Q1 2020 Earnings Call
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Welcome to the Quest diagnostics first quarter 2020 conference call at the request to the company. This call is being recorded the entire content of the call, including the presentation and question and answer session and that will follow our before copyrighted property of quest diagnostics.
All right reserved any redistribution retransmission or rebroadcast of this call in any form without the written consent of quest diagnostics is strictly prohibited I would now like to introduce Shawn Bevec Vice President of Investor Relations for Quest Diagnostics go ahead. Please.
Thank you and good morning, I'm on the line with Steve Rusckowski, Our Chairman Chief Executive Officer, and President and Mark Dine in our Chief Financial Officer. During this call. We may make forward looking statements and we'll discuss non-GAAP measures.
We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release.
Actual results may differ materially from those projected.
Risks and uncertainties, including the impact of the covert 19 pandemic that may affect quest diagnostics future results include but are not limited to those described in our most recent annual report on form 10-K, and subsequently filed quarterly reports on form 10-Q, and current reports on form 8-K.
This call references to reported EPS referred to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS, excluding amortization expense.
References to adjusted operating income for all periods excludes amortization expense.
Finally growth rates associated with our long term outlook projections, including total revenue growth revenue growth from acquisitions organic revenue growth in adjusted earnings growth our compound annual growth rates.
Now here's Steve Rusckowski.
Thanks, Sean and thanks, everyone for joining us today, well, we're definitely living an extraordinary times.
Good night team pandemic does change the way, we all live work and engage with one another.
Well the crisis will likely continue to impact or lives in the weeks and months ahead. One thing we can be highly certain of we'll get through this.
So this morning, I'll discuss our performance before the crisis up.
The impact of the crisis has had.
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And the actions, we're taking to mitigate the impact going forward.
And then Mark will provide more detail on the first quarter results and our financial position.
Our financial performance in the first quarter was off to a strong start in January and February.
Through February year to date total revenues grew more than 4%.
Total revenues grew more than 6%.
Do you need with after adjusting for the calendar benefit and favorable weather. The first two months of the year.
Organic volume grew more than 4%.
However in March social just did see and shelter in place measures were instituted to combat the spread a little bit 19.
You know began to see substantial declines of our business.
In the last two weeks of water, we experienced a reduction of volumes in excess of 40%.
We saw the impact across all metropolitan markets not just in hot spots like New York City.
In April volume declines gets you need to intensify.
As we are seeing signs that volume declines or Bob.
Around 50% to 60%.
As you know well start diagnostics has played a pivotal role.
Hey, good gold at 19 testing capacity to the nation.
Since we launched Colgate, Doug gene testing well the molecular laboratory developed test reform that art museums diagnostic laboratory assumed one top with strong Oak, California.
We have performed in reported results of nearly 1 million test.
There are some patients across the United States.
This is approximately a quarter ball testing done in the United States.
We continue to provide tested inferred from 12 laboratories.
Through these laboratories, we're now able to perform more than 50000.
Oh, good 19 tests per day.
We've also limited our backlog.
With the current turnaround time of one to two days in less than one day propriety products for RG.
Hospital patients.
We have maximized our output by effectively managing the global supply chain.
This has enabled us to us is sufficient supplies to collect specimens for patients.
Run their test.
Also protector employees.
This is Ben the team effort requires great.
Deal of collaboration.
Since early March we've done in regular contact with the federal government.
And state and local governments.
And this has happened at all levels.
We're working closely together with their payers.
We do manufacturers' retailers, another trade associations to bring us capacity as possible.
The American people.
We've also joined forces with Walmart to make our drive-thru tested and sites available to anyone maybe you exhibiting symptoms of the virus as well as all helped your workers in first responders.
Whether or not they are exhibiting symptoms.
Recurring operating in approximately 10 sites in five states.
And have Lima city site to approximately 20 locations by the end of the month.
There are no out of pocket costs for tests, you got the sites.
We're also supporting state and local government cope with Nike testing efforts across the country.
Finally, we are pleased to see CMS decides to increase the reimbursement for high throughput or what's your cobot 19 testing to $100 last week.
This is a strong recognition of the vital role laboratories, there are plenty to support the nation's response to cope with 19 Pandemics.
And we hope to see other payors follow suit most as Lee.
As we look to the next phase of damaging the virus, we've begun to perform anti body testing.
Which could be useful improved improving our understanding of infection rates in the certain area as well as providing a likely indications of immunity for an individual.
Antibody testing.
Also known as serology tested.
There's a blood based test.
We're moving from a testing pilot, which we initially supported a handful of hospitals and health systems.
To making the test available to all of our customers nationwide using a variety of test platforms.
By mid Bay, we anticipate having to capacity to perform over 200000 antibody test per day.
Well I'm very proud of how our quest colleagues have stepped up in so many ways.
There's so many euros request from our scientific and medical staffs, who have quickly brought up and validated new test.
Sure operations teams.
Through our procurement teams to our truck bodies will bother most carriers pilots instructed them processors.
Yeah, we've taken extra cautions to protect our employees.
Mandatory temperature trucks that are labs.
Required use or protective equipment, such as gloves lab coats masks.
Shields, all this very depended on circumstances.
Our employees take pride in the work because so many Americans.
On the insights are tested.
Delivers to make decisions to improve care.
These efforts for all of us or inspiring.
Well that 19 testing is critical to managing the pandemics.
While the volume was tested to substantial.
Is that nearly enough to offset the reductions were sitting in the rest of our business.
During this difficult time, we're managing the business for the realities of today.
Now to assure its long term health.
While we cannot say with precision.
What the overall impact to cope with banks you pandemic, we'll have about our business.
We do know it will have significant.
Impact and are.
We are taking actions to mitigate that impact.
At the end of March we withdrew our full year 2020 outlook.
Because we no longer have confidence in the outlook we provided in January.
And we have taken a series of temporary actions to manage our workforce costs and conserve cash.
To support the business sense, it navigate our way through this pandemic.
This started with a 25% take up for me.
Reductions for salaried employees, ranging from 20% for the most senior executives to 5% depending on level.
Each of the members of our company's board of directors will forego, 25% of their cash compensation.
These pay reductions will be a place for 12 weeks.
We've also suspend the contributions to our four of one Kay.
Deferred compensation plans through the remainder of the year.
We were true up true furloughs for more than 5500 employees.
