DGX - Earnings call transcript Q2 2022 | Quest Diagnostics Incorporated

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Operator

Good morning. Welcome to the Quest Diagnostics Second Quarter 2022 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question-and-answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited.

introduce Diagnostics. Vice to Relations of like Quest for I'd Shawn President Bevec, Investor Now please. ahead, Go

Shawn Bevec

Thank you Jim morning. Sam Chief Mark and good Chief Samad, Executive our Steve Guinan, Financial Officer Chairman, our Rusckowski, incoming and Officer. Officer; President; Financial Davis, Chief elect; I'm CEO and joined by

health the responses of on U.S. the to The be believe beyond continues company's client and pandemic the on efforts pandemic are including severity vaccination results in forward-looking may condition by financial and the press and/or During are reconciliation Quest which to measures primarily current of make COVID-XX company results, reports the will impact on differ economy; the federal, to of described annual knowledge the control. and non-GAAP COVID-XX X-K. to, earnings and and impact drivers statements the the may system driven measures Form limited on our tables will this impact pandemic, U.S. Actual timing, insurer, state Form for the those to call, and future we measures. pandemic from and care in provide release. but test, reports the molecular that of and cash payer non-GAAP that subsequently including include comparable and on XX-Q healthcare government, most quarterly uncertainties, governmental may effectiveness its pandemic the recent projected. affect flows report COVID-XX Form future results We and a materially duration, GAAP those scope the reimbursement local provide our Diagnostics' impact not operating Risks XX-K filed of

growth, refer adjusted to reported volumes EPS. diluted total revenue refer excluding rates. testing diluted the revenue organic growth EPS outlook growth our this growth testing. projections, rates Any to refer earnings EPS performance from and call, revenues and growth revenue with Growth long-term reported to or of references annual references our to associated adjusted business, to acquisitions, COVID-XX adjusted business including base For to references compound are EPS

from will base business. our growth be acquisitions measured revenue Finally, rates against

here Now, Rusckowski. is Steve

Steve Rusckowski

and Shawn our well the We testing of our since COVID-XX base in while growing quarter, us joining year-over-year performed everyone, today. business Thanks, share March. for thanks, increasing molecular

As full we have soon. demand COVID-XX anytime the into we not away It and XXXX. expectations for said for XXXX, Based will quarter before, year continue testing guidance. overall our we molecular remainder believe on in of raised our going the our have performance is

Medicare PAMA lawsuit. say a good well you detail more our it take D.C. legislation turn Appeals Salsa, transition. on their very words on also will Medicare clinical over Congress round data failed called billions Jim, X take result national highlights Unfortunately, marketplace. could the XXXX, Medicare will trade significant on schedule of clinical of before into and to intent In schedule Salsa the fee this access quarter of I The We're way as Mark aisle. of collection questions. introduced Salsa get who important the reform members single is of you was few permanently, the back view, private a Congress to laboratory we House services. PAMA on based our Services Circuit's leadership But fee the both passing payer a made PAMA fix collect saving not associations our clinical now federal for the our Jim for and more legislation passed. ruling was introduced efforts segments and to first path. in before lab then if about your Act, lab Court give sustainable schedule financial to fee the I'd of recently the recent the on performance laboratory to on you through new large the progress our U.S. Senate In to grateful We like an cuts for sides over the when from as Laboratory through rates of update second years, setting the in the with data

hospital with reasons decision PAMA Last our data the and Our that on trade filed Unfortunately, this patient trade collaboration association, week, payment to in court lawsuit Court Meetings capricious." and rejected XXXX the the In CMS requiring public the with a exclusion coordinated Congressional is is this has recalculate D.C. ACLA not the provider CMS's price sided Importantly, communities. court the been in "arbitrary its association efforts the involves and along Circuit merits. by flawed ACLA. short, advocacy case the amounts. is and called to first based of procedural with for opinion issued

to grounds flaws While PAMA's this we mini ruling disappointing, give Salsa. passing finally Congress will believe by additional fix strong favorable

I'd to turn to Now, Davis. like over Jim it

Jim Davis

Thanks, Steve.

base care proud grow the believe has I'm Our rest made our of since share of performed COVID-XX softer the utilization quarter. first health industry. and of well efforts the trends the business we the to end us of which molecular despite team testing impacted our

advanced years. CFO, as further our from testing. Illumina, X-plus us Samad. to the announced next the also for direct-to-consumer he the Financial We Sam in ramped Chief we and joins Sam growth In of Officer investments diagnostics accelerate quarter, where of selection our areas served

roles Health of Sam, Quest welcome of he health Diagnostics. us brings at financial care to to a As Sam Prior help depth Eli many ways. that experience Cardinal Company. operational several and and in know, will held Illumina, Lilly many you and leadership

Sam Samad

roles, join contributions honor the many Diagnostics health I had observe the to to care. the Jim. an opportunity team. is It's to In Quest making Thanks, Quest previous

be weeks to here. excited Just his and arriving turn to dedication Jim, Mark I've less thank far. been so I'll I've back met I'd partnership than passion you. transition. everyone Guinan impressed the X of by it this that ago, like during for I'm to

Jim Davis

you. to with closely forward and working very I Thanks, Sam look

down to and adjusted BAX the of an Total volumes Now, XX% second million. second were with the BAX the from quarter. molecular spread basis. were by variance, the we testing June. for a billion. in from Cash and $X.X testing, the July, $XXX in provided Earnings on $XXX previous our and to XXXX share in turning per the In the $X.XX XX% COVID-XX COVID-XX revenues consistent approximately quarter. with were operations reported approximately quarter, demand revenues was $X.XX on performance we reported continue see million basis

the March we softness contributed has of believe care weeks utilization. in we first the the to trends since Our March approximately broader performed increased July rate COVID-XX observed XX% since in the the positive. X We tests that of positivity and health were

testing. molecular key seen, strategy element increase relationships. executing you've we're our the our through of testing number of successfully As is strategy share of to to increase retail access a A COVID-XX points

we Through Quest our ICATT testing is individuals to molecular Approximately the collecting at by access testing, uninsured also to proud its community COVID-XX to came addition have diagnostic retail for and in relationships, specimens been or participate can to the in COVID-XX and from out-of-pocket half program, COVID-XX testing. qualified points Rite locations this volume of channels. are access CVS the increasing CDC for now In zero number costs. program selected access of our grow. quarter continue Walmart Aid will to

