奎斯特診斷 (DGX) 2004 Q1 法說會逐字稿

Good morning.

Welcome to the Quest Diagnostics first quarter conference call.

At the request of the company, this call is being recorded.

The entire contents of this 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 the call in any form without the express written consent of Quest Diagnostics is strictly prohibited.

Now, I would like to introduce Laure Park, Vice President of Investor Relations for Quest Diagnostics.

Thank you, you may begin.

Thank you and good morning.

I'm here with Ken Freeman, Chairman and Chief Executive Officer of Quest Diagnostics, Surya Mohapatra, our President and Chief Operating Officer, and Bob Hagemann, our Chief Financial Officer.

Some of our commentary and answers to questions may contain forward-looking statements that are based on current expectations, and involve risks and uncertainties that could cause actual results and outcomes to be materially different.

Certain of these risks and uncertainties may include, but are not limited to: competitive environment; changes in government regulations; changing relationships with customers, payers, suppliers, and strategic partners; and other factors described in the Quest Diagnostics Incorporated, 2003 Form 10-K, and subsequent filings.

As a reminder before we proceed, all future revenue guidance will be provided for total revenues only.

We will continue to report results for requisition volume and revenue per requisition each quarter.

Also, as we have previously indicated, to keep everyone's focus on the longer term, after this year we will begin providing financial guidance for the full year only and not for each quarter.

A copy of our earnings press release, together with any information that would be required under regulation G, and the text of our prepared remarks will be available in the pressroom section of our website later today, at www.Questdiagnostics.com.

Now, here's Ken Freeman.

Thank you Laure.

We had an outstanding quarter.

Investments made and our selling efforts, quality and technology continue to contribute to solid growth.

Here are just a few highlights before I turn it over to Bob: Earnings per share increased 28%;

Revenues grew 15%, and reflect an improvement in the rate of organic volume growth;

Margins continued to expand.; and as a result of strong first quarter performance, we are raising guidance for the full year.

Turning to the CEO succession process, it has gone extremely well and as a result of the more rapid transition of executive responsibilities, I will step down as Chairman sooner than previously planned, after the December Board meeting.

After that, I'll be available to provide consulting services to the company for a period of time.

This will give Surya and the management team an opportunity to be free and clear of any motivation to look backward rather than forward.

As Quest Diagnostics moves to the next stage in its evolution, the company is very well positioned to grow and prosper under Surya's leadership.

Now, Bob will discuss the quarterly results and guidance, and then Surya will comment on the business.

Bob?

Thanks, Ken.

We started the year with a strong first quarter building on the momentum we established the end of last year.

Earnings growth was outstanding and above our earlier guidance, fueled by strong revenue growth.

Revenues grew 14.9%, faster than we expected and above our previous guidance of 13 to 14%.

Turning to volume.

The improvement in organic volume growth that we saw in the fourth quarter last year continued in the first quarter and drove much of the favorability to our guidance.

Volume increased 11.1% for the quarter or 2.9% on a pro forma basis, after considering the Unilab acquisition.

Volume comparisons were favorably impacted by approximately 2%, due to the extra day in the quarter, caused by leap year, which was worth about a point and a half, and by less severe weather this year.

On our year-end call, we estimated that these factors would contribute three percentage points of volume improvement during the quarter.

The difference is due to the fact that, although the impact of weather was less than last year, it was more severe than we had anticipated.

Revenue per requisition grew 3.1% or 4.4% on a pro forma basis.

Improvements in test mix continues to be the principal driver of the increase.

Growth in gene-based and esoteric testing continued strong.

Drugs of abuse testing, which is among the lowest priced services, and accounts for about 6% of our volume and 3% of revenues, showed modest growth in the quarter.

The first reported growth in several years.

And our clinical trials testing business contributed about half a point to consolidated revenue growth.

Operating income as a percentage of revenues improved 1.7 percentage points over the prior year.

