DGX - Earnings call transcript Q4 2019 | Quest Diagnostics Incorporated

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Operator

Welcome to the Quest Diagnostics Fourth Quarter 2019 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question-and-answer session that will follow, are copyrighted property of Quest Diagnostics with all rights reserved. Any distribution, retransmission or rebroadcast of this call in any form without written consent of Quest Diagnostics is strictly prohibited.

I would now like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. ahead. Go

Shawn Bevec

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

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

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

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

here is Steve Now, Rusckowski.

Steve Rusckowski

earnings and But offset progress And with discuss detail Thanks, operational everyone this our planned I'll operations. our fourth and than reimbursement us and outstanding we results, helped for then the by from quarter record ended cash the on solid then strategy us of a our revenues, strategy. volume year excellence execution on had review guidance. fourth combined expanded pressure. through growth the today. Strong access, network health Shawn, significant from morning two-point XXXX Mark delivering will quarter more Well, joining thanks and provide you take

the and X.X%, at period we reported same X.X%. strong nearly quarter, adjusted in from XX% grew $X.XX fourth the was Volume XXXX. remained $X.XX, For growth up EPS was EPS revenues

and volume of adjusted full grew grew X.X%, $X.XX XXXX, reported and X.X%. $X.XX revenues EPS grew X% XX% the to to grew year For EPS

In quarterly And the dividend increasing our since this nearly XXXX. are is by increase addition, we X%. ninth

the to AAA, the into well of PAMA Quest details the like getting of healthcare's on as within and Act. is LAB covered quarter, passage fourth recent I'd as the more how Before discuss squarely

within focusing quality many the while which reducing patient is improving So cost are healthcare's about on healthcare all AAA, and the providers of care. medical experience,

UnitedHealthcare's example is Quest we become One drive a quality to provide our and network. input We're our that of us performance quality. is pickups. quality six dedicated lab medical by tracking service enables to preferred great logistics specimen in proud member a that

past the Walmart great in our in centers, Also years services. our the made service is Score as health such as drive are on which care and XX%. satisfaction several very high to helping Safeway as scores over and strides above retailers patient improving partnerships Promoter we've exceeds Second, Investments our digital patient XX%, well Net with patient experience. platforms particularly

Finally, higher boutiques Quest to Test even prices more. lab offers than the hospital smaller two of our and and many best competitors five be the value prices industry. can times our sometimes for in

patient none quality, delivers proposition second a industry. is that competitive in experience medical together, So to and our taken pricing our value

I'd like Quest. favor three fundamental you the marketplace, I which changes to update to on believe

the reimbursement industry in largest is this has seen. This PAMA. hub First, Medicare ever

with focusing providers. plans looking are health receive And opportunities variation care at Second, value for they fewer on delivery. higher wide in work price the health to

the with of implementation and access lab of examples preferred are the UnitedHealthcare expanded perfect network Our this. network

Diagnostics deal and the is care value. more town. is the increasing in more of Consumers We And consumerization looking health shouldering of believe care. then best and they're are best cost of for third the health the Quest

of it become development first and the to Act. December. fixing the LAB CMS's We PAMA delay will on collection to is LAB data regarding will comment Lab Act And period the identify quickly that as to for were see quarter initially first market the step the pleased The one-year collect way rates Congress deeply Act data in reflects also reporting through It private of like the I'd a require intended. the better XXXX. the data to process. in MedPAC latest passage to late law

in know expect As XXXX. caps to many be fee PAMA of Despite basis relatively CMS reimbursement headwinds the reduction delay increase XXXX. to in and will that with for you cuts the from the in now one-year XXXX on the in the schedule in existing XXXX, means XX% we XXXX consistent XXXX delay XX% of

HHS. the sides hands continues its to the challenge judge. of briefs their the associations submitted legal courts Both and the trade our have ACLA, in against Additionally matters

We decision expect a year. sometime this

our Now, progress. to recent performance and turning

two-point the then of finally, which hospital per broadest is offer has acquisitions; diagnostic part grow X% and consumer-friendly more analytics five accretive growth, data and health strategically access to recognizes accelerate with elements; our first services. aligned relationships services. The strategy information through And year to systems; extended health population health expand than support We're as of provider care diagnostic with innovation. the plans

a me take to from accelerate you through our growth. few strategy Now highlights let

Our acquisition pipeline remains strong.

announced Clinical Laboratories, laboratory During a regional acquisition Massachusetts. in the of fourth small Boston quarter, the we

We also announced new two recently acquisitions.

Blueprint's bioinformatics, the sequencing. in The and significantly is especially, genetics, our advanced It first, platform which leadership to Genetics. next-generation reporting specialty is of interpretation. average speed Blueprint position bottleneck diagnostics, strengthens at often proven proprietary expected interpretation and in variant rate through a time

Texas. largest Hermann also We health the one Memorial in a the System, with Southeast multifaceted not-for-profit systems of announced Health collaboration long-term

under agreement. in close As acquire hospital Greater outreach Hermann's all transaction part lab The the to manage of business Houston its services in services inpatient Memorial is will Quest of professional and second quarter. expected the lab our agreement, labs XX

signed eight professional we hospital services with health in laboratory recently an And system Tennessee. then a agreement finally,

health accelerating continue result network as revenue see access. branded We growth plan to and a of our volume

QuantiFERON out-of-pocket growth Network, growth. monitoring, for both our demonstrates sequential volumes cancer look drug of Preferred solid to full $X of and hemepath, cost blood revenue further quarter our market to The United's The these posted year growth. and IQ. continued categories featuring the in test test We contributions test the forward drive ability Cardio T-SPOT, of Each and share tuberculosis acceleration in testing members. to include rollout Lab drivers

G-based part approximately productivity We our from year, our see to for XXXX by drive Overall, increases while our reduce year to then, acceleration a X% of second esoteric in X% ago. ahead excellence. an goal And single-digit to low to delivered more the productivity. the two-point cost and on testing our customer drive base grew by experience. further operational growth our strategy drive enhancing We continuing gains, opportunities is

examples. three here's So

more consolidation approximately $XX us throughput, annually while and immunoassay First, saving our when platform efficient brief footprint, is to expected implemented. million fully provide autonomy

in Second, our provide we consolidate in Jersey. new to flagship laboratory throughput capacity. regional is expected more our lab labs, in lab our optimizing are and XX% network New operationally hub double average investments active Clifton, When three through our XXXX, new

to receive we're Nearly make And technology enhance customer digital results. their platform, million the then enables the downloaded them nine appointments using patients to have third, digital and experience. which MyQuest

Now Mark through to it over to let Mark? me turn go the results.

