Quest Diagnostics Incorporated

Welcome to the Quest Diagnostics third 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 copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. Now I'd like to introduce Sean Bevick, Vice President of Investor Diagnostics. Go ahead, please.

Thank you and good morning. I'm here with Steve Roszkowski, our chairman, chief executive officer and president, and Mark Guymon, 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 8-K. The company continues to believe that the impact of the COVID-19 pandemic on future operating results, cash flows, and or financial condition will be primarily driven by the pandemic's severity and duration, the pandemic's impact on the U.S. healthcare system and the U.S. economy, and the timing, scope, and effectiveness of federal, state, and local governmental responses to the pandemic, which are drivers beyond the company's knowledge and control. For this call, references to reported EPS refer to reported diluted EPS from continuing operations, and references to adjusted EPS refer to adjusted diluted EPS from continuing operations. References to base testing volumes or base business refer to testing volumes exporting COVID-19 molecular and serology testing volumes. 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 compact annual growth rates. Now, here's Steve Ruszkowski.

Well, thanks, Sean, and thanks, everyone, for joining us today. Quest had a very strong third quarter, benefiting from continued demand from COVID-19 testing, as well as the rapid recovery from healthcare utilization. We have performed over 22 million COVID-19 molecular and serology tests to date, more than any other provider. We've also developed and introduced several new innovations that are contributing to enabling the country's ability to return to work, the classroom, and the athletic field. I'm extremely proud of all that Quest Diagnostics has accomplished through the COVID-19 pandemic, I want to thank our 47,000 employees for their hard work and dedication. So this morning, I'll discuss our performance for the quarter, our role in the COVID-19 pandemic, and update you on our non-COVID-based business. And then Mark will provide more detail on the third quarter results and our updated financial outlook for the remainder of the year. Our financial performance in the third quarter was very strong. For the quarter, total revenue grew by more than 42% to $2.79 billion. Earnings per share increased by more than 164% on a reported basis to $4.14, and nearly 145% on an adjusted basis to $4.31. These results reflect continued demand for COVID-19 testing and continued recovery in our base testing volumes as health care systems resume non-urgent care and elective surgeries. Organic base testing volumes orders declined high single digits in July and improved in the quarter to mid to high single digit decline in September versus the prior year. Demand for COVID-19 testing came from several areas. Clinical testing ordered by healthcare providers as the virus spreads throughout much of the country, especially for non-COVID-19 pre-surgical patients and people in high-risk populations like nursing homes and prisons. In retail testing, in our extended network access points, such as our drive-through sites offered across the country by CVS and Walmart. Workplace testing as employers sought to return employees to the job and their offices. University testing to facilitate the return of students to campus life, including sports. And our consumer testing, direct testing offered by Equest, direct. We've also demonstrated innovation and agility in bringing COVID-19 testing to our nation. In the quarter, we were granted an emergency use authorization. or EUA to offer unobserved self-collection. We were the first provider to receive the EUA during the pandemic for specimen pooling. And then finally, we teamed up with Walmart and DroneUp to pilot a program for contactless delivery of specimen kits using drones. Also in the quarter, we announced an initiative along with our Quest Diagnostic Foundation to address and reduce healthcare disparities in underserved communities, including those impacted by COVID-19. This value-based commitment builds on our existing work with federally qualified health centers and will focus on serving people of color, elderly, and underserved populations in locations throughout the United States. requires clients to donate testing services in front of a range of initiatives estimated to total more than $100 million. Our goal is to improve access to testing, drive awareness of value of diagnostic innovations, and managing talent. Now, before updating you on our base business, what I'd like to do is comment on our recent CMS change to Medicare payment for COVID-19 testing. and our decision to return the CARES Act funding to the government. So in conjunction with our trade association, we've been currently reviewing the new reimbursement policy for high-throughput COVID-19 blood test testing from CMS will impact laboratory and patients' reserves. Last week's announcement removed some certainty there was an overhang on COVID-19 testing reimbursement. Finally, we're grateful for the CARES Act