奎斯特診斷 (DGX) 2006 Q1 法說會逐字稿

Welcome to the Quest Diagnostics first-quarter 2006 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 express written consent of Quest Diagnostics is strictly prohibited.

Now I'd like to introduce Laure Park, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.

Thank you and good morning. I am here with Surya Mohapatra, our Chairman and Chief Executive 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, environment; changes in government regulation; changing relationships with customers, payers, suppliers, and strategic partners; and other factors described in the Quest Diagnostics Inc. 2005 Form 10-K and subsequent filings.

A copy of our earnings press release is available, and the text of our prepared remarks will be available later today in the Quarterly Update section of our website, www.questdiagnostics.com. A downloadable spreadsheet with our results is also available on the website. Now here is Surya Mohapatra.

Good morning to all of you. Thank you, Laure. We had an excellent first quarter. Revenues grew 18%. Earnings per share grew 13%. Cash generation was strong, $241 million, and we are raising our outlook for the full year.

We are seeing the benefits of the investments we have made to enhance our value proposition and introduce new and innovative tests. As you know, we have been evaluating various alternatives for NID, our test kit manufacturing subsidiary. After careful consideration yesterday, we decided to discontinue NID's operations. This was a difficult decision, and it does not come without a cost. However, in the long-term, it is in the best interest of the Company.

Now, Bob will share with you the analysis of our first-quarter performance.

Thanks, Surya. It was an exceptionally strong quarter, driven by performance of our clinical testing business. As we go through the results, I'll certainly quantify each of the major factors impacting the quarter.

Consolidated revenues grew 18% for the quarter, with the acquisition of LabOne contributing about 10%. A little over half of the LabOne revenues were generated from the risk assessment business, with the remainder classified as clinical testing. Our clinical testing business, which accounts for 92% of our total revenues, grew 13.4% during the quarter on a volume increase of about 9% and an increase in revenue per requisition of about 4%. LabOne contributed approximately 5% growth to the clinical testing business, principally reflected in volume. The increase in revenue per requisition is principally driven by a shift to a more esoteric test mix and an increase in the number of tests ordered per requisition.

The first-quarter revenues and volume comparisons benefited by about 1% as a result of a milder winter this year and the fact that the Easter holiday fell in the second quarter this year compared to the first quarter last year.

NID had revenues which were $13 million less than last year and reduced consolidated revenue growth by 1%. Operating income as a percentage of revenues was 15.7% for the quarter, and reflects about a 2% improvement from the prior year on an apples-to-apples basis, driven by the performance of our clinical testing business. Our clinical testing margins continued to benefit from strong top-line growth, efficiencies from use of our electronic connectivity solutions and the continued benefits of our six Sigma efforts.

We recorded $27 million in special charges in the quarter, which I will discuss in a moment, that reduced consolidated margins by 1.7%. Expense associated with FAS 123(R) reduced margins by 1.2%, and the results of the LabOne business, which for now carry lower margins than the rest of our operations, reduced the margins by 0.8%. In addition, the performance of NID reduced margins by 0.7%. Lastly, the milder winter and the timing of Easter benefited margin comparisons by about 0.5%.

The $27 million in special charges are reflected in Other Operating Expense and relate principally to costs associated with integrating the LabOne acquisition and consolidating our operations in California into our new facility in West Hills. $22 million of the charges will result in cash outlays, with the remainder asset write-offs. We now expect the net synergies from the LabOne acquisition to reach $40 million per year, up from our initial estimate of $30 million. We expect to achieve the full $40 million in our run rate by the end of 2007.

During the quarter, we realized an investment gain of $16 million, which is reflected in Other Income and below the operating income line. The gain is associated with the sale of our 14% interest in National Imaging Associates, which was acquired by Magellan Health Services. Included in footnote 6 to our earnings release is a table which summarizes the impact to revenues, operating income, and EPS of this gain and the various other items I mentioned earlier.

