Q3 2021 Quest Diagnostics Inc Earnings Call

Yes.

Yeah.

Welcome to the quest diagnostics third quarter 2021 conference call.

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.

I would like to introduce Sean.

Vice President of Investor Relations for Quest Diagnostics go ahead. Please.

Thank you and good morning, I'm joined by Steve <unk>, our chairman.

CEO and President and Mark <unk>, our Chief Financial Officer. During this call we may make.

Making statements.

We discuss non-GAAP measures.

Provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release.

<unk> results may differ materially from those projected risks and uncertainties, including the impact of the COVID-19 pandemic that may affect quest diagnostics.

Forward 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. The company continues to believe that the impact of the COVID-19 pandemic on future operating results cash flows <unk> financial.

Condition will be primarily driven by the pandemic severity and duration healthcare insurer governments and clients payer reimbursement rates for COVID-19 molecular test the.

The pandemic 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 rates 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.

Yes.

Now here is Steve <unk>.

Thanks, Shawn and thanks, everyone for joining us today.

Well, we had a strong third quarter as COVID-19 electric volumes increased throughout the summer.

While our base business continued to deliver solid volume growth versus the prior.

<unk> this year.

In 2019.

In late summer, we experienced some softness in the base business across the country, but saw an rebound in September.

Importantly, our base business continue to improve sequentially in the third quarter, which speaks to the ongoing recovery.

We have raised.

Our outlook for the remainder of the year based on higher than anticipated COVID-19 volumes as well as continued progress we expect to see in our base business, Despite rising labor cost and inflationary pressures.

The momentum of our base business.

This positions us to deliver the 2022 outlook, we shared at our March Investor Day.

So this morning, I'll discuss our performance for the third quarter of 2021.

And update you on our base business and then Mark will provide more detail on our financial results.

And talk about our updated outlook and underlying assumptions.

But before turning to our results in the third quarter.

I'd like to update you on our progress we've made in our quest for health equity initiative.

More than 100 million dollar initiative aimed at reducing health care.

Spirit is an underserved neighborhoods.

Since we established it just over a year ago, we have launched 18 programs across the United States of Puerto Rico.

Ranging from supporting Covid, 19 testing and vaccination events to educating young students healthy nutritional choices.

Is it providing funding support for our long haul COVID-19 clinic in Puerto Rico.

Recently, we announced the collaboration with the American Heart Association that will expand research and Mentorship opportunities for Black and Hispanic scholars and drive hypertension management and COVID-19.

Relief.

We're off to a good start and I look forward to updating you on our continued progress as quest for health equity enters its second year.

Okay.

Now turning to our results for the third quarter.

Total revenue of two point.

Seven $7 billion.

40 basis points versus the prior year.

Earnings per share were $4 in Tucson, and so on a reported basis.

Down approximately 3% versus the prior year and $3.96 on an adjusted basis down.

Percent versus the prior year.

The revenue and earnings declines in the third quarter reflect lower COVID-19 testing in 2021.

First as the prior year, partially offset by continued recovery in our base business.

Cash provided by operations.

One eats by nearly 20% year to date through September to approximately $1.75 billion.

Now starting with COVID-19 testing or COVID-19 electric volumes increased in the third quarter versus the second quarter due to the spread of the Delta.

And created over the course of the summer.

Testing and began to increase meaningfully in mid July and peaked in early mid September.

Our observed positivity rate peaked in mid August and has steadily been declining across much of the country in recent weeks.

We performed an average of 83000 COVID-19, molecular test a day in the third quarter EM.

<unk> maintains strong average turnaround times of approximately one day for most specimens throughout the search.

As clinical COVID-19 volumes declined.

Expanding our non clinical COVID-19 testing to support the return to school office travel and entertainment.

We're making testing easy fast and affordable for school systems, and other group settings across the country.

We are currently performing K through 12.

School testing at approximately 20 states.

With five additional states ready to come online.

We're testing passengers on Cardinal cruise lines and quest exclusively provided testing at the Boston Marathon earlier this month.

In the base business, we continue to make.

On our two point strategy to accelerate growth.

And drive operational excellence.

Now here are some highlights from the third quarter.

Our M&A pipeline remains strong.

The third quarter, we completed the small tuck in acquisition of an independent lab in Florida.

We continue to build on our exceptional health plan axis of approximately 90% of all commercially insured lives in the United States.

At our Investor Day, we discussed how we have fundamentally changed our relationship with health plans and we continue to see the promise of value based relationships come to life.

There's a couple of examples.

We are working with National health plans to help their self insured employers.

Our customers improve quality outcomes and lower the cost of care for both the employers and their employees.

Also.

Effective October one we gained access to 1 billion bandage Medicaid members in Florida as their coverage transitions to send teams.

Sunshine Health plan.

We're getting good feedback from the provider community and our growing testy volumes through this expanded access.

Entity.

Our hospital health system revenue continues to track well above 2019 levels.

And largely by the strength of our professional laboratory services contracts.

