Q1 2023 Quest Diagnostics Inc Earnings Call

Operator: Hello and thank you all for standing by. Welcome to the Quest Diagnostic's first quarter 2023 conference call. At the request of the company, this call is being recorded. All lines have been placed on a listen-only mode until the question-and-answer portion.

Welcome to the Quest diagnostic. First quarter 2023 conference call. At the request of the company, this call is being recorded. A lines have been placed on a listen-only mode and to the question-and-answer portion.

First quarter 2023 conference call. At the request of the company, this call is being recorded. A lines have been placed on a listen-only mode and to the question-and-answer portion.

Speaker 2: Hello and thank you all for standing by. Welcome to the Quest Diagnostic first quarter 2023 conference call. At the request of the company this call is being recorded. All lines have been placed on a listen only mode and to the question-and-answer portion.

At the request of the company, this call is being recorded. A lines have been placed on a listen-only mode and to the question-and-answer portion.

Speaker 2: 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 written consent of Quest Diagnostic is strictly prohibited.

Speaker 2: 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 written consent of Quest Diagnostic is strictly prohibited. I would now like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead please. Thank you and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer and President, and Sam Samad, our Chief Financial Officer. 

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 written consent of Quest Diagnostic is strictly prohibited. I would now like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead please.

Any redistribution. Transmission or rebroadcast of this call in any form without written consent. Of Quest diagnostic isstrictly pro.

Transmission or rebroadcast of this call in any form without written consent. Of Quest diagnostic isstrictly pro.

Shawn Bevec: Thank you and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer and President, and Sam Samad, our Chief Financial Officer.

Speaker 1: I would now like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead please.

To introduce Sean beic, Vice President and Investor Relations, for Quest diagnostic.

Go ahead.

priest.

Shawn Bevec: Thank you, and good morning. I am joined by Jim Davis, our Chairman, Chief Executive Officer, and President, and Sam Samad, our Chief Financial Officer.

Speaker 4: During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected.

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.

Speaker 3: During this call, we may make forward-looking statements, and we'll discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected.

Actual results may differ materially from those projected.

Speaker 3: Risks and uncertainties that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K, and subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8-K.

Speaker 3: Actual results may differ materially from those projected.

Speaker 3: Risks and uncertainties that may affect Quest Diagnostics future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8-K .

Speaker 3: For this call, references to reported EPS: referred to reported diluted EPS and references to adjusted EPS: referred to adjusted diluted EPS. Any references to base business testing revenues or volumes refer to the performance of our business, excluding COVID-19 testing.

Speaker 3: 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 refer to the performance of our business excluding COVID-19 testing.

Any references to base business testing revenues or volumes refer to the performance of our business, excluding COVID-19 testing.

Speaker 3: 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 business.

Speaker 3: 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 business. Now, here is Jim Davis. 

Speaker 3: 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 is Jim Davis.

Speaker 3: Now here is Jim Davis.

James E. Davis: Thanks Shawn, and good morning everyone. We're off to a strong start in 2023. Our base business grew double digits compared to prior year, driven by strong performance across physician and health system lab services.

James E. Davis: Thanks Sean, and good morning everyone. We're off to a strong start in 2023. Our base business grew double digits compared to prior year driven by strong performance across physician and health system lab services.

Speaker 5: This morning we announced the acquisition of Haystack Oncology. Later in my remarks, I'll describe how this transaction is aligned to the molecular genomics and oncology strategy we shared last month at Investor Day, and how it positions us well in the fast-growing category of minimal residual disease testing.

Later in my remarks I'll describe how this transaction is aligned to the molecular genomics and oncology strategy we shared last month and Investor Day, and how it positions us well in the fast-growing category of minimal residual disease testing.

Speaker 3: This morning we announced the acquisition of Haystack Oncology. Later in my remarks, I'll describe how this transaction is aligned to the molecular genomics and oncology strategy we shared last month at Investor Day and how it positions us well in the fast-growing category of minimal residual disease testing.

Speaker 5: Now turning to the first quarter, total revenues were $2.3 billion. Total base business revenue grew 10%, supported by base business volume growth of nearly 8%, and earnings per share were a $1.78 on a reported basis and $2.04 on an adjusted basis.

Speaker 3: Now, turning to the first quarter, total revenues were $2.3 billion. Total base business revenue grew 10%, supported by base business volume growth of nearly 8%. And earnings per share were $1.78 on a reported basis and $2.04 on an adjusted basis.

Speaker 5: Now let's look at some of the highlights from the quarter.

Speaker 5: The strong volume growth we experienced in our base business across all customer types points to a continued return to care in the quarter. We saw a faster growth in a number of test per reacquisition across a broad range of clinical test categories. This suggests more people are returning to the healthcare system for routine care after delaying care during the pandemic.

Speaker 3: Now, let's look at some of the highlights from the quarter. The strong volume growth we experienced in our base business across all customer types points to a continued return to care in the quarter. We saw a faster growth in a number of tests per requisition across a broad range of clinical test categories. This suggests more people are returning to the healthcare system for routine care after delaying care during the pandemic.

This suggests more people are returning to the healthcare system for routine care after delaying care during the pandemic.

Speaker 3: This suggests more people are returning to the healthcare system for routine care after delaying care during the pandemic.

Speaker 5: Health plan volumes also continued to grow faster than the overall business. This trend is directly related to our ongoing efforts to partner with health plans to actively steer patients to high-quality, lower cost providers like Quest, thereby saving money for the health plan, employers, and plan members.

Speaker 5: During the first quarter, base revenues from health systems grew approximately 7%. At Investor Day we said this book of business would grow at about 5% to 6% CAGR and we're having success across the board with new wins in our reference and professional lab services offerings.

Speaker 5: Some of these highlights include: in February, we announced that we're helping Tower Health in Pennsylvania manage its laboratory supply chain, in addition to performing reference testing.

Speaker 5: Our Northern Light Health PLS relationship began to ramp up in the quarter. Northern Light is a large integrated health system in Maine where we are providing services for all nine of its hospital labs and its cancer center. We also closed our acquisition of Northern Light's outreach lab assets.

Northern light is a large integrated health system in Maine where we are providing services for all nine of its hospital labs and its cancer center.

We also closed our acquisition of Northern light's outreach lab assets.

Speaker 5: Finally, we completed our strategic laboratory services acquisition with New York Presbyterian, with new test volume starting to flow into our Clifton New Jersey laboratory earlier this month. This is the third outreach acquisition we completed in the last six months.

Speaker 5: As we enter the second quarter, our pipeline of new health system business remains strong, including many additional PLS opportunities.

Speaker 5: Now I'd like to say a few words about our announcement this morning regarding our planned acquisition of Haystack Oncology. Haystack is in an early stage oncology company focused on minimal residual disease or MRD testing. Haystack has developed a highly sensitive liquid biopsy technology that can detect circulating DNA from residual or recurring tumor cells. The technology was licensed from Johns Hopkins, where it was developed by genomics and cancer pioneers. Most patients treated for cancer must be monitored for years following surgery and initial treatment. This is because there's always the potential that some cancer was missed or may recur.

Haystack has developed a highly sensitive liquid biopsy technology that can detect circulating DNA from residual or recurring tumor cells. The technology was licensed from Johns Hopkins, where it was developed by genomics and cancer pioneers. Most patients treated for cancer must be monitored for years following surgery and initial treatment. This is because there's always the potential that some cancer was missed or may recur.

Most patients treated for cancer must be monitored for years following surgery and initial treatment. This is because there's always the potential that some cancer was missed or may recur.

Speaker 5: At Investor Day, we talked about quite strong position in the mature cancer areas of screening and diagnosis and that we will also play a leading role in therapy selection with our TSO 500 assay.

Speaker 5: Haystack's liquid biopsy technology, combined with our strengths in screening, pathology, and sequencing, will now position us to play a leading role in a fast-growing MRD category. We expect to focus initially on colorectal, breast, and lung cancers and to start generating revenue next year.

We expect to focus initially on colorecttal breast and lung cancers and to start generating revenue next year.