Diluted earnings per share grew to $0.72 after an $0.08 reduction for special charges and a $0.05 benefit from the investment gain, with the growth driven by strong performance in our clinical testing business. Cash receipts for the quarter were very strong and produced cash from operations of $241 million, compared to $136 million in the prior year. Days Sales Outstanding also showed improvement, declining to 43 days from 46 days at year-end.

During the quarter, we repurchased 2 million common shares for $104 million. Capital expenditures for the quarter totaled $42 million.

Yesterday, we decided to discontinue operations at our struggling test kit manufacturer, NID, a decision which will mitigate the continuing operating losses from that business. We expect the winddown to be substantially complete before the end of the year and to include steps to monetize certain NID assets. This action is expected to result in a second-quarter pretax charge preliminarily estimated at up to $45 million.

The ongoing government investigation of NID continues, and we are fully cooperating. At this time, we are not in a position to estimate what, if any, liabilities may arise from the investigation.

Turning to full year guidance, we expect revenues to grow approximately 14% an increase from our previous guidance, with approximately 8% of the growth from LabOne. This excludes the impact of potential additional acquisitions.

We expect operating income as a percentage of revenue to approximate 17%. This includes the impact of FAS 123(R), which is estimated to reduce margins approximately 1%, and includes the impact of special charges recorded in the first quarter. This estimate excludes the impact of the anticipated second-quarter charge associated with the winddown of NID.

We expect cash from operations to exceed $800 million and capital expenditures to be between $225 million and $245 million. And lastly, we expect diluted earnings per common share to improve to between $2.85 and $2.95 before the second-quarter charge for the winddown of NID. Now I will turn back to Surya.

Thanks, Bob. This was a very strong quarter. We grew the top line and the bottom line, both organically and through acquisitions. We remain focused differentiating ourselves through our value proposition. Our strategy based on patience, growth and people, is producing results. We are developing innovative new tests and bringing them to market faster.

We continue to expand the features of our Care360 physician portal and the ChartMaxx document management system to meet the growing need of doctors and hospitals, and we are using Six Sigma and Lean Six Sigma principles to enhance the patient experience, as well as improve quality and drive efficiencies throughout our business. Together, these actions further differentiate our Company and are contributing to our performance.

One of the drivers of our growth has been increased use of our portable screening tests to detect disease early. We have seen growth in testing for allergy, cardiovascular and digestive disease and assessment of women's health.

ImmunoCAP allergy testing has grown steadily and significantly. Our efforts are focused on educating primary-care physicians and pediatricians about the benefits of allergy blood testing. Instead of referring patients to specialists, the primary-care physicians now are able to test their patients and prescribe treatment accordingly. We are also seeing strong growth from screening tests for women such as, HPV, gonorrhea and chlamydia.

We expect our growth in the future to be driven by innovative new tests that we are bringing to market today. A good example is our recently introduced Leumeta cancer test. Leumeta was conceived as a way to reduce pain and increase convenience for the nearly one million Americans battling or recovering from leukemia and lymphoma. Leumeta uses blood plasma instead of bone marrow cells to help the physician diagnose and monitor cancer. This unique family of tests provides an alternative to painful bone marrow biopsies and is receiving attention worldwide.

Another way that we demonstrate our focus on patients is by enhancing the overall patient experience. Last year, we provided intensive customer service training to our phlebotomists. This is having a positive impact on the experience of the more than 40 million patients who visit our patient service centers each year. This year, we are expanding the training to include other customer contact personnel, such as couriers, customer service, and building representatives.

Also during the first quarter, we took several actions to rationalize our operational capacity and improve efficiency. We opened our new state-of-the-art laboratory in West Hills outside Los Angeles, and we are consolidating operations into this new facility.

We also finalized our LabOne integration plans and began the process of combining our operations. As you have heard from Bob, we have raised our synergy target to $40 million.