As we highlighted previously 2021 performance is benefiting from two.

All of our largest pls contracts to date.

Hackensack Meridian health.

Morea and Herman.

Altogether, our pls business is expected to exceed $500 million in annual revenue. This year this year.

Trends in our hospital.

Two our friends business also remained steady with third quarter base testing volumes above 2019 levels.

We also generated record consumer initiated testing revenue through quest direct in the third quarter.

While COVID-19 testing has been strong contributors.

Hospital referrals.

We expect our base direct to consumer testing revenue to more than double this year.

Recently, we soft launched a comprehensive health profile on quest direct.

Similar to our blueprint for wellness offering for employers.

This expanded.

Health plan and piano offers a deep dive into consumers' health profile with a battery of tests and biometric measurements to provide a personalized health quotient score that can be used to track health progress overtime.

And then finally are my question.

Quest App and <unk>.

Patient portal now has almost 20 million users.

In advanced diagnostics, we continue to ramp investments and see strong momentum in key growth drivers.

We're seeing strong growth in non invasive prenatal testing significantly above 2019 levels and saw solid.

Contribution in our specialty generics portfolio from blueprint genetics.

We continue to work closely with the CDC to sequence positive cope assessments and an ongoing effort to track emerging variants expanding of the bulk of the work that we performed in the quarter.

And then finally, we plan to introduce a test service based on a new FDA approved companion diagnostic for match alone.

For a therapy from Eli Lilly for a certain type of high risk early breast cancer.

Glass will be the first laboratory to offer it to physicians nationally at the end of the month.

Turning to our second strategy driving operational excellence, we made progress to remain on track to deliver our targeted 3% annual efficiencies across the business.

Last week, we announced that we completed the integration and consolidation of our North East regional operations into our new.

<unk> 250000 square foot next generation lab in Clifton New Jersey.

This state of the art highly automated facility services more than 40 million people across seven states.

And patient services, we are seeing all time high numbers.

Patients, making appointments to visit our patient service centers.

Now more than 50% of patient service center visits are now by the appointment versus walk ins.

And this enables patients to be very satisfied it also improves our ability to drive productivity for our flow.

Our pace.

Similar to our immunoassay platform consolidation.

We recently procured a highly automated euro analysis platform that is expected to generate millions in annual savings. Once these new systems are standardized across our laboratory network.

And that's.

Finally, I'd like to recognize and thank all of our nearly 50000 employees, who have worked tirelessly to provide critical COVID-19 testing to our country throughout the pandemic and continue to serve the healthcare needs of patients.

Who depend on quest everyday.

As a demonstration of our gratitude, we're assisting our employees with a one time payment of up to.

$500 designed to reimburse costs incurred during the pandemic.

Additionally.

Another year of pandemic pressures and travel.

Restrictions have made it very difficult for many employees to take their harder and time off.

Therefore, we are providing a pay out of most unused paid time off for our hourly employees.

To ensure they don't forfeit their earned unused time at year end.

Now I would.

I'd like to turn it over to Mark to provide more details on the third quarter financial performance and updated outlook for the remainder of 2021 mark.

Thanks, Steve.

In the third quarter consolidated revenues were $2 77 billion down 4% versus the prior.

Oh here.

Revenues for diagnostic information services were essentially flat compared to the prior year, which is reflected by lower revenue from COVID-19 testing services versus the third quarter of last year.

Yep that by the strong ongoing recovery in our base testing revenue.

Compared to 2019, our base D. I S revenue grew approximately 6% in the third quarter.

And it was up nearly 2% excluding acquisitions.

Liam mentioned by the number of requisitions increased five 3% versus the prior year with acquisitions contributing approximately.

<unk>, 2%.

Compared to our third quarter 2019, baseline total base testing volumes increased 9%.

Excluding acquisitions total base testing volumes grew approximately 4% and benefited from new pls contracts that have ramped over the last year.

We saw a rebound in our base business volumes in September following a modest softening in August.

We believe was at least partially caused by the rise of the Delta variant and the timing of summer vacations.

Shortly our base business revenue and volume grew sequentially in the third quarter.

<unk> helps illustrate the ongoing recovery as historically total revenue and volume typically step down in Q3 versus Q2 due to summer seasonality.

As most of you know COVID-19 testing volumes grew in the third quarter versus Q2, which was in line with broader COVID-19.

Didn't trends across the country.

We resulted approximately seven 6 million molecular tests.

Only 700000 serology tests in the third quarter.

So far in October average COVID-19, molecular volumes have declined approximately 10% from where we exited Q3.

It was still above the levels, we expected prior to the surge of the Delta variance.

While the base business continues to improve since September.

Revenue per requisition declined five 4% versus the prior year, driven primarily by lower COVID-19, molecular volume and to a lesser extent recent pls.

Pos wins.

Unit price headwinds remained modest and in line with our expectations.

Reported operating income in the third quarter was $652 million or 23, 5% of revenues compared to $718 million or 25, 8% of revenues last year.