Or approximately 12% of our workforce.
Whose work has diminish who don't have also have indicated an interest to us.
We've reduced hours for non exemptive floors, where possible and as necessary and then finally reduced overtime.
Rose hiring promotions and dismiss temporary and car throughout workers.
We're taking a balanced approach to implement these difficult measures.
We also want to maintain flexibility because we know when the crisis ends.
Our volumes will begin to recover will need our colleagues more than ever.
This is a challenging time for all of us.
And.
In response to the out we've established in the play really flown through those colleagues who need assistance.
Importantly, none of these changes will impact your ability to deliver critical Colby 19 testing.
Now I'd like to cover a few other topics.
Passage of the cares Act.
The M&A environment and so early thoughts on how the lab in the Street may evolved in the weeks of the Cobot 19 pandemic.
The cares that became law in late March.
Delivering much needed student list the country as we battled this crisis.
The most Pat package included a number of benefits request and other health care providers.
First the out provided coverage for critical cobot drug testing.
No out of pocket cost from nearly all patients.
Second regarding Panama.
The cares that suspended the Panama price cuts that had been schedule for 2021.
In addition.
The new round of data collection has been delayed.
Another year until the first quarter 2022, and we'll continue to use data from the first quarter 2019.
This is important as it allows the ample time to implement the recommendations of the Med Tech study so identify a better way its collects the data that reflects private market rates as Congress initially intended.
Third.
The act appropriately $100 billion to health care providers for expenses are lost revenues that are attributed to tribute to to cope with 19.
West received approximately 65 million.
From the initial tranche of the 30 billion distributed to providers earlier this month.
Finally.
Medicare sequestration will be suspended from may to December this year.
This eight months sequestration holiday will afford us the small businesses.
Now turning to the M&A environment, we continue to make progress.
We're pleased that we completed the will of Oreo Herman transaction as well as its integration phase.
And this is an important complex relationship with a very prominent healthcare system.
There are other transactions in the pipeline that we were very close to announce who before the crisis.
Well there on gold or strong conviction is that.
These discussions will resume.
Which will.
Beyond the third quarter and will be a very good position at that point to complete those transactions.
And then finally I'd like to share some thoughts on industry dynamics posts.
Crisis.
Given the many challenges that hospitals will phase we expect many be open to discussions about quest and how we could help them achieved their lab strategy.
That's the same time, we know that many smaller regional labs that had their own challenges this could produce opportunities for tuck in acquisitions.
If any the crisis could be an additional catalyst to drive the consolidation we've been forecasting for several years.
Before I close the Dulles, just lets say once again a product you have to be part of the quest team at this historic turning.
Our employees have stepped up in every way to serve the nation. During this time a need.
The challenges of raw all of us across closer together.
Changed the way, we work and collaborate.
Making us stronger as a team.
We have become more agile close customer focused and unified.
We will emerge from this crisis stronger.
Substantial opportunities in front of us.
Now I'd like to turn it over to Mark will take you through the results as well as our thoughts on our financial position Mark.
Thanks, Steve.
In the first quarter consolidated revenues were 1.82 billion down 3.7% versus the prior year.
Revenues for diagnostic information services declined 3.8%.
Parents of the prior year.
We've noted earlier our business performance was strong in January and February, but we experienced a substantial decline in volumes in March.
Volume measured by the number of requisitions decreased 2.4% versus the prior year, excluding acquisitions volumes declined 2.7%.
Before describing some of the volume trends we saw in March in early April I do want to spend a moment on the strong performance of our business prior to the Cobiz 19 pandemic.
Through February year to date total revenue growth was just over 4%.
With organic revenue growth just over 3.5%.
Total volume growth was strong at 6.3%.
Turning to February included a calendar benefit due in part to leap year.
Well it mild winter weather.
Adjusting for these benefits and the impact of acquisitions organic volume growth through the first two months of 2020 was nearly 4.5%.
Indicating that the strong progress you've made in 2019 continued into 2020.
As we moved into March and started to see single digit volume declines through the first two weeks of the month.
Stay at home measures were implemented in several states by the third week of March volume declines accelerated to nearly 40%.
By the last week of the mine volume declines across the business started in approach 50%.
So far in April we have indications that volume declines have stabilized in the 50% to 60% range.
These declines include the benefit of called 19, molecular testing, which has been running at approximately 30000 tests per day on average for approximately 6% volume growth through April.
Revenue per requisition declined 1.2% versus the prior year.
Primarily driven by higher reimbursement pressure.
Unit price headwinds were slightly more than 2% in the first quarter inline with our prior expectations.
This includes the impact of panel, which amounted to a headwind of approximately 100 basis points.
Reported operating income was 175 million were 9.6% of revenues compared to 248 million or 13.2% of revenues last year.
On an adjusted basis operating income was 225 million or 12.3% of revenues compared to 286 billion or 15.1% of revenues last year.
Year over year decline in operating margin was entirely due to declining revenue in March as a result of cold 19.
Note that operating margin was up meaningfully year over year through February primarily driven by the strong volume and revenue growth highlighted previously.
Reported EPS was 73 cents in the quarter compared to $1.20 a year ago. Adjusted EPS was 94 cents compared to $1.40 last year.
Cash provided by Apple.
Sons was 247 million in the first quarter versus 275 million last year.
I'd like to take a moment to discuss our financial position in our ability to access additional capital.
As of March 31st we had 342 million up cash on hand in 1.3 billion of borrowing capacity was available under existing credit facility.
These facilities consists of 529 million available under our secured receivables credit facility.
750 million available under our senior unsecured revolving credit facility.
There were no outstanding borrowings under these facilities as of March 31st.
In April we borrowed 100 million under our secured receivables credit facility and 100 million under our senior unsecured revolving credit facility.
Are secured receivables facility is subject to certain financial covenants with respect to the receivables that comprise the borrowing base and secure the bar rings under the facility.
Or unsecured revolving credit facility is also subject to certain financial covenants and limitations and indebtedness.
In particular, the unsecured resolved revolving credit facility requires us to maintain a leverage ratio of no more than 3.5 times, even as as the last day of each fiscal quarter.
As of March 31st we were in compliance with all its clickable financial covenants.
The cover 19 pandemic is likely to impact or ability to comply with these covenants beginning as early as the end of the second quarter.