Speaker 5: We are also encouraged by other recent developments in advanced diagnostics. In the area of brain health, we saw strong growth which we attribute largely to our Quest AD detect Alzheimer's blood test. This proprietary task, launched last year, helps us assess the risk of Alzheimer's disease.

This proprietary task, launched last year, helps us assess the risk of Alzheimer's disease.

Speaker 5: We are now introducing additional tests to help us assess the inherited risk of Alzheimer's and provide personalized recommendations to lower risk.

Speaker 5: We also saw strong growth in our advanced cardiometabolic portfolio. Prenatal genetics, our blood-based tuberculosis screening and hepatitis B and C testing. We are encouraged by the CDC's recent decision to recommend onetime screening for hepatitis B.

We are encouraged by the CDC's recent decision to recommend onetime screening for hepatitis B.

Speaker 5: In consumer health, we continue to add to our test menu with new services, including long COVID-19 and menopause testing. We also generated strong year-over-year volume growth in allergy and general health testing, as consumers utilize our offerings as a complement to the care provided by their physician. In the coming months, we plan to launch a new consumer genetics panel as well.

We also generated strong year-over-year volume growth in allergy and general health testing, as consumers utilize our offerings as a complement to the care provided by their physician.

In the coming months we plan to launch a new consumer genetics panel as well.

Speaker 5: Turning to INVIGORATE, we are well on our way toward achieving our 3% annual productivity savings target. Here are some recent examples among the many contributors.

Speaker 5: We are improving the efficiency of our patient services network. In some cases, we're closing smaller draw sites and adding staff to larger, higher volume locations. At the same time, we're making it easier for walk-ins to register and be seen to our schedule at check-in service.

At the same time, we're making it easier for walk-ins to register and be seen to our schedule at check-in service.

Speaker 5: We are adding new features to the pre-registration process, which improves both collections and patient convenience.

Speaker 5: During the pandemic, we relied heavily on third-party logistics to supplement our own team's collections of COVID-19 tests and other specimens.

Speaker 5: COVID-19 volumes have declined in the labor market eases. We are reducing our dependence on these vendors, which will generate savings for our logistics operations.

Speaker 5: Finally, we're continuing to enhance our labor staffing models across our lab network to reflect post-pandemic total volumes and drive productivity.

Speaker 5: As we have said before, we continue to closely manage the cost of our corporate and support functions. The actions we've taken will start to help margins beginning in the second quarter.

Speaker 5: Finally, I'd like to give you an update on where we are with Medicare clinical lab fee schedule cuts. As you know, PAMA cuts were suspended for 2023. We strongly support the recent bipartisan reintroduction of the legislation in Congress to fix PAMA through the Saving Access to Laboratory Services Act, or SALSA. We are working with our trade association on driving advocacy for SALSA through a campaign to stop lab cuts, aimed at congressional outreach on the importance of lab services.

We are working with our trade association on driving advocacy for SALSA through a campaign to stop lab cuts, aimed at congressional outreach on the importance of lab services.

Now I'll turn it over to Sam to provide more details on our performance and our updated 2023 guidance. Sam? Thanks Jim. In the first quarter, consolidated revenues were $2.33 billion, down 10.7% versus the prior year.

Now I'll turn it over to Sam to provide more details on our performance and our updated 2023 guidance. Sam?

Sam A. Samad: Thanks Jim. In the first quarter, consolidated revenues were $2.33 billion, down 10.7% versus the prior year.

Speaker 3: Base business revenues grew 10% to $2.21 billion, while COVID-19 testing revenues declined approximately 80% to $119 million dollars.

While COVID-19 testing revenues declined approximately 80% to one hundred and 19 million dollars.

Revenues for diagnostic information services declined 11.1% compared to the prior year, reflecting lower revenue from COVID-19 testing services versus the first quarter of 2022, partially offset by strong growth in our base business. Total volume measured by the number of requisitions declined 3.8% versus the prior year, with acquisitions contributing 10 basis points to total volume.

Revenues for diagnostic information services declined 11.1% compared to the prior year, reflecting lower revenue from COVID-19 testing services versus the first quarter of 2022, partially offset by strong growth in our base business.

Versus the first quarter of 2022, partially offset by strong growth in our base business. Total volume measured by the number of requisitions. Declined 4% versus the prior year, with acquisitions contributing 10 basis points to total volume.

Total volume measured by the number of requisitions declined 3.8% versus the prior year, with acquisitions contributing 10 basis points to total volume.

Total volume measured by the number of requisitions. Declined 4% versus the prior year, with acquisitions contributing 10 basis points to total volume.

Declined 4% versus the prior year, with acquisitions contributing 10 basis points to total volume.

Speaker 3: In the quarter, total base testing volumes grew 7.9% versus the prior year. Recall our base testing volumes in the first quarter of last year were negatively impacted by surge in COVID-19 cases due to the spread of the Omicron variant. If we normalize for the impact of the easier comps due to the Omicron surge in Q1 '22, we estimate base volume growth at approximately 4%.

Recall our base testing volumes in the first quarter of last year were negatively impacted by surgeon COVID-19 cases due to the spread of the omron variant.

If we normalize for the impact of the easier comps due to the omaccron surge in Q1 22, we estimate base volume growth at approximately 4%.

Speaker 3: COVID-19 testing volume continued to decline during the first quarter. We resulted approximately one point three million molecular tests in the quarter, down approximately five million tests versus Q1 of 2022.

Speaker 3: Revenue per acquisition declined 7.7% versus the prior year, driven by lower COVID-19 molecular volume.

Speaker 3: Base business revenue for rec was up 2.3%, due primarily to more test for acquisition, as well as positive payer and test mix.

Speaker 3: Unit price was roughly flat, which was consistent with our expectations.

Speaker 3: Reported operating income in the first quarter was $305 million, or 13.% of revenues, compared to $513 million, or 19.7% of revenues last year.

Speaker 3: On an adjusted basis, operating income was $350 million, or 15% of revenues, compared to $554 million, or 21.2% of revenues last year.

Speaker 3: The year-over-year decline in adjusted operating income is related primarily to lower COVID-19 testing revenues, partially offset by growth in the base business.

Speaker 3: Reported EPS was a dollars $1.78 in the quarter, compared to $2.92 cents a year ago.

Speaker 3: Adjusted EPS was $2.04 compared to $3.22 cents last year.

Speaker 3: Cash from operations was $94 million in the first quarter, versus $480 million in the prior year period. The decline in operating cash flow was primarily related to lower operating income and an additional payroll cycle during the quarter versus the prior year.

The decline in operating cash flow was primarily related to lower operating income and an additional payroll cycle during the quarter versus the prior year.

Speaker 3: Now turning to our updated full year 2023 guidance.

Speaker 3: Revenues are now expected to be between $8.93 and $9.08 billion.

Speaker 3: Base business revenues are expected to be between $8.78 and $8.88 billion dollars.

Speaker 3: COVID-19 testing revenues are expected to be between $150 and $200 million.

Speaker 3: Reported EPS is expected to be in a range of $7.52 to $8.02.

Speaker 3: And adjusted EPS to be in a range of $8.45 cents to $8.95.

Speaker 3: Cash from operations is expected to be at least $1.3 billion, and capital expenditures are expected to be approximately $400 million.

And capital expenditures are expected to be approximately $4 million.

Speaker 3: Here are some things to consider for the remainder of the year.

Speaker 3: We have lowered our COVID-19 revenue guidance, which now assumes very modest COVID-19 revenue following the end of the public health emergency in May.

Speaker 3: COVID-19 molecular volumes have declined faster than we expected over the last several weeks and we now expect minimal volume contribution from the retail channel post-PHE.

Speaker 3: We have raised our base business revenue guidance to reflect stronger base volume trends and the recent close of the New York Presbyterian transaction.

Speaker 3: We expect the Haystack Oncology Transaction to close in the second quarter. Our updated EPS guidance reflects the expected dilution from this transaction in 2023.

Our updated EPS guidance reflects the expected dilution from this transaction in 2023.

Speaker 3: We expect this deal to be modestly dilutive to EPS over the next three years and accretive to earnings by 2020 -six.