We continue to see opportunities to enhance the value proposition of the insulin (indiscernible) business by leveraging the network of our clinical testing business. For example, we are beginning to provide more options to light incidence applicants in selected markets by making available to them our convenient patient service centers, in addition to mobile paramedical personnel, who travel to their homes or offices.

We generated strong cash flow which we will deploy to grow our business and repurchase shares. We continue to seek new growth opportunities through selected acquisitions, both in the diagnostic testing space and in adjacent markets, domestically and abroad.

In summary, we had an excellent first quarter, we have raised our outlook for the year, and we continue to see opportunities to grow our business profitably over the long-term. We will now take your questions.

(OPERATOR INSTRUCTIONS) Ricky Goldwasser, UBS.

Congratulations for the quarter. I had a couple of questions. First of all, on the volume side, I was wondering if you can quantify for us what was also the negative impact of the lost business you saw in Denver.

Also, is it fair to assume that the negative impact of NID on volume that you quantified about 1% was fully offset by milder winter and the timing of Easter?

And finally on volumes, overall, the volume environment is very strong. I was wondering here if you are seeing any positive impact from Part D population.

Ricky, that's quite a laundry list there. Let me take a crack at this. First of all, you mentioned NID in the same breath as volume. The NID results are not factored into the volume numbers that we report. The volume and the revenue per req numbers that we report are for the clinical testing business only.

And you are right. The volume numbers were strong. Remember, though, I mentioned that the Easter holidays benefited us by -- the timing of them benefited us by about 1% versus the prior year, and we will actually see that go the other way in the second quarter.

Okay. And as far as the --.

And the Part D, which was the other part of your question, it is really too early to tell. I can't say that we have seen anything at this point.

And lastly I believe you asked about Denver, the Centura contract. Certainly that did impact our volumes, but it was very low-priced business as well, and it benefited the revenue per req by the same token.

Okay, great. Then just one last question on guidance. You mentioned that guidance did not include any impact from additional acquisitions. Does guidance include impact from additional potential share repurchases?

Yes. When you think about our guidance, again, think about it as all-in, that we are taking the cash that we generate and we are deploying that either into growth or into share repurchases. So the EPS number is always an all-in number. In this case, the only exception is the second quarter charge associated with the winddown of NID. But we do not have any acquisitions built into the revenue guidance.

Okay, thank you.

David Lewis, Thomas Weisel Partners.

Surya, maybe just start off talking about the IT systems. In the past, you have given us some breakdowns in terms of how IT is penetrated from an electronics emissions standpoint, both the [PFC] and the physician's office. It appears that you are starting to see some real tangible benefits of the IT deployment. Maybe if you can give us some metrics to help us understand how we hit some type of inflection point in the type of business that you are driving.

Thank you, David. I told you that I consider IT is extremely important because this is the link between us and our doctors and our patients. And when we initiated this product two years ago, we wanted to use this not only to increase the stickiness but also to improve our information that is collected for the Company, whether it is billing or whether it is reports.

And now as of this quarter, we have 45% of our orders coming by the web, and over 80% is outgoing. So I think it has become a very important factor of our value proposition, and it is helping not only providing the information to the doctors when they want and where they want, but also is improving our internal efficiencies as far as bad debt and missing information.

And we keep continuing investing in our information technology products. As you know that we have two different sets of products, Care360, which is the physicians' portal, and ChartMaxx, which is the document emitting and management system.

Not only do we have live orders and results, but now we are seeing adoption of the electronic prescription, and that will lead into how we integrate the drugs and the lab results, and that is the eventual goal, where the physician can find out adverse drug reactions and provide them more of that information with his insight. And we are very excited about our IT position.

David, just one other thing. You mentioned -- or you asked whether or not this was an inflection point. I would say no. This is something we have been doing now for several years and we have seen benefits already in our results from the increase in electronic connectivity. And we expect to see future benefits, as Surya said, in terms of stickiness with our clients, as well as continued efficiencies in billing and other areas within the laboratory.