In this scenario, we would not be able to borrow against these credit facilities and then lenders would have the right to demand payment any amounts outstanding.
We have been in advance discussions with our lead lender regarding it in men men to certain financial components of our Unsecure revolving credit facility.
We believe this would provide us with the necessary flexibility to remain in compliance, it's where the remainder of 2020.
Based on these discussions and the strong support from our lead lender. We are confident we will be able to enter into this and then later in the corridor.
If for some reason we are unable to enter into this amendment. We believe that are investment prayed credit rating would provide us with access to alternate sources of financing.
Finally, it's noted our earnings release. This morning, we are also suspending share repurchase is through the end of the year under existing repurchase authorization.
Summarized we believe our financial position and ability to access additional capital is strong and our board of directors remains committed to the company's quarterly dividend at this time.
As many of you know we went through our 2020 guidance on March 31st given the unprecedented uncertainty caused by <unk> 19 pandemic.
We expect to provide updated 2020 guidance at a more appropriate times when visibility improves around the impact of code 19, and the duration of current stay at home measures in place across the United States.
While we are providing guidance today I'd like to share. Some details for you to consider is you build your mouse.
As many of you know our business is one of high fixed costs, we have model a number of different volume scenarios over the near to medium term and at this point, our best estimate because that volumes for the business. Excluding covet 19 testing will be down 50% to 60% in the second corner.
One of the coping 19 crisis navigate surpasses instead home measures begin to left.
I believe or volume was slightly improved but to a lower level in 2020, and where we started the year.
So while we have taken several cost reduction step, which we first shared in an eight k. on April 13th these steps are not sufficient to enable us to generate a profits at this volume assumptions if the conditions affecting lower lab utilization continue throughout the second quarter. It is highly likely we were her net loss.
Molecular covet 19 testing does serve as a partial offset the volume declines we're experiencing across the rest of the business. We expect that demand for molecular covert 19 testing will remain high throughout the second quarter unlikely the foreseeable future.
In addition to the uncertainty around health care utilization and lab volume trends another I'm known as the impact of Surajit testing.
We believe there is significant potential in serology testing, but reimbursement and customer demands are still in front of us.
Now turn it back to see.
The summarized where we were very pleased with January and February performance.
But saw a material decline in Los two weeks of March.
We are managing the company for the long term and are taking a series of actions to protect our financial flexibility.
Quest has been at the tip of the sphere and respond due to the crisis.
And we will continue to play a critical role in the next phase of the containing covert 19.
Well there is uncertainty in the near term.
We look forward to the gradually improving conditions, we see in front of us.
Eventually the health care system will start to return to normal.
When that happens plus will emerge from the crisis stronger with significant opportunities in front of us no you'd be happy to take any questions you have operator.
Thank you we will now open it up for questions.
Cluster the company, we ask that you. Please limiting yourself to one question. If you have additional question. We we ask that you fall back into the queue.
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I first question comes on and <unk> with nursing home Securities airline is helping.
Morning.
First time and I commend you and all the class employee if I'm working for this I'm crisis, then you know nice to see but my questions I fucking sign up antibody testing sure.
I know you said by men May your capacity would be about 200000, what do you think you're peak daily capacity could be over time, because I'm assuming consist of us are all she task that could be higher and then secondly, what do you think the ultimate like how should we do this opportunity should we assume that everyone in the U.S. well at some point ER serology tests, whether it's.
To get tested for the vaccine of of after school to go back to work and maybe what is <unk> can they be grab some more of the market sure you're working with governments employees school systems things like that would be great. Yeah, alright, alright, so around antibody test Mr. Allergy testing, so as you read or press release.
Yesterday, we we launched.
Are broad implementation surrounds you testing, we actually brought up a week or so ago.
Our first limited.
L.D.T. laboratory developed test <unk>, the euro viewing platform.
Did that and to avert facilities, and we did that for limited customers hospitals and at risk individuals. So we had some experience with it and then second as we brought up or first platform, which is an habit platform. Yeah, We announced last night that will platform as in many of our sites and we'll we'll bring that up quickly.
And then we'll have a few other platforms, we bring up in the course of April into May and that will allow us who gets about 200000 test per day number by mid May no. We run seven days a week 24 hours a day, that's about 1.5 million per week and so.
We can think about 6 million per month now the answer your questions were not stopping there we've got more capacity in front of US we are always depend that though the capacity coming out of the I.V.D. manufacturers would the reagents that we need so some order the limiting factor has.
Wants to do with us, where we have lab capacity to be more related to the reagents and and the supply chain from our our supplier. So we're working with them as well. So that's what we're willing to say we'll have in the month of May.
Oh, how broad would this be will be announced in our press release and you see the guidance from the F.D.A.
Well, we do believe it or several things one is after a certain number of days and and the best indications after 14 days of being affected.
The the person can have an I.D.J.
<unk>, that's the last antibodies and therefore it is obviously a good measurement that you have been infected in the past is important for those individuals that have not been passed the tested and made my husband asymptomatic. So it's the other good indication of infection rate within the geography or with any population.
That's one number one.
Number two is based upon other viruses, we believe that there may be immunity for some period of time. This is what we need to study and that's why yeah. We have a the conditions on our press release that we'd need to have more evidence of this is why we need to do more of it the vast majority of viruses of the past of head.
Immunity for a period of time, but we need to confirm this without but does so with that said I would share with you. We have tremendous interest in both continuation of the molecular testing that has to be done going forward and then second is combining it with surajit testing.
This is happening at the state level for a broad infrastructure needs you must have seen a new.
Announcement by the state of California, they're going to start to test asymptomatic members or excuse me citizens within California.
In his employers, we have actually leveraged or capability with our poor population health business, which we used to call or wellness business, where we have this product cope with purple wellness and we work with employers and we'd leverage that now in building on those relationships with employers in there.
<unk> returned to work programs, Dan and so that's giving us a nice leverage points and and the returned to work programs vary by industry and matters a great deal if you're.
Manufacturer and you plants or if you're an office environment or if you're a food processor. So we have number of engagements going on with with employers.
Employers are working with their states in our working with their their cities and towns the local communities as they think about what needs to happen and within those geography is because there is wide variation.
What's happening with the constraints around with turned to work and sheltered in place in schools and.
And then finally, we are working with the states many of the states if mounted now task forces.