Speaker 3: We anticipate Haystack Oncology to begin contributing revenue in 2024 and to have a positive ROIC by the end of 2025.

Speaker 3: With that, I will now turn it back to Jim.

James E. Davis: Thanks Sam. To summarize, we're off to a strong start in 2023 and our base business grew double digits compared to prior year. We are excited about our announced acquisition of Haystack Oncology. With Haystack we expect to build on our strengths in cancer screening and diagnosis to play a leading role in the higher growth areas of MRD detection. And finally, we're well on our way toward generating our targeted 3% INVIGORATE savings and productivity improvements. Now we'd be happy to take your questions. Operator?

We are excited about our announced acquisition of haystack oncology. With haystack we expect to build on our strengths in cancer screening and diagnosis to play a leading role in the higher growth areas of MRD detection. And finally. We're well on our way toward generating our targeted 3% INVIGORATE savings and productivity improvements. Now we'd be happy to take your questions. Operator.

And finally.

We're well on our way toward generating our targeted 3% INVIGORATE savings and productivity improvements.

Now we'd be happy to take your questions.

Operator.

Operator: Thank you. 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. [inaudible] please.

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. Should be Please.

If you have additional questions, we ask that you please fall back in the queue. Should be Please.

Should be Please.

Speaker 1: To ask a question, please press star one from your phone. To withdraw, press stars two. Again, to ask a question, please press star one. One moment.

To a draw. Press stars qw.

Again to ask a question.

Please press star 1: one moment.

Speaker 1: Our first question comes from Ann Hynes of Mizuho Securities. Your line is open.

Ann Hynes: Great, thank you. My question is focused on the base volume growth, which was strong, and in your commentary you talked about health plans that you were gaining more market share there and you are winning more market share I think you said with reference lab. So maybe can you give us more detail on that? Is that existing health care partners? Do you have a new health care partner? Is your relationship with the existing partners may be changing? I'm just trying to figure out how much as a return to normal versus maybe actual market share you could be gaining. Thanks.

So maybe can you give us more detail on that? Is that existing health care partners? Do you have a new health care partner? Is your relationship with the existing partners may be changing? I'm just trying to figure out how much as a return to normal versus maybe actual market share you could be gaining. Thanks.

Shawn Bevec: Hey, thanks Ann and good morning. So our growth in the quarter- again 10% base revenue growth- was strong across all channels: our position segment and our health systems segment. Now within the health system segment, we look at our reference business and our PLS business. Our reference business was powered by growth from existing accounts as well as we had several new big wins that we actually win those deals in previous quarters but the startup was in the first quarter. On the PLS side, our professional lab services, our growth at existing sites, same-store sales, was very strong. But we also added, as you know, a couple of new PLS sites both in the fourth quarter that we're ramping up and in the first quarter. Those were Lead Health in Florida, as I mentioned in the script, Tower Health and then Northern Light and Maine, a multi hospital health system up in Northern Maine continued to ramp up in the first quarter. So broad-based growth, physician business was very strong, health system business strong, and PLS certainly helped the average growth rate in the quarter. Now within the health system segment, we look at our reference business and our PLS business. Our reference business was powered by growth from existing accounts as well as we had several new big wins that we actually win those deals in previous quarters but the startup was in the first quarter. On the PLS side, our professional lab services, our growth at existing sites, same-store sales, was very strong. But we also added, as you know, a couple of new PLS sites both in the fourth quarter that we're ramping up and in the first quarter. Those were Lead Health in Florida, as I mentioned in the script, Tower Health and then Northern Light and Maine, a multi hospital health system up in Northern Maine continued to ramp up in the first quarter. So broad-based growth, physician business was very strong, health system business strong, and PLS certainly helped the average growth rate in the quarter.

Now within the health system segment, we look at our reference business and our PLS business. Our reference business was powered by growth from existing accounts as well as we had several new big wins that we actually win those deals in previous quarters but the startup was in the first quarter. On the PLS side, our professional lab services, our growth at existing sites, same-store sales, was very strong. But we also added, as you know, a couple of new PLS sites both in the fourth quarter that we're ramping up and in the first quarter. Those were Lead Health in Florida, as I mentioned in the script, Tower Health and then Northern Light and Maine, a multi hospital health system up in Northern Maine continued to ramp up in the first quarter. So broad-based growth, physician business was very strong, health system business strong, and PLS certainly helped the average growth rate in the quarter.

What we also added, as you know, a couple of new PLS sites both in the fourth quarter that were ramping up and in the first quarter. Those were leade health in Florida, as I mentioned in the script, tower health and then Northern light and Maine. A multi hospital health system up in Northern Maine continued to ramp up in the first quarter. So broad-based growth, physician business was very strong, health system business strong and PL certainly health, the average growth rate in the quarter.

Operator: Thank you. Our next question comes from Patrick Donnelly of Citi Group. Your line is open.

Thank you. Our next question comes from Patrick.

From Patrick donomly of City. Group your line is open.

Group your line is open.

At Citigroup.

Okay.

Patrick B. Donnelly: Thank you for taking the questions. This might be one for Sam just on the margin side. As we look at the base margins back and out COVID-19 shaking out somewhere around 13%, I guess when you look at the go forward- even getting into next year- kind of approaching that 17% type number, can you just talk about I don't know if it's a bridge or just the progression towards that, how do you work your way toward that, particularly as COVID-19 continues to come out of the model a little bit? Just want to focus on that base margin piece and how we think about the step up there.

Hey, guys. Thank you for taking the questions. This might be one for Sam just on the margins side, you know as we look at the base margins backing out COVID-19 shaken out somewhere around 13% I guess when you look at the go forward you know even getting into next year cause I'm approaching that 17 per cent type number can you just talk about.

<unk> I don't know if it's a bridge or or just the you know just a progression towards that how you work your way towards that particularly as Covid continues to come out of the model a little bit just want to focus on on that base margin peace and how we think about the step up there.

progression towards that, how do you work your way toward that, particularly as COVID-19 continues to come out of the model a little bit? Just want to focus on that base margin piece and how we think about the step up there.

Sam A. Samad: Sure Patrick, and good morning, thanks for the question. So listen, we had 15% operating margins in Q1. I'll talk about some of the drivers in terms of to your question looking forward and how we get to that approximately 17% that we guided to on Investor Day and we're still committed to that approximately 17% number that we guided for 2023. So here are some some key drivers. First of all, Q1 margins came in on the base business strong and overall as expected. We had the negative impact from COVID-19 revenues, both coming down more precipitously than expected, but also the mix on COVID-19. We saw more testing done at the PLS sites than at other sites, which are lower cost for us, but in terms of Q1 came in as expected.

Sure Patrick and good morning. Thanks for the question. So listen you know we had 15% operating margins in Q1 I'll talk you know about some of the drivers in terms of to your question looking forward and how we get to that approximately 17% that we got it to an investor day, and we're still committed to that approximately.

17% number that we guided for 2023.

So here are some some key drivers. First of all, Q1 margins came in on the base business strong and overall as expected. We had the negative impact from COVID-19 revenues, both coming down more precipitously than expected, but also the mix on COVID-19. We saw more testing done at the P's sites that other sites, which are lower cost for us, but in terms of Q1 came in as expected.

So here's some some key drivers first of all to one margins came in on the base business strong and overall as expected we had a negative impact from Covid revenues, both coming down more precipitously than expected, but also the mix on Covid. We saw more testing done at the P. L S sites than at other sites, which are.

Speaker 3: As we look forward, we start to see a few things help margins. First of all, keep in mind, Q1 is usually our this quarter as well, But as we look forward, you expect INVIGORATE savings to, or productivity improvements to ramp up, and that you know has already started but will ramp up over the course of the year. We said our's G N a reductions of approximately one hundred million will really take effect, more so in Q2 onwards, and so that will help margins going forward as well.

Lower cost for us, but in terms of Q1 came in as expected as we look forward we start to see a few things helped margins first of all first of all keep in mind Q1 is usually our weakest quarter as well, but as we look forward you expect invigorate savings to or productivity improvements to ramp up and that you know.

