Quest Diagnostics Inc. (NYSE:DGX) Q2 2019 Earnings Conference Call - Final Transcript

Jul 23, 2019 • 08:30 am ET

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Quest Diagnostics Inc. (NYSE:DGX) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Welcome to the Quest Diagnostics Second Quarter 2019 Conference Call. [Operator Instructions]

Now, I would like to introduce, Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Please go ahead.

Executive
Shawn Bevec

Thank you, and good morning. I'm here with Steve Rusckowski, our Chairman, Chief Executive Officer and President; and Mark Guinan, 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 from continuing operations, and references to adjusted EPS refer to adjusted diluted EPS from continuing operations, excluding amortization expense. References to adjusted operating income for all periods excludes amortization expense. Finally, growth rates associated with our long-term outlook projection, including total revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth, are compound annual growth rates.

Now, here is Steve Rusckowski.

Executive
Stephen H. Rusckowski

Thanks, Shawn, and thanks everyone for joining us today. This morning, I'll discuss the second quarter and review progress on our two-point strategy, and then, Mark will provide more detail on the results.

Our volume growth accelerated in the second quarter and we continued to build momentum through the first half of 2019. Our expanded network access continues to accelerate volume growth and our strategy to drive operational excellence improved efficiency. Both have helped to offset the significant reimbursement pressures we are experiencing this year.

For the second quarter, we grew revenues despite significant reimbursement pressure. Reported EPS was $1.51. Down about 4% from the same period of 2018. Adjusted EPS was $1.73, down about 1%. Volume growth remained very strong at 4.4% as the expected volume continued to accelerate in the second quarter. Year-to-date, volume growth is now at 4%.

Now, let me briefly update you on three fundamental changes in the laboratory marketplace; they are PAMA, our expanded network access, increased consumerization of health care. First, PAMA driven reimbursement pressure remains a catalyst for structural change in the marketplace. Our Medicare rates in the first half of 2019 were down by 10% from the prior year, which is in line with our expectation.

The next data reporting period remains scheduled for the first quarter of next year. However, we are encouraged by the introduction of the Laboratory Access for Beneficiaries Act, or LAB Act, introduced in the House last month. The LAB Act would be the first step towards ensuring clinical laboratory service rates under PAMA are sustainable and Medicare beneficiaries have adequate access to crucial laboratory services. By delaying the next round of PAMA data reporting by one year, the LAB Act will provide all applicable