To look at what needs to happen next with test testing as I said, California has made now abroad or announcement of what they want to do to expand testing we see this coming from out from a number of states. We're right in the middle all those conversations that in fact yesterday I did a press conference with.
The governor of Connecticut, Governor <unk> in Connecticut, where we have worked proactively with wonder if our partners Hartford healthcare and expanding Peck testing in the state of kinetic so it's marks at other substantial opportunities in front of those both for the.
Well, what color testing, which has to be done to ruling rule out covert 19, and then you coupled with the <unk> the opportunities, we see <unk> or antibody testing as well for overall surveillance within the population in returning to work so good opportunity in front of us.
Alright. Thanks.
Thank you ma'am.
Thank you know our next question comes from Ralph Jacoby, which city here line or something.
Yeah, well, thanks, Hey, good morning, I think probably aren't for all the detail. So you mentioned the minus 50 to minus 60% volume X. code that I guess first just want to clarify that the profit loss commentary is inclusive of coping 19. So it's sort of it's an all in number or is is it enough to.
Offsets I profitability lost and then how do you think about Sacramento margin with that type of rather than your decline. If you give a central sense there that the that'd be helpful as well yeah Merck.
<unk>, so <unk> the the statement up around net loss would be a volume inclusive of Covin testing.
Continue to be down around 50% to 60% now what that does not include his serology.
So as I said it Mike repair remarks, you know the well we're encouraged by the potential demand and a lot of the things that Steve just explained or you know either in in mid term or late stage conversations around.
I have some testing for you know government entities for employers et cetera, you know, we we haven't been performing that test. Obviously, if you just launched serology. So we wanted to be cautious about you know forecasting in any way how meaningful <unk> would be but based on all the things we've talked about it could be significant we also don't know that.
First bit rate, yet, but hopefully fairly soon and I think the trigger for commercial raids largely based on where C.M.S. comes out. So we're all waiting on that so that you know net loss comment and 50% to 60% would include the current level, a P.C.R., where we said we're averaging about 30000 test today, it's offset.
Thing about you know, 6% of our loss, but it does not contemplate significant upside if it happens from serology testing at some point in this corner.
And then on a margin perspective, obviously, the losing money.
You know.
No the answer to that but from a drop three perspective, because we are high fixed costs and we've already counted on you know as much adjustment to our cost structure. As we can optimize you know to aren't for allows to reduced hours to some of those salary productions for the next 12 weeks you know were largely fixed costs after that.
So therefore, you know any sort of ball you.
Changes would would likely be at a very high ratio, you know things where to get worse. As we said we you know believe we've bottomed out because we've seen some stability over the last couple of weeks. There's some some encouraging signs in some areas that were most impacted because not all geography is are created equal.
So you know some of those are bouncing back a little better but at this point you know we wanted to be cautious we would it be conservative you wanted to tell you what we know today and therefore, you know the outlook for the corridor is is not based on speculation that is based on what we're seeing and what we know today.
Okay helpful thinking.
Thank you are next question comes from Kevin Kelly, I know with U.B.S. Your line it up and hi.
Thanks, Thanks for taking my calls morning.
A lot to a a lot to think about here, but one thing I guess, we'd like to focus on a little bit is on the cost side view in invigorating plans that you had had hadn't played for a long long time, how do we think about cost savings <unk> gross invigorating.
All of that kind of.
That we had originally built into the model I I'm guessing part of that yeah, yeah thrown out.
Sure sure.
Let me start the Markels I'm sure add to it.
First of all the bigger it continues that's a regular cadence in one of our two strategies that we have is to drive operational excellence and a portion of that is or efficiency program and we could change the look for that 3% over cost basis for years, so that hasn't changed.
Oh, so we can to work on those programs and and.
In that regard one of our you know flagship programs that we talked about is the new Clifton laboratory that will allow us to consolidate footprint until I was to put in some new platforms. You know last their platform. We've talked about in the past that project continues but what I'll say, we're we're in the process of.
Of refreshing our plans because some of those plans might change. So for instance, construction instead of new Jersey might slip. Some so some of those might change and then suck secondly, some of expectations around cost within a given year.
In terms of magnitude must be lower because some of it is volume dependent.
However in terms of percentage for a lower volume levels there'll be even higher per cents, because given some of the suspects so refreshing.
Our perspective, but the goal of getting at least 3% of our cost basis for a year still stands but we have them provide an absolute number beyond the 3% in the past so marked would like to add to it.
Yeah, I think you summarizing well a lot of our into grade is you know is around you know volume related activities, whether it's labor, whether it's you know our lap throughput whether it's the draws we're doing interface and service centres. So any sort of saving you know certainly will continue.
As we implement some of the cost improving efficiency opportunities, but they won't be proportional. So obviously the dollars won't be less you know, we always talk about 3% on a six plus billion dollar cost based obviously, it's not cost based comes down even lower volumes you can expect lower dollar savings yeah. The thing.
I would add is that a lot of our efficiency programs are you know design along you know the normal level of testing. So it is difficult to operate as efficiently. When you lose half your volume on a given like in some places even more than that and given half days. So you know the efficiency around <unk>.
And other things operational you know things like the labor flexibility and so on so there is there is some you know off that to our invigorated programming lost efficiencies. While we continue with this low level volume because we're not going to re scale our business obviously to that extent, we're considering this to be temporarily.
At some point you know, even though I caution, we don't expect to be fully back to the level. We were prior to cold dead. We at some point, we'll be back too much more significant testing I mean, some of our cancer spring is down you know very very significantly we all know at some point, we have to come back and do that work because cancer doesn't go away.
Way. So you know in figuring will continue to be proportional there will be some offsets because of the inherent lower efficiencies that these volume levels.
If I can ask a quick follow up on the volumes and you say things have stabilized. It's are you seeing now a baseline or these other chronic test that basically need to be done and or are you starting to see an increase in in sort of other testing that might you might be considered you know incremental.
That you hadn't seen in March that may be are now seeing again in April.
Murky myself I don't have.
Has not turned around.
We've said it stabilize so when you asked about whether things in March and now we're seeing them pick up what I would say is that you know we've looked across you know what we call our clinical franchises and there's absolutely differences depending on the you know cuteness of the condition and you know the necessity of the testing.
But there's some very acute important areas because it just mentioned like cancer screening led testing children et cetera that are down significantly just because position offices are closed and you know people are uncomfortable going out where people were being told not to go out except for you know extreme you know necessarily situation.