COVID-XX Aid qualified have and insured the access for relationships of we as centers. PCR testing molecular testing through expense. pleased are X% U.S., from uninsured Through we're patient Rite zero be the own retail estimate for we well of performing our We approximately up COVID-XX X,XXX approximately testing to in that COVID-XX provider as March. service these nationwide X% of patient addition, efforts, in sites approximately customers In out-of-pocket now

our health Based on our level of us billion $X.XX COVID-XX these into extended public full $X.XX guidance XXXX which was the will to factors, we emergency reimbursement. and help billion. revenue Finally, for October between year current maintain raised

we our progress to base to make second to accelerate operational the drive In turning business. excellence. quarter, two-point strategy our growth executing and Now, continued

Here quarter. are from highlights some the

remains funnel M&A strong. Our

laboratory conversations late-stage with to on we of health business. We testing hospital reference services. leaders This have lab with the is C-suite systems several providing are purchase on addition professional discussions normal our and in in their performing outreach

opportunities discussions, labor health also and paused pandemic of created financial the some facing. of this that are systems hospital While these many because pressures it has

to plan access. health through growth continue accelerate We

grew Excluding overall plan than of revenues the see to with base continue volumes plans Health COVID-XX, and our value us. faster quarter. business health in working the

last years, the Over XX health and increases. price large regional X we national with have plan renewed contracts

as preferred selected physicians with proud We be year. providers UnitedHealthcare's lab fourth with for the And and year, providing value. expect the one to more quality increases access, improved and of renewals price patients consecutive this we're network

cost state consumers before know health growing plans and individual care. Blue. CMS Coverage Florida for items Finally, to to for strategic to Beginning services. health help group and month, share pricing became be insurance this an that covered of our Earlier Rules with pleased or of the X, receiving large renewed service Transparency covered we required or are a July effective important and post we're have XXXX, Florida item information continues to issuers us. in Final the group today relationship

the quality, pricing clinical speed resources transparency will innovation, the that ensure We this transparency enabling powers accuracy offer. employers the of favors as accessible and which improving patient do X This are continue patient in value next of believe more care. to test leveraging into are Diagnostics we our and We reducing better clinical the Quest aware affordable requirements years. go finally, experience data care. through easy-to-use and gather offering results, cost patients trend with of that to and momentum outcomes We effect by pricing will

investments to we prenatal growth pharma In hematology, services. saw continue and the capabilities. We advanced ramp quarter, in from genetics our diagnostics

the blood Alzheimer's We of aid test Detect, early to AD introduced Quest in also assessment disease. a

We adoption and from primary physicians neurologists. care are both early seeing good

we differentiate a able from launched The and molecular of the developed viruses monkeypox. the we be test of will to perform in nearly week can tests orthopox last by XX,XXX Finally, July. other detection to week, aid test end lab the monkeypox

in testing to can capacity addition, In needed. we to increase other if network further our laboratories expand

importantly, offerings business to base to in We continue and growth see our testing, testing. our direct-to-consumer thanks COVID-XX more

to acquire, who retain Within saw experience We strong disease. testing business believe and testosterone, we this year. us visited Lyme panels this about improved expect customers base excited growth platform. comprehensive digital We're more we later debut help from improved category, and experience convert QuestDirect the will upcoming which digital metabolic

to expect more before our have of the this We year. experience end improved say to digital much about

is our cost, two-point The improving second part to productivity gains. of We remain focused excellence. and drive strategy on operational service driving quality, operational our thereby

happen. have do. We on getting underway and network, to our people, paid processes make automating work our optimizing and attracting initiatives we our and Focused digitizing this the several retaining for

We're up check-in enable our the we collection, teaming costs. now immune help Two, provide Like one in partnering of decrease XX% One, a provide initiative process development categories arrival many technology patients the examples. Three, histology. the and work also at to we're tracking, certifications gains. to the frees which on are three pipeline at improves which job and are which patient and commitment to digital in area continue leveling to universities X,XXX we our encourages In learning in and phlebotomists improvement We're current and that some are medical specimen fuel of drive a expanded prescreened service through well improving times with a company X-year capacity environment also our the Here companies, experience. cytology is expertise in appointments for customer exchange payment further end-to-end clients. increasing including into rising make impacting greater sites. not Quest. experience their lobotomy candidates has our to provides patterns higher-than-normal network as with average thereby specimen recruiting to build transparency and technology, to implemented across up to for our to We're the the building inflationary to ability an to our has productivity patient digital turnover implement which seeing focus load our schedule labor program, as patient-employee satisfaction. employee wait managing in productivity

in guidance. line built expectations are our costs are into increased with these However, and our

year another expecting are Invigorate improvements productivity savings offset these pressures. We to of solid and help

invite you Finally, our and download proud I'm to XXXX report very recently of released all it. responsibility corporate

that of to our ESG website. can it accordance every identify to on our empower find our We're and the is vision disclosures, materiality significant launched proud the in with making Quest contributions in most to the reality assessment topics enhance day. a our formal XX,XXX colleagues You very we ESG help stakeholders. began of better and making reporting are grateful we guidelines. health to level to XXXX, our who SASB highlights, Also, company the first the the Among

the our updated performance details XXXX. will guidance provide our more insights on of more Mark for and share Now, on remainder