The increase was driven by the improving mix of business and continuing efficiencies from our Six Sigma and standardization efforts, which have reduced both the cost of services and SG&A as a percentage of revenues.

Bad debt expense, which is included in SG&A was 4.5% of revenues compared to 5% the year before.

Cash from operations was $111 million compared to $58 million in the prior year.

Remembering that the first quarter cash flow is historically our lowest, due to the timing of several large payments, this was excellent performance.

Days sales outstanding were reduced by three days during the quarter to 45 days.

During the quarter, we paid dividends totaling $15.4 million and repurchased 547,000 shares for $45 million at an average price of $82 per share.

We have now repurchased a total of 4.5 million shares, at average price of approximately $67 per share since initiating our repurchase program last May.

To date, we have utilized approximately half of the $600 million of share repurchase authorization made by the Board.

Earlier this week, we completed a refinancing of our bank term loan and credit facility, and our accounts receivable credit facility to take advantage of the improved lending environment and our improved credit profile.

The new $500 million bank facility runs for five years, and the new $300 million accounts receivable facility runs for three years.

We plan to use these facilities to retire the $230 million term loan we have outstanding.

As a result, we expect to reduce interest expense for the remainder of the year by approximately $1.7 million.

However, we will also record a noncash charge of $3 million in the second quarter, associated with the write-off of deferred financing costs on the old bank facility and term loan.

In addition, in connection with the accelerated CEO transition, certain pension obligations have been accelerated, and are being expensed over a shorter service period.

This change is expected to result in charges during the remainder of the year, preliminarily estimated to total $8.6 million or 5 cents per share, which were not anticipated in earlier earnings guidance.

It is important to note these charges and the refinancing charge are discrete items.

These are not ongoing costs of doing business.

Our business is performing well and we are confident in our ability to generate continued gains in revenue, productivity, and earnings.

Turning to our outlook.

We expect 2004 to be another year of solid performance improvement and we are increasing guidance.

Starting with full-year guidance.

As a result of our strong first quarter performance, we are increasing our estimate for total company revenue growth from 6% to 7%.

The estimated impact of including a full 12 months of revenues from Unilab remains about 1.5% to reported revenues.

Full-year earnings per diluted share are expected to increase to between $4.80 and $4.90, before charges associated with the accelerated CEO succession and the refinancing activities.

This compares to earlier guidance for EPS of $4.70 to $4.80 which also excludes such charges.

A reconciliation of the EPS guidance, with and without the charges, is included in the earnings release in footnote 5.

We now expect cash from operations to approximate $700 million.

Operating income, as a percentage of revenues, to approximate 18%, and capital expenditures to be between $180 and $190 million.

In the second quarter, we expect revenues to grow approximately 5%.

This rate represents our estimated organic rate of growth, now that we have anniversaried the Unilab acquisition this past quarter.

Operating income as a percentage of revenues is expected to exceed 18%, and earnings per diluted share is expected to be between $1.25, and $1.30.

These estimates exclude charges preliminarily estimated to total approximately $6 million or 4 cents per share, related to the accelerated CEO succession, and the refinancing activities.

Now, I'll turn it over to Surya.

Thanks, Bob.

As you heard from Ken and Bob, 2004 is off to a great start.

We are encouraged by continued progress in driving improved performance.

The major focus for the past year has been on improving organic growth, and we have shown sequential progress over several quarters.

As I tell our employees, there are only a few ways to grow organically.

You have to work hard to keep your existing customers, and sell them additional services; find new customers; develop new products; and expand into new geographies.

We are making progress in each of these areas.

We are investing in ours sales force.

We are adding sales staff and providing enhanced training to our segmented sales organization to focus on the special requirements of different customer groups, and it is producing results.

Our hospital sales team is making progress.

We are growing hospital revenues by attracting new customers and expanding and improving services to existing customers.

Our value proposition to hospitals in unmatched with full service (INAUDIBLE) testing laboratories on both coasts, geared specifically to meet the needs of the hospitals.

