Quest Diagnostics Incorporated

Welcome to the Quest Diagnostics fourth quarter and full year 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. Now I'd like to introduce Sean Vivek, 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 10Q and current reports on Form 8K. The company continues to believe that the impact of the COVID-19 pandemic on future operating results, cash flows, and or its financial condition will be primarily driven by the pandemic's severity and duration, healthcare insurer, government, and client payer reimbursement rates for COVID-19 molecular tests, 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 excluding COVID-19 molecular and serology testing volumes. 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 Steve Ruskowski.

Steve Ruskowski Thanks, Sean, and thanks, everyone, for joining us today. So, in a year dominated by the pandemic, brought critical COVID-19 testing to our country and delivered record revenues, earnings, and cash from operations for the fourth quarter and the full year 2020. The pandemic has tested our nearly 50,000 employees, and they have responded as heroes by developing COVID-19 tests, building test capacity, innovating new testing models with our retail partners, transporting specimens, delivering results, and of course, supporting our customers. We finished the year as one of the country's leading providers of COVID-19 testing. I'm very proud of what we have achieved and optimistic about what we can accomplish in 2021. So this morning, I'll discuss our performance for the fourth quarter and full year 2020, our ongoing role in the COVID-19 pandemic and update you on our non-COVID-based business. And then Mark will provide more detail on our financial results and our financial outlook for the first half of 2021. But before we get into the details of the quarter and the full year of 2020, we wanted to share our perspective on the new strategy for fighting the COVID-19 pandemic proposed by the new administration. We are pleased by the efforts to expand access to testing across the country, especially in the underserved communities where there are known disparities in healthcare. We support the new administration's approach to controlling the pandemic by expanding the availability of testing supplies, enhancing laboratory testing capacity, and ensuring a clarity of messaging about the use of tests in insurance coverage. We also support the efforts of COVID-19 Pandemic Testing Board, and we look forward to additional details and days and weeks ahead. Now turning to our results, continued high demand for COVID-19 testing drove our performance throughout the quarter and the second half of the year. For the fourth quarter, total revenues grew by more than 55% to $3 billion, Earnings per share increased by more than 126% on a reported basis to $4.21 and nearly 168% on an adjusted basis to $4.48. For the full year 2020, total revenues grew by more than 22% to 9.44 billion. Earnings per share increased by nearly 71 percent on a reported basis to $10.47 and more than 70 percent on an adjusted basis to $11.18. Cash provided by operations increased by more than 61 percent to $2 billion. We announced today that we are increasing our quarterly dividend by 10.7 percent to 62 cents per quarter. And this is our 10th increase since 2011. Additionally, our Board of Directors has increased our share and repurchase authorization by $1 billion. The increased authority is on top of the approximately $900 million that was available as of December 31st, 2020. In the fourth quarter, we continue to see strong COVID-19 testing volumes. The band clearly spiked as the virus surged and people got tested in advance of the holiday galleries. We performed an average of 135,000 COVID-19 molecular tests today in the fourth quarter, well below our current capacity. We continue to innovate to further expand capacity, reduce turnaround times, and gain efficiencies. And finally, we are focused on addressing health disparities in underserved communities through our Quest for Health Equity initiative. We recently held our first COVID-19 testing event at Abyssinian Baptist Church in Harlem in conjunction with leading black clergy and the United Way of New York City. Testing is more important than ever as the vaccines roll out over the coming months to get at-risk patients into care when their beacons still be effective and to isolate infected individuals. We expect 2021 to be another very strong year for COVID testing. Although demand for COVID testing is likely to decline throughout 2021, as more people become vaccinated and fewer new cases are reported. We believe that COVID-19 testing will continue into 2022. Now turning to our base business, organic volumes recovered rapidly throughout the summer and fall. However, the recovery stalled at the end of November and into December, due to the surge in COVID-19 infections across the country. And Mark will provide and share some more details regarding the trends in our base business later. With that, we continue to make progress on our two-point strategy to accelerate growth and to drive operational excellence. Let me share some of the highlights from our strategy to accelerate growth. Our M&A pipeline remains strong, and we achieved our goal to exceed a 2% growth CAGR from acquisitions in our base business over the last three years. We continue to see increasing interest from our hospital partners about how we can help them with their lab strategy, which includes discussions around both their outreach acquisitions and professional lab service arrangements. The deals we closed in 2020, particularly the Memorial Herbman Outreach and Mackle Acquisitions, position us well to achieve our M&A growth target this year. And we remain confident that this year we will execute a more similar type of outreach for tuck-in deals in our pipeline. Last year was also a record year for a Professional Lab Services Strategy, or PLS. And this is the business to partner with hospitals to help them run their inpatient labs more efficiently in the fourth quarter we announced two small pls partnerships with hospital systems in new york and indiana and then in december we announced our largest pls relationship to date with hackensack meridian health the largest integrated health network in new jersey Quest will manage laboratory operations and perform reference testing for 11 Atkins Accredited Health Hospitals. We also continue to execute our health plan strategy by shifting the dialogue to value-based contracting efforts from the recent past when discussions focused primarily on price. We continue to make progress with our new strategic relationship with Ansem. to improve quality and efficiency in the delivery of laboratory services. We're advancing our position with UnitedHealthcare within its preferred lab network and also building momentum with many of our other national and regional health plan partners. Finally, we continue to grow our direct-to-consumer services in the quarter. In December, we announced our zero out-of-pocket Quest Direct COVID-19 testing option. Their service offers appointment scheduling and specimen collection at more than 500 participating Walmart drive-thru locations. And also in the quarter, we saw an acceleration in the number of consumers signing up for MyQuest patient portal. Today, roughly 15 million patients have a MyQuest account, an increase of nearly 2 million since October. And recent market research indicates that our brand is strong and has strengthened over the past year with industry-leading net promoter scores. We have a strong foundation to accelerate growth in our consumer offerings. The second part of our two point strategy is to drive operational excellence. We continue to pursue our goal to reduce our cost base by 3% per year. We also see opportunities ahead to drive further productivity gains, and at the same time, enhancing the customer experience. Now, once again, our Invigorate program delivered approximately $200 million of cost savings in 2020. And we continue to see more opportunities to deliver future efficiency in our cost space. Our new flagship laboratory in Clifton, New Jersey, went live on January 4th. This is the most highly automated laboratory in our network. And over the course of 2021, We expect to consolidate volumes from Peterborough, Baltimore, and Philadelphia labs to this state-of-the-art facility. Now, before turning it over to Mark, I'd like to announce that we plan to update you on our strategy and market overview at our upcoming Virtual Investor Day. And it will be held on Thursday. March 11th. So stay tuned for more details. Mark.