Thanks, everyone, for joining us this afternoon. My name is Eric Coldwell. I'm the pharma services analyst. We're good. We got it. Thank you so much. I appreciate it. I told Shawn and Sam this is number 9 for me today, back-to-back, so I probably will misspeak and speak in tongues a little bit as well, but last but not least, on my side. So thank you, Quest Diagnostics, for being here. It's such an interesting company on so many levels, and I've always been a fan of the company. It's just a pure play, an interesting story, good people, and it's fun to talk to you. So I'm looking forward to finally getting that lab update this week after a lot of other industries and sectors. Not a big formal opening. I don't think you're doing any slides. No, we're not. Good. So we'll jump right into Q&A. I don't know, Sam, if you'd like to make a couple of introductory comments. You've been here, what now? A year and- A year and two months. Two months? Yeah. A year and 2 months. I mean, you were- July eleventh. Mid-year last year, and- Yeah, yeah. Brand new at that point. Right, right after I started. Yeah. Yeah, no, listen, I'm really glad to be here, and Shawn joining me here, our head of IR. So, I think we'll go jump right into the questions, Eric, and thanks for hosting us. Really appreciate it. Perfect. Thank you very much. Well, look, I told Shawn I was gonna start with, you know, speed Q&A. We'll just kinda get a few things right, right off the bat. First, just on the base business. Look, I know how hard it is to do intra-quarter commentary, and it's only been a handful of weeks since you reported the last quarter. I mean, it seems like we leave one and go to the next one as quickly as we want. Feels like it. But overall market activity, volumes, any kind of commentary that you're making or have been willing to make broadly as you've done some of this late 3Q conference circuit, I think it'd be great to get your latest update. Yeah. Where you were, where you are, where you're headed, what you're feeling right now is, Sure A good start. Yeah, so maybe staying high level. I mean, H1 of the year, very strong volumes, very strong utilization. You know, in Q2, we had volume growth of 7.4%. On the earnings call, we did talk about the fact that going into July, July, we were seeing, you know, that mid-single-digit growth in terms of volumes. Won't comment on anything beyond that in terms of volumes over the last two months or within Q3, except the comments that we made about July. But as we go into the H2, you know, we based on our guidance, we do expect that growth, at least, you know, the year-over-year growth to be lower than what we saw in the H1, driven by the fact of the same period compare in the H1 of 2022 was soft because COVID was still very much impacting base volume, so, you know, the year-over-year was aided in the H1 of 2023 by that. So but in the and in the H2 of this year, another thing that's gonna be affecting us from a year-over-year compare is the fact that we don't have, you know, the same activity as of COVID multiplex tests that we saw in the H2 of last year. Otherwise, you know, pleased with the volume momentum. A couple of things to note, you know, that have impacted us as a country recently, not just Quest, but, you know, we've seen a couple of hurricanes, Hurricane Hilary, on the West Coast. We've seen Idalia in Florida, so you know, those always have an impact as well. Yeah. Just, I'd be remiss if I didn't mention those. It's funny, sometimes it doesn't even click, but every year there's a blizzard or there's a hurricane- Right -or something that can pop up from time to time. Sure. Our business is impacted usually by those. Yeah. So something to pay attention to. The... I don't want to put words in your mouth, and I don't wanna press too hard on this, but, you know, look, one topic that is pretty relevant, and it's coming up more and more, is COVID. And this question mark out there about whether the guidance that was established with, you know, ballpark COVID this year down, you know, pretty substantial amount. Yeah. I mean- Mm. You know, last quarter was what, down, Shawn, remind me, 80-something? Yep. Eighty- Yeah. high 80s, mid-80s%. Are we sure that the back half isn't gonna come back, as we're seeing these hospitalizations ticking up day after day, week after week? We're seeing more anecdotal evidence of people. We've had a couple of people had to leave the conference, or not come to the conference in the first place, that were expected to be here because of COVID. Two of my neighbors in my hometown have it right now. I mean, next door. So what does that do for COVID testing volume? Is it all people just ignoring the testing, or are they doing at-home tests, or are they going to their doctor's office, or are you possibly seeing some recovery in the PCR? Yeah, again, I mean, without commenting specifically on Q3, and I