At the same time, investment in Six Sigma are driving improvements in service, customer loyalty, and efficiency.

Quality and consistent service are important ways that we differentiate ourselves from the competition.

We are taking Six Sigma to the next level with Lean Six Sigma.

Lean reduces waste and unnecessary (INAUDIBLE).

We are using it to streamline (INAUDIBLE) processing and to design more productive lab facilities.

Six Sigma enhances quality, Lean enhances speed.

We continue to invest in medical science and information technology to strengthen our competitive advantage.

Growth in gene-based tests continue to out bid the rest of the business.

We also have many fast-growing tests that are now gene-based.

For example, we are benefiting from the heightened interest in cardiovascular testing overall.

From routine STL (ph) and LDL culture testing to cardio CRP, with specific test such as cholesterol subparticle analysis.

Additionally, we are experiencing growth from the HPV/DNA cervical cancer screening test, immuno cap allergy (ph) test and the Insure colorectal cancer screening test.

We continue to educate physicians on the benefits of this (sic) tests, enabling them to make better informed decisions for their patients.

With regard to the new Ovachek(ph) ovarian cancer block test from Corologic (ph), we are evaluating data from the validation studies, our goal is to launch Ovachek later this year.

The unique differences, as we move forward is our growing expertise in healthcare information technology.

Quest Diagnostics Healthcare IT divisions improve efficiency and reduce opportunity for errors in laboratory and drug prescribing.

Our (INAUDIBLE) e-Maxx, allows doctors to aggregate and share patients healthcare records in a completely secure, HIPAA compliant way.

This enables doctors to spend more time with their patients in enhancing the quality of care.

In the past few months we have established some of the initial relationships that will help to make e-prescribing a reality for our patients.

New relationships with Medco Health Solutions, SureScrips, and (INAUDIBLE) will assist us to provide doctors with enhanced electronic prescribing capabilities.

We continue to see rapid growth in the user (INAUDIBLE) based services.

By the end of the first quarter, we were receiving 30% of test orders online, and were delivering around 40% of test results via the Internet.

Now, starting with geographic expansion in North Carolina and Ohio, we have seen progress.

We have invested in infrastructure in these markets where we have historically lacked a significant presence.

We are winning business because customers appreciate having a choice and recognize the benefits of our powerful value propositions that is based on four pillars: Six Sigma quality; unparalleled access and convenience in (INAUDIBLE) science and medicine; and advanced IT solutions.

We have the strategy, the resources and motivated people to continue to drive exceptional performance.

Now I would like to turn it back to Ken.

Thanks, Surya.

Putting it all together, we've had a strong first quarter.

Based on the better than expected performance, we are raising guidance for the full year.

And, our efforts to improve the rate of organic revenue growth are paying off.

We are seeing tangible signs of progress.

Quest Diagnostics has become a strong company, and I'm proud to have played a part in its progress over the years.

I'm also very proud to be turning over the leadership of our company to Surya at the annual stockholders meeting in May.

Quest Diagnostics has a great future.

And as a result of our compelling value proposition and the investments we've made and will continue to make, we are well-positioned to continue providing superior returns for shareholders.

We will now open up the call for your questions.

Operator?

Thank you.

At this time, we'd like to begin the question-and-answer session.

If you would like to ask a question, you may press star 1 on your touch-tone phone.

You will be announced prior to the question.

Again, press star 1.

To withdraw your question, you may press star 2.

Thank you.

Our first question comes from Gary Lieberman of Morgan Stanley.

Your line is open.

Thanks a lot, good morning.

You talked a lot about the volume growth being particularly strong.

And you also talked about the increase in the sales force and the efforts that you've made there.

Can you talk a little bit in detail, if you have the numbers, in terms of how much of the volume growth you think you saw coming from market share gains, I guess due to the increased selling effort, versus just sort of an overall pickup in volume growth?

