Quest Diagnostics Incorporated

Welcome to the Quest Diagnostics first quarter 2020 conference call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question and answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, Retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. I would now like to introduce Sean Bevick, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.

Thank you, and good morning. I'm on the line with Steve Roszkowski, our Chairman, Chief Executive Officer and President, and Mark Guinan, our Chief Financial Officer. During this call, we may make forward-looking statements, and we'll discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties including the impact of the COVID-19 pandemic that may affect Quest Diagnostics future results include but are not limited to those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8K. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS excluding amortization expense. References to adjusted operating income for all periods excludes amortization expense. Finally, growth rates associated with our long-term outlook projections, including total revenue growth, revenue growth from acquisitions, Organic revenue growth and adjusted earnings growth are compound annual growth rates. Now, here is Steve Roszkowski.

Thanks, Sean, and thanks, everyone, for joining us today. Well, we're definitely living in extraordinary times. The COVID-19 pandemic has changed the way we all live, work, and engage with one another. While the crisis will likely continue to impact our lives in the weeks and months ahead, one thing we can be highly certain of, we'll get through this. So this morning, I'll discuss our performance before the crisis hit, the impact the crisis has had in our role in it, and the actions we're taking to mitigate the impact going forward. And then Mark will provide more detail on the first quarter results and our financial positions. Our financial performance in the first quarter was off to a strong start in January and February. Through February year to date, total revenues grew more than 4%. Total revenues grew more than 6%. And even after adjusting for the calendar benefit and favorable weather in the first two months of the year, organic volume grew more than 4%. However, in March, Social distancing and shelter-in-place measures were instituted to combat the spread of COVID-19, and we began to see substantive declines in our business. In the last two weeks of the quarter, we experienced a reduction of volumes in excess of 40%. We saw the impact across all metropolitan markets, not just in hotspots like New York City. In April, volume declines continued to intensify, as we are seeing signs that volume declines are bottoming out at around 50 to 60%. As you know, Quest Diagnostics has played a pivotal role in bringing COVID-19 testing capacity to the nation. Since we launched COVID-19 testing with a molecular laboratory-developed test performed at our Advanced Diagnostic Laboratory at San Juan Capistrano, California, we have performed and reported results of nearly 1 million tests to providers and patients across the United States. This is approximately a quarter of all testing done in the United States. We continue to provide testing from 12 laboratories. Through these laboratories, we're now able to perform more than 50,000 COVID-19 tests per day. We have also eliminated our backlog with a current turnaround time of one to two days, and less than one day for priority hospital patients. We have maximized our output by effectively managing the global supply chain. This has enabled us to have sufficient supplies to collect specimens for patients, run our tests, and also protect our employees. This has been a team effort that requires great deal of collaboration. Since early March, we've been in regular contact with the federal government and state and local governments. And this has happened at all levels. We're working closely together with our payers, IBD manufacturers, retailers, and other trade associations to bring as much testing capacity as possible to the American people. We've also joined forces with Walmart to make our drive-through testing sites available to anyone who may be exhibiting symptoms of the virus, as well as all healthcare workers and first responders, whether or not they're exhibiting symptoms. We're currently operating in approximately 10 sites in five states and have line us at a site to approximately 20 locations by the end of the month. There are no out-of-pocket costs for testing at these sites. We're also supporting state and local government COVID-19 testing efforts across the country. Finally, we are pleased to see CMS decide to increase the reimbursement for high throughput molecular COVID-19 testing to $100 last week. This is a strong recognition of the vital role laboratories are playing to support the nation's response to the COVID-19 pandemic, and we hope to see other payers follow CMS's lead. As we look to the next phase of managing the virus, we've begun to perform antibody testing, which could be useful in improving our understanding of infection rates in a certain area, as well as providing a likely indication of immunity for an individual. Antibody testing also known as serology testing, is a blood-based test. We're moving from a testing pilot in which we initially supported a handful of hospitals and health systems to making the test available to all of our customers nationwide using a variety of test platforms. By mid-May, we anticipate having the capacity to perform over 200,000 antibody tests per day. So I'm very proud of how our Quest colleagues have stepped up in so many ways. There are so many heroes at Quest from our scientific and medical staffs