Mark Guinan

versus versus Jim. grew Base versus the approximately partially offset year. XXX compared to while total volume X% reflected base Diagnostic testing by the Thanks, from services $X.X second Total testing of In growth approximately X.X% were declined the billion, points increased The X.X% to prior our revenues revenue requisitions prior year. prior of volume. in Total testing volumes COVID-XX versus XXXX, declined consolidated $X.XX basis the year. second revenue. Revenues billion, to measured quarter approximately for prior revenues X.X% by Information million. number quarter, XX% X.X% Acquisitions contributed the lower base testing down the the COVID-XX year. to declined revenues decline business $XXX Services

volumes than less testing base grew total acquisitions, X%. Excluding

COVID molecular Together down partnership, with surges, as volumes began experienced the COVID-XX some throughout in tests our As and we the beginning quarter, approximately COVID-XX again tests. prior tests base have during in Sonora X.X we and to Quest, X.X resulted April X.X million X.X expected tests, cases than the first softening versus testing second million year were resulted Quest million seen molecular volumes stronger respectively. approximately we alone roughly of million JV prior quarter. spring. rise testing

molecular Our prior business by July per averaging modestly. volume. the have with we COVID-XX day, roughly per primarily XX,XXX lower molecular declined versus been X.X% Base Revenue excluding Quest. the requisition COVID-XX up req consistent driven reported Sonora was revenue volumes June, per year, in volumes tests

income pricing volume, X/X As year-over-year we volume the The of quarters, income or testing $XXX revenues expenses XX.X% income In lower primarily adjusted the nontraditional of revenues COVID-XX basis, XX.X% year. second business to XX.X% quarter slightly or an average in pressure to to improved operating through or COVID-XX have in million of XX.X% last compared quarter, the a was in basis price costs, retail related reimbursement than XX $XXX last of highlighted million has year. operating $XXX with in compared points $XXX year. decline environment recent carry On which quarter. in and of last unit was of revenues less the half revenues molecular base adjusted million, or retail growth Reported higher channels investments is roughly of accelerate additional testing approximately logistics for molecular portion operating versus our and COVID-XX from to lower COVID-XX volume tests. came reimbursement our our million molecular partners

COVID-XX continue of $X.XX to to mix volumes quarter EPS through operations million in the by Adjusted the year ago. quarter. last channel was $X.XX in in a expect was this XXXX Reported EPS $XXX billion cash year period. in was $X.XX We $X.X provided grow molecular to year. to third compared compared $X.XX prior Year-to-date the versus the

activity, repurchased second in M&A limited the million the Given we stock quarter. $XXX during

be approximately be COVID-XX billion $X.XX billion range expected to billion. business expenditures $X.X billion to $XXX are of Reported $X.XX expected $X.XX to between expected $X.X by be at $X.XX are range $X.XX are $X.XX expected testing be now billion between to to our be to EPS a expected to to are and expected be Base $X.XX. the and to $X.XX revenues EPS adjusted $X.X and Revenues between is least and billion. billion. guidance. to Cash of in Now, turning revenues operations provided updated capital be in million. and

some as on well additional I'll assumptions considerations. concluding, embedded guidance updated Before some our XXXX in touch as

of XX,XXX molecular the Our day approximately to rest per volumes tests the year. COVID-XX for average to guidance assumes XX,XXX

in was the run into reimbursement steady Last period. XXXX testing extended We look toward XXXX, through hold our mid-October. to continues days XX the assume year. testing emergency As next to health molecular average rate relatively continue we week, of public second half through COVID-XX for COVID-XX we molecular another assume again this

captured additional are in the extensions While beyond October, renewed emergency public could not guidance. our be health

second earlier, As molecular have accounted COVID-XX approximately testing of our through quarter. molecular retail XX% we which in our COVID-XX grown of the Jim share noted volume partners our successfully for

expect partnerships remainder retail continue grow to expand, channel the of year. the to these mix through throughout to continue this As we the

channel. incur to costs incremental this continue We to serve

the As COVID-XX testing continues to digits, molecular rates double specimens ability limited. in to for positivity remain our COVID-XX pull be

new site. year increase accelerate adding now spent consumer will but new reminder, to ramping diagnostics. IT launch site will first We year. this I be this as our of in capabilities support year we costs of also As bioinformatics Steve. temporary these A a approximately to year. and marketing are launch these support to continue offering investments million this ramp growth to in we stand-up are later additional the the We'll the within QX back costs our to of the as expect the $XX consumer following portion well of half variable turn to it advanced investments headcount

Steve Rusckowski

Thanks, Mark.

you challenges company, As we member for the been in know, next pandemic. be as this leadership he of X.X wish call grateful decade. last happiness miss health consult Mark, as I you've approach its Thanks. I earnings and done have the as partnership week. Mark's many your life. I'm key the you years for accelerated growth. everything and family, retiring and especially navigated our would nearly of your is next a you've Quest the last will transformed for chapter your as and over team a you we many of

Mark Guinan

My and ahead. it years. lies Thanks what I the serve are and family analysts been the enjoyed investors this Thanks, has on honor an X excited to you. with Steve. to and have call. Quest special all for a last is for place CFO of working I as

Steve Rusckowski

through quarter COVID-XX Jim health testing another business software we our believe had shared, care. seeing good base performed share in in efforts while by the trends our Mark. of Thanks, we with line as driven to utilization we're And summarize,

on We for and in our have the expectations raised our quarter remainder based the our full year performance XXXX. guidance of

of Finally, important Act we're the Services and and for passage Senate Laboratory the of fully House this saving efforts members legislation. to introduced grateful access the who support

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

Operator

first from [Operator Instructions] Tanquilut Brian with Jefferies. question Our comes

Brian Tanquilut

on help thanks years. all retirement over for the the congrats the upcoming Mark, and

And with surge So some with it's share I it about can the the on are Steve, called mean, as maybe we base any how the mean question down Or a that? today I the you bit terms you current on in taking just do us we think and little I COVID you my the mini business overall out guess, right? past guess, guys volumes of defensiveness the thinking face that you get business, seeing? of softness, a as driven the further, recession I business the color just that road of we're more COVID?