Let me start.

First of all, there is no industry-wide data to really understand exact gain in market share, but we are gaining revenue and we are focussed on increasing our revenue.

The investment we have done in sales force by training them, driving accountability, and also increasing services to improve our customer retention is really paying off.

And Gary, we've said before, as Surya says, it's difficult on any one quarter to tell whether or not you're actually gaining share.

But over the long-term, we expect to be growing at or above the industry rate, which should imply that we will gain share.

Do you have any data on the number of sales people that you added either in the quarter or year-over-year?

Keep in mind obviously that's relatively confidential and competitive information on and an overall basis, Gary, we have over a thousand sales force across the country.

The sales force additions that we are making are selectively based upon geographic needs or for the highly specialized sales forces related to the gene-based, steric and hospital divisions.

Okay, thanks a lot.

Thank you.

Next question, Tom Gallucci of Merrill Lynch.

Your line is open.

Good morning, two questions if I could.

First, just wondering what the% percent of steric testing was as a percent of overall revenues.

The other one was a broader question on price.

You had very strong pricing some of the quarter, you cite mix as being part of that issue.

I was wondering what you're seeing in terms of negotiations with payers and absolute price increases, I'm particularly pointing to a large HMO talking about trying to control lab costs better, I guess, last week.

Your thought on that area in general will be appreciated.

I'll start and give the data you're looking around steric.

Gene-based as a percentage of top line is about 11 to 12%.

Total esoteric, the summation of gene-based bus other esoteric is about 16 to 17%.

Something to be aware of, is as we do on a regular basis, we review and pull out tests that have become more routine in nature out of our other esoteric, we did do that this year as we have in the past.

On to the pricing.

Tom, with respect to pricing, as we've said, most of the improvement that we saw this quarter was, again, related to text mix.

Driven by the record growth in gene-based and esoteric testing.

When it comes to discussions with payers, they've always been difficult discussions but we feel very good about our compelling value proposition and we are sticking to pricing discipline.

You know, one of the things to keep in mind, if a particular payer indicates that they're targeting lab spend, that the lab spend with the commercial laboratories tends to be relatively small compared to what they might be spending a hospitals as well.

And we have opportunities to help them control that leakage, which could actually help drive revenues for us and overall reduce costs for them.

That's the Quest Net product that we've historically talked about.

The other point to maybe keep in mind, I think it's important in looking at the managed care environment, is we're only about 2% to 3% of the total healthcare spendings that incurred.

Great, thank you.

Thank you.

Next question, David Lewis, of Thomas Weisel Partners.

Your line is open.

Good morning.

Surya, you mentioned a lot of drivers of growth, it sound like the majority of the drivers the sales force hiring and retraining.

Can you comment on the percentage of growth coming from specific hospital initiatives or any initiatives you have with large employers.

So I'd like to understand better how that's going.

Okay, let me talk about the total [inaudible] First of all, apart from just investing in sales force, by adding sales people, the most important thing we have done is actually training sales people so they can speak with conviction.

And as you know, we have segmented our sales fours two years ago.

We have the genomic and hospital and [inaudible] sales force, also we created a special group for managed care.

I think you also realize that apart from sales, we have putting a lot of emphasis on service and science and technology, and that's really giving us the value proposition we need to really convince the customer to switch to us.

Now, there are a lot of work has gone on in improving service by using Six Sigma, and when we move forward, I think it's going to be very important to see how the segmented sales force is really going to take care of a particular segment and also a particular customer group, just like the physicians and the hospitals.

On the large employer side, I think if you're looking at our drugs and abuse testing business there, David, as Bob mentioned, it was up modestly this quarter, which is really the first quarter in several years that we've seen improvement in this business.

Laure, could you give us more specific, I think last quarter you talked about 5 to 6% of revenue -- I'm sorry, 5 to 6% of volume, 3% of revenue, what was that number this quarter, for DOA?

It's about the same.