Mark Guinan

the an In year, by for year. offset $X.XX partially quarter, Revenues Steve. prior driven compared Services up easy the versus X.X%, reimbursement Information higher X.X% volume by the prior billion, Thanks were growth Diagnostic strong pressure. revenues and to grew compare fourth acquisitions, consolidated

number measured by X.X% versus the Volume increased the requisitions of prior year.

grew volumes acquisitions, Excluding X.X%.

extra fourth acceleration benefit growth in third the day the quarter a after to see organic continue we volume considering the of in the in revenue sequential Importantly, quarter.

includes nearly increased This requisition approximately by easy the points. offset partially quarter. the higher the PAMA, in amounted fourth Unit to prior basis X.X% price headwind XXX an year, were per of reimbursement driven of which versus Revenue X.X% compare, a primarily pressure. by headwinds impact

As Medicaid. was schedule, direct last of million well $XXX Reported or reminder, operating XX% changes income year. cuts impact $XXX of the or lab as clinical XX.X% from a as indirect compared revenues the modest includes primarily price PAMA revenues, both to to million fee

to pressure. $XXX was XX% higher operating related strong basis, million increase million or adjusted an year. ongoing last $XXX compared The driven On growth and invigorate primarily partially operating reimbursement productivity was of in our volume initiatives, by year-over-year by revenues, offset XX% to revenues adjusted of or margin improvements income

were was in $X.X Cash XX% from Additionally, $X.XX billion XXXX, compared $XXX by in provided was up last year. patient in EPS down compared $X.XX expenditures a $XXX ago. year and to million XX $X.XX Reported basis billion a year-over-year. million $X.XX, the quarter, versus XXXX $X.XX last operations year approximately EPS to Adjusted were approximately concessions points was ago. capital year

turning Now guidance. to

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

There that about I and beyond. are several considerations XXXX think review you will as

estimate First, face associated to Total year we similar impact more are from expected ongoing XXX We than basis reimbursement PAMA to reimbursement a headwinds XXXX this PAMA. pressure $XX from be of impacts will the to points, to PAMA in in to large be XXXX. continue slightly million. part pressure million significant is which and in due approximately expected $XX

is labor in Second, we in To included and benefits. secret employee pressure. has investing tightening guidance. it's our market pay that wage resulted cost are incremental competitive, remain no the rising in The

advanced reimbursement dilutive diagnostics continued related roughly and slightly the that A making Blueprint disciplined next-generation headwinds, are is portion our our capabilities our to related despite liquid is $X.XX. we expect in investments The investments acquisition of to Genetics. sequencing biopsy be in automation. remainder in strategic earnings Third, XXXX by will we to

earlier. some revenue recently take revenue And contributions PLS Keep couple of relationships mentioned two our contributions from Steve announced. our includes deals that the quarters in and PLS for the rent. volume Fourth, from typically carryover, mind guidance we M&A a finally, guidance revenue contemplates that plus

it Steve. turn I now back to will

Steve Rusckowski

is year had achievable. reimbursement to then, fourth quarter and and Well, ended Quest well by earnings pressure. grow for revenues record And Mark. earnings meaningful is another realistic finally, thanks, delivering to Well, revenues, and in year cash. summarize, XXXX and of the a XXXX we guidance despite positioned our solid

we'd your Now, take to Operator? questions. happy be

Shawn Bevec

Operator?

Operator

you. Thank

now up that question. will questions. the At We company, for we limit ask of request open please to yourself the one you

Ricky we the Our in please [Operator If ask first Morgan you additional Stanley. fall back that you questions, from queue. have question comes Goldwasser, Instructions]

Your line open. is

Steve Rusckowski

Ricky. Hey,

Ricky Goldwasser

think Or an results end? seeing is has the see environment And that it M&A, less PAMA last guidance. transactions you what to labs the of What slowed recently. obviously, slowdown? It we the relative morning. pipeline? are seems waiting in your that the seeing the you're Is is down Good you your Hi. is? when the in announced important XX on the think months. Yeah. about in it that you is Or more driving are component pace

given just, the going that drive to pressure the a reimbursement headwinds is, in that to benefit net would assume wage to follow-up line. the still program should top integrate the that additional one year then, cost around And – the the cutting to bottom line see investments, this you're we

Steve Rusckowski

Yeah.

Ricky, So for thanks, the question.

progress against us that to growth a three in the of that we to our the part So see What affords everyone, X% marketplace, having believe an accelerate remind through of good the it have over elements because our of strategies X% have that market. acquisitions last long-term to made at growth. as play we And we we we shared do several that opportunity to consolidate goal is years. five of

you X% through expectation about fall, our that get at acquisitions. increase XXXX, look did and we our last we goal So if beat to And number. to

have of that XXXX, some acquisitions lumpy. at to a level. all at going If to a in we somewhat that X% going acquisition look have XXXX, are you growth, we're we're little light. X% for But as look just And quarters X%. shooting quarters. know terms is if that we're about CAGR, some because but reported We're We're you you what stronger weaker XXXX, for

growth good are what we -- indications to growth. So think is think advanced the in just invest to pipeline. some good play announced and several Blueprint we a to helpful diagnostics opportunity that that we continue some our are weeks provide organizations capabilities Genetics We we in will to that last on work accelerate

that to regard helping we're outreach them them then And in them laboratory, with other for with with In around Hermann do concept. the the more bought hospital their remind hospital. Memorial finally you it's delivery helping then what where also a second we're continue past many great that Hermann And in reference to And business. done actively is testing and case efficient. of. example comprehensive making we is we'll we're Memorial And of we more have systems integrated we their the engaged their around announced what

is more the what funnel many But we They're have so in deals as hospitals systems. And have stakeholders. these They our many big complicated. become strong. shared past

this So taking is time. more just

deals. is So funnel And we announced two good. just

pop so we're we're be there think with and starting more XXXX year. the And will throughout hopeful also come of to we a good acquisitions

So Mark?