Steve Rusckowski

Yes, sure.

So for the thanks, Brian, question.

about economy last and is second at and our of that XX slowdown over your have where you happened So little all. we view our infections what's look And in extent, than before, a what and second base years indicated, know. of people approaching a potential bit of the in in that over we're to physicians amount though COVID slowdown, recession. What's were relationship, we as And as quite And decade, into we quarter. things with hospitals, last quarter the if longer taking secondary our part business in are change the we the we some to believe happening XX a even question as a the going with the their worries hard do second a the did what said and softer pickup term business. expected between on a there's that's at

XXXX, recession, Care parallel The the the with in -- Affordable first that, last the -- Recession, have Act. Great big we over

policy also had and a PAMA, lot changes We health had with other we so there's of care effects.

an through believe the that slowdown believe cycle. economic and And that so there economy up We do so health down and essential we the we're throughout will our in in for utilization a impact delivery be do yes, some we may related that care be and the reasonable of to going the health to believe care recession. need continue business forward in any

So saying with -- people is any the we're taking but it to you an differences if happened X what's circumstances at look X there's around, economy as years. happened last know, health care were a this given and what's of over maybe in this and we're unusual seeing set the time

you'd what base anything add our to see Jim, to we So business? with like

Jim Davis

payers Yes, you with us Steve, utilization as look, saw what I the of to well. softer would they health this week, care services is, saw we're in close add have announcement the touch earlier indicated And payers. UnitedHealthcare's that and

a In to in those XXX% track loyal know addition to it analysis. the sales flat, loyal. us. XXX% we we was basically And that accounts call group of we same-store that, our accounts Quest that quarter We are that it are noticed

we panels chronic So, is our a of lower look And mix infectious disease disease, that general business. do. testing thing infectious our the just at and grew non-COVID noticed wellness the other health some we at care we types and than of rate

all on the quarter. softer -- base that certainly based to was information, conclusion that the we we this come So

Operator

Our Rice Credit Suisse. next with question from is A.J.

A.J. Rice

I the base manageable. out then to my some sort largely I'm business, talked to and could you pivot congratulations forward Mark wishes Obviously, viewing assuming and And COVID-related offsetting it. just if working base inflationary you've been on margins. testing. pressures. also savings want welcome, you're to about Maybe just Sam. comment they've within the called talk But business and of Look margins? Invigorate I'll you. they're I wonder you the aboard, like seem also over about best how on They with to offer

that that, wondering the I'm been the changed? PHE As trends reason but has to aggregate in long stable place, is margin about the margin that there get but underlying We has any is think as there.

how it back well? much that guidance your factored Any comment outlook just changes? on could half you If into and as

Mark Guinan

the questions. for A.J., Thanks,

Let me start with COVID.

lot dollars margin. at revenue, business, look lot So was as more a operating when prepared more a lot of COVID more I good mentioned in our news a you remarks, volume, the my

goes of pooling, have retail year less reimbursement last had mix However, a And couple dollars, also expenses. which significant. slight larger versus shift anything the a towards some higher not outlets then we with have erosion that super average on

the So to the but percentage its was higher. COVID was still, bottom line less much from margin contribution

into go not at continue are COVID going this rates volumes. As potentially assumed we've the to the would material look don't pooling. where that but we expect a change half point, current as know grow positivity proportion or our total with of a the we back amount of We to the mix in

So within the ranges, that's kind of how we're out seeing the balance COVID. on of the year play

So positive as the rate believe people I'm through lot believe But if right on, is prevalence that the of now here, positivity cases underreported. Jim testing drops are we as the we and been extremely antigen doing COVID seen and rapid at rate, high. the that so now looking down the has we've more are high pandemic, a

the And in we the we answer business believe aren't between been so has do those. provided how earlier has will by a impacted around last. that surge And negative that in absolutely the long We it historical to the business, just there sure correlation been Brian base base COVID.

the built On that's salary we've XXXX, the that expectations. within for our shared that's built and that as benefits we something control assumption in was we guidance. SWB, work plan a we really And certainly, base business, our higher and in ranges

we that dollars billion of couple a have contracts. long-term have We

heard that we and things is housekeeping, And exposed don't with and have for we long-term that. there so short costs But temporary window you've in familiar where from have other are fuel, to a things other everybody labor. security, not like like things contracts really companies well, as inflation some then

during going those expecting The in you is our been have more news areas We immediately. to that if guidance. unlike than year. little have hope long-term the a wage not inflation generally certainly We're inflation, those we so you have will expect not And are into inflationary continue. where year-to-date good results away anticipated it's would go our

but know long your If certainly as suppliers around We inflation of how and half provided. to in I But be you, longer might we $X.XX or reagents years. last. change. a this probably it couple the expecting that that you quarter spike tell like and with don't $X.XX not is well might can other key it's first to hope things to the guidance that we're add contractual term going We a in

A.J. helpful, that's hopefully, So

Steve Rusckowski

And clear. A.J., just it's so

productivity. bullish why And that about the opportunities a the year. a the assuming But we has in Emergency comment don't past you certainty you be of You we're around have in October think still on our see you the that, why asked, it extended provided A.J., opening So we've all Jim, still extends that guidance prospects know remainder since of I and bit have for Act the assuming not October our mentioned rate little that the assumption about in guidance we you the changed. the until around improving extended don't our through but so bigger been and we're just bit that what things guidance remarks we will okay? chat little and about we're why for is

Jim Davis

Yes.