And so I you know, while we absolutely see you know some levels of difference across the testing and you and how much it's down some more than 50 to 60 per cent some less than <unk> I can't tell you that we've seen more discretionary type testing come back dramatically yeah.
Guys. Thanks, so much really help on this.
Thank you are next question comes from Jack in the end of Barclays airline or something.
Morning, Jack Yeah. The morning have you guys are doing while.
Yeah, we're doing well.
If you don't mind I have a three parter on <unk> thing [laughter], they're all they're all and let me write it down Jack Okay. The first one is where do you think reimbursements going to shake out do you think commercial payers will follow the higher Medicare price.
Second how much further do you plan to scale up the testing. It you know the stimulus package last night seem to call for further expansion and then finally, just as you fold. This all together with the core volumes down if you've up to the second half the year or do you think net net it can be a positive impact as this testing per se.
<unk>.
Thanks.
Yeah. So let me let me start so and reimbursements, we were really encouraged by C.M.S. upping the rate to $100.
We're current and currently work doing approaching all the commercial insurance companies what their rate will be.
And you know we don't have an answer on that but we're encouraged at C.M.S. went up and that's usually an indication that gives us leverage working with commercial insurance companies so more to come on that.
Second as Mark said, we still do not have a the C.M. us ready for surrounded you testing, that's an important and <unk> to establish reimbursement for surround you, which would be as we said a significant opportunity.
<unk> Oh I mentioned in my comments, we are driving.
Capacity games.
Going forward, we're bringing up some new platforms trying to get some additional units. We're looking for different approaches of how we can get more productivity and more capacity for emerged to seeing platforms.
And that is on the molecular side <unk> equal it'd be on the surrounded you side.
And we have actually been asked by the White House Task Force to think creatively, what we can do to expand our capacity beyond what we have done so far so we're thinking our way through that as I said, we're right now at 50000.
Test per day, and that's for more like EULAR, we're trying to get to plans in place to bring us north of that number but nothing that we can say at this point, but we're aggressively pursuing it we are encouraged.
Well, we saw last night come out of the sign it.
And hopefully the house with deliberate and we'll get an extra the next round of funding and some portion of that will come to us because we do need to continue to do do the testing in this country and it's so depends on both test happening a molecular testing as well as the surrounded you test going forward. So encouraged the progress remaking born from.
<unk>, yes, we will push hard to get more out and as I said earlier when an answer the question about capacity and <unk>. You know we have to look at the whole supply chain you know the front end to end the back end. So yes, we have black capacity, but one of the issues. We had a molecular side is not having those those supplies. The swabs in the right places we actually have.
Chips out in excess of a million swabs and we haven't resulted in excess of a million. So we have some inventory sitting out there and also in the back end, it's very depends upon I.V.D. manufacturers, providing us with the reagents and the kids to be able to increase our capacity as well. So we're working with them and I can tell you were getting.
A lot of help from the south worse, the White house help from the states.
Everyone is rolled up this leave them trying to trying to get more capacity out there. So there will be more coming but <unk>. We have said so far as what we feel comfortable so far I would say.
Mark you like Dad says Yeah, let me add a couple things said Jack.
No almost without exception and certainly all of them national pairs and large regional pairs the commercial reimbursement for the P.C.R. test was based on the rate from Medicare and was not a subset or proportion, which obviously and then the industry practice, but was with <unk>.
Or above the C.M.S. rate. So therefore, I'm confident that we're going to do well as you know seeing that says updated this price. We are in the advanced discussions and I think it's very probable that most if not all the company to commercial payers will recognize a higher rate from C.M.S.N.R.
Marshall rates will will change so I'm I'm optimistic there.
Second half the year you know as we said, we're very careful we'd none of US know how this is gonna play out but you you can do the math. So if you know the capacity for.
<unk> anyway, you know meets the demand and Steve talked about 200000 day you have the P.C.R. currently today 50000 Tasaday combined.
Those represent almost half of our normal daily testing volumes and given that we we don't know serology, yet, but we're hopeful the price will be fairly close to an average requisition price for us and we know that the P.C.R. testing is above that with the C.M.S. a rape division no one would assume that the value.
Requisition will be somewhat similar to what our average is today. So again I don't know how much the core volume <unk>, how quickly it will happen et cetera, but if there is some recovery and if there is some you know high level of demand for for the public 19 testing as we're all hearing you know public way then you know you can do the numbers.
You can see that you know the back half a year could be very different than than the second quarter.
Thank you just just to remind everyone. There is a difference and hopefully it's clear between the molecular testing which requires.
Requires a healthcare professionals in most cases to do the specimen collection and in many cases, they're protected with a full garb of.
<unk> personal protection equipment, Oh, so that created a bottleneck of people getting tested and we've worked on some different approaches to that matter of fact than the Walmart.
The Walmart sites, we have observed self collection were actually we have been approved kit from the F.D.A., where it is the nasal swab, but the person can use that swap themselves.
He has to be observed, but healthcare professional but in the case, a Walmart Ah what actually happens is the person drives up.
They provide the order to healthcare worker in those parking lots that aren't nearly as protected is is what we needed to do before the confirm are all the information the healthcare worker provides information that close up their window and they do the self collection themselves and it's observed through the window so that.
Proven to be highly efficient and we're looking at other ways of collecting metronomes and molecular site. So so that it's been a little bit at the bottom back to them and we're approving how we get the specimens remember Serrano jeez blood based and so it leverage is all our our infrastructure.
And so as soon as you know we have 12000 Phlebotomist, we have a 2200 patient service centres, we have 4000.
Bottomless and physicians offices and so when this starts to light up.
Provides us a nice opportunity to collect those specimens quickly and potentially tag those orders on to other orders that might become again from the healthcare delivery system as as healthcare starts to turn on so what do you think about us around you need to think about the front it'd be too much simpler in much more pervasive in leveraging everything already have.
Exceptional like the molecular test it's been so far.
Thank you know our next question consummate Ricky it's called lie time from Morgan Stanley airline it's okay.
<unk>.
Good morning, and thank you very and I told happy.
Providing.
Four weeks now very helpful [noise] Oh.
Transparency My question is focused on on I mean.
Okay.
<unk> status and think about <unk>.
