondering long-term of about, out think that line you is given commercial recent the you could give terms the laid progress if compares how in I year. some commercial of XXXX, of later the sight guidance you was shaking out some the

Steve Rusckowski

Mark?

Mark Guinan

appreciate, terms with where Jack, in commercial good to not the to extend contracts. we payers We're very I’m to going you and stand sure speak So, shape need I'm of in the XXXX.

no there's those determined, So, prices we're we in shape. of be the surprises I payments should that expect, those obviously, And those those I pricing, already Really, that as some mean, contracts. we referenced, have anyone set great as incentive to perform. around

upside. those could be So some

you gave range the CAGR. I broad recall, you pretty on revenue a if However,

might of So, including, share what extent the of is of some fair that quickly high outcomes to I those the how happen, our access then payments. tell all network those between you end and we some the within how that earn potential what end, scenarios, new different kind obviously, contemplated low would we the and incentive we've contracts, quickly get of and

has provided multiyear that's within the we outlook contemplated. been reasonably range. why everything So, a I give I broad that would say And

Operator

question Dan with comes Leonard next Our Deutsche from Bank.

is line Your open.

Dan Leonard

your volume for wanted you. Hello. organic second the clarify expectations in Mark. to half of growth year. I Thank Question the just

tougher. gradually said comps do through The progress you should year. the So, volume that as get increase you

organic expecting rounding kind Xish So, back are be the the the than the growth you've in to of year? delivered higher of you year volume first half half in to of this percent

Mark Guinan

Yes.

expect despite on So, organic any we revenue, sort volume, an to sorry, of absolutely comps I'm basis. increase -- the the

day, happen So, in look happen QX, to volume. it we we our week, see year-over-year second when versus the month. not organic improvements But quarter to expect every every at every not may continue and QX may

Operator

Our Hooker KeyBanc. next with comes from question Donald

Your line open. is

Donald Hooker

ask a wanted PLS question So, on business. just maybe to the I

guys an in you -- the good past some outlook. have targeted -- some outlook optimistic optimistic I think,

So, with basis forward on I revenue announced haven’t not deals. of think deals? sort just going have track if terms growth Are PLS or... XX reiterate a you you going you to there’s a size looks others talked and that in of but something, about that kind revenue growth from or of deals trying PLS, forward put with these of I’m on a points like you sure couple. can It been trajectory there been these you and tailwind

Steve Rusckowski

Yes.

lab five with to and good of the we within one access not had also some we strategy, strategies, which systems issues shared their their proactively is of our as access as geographies on with having integrated So, where well with care patients. delivery conversations with the you health

close going and growth us. I’ll be continues for funnel a Health relationships some we it’s is and can throughout to shared Catholic how this driver with Systems professional we deal starts what nice So, and we’re efficient lab where services announce continues lab this say And XXXX. they or this conversation did and year have cost strategy. hospital We we the just in-patient announced their last the more build. where the In built matter. a is to past, with studied Island. them we in make Long in and and We other lab PLS, It the call

could of their them from So, XX% XX% save we anywhere costs. to

opportunity. an that’s So,

to more and we Second, have as very in look we conversation. third efficient conversation to it sense be at them that, get And out. a us business. the reference to does about opportunity. to have and their in continue we testing them another outreach buy We into it’s they piece, or their for to marketplace commercial this should the in not That’s rationalize us become sophisticated that a said where unusual with didn’t it we then, make to are their

discussions continue those So, progress. to

nice States. us. we to all for driver We be businesses, number beds a ever. and systems than know of those big United with the outreach centers substantial have funnel delivery growth out bigger that backed know a We’ve integrated have continues their in the cost We that

Operator

with Patrick Goldman comes next Our from Sachs. question Donnelly

line Your is open.