So no, it is not an inflection point, but we see continued opportunity there to expand margins as a result of the IT connectivity.

That's very helpful. Bob, given that the L.A. integration is now complete, this $225 million to $245 million CapEx number, in the past you have given us a breakout in terms of where that is being spent on IT or facility maintenance. I'm just trying to get a sense if it's a pretty sizable number post the L.A. integration. Where is that capital being deployed?

David, when you look in our historical spending levels, it is not dramatically different. It's a little less than 4% of total revenues, which is consistent with what we have historically done. You should continue to think about CapEx as about one-third of it in the IT area, about one-third of it in equipment, and about one-third of it for facilities and related costs.

Just a point of clarification around the L.A. area. The building is complete. The consolidation process is really underway right now.

And then one last question and I'll jump back in the queue. Bob, you mentioned that LabOne margins are lower, and then you threw in a "for now" comment. I am just wondering if that is because of the -- obviously, since it has certain elements that are lower margin, you're obviously in the middle of an integration. Just trying to clarify if that's what you meant versus there is an ongoing effort, obviously, to try to raise pricing in the regions that LabOne serves.

The "for now" is absolutely associated with the fact that we don't have the synergies baked in at this point. And as we realize those synergies, we will see the margins contributed by that business much closer to the margins that we have historically generated.

With respect to pricing, as you know, we are pricing disciplined. There is nothing specific that we are targeting on the LabOne side, but as a Company, we try to maintain pricing discipline throughout.

Thank you very much. Nice quarter.

Adam Feinstein, Lehman Brothers.

Good morning, everyone. Have a couple questions here. Let me start with the guidance. Could you just walk us through -- and clearly a very strong quarter, big upside here -- and then with the announcement that you're going to divest the NID test kit business, just trying to figure out -- it seems like the guidance should have gone up by more. So just wanted to get a better sense in terms of what was driving the guidance higher here.

Adam, just to clarify, we didn't say necessarily divest the NID business. We said we're going to wind it down, and to the degree that there are some assets that we can monetize, we certainly will. I just wanted to make that clarification for you.

With respect to the guidance and NID in particular, the NID performance, excluding the Q2 charge, is still going to be a drag on our operations. As we said, it is going to take some time to wind down that operation, most likely until the end of the year. There were already some cost actions on our part built into the previous guidance, and we have some more, obviously, in this guidance now with the shutdown,

But the NID performance that is built into this guidance, excluding the second-quarter charge, is not significantly different from the previous guidance. And it is -- frankly, the results of NID are going to be a function of how quickly we can move on the winddown process.

Okay. Just another question here. Your same-store growth in the core clinical lab business was very strong, in excess of 8% here. I know your guidance is calling for 6% going forward. I just wanted to get a better sense in terms of why you are guiding towards 6%, considering you had the 8% growth in the quarter.

Were there any factors here that -- you mentioned the timing of Easter -- but other than that, was there anything else that would have led to the number being so strong this quarter?

That is principally it. Again, keep in mind that the timing of the holidays was essentially a full point. And as you look at the back half of the year, we are expecting organic growth in the 5% plus range, and that is very consistent with where we think the market is going at this point. As I said, we have a very strong quarter in the first quarter and we have some tougher comps in the back half of the year.

Okay. Then just a couple questions on LabOne here. I was pleased to hear the synergy target move up. I just want to get sense, would you anticipate any benefit from that in 2006 or will all of that be in 2007? Another way to phrase it, I know you're talking about 40 million all-in in getting to that run rate by the end of 2007, but can you walk us through the benefit for 2006, and is that any higher relative to what you were thinking previously?

Adam, there is a little bit of benefit in 2006. The increase that we mentioned, though, from 30 to 40 is really showing up in the out years rather than in 2006. And the other thing you need keep in mind, in 2006, as we start to integrate the businesses, there are certain costs -- for example, IT conversions, certain other costs associated with bringing the businesses together, that not included in restructuring; that are actually flowing through the operating income line.