On an adjusted basis operating income in Q3 was $694 million or 25% of revenues compared to $831 million or 29, 8% of revenues last year.

The year over year decline in operating margin was driven by lower COVID-19 testing revenue partially offset.

That by the recovery in our base business.

Reported EPS was $4.02 in the quarter compared to $4 14, a year ago.

Adjusted EPS was $3.96 compared to $4, 31% 31 cents last year.

Cash provided by operations was.

$1 75 billion through September year to date versus 1.46 billion in the same period last year.

Turning to guidance, we have raised our full year 2021 outlook as follows.

Revenue is expected to be between $10 45, and $10 6 billion an increase of approximately.

11% to 12% versus the prior year.

Reported EPS is expected to be in a range of $4 69 and.

$15 nine and adjusted EPS to be in the range of $13 50 and $13.90.

Cash provided by operations is expected to be.

Approximately $2 2 billion.

And capital expenditures are expected to be approximately $400 million.

Before concluding I will touch on some of the assumptions embedded in our updated outlook.

We expect COVID-19, molecular volumes to continue to decline from Q3 levels throughout the remainder of the year.

At the low end of our outlook, we assumed approximately 50000 molecular tests per day in Q4.

And serology volumes to hold relatively steady at approximately 5000 tests per day.

As you May know late last week, the public health emergency was again extended another 90 days.

Through late January.

We expect reimbursement for clinical COVID-19, molecular testing to hold relatively steady through the remainder of the year.

However, we continue to assume average reimbursement to trend lower in Q4, as our mix of COVID-19, molecular volumes potentially shift from clinical.

Diagnostic testing.

More return to life surveillance testing.

Finally, we continue to assume low single digit revenue growth in our base business in Q4 versus 2019.

Getting to the midpoint or higher end of our outlook ranges assumes stronger COVID-19 molecular testing volume.

And our stronger growth in our base business.

I will now turn it back to Steve.

Thanks, Mark well to summarize we had a strong third quarter.

We have raised our outlook for the remainder of the year based on higher than anticipated COVID-19 volumes.

As well.

Volumes continue to progress, we expect to see in our base business.

And finally, the momentum of our base business positions us to deliver the 2022 outlook, we shared at our March Investor Day.

So now we'd be happy to take any of your questions operator.

Yeah.

We will now open it up to questions at the request of the company. We ask that you. Please limit yourself to one question. If you have additional questions. We ask that you. Please fall back in the queue to be placed in the queue.

As our press star one from your phone to withdraw please press star two again to ask a question. Please press star one.

Our first question comes from Kevin <unk>.

Calendar UBS your line is now open.

Cleveland and Kevin Thank you. Thanks.

Good morning, everybody and thanks.

Thanks for all the details in the guidance for 'twenty, one I really want to talk about.

Into 2022 and.

Sort of.

You reiterated your guidance from March which I believe it was at the higher end of the 740.

The $8 range and I'm I'm just wondering at this point what are the assumptions baked in for Covid testing into next year do you anticipate that it's going to continue do you anticipate there's going to be a meaningful decline any any color around how you. How you think COVID-19 testing will will proceed into next.

Next year and Mark why don't you start and then also.

Sure Kevin just to be clear upfront, we haven't provided guidance yet for 2022, we provided an outlook and we are we did you know.

Confirm that today and you know things have largely played out where we.

We saw them for 2022 back in March the base.

Volumes have recovered we we thought we were it had you know in June when it was close to being flat to 2019 and.

Potentially saw some upside obviously with Delta it's took a little bit of a step back, but we still expect to enter 2022, where the base volume.

Utilization level similar to pre pandemic. So that's good. The second thing is we did assume that Covid will continue at a much lower level than we saw in 2020, one, but still to be significant and certainly much larger than our current flu testing and we've referenced in.

In the past.

That at some point Covid testing will still be here, but maybe more on the level of flu testing at this point, we felt comfortable with what we had assumed back in March round continued need for Covid testing for PCR and.

And we envision a stronger role for serology.

Into 2022 and think that that's a potential so we felt good about that and then we did reference the inflationary pressures.

We certainly have longer term contracts on a lot of our purchases, but you know things like fuel certainly where we're subject to inflation in the near term.

Going into 2022, and then most notably as many people are taught theres, certainly inflation in wages and benefits and especially in wages and you know that as we look at that we gave a range and we still feel very comfortable that when you put all those pieces together that the $8 5 billion baseline.

And <unk> and the $748 is certainly still deliverable, maybe in a slightly different way and but still very comfortable that that's likely where we're gonna land. When we do finally provide guidance for 2022.

Just as a quick follow up can you in any way quantify the higher.

Here inflationary pressures you know supply chain any of that is there any way to put numbers around that.

Yeah, So I'm sure you're most interested in 2022, so we'll see what we can provide when we come out with guidance and you know early next year.

For RASM to provide clarity certainly at this point, while we're experiencing some of that given the performance of the business.

