Q2 2021 Quest Diagnostics Inc Earnings Call
Welcome to the Quest diagnostics second quarter 2021 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 now I'd like to introduce Shawn Bezeq Vice President of Investor Relations for Quest Diagnostics Group go ahead. Please.
Thank you and good morning.
Here with Steve <unk>, our Chairman Chief Executive Officer, President and Mark <unk>, Our Chief Financial Officer.
During this call we may make forward looking statements.
We'll discuss non-GAAP measures we.
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 COVID-19 pandemic.
The effect of 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 cash.
Current reports on form 8-K.
The company continues to believe that the impact from the COVID-19 pandemic on future operating results cash flows or its financial condition will be primarily driven by the pandemic severity and duration healthcare insurer governments and clients payer reimbursement rates for COVID-19 molecular testing.
Impact on the U S health care system in the U S economy, and the timing scope and effectiveness of federal state and local governmental responses to the pandemic, including the impact of vaccination efforts, which are drivers beyond the companys knowledge and control.
For this call references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS.
Any references to base business testing revenues or volumes referred to the performance of our business, excluding COVID-19 testing.
Growth rate associated with our long term outlook projections, including total revenue growth revenue growth from acquisitions organic revenue growth and adjusted earnings growth are compound annual growth rates.
Finally revenue growth rates from acquisitions will be measured against our base business.
Now here's Steve <unk>.
Thanks, Shawn and thanks, everyone for joining US today, we had another strong quarter and continued to build momentum thanks to faster than expected recovery in our base business.
Organic based testing revenues grew compared to 2019 levels in the quarter.
This is the first quarter since 2019.
Organic based testing revenues growth.
The growth was driven by contributions from New Hospital lab management contracts as well as people returning to health skier.
System.
We are well positioned to continue our momentum.
And support the return to healthier on the coming months, which is reflected in the outlook. We have provided for the remainder of 2021.
This morning, I will discuss our performance for the second quarter of 2021.
Provide perspective on the industry dynamics and update you on our base business.
And then Mark will provide more detail on our financial results and talk about our outlook and underlying assumptions.
First with regard to COVID-19 testing.
We are closely watching the rapid spread of the Delta there and.
We're testing continues to help control the spread of the virus.
In recent weeks, we have seen PCR volume stabilize.
And begin to increase modestly.
Positivity rates have increased in all geographies served by they are performing laboratories over the last 2 weeks.
Okay.
COVID-19 testing.
Also remains critical.
<unk> returns for the workplace.
Students return to the classroom and a few weeks.
Unless we experienced in other lockdown, we expect people to return to pre pandemic healthier.
And in some cases catch up with health care, they might have postponed during the pandemic.
Now turning to payable.
The recent net Pat report mandated under the Lab Act.
We were pleased that medpac found it feasible to change the CMS data collection process.
To us statistically valid sample a private payer rates for independent labs, and hospital labs and physician office labs.
This approach would work for produce.
For it representative market view of laboratory rates.
Reducing the burden of reporting laboratories.
Consistent with the charge of the Lab Act and the original intent those payable.
The Manpack report estimates that Medicare spending for the top 100 tests on the clinical lab fee schedule.
Increase by 10% to 15% over current rates based on a certain rate and volume assumptions.
And separately our trade Association recently appealed as legally challenge to Panama, which was dismissed by the U S District Court in late March.
Okay.
The ACL as a service right to challenge the regulatory overreach by HHS and the implementation of Pam.
Along with our trade Association, we will continue to work with policymakers to establish.
For the last few schedule that is truly representative of the market.
And supports continued innovation and.
And access to vital laboratory services for Medicare beneficiaries as Congress originally intended.
Now is the time to strengthens our laboratory infrastructure.
Support continued access to high quality lab services that patients depend on.
Turning to our results for the second quarter.
Total revenues grew by nearly 40%.
226 billion.
Earnings per share increased by more than 264% on a reported basis to $4.96.
And nearly 124% on an adjusted basis for $3.18.
Cash provided by operations increased by more than 30% of $460 million.
Okay.
In the second quarter, we continue to see a better than expected recovery in our base business with organic based testing revenues essentially returning to pre pandemic levels in June.
We're seeing strong recovery in most of the country and the slower recovery in the northeast.
Demand for our COVID-19 testing slowed in the quarter as expected, reflecting an industry wide trend.
So in the last few weeks of June demand stabilize and has since increased modestly.
Which we believe is attributable to some extent to the emergence of the Delta variants.
We performed an average of 57000 COVID-19, molecular test per day in the second quarter.
Well below our current capacity of approximately 300000 tests per day.
We have engaged with businesses in the travel and entertainment sectors in the quarter and working with partners to support a safe return of students for the classroom.
We're also collaborating with Cic's has helped <unk> Bio works Hotel Memorial Institute.
To make testing easy SaaS is affordable for school systems, and other group settings across the country.
We continue to make progress on our 2 point strategy to accelerate growth.