know this is a phenomenon of the last month or two in terms- Yeah -of some of the surge that we've seen, but, we did about $160 million of business, COVID PCR business, in the first two quarters. We guided to $200 million- Yeah for the year, so which implies $40 million in the H2. We feel that's a reasonable estimate in terms of what we think COVID will be for the year. Remember also. So a couple of dynamics. The site of testing has really changed- Yeah for COVID as well. A lot of the testing's being done now in our PLS side of the business, so in health system, hospital testing sites, not in physician offices. I think where we see the testing, at least the PCR testing being done now, is more in the hospital setting. Yep. And, to your point, Eric, I think you mentioned it, which is there's a lot of antigen testing as well. If it's not, you know, if it's just run-of-the-mill testing, you wanna find out if you have these symptoms are COVID or, or flu or something else, usually you're doing an antigen type of test. So, that's, you know, that dynamic that we were seeing before is not necessarily what we're seeing now in terms of, you know, PCR being the go-to. So someone shouldn't necessarily look at where, let's say, COVID-related hospitalizations or daily deaths were at the peak of 2Q. They trended down, and now they're back to or above where they were at the peak of 2Q, but there's not necessarily gonna be a direct correlation- No, I wouldn't look at it that way. Of market shift in terms of appetite, demand, where the testing is done. Exactly. Yeah, I wouldn't look at it that way. Okay. Yeah. All right, now here's another obligatory question, which probably is much less relevant to you, but it comes up in almost every session, has to. All of this chatter about GLP-1s, any way, shape, or form, are you being impacted by GLP-1s? That's a very open-ended question, but- Yeah, we're not at this point. It's an interesting question. It's very early to tell, but you can actually make an argument for either side. One is that it's gonna actually be favorable to testing, because, you know, we don't know what the long-term effects are for people on these drugs. Will they require annual monitoring, testing, you know, for, for that to be done? Because even though you're benefiting from some of the health, you know, benefits as a result of taking the drugs, but you... Let's say, a physician needs to monitor some other aspects of their health. You know, the counterpoint would be people are healthier. They don't need to do as many tests as they were doing before. Now, you know, having said this, in some cases, to get on the drugs, you might need an A1C test to monitor whether you have type 2 diabetes or if you're pre-diabetic, and so that would require testing as well. So I guess I'm giving you a non-answer, but it's still really- Well, I think a non-answer is actually a helpful answer at times because it lets us know as expected, where not to focus, and I just wanted to make sure there weren't, as this market has really exploded in the last two quarters, that something hasn't risen to a level of attention- It hasn't. that would change your perspective- Yeah. -that we've- No, I think on balance, you know, it, as I said, it could be net neutral, could be a positive, but at this point, nothing has impacted us. Last one on the speed round, PAMA SALSA. Latest, latest and greatest thoughts. PAMA coming back in 2024. We kicking the can down the road again? So likeliest option, most likely option would be PAMA getting, you know, the PAMA can getting kicked down the road. I think that's more likely than the other options, which is either SALSA, SALSA getting passed, and, you know, we know it was reintroduced to Congress this year, or the other option, which is PAMA returns. But remember, the CBO scored the delay and kicking the PAMA can down the road as a positive for government budget. So I know that doesn't sound intuitive, but that's how the CBO scored it. When you're talking about the government -- not intuitive is intuitive. It's an expectation, right. So... I wanna get back into growth. Professional lab services, PLS, what your counterparty calls, hospital lab management, HLM. Same thing, effectively. Market seems to really be taking off. We're seeing more and more deals. We're hearing more chatter. We're seeing third-party consultants and pundits talking about opportunities rising. Yeah. What are... Would you agree, and if so, which I think you will, what are the two, three, four biggest drivers of this shift for hospitals opening up and saying, "No mas, we're gonna, we're gonna pass this on? Sure. We're gonna let you do it. Yeah, I think the drivers are related. I mean, the key driver really is governments feeling the pressure of high cost of labor, of, you know, just all these macro factors that are impacting all companies, but impacting health systems