Prevented us from significantly over delivering our previous guidance so.

We'll take that under consideration Kevin appreciate the question, we'll see what we can do when we talk more about next year.

Thank you.

Operator next question.

Yes. Our next question comes from Brian Tranquility Jefferies. Your line is now open.

Hey, good morning, guys. Congrats on the quarter, So just a follow up.

Think about costs and all the moving pieces.

Obviously, the Clifton labs.

Okay. So how are we thinking about the flow through of the benefits from that and how it would potentially offset some of the inflationary pressures that youre seeing on the cost side. Yeah. So thanks, Brian for the question. So as you know and what I reiterated in our prepared remarks, we've been.

Marching with our two point strategy for some time.

The second strategy is to drive operational excellence and we have maintained and just reiterated that we do believe we can continue to deliver 3% efficiency or productivity gains going forward.

3% comes from a variety of programs across quest diagnostics, and one of which is what we did in Clifton and.

Alright, she also reiterated.

A couple of other programs on the prepared remarks are working with our suppliers with new integrated platforms, what we've done around.

Immuno assay, what we're doing around.

R. R. Immuno urine analysis is are two good examples of more work, we can get the benefits for them and there's others. So there's a lot more efficiencies and productivity. We can continue to get and you know and as I said before this isn't.

That's cutting this is improvement and so every time, we make an improvement in our operation, we expect our quality improves and our service performance improves and it has so.

So.

We continue to make progress you'll see it in our numbers this year and you'll continue to see it in our 'twenty two numbers as well.

And that's always been used to offset headwinds and we do have headwinds we've had headwinds from wage bill increases in the past, albeit maybe it could be a little bit higher going forward given what we see in the labor market and then second as we have seen.

Headwinds from price.

Price consequences, as well, which we've been able to offset and we'll have some of those in 'twenty two as we've outlined before.

And then also any additional inflationary pressures, we will be able to offset more.

Most of that if not all of that to be able to hit the.

And we just reiterated our.

Confidence our ability to do that so hopefully that's helpful.

Yeah, I just wanted to add.

You referenced that.

He quipped in a lab and its increased productivity efficiency, it's really part of our invigorate.

Right.

Work that we talked about the 3% productivity every year, it's not over and above are separate.

What I will comment is that you know what we've done there like we like we did up in Massachusetts.

We have added more automation.

As you add automation, you insulate yourself a little bit from.

The outlook labor inflation. So you know certainly we have that going as we operate that lab, but it is you know built in and part of what my assumptions I had putting together that outlook for 2022 that we would achieve that ongoing 3% efficiency not something.

[noise].

Awesome. Thank you.

Our next question comes from Ricky Goldwasser Morgan Stanley. Your line is now open good morning Ricky.

Hi, good morning, so one soft.

From churn on the costs I mean, clearly we're all interested in the magnitude of the potential impact of Sun paper and inflation, but maybe you can help us by reminding us what percent of your cost structure. Today is is labor and how should we think about it break down between cost of goods and SG&A.

Mark.

Yeah. So you Ricky we've shared in the past our pre pandemic.

That's about 3 billion of our cost was related to salary and benefits, obviously with COVID-19 and moving around.

It's hard to say at the precise number.

<unk>.

The Covid testing, so I think that should give you a pretty good idea of what proportion of our costs in a six plus billion cost base. We had prior to the pandemic is made up of labor, it's somewhere in the 50% range.

And then as we said as we continue to automate that certainly offset some of that but also we are seeing an increased.

The amount of demand for phlebotomy.

So that is going the other direction, we obviously considered that benefit because you know giving access you'll helps.

US grow our business it certainly makes us more attractive, especially in a world of consumerism and it's a good thing, but it certainly will.

Drive.

Drive cost and labor cost as a percentage of our overall cost.

The other direction.

And then just a follow up on the direct to consumer point, Steve you mentioned, the soft launch of the comprehensive health and all the Zurich and consumer.

Just share with us what has been their response.

Launch to date, and maybe some data points about pricing.

Sure so.

As I said in my introductory remarks, we have a product that we sold for years to employers called blueprint for wellness.

And we offered it to her question please as well.

Fabulous Fabulous.

Dipstick reading them.

On an annual basis for people to get an indication what's going on with their health and if.

If we do it's year upon year, you've got a good nice nice trending capability that I found it beneficial since I've been here a question I know many of our employees are as well in many of our customers of sovereign.

So using that as the product to introduce that through our direct to consumer channel request direct we're very optimistic about the possibilities that this has we believe that it is.

The unique case.

Is that few others provide and we also believe it's hitting the market at the right time, where many people have not gone through there.

Primary health care providers, and we believe that you.

So there's a lot of opportunities now for people to directly engage with us as a consumer to buy this directly from us.

As far as pricing market share.

What were.

Thinking about in terms of pricing, even though this is a soft launch.

Yeah. So it it's gonna be a couple of hundred dollars.

And when you look at the individual elements that are contained in here, it's a reasonable price.