Is already started but will ramp up over the course of the year. We said R. S. G&A reductions of approximately 100 million will really take effect more so in Q2 onwards, and so that will help margins going forward as well you know we're seeing as I said good strong based business growth in volume that's gonna help us.

Speaker 3: You know we're seeing, as I said, good strong base business growth and volume going to help us. We're seeing know, good tailwinds from pricing. Our pricing environment is the best that it's ever been. We're seeing modest benefit from pricing this year compared to, you know, the 50 basis point headwind that we saw last year and before that. We have, you know, even more headwind than that.

We're seeing you know a good tailwind from pricing our pricing environment is the best it's ever been we're seeing a modest benefit from pricing. This year compared to you know the 50 basis points headwind that we saw last year and before that we used to have you know even more headwind in that so all of those factors as you look forward you know.

Speaker 3: So all of those factors, as you look forward, you know, in terms of productivity, in terms of's G N a improvement, in terms of volume growth, you know, give us confidence about getting to that 17% yes. The last thing I add Patrick, is our test mix in the quarter was strong. Our, our investments and advanced stagnostics continue to pay off. We saw, as I said in the script, really nice growth and advanced cardio metabolic testing, prenatal genetics have the have C. So these are all margin accretive types of TAS.

In terms of productivity in terms of SG&A improvement in terms of volume growth, you know give us confidence about getting to that 17%.

Yeah. The last thing I would add Patrick is our tests mixed in the quarter with strong R. R investments and advanced diagnostics continued to pay off we saw as I said in the script really nice growth and advanced Cardiometabolic testing prenatal genetics.

Speaker 5: So we feel good about that.

Peppy Hep C. So these are all margin accretive types of tests. So we feel good about that.

Speaker 1: Thank youour next question comes from brrian Thank.

Thank you.

Next question comes from that.

Alright.

Speaker 1: ityour line of Jeffrey airline is open.

Okay.

Speaker 8: Morning guys, Congress in the quarter. The question for you guys, as I think about the call you made on test per reck being up in the quarter, maybe if you can give us some color on what is driving that and how you think that will progress going forward. I guess that's for.

Hey, good morning, guys Congrats in accord.

The questions were you guys as I think about the call out you made on tests per <unk> up in the quarter. Maybe if you can give us some color on what is driving that and how you think that will progress going forward.

Yes, that's correct. Thank you.

[laughter].

Speaker 9: So I think there's evidence of a strong return to care. So I just said that our advanced testing portfolio was certainly up in the quarter. We also saw just strong growth in routine testing- C routine cardioometabolic lipid panels, chemistry panels and things like that generally a general health and well, general health and wellness visit as high test perrect, because you're testing across the entire human body.

So I I think there's evidence of a strong returned to care. So I. Just said that are are advanced testing portfolio was certainly up in the quarter. We also saw just strong growth and routine testing cardio routine cardiometabolic lipid panel chemistry panels and things like that generally.

A general health and wealth and general health and wellness visit as high test per rack cause you're testing across the entire human body. So I think our test correct, we're really powered by that.

Speaker 5: So I think our test per rect were really powered by that.

Speaker 1: Thank you. Our next question comes from Elizabeth Anderson, Evercore I I.

Thank you.

Next question comes from the Elizabeth Anderson Evercore I S.

Speaker 1: Your line is open.

Speaker 10: Hi guys, Thanks so much for their question. I would't ING if you could talk more about your visibility into pricing and contract renewals, particularly with payers. This year should of how far along you at ES of the renewals andstesort of what incrementally have you been seeing, or is it sort of similar towhat you called out on current trend? Thank you.

Hi, guys. Thanks, so much for that question Uhm.

You could talk more about your visibility and <unk> pricing and contract renewals, particularly with payers does she actually how far along are you attach it to a a new <unk> <unk> have you been seeing registers to <unk> electric cut out onto current trends. Thank you.

Speaker 9: Sure So I think. As everybody knows, in general our contracts with commercial payers average 3% to five years, So on average, every year we're going to negotiate about 25% of our health plans contracts.

Sure. So I think it's everybody knows in general are contracts with commercial payers average three to five years. So on average every year, we're gonna renegotiate about 25% of our health plans contracts.

Speaker 11: Were we're now a third of the way through the year and we've progressed nicely on two of the contracts that have been renewed. We have a few more to do through throughout the rest of the year. So what I would tell you is: look, we have a great value story. You know, consistently we're able to move acquisitions from high pricedinstitutions, health systems and out of network labs into Quest Diagnostics, and you know we try to negotiate incentives for doing that, and when we do that work we get paid incremental value.

We're we're now a third of the way through the year and we've progressed nicely on.

Two of the of the contract said had been renewed.

We have a few more to do through throughout the rest of the year. So what I would tell you. So we have a great value story, you know consistently we're able to move requisitions from high priced institutions health systems, an out of network labs into quest diagnostics and you know we tried to negotiate incentives for.

Doing that and when we do that work, we get paid incremental value. So these value based contracts or are on the rise and uhm, we certainly make the case around inflation and things like that but as I said in the past we don't deal with that we leave with the fact that we offer great value and we want to get paid for that value. So uhm.

Speaker 5: So the value based contracts are on the rise and we certainly make the case around inflation and things like that. But, as I've said in the past, we don't Le with that. We leave with the fact that we offer great value and we want to get paid for that value. So negotiations are going well. We said in the quarter that price was flat, which we haven't been able to say in a long time.

<unk> are going well, we send in a quarter that price was flat, which we haven't been able to say in a long time Q4, we were down 50 basis points Q1 were flat. So we continue to make improvement.

Speaker 5: q4- we are down 50 basis points. Q1 were flat. So we continue to make improvement and expect to make improvement throughout the rest of the year.

And expect to make improvements or that the rest of the year.

Speaker 12: Thanks so much.

Thank you so much.

Speaker 1: Thank you. Our next question comes from the coverven italiano of U BS.

Thank you. Our next question comes from that Kevin Kelly.

S U V S.

Speaker 13: Your line is open.

Okay.

Hi, Thanks for taking my question.

Speaker 14: Thanks for taking my question. Congrats on the haystack acquisition. Can you maybe talk through the process there? Why now, why this company talked through any other some regulatory commercial milestones this company has coming up, and also maybe just talk through how we should think about the dilution?

<unk> the Haystack acquisition could you maybe talk through the process. There you know why now why this company talk through any I know, there's some regulatory commercial milestones. This company has coming up.

And also maybe just talk through how we should think about the dilution.

Speaker 14: In terms of modeling it and where that would show up, up through the piano.

In terms of modeling, it and where that would show up through the piano.

Speaker 9: Yes So let me just have Sam addressed the dilution first and I'll come back and talk about why haystack and why now Sam.

Yeah. So let me just have salmon dress the dilution first and then I'll come back and talk about you know why haystack and why now Sam.

Speaker 3: Yes So you know vin, first of all, thanks for the question. So we said you know this deal will be modestly dilutive this year and modestly dilutive for the next three years. Then we will be actually accretive for us in terms of earnings in 2026. we haven't shared exactly how dilutive of it is for 2020 3, but let me give you a couple of- you know, maybe- nuggets or or qualitative directional commentsyou know, first of all, interms of our overall guidance.

Yeah. So you know Kevin first of all thanks for the questions. So we we said you know this deal will be modestly dilutive this year and modestly dilutive for the next three years and will be actually accretive for us in terms of earnings in 2026, we haven't shared exactly how to lose it if it is 420 twenty-three, but let me give you a.

A couple of you know maybe nuggets or qualitative directional comments you know first of all in terms of our overall guidance as you saw we kept our guidance mid point. The same we narrowed the guidance by 10 cents on EPS. So I'm, referring here specifically to adjust the D. P. S and you know the drivers of that were.

Speaker 3: As you saw, we kept our guidance midpoint the same. We narrowed the guidance by 10 cents on e P's. So I'm referring here specifically to adjusteda E P's and you know the drivers of that were improve base business, which is maaking us higher, lower COVID-19, which is going the other way, and some modest dilution from the haystack acquisition. But all in all, if you put all those together, we'restill at the midpoint of the adjusted E P guidance that we were last quarter in terms of going forward.