Mark Guinan

And on are headwinds you talked Ricky. When Thank the then you've that. got about inflation certainly we headwinds got and mentioned there's bill we've wage billion the XXX tailwinds, pressure pieces $X our think points, basis you then we on you. about And question, your on investments. integrate to that said pricing the incremental pressure typical the we've way and got about

volume But other the organic order and our to we of in be offset between through of magnitude besides growth drive of line importantly program and growth. So enough -- productivity, all acquisitions that tailwind contribution the other X% not drive is would invigorate the alone bottom Blueprint.

really But able grow that's line. fungible. to we're that's how our so all it's bottom -- And

productivity, take advanced basis against invigorate alone couple X% investments. our just They're take price, points than diagnostic take it So larger about $X X% it billion, the a bill it invigorate. of hundred wage

organic the of business of help really outreach and the grow really profitable our the bottom growth us to contribution that acquisitions it's the So line.

Ricky Goldwasser

you. Thank

Steve Rusckowski

you. Thank

Operator

Thank you.

comes question from with Our next Kevin UBS. Caliendo

line is Your open.

Mark Guinan

Kevin. morning, Good

Adam Noble

you Adam for year, still are them know the seeing outcome pretty I far other type And share year-over-year those you're your for some any gains, to the if have Thanks Kevin. seeing so taking share volume question. And and you access plans This is of growth still January? the it's early actually the but do United talk rest in yes, of visibility still of you are book? where in new XXXX from could what gains coming? Noble in

Steve Rusckowski

Yeah, add color bit let little to will then me provide Mark it. of a

XXXX. shared what we throughout So

second from just picking other up of the picking had business. And volume actually our pick yes, expected. volume And, Given we're from we share. picking we and what reported United, share then we're share growth we the believe and we growth up for share as portions payers up we're other United up we'll

quite Aetna partner of ours continues strong as be one into competitors We with also to -- network back them our managed have well. of our letting well. a It the relationship of

is in gain program acceleration we feel XXXX. was good in of guidance strategy. for the a market So made continuation growth what about it our And that our implied of progress I share XXXX say and

billion XXXX, As we believe we that Day of said back have access opportunity. afford the in changes that now new Investor we worth us about $X

XXXX. for in We up in started we're to have – that of network a And on we're a share. more And that all start said, and we aspects beyond. clearly as going getting of good I and with for have XXXX at there's assumes lot a just that lab opportunity United. that pick Incumbent

of that guidance our finding and therefore from Mark? some United. the again so up And will is picking share come

Mark Guinan

Yes.

the typical get couple would performance to historic and you years say historically to last points roughly that our growth. look basis non-network over XXX we of of was probably last similar our the or access when year, at XX So piece

much the so that And beyond to access. you pretty growth attribute can network

two I plans United Steve helped payers us want to the helped into United access that also the just it of not as And portion Horizon other into And we those, and Cross as Georgia. well. is and a got in mentioned, Anthem specifically it's New other remind in Jersey. also Blue while We increased grow got

definitely chief just that is from our and competitors competitor. coming So growing we are share multiple share not

were XXX guidance. built in I'd say, we're well certainly way we if on any specifically not progress thing January, almost XXXX. we're our asked way And about about the into of comment January, we through would that that concerned obviously. have The you to other going

So guidance we're considering far today. communicate January performance thus we as

Adam Noble

And just And Is could just you. one anything this of share with consolidation if to timing I more. it helpful. Got vendor the that? regards point could would sneak in super you any there be at assay

Steve Rusckowski

did all of alternatives. sure. job evaluating thorough Yes, the different We actually very a

deploy a us systems allow for $XX achieve We have savings. the that. that million in to that to the to we've started vendor we of have And selected deployment eventual

to And larger of so we've our facilities. those some as started deploy

Adam Noble

questions. Got you. the Thanks for

Steve Rusckowski

Thank you.

Mark Guinan

you. Thank

Operator

[Operator Gill with Instructions] Our JPMorgan. next question comes Lisa from

open. is line Your

Lisa Gill

very thanks much. Hi,

Steve Rusckowski

Lisa, Hey, morning. good

Lisa Gill

morning. couple know And around the reimbursement I Good on as up about you wanted the back in that? comments of on Mark, pressure continued think weeks just Francisco, I a I about San I perspective? when just when we saw follow market seeing you're headwinds. to you're your how think a I market ago talk headwind about did you $X.XX. roughly you strategy? also thinking color bit us Can where about from around retail continued maybe update talked little then And commercial reimbursement that you just on just being more give an a wanted commercial

Steve Rusckowski

Mark do you...

Mark Guinan

Yes.

would I something the that Lisa, don't reimbursement So pressure. recall don't think that's I $X.XX. represent

when headwinds. looking related non-PAMA you're So at

As of of by in price under. they're of relationship, you we've is we've of terms or how quality, driven And test, is from hospital hospitals, history it's price that that shared client the that not years. coming some the pressure third-party, menu, high think the direct increasingly over And end we of of the to basis we're testing that decision a lot so, business coming over portion a months several the our of but of work. refer reimbursement reference from the And it's of a bill. payer the to set criteria when typically last is piece last traditional like we shift there's that been described speculating the XX to as a what do largest more and lot is

a More where RFP going contract these those more they to with in and the had compete the all of are quality of reasonable highly. past So, to opportunity on things. and whereas, in competitors there's you price extend understanding an had and for price good kind and come the price might good you that very

increased dynamics build. the the of one definitely hospital-based have client that's So is that

The if And other to you basically talked there states work are And no Physicians themselves. actually do. is mark Any can any And we've mode imagine something those can third-party build where us. work compete. one about markup attractive they any build in And that you an can up we is send laws. several the that that profit a this lab is them. that customers. say that's from for office nickel direct a we to there's

that And a small pricing a some lot third-party So getting as in with is piece source as are headwinds. environment. then of more contracts definitely of line renegotiated in current pricing there older a our and is payer well getting the

Lisa Gill

That’s helpful.