who have quickly brought up and validated new tests, to our operations teams, to our procurement teams, to our front lines, lobotomists, couriers, pilots, and specimen processors. And we've taken extra precautions to protect our employees with mandatory temperature checks at our labs, and required use of protective equipment, such as gloves, lab coats, masks, face shields, all of this very dependent on circumstances. Our employees take pride in their work because so many Americans depend on the insights our testing delivers to make decisions to improve care. These efforts for all of us are inspiring. COVID-19 testing is critical to managing the pandemic And while the volume of testing is substantial, is that nearly enough to offset the reductions we're seeing in the rest of our business? During this difficult time, we're managing the business for the realities of today and to assure its long-term health. While we cannot say with precision what the overall impact the COVID-19 pandemic will have on our business, we do know it will have significant impact and we are taking actions to mitigate that impact. At the end of March, we withdrew our full year 2020 outlook because we no longer had confidence in the outlook we provided in January. And we have taken a series of temporary actions to manage our workforce costs and conserve cash to support the business and to navigate our way through this pandemic. This started with a 25% pay cut for me and reductions for salary employees ranging from 20% for the most senior executives to 5% depending on level. Each of the members of our company's board of directors will forego 25% of their cash compensation. These pay reductions will be in place for 12 weeks. We've also suspended contributions to our 401k and deferred compensation plans through the remainder of the year. We've approved furloughs for more than 5,500 employees for approximately 12% of our workforce whose work has diminished and have also indicated an interest to us. We've reduced hours for non-exempt employees where possible and as necessary. And then finally, we've reduced overtime, frozen hiring, promotions and dismiss temporary and contract workers. We're taking a balanced approach to implement these difficult measures. We also want to maintain flexibility because we know when the crisis ends, our volumes will begin to recover and we'll need our colleagues more than ever. This is a challenging time for all of us and to respond to that, we've established a and employee relief fund for those colleagues who need assistance. Importantly, none of these changes will impact your ability to deliver critical COVID-19 testing. Now, I'd like to cover a few other topics, the passage of the CARES Act, the M&A environment, and some early thoughts on how the lab industry may evolve in the wake of the COVID-19 pandemic. The CARES Act became law in late March, delivering much-needed stimulus to the country as we battled this crisis. The stimulus package included a number of benefits requests and other healthcare providers. First, the Act provided coverage for critical COVID-19 testing at no out-of-pocket cost for nearly all patients. Second, regarding PAMA, the CARES Act suspended the PAMA price cuts that had been scheduled for 2021. In addition, the new round of data collection has been delayed another year until the first quarter of 2022 and will continue to use data from the first quarter of 2019. This is important as it allows ample time to implement the recommendations of the MedPAC study to identify a better way to collect the data that reflects private market rates as Congress initially intended. Third, the Act appropriates $100 billion to healthcare providers for expenses or lost revenues that are attributed to COVID-19, plus received approximately $65 million from the initial tranche of the $30 billion distributed to providers earlier this month. Finally, Medicare sequestration will be suspended from May to December this year. This eight-month sequestration holiday will afford us a small benefit. Now, turning to the M&A environment, we continue to make progress. We're pleased that we completed the Memorial Harmon transaction as well as its integration phase, and this is an important, complex relationship with a very prominent healthcare system. There are other transactions in the pipeline that we were very close to announcing before the crisis. While they are on hold, our strong conviction is that these discussions will resume, which will be in the third quarter, and we'll be in a very good position at that point to complete those transactions. And then finally, I'd like to share some thoughts on industry dynamics post-crisis. Given the many challenges that hospitals will face, we expect many to be open to discussions about Quest and how we can help them achieve their lab strategy. At the same time, we know that many smaller regional labs have had their own challenges. This could produce opportunities for tuck-in acquisitions. If any, the crisis could be an additional catalyst to drive the consolidation we've been forecasting for several years. Before I close, I'd just like to say once again how proud I am to be part of the Quest team at this historic time. Our employees have stepped up in every way to serve the nation during this time of need. The challenges have brought all of us at Quest closer together, changing the way we work and collaborate, making us stronger as a team. We have become more agile, customer-focused, and unified. We will emerge from this crisis stronger with substantial opportunities in front of us. Now I'd like to turn it over to Mark, who will take you through the results as well as our thoughts on our financial position. Mark? Thanks, Steve.