Quest Diagnostics Incorporated

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'd now like to introduce Sean Bevick, Vice President of Investor Relations for Quest Diagnostics. Please go ahead, sir.

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. 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. 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. 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 is Jim Davis.

Thanks, Sean, and good morning, everyone. For the full year 2023, we delivered strong revenue growth of 7% in our base business and delivered on our earnings commitment as we transitioned away from COVID testing. The results we announced this morning reflect a strong fourth quarter and full year for our base business in which we made substantial progress on our strategy to drive top line growth across our core customer channels and improve profitability. Throughout the year, we advanced our growth strategy with innovative testing solutions, new and expanded relationships with health systems, and a robust pipeline of M&A and professional lab services opportunities. We also delivered double-digit revenue growth in several clinical areas, including advanced cardiometabolic, prenatal and hereditary genetics, and neurology. We also strengthened our oncology offering with a strategic investment in higher growth, minimal residual disease testing. In addition, our efforts to improve quality and productivity delivered our invigorate goal, which helped us offset the cost headwinds we faced throughout the year. This morning, we issued guidance for 2024 that reflects a return to overall revenue growth while balancing the earnings tailwinds and headwinds we see for the year. Looking beyond 2024, we are well positioned to deliver our long-term financial outlook to drive mid-single-digit revenue growth and high single-digit earnings growth. I'm grateful to our dedicated Quest colleagues for making this happen. Every day, they bring our purpose to life, working together to create a healthier world, one life at a time. Before discussing highlights from 2023, I'd like to share some recent regulatory updates. First, as you know, Congress once again delayed Medicare reimbursement cuts and the next data collection process under PAMA that were scheduled to take place in 2024. While we are pleased with the delay, we continue to work closely with our trade association to seek a permanent fix to PAMA through SALSA, the Saving Access to Laboratories Services Act. ACLA's highest priority this year is to secure passage of SALSA. ACLA and nearly 7,000 other individuals and groups submitted comments last quarter on a rule proposed by the FDA to regulate laboratory-developed tasks as medical devices. Lab-developed tasks are essential medical innovations that are already highly regulated under federal legislation known as CLIA. In addition to the oversight by states, accredited bodies and Medicare as it makes coverage determinations. If enacted, the FDA's proposed rule would compromise patient access to essential lab testing. It would also slow diagnostic innovation and add unnecessary healthcare costs. We agree with ACLA that the FDA does not have the statutory authority to unilaterally regulate LDTs and believe that resuming discussions with the FDA, Congress, ACLA, and other stakeholders on a legislative solution is the most prudent path forward. Now I'll recap our strategy and discuss highlights from the fourth quarter. Then Sam will provide more detail on our financial results and talk about our financial guidance for 2024. Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core customers, physicians, hospitals, and consumers. We enable growth across our customer channels through advanced diagnostics with an intense focus on faster growing clinical areas including molecular genomics and oncology. In addition, acquisitions are a key growth driver with an emphasis on accretive hospital outreach purchases as well as smaller independent labs. Our strategy also includes driving operational improvements across the business with strategic deployment of automation and AI to improve quality, efficiency, workforce experience, and service. Here are some updates on the progress we have made in these areas in the fourth quarter. In physician lab services, we delivered mid-single-digit base business revenue growth. We attribute this growth to return to care, overall market growth, and share gains driven by the competitive strengths of our scale and innovative offerings. We continue to execute hospital outreach and independent lab acquisitions, which generate volume for our physician channels. In January, we entered into a definitive agreement to acquire select assets of Lenco, an independent New York-based laboratory company, and expect to complete the transaction later this quarter. In addition, we acquired outreach assets of Steward Healthcare, which will deepen our reach to patients in Massachusetts, Pennsylvania, and Ohio. As we said earlier, our acquisition pipeline is very strong and we expect to complete additional transactions in 2024. Our strong relationships with health plans were also a key driver of growth in 2023 as we grew revenues from health plans by high single digits versus the prior year. As we've indicated, we successfully completed negotiations for all our strategic health plan renewals that were scheduled in 2023. Health plans and self-insured employer clients recognize the clinical and economic value we deliver to them and their members. Today, more than half of health plan revenues now come from value-based contracts, which enable faster growth compared to our traditional health plan contracts. In addition, working with health plans, we continue to reduce so-called lab leakage to high-cost