And drive operational excellence.
And here are some highlights from the second quarter.
We continue to execute on our M&A strategy.
In June we announced the completion over acquisition of an outreach laboratory services business of Mercy health.
1 of the nation's most highly integrated multistate health care systems with providers and patients in Arkansas, Kansas, Missouri and Oklahoma.
With this acquisition we are in other ways to grow our base business revenues of approximately 2% from accretive strategic acquisitions. This year.
And with additional M&A opportunities from the second half of the year.
We continue to grow our health plan business and made progress from a quarter with value based programs with United Healthcare and anthem.
Okay.
Our volumes for these health plans are growing faster than the company average.
We have also invested in additional employee head count us better support these important relationships.
During the quarter. We were also pleased to renew our long standing compressed contractual relationship with 1 of our largest health plan customers Aetna.
We remain a preferred laboratory provider and partner of Atmos networks.
In addition for the first had in over a decade quest.
<unk> is 1 of high Mark Delaware's in networks non hospital affiliated preferred labs.
Serving more than 450000 members.
It's good to be back in the market competing on the basis of quality service and value.
We're helping.
All of us be focused.
On health care is tripling of <unk>.
Covid population health enhancing the patient experience and reducing costs.
And towards that end, we are launching a new campaign designed to remind customers of the values that quest brings to health care.
Our tolerance affordable care campaign speaks about our leadership and clinical innovation.
Our ability to enable better clinical outcomes from quality speed and accuracy of test results.
Our improved patient experience was accessible easy to use patient resources.
And finally, the your ability to reduce cost of care.
Base consumer initiated testing revenues continued to grow in the quarter.
Today more than 17 million patients have an account of my quest App and patient portal.
With nearly 100000 patients enrolling each week.
And then finally in advanced diagnostics, we're pleased to see full recovery in the gross drivers, we're investing again, which we discussed at our recent Investor day.
And are tracking to accelerate growth.
Yes.
Now turning to our second strategy.
We made progress driving operational excellence.
We're on schedule to complete the full transition to our new flagship laboratory flipped in New Jersey next month.
This highly automated facility is consolidated testing.
Previously performed in theater group, Baltimore and Philadelphia.
There continues to be intense effort and energy around our invigorate productivity initiatives.
We are on track to deliver our targeted 3% improvement across the business.
We are focused on getting paid for what we do.
Made steady progress in reducing payer denials.
Also patient concessions for our base revenues were down from the second quarter 2019 levels driven by a focus on collection improvements.
1 positive outcome with the pandemic has been the patient and physician acceptance of.
The digitization of our experience.
We are more customer focused and efficient today with more self serve options for customers and we have moved a greater percentage of volumes to digital paperless transactions.
Now I'd like to turn it over to Mark to provide more details on our financial performance.
And our outlook for the remainder of 2021 Mark.
Thanks, Steve.
In the second quarter consolidated revenues were $2.5.5 billion up approximately 40% versus the prior year.
Revenues for diagnostic information services grew 42% compared to the prior year, which reflected the strong recovery in our base testing revenue slightly offset by lower revenue from COVID-19 testing services versus the second quarter of last year.
Compared to 2019, our base Gis revenue grew nearly 5% in the second quarter and it was up more than 1% excluding acquisitions.
Volume measured by the number of acquisitions increased 45, 2% versus the prior year with.
With acquisitions contributing approximately 5%.
Compared to our second quarter 2019 baseline <unk>.
Total base testing volumes increased nearly 7%.
Excluding acquisitions total based testing volumes grew approximately 2%.
And benefited from new Pls contracts that have ramped up over the last year.
Importantly, compared to our 2019 baseline our base testing volumes were nearly fully recovered in June however.
However, as Steve noted earlier, the geographic recovery continues to be somewhat uneven.
With positive growth across most of the U S except in the northeast, which remains below the 2019 baseline.
With that said, we continue to see steady recovery in the northeast.
COVID-19 testing volumes continue to decline as expected in Q2 in line with broader trends across the industry.
We resulted approximately $5.2 million molecular tests and nearly 700000 serology tests from the second quarter.
COVID-19 testing volume stabilized over the last several weeks and we averaged approximately 43000 COVID-19, molecular tests and 7000 serology tests per day in the last 2 weeks from June.
Revenue per requisition declined 3.6% versus the prior year driven largely by recent pls wins and acquisitions combined these 2 factors amounted to a decline of nearly 5% and revenue per req in the quarter.
Unit price headwinds remained modest and in line with expectations.
Reported operating income in the second quarter was $533 million or 29% of revenues compared to $283 million or 15, 5% of revenues last year.
On an adjusted basis operating income in Q2 was $584 million or 22, 9% of revenues compared to 294 million or 16, 1% of revenues last year.
The year over year increase in operating margin was driven by the strong revenue growth in the second quarter due primarily to the ongoing recovery in our base business.
Reported EPS was $4.96 in the quarter compared to $1.36, a year ago.