Steve Rusckowski

retail the the on five back of strategy, multiple consumer and it our outlined And part strategies I goes presence. consumer have our one growth. all those better want is to strategy is, accelerate strategies. And it's it piece to as strategy of to Yeah, physical we

on getting working And better so physical number for presence of we've been years. a

To centers. X,XXX remind about service patient everyone we have

over We we our those XX% like settings, And service to is have convenient parts. lobotomists and of And to more about patient physicians' get excess retail in what this XX%. and in X,XXX started centers we're locations, not with office we had X,XXX strategy, offices, access on so clients. medical strip walls goal

like of more settings. our want we centers have to retail So XX% in

joint that, have in formed Walmart. then our to And we that us about gone stores. XXX so added to venture We with We're with some partnerships help relationship Safeway, has actually well. with

to there patient service continue with make We centers. progress their

other making care. Walmart that is also health loans that. You We're in on with see them engaged some might

care other finally strategies relationships to to they in like their partners with as continue as health advance And as retail have and you continue we talk to well. then

work XX% that's with but We've at settings. get building do the you're got our So now more retail to to like goal. We're XX% about XX%.

we'll that and more more the aim. settings, as triple remarks, We believe important look will market I more every the day. is this because consumer have said retail oriented introductory look it's at that we the at in my believe value like We proposition consumer getting

great and right remind pricing, So to points I it's care, really delivering think it's experience the you our direction. strategy at great we health us great

is of the and Quest part presence a that. we The physical diagnostic into walking think, of convenience facility,

to some have So we're and that getting the work progress do path made, fortunate have of more to and to the on but partners XX%. we we're of we really think

Lisa Gill

you. Thank Great.

Steve Rusckowski

you. Thank

Operator

Thank you.

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

Your open. line is

Unidentified Analyst

on Derik [ph] Hi. Thank This is my taking Ivy today. you for for question.

Steve Rusckowski

morning. Good Hi.

Mark Guinan

Good morning.

Unidentified Analyst

guide Good far. so morning. color I appreciate the on the

from talk fill headwinds While pressure incremental weight labor from help can labor size about cost, you us the on that Thank cost? the on you the margin the you.

Steve Rusckowski

bit of little view of our mark, Yes. than within guidance -- reason. To the give implied within we what's operational a color, some

First it's our labor workforce, non-exempt. separate a very exempt market our professional workforce of from strong all, and

of Our areas non-exempt where chain. Non-exempt the workforce, value various workforce is our we pressure. feel there's

XX,XXX about lobotomist. have We

in We have our running automobiles. operations couriers logistics over X,XXX

We call have thousands processors. of specimen what we

at value And that's pressure. end chain, so, we see look if where our you some the front of

all our what we're if is of we we competitors, than competitive very have those it's in have and local, more resources. some wages pressure up those with other we So you be geographies will, because that finding to for to historically, have

pressure putting on our wage bill. that's So

a give that to want scale? you do Mark, in means of terms perspective on So, what

Mark Guinan

Yes.

we're So you for as But are for healthcare. people But going multiple size just competition to areas with specifically. this by those about vehicles from or industries. the drive doesn't think industry healthcare. Obviously, specifically lobotomist, mentioned, couriers, when it's desired lab it come Steve not

the I unskilled then, term, like processing, same thing don't And generally is, for the but the which labor. specimen

many, that for many there's as a well be might other labor. so, that And industries target

might And people's in are minimum to you not but so, in we ask, that really be question answer increases didn't I'll a mind responding. wage.

of minimum It's forces to generally responding that levels have we higher it finding people and attract finding don't markets were harder in they wage. where We to the need. specific the market attrition at talent more really

in near in this wage employees. at higher inflation. increase we longer look term, it's to quality we turnover value annual lower coming run the and the in an But back the our as really, So, see

Unidentified Analyst

you $X.XX XXXX help margin for how the a and details you. on then the beyond? advanced Thank FY to us dilutive And And think bit Thank you. on unpack about just impact? diagnostics, That's trends just from the more helpful. can then, investments that in

Steve Rusckowski

asking the logic just bit this some little you're heard the correctly, So, diagnostics. investing how And I question If and a Blueprint color again, around we're in operation Genetics work? $X.XX. provide and for will of of advanced strategic

continue it. have to shared accelerate that to We we want

that X% our last genetic We you year. was just if reported and about esoteric at look by testing up

to in number invest a of capabilities in to And, that acquisition a us we atypically nice I continue areas. capabilities interpretation specifically, over about XXX in my It Genetics some talked variant today. some panel commercial to of that And that nice remarks. related Quest. proven the have of We organization the and Blueprint then believe categories. also They applying brings some bring specifically specialty tests the into

the And It insight. at of where and of their to coverage, want bring data the depth capability do their so, to okay where but we rare leverage done that more, find interrogate to we typically and around us a also what interrogation nice like already to the look if provides they've you data. diseases

impact our just encouraged we're And some we're the to in about to color XXXX. on about capability provide the really Mark? So earnings onboard. talked We it? Want

Mark Guinan

sure. Yes,

us we to certainly only reducing create inflation wage and the these And work this to to expect So because in long-term I investments also including structure these more increased dilutive competitive the in things cost from business equal. not of call don't cost more Blueprint from we period accretive the arguably is would but all winning other time but long-term brings a to mentioned, value turn as we dilutive, it the actually that structure space. differentiate wage being that out in do will being other inflation our has be the areas other these and reason over Steve capabilities

is come biopsy work point a the on of next The we're to liquid years. within couple will that doing something

stop successful. either will so investing and self And we investing hopefully or be

drag then be no it longer confident we're drag our investment no and will certainly short-term longer that doing be low-cost sequencing we're and highly is earnings. work So on And our that a around be a also successful a will certainly the earnings. on will

So term. in temporal couple doesn't these But investments really a fairly years. won't these mean invest things we that short are that investments, other be be specific there that in will of

Unidentified Analyst

Great. Thank you.