Prove based business, which is taking us higher lower COVID-19, which is going the other way and some modest dilution from the haystack acquisition, but all in all if you put all those together.

Still at the mid point of the Adjuster D. P. S guidance that we were last quarter in terms of going forward. The annualized E. P. S dilution from Haystack next year is actually less than what we expect to see this year. So it starts to improve its you know next year is the peak dilution for the deal <unk>.

Speaker 3: The annual ized E P's dilution from haystack next year is actually less than what we expect to see this year, So it starts to improve it's. You know, next year the peak dilution for the deal and in 25 the dilution is lower. So it's actually a year over year E P's improvement and then in 26, as I said, it's accretive for us from an E P's perspective.

And and twenty-five the dilution is lower so it's actually a year over year EPS improvement and then in 26 as I said, it's accretive for us from an EPS perspective R. O Y C wise as I said it turns positive by the end of 25 and you know we expect it to have it definitely clears our hurdle for Ottawa.

Speaker 3: R Y C wise, as I said, it turns positive by the end of 2- 25 and you know we expected to have a- definitely clears our hurdle for R Y C expectations in the next five years. Yes So Kevin, let me talk a little bit now about to why haystack and why now. So first, is we talked about at Investor Day when we are looking to close a capability gap, if you will, in our portfolio.

C expectations in the next five years.

Yeah, So Kevin let me talk a little bit now about why haystack and why now [noise]. So first as we talked about an investor day. When we are looking to close a capability gap. If you will in our portfolio. The first thing. We do is we reach out to our IBD partners.

Speaker 5: The first thing we do is we reach out to our I D partners.

Speaker 5: And over the last several years we've had deep discussions. We know what the roadmaps are and we didn't think that was a pathway to follow to get into this space, at least in the next several years. Let's just say, over the last three years we've had many discussions with many of the players in the MRD space.

And over the last several years, we've had deep discussions we know what the Roadmaps are and we didn't think that was a pathway to follow to get into this space at least in the in the next several years, let's just say.

Uhm over the last three years, we've had many discussions with many of the players in the M. R D space.

Speaker 5: We got to know haystackle over the last year. We think they have the lowest limits of detection of any M R D assay out there in terms of you know, just raw numbers. They can detect one part per million, meaning you have a million floating. You know dead D sells as they die. They releaseed D N a that fragments of D N a and there's a lot of D N a in your blood stream and and these guys with this assay can find one fragment of cancer D N a per a million parts.

We got to know haystack or over the last year, we think they have the lowest limits of detection of any M. R. D assay out there.

In terms of you know just raw numbers. They can detect one part per million, meaning you have a million floating dead D sells as a die they released DNA fragments of DNA and there's a lot of D N a in your bloodstream.

And these guys with this assay can find one fragment of cancer DNA per a million parts that is that is an incredibly low limits of detection. The sensitivity of the assay at landmark is is very very high 80% to 90%.

Speaker 9: That is. That is an incredibly low limits of detection. The sensitivity of the assay at landmark is is very, very high- 80 to 90% - And so we think it's the best in cllast assay, the work they've done on some of their preliminary trial: s- 450 patients across 23 Australian centers- I referree it to the New England Journal medicine article in June 2022- So we think it's the right assay, the right time.

And so we think it's the best in class assay. The work they've done in some of their preliminary trials 450 patients across twenty-three Australian centers I'd refer you to the New England Journal of Medicine article in June 20, twenty-two. So we think it's the right assay the right time.

Speaker 11: As you know, C M's is reimburseing for these assays and we think we can scale it. We think we can drive further commercial reimbursement. The last thing I would say is: look at is a tumor informed assay, and when you're looking for a needle in a haystack- hence their name- when you're looking for a needle in a haystack, you actually want to know what the needle looks like and hence we believe that the tumor informed assay is a much stronger assay than an uninformed assay.

As you know C. M. S is reimbursing for these assays.

And we think we can scale. It we think we can drive further commercial reimbursement. The last thing I would say is look it isn't tumor informed assay and when you're looking for a needle in a haystack, hence the name when you're looking for a needle in a haystack you actually want to know what the needle looks like and hence we believe that the tumor informed <unk>.

Speaker 11: A 1: one other thing, just to wrap up on the financials Kevin, back to your question around dilution. I do want to mention for the longer term. You know we are committed to the Investor Day guidance that we gave around long range guidance, which mid single digit revenue growth and high single digit E P's growth. The haystack acquisition actually modestly improved on that well, So I just wanted to provide this for the long term guidance, given that we just shared in Investor to longerago.

<unk> is a much stronger assay than an uninformed <unk> hey, one one other thing just to wrap up on the financials.

Kevin back to your question around dilution I do Wanna mentioned for the longer term you know we are committed to the Investor day guidance that we gave around long range guidance, which said made single digit revenue growth and high single digit E. P. S growth the haystack acquisition actually modestly improves on that.

As well so I.

I just wanted to provide this for the long term guidance given that we just shared within investigate not too long ago.

Speaker 1: Thank you. Our next question comes from Jack mian of Nephron rese.

Thank you.

Next question comes from Jack.

Research Your line is open.

Speaker 13: Your line is open.

Speaker 3: Thank you, good morning.

Thank you good morning.

Speaker 3: Wanted to, or to stick with the haystack deal. Very interesting, greatate taac pricings for your reasonable other deals in the space. Had a few more questions for you. First is in terms of coverage, just wanted to confirm my assume- just a plan to go through MolDX there, the number 2, do you think reimbursement looks similar to other MRD test on the market?

Wanted to stick with the haystack deal very interesting free tech pricing pretty reasonable the other deals in the space had a few more questions for you.

First is in terms of coverage just wanted to confirm I assume or just the plan to go through <unk> there.

The number two do you think reimbursement look similar to other M. R. D test on the market.

Speaker 3: And then finally, can you just comment: are there any royalties attached to the deal? Thank you.

And then finally can you just come and are there any royalties attached to the deal. Thank you.

Speaker 5: Yes So yes Jack, thanks to the question. Yes on maldix, absolutely plan to go that route. What we have to do is is finished the commercialization of the assay. We'll be doing that for the rest of this year. We plan on bring the assay up in one of our large oncology testing facilities. As you know, there is limited coverage for Medicare and Medicare advantageed patients as dictated by CMS.

Yeah. So yes, Jack for first thanks for the question, Yes, <unk> absolutely plan to go that route.

What we have to do is.

Is finished the commercialization of the assay, we'll be doing that for the rest of this year, we plan on bringing the assay up in one of our large oncology testing facilities.

As you know there is limited coverage for Medicare and Medicare advantage patience.

Dictated by C. M. S. Two companies have coverage for that today I would also tell you. There's a handful of blues pay company. The blues plans that are reimbursing for the test.

Speaker 5: two companyanies have coverage for that today. I would also tell you there's a handful of Blues company, the Blues plans, that are reimbursing for the test.

Speaker 9: So similar to niptt. Remember NIP started out very high risk women, very limited coverage, and we, as well as some other industry members, drove that throughout the commercial payers and that test is wide open to women today. So that's our plan.

So you know similar to N I P. T remember N I P. T started out very high risk women very limited coverage.

And we as well as some other industry members drove that throughout the commercial payers.

And that test is wide open to women today, so that's our plan.

Speaker 8: On the royalty.

On the Royal T question.

Speaker 9: Question look, as we've mentioned in the comments, the some of the original IP came out of John Hopkins. I'm not going to disclose royalty payments but, as you can imagine, there's intellectual property that comes with this and there's modest royalties that will come with it.

Well cause we mentioned in the comments the some of the original I P came out of John Hopkins I'm, not gonna disclose a royalty payments, but as you can imagine there's intellectual property that comes with this and there's modest royalties that will come with it.

Speaker 15: Operator next question.

Operator next question.

Speaker 1: Thank you, our next question.

Thank you our next question comes from.

Speaker 1: Comes from Aaron right of Morgan Stanley . Your line is open.

Right.

Stanley.

Okay.