around past, around certainly some processes my we've there's still a procedures. the So in check-in opportunity as I on comments talked automated the laboratory. in automation the A.J., of of in manual of touched lot

seen PSC, as the you we've What actually recently leaves, point. they So full, is the does patient not come is patient And into in a as back if appointment what productivity PSC appointment long it that at well added the may really walks if schedule room scheduling. an go we've help an we've and the had check when appointment, without you is in to curves work -- and you wait you, employees. manual they help intelligence in like of of is the terms work retention tell But to that hours productivity readouts continue If and retention artificial come I'd around the to that an Quest. back to our of better. automation, patient X other continues. or the And all make in our drive laboratories, thing of we is use feel appointment the will then day, next of the

So point. our productivity, like a increase stabilized, a is much turnover. like We albeit feel we're seeing in at higher higher all it companies,

certainly will the drive So as our higher back now of turnover that help in we the lower retention productivity year. half efforts and

Mark Guinan

I when Steve assuming price for extended thing the get point, most about just talked we're does beyond one not rate want back the more. full a it pool PHE, is can drop drop there's extend. lower. be first margin absolute want positivity to at half. in this not to lot not but the remind off, would which expect a potential significantly people about peace And because be the PHE add people will But I to certainty that we We to the the not

some the offset significant right away costs the there structure. complicated the only We get second work. in under can will one margin relationships that's the PHE. will we we're now is retail outlets basically, that volume go for have that but because to how know it retail It's dollar-wise. permitted So away. to change it's we going go will the then, that And incurring the get And

whatever certainly, we time, So while the end away. and that's not that up that drop there's a over price to people per hit originally requisition potential, some all and go value because talked will rate costs CMS the was that's with about margin have published other

people just away. the margin, sure certainly profitability that So off But encounter. goes completely the decent will doesn't want a COVID percentage fewer are make dollars when I clear we still patient fall per make PHE cliff to

Operator

Our next with Research. question Meehan Nephron is from Jack

Jack Meehan

congrats. Sam, First,

you And together. questions go, really enjoyed for I here. I do the think course, before Quest. of for have But Mark, going margin to you more be a you're working great

Mark Guinan

go Thanks. Jack, otherwise, me Let

Jack Meehan

Of course.

the step guess the the to talk talked what down the much been how you just COVID trying get quarter? testing might overall is margin impacts what it can to of about like you've Or was have the specifically, just how to And in margin in margin? sequential earnings I related into compare did I'm So about?

Mark Guinan

Yes.

talked as nontraditional second A our or X/X counter incremental there. don't on of what year volume. you channels ago, half from So give about cost Jack, to what dollar-wise, is of specific provide know, channels I we we referred per volume retail margins our subsegments of quarter, our it the about and in the But can directionally was is I coming you business.

and had quarter was interim pooling year, year that's in second quite last that's the quarters we pretty a now see positivity the a varied can did but of because you of rate very that between the In bit -- So fallen bit quite pooling last significant. there well. and

been expected last this were pooling in June hit to many might us. but And year of it before think reality, of us have large this quarter, us amount. plans we behind not a a quite bit by was Delta I do thinking our of in

So a bit give of you little idea. that should

mention on did couple I the thing average dollars reimbursement. other The a of erosion

we're a And we but is that why that's than specific the So our it the I and going continue think I plans. was and you pieces, key much COVID that's help got we think understand. you thing the -- should guidance. not number provide earned rising that But to better to all dollars off expect

the percentage was bottom line was So while better. worse, the dollar

Steve Rusckowski

million. it you Yes, Jack, worth million as COVID. $XXX we're right the about quarter was $XXX know, of in And QX, roughly about in now, talking second that did we

a compare drop has COVID. lot was gone as and Mark is in a sequential through, what that margin material drop So margin is in there's COVID. in the essentially, related that dynamics our But the to primarily more in testing. change COVID And

Jack Meehan

If this in business. increases are Have all? I on it. one year? that What SW&B changed your core more for can and Got expectations merit at the squeeze

Steve Rusckowski

you do want Jim, to take that?

Jim Davis

We that frame. year. that We're time merit year. the at annually all, said Jack. We've April guidance. within for changed to hasn't X% still increase for X% do in the it provided the We already No, the

numbers the sure. in for already it's So QX

Mark Guinan

Yes.

vast the SWB the in on quarter. majority other second taken incurred things. based the in has promotions were headwinds" "inflationary of of all and have already increase other we Certainly, off-cycle adjustments But most referenced, Jim some place. companies, As our like

first that's we But So beyond the one see anticipate going to if we kind margin That's significant been quarter look drivers run of event reduction of QX. historical you sequentially, to new. not rate as in forward well. of were That's quarter. the inflation a second don't on

Steve Rusckowski

real most of salary, of dimensionalize of count to our do there XX,XXX to job. XX% percentage workforce what the at I is specimens same with tough about they're sorting, about and we've And couple them, to pressure, in and on that second are see And time, try processors. wage bill. financial people. area talked and night conferences It's couriers. it's fairly give going the and the of we're what's idea is of our XX% we you hourly laboratories, call our pressure paying it's roughly, at the is what our When come okay? really wages. into for the people a we specimen frontline their So -- the primarily think, the we they increased And most because an and people XX,XXX represents that actually workforce Jim we the larger it a it a of

have we that's So pressure. where the most

the So have went even idea considerably, on would you an if number up, margins. of impact get that our that

pressure, we okay? most where that's see So the

Operator

is next Our from Donnelly Citi. with question Patrick

Patrick Donnelly

when wage guess you feel but a I as Sam, with already something in, key going you've and on as how call piece sure on I and of the high DTC get on the you that in came free Mark, your spot consideration, here. that around Sam, of not seen investors with just looking you the first COVID as obviously in would But kind helpful way was of some year lot in be your of it retail, margin you It and terms on I'm our the continue a in call this way to I questions did inflation. comfortable to to know, focused guess hyper of on margin maybe into that? to way next expenses out, sure chime to you kind in and I'm know and hear there's as dug margin profile forward on we perspective well. work put through work as coming the you your into are the on

you're if our the kind side thoughts way how kind So of our willing, we margin into hear I we work work to on year. would your love as next through way general of