Second quarter of 2021 benefited from the gain on the sale of our minority ownership interest in Q squared solutions in April.
Adjusted EPS was $3.18.
Compared to $1.42 last year.
Cash provided by operations was $1.2 billion through June year to date versus $602 million in the same period last year, which included $65 million from the cares Act funding that we eventually returned to the government later in 2020.
Turning to guidance, we have established our full year 2021 outlook as follows revenue is expected to be between 9.5 for $9.79 billion, an increase of approximately 1% to 4% versus the prior year.
Reported EPS expected to be in a range of $11.48, and $12.18.
And adjusted EPS to be in a range of $10.65.
At $11.35.
Cash provided by operations is expected to be at least $1.9 billion and capital expenditures are expected to be approximately $400 million.
Before concluding I will briefly review some assumptions embedded in our outlook for the remainder of 2021.
Our outlook continues to assume a decline in clinical demand for COVID-19, molecular testing throughout the back half of the year.
Returning to life testing such as the K 12 school testing program could partially offset declining clinical demand later in the year.
Reimbursement for clinical COVID-19, molecular testing continues to hold relatively steady. We currently expect this trend to continue.
Moving the public health emergency has extended throughout 2021 however.
However, average reimbursement is likely to trend lower in the second half as our mix of COVID-19, molecular volume shift from a clinical diagnostic testing to return to life surveillance testing.
As you consider the EPS outlook, we have share today keep in mind the following our.
For our Investor day in March, we discussed, making approximately $75 million and targeted investments to support our long term strategies to accelerate growth.
These investments are ramping with $50 million expected to fall in the second half.
We also continue to incur expenses to comply with CDC guidelines address supply chain challenges and maintain staffing levels to ensure high levels of service and quality as the base business recovers faster than expected. We forecast these expenses to be approximately $30 million in the back half of the year.
Finally, the low end of our outlook assumes an average of at least 20000 COVID-19, molecular tests per day, and 3000 serology tests per day. It also assumes low single digit revenue growth in our base business in the second half of 'twenty 'twenty 1 versus 2019.
The midpoint of our guidance assumes slightly stronger COVID-19, molecular testing volumes at a modestly faster recovery of the base business.
And the high end of our guidance assumes both a greater level of COVID-19 testing and a strong continued recovery in the base business I will now turn it back to Steve.
Thanks, Mark well to summarize we had another strong quarter for the FAA.
For the unexpected recovery in our base business.
We are well positioned.
We continue our momentum in <unk>.
Support the return to healthier in the coming months.
And then finally I would like to thank all question employees continuing to serve the needs of people who rely on quest every day.
Now we'd be happy to take any of your questions operator.
Okay.
We will now open it up to questions at the request of the company. We ask that you limit yourself to 1 question. If you have additional questions. We ask that you fall back in the queue to be place. Thank you. Please press star 1 from your phone.
Withdraw press star 2.
Dan to ask a question please press star 1.
Our first question from Ann Hynes Mizuho Securities. Your line is open ma'am.
Hi, good morning.
Question on I think you just said.
Guidance assumes about 20000 molecular tests per day is that average for the entire second half or is that exiting the year.
Also can you just talk about what you guys assume for any kind of labor and inflation pressures for the second half and do you see that that was getting worse.
Are they stable throughout the year. Thanks Mark.
Mark, Yes, so and that 20000 is not the exit rate. It is the average for the back half of 'twenty what's.
What's the baseline for the low end of guidance.
To get from the middle.
A part of guidance, we would expect somewhat stronger than 2000.
Process moving pieces, because it's also dependent on the base business moves and then the high end of guidance would be significantly more COVID-19 testing and then stronger base business recovery.
We're in the mid single digits revenue so.
We tried to Dimensionalize the range for you in terms of labor pressure, we certainly saw some of that.
And we responded to it.
That is built into.
The whole year, it's not accelerating at this point in our outlook in the back half. So we have a process, where we make and.
Fuel salary and wage adjustments that was implemented earlier in the year, we certainly make some market adjustments periodically, which we've done that's not unusual so theres nothing extraordinary in the back half of the year in terms of labor inflation.
Alright. Thanks.
Our next question is from Brian <unk> with Jefferies. Your line is open Sir.
Hi, good morning, and congrats on a good quarter I guess my question for you Steve as we think about the Pls and the preferred networks. It sounds like we're seeing some progress there, but any color you can get you can give us on the recovery and the uptake and the traction you're getting there, especially as we exit the COVID-19 drag.
Yes, so we're feeling good about the programs we put in place over the last couple of years Brian.
We started to use with United as for now.
We mentioned that we have.
Appropriate that we're working with AD from across the country, we feel good about and we.
We continue to work other programs with other payors.
This is an opportunity as well and.
What I said in my remarks, we do see.
Those payers and the volume going through those tiers growing faster than our other base recovery. So we feel we're actually getting some traction with everything we put in place.
I can tell you the engagement between us and those organizations that are quite good.