Speaker 1: praythanks two part question. Just first on basic routine testing, where we now, relative to precovidt baseline levels. Are we fully back to normal here? And then on capital deployment. I understand there's a balance of capital deployment dedicated to the innovation assets like hastack, but how rich is the pipeline now for the tuck-in deals around hospitals or local players, and have you seen any changes in the urgency around around those types of deals?

Great. Thanks, two part question just first I'm basic routine testing where are we now relative to pre COVID-19 baseline levels are we totally back to normal here and then on capital deployment I understand you're bound to cancel the appointment dedicated to the innovation, that's like haystack, but how rich is the pipeline now.

Now for attacking deals going on hospitals, and local <unk> and have you seen any changes in the urgency around around his tapes it'd be all thanks.

Speaker 9: Yes So our routine testing levels, our above preCOVID levels, whether you look at our volume versus all the 2019 or you look at our volume versus the first two months of 2020 or substantially above that. So the recovery is is no longer really even a topic of discussion for us. In terms of the funnel of opportunities on the health system sideite, namely outreach deals, is stronger than ever and I think now that COVID-19 is behind us, the deal completion will start to accelerate.

Yeah, so our routine testing levels uhm are above pre COVID-19 levels, whether you look at our volume versus all the 20th 19 or you look at our volume purposes. The first two months of 2020 or substantially above that so the recovery is.

<unk> is no longer a really even a topic of discussion for us.

In terms of the funnel of opportunities on the health system side, namely Outreached deals is stronger than ever and I think now that COVID-19 is behind us the deal completion will start to accelerate so we feel good about what's in the funnel. They generally take a while to negotiate uhm.

Speaker 5: So we feel good about what's in the funnel. They generally take a while to negotiate. You got to get a lot of people on board- thologists on board, recurring posysiciions- But once you get them all on board it can move quickly.

You Gotta get a lot of people on board pathologists onboard referring physicians uhm.

But once you get them all on board it can move quickly.

Okay.

Speaker 1: Thank you. Our next question comes from quito: cheickering of doutch. Bank your line is open.

Thank you. Our next question comes from it.

Getting.

Bank your line is open.

Bank.

Okay.

[noise] Hi, there you've got <unk> on here for Peto. Thanks for taking the questions I'm just going back margins I was just wondering if you could talk a little bit about S. T wage inflation hiring and turnover how that ran Q1compared to what you were seeing.

Speaker 16: High there. You've got a here in Ryan on here, ripedo. Thanks for taking the question. Just going back to margins, I was just wondering if you could talk a little bit about TE wage inpletation, hiring and turnur noover, how that ran Q1 compared to what you're seeing in the second half of 2022 and then just kind of how that fits into getting back to that 17% margin next year.

<unk> and the second half of 2022, and then just kind of how that fits in to getting back to that 17% margin next year.

Speaker 5: Yes So the guidance we gave for the year, we said our wage inflation be in the three cent to 4% range. No surprises there. We still feel good about that overall guidance that we said for the year. You know our turnover rates have improved from Q1 of last year sequentially for most job categories it improved from Q4 to Q1 and we continue to see the trend back towards a normalized attrition rate.

Yeah. So the guidance we gave for the year, we said our wage inflation will be in the 3% to 4% range. No surprises are we still feel good about that overall guidance that we said for the year.

You know our our turnover rates have improved from Q1 of last year sequentially for most job categories. It improved from Q4 Q1, and we continue to see the trend back towards a normalised attrition rate when I say normal lives sort of pre COVID-19 levels.

Speaker 11: When I said normalized sort of precoed levels, it is not yet back to those levels on like volume, but it is trending in the right direction and we feel good about where our wage inflation was in the first quarter and for the year. And I'll just mention a couple of things real quick. I mean productivity, in terms of the INVIGORATE actions that we have, helps also offset that, which is how we get to the margin target that we have and- and you know I think you mentioned here in that the 17% next year actually are- our guidance is to get to approximately 17% this year in terms of operating margin.

It is not get back to those levels. Unlike volume, but it is trending in the right direction and we feel good about where or a wage inflation was in the first quarter in for the ear, Yeah, and I'll I'll just mention a couple of things real quick I mean productivity in terms of the invigorate actions that we have helps also.

I'll set that which is how we get to the margin target that we have and and you know I think you mentioned here and that the 17% next year actually our our guidance as to get to approximately 17%. This year in terms of operating margins. So I just wanted to be clear on that.

Speaker 17: So I just want to be clear on that.

Speaker 1: Thank you, our net operator can come.

Operator.

Operator: Thank you. Our next question comes from Andrew Brackmann of William Blair, your line is open.

Thank you. Our next question comes from Andrew Brachman William Blair. Your line is open.

Andrew brckman of William Blair, your line is open.

Andrew Frederick Brackmann: Good morning. Thanks for taking the question. Maybe just to go back to Haystack for a minute and appreciate all the commentary today on that, but can you maybe just sort of talk about any expectations for a halo effect that this can create for you guys commercially? And I guess, just as you sort of think about that, how are you thinking about any changes to the commercial strategy just between calling on pathologist and then the oncologist here?

Good morning, Thanks for taking the question maybe just to go back to the haystack for a minute and appreciate all the commentary today on that but can you maybe just sort of talk about any expectations for a halo effect that this can create for you guys commercially and I guess, just as you sort of think about that are you thinking about any changes to the commercial strategy just between calling on <unk>.

Allergist and then your oncologist here thanks.

James E. Davis: Yeah, so a good question, absolutely a halo effect. Remember, at Investor Day we said in 2022 ex COVID-19, we had $8.4 billion in revenue, and of that $8.4 billion, a billion of that is in the cancer space, and we said about half of that, or a half a billion dollars, is in the screening space, routine screening, PSA, pap smears, HPV, some common cancer markers- but we then said that the other half a billion is anatomical pathology. So we have the specimen and once we have that specimen, it's only logical for the medical oncologist to start to once it's declared cancer, the next question post surgery is: is there still cancer cells in this human being? Or the next question: if the answer to that is yes, and then there's therapy, the next question is: did the therapy work? Do we still see remnants of DNA from from the tumor? So we think this absolutely fits in to our overall cancer strategy at Quest Diagnostics today. In particular, again, there is a halo effect. We will own the block, we will own the specimen and doing the testing on that for both treatment monitoring as well as treatment selection, we think is just a natural. Now, from a commercial standpoint, we have a pretty mature oncology distribution today that calls on pathologists and medical oncologists and yes, we are absolutely going to strengthen that team as we finish the commercialization of this assay and to have a more robust channel calling into the medical oncologist space. So good question, thanks.

Yeah. So good question, absolutely a halo effect remember an investor day, we said in 2022 X Covid Uhm, we had $8.4 billion in revenue and hope that $8.4 billion billion of that is in the cancer space and we said about half a half of it.

Half of that or a half a billion dollars is in the screening space routine screening Psa.

Pap smears H P D. Some common cancer markers, but we then said that the other half a billion is anatomical pathology. So we have the <unk> and once we have that specimen it's only logical for the medical oncologist to start to once it's declared cancer.

pathology. So we have the specimen and once we have that specimen, it's only logical for the medical oncologist to start to once it's declared cancer, the next question post surgery is: is there still cancer cells in this human being? Or the next question: if the answer to that is yes, and then there's therapy, the next question is: did the therapy work? Do we still see remnants of DNA from from the tumor? So we think this absolutely fits in to our overall cancer strategy at Quest Diagnostics today. In particular, again, there is a halo effect. We will own the block, we will own the specimen and doing the testing on that for both treatment monitoring as well as treatment selection, we think is just a natural. Now, from a commercial standpoint, we have a pretty mature oncology distribution today that calls on pathologists and medical oncologists and yes, we are absolutely going to strengthen that team as we finish the commercialization of this assay and to have a more robust channel calling into the medical oncologist space. So good question, thanks.

The next question post surgery is you know is there still you know cancer cells in this human being or the next question. If if the answer to that is yes, and then there's therapy. The next question is did the therapy work do we still see remnants of DNA from from the tumor.