So I guess the short answer to your question is net-net, we are not expecting significant net synergies from LabOne this year, although we do expect the acquisition to be modestly accretive on a full-year basis.

Okay. Just one final question from me here, just another LabOne question. For the risk assessment business, just by backing into it, we're getting about 1% growth for the quarter. I know last quarter, you said that you were hoping to generate about 3% growth going forward. In one of your comments earlier, you mentioned that you've been able to leverage your core business and to help the risk assessment business. I just wanted to get some more color there an just update thoughts in terms of growth prospects. Thank you.

Just to clarify, the risk assessment business in total is growing consistent with the way it had been growing prior to the acquisition, in the 2% to 3% range, and that was we saw in the first quarter. We saw strong growth on the paramedical services and on the tele-underwriting. We continue to see softness on the testing component associated with risk assessment, because the number of life insurance applicants is down.

And you know, we are just starting to (indiscernible) this idea of how do you leverage and how do you provide options to the life insurance applicants? So it is early days to tell you exactly how it is going to come out to be, but we are pretty excited about this alternative available to the assessment business.

Okay. Thank you very much. Great quarter.

Steve Hamill, Piper Jaffray.

I was wondering about the revenue per requisition. In particular, I had assumed that LabOne consolidation would have a depressing effect, and it did not appear to. Can you comment on that and see if there's any additional color you can add about the really strong rev per req?

Sure. The addition of LabOne actually does pull down the revenue per requisition slightly, but as we mentioned, the contract in Denver significantly offset that. So when you cut through the change in the mix of business, essentially what is driving the increase in revenue per req are two things, the increase in the esoteric mix of business that we are selling and the increase in the number of tests ordered per requisition.

We saw very strong growth in testing like HPV, some of the other tests that were mentioned earlier, and that has been the principal driver of the increase in revenue per req.

And when you think about our revenue per req, don't necessarily think about it on a quarter-to-quarter basis. There is some normal variability in there. But over the long-term, we still feel that revenue per requisition will generally grow in the 2% range.

Okay. So no changes more fundamentally in terms of pricing environment that you're seeing?

No, the pricing environment continues to be very competitive, but we have what I would label as very modest pure price increases.

And then included in the synergies for LabOne, do you contemplate much ability to drive more esoteric testing through their book of business, given the fact that they traditionally did not have a very high proportion of esoteric testing?

Certainly that is an opportunity as we look at their clinical business, to drive more of the esoteric testing and make Nichols Institute now available to their customers in the Kansas and Cincinnati marketplaces.

In some ways, it is going to help us even now. We have two areas where we were not strong, but now we are a strong geographical presence there, so it would help not only routine but also esoteric testing.

Great, thank you.

Tom Gallucci, Merrill Lynch.

A couple of follow-ups. First, on that last question, what percent of the business at this point is esoteric? Can you give us any metrics or idea about the magnitude that you're seeing in the increase in tests per requisition?

Tom, keeping in mind, obviously, that our clinical business looks a little different now with the addition of the risk assessment gene base, it has continued to grow at about 10% year-over-year. It is a little over -- between 11 and 12% of our revenues at this point in time. And the other esoterics are growing at about that 10% rate as well.

That's total esoteric -- the investment in (indiscernible).

In total, right around 16ish percent.

Which is skewed down, you're saying, because you obviously --?

It's skewed down a little bit because of the risk assessment addition to the consolidated revenue.

Right. On the test per requisition, any additional color you can offer there?

Not really, Tom. Again, that continues to be one of the drivers of the overall improvement in revenue per requisition. But when you think about many of these tests that we have spoken about, they are typically ordered as an additional test. So there is a component of mix in there as well as a component of the number of tests ordered per requisition. But they continue to be between two and three tests per req.