Operator

Thank you.

Our Wright Credit Suisse. next Erin with comes question from

open. is line Your

Steve Rusckowski

Good morning, Erin.

Erin Wright

of stewardship elaborate Are under Hi, the of Can your point program the UNH the my volume? to here the metrics can networks and physicians PLN? some the And this strategic give lower to how actually going implementing be, describe efforts with good that really partner maybe patients that's then lab cost us would you morning. part question preferred that Thanks. steer yourself preferred use is to at incentivize helping as providers with that helping hospital can how second you some on program? and position is traction the And you a to labs? lab

Steve Rusckowski

Yes.

then of in in Lab fall in beyond Network, past And just started And of it really it's So some that network. started the pull Preferred gain that that us optimistic to got where will insured deferred where again the getting really we've said the principles we're UnitedHealthcare their XXXX. fully share. books to provide starting

specifically Mark to... So

Mark Guinan

member talked we to lab can really of preferred with preferred information why go importantly that limited out focusing And that were including a a about and people target they've shared there's in where that members network and the physician quality far that They're the really things a those August. of steering the what's of included accounts publicly last I'd things how that usage. benefit network. number number is other reduce sharing try to we've thus by they're Yes starting say of to on United done the PLN, including lab in explain the to some to and and

them they're patient's often things in the some the PLN. is you physician probably make that higher doing payers the them not other to interest, explain they've interest best should they're ask of we fair directly out-of-network major in of go things we giving call that with quite shared beyond move the with us of a when what about that cost But a in source United and the to out-of-network it's do away above doing we're to the all of on members the might using also also and find physician's some incentives and why that as you'll amongst from And and amount for quality there's best providers.

In the small to insured in insured full PLN fully time itself broadly. in members of states it's the even be were premiums larger accounts, much though terms have pretty that on that it there's of of as going time. their rolled and takes that book. they're for January were in and And throughout to shared so over they're the rollout implications fully we of middle book because still a time sell a agree expanded including they all there have more fully to their out Beginning year they the have insured where ultimately couple could members

the plans, which then step. is And there's the next sponsored

a going that's So this certainly change the step this of overnight some this multiyear reaping is we going some time. it's efforts to where that of for because not But why long-term is take is the move to And terms benefit. on about some lot a is initiative in dramatically. of tailwind talked

would be. while direction, but something to level is So where get to to all in going that the its right ultimate take a

Steve Rusckowski

ability it their systems, bring stewardship So and talked health And C-suite. health diagnostics. number to system to our you effective in And actively asked we for them systems. been our actively years. of build program. me working strategy to, we're go about the again and help at efficient Erin into the hospital health when on with working about is a let relationships We more this it lab back hospital a meet We've

of better we testing a them we manage And then that. how do part out, that we for sophisticated as of that can sending do more secondly, could job the and is

And there the pressure when then case with conversations In always PAMA. now get again an conversations, them to to commercial we continue have sense with outreach hospital of we around then was into have And we their services more where a Does thirdly, example those make for sales, that it? for the business. business.

all in them building there We So relationship. as get we their manage help diagnostics. about it's a

smarter better getting cost. triple is well. And of deployed this what experience to program to last get you analytics is And out is about lane, diagnostics. through get goes we utilization. a of utilization about But about we're also good going under finding you about stewardship more there's back make is what everything, quite at care, of as accounts, our is health our lower it's it's notion the efficient. being it's them rid better And to and more that's And finding it what that many find we're need all like there's over

nothing adviser diagnostics. than we that of consultative one for a thing we terms setting. is talk there's more expensive so about like hospital become And to a a more bio-diagnosis And in of

do understanding our the we're now one listening of recent of what have we partner the example the program so deliver for And with And stewardship with answer largest a and great partners in the working again where for last be better a to specialist. able to story, the going Hermann to their and relationships, United cities a we're proactively our to them in is new Memorial States.

the the we're encouraged in made in over us. the So number really of progress of about front years prospects we've

Mark Guinan

Operator next question?

Operator

Our next with from Sandler. comes Quirk Bill Piper question

is Your line open.

Mark Guinan

Bill. Hi,

Bill Quirk

I guess morning, Good everyone. Thanks. Hi.

Steve Rusckowski

morning. Good

Bill Quirk

Steve. a I here, question guess, multipart

we appreciate order around there's pullback transparency. the considerable concerning So by that providers, first, some hospital pricing executive

these? since lab the of a additional not given by some a does payers, this Thanks, preferred diagnostics, as be then long-term networks from United, interest However, in X-XX just we standpoint? of number about should a the include reimbursement we also, announcements concerning And of new and potential thinking the should risk guys. added expect this separately, formation in

Steve Rusckowski

Yes.

thanks, So, Bill.

of your you question from and back as with know. has prepared pushback But that, transparency do going about bills its complex, to my part first and the believe, surprise providers, The get to into like at are we'd that exposure marketplace, more more we prices look proposition to the bring out to we value and us. just you remarks, for if and there

Because as I we're believe, the in full with we confidence, best town. deal said, the

value plans And so, see that, see is a making provider sure physicians making with sure that, all the to what like great strategy laboratory consumers working Quest their Diagnostics making about. more of is sure services that us are to move

category But they where with do it what do example can at it do a also We're those we're like preferred as this a radiology the part of could looking us. good can And this look that. employees do cost that And lab plans, at our plans for good their employee they're thing of help they that. healthcare, with they to visibility because if employers doing also is of we with the and out believe network of employers services the and they healthcare us, doing so, more physical their is with other for and is the therapy.

good us. a So, for opportunity we it's think

And asked lab the about then, question network. preferred you finally,

with We partners. work continue other to

know, also as presence nationals, the have of you a enjoy have regionals. We in number we Florida. we but a large And