Remember, it's such a small piece of our business, that you'd have to have dramatic change for those percentages to move.

Okay.

And then two more quick, just scientific, test specific questions.

First of all, Surya, you mentioned lipo protein subclassification.

What percent of your lipid panels are being ordered with the lipo protein subclass, do you view it as a replacement test for cholesterol testing or a reflex test?

First of all, that would be a little bit difficult for us to break down and give you the details.

But I think at the moment, the way the cardiovascular tests are going on, people are ordering in addition to the routine tests.

And the goal here is actually to find out which particular test is more specific and more sensitive and can you really detect the cardiac (INAUDIBLE) at an audio (INAUDIBLE) so they can go into therapy?

Okay.

And last question, I'll jump back in the queue, just in terms of HPV testing, can you talk about adoption trends you saw in the quarter or if you can't talk about those, your ability to secure adequate reimbursement for the tests thus far with the new indication?

On the HPV test, obviously it is early, Dave, but we're seeing positive indications.

We're seeing some growth in that test.

But with any new test, adoption takes time.

The -- and our sales force is out there educating physicians on what the guidelines are and the benefits -- the medical benefits of using a DNA test in conjunction with a PAP test for primary screening.

Any issues to reimbursement thus far?

Nothing at this point.

Great, thank you very much.

Thank you, next question, Bill Bonello of Wachovia Securities, your line is open.

Can you just comment, Bob, real quickly on the bad debt situation?

Obviously a lot of the hospital companies have had rising bad debt expense.

You have improving bad debt expense.

Can you just kind of clarify, you know, what's different about your business mix, say, from the hospital business mix, if that's possible?

Bill, hospitals, issues that they're having with bad debt are really driven by the unemployed and the uninsured.

And keep in mind that the hospital bills on average are much larger than lab bills as well.

So that sort of exacerbates that.

But also I think that there's frankly a lack of rigger and ability in collection processes, and maybe a lack of rigger in the way that they monitor the adequacy of their receivables reserves.

Now we don't have the same issues.

First of all, for us, patient bills are very small piece of our business, 5% to 10% of revenues.

Our average bill is much smaller than a hospital bill.

And about 80% of our work comes through physician offices.

And if you think about it, generally the first thing a doctor's office does is screen to make sure that you have insurance.

Therefore, we don't see a lot of uninsured patients.

And that's probably the biggest factor.

But on top of that, we have a very rigorous billing and collection process, which utilizes Six Sigma.

Our metrics have been a benchmark for our industry for some time now.

And we also have a very rigorous process around reserving our accounts receivable, and it gets a lot of attention from the management here as well as the auditors.

You've seen that, the results of it in our DSOs coming down at the same time that our bad debt's been coming down.

Great.

Just a follow-up question, on the question regarding pricing.

I guess you know, your pricing trends are different than what we're seeing from a couple of your competitors who have reported, and so I understand you're saying it's being driven primarily by mix.

I guess I'm just curious whether you are seeing increased price competition from your competitors?

I mean it sound like even if you are, you aren't necessarily answering that.

But are you seeing that?

Well, first of all, we really cannot comment on how the competitors are behaving, the pricing environment has not really changed, it's a highly competitive environment, as you know.

And you know, all we are doing actually is convincing our customers that we have really great value proposition, we provide quality tests for quality medicine.

We want to be paid fairly for an excellent service.

Okay.

So no change in the environment.

Thanks.

Thank you.

Thank you.

Next question, Robert Willoughby of Banc of America Securities.

Your line is open.

Thanks, just a quick -- there was an increase in investments in the latest period, it was only nominal, but can you give us any color?

What that was?

And secondarily, it looked like a very good quarter, I'm just surprised at the volatility that we've seen in the earnings guidance over the past several quarters.

Can you possibly flush out just what the primary variable it is that makes it difficult to be more consistent on that front?

Bob, a quick question for you, the change in investments that you're referring to, is where?