And I have said before in my remarks, see an opportunity to get up the variations to move with us.
High quality.
Low cost.
Q laboratory like Quest diagnostics and tighten up the network to what we've described as the preferred lab network and it's really all about what we've talked about my remarks around the triple aim for already before Apple care. So good progress what we got already who is making the opportunity and we see more opportunities.
And for Us.
Awesome. Thanks, Steve.
Our next question is from Jack Meehan with Nephron Research. Your line is okay. Good morning.
Hey, good morning, everyone.
To dig in a little bit more on the base business recovery was it purely a linear since the end of March to the commentary you made around June and then was curious if youre seeing any sort of pent up demand and whether you thought that might have helped the trajectory any commentary around test per requisition that'd be helpful.
So we are seeing a nice step by step improvement in base business I would say is.
It's been a nice recovery over the sequence of the first half.
You remember we entered the half was our base business being done some other up high single digits.
With other recruit.
Throughout Q1 and that continued into Q2.
And there's different ways, we look at it.
Does the clinical cost.
And we actually see a good recovery in our general health business, our cardio metabolic business.
And in my remarks, our advanced diagnostics business, which includes a portion of the cancer.
Genetic and molecular testing good recovery, we still see.
Our prescription drug monitoring toxicology business day, and so most of the Elia group, but it actually is going to recover net back to 19 levels for that's coming along and then the geographic basis, we do see most of the country adapt and <unk> levels.
As we said before the northeast stubborn.
We see new England started moving in the right direction, Massachusetts and Connecticut.
In New York City.
The slowest to recover if you will and Thats all gross not just in the net and then we are hopeful as they opened it continues.
People get back into life within that.
For the debt will recover as well so to answer your question, who started with us in a more of a nice steady progression clinically and also geographically market as you'd like to add to that.
I'll add Jack is somewhat uneven even though it's been steady nationally and we do have a couple of regions that are actually back to the volume growth. We had in those first couple of months of 2020 before the pandemic. So that's why we're feeling good not just about utilization recovery. So we're feeling good about getting back.
And working on the things with our key partners such as the other.
Other relationships that we've called out with some of the payers around value based contracting and then really continuing to have our strong.
Our relationships with hospital systems.
Talked about how much progress we've made around pls. So the good news is that things are open for business. We're able to go back in for the office is not not completely but much more than we were over the last 12 months plus.
Therefore, we're getting back to what we were doing before the pandemic started.
Great was there anything related to pent up demand that you saw.
It's hard to tease out what we talk about other than our calculation of revenue per rep.
We're seeing more test per requisition, so 1 could assume that some of that is.
Dan on the testing.
From the first show stepped up from the office and they have been there for 16 months.
So hard to tell you got to believe there is a little bit about some of my prepared remarks as people return and catch up on.
<unk> levels, but.
We've also to Mark's point that.
Other than 19, but remember when we started 20.
This growth in the first couple of months and so we've got more opportunities in front of us to continue their recovery and also buildup half of what we see the gain that share we're planning for.
Thank you.
Thank you. Our next question is from Ricky Goldwasser with Morgan Stanley. Your line is now open.
Hey, good morning.
So.
My question, let me just get the club and then sort of my my My main question just from the floor you mentioned that you renewed the aetna contract.
So just wanted to understand how should we think of the model how should we think about the pricing impact.
For the next 12 months and then.
We think about the value based programs that you are now signing.
Payors.
Steve you mentioned it.
Growing faster than the rest of your book can you maybe give us some color on.
What are you seeing these value based relationships and mostly focused on commercial versus Medicare and also what's the framework are you sharing side.
From the savings or are these more sort of.
Fixed price.
Contracts with some downside protection.
Mark you want to talk published an Earth, yes. So.
Yes, so first off the.
Contract was extended it will be invisible to you because there was no significant changes in pricing and in that contract. We continue to build stronger elements of what we call value based programs that I'll touch on that a minute Ricky so.
It's more focused on commercial although obviously Medicare advantage as well.
There are certain things you can do in the purely commercial that are harder to do in Medicare advantage because some other rules around that program, but the framing is not sharing our upside with them, but really they're sharing their upside with us so well we win together so as we show greater value.
For their membership volume.
Getting more work to a better value lab like ourselves relative to out of network providers or in some cases other high cost providers and network.
They obviously their members or for their fully insured book they themselves save money and then we earn upside to a base level of contract and that base level of contract is not at a discount it's really been kind of historical levels. So we didn't have to give up in order to gain but it was really more about.
The case that we've been making for years, that's getting more and more buy in from the payers that were part of the solution and working with us and not focusing on our price, but focusing on what we can do to drive better quality better service and better value for their members is good for everybody in that.
Ecosystem. So that's really the elements, we've shared steerage, where they give us list.
Accounts were.
Lot of lab works going to out of network or higher cost providers. We go in with their support to call on those visions agitate for.