Shield, relationship announced If you Blue strong Florida have very they Florida with network, a Cross at are Blue great in a and them. we look though preferred even lab we haven't

essence, are we you even say they labs, in our announced though could preferred So it. haven't

work we'll we see But be with where you'll as through working. are continue provide keep Mark? trend on publicly. others will long-term, So to to this we go that willing this what a

Mark Guinan

major overt preferred And very United. preferred not, our for when you or the within of had we think network, or before some elements about But another some payer you the lab in see. relationship lab network announcing whether is with will already the lab not network, payers preferred a

actually of have expanded of some And them those. some

of high our impact it cost how and price of how impacts prescribing with and deductibles -- the touch So around of with physicians the them could what when I partner forth. on to lab you patients out-of-network us having the and high the when labs advantages actually preferred are one is, payer so that the of and educate described some and denials usage on network, out-of-network the so

with doing a of we're that number payers. So

and in for they categories, and managed also size of concerned panels pre-authorization some some of put very had where requirements plan There's plan, about a a certain large appropriateness clinical call exempt card, of it's the us it that alone, from means we're some what they've we that not pre-authorization. actually essence, offerings. do created, then, others, gold a which And they appropriately, the were Medicaid the because test that appropriate in -- the

does a perhaps. is They through the it avoid So that from makes have for not easier second us, so us. headwind to to go for don't thing, physicians order that’s only it

us, about Other accretive dissynergies. Day certainly despite acquisitions. in to everybody. described It finally very is the great comment steer in another as I'd one we laid for essence benefit us. than pricing outreach should what then I've work past would as more get is past it actually it was they're windfall huge So at a how we economic we And do still out the Investor in the very,

is number And share in savings some of partnered on price a we so we've actually that what payers with initially. that of

So it's a us. windfall comes all and not of But some for others. value payers to actually the that

the severe less for of pricing headwind a first years. dissynergy So couple

very us about that's that a an of you drive preferred the areas lab not in announcement towards very, over know hear that where and may network we just partnering they really payers bring to So examples volume the couple a us. a value are more critical with

Steve Rusckowski

next question? Operator,

Operator

comes next KeyBanc. question Our of from Donald Hooker

Your is line open.

Steve Rusckowski

How are you, Donald?

Donald Hooker

Thank morning. my you Good Great. question. taking for

Steve Rusckowski

morning. Good

Mark Guinan

Good morning.

Donald Hooker

Yes.

of there can investor points it wrong of a ago, forward years think of conditions? momentum was maybe be I seeing couple of update kind and maybe sized the of just a basis the growth hoping that the be of ago. Memorial what but and business? get sizable might you're looking on kind community loosely your would sense I'm Hermann this in of question of a couple years you top it saying you line to thinking maybe the So XX was just I back current deal. that looking heels the kind for Maybe PLS PLS

Steve Rusckowski

Yes, yes.

for continue our actually of another We got thank is on. did in that built build announced business remarks business and nice we've that question. clients And relationship lab our So, you prepared referenceable something the over We've in Tennessee. we a book time. professional services to we say

example. Memorial professional you the And is some Mark around and another lab hear have share about In what on from services results business more growth with comment our I'll I'll forward. you'll that. XXXX going yet specifics more – did Hermann we it.

helping element better, important an of conversation an we efficient But lab important walking in of them their again that. more their and part more as And make with delivery and systems good hospital around believe strategy. laboratory engaged effective it's an having

we have a And being so trucker able to now it. proven do

stewardship their logged then with testing, ability the have lab to We provide to more It able have will that also augmented our outreach clear acquire particularly around program businesses. sophisticated be of and that diagnostics. with we with advanced

expected. the Mark? it's and moving along us stand and real So nicely a becoming it's for delivering that we growth

Mark Guinan

and selling stand-alone. indices of what deals because just as But as believe PLS getting the if points that increased will the especially at deals, that the a of we we think some broad look really deal, outreach do or around this we deals basis do partners larger last these part contribution Certainly we reference is Tennessee systems. are still that years accelerate morning couple then are with PLS mentioned as be of the plus could of the PLS work XX number. And I minus hospital reasonable state doing around some

could we as that grow to pipeline. that happening. a deep larger see we And contribution Certainly PLS have very about be talk than we'll that.

reasonable, road. we're So that's it and hoping very certainly happy is see points with yes, and accelerating basis the that the XX could something down

Steve Rusckowski

for also own systems in Hermann, these thing Yes many that interesting their release health their -- plan. Memorial too press plans we the own of the mentioned but have

their that. their good So what or is a finding Hermann provider benefit preferred we're example laboratory a within and of their of exclusive Memorial kind secondary service become has plans, is

of So it's an added benefit these relationships. having

Shawn Bevec

Operator, next question.

Operator

from comes question Blair. next with Matt William Our Larew

line Your open. is

Mark Guinan

Hi, Matt.

Matt Larew

good morning. Hi, question. side. taking wanted on for the Thanks the ask retail to I

to the that side? just with volume of As in versus you share network terms incremental you access shift market site characterize alluded that footprint to on could continues as shift grow,

any described And in providers some of opportunities in anticipate potential terms in progress the those past you that relationships with retail services you've then involved to you're of the expand that the there?

Steve Rusckowski

absolutely. Yeah

value That's about or not true volume, to bottoms do okay? are actually physician our draws service our So our is chain. first our of in if through even We for XX% actually centers of think site. each you all trend moving more the in offices. That about that

or physicians to by It's says hospitals. still XX% is our which more us. and a clients provided more small So and we're gradual doing us, to shift

end the the value of you So way. will if our think that about chain front

in locations, to able What share. have a and is get we're better going better be to if believe we we experience

ourselves than overall good And of the well. and being this the faster front so the we're growth in our experience growing that also deliver we that are as we believe we because end shift marketplace

service And care. health all relationships the some as opening far care as -- Walmart clinics. providers a They're getting player health this in bigger mentioned earlier, their is looking strategy. big they're at We of other a are with

onwards Aetna, with We theirs CVS, with partnership great and a have what they've their extension were of building is partner done of with MinuteClinic. We MinuteClinic. an up CVS which is pumps, with Health

strategy and And as them presence go we'll evolves others as a we forward. with have that

local also of do will and within we -- ourselves. of fleet patient some see do if centers, continue to we of So some service to our of druggists retailization to organically it do because opportunities you the will

an it progress important of on making against part So continue strategy is a multiyear we that keep be partnerships to and it.