in a disproportionately negative way. And them saying: You know, we need help. Who better to help us than a Quest Diagnostics, taking on some of that work, that lab work, taking on the end-to-end sort of operation of our lab, and, you know, basically providing a great service and, you know, saving us that cost? So essentially, I think that's the key driver. You know, the reason that it's really also factoring into hospitals thinking these days is lab work isn't as strategic for them as some other things that they look at in terms of things that they can profitize. So it's less of a priority for them. It's definitely a key competitive advantage for us. So back to your point, I think what you mentioned initially around the growth of this opportunity, remember, you know, we, and I think this is what you're saying, is we have expanded this opportunity from roughly $300 million pre-pandemic to now almost $600 million. We've doubled the PLS opportunity. So we're seeing great traction on this. Our hospital, our health systems business grew very robustly in Q2, and we've got a great pipeline of these opportunities. So agreeing with everything you said. I wanted to jump into the pipeline and also, how do you handle the resourcing? You know, how much of this is rebadging versus needing to bring in your own talent, your own people. But, if the demand picks up, do you get more finicky, more particular in the kind of opportunities that are out there, or do you look at most deals and say, "No, we can make this work? I think for the most part, we can make this work. You know, I think the bottleneck is usually more on the health system side than it is on our side, because we've got the capacity to make this work. You know, health system deals are really not all kind of vanilla, same deal. In some cases, it's a supply chain deal where basically we move the purchases and the, you know, the inputs or the costs of the supplies to our own procurement organization, and then we can purchase on our rates, save the hospital a lot of money. More typically, it's end to end. So we're basically acquiring the labor, acquiring, you know, buying the instruments in that lab, and really taking on the end-to-end, soup to nuts operations of that lab. Very profitable business. It's diluted from a margin rate perspective, but really accretive from a margin dollar and an ROIC perspective because, you know, there is no significant capital deployment attached to it. Right. If you had to pick an over-under relative to existing mid-range, long-range plans, guidance, you know, your long-term outlook, which obviously has a component of this embedded in it, there's always a thought of opportunity to grow this. Is this gonna be a bigger driver than you historically might have thought? No, I think we've sized it appropriately within our long-term guidance that we gave at Investor Day. So, you know, when we talked about the margin expansion, that 75-150 basis points of margin expansion, when we talked about the revenue growth, you know, organic and M&A, it was effectively factored into these projections- Okay. with the attractive nature of it being as it is now. I'm gonna shift over to advanced diagnostics and- Sure. You know, I sort of hit Shawn with this last week, and it’s sort of funny because you, the company used to talk about gene-based and esoteric testing, and now it’s advanced diagnostics, but I’m never sure if those are exactly the same categories and same reference points as a jumping-off spot from one terminology to the next. So feel free to jump in on that. But can you size your overall advanced diagnostics business today? I think there’s this debate on the street about one, you have some really big growth businesses, some don’t grow as much. You have some that are mature and very profitable, others are brand new and very un- Sure. Very, very... All a big investment right now. Sure. The street's trying to get its head around where the rubber meets the road in terms of growth rate and opportunity versus investment- Yeah. and risk. Yeah. Because some, you know, some things may not work. Yeah. You know? Let's kinda define those components, 'cause I know we've talked about some things maybe interchangeably, and we need to be more specific as to what those terms are. You know, when we talk about esoteric, it's not necessarily just advanced diagnostics. It's bigger than that. Esoteric is, you know, anything, any test that's non-routine, that's being done on a sophisticated instrument, but it's not just advanced diagnostics. When we talk about advanced diagnostics, we're really talking about, you know, those gene-based tests and these really novel tests that are, you know, sequencing-based, for instance. So to drill down on what those categories are, it could be hereditary genetics, it could be prenatal genetics, it could be oncology, it could be our pharma services business, it