out-of-network labs, partly by redirecting the volume to Quest. Importantly, this is good for both patients as well as employers, which pay for the majority of healthcare costs. In hospital lab services, we drove high single-digit base business revenue growth in the fourth quarter with strength in both reference and professional laboratory services. Hospital reference testing, in particular, grew much faster than historical trends and well above our estimated growth for the market. Increasingly, health systems recognize that our innovative laboratory testing and collaborative lab management solutions can help them improve quality, productivity, affordability, and care. They also continue to face labor and cost pressures, prompting more of them to reach out to us to help with their lab strategy. Our professional lab services help manage a hospital's lab, supply chain, and workforce. We also provide insights from our analytical solutions to help hospitals manage utilization to deliver the right test to the right patient at the right time. In the fourth quarter, we completed two PLS relationships that will contribute modest growth in the first quarter of this year. We also provide health systems the opportunity to transition their non-core outreach laboratory assets to us through acquisitions. By selling their outreach assets to Quest, These hospitals are better able to redeploy scarce capital to areas of their business that have a greater impact on patient care. Our consumer-initiated testing service, QuestHealth.com, generated revenues of approximately $45 million in the full year 2023, with strong base business growth. Our return on ad spend and customer acquisition costs remained favorable in the fourth quarter. Another element of our CIT strategy is to drive revenue growth through channel partners. In 2023, we generated more than $30 million through this channel. We are also excited about new product releases in 2024, including blood testing for PFAS, or forever chemicals, via questhealth.com. PFAS chemicals have been used in industrial and consumer products for decades and may contaminate food and water. In late January, the CDC issued new guidelines that recognize the value of PFAS blood testing for individuals that may have elevated exposure levels, which may increase risk of kidney cancer, high cholesterol, and other health conditions. According to a study in the Journal of Endocrine Society, PFAS chemicals accounted for approximately $22 billion in U.S. healthcare costs in 2018. In advanced diagnostics, we experienced double-digit growth across several clinical areas in the fourth quarter, including advanced cardiometabolic, prenatal and hereditary genetics, and neurology. Growth in neurology was driven largely by our Alzheimer's disease portfolio of tests, which is among the most comprehensive in the fast-evolving field of Alzheimer's care. Our innovations include our A.D. detect blood tests for early risk assessment based on amyloid beta proteins and APOE genetic risks. This week, we also added PTAL-181 to our AD Detect blood test line to complement insights from amyloid beta testing. In addition, our Alzheimer's disease test portfolio includes several CSF tests for diagnosis and monitoring based on amyloid beta, PTAL-181, and APOE. We intend to add additional biomarkers later this year and continue to expand our menu. In molecular genomics and oncology, we are on track to launch our Haystack minimal residual disease test to physicians later this year from our Oncology Center of Excellence in Louisville, Texas. We also believe Haystack MRD can help support clinical research and recently announced clinical trial collaborations using this innovative technology with the Rutgers Cancer Institute, Alliance Foundation Trials, and Tricellus Life Sciences. In the fourth quarter, we announced a collaboration with Universal DX, which has developed an innovative blood test for screening for colorectal cancer, including precancerous lesions. We look forward to supporting Universal's effort to gain regulatory approval for this test. Through a collaboration with Cypher, we are expanding patient access to the PRISM-RA test for aiding treatment selection for rheumatoid arthritis. Turning to operational excellence, our Invigorate program delivered our targeted 3% annual cost savings and productivity improvements. Here are three examples of how we're improving operations. First, we continue to make progress in using front-end automation to enhance specimen processing. In 2023, we completed front-end automation upgrades in our Pittsburgh and Dallas laboratories, which will improve quality and productivity. This year, we'll add five additional sites. Second, we also expanded the use of AI to improve quality, efficiency, and workforce experience in several clinical areas. AI can quickly identify patterns that signify possible disease in digital images of patient cultures and slides. In 2023, we expanded the use of AI in microbiology to help identify bacteria as well as in cytogenetics to identify chromosomal abnormalities. Looking forward, we are encouraged by the opportunities to use AI in several additional clinical areas, including cytology, pathology, and parasitology. Third, in 2023, we deployed an AI tool at our CliftonLab that helps laboratory staff continuously identify ways to be more productive in their daily routines. And we look forward to introducing this AI job helper in other labs and support processes. Finally, we made significant progress improving the margins of our base business in 2023. I'd like to personally thank our Quest colleagues whose efforts have helped make this possible. With that, I'll turn it over to Sam to provide more details on our performance and our 2024 guidance. Sam? Thanks, Jim.