Sam Samad

and well. welcome here in thanks Listen, working been for the rest with here. I've you my folks to the forward Patrick, and I really of as the look early -- Yes. days. on second the I'm it's week in call

challenging So Quest to with environment a But that people provide coming right incredible a an tell I in, really care. has in now. can is obviously, health we're reputation significant all value incredible you

the So and that passion I've the been make I people seen the we so far I've contributions impressed can in knowledge here, that think with really health care.

question But I'm So on through we can excited second I'm really really about these really more but and I'm going on ask here. week punt comment work a your days, in Patrick. bit to it early because how days very it's challenges. early Mark it's to little my

let I'll Mark maybe So more. talk it about

Mark Guinan

Yes.

where Patrick, where business around appreciate the right well. question. people's as at know the and So ours We now that's are heads are

I spent So of that. are And of things our a We've there number time we're There's some spending generally time that a of then are lot lot assure that. in a a less can on bit you control. things on little control. that we

things then our So together with we We best very think to play those how things. out. put do we those believe transparent we're you forecast I ranges. And and -- about

we've really updates. that, you we've time well, And We've sense a because based not delivered is in to that, believe expect given people. your I generally, given going I the We've think the timely interim continue. team expectations. given And surprised and would business? So information. you Sam you what my of, And get on that okay, with on of here, on I you

we're all way that going talk the expect to, So with those change you that updates. would give we we not departure way the my share, to

what he'll appreciates as call great him any everybody time, and think and know they job does possible. get them a any Shawn transparent can place as I be and

believe job down I those as So transparent key being also, possible comes as all drivers. what we're focused believe And right the best I we to of think I really, things. is, it around on do our

Patrick Donnelly

helpful. I it Steve, then maybe appreciate And a quick one. Yes, guys. that's

the conversations talk to of some that continued just on confident given side years. you seems of you of talk the how pricing? It talk about you're You've front the have covering about with kind payers. just guess, lives outlook constructive payer guys on I Maybe pricing as as sounded Can and conversations? more some about, feeling those in on

Steve Rusckowski

Yes.

a the with made had. very And was we have versus I good the have market and all would are thanks we've network we in are We've their today So payers, we membership question. ever pleased in which we and our ago. of and that increasingly I value. And is their significant got network us that lot when now a they say And the good to the national it's the very is progress relationship XX years payers for with started network strongest over where with that for the are regional all strong. competitiveness bring realizing and for

And the we're you to continue focused a productivity quality, entirely around with better that also experience. payers we making we're great consistent we sure understand driven powering and on smarter, what affordable call so by working which that. Jim And more have is but to working on what getting we're And heard and earlier from smarter just product. great as push going Jim great care a we service in has company have

last have rounds. gotten negotiation payers from Jim some And increases we the several as mentioned, so the over

to is We because value continue something we're of continue bring we that very a And in marketplace. marketplace. do the we're the for to lot believe push competitive going in to

the we meeting if XXX you But share less we points we're we've last they I in saw talking that. you that at with than effect is marketplace than will of place more about with and and the actually in. the value nationals envelope, commercial and different in before. at much envelope And we've on as a in the hospital within the Jim payer us business, said the the Well, improve in you very more a in And client us the quarter, the on laboratory. and week what people look the going than had price we that's care them we're past about best we think is in a with still with we going said price just that in We position the plan done last historically, were so we payers that transition quarter I'll where doing about the this much part payers regional national business remember, a I in typically we're pressure We're have and it should Jim what portion one been actually importantly, in We and side, our health than is of significantly saw the I But historically. commercial payer And price, with see and what future. which with lab. past effect. forward. help see bill and the that's of the we've bet a quarter, less basis well. historically, the player as significant as of And of into what more are share our my

in a good we place So right now. than a were place much where better

Mark Guinan

the so is that what needle moved add on And I we really will commercial.

a price, will tailwind. to a directly going then if in neutral, the of least last headwind some at which I as instead with is, -- more next about couple that you being the tell and expect talked the bill year we've would cases, Steve But we of years, pricing be on and hospital contract forward, Over physicians. I pressure starting in that client referenced where not

it least So headwind a be more at to major neutral and we've from likely moved positive.

us. more our And to strategic commoditized a is how laboratory said of were wanted not can we them. we're these result. so we for There's So recognition in what value you're dimensionalize it's positive for comments Steve which on of referenced to why a ourselves. the much provider to We're little better really payment value-based a that helping then more based a them and performance, earn contracts hearing

really, commercial moved payers. of really the environment we so because with the and that, And relationships the

Operator

from question with Deutsche Chickering next Pito Bank. Our is

Pito Chickering

to over Quick future. forward you working two a with with look part inflation the side. in pleasure I Sam, it's years. these working the on you Mark, And

talked Can to you priority on of just we question that And the add recent those calls, the or what on than pricing then just fourth expected inflationary you understand, offset to Was this $X.XX. question you additional So against Or Should I the point a on sure And of you new on you are were you quantify the a first follow-up can with gave. quarter $X.XX? XXXX $X.XX $X.XX those call? it guidance commercial then less increased make when that XXXX? retail as done? for about as one A.J.'s rates EPS you is locked better guys sort seeing pressures. previous that more the COVID XXXX efficiency you at of agreements because gave an versus follow-up in the well pressures you've inflationary

Mark Guinan

Well, did, thanks but not XXXX. for XXXX. And generally we we're if locked to start comment I'll quarter with we And any all don't do specifics that earnings questions, management team. when our until around be plan. the fourth not Pito. the leave leaving call. to our down I'll it give going We've to I'll specific they exactly guidance decide