could be, you know, somatic areas as well within gene-based, and it could be our genomic sequencing services that we do there. So that's what we call our advanced diagnostics. It's a subset of that gene-based- Broader. and esoteric book of business that we talk about. So, you know, that category of advanced diagnostics is growing faster than our overall Quest book of business, and you would expect it to. It's higher growth areas. It's more novel, non-routine areas. It's also... You know, we haven't sized it exactly, Eric. It's, it's, let's say, in the several hundred millions of dollars. I know that's not precise, but, you know, that's kind of the size of that book. And it's really exciting work. I mean, Haystack fits into that category, and I'm sure we'll talk about it, but, you know, it's, it's these, really, higher growth areas. The overall gene-based, I mean, obviously, I knew part of the answer before I asked the question, but I wanted to frame the kind of question I get. Yeah. Gene-based and esoteric, overall size on that is more in the $1 billion-plus category today? Yeah, that's what we had talked about- Yeah. -before, yeah. Still in that ballpark. Yeah, we had talked about over $1 billion. Yeah. Yeah. Okay. So Haystack, you brought it up. Let's jump right to it. The acquisition took you into the minimal residual disease detection business- Yeah ... disease business, so MRD. Early detection and residual cancer. Really interesting space, but it is a big investment, and you're trying to develop a product that is not yet commercialized. A solution that's not yet commercialized. With that acquisition, again, you know, on one hand, I would speak with investors who focus more on the diagnostics companies and say, "Wow, really interesting. I love the growth potential." And you talk to more traditional reference lab investors who would say, "Where'd my profit go? Yeah. You know, "Where's my margin? Do I wanna take this on?" And so it's a bit of a storytelling that I think the company still is working through. It felt like on the most recent call, you were or Jim was, maybe saying: Look, we're gonna make investments, but don't think we're gonna go overboard with these investments. There's still a focus on returns and on margins. So I'd love to get your Sure perspective on that and, you know, where your gut is on where the balance is between making a dilutive, but potentially very promising acquisition like Haystack versus not just giving people their cash flow and their margin and moving on. Yeah. Yeah, great question. So I wanna kind of clarify some misperceptions here and bust some myths- Okay ... so to speak, around Haystack and MRD in particular, because I really believe strongly in this opportunity. There's a lot of potential growth and upside here. You know, one is, hey, there's still a lot of R&D that needs to be done before this can be commercialized, et cetera. We expect to commercialize this test in early 2024. That's what we said when we bought this asset. That's still the case. We expect to submit it for CMS reimbursement by the end of this year. That's still the expectation. And to get reimbursement, the bar is that you can prove equivalence to another, equivalent assay in the market. And so, you know, we think the bar is kind of a low hurdle to clear, and we think we will get CMS reimbursement for colorectal, which is the first indication. You know, the point about it being an expensive asset to purchase, this is a market today, this MRD market in oncology, which is a few hundred million right now. Our estimates, which I think are conservative, because if you ask some of our peers, if you look at market data, it's actually well north of that. But our estimates, let's stick to ours, are that it could be a $3 billion market in 2028, well north of that 10 years from now. So- Just for MRD? Just for MRD. That's exactly right. Just for MRD. So getting a portion, a certain market share off of a market that's growing this fast, you know, yeah, you don't need to do the math. I think it's pretty intuitive. The other part that you need to think about, too, is, I think you started to allude to that, is the point about some of our peers maybe in this space not making money. The peers that are operating in this space are not Quest Diagnostics. We already have, you know, the network, we have the footprint, we have the ability to, draw blood at scale. We have, you know, the reference labs across the country. We have commercial presence that supports oncology today because we have a billion-dollar business in oncology today. Now, some of the more mature aspects of oncology, not the MRD part or, you know, these emerging technologies, but still, we can find a lot of synergies in terms of the go-to-market focus and strategy. So, you know, again, I think there's a lot of opportunity here for a Quest Diagnostics to extract significant, you