Patrick Donnelly

some just contracts just price, It’s a maybe there. again is competitors on the a away being surprising Can provide of walked Steve, a you more are from. bit low to there? there hear aggressive color on once hear you still bit I

fan backdrop to realize is Given that way industry best discipline the the price off. seems to PAMA

just given backdrop? competitive, to would this labs lead be price more So, seeing, these context other you’re maybe what what on

Mark Guinan

are they yes, question, Great competitors.

of of are So, it’s We’ve not and was our our really consistent multiple something been we for need to we that price, feel no can offer excellent speak to. in Obviously, is we that we an control lot have Quest There an are and competitors marketplace our prices that There lower already pricing. good. awful is own vocal price. value. pretty this price towards

in them. of put So people's drop in that’s further terms to instances, some other to will need motivation price a to question you

Operator

Our Stanley. Ricky next from with question comes Morgan Goldwasser

Your is now line open.

Steve Rusckowski

we hear Ricky, can't you.

Alexa Desai

Hi.

is Can Sorry. you on Ricky. me? hear This Alexa for

Steve Rusckowski

Yes.

Alexa Desai

second the come your to trouble for Thanks. to of year. line I there. Okay. expectations the back little a Ihad half wanted

the the lower but which earnings beat sort the half feel modeling. is currently maintained the half You here, Street quarter back of guidance, headwinds the Are what you than of the implies give Can into you of second year? isn't Street any a the what us takes be? guide of could puts the to upside just factoring and there sense and the sources

Steve Rusckowski

will we Let of we that me the half then give set delivered we the just that throughout and first did. start we've showed half is details. XXXX build moment Mark show expectations to wanted What to what on first in for the we

the results in with pleased we're So, half. first the

what not the to point earlier And general XXXX, but it of to for ourselves, in continue will at I’m conclude and to is about about it XXXX. also throughout through what XXXX. this Mark maintain opportunities our XXXX, we’ve is, going thought the Second It will prudent build but build just ahead growth said we’re front is year. us, the not midway year in this of was said build but we this outlook. in a

So, more rest the color the year? Mark of little around

Mark Guinan

Yes.

So, we influenced give should perspective. back we think we is our any our and What from the shareholders way, in Street’s the by really half. not feelings we do guidance what when understand are stakeholders into

our year. very still on look like feel pleased We you when So, at we're through the halfway we're it's results. track, with the first half,

half, course, in like and snow the our that control, that and happened sometimes in have so we are December, hurricanes on. Of back things beyond

there any certain since we've this point, So not given range. need at we and X given wasn't just any felt, a

of half. our nothing negative there's in the back So, terms for signaling

We which are to do least $XX.XX we at expected, on is to what track starts. do

first other around things cross perform, then and many what done others obviously or I sort we'd we're we've impact signaling operational fingers be any anyone that rather might and that think obviously We’re the half. events concerned. with should certainly to of feeling our just continue half, but that good nothing as the But back in weather

Operator

from Quirk Bill Piper with Our next question Jaffray. comes

Your line is open.

Bill Quirk

guys. So, here, kind of a multi-part question

with into in Anthem? weeks just the guidance? the original challenges had respect that lastly, answer that genomics any then, respect is cited But, loss, negative the I with effects And supplier ago? First, couple given to capitated business, you. no. there some the is contemplated principal obviously comment in think any space industry to was from piece contract that is Second Thank that

Mark Guinan

sorry. I on catch So, Your didn't your I'm Bill question question Anthem.

Steve Rusckowski

part. First

Bill Quirk

Yes.

for to reimbursement some that Anthem the implementing. I seeing the I the guys, changes of from they're not effects part Anthem confirm, was first want just, think predominantly of here just The question impact was hospitals. any you're negative that

Mark Guinan

No.

a We are that code multiple need negotiated rationalized. the we And that not in -- say they ZIP regionally to the them starting price of have contracts Anthem. hospitals to contract now we We and with have be a are contract certainly, with so on.

a except outliers in anyone this the get it's So, is more to more movement everyone -- not be to rate. really for a specifically, targeting consistent

the that feel have certainly going with So, in code. in Anthem. already that we we timeframe ZIP be we’re to because contracts no there's current in And changes

On on the don't capitated, we guidance give really volume.

out this impact Yes, revenue, line. that possibility to it? no remarks, was had prepared and as But certainly a bottom contemplate impact So, pointed we to in I it’s our my minimal certainly. our

it's to much of effect. to not our try as more volume volume a to because encourage And very attention really, reason. of stakeholders pay -- to we So, quite

or magnitude economic the or to make there to that given headwind was just a this others to really negativity you volume. sure another direct change thought understood, we shift we’re to us, of financial us big no going So, from volume but

Steve Rusckowski

The hearing well. that as last part, I hard time had Bill,

Bill Quirk

consumer Steve, of your one the principal suppliers ago. of comment, weeks a couple for a Just outlook given genomics the on business,

Steve Rusckowski

Thank you. Got you.