We to that the In we of is, and have down is being amount increases, we close the already contracts lockdown. for referenced next that to be enough have dimensionalize. going that some Florida which like not getting Blue some us a renewal set this going year or enough on either, for are perspective... confidence say next as on I'm progress again, But are others have of a said to I don't what to year planned I are that not locked price for terms a

Steve Rusckowski

that. have yes, price in. been we And your is we're hearing you're we a from we've yes, we're to also inflationary add about And managing comments hear hearing so than what So what just But to you're better that, position us pressure. yes, from inflation. in us is,

You too of around the still that we're But guidance. do and of XXXX do to shared what to going about not at going in what feel prospects in with 'XX. provide to Investor going we about forward. need thinking prospect going think Day to we what confident we're We're the

Mark Guinan

have inflation continue to that Pito. anticipated. is would is what's from happening the you're us $X.XX And hearing yes, going more now, And we so to I $X.XX what than was

a COVID. things as notably, other changed more Most have we did However, lot well.

more So earnings. a delivered lot we

could Also, we'd we're But in better of noncontracted inflation wrong don't carry we like if a just even we've continue really multiple So if including are does, to and in and the it seeing the to XXXX. were to expect the into XXXX. we the high that disappointed book. pricing moving, COVID environment expect commercial level be pieces areas be got

So form, in in we're all that something these no $X.XX when in. put still confident or is way, you are we that shape that range saying not that, or together,

Operator

Morgan from Stanley. is next Ricky question Our Goldwasser with

Ricky Goldwasser

of best luck the and you with working really future enjoyed wishing in you. Mark,

always you all the for color So patience. your thank and

utilization the some companies from environment. what question, of I outside just really managed but hospitals. to the there an ER we're the impact want terms you that the hearing go is color which back inpatient care of mean softness shouldn't In right, that I if the walls gave more seeing four they're have the testing, the it's and visits admissions on lab is to

can maybe versus of years of geography us utilization And X.X in right, about pandemic? into you So think you the end the transition seeing it, what What's softness utilization on give software and your test? color view? by where i.e., are how do you structural sort maybe in type by market, in

Mark Guinan

I'll quickly it If and pass then to just I Jim. on start can

sales to it. our seeing our things not Jim we is two point to ratios. same-store as what addition call in I'd Ricky, is earlier So But about medical source talked their loss just which

okay, get one the payers, actually we is data total. So from in

we our The to gain had they continue in and see work. books. volume for those share we news good patient encounters know So laboratory was know many we how commercial what We can that. is

quarter. to second However, certainly been we down, volume in has their the total continue see

to payer say, the to confidence space. being data us So that's that in dipped is our provided it's by has them utilization

is down. other The you data that billings based on certainly of that at to labs. one independent which that, is [indiscernible] look And utilization suggests if other the I'd point is

you have we also the quarter. while also is data and and best that be second hearing depressed we its we inpatient, may have that market suggests emergency room operate the So the the which data in in

Steve Rusckowski

if go down they if portion physician patients you volume. And infected, business the we're what it up, about you And their second X a offices, is it. know, our part And now every a to large into appointments to run COVID offices and as physicians affects do some. their and comes staff of base need our time COVID is, their remember or infections think through and in are of because missing business there's they are outs if their their call years

question when good the Jim, us goes should... And that why our no news there's So happens, business for COVID a is there's up, right? So correlation.

Jim Davis

the is we thing we're Ricky, work. reference say not year hospital. -- I'd The last immune $X to inpatient work get billion in remember, a

$X.X We in have billion another PLS.

outpatient and on affect system, business are hospital certainly inpatient procedures down, side. health So the our when that does

hasn't office closely across country general we that are look we our changed it again, dramatically loyal and digits. accounts of mix in standpoint, the physician is last business side, our that the And panels call and disease that were Again, we low set certainly mix. XXX% and lower down we thing, the it than then City at sales. to chronic same-store the York from geographic to a still of some our quarter. a health book measure wellness mid-double know in We've On talked panels New spread of Quest

strong southwest southeast as the West. part of the incredibly see country, growth we the parts hand, other the of as in southern On portion the in well the and

some York been migration out So seeing in if business. a certainly into of we're City our of that population southeast, then there's New the

Operator

Bank Our Derik question America. De is Bruin of from next with

Unidentified Analyst

and think out else is going and nothing ask. could were increases for inflationary price thinking especially initiatives colors the and that in And what about to to 'XX, the all This expecting plan are thanks these about legislative John And incremental offset turnover, clamp renew on you're us the pressure? to down for being happens you we addition to in XXXX? employee expectations the Derik. should on how [ph] thanks front? just addition ramping the for PAMA, your for [ph] on you the But down Are to in the you spend if remind the in

Jim Davis

Yes.

-- than our in said, we can committed if advanced Mark diagnostics. as see testing any you committed advanced direct inflation business. guidance at modulate at Obviously, parts lot consumer-initiated those. committed We're terms investments clinical point, you getting consumer a this direct of consumer moving to we can't around what of we've in we We're further investments initiated given -- diagnostics, business. we're those We're point. to in worse. XXXX, to there's consumer to this things give testing our So But committed our

In terms...