know, margin in this space. AD-Detect. Really interesting opportunity here, I think. This is one of those where your gut checking, is this as big as I think it might be with Alzheimer's? Yeah. You just launched a commercial over-the-counter consumer-initiated test. Yeah. $399, a few months in, what, two months in now, I think? Yeah. Yeah, something like that. There were some comments on the last call about this and how this market could, in theory, be opening up with some new approvals out there, but give us an update on that, if you will. Sure, sure. Yeah, no, we're- Is it $400 a test? Are people buying this? They are. They are. Now, you know, this test that we have, which is the AD-Detect blood-based test, can be ordered by a physician, or you can buy it through our CIT, consumer-initiated testing platform online as a patient. Now, you have to work with a third-party physician network to make sure that they monitor how the test is conducted, the outcomes from it, et cetera. So it's not like something you buy and you do, and you're now trying to figure out what the, you know, the results mean. You work with a third-party physician network. But, you know, it's a beta amyloid test, so it measures, you know, BA 42, BA 40, looks at the ratio. The lower the ratio is, the higher the likelihood that you have the signs or the early signs of Alzheimer's. Now, remember, we have a, we have an Alzheimer's portfolio that includes, you know, blood-based and also cerebrospinal fluid-based detection. So this is kind of the next step, which is to measure AB 42 and AB 40. As you said, it's a $399 price if you buy it through our consumer-initiated platform. It's, it's, definitely growing, you know, at a good clip. It's still, I wouldn't say, material to our overall revenues, but it's definitely seeing some good, healthy growth in terms of adoption. The jumping off point for that question was consumer-initiated testing has, over the last year, been, and maybe two years, really, been an area where you said, "Look, our underlying growth and performance or margin performance, adjusted operating profit performance is better than what you're seeing, but we're making investments. Some of those were in the advanced diagnostics, some were in the consumer-initiated testing. Right. This is one of those tests. It's now launched the same time, and it may be uncorrelated. You've said, we expect consumer-initiated testing to turn profitable- Yeah. and to be less of an investment drag. Yeah. So I'm trying to get a sense on how much of that is specific to, let's say, one product or one new introduction versus something broader happening within the consumer-initiated testing category. Yeah. It's not driven by one product. I mean, one product helps, and menu helps. In the case of CIT, the more you can introduce different tests- Yeah ... that have, you know, great interest for consumers, the more that you're going to be driving revenues and driving profitability. But just a couple of things on the CIT business overall. We have made some investments behind it. Some of those were, like, I would say, set-up investments or start-up investments in order to introduce the platform, you know, modernize the platform, the website. Some of it was to, you know, get some recognition in terms of media, marketing, some broader marketing in terms of, you know, awareness for the site. Now, we are more focused in terms of targeted, you know, getting eyeballs to the site and really making sure those eyeballs are clicking and buying a test. So we've become much more focused in terms of the investment now that we make. We turned profitable on our CIT business in Q2, so we broke even, turned profitable. We expect it to be profitable in the H2 of the year, so it's no longer dilutive to our overall book of business, and it's growing fast in terms of revenues, some of it because of tests like AD-Detect. But it's just overall, you know, when you look at the options that are available, whether it's STD tests, whether it's, you know, general wellness tests, like in terms of A1C testing, those are the things that are driving adoption. One of the bigger headwinds that you've also highlighted, and it's not uncommon, we're seeing this still in many pockets, is the labor situation. Yeah. Hiring the right people, retaining them, what they expect in terms of compensation—these are challenges for the broader economy, of course. I'd love to get an update, if you, if you can, on, on where you are with retention and how you're feeling about the labor market in the moment. Sure, yeah. Improving, you know, in terms of retention... but not quite to the level that we'd like to see it. I mean, it's per our expectations. It's not a headwind for us in, in the sense that it's worse than we expected- Right. But it's not better than we expected either. But here's a little bit of history on it, at least six-month history. I