It was -- just what was it, it was 2 or $3 million bucks on the cash flow, $3.6 million, on the cash flow statement.

It's probably related to joint ventures, 2, $3 million, I probably don't have a specific answer for you at this point.

Okay.

As it relates to the earnings guidance, I'll kick it off and let people finish up here.

I think what's important, if you look at the earnings guidance as it's trended over the past two quarters, was the main difference in the main driver is the improvement in our revenues driven by improvement in organic volume trends.

Obviously, if a top-line trends up, the bottom line moves up with it.

For the first quarter here we're showing organic volume growth at 2.9%, even when you adjust for weather and the leap day, it's positive trends over positive trends, positive volume, that's reflected in the rest of the year.

Just to add to Laure's point here.

As you know, we are transferring the company, we're coming out of acquisition and integration.

Now we are focusing on growth from within.

We are investing in sales, we are investing in science and service, but we are also very cautious to know how, which is working, which is not working.

And as we increase our organic growth, and as we see how we are operating through our (INAUDIBLE) operations, you know, it will be - we will provide consistent guidance.

But as we -- we are seeing actually how we are doing in the marketplace before we really declare that everything is working.

Okay.

Thank you.

Thank you.

Next question, Ricky Goldwasser of UBS.

Your line is open.

Good morning.

You've reported some healthy growth in the nonclinical business.

Can you tell us whether this -the clinical business is sustainable going forward at first quarter levels?

And then can you provide us some colors on any discussions you had with the FDA regarding the Ovachek test?

Ricky, I'll start with the nonclinical business.

First keep in mind it's about 3% of our total revenues, and it's a relatively small piece of our business.

We did see some nice growth in those businesses.

Approximately 20% or so overall and that contributed roughly a half a point to our overall revenue growth.

We expect them to continue growing over the course of the year.

Probably not at the rate of 20%, though.

Remember, those -- the clinical trial testing business tends to be a little choppy in terms of when the revenues come in.

With regards to Ovachek, as you know, that FDA has inquired about the progress and we are working with FDA, and also industry association to understand actually what is their concern and basically educating them what really required.

Because their goal is exactly the same goal as we have.

We want to have a product which is safe and efficacious and high quality. (INAUDIBLE)

Just to follow-up, on nonclinical business is the 20% growth, does it reflect some new contracts that you received or some trials you've completed?

The clinical trials testing business is one that's growing.

We believe we have a compelling value proposition there as well, and there have been contracts awarded over the past year, which are bearing fruit in the quarter.

Thanks.

Thank you.

Next question, Kemp Dolliver of SG Cowen Securities.

Your line is open.

Great, thank you.

First question, just on the volume for the quarter, could you just give us a sense if you normalized again for leap year, and I guess how weather came out versus last year and your expectations?

Is 1% about the right number, or something different from that?

When you normalize for the weather, we came in a little bit -- maybe a little more than a point above what our guidance was with respect to total volume for the quarter.

And that's driven by the things that Surya talked about earlier, principally the fact that we've been investing in the sales force and in the value proposition, and many of the things that we've done over the last year or so are starting to pay dividends for us.

And to do the math for you, Kemp, the number you had is about right, the adjusted pro forma volume growth, I guess so to speak, is about 1% for the quarter.

Okay, that's helpful.

With regard to the year mix of your routine verses your nonroutine business.

I mean, based on the answer given to an earlier question, is that business growing, therefore, at about a 25% clip, or, you know I'm just trying to get a better handle on that.

Thanks.

The gene-based piece of the business is growing at about 15%.

And the other esoteric after we pull out those more routine, continues to grow at the rates it was doing the previous quarters.

Keep in mind that gene-based testing now is over half a billion dollars of revenues for us.

And as that number gets bigger and bigger, the rate of growth actually, even though you may see additional growth in dollars terms, as big or bigger than you've seen before, the percentage is going to start to naturally slow as that number becomes bigger.