People, who have high cholesterol plans coinsurance et cetera. So the patients are bearing some of that higher cost, which obviously has more.
Influenced benefit.
Fully covered by the payer in terms of the Doctor and then we've talked about M&A incentives were.
In the past when we buy hospital outreach as soon as we start filling in for fall to wire per.
Rice, obviously and huge windfall for the payers, but that it's good for them, if we buy outreach and therefore instead of taking that hit immediately maybe a step down in those rates. So we share some of those savings over those first couple of years and Thats an element we have gotten into just about every 1 of the major.
Payer contracts, so it's things like that Ricky Ware.
We've made the case and Theyre finally buying in that you know.
When we are successful and they are successful.
So just 1 follow up on the upside payment to 2 base levels. So should we think about that now all day.
For years and calculated by VEB upside we could.
See I'm.
I'm sorry, the 2 numbers from payments for the end of day, you or is this something that does kind of flow through.
On a quarterly basis.
Well, it's really the Alco.
The address the 2 examples I gave so in the spirit, 1 where we're moving work it's really more quarterly so it's a constant look at that we have a formula for doing that and then we're reimbursed more regularly it's not a once a year catch up and that's much better for us for a lot of reasons not just for more regular Rev. Rec.
But also for accounting purposes, and so on for both of US that's a better approach on the M&A, obviously that would be somewhat invisible to you because when we do a deal when it just means is that we get paid.
Paid more than we would have historically.
Some of our premium over what our negotiated rates would be for <unk>.
The volume that <unk>.
Clearly has moved from that hospital assist some to US hospital outreach business. So youre not going to really see that again thats going to be a regular monthly quarterly say non a catch up.
Thank you.
Thank you. Our next question now is from Ralph Giacobbe with Citi. Sir Your line is open.
<unk>.
Hey, good morning. Thanks.
So you mentioned Pam in the prepared remarks, and look like it looks like.
Cuts are likely to restart next year, maybe just remind us the headwind and then at your analyst day.
You suggest an EPS range for 2022 and kind of pointed to the higher end I think closer to an $8 number just wanted to confirm that that assumed panel was coming back and then just for your comments on incremental investments that you talked about in the back half just.
Wondering does that change anything related to that $8 number that we should be thinking about for 2022.
Let me start with Panama, So remember what I said.
Our remarks, we're fighting hard to get a better answer on Panama.
Hopefully that was.
Clearly in the remarks, we do believe that.
The Manpack report from those gave us some data that suggest.
<unk>.
We are right in saying that if you collected all the data and it was representative that there'll be a 10%, 15% reduction and other rigs versus what we see now we obviously have some work to work with.
With the reduction in the price cost net of production for clinical pieces I'll make that clear and income.
September 15% right.
And in that regard we have some work to do to get that through.
Through cloud risk, because it's going to take a legislative fix but we're going to keep on pushing out but with all that said, we'll keep on saying is we're assuming worst case.
Our outlook.
And 'twenty 2 we will see another club okay.
So that's clearly the mark.
It's a little bit yes.
Yes, so the range and where we pointed to at Investor day sure. So what I did was I laid out the CAGR from 2018 and said.
Obviously, the pandemic has clouded issues with the base business and at some point, we all hope Covid is a much smaller piece of.
Our revenues.
And.
The base business CAGR that we laid out would have suggested $7.40 to $8.
What we were saying is based on a base business being fully recovered by the end of the year and everything else that we were confident.
It should be in that range and yes, we felt because of everything we knew at that point that it should be in the upper end of that $748 per.
<unk> was absolutely included in that as I shared that at this point if nothing changes should be the last year of the <unk>.
Feasible reductions that we've had since payable was implemented so based on the current fee schedule and the current methodology there can be a 15% cut on any CPT code next.
Next year and.
We estimate our overall book of business going to be somewhere between 10% to 15% for higher than 10% less than 15 based on what we can see however, because that.
Traditional Medicare book of business is much smaller than it was when we started the dollar impact is actually going to be similar.
To what it was in the first couple of years of Pam. So again, it was still a large number somewhere around 1% of our overall revenues and then once you get beyond that even if pamela isn't fixed based on our understanding of commercial pricing and we don't know everything but certainly we know our <unk>.
Mrs and we've shared that we've really stabilized commercial pricing combined with some competitive intelligence from our marketplace, we feel that while there might be.
Some cuts with a recalculation.
They're going to be relatively small compared to what we incurred for several years.
Yes, we continue to feel good about the investments we're allowed to make for the.
Additional resources, we talked about at Investor day.
About $75 million worth of investments we talk today continues in the back half for the year.
That's dialed into the outlook for the guidance, we provided and it is entirely consistent with what we've teed up at Investor day around our growth platforms for investing in those health plans relationships those hospital.
The opportunities we see.
See opportunities to accelerate advanced diagnostics and we feel good about the recovery. We've seen there and then also the opportunity to receive around the consumer and consumer initiated testing so.