The only thing that you get.

And I can also tell you that we've got a lot of feedback that this score that we give people where it really simplifies how to interpret the results is a huge consumer positive. So a lot of reason to believe that this could get some additional momentum for our consumer business.

And we think the pricing is reasonable and we feel that the product. We're delivering is something that consumers really find interesting and valuable.

And just a follow up on the price, we actually did some market research to understand that the value that this provides to consumers justifies the price that we're pricing.

Pricing of four initially so we feel good about you know value delivered in price charged.

Operator next question.

Our next question comes from Jack Meehan.

Friend Riser. Your line is now open hey, good morning, Jack.

Good morning, Steve Martin Sean.

Wanted to continue on the inflation topic.

<unk> looked at a different way if the operating costs were to remain elevated do you think there is an appreciation by payers that the cost of doing business is moving higher how do you feel about your.

I need to get price increases maybe just talk about recent negotiations yeah, but let me, let me start and Mark Please add.

Yeah, we've been on this March as I said in my remarks to continue to demonstrate to our health plan partners that we continue to deliver value and.

Our ability I believe me, we're making tremendous progress one is that we're picking up.

Access and the number of lives I mentioned, 90% of insured lives or we're in network with within the United States.

Happy about the progress we're picking some more up this this coming year. So that's moving along.

Second as far.

There is pricing is concerned we continue to march through our contracts as they are up for renewal and we have set in.

Earlier calls that we're now.

Very fairly priced in a matter of fact, we believe we offer a very affordable price.

Price offering.

And to the health plans and their their memberships.

Memberships.

With great quality, Great service and.

Very competitive pricing so much so that were part of these preferred lab networks. So we're justified we are getting some modest price increases.

We do believe going forward.

We can continue to.

Called out wrong, and we are using.

What other people are using across the United States that in fact.

Now that we're entering a new inflationary period, our costs are going up just like yours, and therefore, we need to start talking.

That oh.

Modest price increases going forward. So mark you want to add anything to that yes. So Jack I think you appreciate I'm sure a lot of.

People do as well that our health plan contracts typically are three to five years. So it's not as if every health plan contract is up for renegotiation and any window of time.

But so we've been socializing Pamela and how that is changing the dynamics and how they can look at the.

N L E rates and be confident that that they have competitive rate because they know what the that's the market for the independent labs, which we've said is lower than the mark.

But the market for the independent labs. So this whole notion of a priced below Medicare which was the historical practice is going away with Paramount now you add inflation as you suggest and it's absolutely part of the conversation we've been having over the last number of months and I can.

I'm, telling you that although it's not final there is one national.

National payer that we've been negotiating and you know it's not final, but it looks like the first price increase we will have gotten from them in.

My tenure and I'm sure more than a decade, so we've been stabilizing as we shared.

Our commercial negotiations to go from a world of price declines every contract extension to getting it more flat and we actually I'm not sure. There's a handful of regional plans, where we got increases over the last couple of years and now we have a national contract that I'm very optimistic.

And I think we're going to get an increase.

So how much of it is inflation how much of its Pam up how much of it is in our value proposition and seeing that working with us is a benefit for everyone versus treating us.

A commoditized you provided at the laboratory result, I can't tell you, but we're in a much better place.

Just to remind everyone.

Our health plan channel businesses.

A good portion of our revenue every year.

But what we've also highlighted the reason why we do have price decreases.

In our typical assumptions annually is because we have other pressures in our business we do have.

Direct business to physicians, which we call clients.

Our client businesses are under price pressure over the past several years and and that has contributed to the price pressure. We see secondly, we sell to the hospitals and we're doing quite well in the hospital segment, but it is price competitive and then we have.

Other product lines, where we sell our services directly to employers who are too.

We're two insurance companies and as price pressure there as well so when we talk about our unit price changes its not all in the commercial health plan area. There's there's other areas that we have price pressure as well.

Your next question comes from a J Rice credits you see your line is now open Hey, Jay.

Hey, Thanks, Hi, everybody.

Just trying to maybe ask.

High level question about how the pandemic is.

Be impacting your business for the long term it seems like in the pandemic we've seen PV.

Well move away from just traditional physician office visits in some at some level virtual care other alternative sites to get their primary care are you seeing and does that help you or hurt you. If people go to these other avenues, which may generate testing volume do you think you capture a disproportion.

People's Senate share of that and then the other thing I was going to ask you about the pandemic was related to the.

You've said that as you have outperformance because of Covid testing.

You accelerated some of your programs for cost savings and other efficiencies.

Should we think of that as just enhancing the visibility.

For 40% cost reduction in annual go or are there things you're doing that might even present, some upside for 'twenty two and beyond yeah. So thanks, a J for your question. Let me take the first one I'll ask Mark to comment on the second part of your question.

First of all Tele health as we all know have is really.

On the <unk> considerably.

During the pandemic and.

It was really hit an inflection point and then yeah.

And consumers are now very comfortable with getting a portion of their health care delivered through telehealth networks whatever that might be.

