奎斯特診斷 (DGX) 2013 Q1 法說會逐字稿

Welcome to the Quest Diagnostics first-quarter 2013 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 would like to introduce Dan Haemmerle, Executive Director of Investor Relations for Quest Diagnostics.

Go ahead, please.

Thank you and good morning.

I am here with Steve Rusckowski, our President and Chief Executive Officer, and Bob Hagemann, our Chief Financial Officer.

During this call we may make forward-looking statements.

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 Quest Diagnostics' 2012 annual report on Form 10-K and 2013 current reports on form 8-K.

A copy of our earnings press release is available and the text of our prepared remarks will be available later today in the Investor Relations Quarterly Update section of our website at www.questdiagnostics.com.

A PowerPoint presentation and spreadsheet with our results and supplemental analysis are also available on the website.

Now, here is Steve Rusckowski.

Thanks, Dan, and thanks, everyone for joining us today.

What I would like to start with is to take you through our top-line performance and then review progress against our five-point strategy.

And then Bob will provide details on the results.

In January we told you we anticipated continued revenue softness in the first half of this year and that our efforts to restore growth would result in gradual improvement through the rest of the year.

So as expected, we saw continued revenue softness in the first quarter.

Now, there are a number of factors that impacted our year-over-year comparisons.

As you will hear from Bob later, after considering those factors our underlying volume was down about 2% versus the prior year.

While some of this may be driven by continued softness in healthcare utilization, we believe there is more we can do to restore growth, and I will share details on those efforts in a few minutes.

In addition, we saw revenues per requisition lower right 3.4% in the first quarter, primarily due to a combination of commercial pricing pressures and Medicare cuts.

We continue to expect it to be down about 3% for the full year.

Our five-point strategy is aimed at addressing several of the fundamental factors that contributed to this quarter's softness, and we are making progress on each of these elements.

Our primary focus in 2013 is on driving operational excellence and restoring growth.

Well, turning first to driving operational excellence, we continued to make excellent progress with our Invigorate cost initiatives, which helped mitigate much of the bottom-line impact of revenue softness.

We exited 2012 with a run rate of $200 million in savings, and we are building on that momentum.

In connection with our strategic goal of simplifying the organization, we have implemented a new organizational structure that will remove three layers of management from the business.

I am happy to report we are on track to meet our earlier commitment to reduce 400 to 600 management positions this year.

It is already enabling us to be more agile, more collaborative, customer-focused, and is contributing significant cost savings.

In addition, we are building a more performance-oriented culture which includes the creation of the new management process and performance management system.

We have begun to educate all our employees on new behaviors and cultural norms, one of which is being more externally oriented so we can focus more on our customers.

We have taken a number of steps to restore growth.

We have expanded our salesforce and now have more salespeople in place than we have ever had.

We have filled virtually every management position in the new, unified sales organization.

We held our first-ever national sales meeting in February, and I can tell you the team left that meeting excited about their new assignments, their new selling tools, and the new simplified compensation system that actually went into effect on April 1.

We have completed the vast majority of customer transitions, along with sales reps to make sure that they are more efficiently addressing their new sales territories.

We have reorganized the way we approach health plan customers and are having greater engagement at all levels.

Then finally, we built a new professional services organization and are seeing strong interest from integrated delivery networks throughout the country.

We are executing on our plan to restore growth that we shared with you in November.

As we have said, it will take some time to see improvement.

The result of these efforts may not be visible in the numbers yet; but we believe we are doing all the right things to motivate, incentivize, and focus the sales organization.

And we continue to expect results from our efforts to gradually build throughout the remainder of the year.

We continue to make strong progress on the remaining two points of our strategy, refocusing on Diagnostic Information Services and delivering disciplined capital deployment.

We completed the previously announced sale of HemoCue and plan to redeploy the $300 million in proceeds into share repurchases during the second quarter.

In addition, we completed the acquisition of the UMass outreach diagnostic services businesses and announced the planned acquisition of certain outreach testing operations of Dignity Health.

We expect to complete additional fold-in acquisitions, consistent with our goal of delivering 1% to 2% growth per year through strategically aligned, accretive acquisitions.

The Dignity transaction combined with the UMass partnership positions us extremely well in two states that are leading the way in healthcare reform and is one more indication that hospitals are indeed looking for more cost-effective ways to manage their diagnostic testing needs.

We are excited about these two opportunities as well as the growing number of discussions we are having with hospital systems interested in working with us.

Since we introduced our new vision, goals, and strategy at Investor Day last November, we have been driving transformational change at Quest Diagnostics.

