Quest Diagnostics Incorporated

Welcome to the Quest Diagnostics second quarter 2021 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. And I'd like to introduce Sean Bevick, Vice President of Investor Relations for the Quest Diagnostics Group. Go ahead, please.

Thank you, and good morning. I'm here 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 releases. 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 its financial condition will be primarily driven by the pandemic 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, including the impact of vaccination efforts, which are drivers beyond the company's knowledge and control. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Any references to base business, testing, revenues, or volumes refer to the performance of our business excluding COVID-19 testing. Growth rates associated with our long-term outlook projections, including total revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth are compound annual growth rates. Finally, revenue growth rates from acquisitions will be measured against our base business. Now, here's Steve Ruszkowski.

Thanks, Sean, and thanks, everyone, for joining us today. Well, we had another strong quarter and continue to build momentum thanks to faster-than-expected recovery in our base business. Organic-based testing revenues grew compared to 2019 levels in the quarter, This is the first quarter since 2019 that organic-based testing revenues grew. The growth was driven by contributions from new hospital lab management contracts, as well as people returning to healthcare systems. We are well-positioned to continue our momentum and support the return to healthcare in the coming months, which is reflected in the outlook we have provided for the remainder of 2021. This morning, I'll discuss our performance for the second quarter of 2021, provide perspective on industry dynamics, and update you on our base business. And then Mark will provide more detail on our financial results and talk about our outlook and underlying assumptions. First, with regard to COVID-19 testing, we are closely watching the rapid spread of the Delta variant. where testing continues to help control the spread of the virus. In recent weeks, we have seen PCR volumes stabilize and begin to increase modestly. Positivity rates have increased in all geographies served by our performing laboratories over the last two weeks. COVID-19 testing also remains critical as employees return to the workplace and students return to the classroom in a few weeks. Unless we experience another lockdown, we expect people to return to pre-pandemic healthcare, and in some cases, catch up with healthcare they might have postponed during the pandemic. Now turning to PAMA and the recent MedTac report mandated under the Lab Act. We were pleased that MedPAC found it feasible to change the CMS data collection process to a statistically valid sample of private payer rates for independent labs, hospital labs, and physician office labs. This approach would produce an accurate representative market view of laboratory rates while reducing the burden on reporting laboratories, which is consistent with the charge of the Lab Act in the original intent of PAMA. The MedPAC report estimates that Medicare spending for the top 100 tests on the clinical advocacy schedule could increase by 10% to 15% over current rates based on certain rate and volume assumptions. And separately, our trade association recently appealed its legally challenged to PAMA, which was dismissed by a U.S. district court in late March. The ACLA has asserted its right to challenge the regulatory overreach by HHS in the implementation of PAMA. Along with our trade association, we will continue to work with policy makers to establish a clinical lab fee schedule that is truly representative of the market and supports continued innovation and access to vital laboratory services for Medicare beneficiaries as Congress originally intended. Now is the time to strengthen our laboratory infrastructure and support continued access to high quality lab services that patients depend on. Turning to our results for the second quarter. Total revenues grew by nearly 40% to $2.6 billion. Earnings per share increased by more than 264 percent on a reported basis to $4.96, and nearly 124 percent on an adjusted basis to $3.18. Cash provided by operations increased by more than 30 percent to $460 million. In the second quarter, we continue to see a better-than-expected recovery in our base business, with organic-based testing revenues essentially returning to pre-pandemic levels in June. We're seeing strong recovery in most of the country and a slower recovery in the Northeast. Demand for our COVID-19 testing slowed in the quarter as expected, reflecting an industry-wide trend, though in the last few weeks of June, demand stabilized and has since increased modestly, which we believe is attributable to some extent to the emergence of the Delta variant. We performed an average of 57,000 COVID-19 molecular tests a day in the second quarter, well below our current capacity of approximately 300,000 tests per day. We have engaged with businesses in the travel and entertainment sectors, in the quarter and working with partners to support a safe return of students to the classroom. We're also collaborating with CIC's Head Health, Gingo Bioworks, Patel Memorial Institute to make testing easy, fast, and affordable for school systems and other group settings across the country. We continue to make progress on our two-point strategy to accelerate growth and drive operational excellence. And here are some highlights from the second quarter. We continue to execute on our M&A strategy. In June, we announced the completion of our acquisition of an outreach laboratory services business of Mercy Health, one of the nation's most highly integrated multi-state healthcare systems with providers and patients in Arkansas, Kansas, Missouri, and Oklahoma. With this acquisition, we are on our way to grow our base business revenues approximately 2% from accretive strategic acquisitions this year and with additional limiting opportunities in the second half of the year. We continue to grow our health plan business to make progress and acquire with value-based programs with United Healthcare and Anthem. Our volumes through these health plans are growing faster than the company average. We have also invested in additional employee headcounts to better support these important relationships. During the quarter, we were also pleased to renew our longstanding contractual relationship with one of our largest health plan customers, Aetna. We remain a preferred laboratory provider and partner of Aetna's network. In addition, for the first time in over a decade, Quest is one of Highmark Delaware's in-network non-hospital affiliated preferred labs, serving more than 450,000 members. It's good to be back in the market, competing on the basis of quality, service, and value. You know, we're helping all of us be focused on healthcare's triple A's. of improving population health, enhancing the patient experience, and reducing costs. And towards that end, we're launching a new campaign designed to remind customers of the value that Quest brings to healthcare. Our Powering Affordable Care campaign speaks about our leadership in clinical innovation, our ability to enable better clinical outcomes through quality, speed, and accuracy of test results, our improved patient experience with accessible, easy-to-use patient resources, and finally, our ability to reduce cost of care. Base consumer-initiated testing revenues continue to grow in the quarter. Today, more than 17 million patients have an account on the MyQuest app and patient portal, with nearly 100,000 patients enrolling each week. And then finally, in advanced diagnostics, we're pleased to see full recovery in the growth drivers we're investing in, which we discussed at a recent investor day, and are tracking to accelerate growth. Now turning to our second strategy. We made progress driving operational excellence. We're on schedule to complete the full transition to our new flagship laboratory in Clifton, New Jersey, next month. This highly automated facility has consolidated testing previously performed in Teterboro, Baltimore, and Philadelphia. There continues to be intense effort and energy around our invigorate productivity initiatives, and we are on track to deliver our targeted 3% improvement across the business. We are focused on getting paid for what we do, and have made steady progress in reducing payer denials. Also, patient concessions for our base revenues were down in the second quarter to 2019 levels, driven by a focus on collection improvements. One positive outcome of the pandemic has been the patient and physician acceptance of the digitization of our experience. We are more customer-focused and efficient today with more self-serve options for customers, and we have moved a greater percentage of volumes to digital paperless transactions. Now I'd like to turn it over to Mark to provide more details on our financial performance and our outlook for the remainder of 2021. Mark? Thanks, Steve.