So first how is your incorporating Tuesday assumptions Mark talk about.
<unk> you have.
The exposure to make a cable just wanted to then.
Structural or will you do you expect to see how as we are seeing high unemployment cosine from commercial.
To Medicaid.
If you can go from central Foots, the relative pricing relative margin certainly can we can start frame makeshift could mean.
In 2021 <unk>.
If you want to start with though.
Yeah, So Ricky our Medicaid rather use as you know or you know loans single digits. Currently Medicaid is typically.
Lower price that Medicare typically price lower than commercial rates now when you talk about employment you know absolutely we've thought about that and one of the reasons amongst many that were cautious about whether volumes bounce back to where they weren't really in the year was the potential for.
<unk> unemployment higher than obviously, you've had in the number of years and so therefore, you know we are recognizing that potential as we think about the balance the ear and quite frankly going forward <unk>. The other dynamic as if you look historically and we you know obviously to try to do as I'm sure others have to try to.
Predict what might happen. This time there are some notable differences.
One of them is the affordable <unk> does you know provide more of a safety net for those who lose their jobs.
So that's a positive but the other thing is you know given the magnitude and the speed at which people have become unemployed, it's really difficult to model and predict what that might do to utilization, we are being very cognizant of collectability not just from.
Since but from even you know from hospital systems from positions. So we're we're monitoring very very closely our receivables collection rates and we are anticipating.
Likely headwins on Collectability of our revenue going forward given everything that's going on well that's certainly on our radar, but you know the other dynamic is given that utilization has you know in the last couple of months dropped significantly one might assume that a greater portion of our revenues.
Coming from patients because people will be you know more slowly or not getting through their deductible.
You know in calendar basis relative to where they may have in the past we've looked at all these things and you know an a net obviously it will be a had win but you know there's no model, we can pointing to historically to say this is exactly what it means I mean in the last significant recession part collectability rate actually did not.
Materially decline utilization was impacted but you know we didn't have a higher rate of.
Used to be bad that now, it's mostly patient concessions, but given all the dynamics. This time, we think that that's likely possibility. However, you do have the safety net can be affordable care act of expansion of Medicaid in many states. So you know how all this piece and put together I can't fully predict the trust me, we're thinking about all that.
And as we see trends in as we understand those impacts has always will be extremely transparent around what we're seeing.
[noise]. Thank you.
One five question under volume on the side.
What did you see any different.
<unk> and when when we think about.
What kind to kind of <unk>.
The volume of time to try to start to think about.
How recovery my my my might look like so I you see any differences between volume's into north east versus the south or so <unk>.
Yeah. So we've built up a model.
Looking at our business.
From multiple perspectives, one Mark said earlier, we have variation by.
Types of clinical franchise distance, we house some have declined grader some of the decline less.
And we're thinking about why that has happened and when there is turning back on that health care delivery system, how quickly they will come back up so that's one.
<unk> second is we do have differences between what's happened in the hospital environment and also physician environment and so as hospitals start to change.
What they're going to a while back in their doors that will change that as well.
And then third we do see a difference in in in what's happening by state in by cities and so we've tracked all of that.
And what we have found you know as instead of my introductory comments all metropolitan areas of drive to obviously.
Some of those areas like New York, New Jersey, and I'll bosses started to light up parts of Florida have come in later than the West Coast Oh, So we're tracking all of that in and we're doing that because we're also trying to see when things might start to turn back on.
Oh, So you start to see some of the individual states starting to loosen up their shelter in place and started to loosen up or employers coming back to work and so we're watching that carefully so that some kind of indicating where we need to bring back our capacity and you know we talked about our costs programs we've talked about.
<unk> want to make sure it's clear or furlough program was a program, where we offered its employees, but they had requested from us and we had a grant it and so we grants out for a low it allows them to continue their benefits request that also allows them to collect unemployment and and.
Applies to there was back for.
Or a weekly state then but it also allows us to bring them back and so they have an obligation to cut back when we need them. So.
States start to turn back home will bring back the capacity, we need to turn it back on but watching that Ah Ricky carefully to understand what's going down and when did we start to see some recovery by state, thereby political franchise going forward.
Yeah. The one other thing I'd add is that well shelter in place certainly has a significant impact on utilization and some of the greatest volume to places where in those geography as we mentioned every major metropolitan area in the country with seeing significant decline maybe not to the same expense.
In late March and then in the early April regardless of whether you on cell from place well not not as true outside the urban areas, but in the metropolitan areas people were being cautious, including physician offices et cetera, and you know how they want accepting patient and whether they were staying open or not in in patients were being cautious about whether going out or not.
Given all the media attention and so on and so far so while there's absolutely a correlation with shelter and place rules, it's more than that that has been depressing utilization.
Thank you.
Folks, there's a number of people still in the queue and we're getting towards the bottom and the hour we like to get to to most of you. So please limit to a one question.
Thank you are next question kind of some Steve Baxter with well for research Caroline is open.
Thanks, Hey, Thanks for all the information and thanks for everything you guys are going to stand up pressing capacity.
I appreciate another color Yeah of course, if we had all the color on the antibody Tuscan so far so I'm just wondering I guess he that you're thinking about sizing, there's a man and you scale of capacity to those levels. Because if you could run 6 million test. The month, you could test more than 20% of the country yourself over the next year.
Easily others will be ramping up their antibody testing capacity as well. So it sounds like you think this is going to go well above the sort of like sampling types of analysis that we've seen places like Germany in New York City, starting a for sale. So something you can help us see the bigger picture here you know from where you think this might be going over time.
Yeah, well the start with if you look at the numbers are come out of the White house in the press briefings.
You know, we said that we've done over a million tests were were close to 25% of the total countries testing obviously, we have.
Better percentages are higher percentage that certain steak screwed up a broader presence in some states are really just ramping up the testing in a bigger way. If we look at Florida will be a big presence. That's just really started to load up in a big way.
As far as you know the opportunity in front of those were were were.
Encouraged by you know the opportunity we see we're waiting to see how quickly it does ramp up and just what what kind of pick up there will be from physicians <unk> psychological testing and how fast that ramp will be but we're building enough capacity to respond to it.
And again, a lot of our capacity will be hardly depended upon.
Equipment, we up into reagents, we get so if there's more we're hopeful can build on what we have but we are rate limited by that so we're gonna we're gonna keep right on it push it as one of the two testing categories that should be done to respond to the virus.