As you know, whenever a company undergoes major change at a rapid pace, you might think there is disruptions, even significant disruptions.

Knowing this, I have been personally monitoring this closely.

I have spent time in meeting with employees, particularly with sales reps around the country, and accompanying them on many customer visits.

The conversations with sales reps and employees have shown them to be engaged, enthusiastic, and focused; and I can share with you that I am not seeing any evidence of disruptions.

In fact, I believe we're doing a good job exiting -- or executing our way through this challenging period.

I am proud of some of the most recent accomplishments.

First of all, during the quarter we launched several significant new service offerings which include a new dementia panel and a noninvasive prenatal genetic test.

In addition, an important HIV genetic test was introduced last year which benefited from the recent HHS guideline change.

Each of these address a growing area of demand.

Just this week we welcomed Jim Davis.

Jim is a veteran of GE's Healthcare business and he will be the Senior Vice President to lead our Diagnostic Solutions business.

He will oversee Diagnostic Products, our Insurer Employer Services, Clinical Trials, and Healthcare IT.

Then finally, we were recognized as one of Fortune's World's Most Admired Companies this year and ranked first in our industry category.

We see 2013 as a building year, and we will improve operations and begin to restore growth.

Now let me turn it over to Bob for a detailed analysis of the numbers.

Bob?

Thanks, Steve.

Starting with revenues, consolidated revenues of $1.8 billion were 6.4% below the prior year.

Our Diagnostic Information Services revenues, which account for over 90% of total revenues, were 6.7% below the prior year.

Volume was 3.4% below the prior year with approximately 2% due to fewer business days in the quarter compared to last year and about 0.5% due to the impact of severe weather.

Partially offsetting those factors was about a 1% volume contribution from the UMass acquisition which we completed in early January.

The resulting underlying volume was about 2% below the prior year and consistent with the comparable measure last quarter.

This is also consistent with what we shared in January, when we indicated we expect to see continued volume softness in the first half of the year, with improvement in the second half due to more favorable year-over-year comparisons and building momentum on our efforts to restore growth.

Revenue per requisition in Q1 was down 3.4% compared to the prior year.

This compares to a year-over-year decrease of 2% reported in the fourth quarter of last year, with most of the change due to the Medicare fee schedule reduction, including pathology reductions, as well as certain commercial fee schedule changes, all of which went into effect January 1.

The 3.4% decrease reported for the quarter is principally reimbursement-driven, as positive test mix is essentially being offset by business mix.

We continue to expect that for the full year the reimbursement decline will average about 3%, with about 1% of the year-over-year impact we saw in the first quarter expected to anniversary later in the year.

Consistent with what we shared with you in January, we continue to plan for average reimbursement pressure of 1% to 2% through 2015.

Q1 revenues in our Diagnostic Solutions businesses, which include risk assessment, clinical trials testing, Healthcare IT, and our remaining products businesses, were down about 2% compared to the prior year.

Adjusted operating income at 15.2% of revenues was about 1.5% below the prior year with the decrease due principally to lower revenues, particularly the lower reimbursement.

A significant portion of the reimbursement and volume impacts is being offset by continued progress with our Invigorate initiative.

As we indicated on our last call, we exited last year with about $200 million in run-rate savings compared to a 2011 baseline.

We expect to achieve $600 million in run-rate savings as we exit 2014, and we are on track to reach about two-thirds of that by the end of this year.

Our goal remains to bring that number to $1 billion over time.

Adjusted EPS of $0.89 was $0.16 below the prior year, with the decrease principally due to lower revenues, partially offset with cost savings realized from Invigorate.

Restructuring and integration costs totaling $45 million reduced reported operating income as a percentage of revenues by 2.5% and reported EPS by $0.17.

Last year's first quarter included $20 million of costs associated with restructuring, integration, and CEO succession, which reduced reported operating income as a percentage of revenues by 1% and reported EPS by $0.08.

Bad debt expense as a percentage of revenues, which is typically highest in the first quarter due to increased patient responsibility associated with unmet deductibles and co-pays, improved 20 basis points from the prior year to 4%.

DSOs were 46 days, down one day from last quarter.

Cash from operations was $47 million in the quarter compared to $161 million in the prior year.

Cash flow in Q1 is seasonally the weakest of the year and, as we explained on our last call, in this quarter was further impacted by about $70 million of income tax payments which were deferred from Q4.

Capital expenditures were $49 million in the quarter compared to $30 million a year ago.

During the quarter, we repurchased 1.1 million common shares at an average price of $57.81 for a total of $62 million.