Tom, one thing, as I have always pointed out, the screening tests are growing, and it does not have to be esoteric all the time. And what we're seeing that these tests are portable, it is now cheaper and people are taking care of their health, and that is why the tests for allergy or tests for cardiovascular disease or the simple screening tests for cancer and women's health are really helping us. And I think that is also driving the tests per req also.

Right. On the LabOne synergies, I don't think I heard anyone ask about or heard you talk about what are the primary drivers of the increase in the synergy expectations. And in general terms, maybe, what is the breakdown at this point of cost versus revenue type synergy expectations?

You should think of that principally as all cost synergy at this point. And the principal driver of the change is the fact that now we have completed our integration plan and we finalized those plans and we have a high level of visibility now into the cost.

So there were not any particular line items? It was just a matter of being conservative and getting your plans together and now feeling better about a little bigger number?

Absolutely.

We have refined the numbers.

Right. Final one, just a housekeeping question, Bob. Discontinuing the NID operations, will that show up in a discontinued line item in the income statement, and your guidance is simply inclusive of that? Or will you still kind of have it in the income statement as it has been and you'll just phase it out?

What I will you, Tom, is it is likely that NID in the second quarter will begin being reflected as a discontinued operation, although we have not finalized that decision at this point. But the guidance that we have given you is all-in. It includes the underlying performance of NID in it.

Right. So what was the EPS -- I think the last quarter, fourth quarter, you quantified the EPS drags from NID. Was it bigger than that in the first quarter?

No, it was essentially the same, $0.04 in each of the quarters. There is a table in footnote 6, Tom, to the press release.

Okay, sorry about that.

-- that quantifies that.

Sorry about that. But theoretically, if you do put it into discontinued operations, you could see the continued operations number bigger than the formal guidance you've got out there.

Yes.

Okay. Just wanted to clarify. Thanks a lot.

Bill Bonello, Wachovia.

Got a couple of questions. First just on NID, can you give is a little bit of a sense of how it has fit strategically and what, if any, the strategic risks of closing the business down might be?

Well, Bill, first of all, I'm not really happy about the NID situation. However, there is no one single factor I can point to you saying that this is the reason why NID was in that situation. There's a number of issues with NID, starting from the Department of Justice investigation to FDA inspections, our own investigation.

But at the center of all these things, we always felt that we are not going to do anything that may create a issue or impact quality. So we had a number of product (indiscernible) to make sure that we have appropriate quality systems and we can produce product with consistent quality.

Now because of the possible impact on our customers and our patients, we kept (indiscernible) the sources and we kept the NID operations continued. However, as we mentioned last quarter, that it was taking longer and was costing more, and we were supposed to come back to you at the end of second quarter to let you know. And we have relative number of alternatives. And this is something which I am not very proud of, but we have discontinued NID operations.

That does not mean that we are out of the product business. We are in testing business and our core competency is to test. Either we bring blood to our laboratory or we send reagents and kits to the point of care. So we continue to explore the possibility of how to utilize the intellectual property and seek opportunities to strengthen our operations, because I believe that the testing in future is a combination of service and products.

Okay, that's a great recap of why you shut down. But just to understand whether there is any strategic risk to that, is there any overlap between your NID customers and, say, your hospital customers or that kind of thing or --?

You know, we just made the decision yesterday, and there is limited overlap. But it is too early for me to tell you what will be the impact.

So I would tell you that much of that impact has already been felt, because customers have already found alternative suppliers for the NID products that were --.

Okay, that is helpful. Then there has been a lot of talk, obviously, about the whole United RFP, and I know typically you don't talk on specific contracts, but I'm just wondering if you can give us any sense of an update whether that is still an ongoing discussion, etc.

United discussion is going on and we are working with them. The ultimate goal is how do you reduce the expenses in testing, and the way to reduce the expenses is to make sure that we reduce leakage. And we have a very well-planned improvement specimen management, where we manage laboratory networks. And we are continuing discussing with United and working together to come to a program which will help them and which will help us.