As material our the or plus on continues you know, have that’s good growth we effect minus. Ancestry and relationship a build. -- and our at with relationship No to

stable. fairly in general say So, just would I

pick-up is line these platform for genetics introduced remark mentioned tests. platform And our did a around a to pleased as with that business, I we're about that we're growing I very But testing our the just testing. consumer is nice Second a new consumer as with for going we which well nicely diagnostic in us and that general future. the is use

more But we as stable come. environment So, overall, to see it.

you of provider piece As our the this Ancestry only not we're at big revenue. know of it’s time. the a not And

us. So, stable at and us front for still of business in opportunity good point this

Operator

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

Your line open. is

Derik de Bruin

just and stable a the and of that sort just and talk in per volume bit better, of about would business within great. any esoteric that’s impacting requisition, additional getting how reimbursement that, revenue you pricing trends testing little mix sort Could just color be

Steve Rusckowski

an of industry all, esoteric is term. the term First

we it growth business, been that’s than that is. of a as the defined to compressions, our or we pull a diagnostics, as general presence, business quarter of includes define hospital we’ve it think, and have We provide monitoring what well. in number good some we of fronts. of want will about our in and continue growth in we esoteric to a also lot advanced sophisticated business we a all active mid strategy. quarter out of drug said with in business to I call some more made advanced then, and and but it’s good portions good diagnostics the as the our it general an diagnostics we us. Prescription business women's to in felt single some pull in genetic health. specially in well. the opportunity nice, not growing accelerate what had had And and the that a the in within for We a color. in big and that’s addition And And Esoteric, that just be progress part it past, and continues typically pleased esoteric it’s we esoteric. don’t molecular year as and business toxicology better we esoteric more general, testing, And it or last general, digits, being presence. break typically But year-on-year We're progress growing

the in well raise So, all esoteric the or we overall, as tide, including general it’s going as the help harbor, as diagnostics. to advanced boats

Operator

comes next with Matt Blair. Our William question from Larew

now line is open. Your

Matt Larew

may an business. catalyst then United you like of the the more with payer more wonder conversations? hospitals laboratory hospitals for behavior health lab preferred or it think being as the But could just actually about and PLS if testing has more be for Obviously, to PAMA started and sounds outright having arrangements. aggressive And about those discuss be you conversations was M&A how initial perhaps health a with both you're payers way the with their catalyst. dramatic feature network, lab thinking I broadly and specifically it systems systems are change

Steve Rusckowski

all, and how the because fee of XXXX. some the to some works, First within of nuances just could grew argue, really to which somewhat offsets reduction, of muted started talking was recall, the effect, it marketplace, XX%. PAMA of the the we've got been about payment related of And three in changes it about

any the year, no acts XXXX. effect second first the is of a year, the So, in year, is effects, another and ‘XX then muting full

and hospitals are administrations aware that. more outreach businesses, starting So, that of hospital becoming to is in of more visible become

is commercial rates. in reason lot hospital pushing is day, is in that our are costs, as why getting and variations in Washington. rates paying employers consumers And XX the laboratory, are piece more our they're times asking X more it for care than could on this health higher questions to it’s every the are visibility and last wide because about where in talked space, part already I of will a Medicaid. second spill of lower all on, the back to discrepancy over finally, specifically spilled states has health of than wide And Typically payers Medicare. is it Medicaid care over pushing and earlier, be And the then,

-- from those they're going environment forward. clearly for system. three marketplace, a great of lot administration And the is operators different of and regional it’s any delivery see second then changes a in the getting small So, visibility

innings, I into question say, middle but as the three anything structural early in, we're would But we're momentum the sometimes it’s for in of do. get in those changes, inning building we we're the okay, we front, asked still what in game. this

we're to start, XXXX visibility be and more we're more it. get a affecting continue the the lot the our that consolidator So, think smart considering business regionals are going beyond decisions in operate of the a part lot strategy I consider it since we and or now a way a to the be can as hospitals there's of operator change and leader. starting be business. whether stay to whether to their options to And selling is in And

Operator

from comes Eric Coldwell next Baird. with Our question

Your is line open.