Performance is allowing us to make use of divestments to accelerate growth to get for the outlook that we provided to you for 'twenty, 2 and beyond which is supportive for 5% top line growth in <unk>.
<unk> digit earnings growth. So we feel good about our ability to make those investments and we are.
Making them. So are other people were spending the money in this.
<unk> of the guidance from the back half.
And then the revenue as well so some of these.
Several years.
Coming in terms of the return and some of them you get much more immediate on consumer we've talked about.
Potential quarter billion dollar business by 2025, that's coming from small millions before the pandemic and so you could imagine that for some of the things. We're doing we're going to be building significant incremental revenue to get to that $2.50 over the next couple of years, it's not going to all come in the last year.
Year or something like that so we're getting revenue growth upside as well for those investments not just incremental expense.
Very helpful. Thank you.
Yeah.
Thank you. Our next question is from Peter Chickering with Deutsche Bank. Your line is now open for you.
Hey, Good morning, guys..2 quick follow up questions here on the 'twenty 'twenty 1 guidance you quantify the COVID-19 assumptions the base business is sometimes for the low end of guidance.
Can you quantify the same levels for the mid range the high range of guidance.
To clarify the last question.
Investments that Youre, making this year are those continue into 2022 and beyond are the onetime in nature or do you will you got to add additional investments next year. Thanks, so much.
Yes, so yes.
I didn't intend to quantify with specificity that Dan and high end, because it's a multi variable equation. So what I wanted to do was make clear the low end.
For a lot of reasons you can imagine we wanted to make people understand how we might get to that low end and it's not a base business recovery stalls. It goes backwards, it's really a.
Much slower than what we've seen and that we would expect and we don't think theres a high probability for that but 1 thing we've learned in this pandemic because all of these things are somewhat volatile and hard to predict if you saw a lot of retrenchments across the country because of the Delta Varian to other.
Things that might cause <unk>.
Geography, just to shut down we want to make sure that we provide you guidance that.
95%, plus deliverable or even more so once you get beyond the floor. There's so many different moving parts that could go in opposite directions, It's kind of hard to give you a point estimate we wanted to make sure that people also understood that the Covid average per day, we anticipate for the balance of year significantly lower than.
We're getting right now as you might imagine we've been working on this outlook for awhile.
The recent news with obviously delta driving up the positivity rate cases, obviously, our volumes increasing 1 thing. We've also learned is not to overreact to short term so and we're very transparent. So we give you those volumes every 2 weeks. So we felt that we can build.
Are you reasonably deliverable highly deliverable outlook make clear what those assumptions are and especially around the COVID-19 volte.
Volumes are going to see that every 2 weeks youre going to know where we're going in terms of.
Net outlook Williams that I laid out this morning.
And as far as seeing investments some of the investments are comfortable with them within 21 as you would expect for investing in long term capabilities that will continue into 'twenty 2.
Rest assure us.
For the acquired business case, and the revenues associated will be there as well so yes.
We will.
Outlook assumptions.
I have some portion of these investments continued to 'twenty 2.
The trust of those investments are good investments for us to do that.
Back to Ralph's question again.
Besides those were built into the outlook that I provided in Investor day. So.
To make clear that we see these growth opportunities.
The Covid revenue upside is it gives us an opportunity not just to deliver some record earnings for the last couple of quarters, but actually to invest and accelerate the long term prospects for our base business. So we thought it was the right balance between near term.
<unk> results as well as long term growth of the business and so when I gave you that multiyear outlook.
For years, and then when I frame 2022, those all fully contemplated these investments.
And then just is it fair to say that you are reiterating <unk> number today for 'twenty 'twenty 2.
Yes, so nothing has changed.
We would feel.
Compelled if there was something over the last 6 months that would cause us to feel that that range was no longer appropriate.
We would say something absolutely great.
Great. Thanks, so much.
Yes.
Yes.
Our next question now is from Dan Leonard with Wells Fargo. Your line is now open.
Hi, Dan.
Hi, This is actually Tim Daley on for Dan. Thanks for the time, so I just wanted to dig a bit more on for Peter Good question. So I believe for back to school COVID-19 opportunities for upside in relation for the guidance for the second half of the year. So first I just wanted to clarify is there any back to school testing baked into the Covid guidance, our company level ranges with.
And then secondly, given we are kind of weeks away from kids heading back to school I'm sure. There's been some discussion, but could you give us some insight into the internal or on the ground discussions happening like.
Are there broad based general screening plan for back to school, maybe a big 1 off push at the start of the year just any more additional color there would be really helpful.
Yes, so total implies.
Mark just laid out.
Of.
<unk> around Covid testing, we did we did assume.
Clinical testing would come down.
The return to life testing would go up and a portion of that return to what blood testing house through back to school programs.
Globally <unk>.
<unk> been working with the different partners with 2 programs that are funded.
With the funding for testing.
It is.
600.
601 billion program.
$600 million program for return to school programs, where we have.
Partners to help us with that and school systems throughout the United States.