We plan to deploy the entire $300 million in proceeds received from the HemoCue disposition into share repurchases in the second quarter.

Turning to guidance.

We expect results from continuing operations before special items as follows.

Revenue to approximate the prior low-level year level compared to previous guidance of 0% to 1% growth.

The remaining elements of guidance are unchanged -- earnings per diluted share to be between $4.35 and $4.55; cash provided by operations to approximate $1 billion; and capital expenditures to approximate $250 million.

Considering the full-year guidance in the context of Q1 performance, it is important to keep in mind several factors.

As we previously indicated, the comps versus the prior year will become much more favorable in the second half of the year.

While the number of business days, coupled with the weather effect, adversely impacted revenue comparisons by 2.5% in the first quarter, those same factors are expected to contribute to favorable year-over-year comparisons of almost 2% in the second half of the year.

Revenue per requisition, which was down 3.4% versus the prior year, is expected to be down about 3% for the full year, with about 1% of the impact we saw in the first quarter expected to anniversary later in the year.

We expect the Dignity Health acquisition and other fold-in acquisitions to contribute about 1% of revenue growth in the second half of the year or about 0.5% for the full year.

This is in addition to the 1% revenue contribution we expect from the UMass transaction.

Lastly on the revenue front, our efforts to restore growth are gaining traction and we expect to see increasing progress as the year unfolds.

Regarding our Invigorate program, we are solidly on track to deliver our commitment of $600 million in run-rate savings as we exit 2014 and, as we saw last year, expect the amount realized this year will continue to ramp up as the year progresses.

Finally, we plan to deploy the $300 million of proceeds from the HemoCue transaction into share repurchases in the second quarter.

This amount is additive to our commitment to return the majority of our free cash flow to shareholders through a combination of dividends and share repurchases.

In addition, we are actively exploring opportunities to monetize the Celera products business and drug assets, which could present an opportunity for additional share repurchases.

For these reasons we are confident in the expected performance improvement during the remainder of the year required to achieve our new full-year guidance.

Now I will turn it back to Steve.

Thanks, Bob.

What you have heard from Bob is there is a number of reasons to believe we will see improved performance as the year progresses.

I would like add a few comments.

First, I have personally seen the efforts of our commercial team, and I know the difference they are making with our customers.

And because of this, it gives me confidence we will start to see signs of improvement soon.

As you have heard, our guidance does contemplate additional fold-in acquisitions.

And based upon discussions we are having, I am confident that we will see additional contributions from acquisitions later this year.

We are actively exploring options to monetize our Celera product and drug assets, and this could present additional flexibility for additional or incremental sales -- share repurchases.

So in summary, we continue to see 2013 as a building year and we have confidence that executing our five-point strategy will drive increased value for our shareholders over the long term.

Now we would be happy to take your questions.

Operator?

(Operator Instructions) Amanda Murphy, William Blair.

Hi, thanks.

So I had a question.

You mentioned that you were seeing increased traction in some of the efforts on the Restore initiative.

Just curious if you can provide a little more detail there in terms of specifically what you mean as it ramps through the rest of the year.

Thank you, Amanda.

First of all, Restore has three priorities for this year.

We have laid it out in our strategy.

We have seven platforms that we need to invest in over the long term to restore growth, but three specific priorities for this year.

First is to bring sales excellence to the Company.

Second is to really take advantage of our strong position in advanced and esoteric testing and build on that this year.

And then third is to really propel our belief that professional lab services could provide a new opportunity for us.

And we see yet another example with Dignity this quarter, that an integrated delivery network on the West Coast has agreed to sell certain assets to us in their outreach activity.

But related to the first piece of Restore, which is our sales excellence, I have said in my opening comments that we have made excellent progress.

In the fall of last year we put together a different organizational structure.

That organizational structure included consolidating our six sales forces into one.

We brought in a new sales leader, Everett Cunningham.

Many of you met him at our Investor Day.

We went through the organizational design.

As I said in my introductory comments we filled out virtually every management position.

We have made sure that every sales rep had clear accountability for their assignments going forward.

We had to make some changes with customer accounts.

We did that in an orderly fashion.

But I can also share with you that we were very careful to make sure, if in fact there were some customer concerns, we of course corrected those at a detailed account level.

And then we had a first-ever national sales meeting to kick all this off in February.

And then in April, this April, we introduced a new simplified compensation system that went into effect.

So we are off and running with a better salesforce than ever before.

We have more salespeople than we have ever had within Quest.

We have a better structure.