Is it still your sense that beginning in '07 they will go out with a more limited lab network than what they have right now?

I really don't know, Bill, because obviously we are one of the players they are talking about and discussing. But I don't know exactly where they will end up.

Okay. And then any update at all on what you are thinking regarding imaging, cytology slide business at this point?

Well, you know we have an imaging device, and we decided to use the (indiscernible) screening, and we are using that as the focal point. But more importantly, what the clinicians are looking at, that it is no longer just a liquid-based item where they can tell you the cervical health. So it's a combination of HPV and cytology; that is the most important thing.

It is not what you [may] use at the back end. And you can see it in our results, that HPV screening is growing and it has become an adjunct to cytology.

Okay. Then just the final thing you mentioned about the guidance excluding any impact from additional acquisitions. Can you give us some sense of whether acquisitions are something that you are actively pursuing at this point?

Absolutely. As I told you, that our growth strategy has organic growth and selective acquisitions. But we are not in a hurry to acquire companies. It has to be a strategic fit. It must be reasonably well-run. And then it has to make economic sense.

And we have looked at a number of acquisitions and we have passed on them because it didn't make sense, but selective acquisition is a material part of our growth strategy.

Okay, great. Thank you very much.

Kemp Dolliver, Cohen & Company.

I want to clarify the comments regarding the LabOne synergies, and that is, is the $40 million number essentially a gross number or is that a net number that essentially will surface in 2007?

Kemp, that is a net number, most of it driven by costs. And we will see a run rate of about $40 million as we exit 2007.

Okay. And based on what you had said earlier, it sounds like the visibility or the impact of those savings will show up in the first quarter of next year somewhat modestly relative to that $40 million and then build up by the fourth quarter.

Right, it will ramp up. We have some facilities that we're going to consolidate, and obviously, when that is completed, that is when the big chunks of synergy come in. But they require systems conversions and things like that that have a long lead time.

Okay, that's super. Thanks.

[John Emmerich], Ironworks Capital.

Could you just give me an update on where you are on share repurchase authorization and execution?

We have little over $600 million available under our current share repurchase authorization.

Thank you.

Robert Willoughby, BOA Securities.

Surya, can you characterize maybe how the acquisition pipeline has changed over the past six months? Anything meaningful we can conclude there?

Surely. First of all, we are getting involved on real stakes in smaller companies where we can collect intellectual property and also health. For example, in proteomics, we are working with three pioneering companies to see what we can do to bring the products to market faster. So we have now become a partner rather than just a user.

The second thing is that we are looking at our adjacent space and we have been very cautious, whether it is international or whether it is healthcare IT or whether it is imaging or whether it is products. All these things we are looking at to make sure that it helps the core business and at the same time it gives us a way to grow in the future.

If you look at the laboratory industry, the lion's share of testing is still in the hospital. And we have to make sure that we have products and services to provide the hospitals and increase our market share in hospitals. The second is opportunity within international. So there are a lot of small companies available. There are a lot of small laboratories that are still available, and we have a very active pipeline program for evaluating acquisitions.

That's great. Thank you.

(OPERATOR INSTRUCTIONS) At this time we have no further questions.

I just wanted to thank everybody for attending this call. And just to let you know that we still driving our strategy, patience, growth and people. We had an excellent first quarter and we are off to a good start. Thank you.

Thank you for participating in the Quest Diagnostics first-quarter 2006 conference call. A transcript of prepared remarks from this call will be posted later today on Quest Diagnostics' website, www.questdiagnostics.com. Investors in the U.S. may listen to a replay of this call by dialing 800-224-1051.

The replay will be open today at 11:30 AM Eastern time and will continue through 11:00 PM on May 18, 2006. Investors outside the U.S. may dial 402-220-3762. No password is required for either number.

In addition, registered analysts and investors may access an online replay of the call 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. Goodbye.