Shawn Bevec

question. next Operator,

Operator

with Tanquilut Brian Our next question comes from Jefferies.

Your line open. is

Brian Tanquilut

question on Yeah, morning, so is good Hermann. guys. Memorial Hey my

of get finally So on to hospital side? the traction is you're think there? do starting proof you think you this that out largest UMASS hospital one that the this systems outside Do the of with it's

you're then a deals buying you're from whole and where guess the whole just hospital us mind system? for lab guys these on giving outreach, I benefit if getting you view of reference don't basically the what the PLS the kind tail business And is the comprehensive

Steve Rusckowski

Yeah.

have as period and years systems. just a or complex Hermann a than all said, delivery these take announced we with time. of three with I longer first we we just we what two lot today think ago So more interest is integrated But deals of so Memorial did

number significant already do a over the of We systems. have years

in West long-standing remember the which bought a the we remind Coast. outreach is from you UPMC example. Pittsburgh. Dignity, I'll have player on is when business you PeaceHealth we another relationship major with If a

INTEGRIS City. Oklahoma in We long-standing with relationship have a

proof with the to that long a is systems have a like before point in example large more good system this we a So this And be come. coming direction. there UMass. working of a before large city I long argue good great a history our with actively deal delivery would of in these And -- will

this because business. history in can help hospital. could them we can We their we of it outreach help And the their with with tie their to physicians, reason us able with Hermann have We Memorial them off. We buy help integrate work, can reference why is chose We being their can plan. the can health pull to proven it. them we

we with of long-standing serves us have a clients So well. history that and credibility referenceable a book

partner, running working an integrated testing laboratory it get XX% delivery an Because part is it's of with critical we're they that of right. It's a essential healthcare system, X% costs, decision-making.

there system So, that Brian, I that to will see this indication announce. come. think, is we're good this we do a continue a as more And major be to to to be happy able

Shawn Bevec

Operator, next question.

Operator

from Citi. Giacobbe with next question comes Our Ralph

is line open. Your

Ralph Giacobbe

Thanks.

Steve Rusckowski

Hi, Ralph.

Ralph Giacobbe

morning Good

Mark Guinan

Ralph. Hi,

Ralph Giacobbe

embedded just on can I give of just the that comment. I pressure you assumptions heard sure volume was a bit say hundred Thanks. I and Mark, right? to I a higher, basis make want sort wage little the mix wanted guidance? I pricing more And points just though, heard underlying quickly, you then, couple of to clarify in Just, secondly, hoping

Mark Guinan

Yeah.

I'll turn and guidance. piece then it of let to back on the the wage So address Steve the volume me

a hundred wage total no, basis the So couple of points pressure. of

And increases. we're is And did we then, at So what a more we was given how year our pretty level. we're were merit increases. saying historically, that, it consistent funding with annual this

So, points. in several total, hundred basis it's

Steve Rusckowski

Yeah.

have also reimbursement you X organic in idea we've that the XXX if we XXXX. said XXXX guidance there's which talked in we to We've some. sized of we We've an less be about than helps basis in have points had That there. that scale. of pressure us to says growth X about, to historically the initial at contemplated that X, done, look growth And X of so, acquisitions which are our that in

Okay?

We then talked about, that they're have provide these going we to PLS. just new deals

going quarter. they're particularly the said, As ramp to start in we second to

of that help the with some So us will growth.

growth. math, we have guidance. you and we so, And that's when to And pick implied all in through volume share have our the to therefore, up have go

consistent. entirely So

network, good going to will share And What to momentum. But was of a Okay? on with that with to we've the improvement start preferred lab our in payers it continue other we gains access We're told that that the XXXX. and is acquisition. the to implied our last XXXX with build with other you doesn't before, through start. see gains continue work into growth through of as year and to full And our payers parts grow share brought strategy. that related we guidance market it, and

Shawn Bevec

question. Operator, next

Operator

Newshel Mike comes from question next Evercore. with Our

open. Your line is

Mike Newshel

extra any Thanks. obviously the leap issues in have comment first to just on calendar there comp for out? other are day year effects quarter, the seasonality Can or but from you XXXX? We call just

Mark Guinan

Yes. a little complicated. I mean, gets bit it

not the an we there's But calendar So day data really actually QX. because a full is. of it extra day in it's could

gets it little So a complicated. bit

year the extra an quarter. chunk in of first in definitely So There's there's a the there's day. that –

you If out in recall QX. an day XXXX in extra called we

that the So you not because that should is will think about size way when QX repeat you the calendar falling.

the of of some holidays. matters. thing And the then week in typical floating terms then of the the I'd the some fixed the holidays there's seasonality out that last of point around day And is

New So Wednesday Tuesday, things Christmas the difference, being there when be are best July and and those you are look a and the thing if a like of can those Year's Xth worst if at weekends. the fall, where

revenue – scenarios of guidance might we've of point the within imagine can But those you sure XXX there. to a point I'm the range all I'd play some basis that out being things. So you that contemplated

Steve Rusckowski

question? Operator, next

Operator

Wolfe next Research. from question Stephen comes Our with Baxter

is open. line Your

Stephen Baxter

the Hi, question. for thanks

lot from including of I understand the hoping network think If the embedded help year guidance could this explicitly us So what impact, out obviously was stable took out is more at a looked year-over-year. moving United perspective? you I roughly I bit seen have today investments an the making. op margins I a parts margin would guidance the in you're of little and

our do So expectations be than can expense, go we add be any for items, you interest that below you. if there the line into XXXX? should Thank as achievable we think on And anything different you considering again in XXXX that's tax models? the would rate