Yes.

As we have watched it initially.

Go to the telehealth visits started with mental health and behavioral health.

And have now transitioned to more general health and primary care and even specialized care.

So with all those visits happening in telehealth, you have to engage with the patient and they didn't have to be.

<unk> allowed to enter orders yeah.

Unfortunately for us despite the pandemic and before the pandemic, we have strong relationships with all the telehealth company as soon as you would expect they're only going to work for us with a small group of laboratories and quest.

Question would be one of those laboratories, so we're very well positioned with the telehealth providers.

But you also know that you know even though there are telehealth companies telehealth is provided through integrated delivery systems hospital systems in different ways and they might use one of the tow out provider platforms, but theres still providing that through their physicians have using their EMR.

And so.

So when they enter the order it's gonna be entered the order the same way as in the past. So so we're watching it carefully we do believe it's a positive trend for us given what I just described but it's complicated because it all depends how telehealth platforms are deployed and particularly with so many own physicians by integrated delivery systems.

And they are still conducting the business says they do it all depends how are they.

How they actually implement their telehealth services throughout their network and how that will affect our business, but again for US. We believe it is a positive so mark you want to take the second part.

Yeah actually I E J could you repeat that second part.

It had to do with accelerating accelerating our.

Drive.

Program because of our enhanced performance and I think he was speaking to some of the acceleration of capital purchases that we've made in spending some additional money to.

Get get more.

Then what we would have realized if you didn't have the pandemic H.

P J is that correct.

So their extent savings at all.

Yeah. So we we have had an opportunity to invest more than we probably would've otherwise given this.

CT stronger growth than we would've anticipated in 2021, we've talked about that a lot of that investment has actually been more towards top line acceleration. So we've talked about you know what we're doing in advanced diagnostics, we talked about what we're doing what it requires to build a consumer does that so I'd say, a disproportionate amount of the opportunity.

Opportunity as we try to balance near term results with longer term.

Our value creation has really been in top line.

Yeah.

Look at some of the things we did during the pandemic, we have an opportunity to update our molecular equipment.

And into more efficient more.

State of the art, probably faster than we normally would've cycled so that'll give us some efficiency that maybe we wouldn't have otherwise so I wouldn't at this point.

Suggests that we're ready to commit to more than the 3% productivity.

You know because obviously, that's a large number of unit of itself.

And small basis points changes are really significant but directionally I would say, yes, a J.

Pandemic bolus of value creation conditional cash has enabled us to accelerate some investments most of it on the top line growth, but certainly some on the productivity.

As well.

Next stop is Ann Hynes Mizuho Securities. Your line is now open.

Ann.

Hi, good morning, So I just wanted to talk about the base volume trends I know revenue was up versus 2019, but can.

Can you give us some color on how much your base volume trends are still down versus pre pandemic, maybe ex some of the pls deals that.

<unk> signed during the pandemic and if it's still down maybe just to give a geographic breakdown.

And then I guess my second question would be obviously testing with various.

<unk> strong for molecular PCR test.

19 can you give me the breakdown how much of that was contributed to like.

This back to life and it should add whether it's schools city states smell like maintenance testing and I know you said in your prepared remarks that you assume revenue per test goes.

Q4 can you give us what it was in Q3 and maybe just directionally, what we should model for Q4 that would be very helpful. Thanks.

Sure.

The numbers.

This performance is.

Yeah. So so hopefully I can clarify.

Base volume.

Donegal is obviously anything non COVID-19 related as we've been through the pandemic. We've been recording strong growth in base volume, which includes our M&A and our Pls is as you would expect but we've also been trying to provide some color on utilization and the absence of it.

Total independence way to measure that we look at our base volume ex the acquired volume impacts the new Pls deals and we've talked about that continuing to improve in addition to the growth we're getting from M&A and from Pls. So in in June.

The organic base volumes ex the new Pls deals was getting close to back to the 2019 levels and then it kind of stabilized in August and in July It took a little bit of a step back in August and then as we see where we are through September into October it's getting back again very close.

You know you being fully recovered in 2019, and that's why I said earlier that we would expect certainly by the end of this year and going into 'twenty, two that would be fully recovered.

Regionally.

Variable.

As we've talked in the past and that really has not changed there's certain regions that are actually above where.

Where they were in 2019, most notably our southwest region.

We're looking at.

Florida and the south.

Volume trends are above and then a couple of areas that are kind of in that middle point and then the one area of note that's really been lagging as the east and it continues to lag.

Well it certainly has improved from where it was several months ago.

It's still down and kind of an outlier.

Especially in the five boroughs of New York City, and then quickly I'll I'll answer the question on.

The revenue expectations for molecular testing and I'll, let I'll, let Steve talk about the back to life.

So we were still around $90 in the quarter, we're not expecting a meaningful decline in.

The fourth quarter, certainly if back to life really really took off which is not what we're.

Expecting in the middle of our guidance here it could have a little bit of a road.