And see.
How quickly it ran so keep you updated as we learn more.
That's that's something that's going to be an add onto your typical you know how to routine panels or do you anticipate people coming in sort of exclusively for these types of test that's different.
I I would say both in a in and I think this yeah. As I mentioned earlier are working with employers because many employers are trying to understand how they bring back your employees and you know there's wide variation and employers, but he's employee programs.
Well, both tester employees for the for the virus with the marker test and the law. So test them for the antibody test and we might do those because that'd be the antibody test in different types of venues like corporate sponsored events a war.
We can you know, we where we can <unk> draw the specimen quickly as we do you know corporate events. They were for flu shots or blue for as long as program. So we already have that capability of ramping up these corporate programs and those would be quite different than the traditional way of doing testing that we have physicians or.
Hospitals to the.
Thank you.
Thank you are next question comes him guaranteed Brian would think of America your line or something.
Hi, Hi, Hi, this is.
Thank you for okay.
Thank you for the good morning.
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My feelings to see how so.
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Yeah.
Mark you start to first what I I had a hard time hearing the first question.
Work did you make it up.
Go ahead of you wouldn't mind repeating you talked about future wellness.
Right. So that's the <unk> change your socks on <unk>. So.
It's got the crisis drive more <unk> given that people with pre existing conditions are at higher risk from that virus or they're maybe more of a downside fun post coli disruptions.
Yeah. So I'm on that one you know very hard to predict and just like you're asking it could go either direction. We don't have any sort of course, the ball better than anybody else. Obviously in my prepared remarks, and one of my answers I expressed concern that we're deferring critical diagnostic.
Thing that's important for our health and wellbeing and one would hope that at some point, we say you know what that's really important we've got to find a way to get it done regardless of what it might be around cold dead and whether that you know bounces back to where it was before or whether to your point could potentially be more because you know cold. It is obviously.
Much riskier for those with preexisting conditions that we're all familiar with and that means we want to even more tightly manage that I certainly can't predict that that term Steve wants to comment anything differently. So that unclear, but as we said you know as we progress through this and we all learn together, we will be highly trance pair.
Around what we're seeing so that you all can understand as much as possible how that is playing out.
And then see the other one was on panel lab consolidation.
Yeah, we see you know an opportunity. So if you think about what's happening within.
The healthcare provider market, we're an indication that volumes are down you have all the data on hospital missions you have data on physician visits you see a reflected in our volume is being down and so hospitals and as we all know 50% of physicians dollar employed by hospital systems.
Are are going to be struggling as a enter this quarter and we'll be looking at you know opportunities to become more efficient reduce their costs generate some cash and so we believe there could be an opportunity for us to continue our consolidation strata.
G. in the back half the year is more of these systems and some of those dialogues we've had for years, maybe become more active now because there's there's no more and more more likely to think about creative ways that they can work where the company like question their lab strategy. So we think that.
It could be another catalysts for consolidation and as you know this is also a fragmented industry. There's other regional especially laboratories and then also might if we're just another opportunity for us to consolidate so we believe this is a good opportunity in the in the long term for us to cosine or a strategy.
Of accelerating or gross and consolidating the marketplace and in the short term, it's it's difficult but in the in the mid to long term, we take it could be another opportunity to do what we said we wanted to do.
Operator next question.
Question comes <unk> with Williams layer line, it's open.
And I think are hey, how are we done thanks for <unk> <unk> wanting to ask about.
Taking three that require your second quarter and third quarter here.
You know a number of states have targeted opening up at the beginning of May.
<unk> a component that back in the administration's kinda guidelines are focused on getting kind of the numbers don't care back opened up on fish and officers opened up the Mark I think he mentioned that you anticipate nonpublic testing down 50% to 60% of the quarter.
Could you maybe just give a sense for how internal you're thinking about what those months might look like as states starts open up and some of that care, which as you Bolivia too isn't necessarily piling on electing starts to return.
Yeah. So <unk> you know facing we're not.
We're not that speculate because it's just too hard to predict so yeah, there's absolutely some potential for volume bouncing back from wherever it is now.
We're not assuming any material improvement for the court or not because we know that won't happen, but because we think that's the appropriate.
Have you have to take in order to you know make sure people aware of some of the potential downside. We also having built in any significance around one g. volumes into those assumptions and you've heard a lot of discussion today around that potential demand and ramping up you know fairly quickly we don't know to what extent. So we I don't want anyone to assume.
We have too much precision around this 50 to 60 per cent down for the corridor and they you know net operating loss, but that potential if it does stay where it is and we don't get significance or allergy testing or significant up with in our P.C.R. testing.
I don't know if you want to add anything Steve to that.
You know anything I'll add is what I just said earlier she there is going to be.
A lot of pent up demand from patience and Marc said, there's been a lot of.
A physician offices instead of have been cancelled postponed.
And delayed and so they will start to.
Back to the system when that will be will vary by city in by state. So that's what it said earlier in the comments were tracking all that so one could think Ah later in the quarter you start to see some recovery.
Also be those physicians offices in those hospitals systems.
To bring back in.
Those patients as well so we're actually going to do a survey of our customers to get a perspective of what they're thinking about when they turned back on their offices are open up their offices with extended hours extended work days.
I think people are now thinking that the summer won't be the same summer.
July and August won't be the that'd be vacation periods. So we're watching all that but as marks that too early in too much.
Too much uncertainty around a for us to give you anything more than we provide a boat we're keeping an eye arrives on that closely.
[noise] operator next question.
Next question comes in Donald Hooker Keybank airline is open.
They don't great great. Good good morning, Saint last quarter, you called out some significant expenses around your advance diagnostics and I think part of that was associated with the the very interesting acquisition I think a blueprint.
That was <unk> kind of thinking about that being a nice talent for 2021, it sounds a little discretionary for me is that something you're going to continue to pursue as we think out going for it.
Yeah, absolutely or strategy to accelerate rose continues.
One of those strategies is to continue to builder advance diagnostics platform again, that's all genetics and molecular.
The acquisition that we did a complete early this year, there's a nice platform capability acquisition, where you feel good about this that company coming into quest diagnostics, the integration is going well.
There's a lot of opportunities in front of us with a genetic based testing and you know our plan score that do not change given the you know the crisis that we huh.