Steve Rusckowski

accelerate think So about because just what to growth. it's this before, growth on make add already to in we investments commented We that, important to started to in you this we've about had think invested beyond 'XX. to to as XXXX accelerate

about So would obviously 'XX we're think there 'XX would a we return. unless and and 'XX. at And we to make not now investments thought be

And those think what you seen than consumer-initiated us therefore, relationship have about think up, us, 'XX, that the in growing faster in in And as the rates we two have good you've so our in you growth you're feeling invested. heard about we see growing come seeing have diagnostics to you advanced in with you're past. should going heard that improvements about businesses testing, from about

think it made because we return several think investments therefore, last get as the you you a we about really about this so because as Jim? will should tailwinds those And not years. headwinds over on

Jim Davis

Yes.

about You $XX million headwind. guidance provided asked at we've in said about point XXXX said this outlook it's PAMA. we and we've a that it's that our And

Mark Guinan

only down, ways impact point, there's that, the spend. is add investments and what's I is of the two ask P&L think of So thing level think when One what ramping investments. I to to the Steve's you our would net is

about That by growing still XXXX. talked Day, billion Investor at is our we, $X.X intention. our consumer direct So to business

believe over we including you years, as expecting need So next in the revenue several growth. revenue more. growth, to And to that XXXX, we're imagine, can spend we order drive significant

the impact to margin. we be we However, XXXX was pre-revenue, go good headwind. actually less a to ahead, pre-contribution and that lot And the of less expect is would XXXX as of news net be a and

drive then money we're we margin really, a on that more but growth. less expect when the to we're scale investing to get be that bottom accelerated that on business. So going to, healthy size the aspiring to we obviously, line spending then And and

Operator

Our next Blair. question Larew from William with Matt is

Unidentified Analyst

This is Malman on Madelin Matt [ph] for Larew. actually

the to my it's question, just you still Just Has base this there? have previous advanced year. investments the business. speaking going of about around know previously, investments Do that for diagnostics. being your cost given million you've into a other you off Any number then color And for your I question in anticipate that? inflation higher? $XXX driven

of You mentioned are Is that anticipated that still ahead schedule you your case? growth. for the X%

Mark Guinan

Sure.

let So of me or sure will in. take Jim part then Steve either I'm jump it,

all, way. on of previously. really hasn't we track So told first in to you material inflation spend And what of investment the we're level a impacted about

creation. we're But this a together. expect I I going IT at spend spend to going all to point, going we're would we're year. As and referenced much a ago, haven't in put platform spend more more marketing at final our minute we not but And in to the plans next lot less

mention to investments to other there's here billion spending nuance in to by little The this do go to consumer growth highly is sure Jim all Sam business, dimension as the $X.X we'll Advanced making is diagnostics spending expect will make But I base is tied the new. about absolutely and is and when ahead because we very monitor, what don't ourselves. make tied sure progress high we talk want if I'm sure a base business. the and to and to to we the to of be continue we So Jim here. get we're it's need over do business to be and really cost variable revenue get to up. really going we the says But a do only XXXX, will and

similar of the a base new really done business, business do to in or while we've what So is it's work historically lot our we a opportunity. category

that And or may that traditional of through we have is our overall do you to otherwise believe Steve, it Jim want come some actually to... channels. a what of amount cannibalize perform. would we volume lot the of But it incremental

Steve Rusckowski

Yes.

our making So quarter advanced give of progress we you to that segments we But do that about we keep update the generally generally our And an And true of a are good progress. we'll about We growth, in as you every about as numbers you In diagnostics, in to 'XX. feel don't gave the in making we of we testing. of Day know, that a the we're business. our getting you an give give consumer beginning different show periodically indicating indicated believe you we we update annual number and year. Investor We again. the same is on initiated level higher progress.

should And returns we our to still they you again, that expectations more So around 'XX the believe good the we're made, investments get. be the remain opportunities. good because about we'll returns in or see feeling guidance

Jim Davis

at that the the clarify, Day to million outlined for target was business the just by XXXX. $XXX direct-to-consumer And Investor we

Mark Guinan

My apologies.

Operator

Our last Rachel will Vatnsdal question with JPMorgan. come from

Rachel Vatnsdal

spend the capacity minute X by XX,XXX have was can capacity of CDC you the your to going you testing guys that remarks testing selected So about a prepared the week. expand a and X roughly are flagged Quest talking to labs for in was that monkeypox You market?

the guidance the opportunity this can So there? at And us walk you just all? through contemplated then is in market

Steve Rusckowski

Jim will handle that.

Jim Davis

Yes.

done that to side. hard will this you, tell market be or modest. it's I the can we've been the testing high our be. volumes would point, If this what point tests opportunity on at XXX, XXX has anticipate at So are

Right is and growing. for only approved state. we yet it had running over see test New day up York for We've we're X X-week growth. do that And However, weeks. not period, And the now, day. it's by grown

York to reading the outbreak We New expect next within major that the sure X. happen or that, you're that is where is City. I'm in week

actually our this of would West Coast. participate is But market. of we So to that point at the expect coming volume off most in

we're And so what we'll keep you seeing. updated on

Rachel Vatnsdal

environment, in you through then considering of and line And on Great. some M&A? then you're of share dividends repurchases, [indiscernible] use can how the us just color between initial walk cash

Mark Guinan

Sure.

at deliver between of we've the the what to is between our going we with $XXX what And million of repurchases that already shareholders. we're capital, done. that guidance gotten the and $XXX continue and the majority And and with our this So million we've to billion with repurchases year a dividend that. free least already is, share to flow covered says $X.X there cash dividend share

As have M&A do shared, we rather financial we repurchases that deals the we we've around also parameters share rigorous some because do. very than

to may we so Jim well also situational quarter-by-quarter. be different. that advanced. pipeline it's It and referenced that And be negotiations we a commented really have have are actually that deep going some

Sam disappointed So before said, I I of Don't know be and know from as as exact the the we timing execute I view certainly, think end on I'd those. it to Steve more over the hear very reins, wouldn't year. M&A But take if their spend all of deals you'll and rather and I Jim we'd some they the expect materially didn't change. but would

really So And we've M&A. progression point, of this dependent the at that in plans really change deployment past. it's no to no the what done for cash -- because we're really on specific

Steve Rusckowski

Okay.

you time you, here you, So everyone. And to thank for your wish going thank well. and again, we at miss Mark, Quest. We're you

call. So good your We appreciate support our and in questions Have thanks, the see a joining all for everyone, day. you travels. and we'll

Operator

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

Quest Diagnostics (DGX) 21 Jul 222022 Q2 Earnings call transcript