Eric Coldwell

away very volume we past total capitated topics much. covered. X% about low a is revenue. seeing end just know these and your in walked were Hey. contract they absolutely because contracts to of from the from specifically Most -- understand a impact XX% But trying no representing Thanks quarter my on filings contracts, of on Were revenue? typically I'm contract capitated you the that your of of of that So, you're were capitated average profitability.

is that the these slight perhaps were very or this Thanks from of there range So, impact low much. some end change?

Mark Guinan

at as I the margin, some low definitely rate. of were higher they a actually work maintained referenced. So, We've

and to pay to the there's in took a they're the that’s pay us because us subset that much So, contract, to of offset obligated in OM, at particular obligated not if lost place, even an of a higher. for states they're rate test, this we're

offset why req detail That’s lower that a if really to less it much get very because even the But though but it’s the prepared OM compensate can revenue, is a enough not volume, total. you not to therefore, at that's rev XXX% higher impact. in revenue, So, remarks. partial a in little, per any

offset revenue, of number because we paid certainly maintained. work it’s impact within that the to annual huge that it’s and rounding an with on no some overall continue we’ve So, for a get not OM basis, really had it’s

Operator

question Massaro with Genuity. last Our comes from Canaccord Mark

open. line is Your now

Mark Massaro

wins Maybe ask know can us But to initiatives. consumer similar new QuestDirect that like Also traction the in types early coming getting providers help seems any of program. from think my doing terms days there? you that or there you grow but your Connect I initiatives, you can I speak is the future? just is this it can confidence orders to And wanted are seems that certainly about, lab needle one regards of in then, other Trials any you whether not to the about actual and you gives to the fairly has second it’s individuals? on can in of question are early moved Clinical speak pilots.

Steve Rusckowski

Giants put specific a we direct-to-consumer, at So, to different built we been first the order very directly change segments, on York to consumers, water order market test all, we business because and this that relationship with water. while. and for can we’ve We’ve Diagnostics, of actually how started the with fulfill understanding our can New call toe fulfillment a a Sports a of Football it We the really product how in resulted. it’s the

years So, do we to had to capability build some ago that.

ago. Arizona of the years tested second then, actually the waters diagnostics is several state we general our And is business on

We legislation partner laboratory with of one order passed have Banner that a they recall, And to joint our a venture no test. consumers needed Health. order state you in where competitors, given longer as physician

market. in and And XXX so, found Arizona out out a priced tests was in we there about actually fact

XX Missouri of no took it And actually to and we and states expanded so, we who past order, with Colorado. done XX consumers that need lit in need About And that to fall, up help this they those the that’s states, success other a we moved to longer so, it self provide then states. in we’ve network continental and for a physician is also what PWN we [ph] XX order it. to

my engaged out with and remarks, we of years said running. And off nice some worked very sequential in the pleased volume this. upon we're with experiences those as prepared sequentially from and month So, things I and ago deeply we're all actually are We operationally we're the some growth. month in improvement seeing

a And there segment. is

their all get Now, we insurance private And health segment a without this some where care rather And pay. private of people tests price is cold done company. accordingly engaging it these there for pay. is

and running, off pleased results. it So, we're and and show with

question second second of remind do the -- had you to with question? could Mark, of the The part

Shawn Bevec

end are there. there? you Operator, No. from we’ll it Mark, still

Steve Rusckowski

there. take appreciate it will for everyone us Thank day. We from thank great support, and you a today. We Well, have you. your joining

Operator

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

Quest Diagnostics (DGX) 23 Jul 192019 Q2 Earnings call transcript