Operator next question.
My next question <unk> P. Morgan your line is open.
Format, and writing Hey, good morning Elizabeth.
<unk>.
I mean, everyone getting are prepared comments to talk about changes to the lab industry and I I'm just curious around your thoughts on <unk> unpacked going forward. So clearly a complaint we're going to start to see that there's an opposite up I think I'm upset her out but I think every large hospital system tierpoint onto this and have talked about the fact that well.
The more telemedicine going forward.
Think about your relationship you have any perfect relationships today, what type of health providers that you intend to take out you'll see more.
How how public services in the home and then have become into your patient services Center I'm. Just curious is that how you think that trend in place and <unk> going forward.
Yeah. So yeah, we've been working with all the <unk> health <unk> providers and platforms and there's many different models as you know so we do see that is another channel if you will or another.
Type of capability of health care provision and this crisis has they'll burn some of those models in in established some credibility and some comfort with patients and so we do believe that would become a larger percentage of our of our volume and and when you have those engagements maybe.
View on the call probably of those engaged once they do order testing and then as opposed to work flow that we have for testing within quest diagnostics and then depending upon the model used in a platforms uses tele medicine it'd be your primary care physician or would they be an adjunct to it and therefore, we have the connectivity to connect back to.
The E.M.R. in their current <unk> primary care physician. So good opportunity, we have strong relationships with many of the tell how platforms big and small we actually are always prospecting, what new start ups and ventures are coming up.
With new capabilities, there's been a lot of new front end capabilities tree us capabilities that you seem to run Corbett 19, which has been interesting some of which were very well of where aware of and and have good relations with so it is it is changing and this crisis as brought more visibility to it so we.
That's a good up 10 for us and we're very well position with those companies going forward.
Operator next question.
Our next question comes from Eric Errand, right have credit Suisse airline is helping.
Right parents.
<unk> in terms of Pan that do you think that you've also turned sounds good well in light at the code response that can help at the lobbying efforts overall point to read calculation of rates there.
Yeah, what I'll say errand is it can't hurt.
This crisis that was brought to the forefront the important of testing.
And I I never believed when they joined this company over eight years ago.
D. on the front page of every news story in America in in all over the media, but we are so it's much easier now for us to make our case with members of Congress or the administration and H.S. us with the value of testing and the need for us to get fairly reimbursed and also to reinforce the intent of Congress and making sure we get a new page.
Process put in place that properly or foot reflects the market rates. So it. It is it is actually a very good fact for us we're going to leverage that just to remind everyone. <unk> did change the timing I have those are my prepared remarks.
<unk>, we still have the lawsuit going on which is still happening in both we'll we'll get a decision sometime this year on that.
Thank you. My next question comes from Eric <unk> marriage airline and helping.
They are six hey, thank you very much you mentioned in prepared remarks, the 65 million distribution from the first 30 billion out of the cares Act I just a couple of questions on that.
Does that mean, you're anticipating getting another 150 plus million here in the short term 65 at 30 per cent. So assume it's 150 left and secondarily with the 25 billion of testing stimulus that just came out are there any impact <unk>.
West other than just the supportive more volume and more activity in the market are there any direct impacts from that new 25 billion for testing that just came through in a stimulus.
Yeah, Mark you want to start on the 65.
Yeah. So that was a a unique situation. They created pot of money 30 billion emergency relief. There were no stipulations for how you would get that money. In fact, when you were surprised that showed up in our bank accounts. It was based on.
Proportional buildings to Medicare and that's how they divided up at 30 billion. So anyone who would build Medicare in the prior year got a portion of that the other parts of this bill are you know for various aspects of getting you know testing up and running I'll <unk>.
You have to cover some of that but there's nothing else that's quite mirrors that.
Fun, where we got to 65 billion, while there's opportunities for us to you know you like some of the other fun, it's not as straightforward and it's not as simple as what happened with that emergency really fun so scale.
Yeah, and I'll just say the package that was just approved by the Senate last night, we don't have a lot of clarity of any specificity underneath the hood. If you will and then also as you know it's going to be debated in EM in the house, so, we'll be watching and and the and giving them input as a refine it.
But it is critical to get at America turned back on.
We have the resources similar property reimburse them paid for the work we do as I said, we're we are as a <unk>.
The leader for a portions a large portion of the countries testing and therefore I would expect that some portion of that money, we could tap into as a as a resource worse, but it's uncertain at this time, what it will be in if any.
Operating a last question I last question comes and Brian <unk> Jeffries airline it open.
<unk>.
Good morning, Guy and things together for everything they're just that's where the last question just really quickly.
Thanks for all the update their comments on yeah, you're the hospitals and physicians, but as we think about your referrals sources and try to pinpoint the recovery. If you don't mind you give me some granularity on you know where the bulk of your friends are coming from is it primary care specialists and then hospitals.
I guess my follow up it's just a what your average serology test reimbursement is across the the platform. Thank you.
Yeah. So so just to give you a skill again of water different businesses.
Our business roughly a billion of it before crisis was coming from hospitals.
Give me an idea of the scale and you know the you know and then a billion of our business.
Is ER related services larger population health business.
With employers are poorer drug testing business, our insurance business and so the remainder is really physician driven okay. So you know roughly 6 billion of our 8 billion before crisis.
Was his physician driven yeah. So those those <unk>, obviously very important because that's where we get the vast majority of birth or volume.
And then on serology testing, Brian while we've never shared a dollar amounts.
You can look at some of the C.M.S. rates, we've made it clear through our trade Association that we don't think the crosswalk.
Would default to it's sufficient obviously you saw we you know in the first case for the P.C.R.. We weren't successful initially they established to rate and then they reconsidered looked at it and an almost double that so we're hopeful that in the case is <unk> gives them pretty compelling evidence and detail.
We're going to get a <unk> rate for the cobin testing that's more commensurate with the cost that it's it you know we're going to encourage in order to form it.
Yeah.
Do you closing remarks.
Sure well, thanks for joining us today, but we got every once questions and we appreciate your continued support and you have a great day.
Thank you for participating in their quest diagnostics first quarter 2020 conference call. It transcript they're prepared remarks on this call will be posted later today on quest diagnostics website at Www Dot Quest diagnostics Dot Com, Hey replay of the collar be assessed on.
Line at W.W.W. Dot quest diagnostics dot com or size investor.
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