Do we still see remnants of DNA from from the tumor? So we think this absolutely fits in to our overall cancer strategy at Quest Diagnostics today. In particular, again, there is a halo effect. We will own the block, we will own the specimen and doing the testing on that for both treatment monitoring as well as treatment selection, we think is just a natural. Now, from a commercial standpoint, we have a pretty mature oncology distribution today that calls on pathologists and medical oncologists and yes, we are absolutely going to strengthen that team as we finish the commercialization of this assay and to have a more robust channel calling into the medical oncologist space. So good question, thanks.

So we think this absolutely fits in to our overall cancer strategy and Quest Diagnostics today in particular. Again, there is a halo effect. We will own the block, we will own the specimen and doing the testing on that for both treatment monitoring as well as treatment selection, we think is just a natural. Now, from a commercial standpoint, we have a pretty mature oncology distribution today that calls on apologists and medical oncologists and yes, we are absolutely going to strengthen that team as we finish the commercialization of this assay and to have a more robust channel calling into the medical oncologist space. So good question thanks.

So we think this absolutely fits in to our overall cancer strategy and Questdiagnostics today in particular again, there is a halo effect, we will own the block we will own the specimen and doing the testing on that for both.

<unk> monitoring as well as treatment selection. We think is just a natural now from a commercial standpoint, you know we have a a pretty mature an oncology distribution today that calls on pathologist and medical oncologist and yes, we are absolutely going to strengthen that teen as we finished the commercialization.

<unk> of this assay and to have a more robust channel calling into the medical oncologists space.

So good question thanks.

So good question. Thanks.

<unk>. Our next question comes from.

Operator: Our next question comes from AJ Rice of Credit Suisse. Your line is open.

swe your line is open.

Credit Suisse.

Mine is open.

Albert J. Rice: Thanks. Hi everybody, maybe two quick ones here if I could slip them in. Strong rebound in the base business line. We would talked for a while about the fact that the New York region had not come back as quickly as other regions. Did you see any outsized performance there that's contributing to the strong base business, or was this strength pretty much across it more geographically?

Got it maybe two quick ones here, if I could slip them in a strong rebound in the base business fine we've talked for awhile about the fact that the New York region had not come back as quickly as other regions did you see any outsize performance. There that's contributing to the strong base business or was this drawing pretty much across.

The board geographically and then you didn't do anything on the buyback for this quarter I know you've got haystack now and you've got.

Speaker 19: And then you didn't do anything on the buyback front this quarter, I know you've got Haystack now and you've got hospital deals. I wondered what are your thoughts about additional share repurchases as we progress in the year.

Little deals I wondered what's your thought about additional share repurchases as we progress through the years.

James E. Davis: Yeah, thanks A.J. So on your first question, I'll let Sam take the second part, again, 10% revenue growth on the base business in the quarter, 8% volume growth. I mentioned that health systems was 7, so our position book of business actually grew higher than that, if you do that math. And the answer is: we saw strong growth across all of our regions. Did the Northeast grow at a slightly faster rate? Yes. So we saw maybe a bit of a rebound there. But look, our comparisons now in the Northeast region or with 2022, there's been population shifts that some of that population is just not going to come back to the Northeast. Now we see a continued stronger growth in the Southeast, in the Southwest, and that very much could represent some population shift that we're seeing in the country. The last thing I mentioned, although it didn't influence our Q1 numbers, we did mentioned the startup of our New York Presbyterian outreach deal. That's going well. It's going to be a strong contributor to growth in the East region and will be a strong contributor to our overall growth for the rest of the year. So Sam, you want to take--

James E. Davis: Yeah, thanks A.J. So on your first question, I'll let Sam take the second part, again, 10% revenue growth on the base business in the quarter, 8% volume growth. I mentioned that health systems was 7, so our position book of business actually grew higher than that, if you do that math. And the answer is: we saw strong growth across all of our regions. Did the Northeast grow at a slightly faster rate? Yes. So we saw maybe a bit of a rebound there. But look, our comparisons now in the Northeast region or with 2022, there's been population shifts that some of that population is just not going to come back to the Northeast. Now we see a continued stronger growth in the Southeast, in the Southwest, and that very much could represent some population shift that we're seeing in the country.

Yeah. Thanks, H a so on your first question I'll, let Sam take the the second part again, 10% revenue growth on the base business in the quarter, 8% volume growth I mentioned that health systems was seven so our position book a business actually grew higher than that if you do that.

Math and the answer as we saw strong growth across all of our regions did the northeast grow at a faster rate slightly faster rate. Yes. So we saw you know maybe a bit of a rebound there.

Yes. So we saw, you know, maybe a bit of a ound there, but you know, look our comparisons now in the Northeast region or with 2022. you know there's been population shifts that some of that population is just not going to come back to the Northeast. You know now we see a, you know stronger, you know growth, continued stronger growth in the Southeast, in the Southwest, and that very much could represent some population shift that we're seeing in the country.

But you know look are comparisons now in in the northeast region or with 2022, you know there's been population shifts that some of that population is just not going to come back to the northeast.

Now, we see you know <unk>.

Stronger you know gross continued stronger growth in the southeast and the southwest and that very much could represent some population shift that we're seeing in the country. The last thing I'd mentioned, although it didn't influence R. Q1 numbers, we did mention the startup of our New York Presbyterian outreach a deal.

James E. Davis: The last thing I mentioned, although it didn't influence our Q1 numbers, we did mentioned the startup of our New York Presbyterian outreach deal. That's going well. It's going to be a strong contributor to growth in the East region and will be a strong contributor to our overall growth for the rest of the year. So Sam, you want to take--

The last thing I mentioned, although it didn't influence our Q1 numbers, we did mentioned the startup of our new York Presbyterian outreach deal. That's going well. It's a going to be a strong contributor to growth in the East region and will be a strong contributor to our overall growth for the rest of the year.

That's going well, it's going to be a strong contributor to growth in the east region and will be a strong contributor to our overall growth for the rest of the year.

Sam A. Samad: Yeah and thanks AJ. On the buybacks, so what's assumed in our guidance in terms of adjusted EPS is that we will offset equity dilution in terms of share buybacks so we'll do enough to offset equity dilution. We are still committed to returning the majority of our free cash flow to shareholders through dividends and buyback, so that's ill our commitment. We communicated on our Investor Day, we're obviously still committed to it. But we also said that we're going to scale share buybacks up and down depending on also the M&A pipeline and the impact that might have on growth and driving our strategy and also our long-term growth. In the quarter we talked about- or at least recently we talked about New York Presbyterian and the fact that that's a $275 million capital deployment. We talked about now today, Haystack and that's an additional capital deployment. So we've had good progress here on the MA front so that's why we didn't do any share buybacks in Q1.

So Sam you wanted to take out <unk>, yeah, and thanks, a J on the buyback so what's assumed in our guidance in terms of adjusted EPS is that we will all set equity dilution in terms of share buybacks. So we'll do enough to offset equity dilution. We are still committed to returning the majority of our free cash flow to shareholders shareholders through dividends and buy back.

So that's still our commitment we communicated on our Investor day, <unk>, obviously still committed to it but you know we also said that we're gonna scale share buybacks up and down depending on also the M&A pipeline and the impact that might have on growth and driving you know our strategy and also our longterm growth we had and the.

So that's ill our commitment we communicated on our Investor Day. We're obviously still committed to it. But we also said that we're going to scale share buybacks up and down depending on also the MA pipeline and the impact that might have on growth and driving our strategy and also our long-term growth. We had in the quarter we talked about- or at least recently we talked about- new, URO PE Presbyterian and the fact that that's a 275 million capital deployment.

Quarter, you know, we we talked about or at least you know recently, we talked about New York Presbyterian and the fact that that's 275 million capital deployment, we talked about now today haystack and that's an additional capital deployment.

We talked about now today, Haystack and that's an additional capital deployment end we've had, we've had good progress here on the MA front. That's So why we didn't do any share buybacks in Q1.

So you know we've we've had we've had good progress here on the M&A front. So that's also why we didn't do any share buybacks in Q1.

Operator: Thank you, and our final question comes from Derek de Bruin of Bank of America. Your line is open.