The applied for that money and get the money to reimburse for whatever programming come up and then there is the larger program from about $10 billion.
But as you can understand I mean every school systems throughout the United States as Kevin has its own plan and so they're going to start ramping up.
So for the month of August and September and I think there's going to be a fair amount of areas.
Across the United States of who does what well.
I do believe that given what we see now with the Delta and I'm sure they'll have some Barry.
The need for testing to make sure that we're safe for the kids return back to school and also return to office programs, we do expect that.
There will be more returning to the workplace those people who have been working remotely.
But.
Clearly this can be a higher level of.
Safety of wood.
Is that happening.
As a 7 night early remarks testing.
Testing is vital for them, so we need for better that in our expectations as well but.
But we assume the clinical testing would come down we believe that a lot of our capacity is not used for the hospital portion of Covid testing notes from the early days of Covid testing.
And some of it.
Recent increase that we've seen has been related to some of the.
The effects, we see for the Delta.
Delta area, so far in Alaska, a week or 2 so hopefully appetites from color of what's assumed in the guidance. So far yes, I just wanted to remind everybody.
How that surveillance testing works, it's very different than our clinical testing. So if you think about the PCR test today will get where we're averaging over $90 per test that's non economic call for surveillance. So what we have come up with the other side as well, but our methodology is.
A heavily pooled approach.
Yes.
We pull a handful of samples today, when we're testing in low positivity regions for economic reasons, but it's our.
Responsibility, if we have a positive to retest those individuals sample. So you don't want to pull too many because the math suggests that youre going to be re testing a lot of samples.
So when you go to surveillance the assumption is that nobody has and so therefore, you're going to do a lot less re testing, but actually in this case, we're not obligated to do it because they are not even identified so what happens is the collections done.
Entity in this case a school knows who's 10 samples, let's say are in that.
Specimen collection device, it's not shared with US all we do is testing and we say this group is negative hopefully and other case, where its positive then they are the administrators know which students need to be re testing and then thats a separate order thats a separate payment is et cetera, and so the reason that's important is that in order.
To make this economic and because of the economies of scale, we get with a huge pool, Inc. We have to do approximately 10 specimens to equate to a single 1 for our core PCR business. So the volumes.
Have to be tenfold to have the same dollar value to our top line. So yes. There is absolutely. Some contracts. We won we've got some of that volume but.
<unk> really move the needle it have to be.
Really broadly endorsed and embraced and while the fundings there to this point, we've seen some momentum but not enough to be significant at this point it really move the needle to offset the decline in the clinical testing we've seen over the last several months.
Great No that was extremely helpful. Thank you for the time.
Yes.
Thank you. Our next question now is from Derek Brown with Bank of America. Your line is open.
Hi, good morning.
Hey.
Quick questions, just a little bit more color on the recovery in the base business.
Just are you seeing anything in particular in terms of oncology and esoteric versus routine testing just a little bit more color on that you gave some geographical differences, but I'd love some mix differences and then another question that keeps coming up.
Yes.
In contrast to where youre guiding to we just got off the danaher call and they're talking about.
They did they did they went from 10 million point of care testing in the first quarter to 14 million pointed share shifts in the second quarter. So yeah.
My other questions. We continue we get on the Central Labs is the impact longer term on the business on point of care testing as this channel is this trend going to continue particularly given the number of players that you're sort of entering this market from the point of care and at homes space. So I'd love to know your general thoughts on.
Youre spot on volume shifts for <unk>.
Certain applications into the point of care market. Thank you.
Let me, let me start with the first 1 so.
Well, what we said is our general health and our cardio metabolic.
Testing, which is sometimes referred to by us as our general diagnostics.
I would say in the industry, sometimes is for 2 routine has recovered nicely.
And that's throughout the United States. So that's for cover there.
Second as you asked about oncology.
We've seen a good recovery in our AP business.
Policy for us.
As I said in my.
Remarks, our advanced diagnostics systems.
Our definition of what's sometimes called esoteric.
Yes, it's actually recovered nicely and we are making investments there and we think we're tracking well against our investment accelerated growth plan. So we feel good about that.
Yes.
The second question, which has to do with point of care.
Reported cure the PCR for next year and then also the antigen testing, we do believe that some portion of the testing.
Demand if you will.
The in place with these 2 approaches we do believe there is a place specifically with return to work programs for future testing.
Some of the point of care applications.
But equally what you see with our volumes somewhat stabilized as we saw in the second quarter. When we report our numbers of the modest increase from Brazil as TCR continues to be the gold standard and so many in many cases, they do reflect stack.
2 to the fee share adjusted when there is a positive.
Positive for sure.
<unk>.
That is of interest not false negatives. So we do believe we should.
Good places in the marketplace.
Yes, we do believe there is a place for point of care devices, including antigen as well as PCR going forward.
Thank you.
Thank you.
Our next question from Tycho Peterson with Jpmorgan Ma'am your line is open.
Hi, Good morning, this is for Todd.