But still net positive it's just math.

So you can expect for your modelling purposes that just a very very slight decline in Q4 nothing of significance.

And the last question is you asked for the breakdown of what we describe as first of all the clinical.

A portion of our piece.

But again versus or return to life portion of our clinical volumes and as you can expect it's tough for us to know exactly particularly push.

Which bucket, we can put those in but I can tell you that the trend line is trending towards more of the return to life, we see the infection rates coming.

And we see programs that we've worked on going up you know examples are the return to school programs. You mentioned, you know 20 states and five more coming.

We are also doing some testing for employers.

They have mandates in place where they're requiring vaccination.

Nation or testing so we see some increase in testing related to again employers, bringing people back to the workplace and requiring testing where vaccination for that so I would say trending wise. It is a larger percentage than before but it's very difficult for us to give you exact numbers on that because we just don't get it through.

Through the the orders that we received.

But we think what we brought provided for guidance is clearly what's going to happen in 'twenty two.

Next stop is Ralph Jacoby with Citi. Your line is now open Hey, Ralph.

Hey, good morning. Thanks, first just a quick follow up on the comment.

Paid can you give us a sense of how much flu testing you do a year, if that's what you're anchoring for baseline COVID-19 testing going forward and then separately.

Was just hoping you could talk about code reimbursement in the outlook of that for next year. You know obviously you mentioned phe got extended at least for the early part of next year if that continues.

And would you expect reimbursement to be better than what you assumed in that $8 EPS for next year and then also what about commercial pricing specifically for Colgate is that is that tied to phe or help us understand sort of how that negotiation negotiating and if theres a step down there for next year. Thanks.

Mark you want to start with the flu.

Yeah, so there's quite a bit there Ralph.

We can touch on all of them so no we.

We don't generally share the precise revenue for any given test offering but its.

It's significantly lower than you know what.

Our current levels of Covid and what we would anticipate so.

So the flu is not the baseline for 2022, we still expect COVID-19 testing to be multiples of our revenues in 2022 and the reason we're testing is smaller than what would be otherwise, there's there's not a ton of molecular testing done you know physicians have become very comfortable with.

Doing point of care and even though the molecular area is more precise they feel that gets good enough in the office and they have an opportunity to make money on it so.

It will probably be several years, although I don't have the ability to call. It precisely before we would expect COVID-19 to be at a low level.

And then in terms of the pricing we have you know.

Either specific agreements or general agreement that as long as in the commercial rates that as long as the federal health emergency continues that the pricing will reflect what we're being paid by the federal government.

So it's not it's not mechanistically tied to every contract, but we know that the expectation would be when that goes away and again, there's still always a possibility. They can decouple that hundred dollar reimbursement rates from the health emergency you know so there are some other risks as well, but as long as that continues we would expect most of our commercial.

<unk> pricing to be at the same rate and then obviously when that goes away that we would expect a.

Negotiations to take it down to more of the MLA level. So when I talked about 2022 at the Investor day, I talked about reimbursement rate around $50, which is what the MLS.

And so again when you put all these pieces together I want to be clear.

We still fully expect to be in the upper end of that $748 I just wanted to caution against upside to that given everything that's going on with inflation and so on because we do have some positive things.

That have developed over the last year.

Six months or so and you know some of that is probably going to be partially offset if not largely offset by labor inflation. So we're still pretty much where we were back in March. So you know in the higher end of the 748 Bucks and then certainly at least eight $5 billion of revenue, which importantly ties.

So the 2018 CAGR that we purpose that we've shared with you at Investor day, and so just getting there at a little different way, but but still getting to where we said we would be.

Next question comes from William Blair. Your line is now open.

Matt.

Yeah.

Yeah, Hi, good morning, So a number of questions around labor. She was actually wanted to ask about our supply chain and just curious if you're starting to see any challenges in sourcing anything either for the P. S.

Labs, they're longer lead times, and then if you're having any issues with sample transport logistics.

Well so far.

Hum.

Keeping up.

And we always have battles here and there even despite the pandemic with Sprott has got a complicated business and.

A lot of pieces have to come together to do what we do but.

A meaningful disruption so far but we're watching it carefully because we're not through this yet so.

The last part of this is around logistics and again you.

You know logistics have become a little more complicated given we do use commercial carriers for some portion of our logistics, but we've been managing our way through that Fortunately, we have our own <unk>.

Network of careers, we have about 3500 careers in automobiles or quest employees, we have a fleet.

[noise] small airplanes that do some of the the.

The connections between.

Our collection locations that are laboratories, and they are employed by us and so we're we're happy we had those in these uncertain times and we continue to have strong relationships with the national carriers as well so so far so good.

The pizza.

Peter Chickering Deutsche Bank. Your line is now opened a theater.

Hey, good morning, guys I follow up on <unk> question around the base testing business.

Once you exclude M&A and Pls can you give us color on where the tests are coming in from specifically looking at primary care visits.