Mark Guinan

and rate tax the consistent. pretty be address me latter. expense Interest will let So

number earnings as up been equity where questions years has set driven had our And growth been other people ago that that area earnings. The of we growth. drive by recently our we've certainly JV to ask with that JV several a Square have largely IQVIA continuing Q

our be that investment we $X.XX the we accounting that company. called those an have liquid will share it's actually a in this to losses again the of months rules in will to have earnings us all that One in the that biopsy we That the party. earnings dictate and take third an through called And earlier. line out investments I our growth dampen comes even of out investments investment equity that that so but somewhat equity with

it for the turn part of your to Steve I'll So other margins. back question

Steve Rusckowski

the for think we we've provided Yes, best of to growth around around because earnings drive consistent a we and on where We're growth businesses. mix a that's driving way been guided we driving capital. haven't per share. We margins, return margins we're us and have shareholder invested outlook had And value.

we're far as growth go it not to guided we markets really be could math, going and be line can But as EPS on we So the get based comment the year-on-year. private what will through growth. the top margins have what you our upon from

Mark Guinan

is that given. And the other thing are margins not

margins So because And her margin. loaded through if end, that fully on organic with revenue that versus shared a as Ricky that we've than we're we're growth the I will depending revenue low impact at guidance previously of higher have as it the on with drop-through high our end comes the shared initial question.

a that line the come expansion and growth. in the headwinds. can proportion of margin alone any -- growth through the program really invigorate will bottom offset margin Our organic large revenue But

Shawn Bevec

question. next Operator,

Operator

Our comes with Meehan next Jack Barclays. from question

Your is open. line

Jack Meehan

Thank you. Good morning.

Mark Guinan

Jack. Good morning,

Jack Meehan

was contributed? question. Holmes Hooper and that Clarification the how last have year had little know much a that? if in fourth you strategic you on acquisition curious bit clarification One quarter, one weigh of Hi. I on could might I

has I'm outreach just that's, done Blueprint just the past. we're in like terms the versus And the in in deals tuck-ins weigh the I unusual you Quest accustomed could the if -- obviously, then to of curious appetite strategically of that with guess that of what just the acquisition framework on in given for side? deals associated terms dilution

Mark Guinan

was the Yeah, Blue small competitor. a

in shared when get we of in testing past certainly the point the we've As some flu this spike. care, flu season

tailwind, of little a but was bit it not notable. anything yeah So

strategy, our want I of to Steve… terms In ask

Steve Rusckowski

a we our We've looking you're So at three laboratory talked to acquisitions is strategy falling small We for around Jack always approach. is Boston us we balanced one did Labs of our in what just related acquired. and aligning typically about categories. having we're adjustments Missouri regional in that’s a shared, laboratories. regional And One one last Clinical acquisitions year. seeing

we'll to So pursue those. continue

Memorial really Second we We relationships deals it will stickiness is our business good building. you example earnings. to provide They the like and board capability that. hospital of take keep Hermann is outreach a are those real growth. We of like customer the on if accretive

And so of Genetics example building. is Blueprint an capability

to $X past, diagnostics, why for us advanced that great a opportunity to we for prudent variant, It'll is our it going spoke to genetics strategy. give and a category would nice in which with in continue very to it's do a capability that's allow around us that is us be our made that thought but size, make over investment we growth an we consistent We in molecular and prospectively we in to. billion. We shared And the it's accelerating to modest bioinformatics, us I it. that achieve of strategy believe there. around interpretation the invest It's think definition

any including consistent we value we path for that we make ones shareholders So a have our money trust strategy can we with and the of that to deal just our for balanced a make shareholders. path will with deals down will continue approach announced, creation that

Mark Guinan

the one book a in directly space. goes value business we're typically book And creation has will come just earlier do certainly book. from that acquisitions to mean brings mentioned from Really business of buying. standpoint. I of it profitability with beyond And while we Jack final we've benefit buying the we're the comment. become Blueprint the And as from that creation everything value will better well capabilities our

a it's to description create competitiveness and that so outside the really that margins space test capability, means going in of we're Steve better book And that and business specific menu better acquiring. the gives

Jack Meehan

Thank you.

Shawn Bevec

question. last Operator,

Operator

from comes Ann Hynes question Securities. our Yes, with Mizuho last

is line open. Your

Mark Guinan

morning. Ann. Hi, Good

Ann Hynes

good Hi, morning.

CapEx to I XXXX? I ask of just beyond So, your down goes just new little CapEx after we flow higher, know is because about run the assume rate want cash a facility, XXXX? should that

Steve Rusckowski

But XXXX beyond I expecting this been year, level guidance the Clifton, year largest into current Ann. and what say will operational even that, this our driver Clifton the and year, XXXX. is back we're certainly any in Typically, has kind I last don't spending. relative capital The of to of year the give facility is be for the XXXX, in increase

We haven't that. similar any like announced plans

capital that little infer might from might spending come a beyond XXXX. down you that So

Ann Hynes

CapEx in Clifton? you Have you've disclosed how much for been investing

Steve Rusckowski

haven't year, by what three it disclosed about we We billion $X.XX have that years. over was investment

Ann Hynes

Okay.

Mark Guinan

the have self might You sale gain seen as on well we that property focus… recorded a with

Steve Rusckowski

Yes.

Clifton a back big year-over-year nice and our cash but was and we're of lease GAAP moved inflow. to exited So now right that to gain. our property it going was to we out sold a that and adjusted the Teterboro adjusted until we earnings income, We contributor

know, cash flow operating the as into into the operating actually And flow. Ann, And you goes tax against that actually XXXX. not financing, cash on gain goes in

of a at So fourth the disconnected. from XXXX. end got But little of of quarter bit it's cash from the an sale bit Teterboro perspective, of accounting a actually we quite

Mark Guinan

Yes.

really Clifton price So the that facility. We certain case business assumed built the investment, Teterboro when a sell we we on expectation. exceeded for

and business against. putting case what feel good about we So budget we're our capital the

Ann Hynes

Thank All right. Great. you.

Mark Guinan

Ann. Thanks,

Steve Rusckowski

Sure.

a great our and your support much. to you look your Have So Appreciate We engagement. thank appreciate seeing travels. very you in day. forward

Operator

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

Quest Diagnostics (DGX) 30 Jan 202019 Q4 Earnings call transcript