Sure, that's fine.

Last question, and this is probably in its early stages, but I guess there's a proposal in Florida kicking around for the Medicaid program to try to go to some kind of statewide contracting.

You know, any comments regarding your positioning for that proposal and your sense as to whether it's ever going to see reality?

Thank you.

You know, as a matter of general policy, we don't comment on this, but this is public information.

So we have actually submitted a letter of intent to bid, but like any other RFP, we're going to evaluate whether it makes economic sense or not.

As to what the status is, will it ever happen?

I think that's something difficult for any of us to speculate.

But you know along with -- as long as our trade association, ACLA, we believe competitive bidding for laboratory does not make sense.

That's great.

Thank you.

Thank you.

Next question, Kevin Berg of CSFB, your line is open.

Great.

Thank you very much.

In terms of your movement into new markets, can you tell us about your decision making process, what criteria you were looking at, why those markets?

And then furthermore, what other markets might you be looking to get into in the next year to 18 months?

If you track Quest Diagnostics, what we have done over the last five years, is really filling out where we have gaps.

Where there's no product line, whether it's in segment or whether it's in geography.

And that was the reason why we acquired Unilab, because we wanted to be Number 1 in California market.

So when you look at our business, we look at the territories where we have distant 2 or distant 3, and where we have historically not invested and not had a significant position.

So that's the first criteria.

We look at what's the market opportunity, and where we are, and based on market opportunity and profit opportunity, we really decide to enter the market.

And then in terms of these markets, how much are you spending here on capital in the first 12 months?

What's the timing on profitability you expect for these market sectors?

The total capital spend is in the range of 4% of revenues and our guidance for that hasn't changed.

And you should expect that a piece of that is targeted towards these markets that we're getting in.

Although, I would tell you, it's not a significant capital investment that you need to make in these markets.

Essentially, the infrastructure that you're putting in place are are patient service centers, logistics and sales force, along with phlebotomists.

So, not big capital intensive investments that we need to make.

The turn around time is pretty quick to get a positive return then?

Generally, yes.

Thank you very much.

Thank you.

Next question, Michael McGuire of Leerink Swann.

Your line is open.

Thanks.

Just to clarify on the previous question regarding adjusted pro forma volume growth of 1%, is that also adjusted for the leap-year discussion previously?

Yes.

It is, okay.

And of the increased guidance for the course of the year, could you just speak generally to what's driving, you know, beyond, obviously today's results that's going to flow through, but over the rest of the year, the increase in the EPS numbers, and also on the top line?

Could you just speak to generally what is driving that?

Is it an improving volume outlook in your projections, is there anything in there from the interest expense reduction that you spoke of, or was that previously factored in?

Thanks.

The improvement is principally related to volume.

The interest expense savings that we're getting of about a million seven or so will probably mitigate some pressure that we're seeing on rates to move upward over the course of the year.

But you should expect that the guidance improvement is really volume-related.

And does that specifically also speak to a similar outlook in terms of pricing over the course of the year relative to Q2?

We don't have a specific change that we've baked in for pricing.

And as you know, we don't give specific guidance around volume or pricing at this point.

Okay, thanks.

Thank you.

Once again, to ask a question, you may press star 1, please.

Alright, thank you.

At this time, we're showing no questions.

We'd like to thank you for participating in the Quest Diagnostics first quarter 2004 conference call.

A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics website at www.Questdiagnostics.com.

Investors in the U.S. may listen to a replay of this call by dialing 800-568-0719.

The replay will open today at 10:00 a.m. today eastern time and will continue through 11:00 p.m. on May 21st, 2004.

Investors outside the U.S. may dial 402- 998-1485, no pass code is required for either number.

In addition, registered analysts and investors may access an online replay of the call through Street Events at www.StreetEvents.com.

The call will also be available to the media and individual investors at Quest Diagnostics website.

The online replay will be available 24 hours a day beginning at noon.

Thank you and good-bye.