mean, in pre-pandemic, you know, so more than six months, but pre-pandemic, it was sitting roughly at around... Turnover was sitting roughly at around 15%, maybe slightly below that. In Q4, you know, the heights of kind of the, when the pandemic effects were hitting us and people had so many choices in terms of where to go, and, you know, jobs were really available at higher wage rates, it, it got up to about 28%. Q1, we brought it down to, like, just over 20%. We were expecting Q2 to be better than the low 20%s, but it wasn't better. It kinda held steady at that. So that's when I say it was kind of the absence of a positive. It didn't really hurt us in terms of as much what our financial expectations were, but it didn't help either. So now, as we look forward, we are starting to see signs that the labor market is definitely, you know... I mean, we all know this: it's not, it's not great, so people have less of a choice as to where to go. Companies aren't necessarily giving these 15% wage increases and sign-on bonuses, et cetera, so people have less options, which means turnover is improving. So, you know, we see signs that it's starting to stabilize. You know, we've had about a 4% wage increase, year-over-year this year, which is about 1% higher than what we had traditionally seen pre-pandemic. That's, you know, that's about a $40 million cost to us, so it's not something to sneeze at. Okay, respiratory panels. Look, it's another one of those, very tactical, very short-term- Sure. type questions, but it, I probably should have wrapped it into the COVID questioning upfront because it, I think my gut is the answer is gonna be the same. But you did cite on the last call that there would be about 100 basis points of headwind- Yeah. from expectation of lower respiratory panels. Right. Based on your earlier commentary around COVID, I would think the quick answer here is that nothing has likely to change on that. Nothing, nothing has changed. You're right. Nothing has changed. That's embedded in our guidance- Yeah -that there's a one percentage point headwind in the H2. I do wanna... For the audience, I do wanna mention, I have no idea where our iPad went, so if you've sent me a question, I can't read it. Raise your hand. I mean, we'll make this active if anybody does want to jump in. The unit pricing, one of the better topics- Yeah In this industry. Maybe the best, I don't know, Shawn, the best we've ever seen, certainly in a very, very long time. Yep. For people who aren't tracking every nuance day-to-day, give us a quick landscape of where you were, where you are, and where you expect to be- Sure ... in the H2, and then why is the H2 happening the way it should be happening? Yeah. So where we were is, you know, at least over the last previous five years or so, I mean, we were seeing price compression in our business. In 2023, for the first time, setting aside even the draw fee benefit that we saw in 2023, you know, the Medicare CMS, Yeah You know, reimbursement of draw fees that helped us. Setting that aside, we are seeing positive price appreciation across our business for the first time. Reason for that being- Across the business or in total? In total. In total. In total. In aggregate. There's still pockets. That's right. Yeah. It's good clarification. So, and I was gonna get to sort of the breakdown of that. Yeah. Value-based contracting in health plans is helping drive price appreciation. Our ability to redirect volumes, avoid leakage for the health plans, give them shared savings guarantees, them participating in that is helping us derive price appreciation in that part of the business. The health systems part is showing price compression, but it's being offset overall. We've also taken some price increases across our services businesses that are helping. To go back to your last part of the question around 2023, I mean, we are seeing price appreciation in the H1. It will improve even in the H2 versus that, because of a few dynamics. One is some price increases with certain renewals that we're seeing across health plans. The other reason is some of the service business increases, price increases that we've taken, will show up in the H2. A little bit related to the Draw fee reimbursement and just the volumes that are going through the government part of the business. In the H2, it's more than the H1, so we see a disproportionately higher benefit in the H2. So that, that's why pricing is improving, even in the H2 versus the first. Fantastic. Folks, please join me in thanking Sam and Shawn for the presentation today. Thank you. It was always great. We are right at the hour. I do need to make some quick introductions. We have Adtalem Global Education coming up. We have no session in session two, so we'll only have three in this upcoming period. Talkspace and Aardvark Therapeutics in the other two rooms. So thank you very much. Thank you.