We're just not as steep as it was a hospital that is just curious if hospitals slow down in fourth quarter with the Covid surge does it impact anything on your fourth quarter group growth arc.

Yeah, So first off Peter to be clear the.

You know utilization trend that I talked about being nearly fully would probably doesn't.

Exclude all pls.

Since we're comparing to 2019, it's excluding some of the really large deals that we've done recently, so that we don't cloud what we think utilization there. So we had our pls business the size back in 2019, I'm not taking that out because obviously.

That's part of the trend as well.

So you know when you when you look at the sources.

We've shared that the recovery has been pretty broad based there's not a lot of differences, especially now early in the pandemic. There were some we talked about for sure from a drug monitoring certainly being one that was lagging a lot of that was policy driven.

Some of that not all of it but a lot of it has been addressed and certainly we've seen the toxicology of prescription drug monitoring business coming back in the same ballpark as some of our other clinical areas.

We did see hospitals recovering faster early in the pandemic as they return to.

Trading patients for elective surgeries and so on physician office was a little more lagging but at this point as we talked about in the prepared remarks. The physician business is quite strong and we're seeing the volumes, especially in some of the regions above where they were in 2019, So we don't feel.

Other than the east that theres been any sort of a fundamental change in either patient engagement with with physician offices and or the prescribing practices or for our diagnostics business specifically.

Next stop is Tycho Peterson Jpmorgan.

Your line is now open.

Hi, This is Casey on for Tycho two quick ones for you guys. The first one.

Do you think that the increased cash spent per requisition or test density trends that you've called out in 2020. One will continue into 2022 and is that baked into that $7.

Dollar and 40 center.

Eight dollar EPS outlook and then my second one is just on capital deployment you guys have completed the ASR right. So should we expect any more buybacks in <unk> and you know what share count should we use for our model for <unk>. Thank you I'll take the first one mark if you take the second one versus I know you know rack density that is it the number of tests per requisition, we assume.

You know, there's a lot of different moving parts as you know.

For our business one of which as you know the mix of tests. The second is the number of tests per requisition being able to channel mix changes. So all of that is complicated and our our outlook that we provided so we assume that that's in there.

And Mark you want us to put capital deployment question.

Sure so the a S R.

You know should be.

We wrapped up sometime in the next 30 days.

So there is four at this point you know even if we did additional.

Purchases once the window opens and you know not committing to anything.

Anything at this point, because we always say, there's a balance between potential M&A and share repurchases. It wouldn't have a significant impact on our on our waste. So this year, so any any sort of additional purchases.

Our shares repurchases would be more of an impact for 2022, and obviously, we'll talk about that in detail when we come up to the guidance.

For 2022.

Early next year.

Next stop is Derik de Brown Bank of America. Your line is now open good morning, Jim Hi. This is Jon on for Derrick I wanted to dig into the base business growth.

Specifically within your advanced diagnostics.

But that's what's there.

Was there any notable trend for cancer and genetic testing.

You could comment on the growth trajectory that that'd be great done it in her remarks, we're pleased with the recovery we've seen in advanced diagnostics.

And everyone that our definition of advanced diagnostics are entirely molecular and genomics.

Six of them.

When I say recover Puffery and I did say molecular as it does not include their COVID-19 testing. So it's you know our base, if you will molecular and genetic testing.

And we saw very good growth in beyond recovery for our prenatal testing and feel good about that and we are seeing nice.

That makes those for genetics business and as you recall, we did an acquisition with blueprint genetics.

Last year and that is progressing nicely and gave us some nice growth and strength in that business. So we feel good about the recovery and growth we're seeing in those areas that we're really focused on.

Gran genetics in general is one of those areas.

Next stop is Mike Michelle Evercore ISI. Your line is now open Hey, Mike.

Hey, thanks.

You know because of labor inflation costs. You know you have talked about that you can.

Absorbing in your 2022, Alex does that have any any change in the long term.

So the growth targets that you laid out for post 2022 in terms of earnings growth.

Yeah, So I.

At this point you know, obviously, we have a broad range, but I would.

Is that are you know just like we've done in other periods of time, well look for and identify offsets to that so yeah. It's not significant enough that we should deviate on a multiyear.

The outlook in terms of our earnings growth being in the high single digits and.

Would say Oh, we although we haven't identified everything over the next several years.

You know I'm sure as we move through time, we'll look for other productivity opportunities to offset some of that.

There are no more questions.

Okay very good so thanks, everyone for joining our call.

We appreciate your continued support and everyone have a great day.

Thank you for participating in the quest diagnostics third quarter 2021 conference call a transcript of prepared remarks on this call will be posted later today on quest.

Today six website at Www Dot quest diagnostics dot com a replay of the call may be accessed online at Www Dot quest diagnostics dot dot com.

Slash investor or by phone at 86636.

<unk> 07722 for domestic callers or 2033690174 for international callers telephone replays will be available from approximately 10 30, a M. Eastern time on October 21st 2020.

Sick, one until midnight Eastern time November 4th 2021 goodbye.