Our call today and thanks for the time here.
All my questions have been answered already so I'll just following up on an earlier question about your per program.
It's great to see that Youre, having success with United and anthem, and recently renewed contract with and that is well you previously sample volume through these relationships are growing faster than the rest of the book.
Curious if you can provide some additional color on how much faster. These volumes are growing and what kind of net investments youre, making to capitalize on these opportunities. Thank you mark.
Yeah.
Yes, so as you might imagine theres non answer to how much faster because they are not.
All equal and also theyre more accounts each of them or have more concentration in certain geographies. So as.
We shared.
The northeast from specifically New York City is growing at a different rate so assume that payers add more membership there we might have a different answer than the payers that are in Texas, or Florida, let's say or even California. So we've looked at because it's 1 of our key.
We have a process, we call them <unk> and <unk>.
<unk>.
These.
Breakthrough objectives, 1 of them is growing our share of these health plans that we look at it regularly and we share information back and forth to understand kind of our share of wallet with those and so we have a chance to see.
As they themselves also are recovering in terms of the volume.
Going through their membership whether we seem to be growing at the same pace of that recovery and that's the basis for our saying that we're growing faster. So in this business a couple of hundred basis points is a big difference.
Not going to be 10% or double digit kind of differ.
The differential but there are a couple of hundred basis points of share.
Share growth is meaningful that's clearly what we saw before the pandemic started as you look back for our 2019 performance what we shared in the first 2 months of 2020. So once the business utilization becomes fully recovered we're confident that we'll get back to that.
Not just historical growth with market for finally getting to.
Growth above that by share gains and that's what we laid out in our multiyear outlook at Investor day as far as investments Mark what Mark said is already.
Yes.
Lance other detailed plan of what we're going to do to gain that share.
Some of that happens nationally and some of it happens locally and some of it happens by line of business for instance, we do have some programs that go with the bigger 2 international accounts that are there.
For a planned sponsors important important for plan sponsors and so.
A lot of that is local and so you asked the question, where we're making investments we will put those investment dollars, where we didn't need the extra capacity drive those programs by payer.
And Theres a lot of attention around where those opportunities are by payer.
That detail is what we're speaking to or divestments for the health plans.
Just give you 1 other example, which we've shared in the past, but it's really expanded broadly so it take toxicology a prescription drug monitoring the pairs.
We're starting to grow and there was some concern the Paris part around the behavior of some of the providers. They put into some really onerous rules in place such as pre authorization and so on of course that impacts everybody, including the people like ourselves who are very responsible around our panels and how we conduct ourselves and so we.
We went to some other payers talk to them about that and said hey, not only is that not right for us it's not right for the patients because it can be.
More difficult for them to get testing they need.
But also if you got rid of that you would actually steer more work to the good last and what I would say, it's not just certainly our chief competitor and some others are just like us for very very responsible we do good work.
<unk> prescription drug monitoring so they've put in rules in place, where we're actually exempted from pre op. So that's another example, where it's really not an investment is an investment of time to work with them to get them to understand and get them to change some of these roles and behaviors, but again as an example, where we're benefiting but so are the patient.
And a lot of other people because it's being it's a more thoughtful approach to rules around lab testing.
Very helpful. Thank you.
Thank you. Our last question now is from Matt <unk> with William Blair. Your line is now open.
Yeah.
Hey, good morning.
The Clifton Lab went live in January and Keith I think you said deconsolidation from the other day lateral wrap up here next month.
You talked about from Dublin throughput, 30% more capacity.
2%, increasing productivity I'm, just curious are there any data points to share so far and how that consolidation is going and how we should think about the impact to margins.
As volume to consolidated into quest.
So we're pleased with what we're able to do it's pretty remarkable that we built for this facility in the middle of the P&L.
For all intents and purposes or on truck and Thats up and running.
And this facility to do the consolidation we continue our program of row harmonization of processes and harmonization of all systems.
To get them all in the sales platform.
Facilities. So we're on the final strokes of that implementation would feel good about it and then in that facility.
We have implemented a lot of the new systems, we put in place or new immunoassay platform from Siemens, We've talked about which is a big investment for us.
We are getting some productivity gains from up to more to come so close we put in place new frontier and automation and through the lab automation with our partner <unk>.
If you assume interest on the systems integration with those flow. So so we're.
We are pleased with the progress made so far and we're looking forward to more productivity for.
From that going forward is to contribute in the burn in systems can work out some of the early details about those.
<unk>.
Improvements are already part of the 3% productivity gains that we have.
Our operational excellence program are already included in our almost doubling from other than the Investor day.
Alright. Thanks.
Okay. So thank you everyone for this call and we appreciate your continued support you have a great day.
Thank you for participating in the quest diagnostics second quarter 2021 conference call.
Script of prepared remarks on this call will be posted later today on quest diagnostics website at Www Dot quest diagnostics Dot com.
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Or by phone at <unk> 63603307 for domestic callers.
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Goodbye.