funding from last spring, which provided us with an important time of great uncertainty for our country. Now several months into the pandemic, we no longer required this funding. And as a result, we believe returning these funds to the government now is the right thing to do. We're making progress on our strategy to accelerate growth in the base business. So as a reminder, the five elements of our strategy to accelerate are to grow more than 2% per year through strategically aligned and creative acquisitions, expand relationships with health plans and hospital health systems, offer the broadest access to diagnostic innovation, be recognized as the consumer friendly provider of diagnostic information services, And then finally, support population health with data analytics and extended care services. Now I'll share a few highlights from our strategy to accelerate growth. Our M&A pipeline remains strong. Since the second quarter, we closed our acquisition of Mid-America Clinical Laboratories, or referred to as MACL, which is in Indiana. And we did a couple too small target acquisitions. Our recent acquisitions have been performing well during the pandemic. For example, our Memorial Hermann Outreach Acquisition announced earlier this year, as well as this recent MACL acquisition, have driven growth in both COVID-19 testing and our base business. We've also seen growth in advanced diagnostics from our acquisition of Blufrit Genetics. The second growth driver, expanding relationships with health plans and hospital health systems is also delivering. Our hospital reference testing volumes, excluding COVID-19, have returned to growth year over year. Given the challenges that hospitals are facing, we expect many more to be open to discussions about how Quest can help them achieve their lab strategy. So in professional lab services this year, we have logged a record amount of bookings, represent larger and longer-term agreements than in the past. We also continue to make progress on our health plan strategy. Within the UnitedHealthcare Preferred Lab Network, we're helping United reduce out-of-PLN lab spending through the previously announced zero out-of-pocket benefits. In addition, United has added enhancements that reduce the administrative burden for ordered physicians and patients related to those tests requiring preauthorization. And then in August, we entered into a new strategic relationship with Anthem in 12 states. We're working with Anthem to improve quality and efficiency in delivery of laboratory services. And then finally, additionally, we're working with major national payers to enable their members to access COVID-19 testing to request relationships with major retailers. We made progress on a third element of our strategy to accelerate growth by offering the broadest access to innovation. In the quarter, we launched three new combined COVID-19 and respiratory virus tests reducing time for physicians to diagnose and treat patients by identifying nearly 20 viral and bacterial infections from a single swab. We also launched our automated next-generation sequencing solution that enabled individuals to access useful genetic testing insights about hereditary diseases at consumer price points through Ancestry Health. Finally, we grew our direct-to-consumer services in the quarter. Quest direct test offerings continue to resonate with consumers. In the quarter, we launched our COVID-19 active infection test, offering consumers a choice of using an at-home kit or getting a specimen collection done at a drive-through location. Also, we made remarkable progress in the surge of signups to our MyQuest patient portal. Today, roughly 13 million patients have a MyQuest account to make appointments or receive their results through their smartphone or the computer. In the third quarter, on average, more than 100,000 patients per week signed up for this service. This is more than double the rate we've experienced before the pandemic. And now the second part of our two-point strategy is to drive operational excellence. We continue to pursue our goals to reduce our costs based by 3% per year. We also see more opportunities ahead to drive further productivity gains while at the same time enhancing our customer experience and overall service levels. So here's a couple examples. We have standardized on the Siemens immunoassay platform 14 of our 18 regional laboratories. This solution drives workflow efficiencies and has enabled more than a 50% reduction in our equipment footprint. We are still in the early stage of this realized savings, but so far we're pleased with its progress. And then also, our new flagship laboratory in Clifton, New Jersey is being prepared to go live in early 2021. When complete, the state-of-the-art facility will be the most highly automated in our laboratory network and will represent the final regional lab to be converted to our standard operational IT system, which we call QSLEEP. This will mark the culmination. of a multiyear initiative to simplify, streamline, and standardize original laboratory operations. Now I would like to turn it over to Mark for taking the results and update you on our outlook. Mark. Thanks, Steve.