Thank you and our final question comes from Derek Brown.

America to your line is open.

Unknown: Hi, good morning. This is John on for Derek.  Good Morning.

Unknown: Hi, good morning. This is John on for Derek. 

Hi, Good morning. This is John on for Derek.

James E. Davis: Good Morning.

Speaker 21: Order p. good morning. I wanted to ask you about the consumer initiated testing business in terms of contribution, if you're allowed to say how much, how much contribution you saw in once ch in terms of sales and how much of an impact it made on the margins. So curious if that's, if that's something I should look out for in terms of the margin progression here.

Good morning.

Hey, good morning, [noise] I wanted to ask you about the consumer initiated testing business in terms of contribution.

You're allowed to say how much how much contribution you saw in one symptoms of sales and how much of an impact it made on the margins just curious if that if that's something I should look out for in terms of the modern progression here. Thank you.

Speaker 11: Yeah So we're really happy with our consumer initiated testing performance in the quarter. It showed nice growth from progressive growth from Q4 and so I'm going to talk about the growth. COVID-19 obviously declined in that segment of our business as well. The majority of our C it business now is our routine base business. We saw a nice progression from Q4 to Q1.

Yeah. So we're really happy with our consumer initiated testing performance and a quarter. It showed nice growth from progressive growth from Q4, and so I'm gonna talk about the growth Covid, obviously declined in that segment of our business as well the majority of our C. I T business now is our roots.

<unk> base business, we saw nice progression from Q4 to Q1, we're happy with that we saw nice progression Q1 to Q1 really nice progression. There. We continue to be excited about a couple of growth categories within C. I T number one you've probably.

Speaker 11: We are happy with that. We saw nice progression Q1 to q1- really nice progression there. We continue to be excited about a couple of growth categories within C it. Number one you've probably read: allergy season has really taken off and taken off early, So seen some nice growth there. You know just our general health and wellness offering in C. it was really strong in the quarter and you know we surveyed some of those general health and wellness customers and found some interesting things.

Red allergy season has really taken off and taken off early so seen some nice growth. There you know just our general health and wellness offering and C. I T was really strong in the corner and you know we surveyed some of those general health and wellness customers and found some interesting things one of the main reasons or.

Speaker 11: one of the main reasons are they're coming to Quest and paying out a pocket is because patients were consumers. Patients were having a hard.

Coming to class and paying out of pocket is because patients where consumers patients were having a hard time getting in to see their physicians uhm. We're hearing about three months delays to get to see their doctor so rather than wait to see the doctor and get their lab testing. They just come in because they want to know and then finally, I'd say you know or S. T D cat.

Speaker 9: Time getting into see their physicians. We're hearing about three months delays to get to see their doctor. So rather than wait to see their doctor and get their lab testing, they just come in because they want to know. And then finally, I'd say, you know, our's D D category continues to exhibit very strong growth. The C D C just declared again several types of's T D's got to re a sifless at epidemic levels.

Gory continues to exhibit very strong growth a C. D. C. Just declared again uhm several types of S. T D's gonorrhea syphilis at epidemic levels.

Speaker 11: They also indicated that 50% of all new cases that they're seen across the country are age 15 to 24. and you know that's a segment that wants to remain anonymous and just pay out a pocket for lots of, for lots of reasons. Finally, as we've said about margins, our C a T business is going to be less dilutive this year than it was last year and I think you can assume that each quarter through the year.

They also indicated that 50% of all new cases that they're seeing across the country are age 15 to 24 and you know that's a segment that wants to remain anonymous and just pay out of pocket for lots of for lots of reasons finally, as we've said about.

Margins our C. I T business is gonna be less diluted this year than it was last year and I think you can assume that each quarter through the year. Yeah. So John just to add to that it is dilutive in Q1, two margins, but as <unk> as Jim said, it's gonna improve throughout the year. So that's another another aspect of.

Speaker 11: Yes So John , just to add that it is dilutive in Q1 to margins but, as Jim said, it's going to improve throughout the year. So that's another another aspect of why our margins overall improve, although this one is more modest.

Why our margins overall improve although this one is more modest.

Thank you <unk> are there any more questions.

Speaker 22: Thank you, we operreadator there more questions.

Speaker 11: All right. Well, I want to thank thank everyone for joining today. Some some really exciting news here, but let me just summarize. We look. We're off to a really strong start here in 2023. our base business perform stronger than expected, stronger than we expected in the quarter. We feel really really good about that and it's certainly offsetting some of the COVID-19 decline that we saw in the quarter.

Alright, well I Wanna. Thank thank everyone for joining today, some some really exciting news here, but let me just summarize with look we're off to a really strong start here in 2000 twenty-three are based business perform stronger than expected stronger than we expected in the quarter, we feel really really good about that.

And uhm it certainly offsetting some of the Covid declined that we saw in the quarter second.

Speaker 5: Second, hopefully you can tell, we're really excited about the haystack oncology. We think that technology is the right technology but, more importantly, it's the right team. We're really impressed with the, with the team that we're join Quest diagnostics and, as you know, in these types of, acquisitions it's not just investing in the technology, really investing in a group of people, in a team, and we feel really, really good about that.

Hopefully you can tell we're really excited about the haystack oncology, we think the technology is the right technology, but more importantly, it's the right team were really impressed with the with the team that will join quest diagnostics and as you know in these types of acquisitions, it's not just <unk>.

<unk> and the technology, you really investing in a group of people in a team and we feel really really good about that we feel great about the M. R. D space and we believe it's starting to mature from both a physician ordering perspective as well as from a reimbursement perspective, and then finally, you know we're well on our way to generating.

Speaker 11: We feel good about the M R D space and we believe it's starting to mature from both a physician ordering perspective as well as from a reimbursement perspective. And then finally, you know, we're well on our way to generating the INVIGORATE savings that are needed to offset wage inflation and we feel good about the progress we're making there. So again, thanks for joining in and we look forward to seeing you out on the road over the next few months and joining us at our next earnings call in July .

<unk> the invigorate savings that are needed to offset wage inflation and we feel good about the progress we're making their so again, thanks for joining N and we look forward to seeing you out on the road over the next few months and joining us at our next earnings call in July so thanks for joining and have a great.

Speaker 5: So thanks for for joining and have a great day.

Day.

Speaker 1: Thank you for participating in the Quest diagnosed. First quarter 20 20 three conference call. A transcript of prepared remarks on this call will be. Posted later today on Quest diagnostic website at W W W. Quest Diagnostics dot com a replay of. Maybe accessed online at W. Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20. three until midnight Eastern time, may night.

Thank you for participating in the quest diagnostics first quarter.

First quarter 20 20 three conference call. A transcript of prepared remarks on this call will be. Posted later today on Quest diagnostic website at W W W. Quest Diagnostics dot com a replay of. Maybe accessed online at W. Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

2023 conference call.

A transcript of prepared remarks on this call will be. Posted later today on Quest diagnostic website at W W W. Quest Diagnostics dot com a replay of. Maybe accessed online at W. Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

A transcript.

This call will be posted later today.

Posted later today on Quest diagnostic website at W W W. Quest Diagnostics dot com a replay of. Maybe accessed online at W. Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

Website at Www Dot Questdiagnostics dot com.

Quest Diagnostics dot com a replay of.

Oh, maybe access online.

Maybe accessed online at W. Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

W. W Dot Questdiagnostics dotcom.

Quest Diagnostics dot com forward slash Investor. Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

Slash investor or by phone at 2033690200 for international callers or.

Or by phone at two zero three. Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

Three. six nine zero two zero, zero for international callers. Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

six nine zero two zero, zero for international callers.

Or. eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

eight six 6, three. six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

8663631835.

six three one eight 3, five for domestic colors. Telephone replay will be available from our. ately 10 a am Eastern times. On April 20, fifth 20 20.

Colors tell.

Telephone replays will be available from approximately 10, a M. Eastern time on April 25th 2023.

ately 10 a am Eastern times. On April 20, fifth 20 20.

On April 20, fifth 20 20.

three until midnight Eastern time, may night.

Midnight Eastern time may 9th 2023.

Goodbye.