I mentioned that I spent a considerable amount of time with sales reps and with customers to see how it is going.

And I can assure you, based upon my travels, I have confidence in the new structure we put in place, the new systems we put in place, the new compensation system we put in place, and also the tools that we have equipped our salesforce with.

They're quite motivated and engaged.

So that is one point of Restore Growth.

The second is around esoteric testing and also taking advantage of our science and innovation and building on that trend we see in the industry.

Another part of our organizational change is we created a new clinical franchise organization.

We have put together seven clinical franchises.

We will be managing that under Cathy Doherty for six, and the seventh will be managed by Jon Cohen, two senior members of my management team.

Cathy and Jon have made excellent progress pulling together the alignment of what is needed to really drive that science and innovation into the market in a much more aggressive way than ever before, and so we feel good about the progress on that.

Then finally is to build a professional services organization to sell laboratory professional services.

As you recall, we think we can leverage the strong presence we have in hospital accounts today with reference business.

We believe we can bring that up and provide a whole range of services up and to including the acquisition of outreach businesses.

So those two parts of our strategy, growing our esoteric advanced testing business as well as our services business, will build throughout the year.

So we do believe that in the second half we will see some of the benefits from those investments as those programs gain some traction.

Also as I said, we really started to reorganize our salesforce last fall.

That has been snapped into place.

New leadership is in place; sales reps are assigned, and they are off and running.

So that is all to plan, and now it is all about execution.

And we do expect to gradually see improvement throughout the year, as we said, coming out of last year.

So, I don't know if you has any more questions about that.

Well, I guess just a follow-up.

You have talked historically about -- well, your historical market share trends and obviously you expect that to turn around through the rest of this year.

And I appreciate everything you just said.

I guess I'm curious.

Have you seen anything from a competitive standpoint changing?

So, if you think about all of the insourcing that has been going on by physicians and hospitals, buying back practices, and obviously you're also buying outreach programs; and then, whether it be other independent labs, have you seen anything change from that standpoint?

Amanda, it is hard to get information that you can see there is any change yet.

What I can say, it feels like the market is about what we saw in the second half of last year.

That is continuing into the first quarter.

As Bob said, we had a tough compare.

We don't have good data on what is going on with the competition yet.

We don't see a substantial change of what is happening with what we call the hospitalization effort that has had an effect on our market.

So overall we don't see a material change in the first quarter from what we think we are doing in the market.

We put in place our three initiatives this year to restore growth.

We think we have made good progress, but it is too early to say that we have started to see the gradual improvement we have expected for.

So overall, not much to comment on yet based upon our performance in the market because we just don't have the data.

Got it.

Thanks very much.

Ricky Goldwasser, Morgan Stanley.

Good morning and thank you for the detail.

I have a couple of questions here.

So, first of all, when we think about the outlook for second half of the year, I think we get to around 2% same-store growth, volume growth in second half as the salesforce productivity kicks in.

Steve, you mentioned in your response to previous questions that there have been made some adjustments for the salesforce compensation.

Can you share with us like some of the metric that salesforce is now tied to and how you think of that in contributing to the growth in the second half of the year?

Okay.

Sounds good.

Thank you, Ricky, for the question.

First of all, there are several aspects that will help us gradually improve our performance in the second half.

First of all, we are talking about the salesforce as gaining momentum.

You asked about specific metrics.

What we have put in place is a more rigorous, disciplined, structured approach and professional approach to managing the salesforce.

I will give you an example.

We are asking for a target level of -- or targeted number of sales calls per individual.

We are rigorously managing that to the individual sales reps to make sure we are calling on our customers in a frequent way, on a regular cadence.

That is a new approach that we put in place; and given our experiences we think that is the best way to gain business and gain momentum in the second half.

Second is we are starting to see the advantages of the new teams working together.

One of the principles, Ricky, of our new sales organization is to put in a geographic area all the sales reps, which includes reps callings on primary care but also the specialist reps.

In my travels I can tell you that we are starting to see the advantages.

We are seeing primary care reps being called in to specific accounts by specialist reps and vice versa.

They are passing leads.

They are seeing opportunities.

And since, as we said, 65% of physicians that work for integrated delivery networks, more of the business and more of our relationship is at that enterprise level.

So it has to be coordinated by that first-level manager.

And that network of sales reps and their incentives to help each other out also will be helpful as we move throughout the year.

I would also like to say it is not just the salesforce that will help us in the second half.

In my earlier question I commented that we do have two other aspects of our growth strategy that we believe will gain momentum in the second half, and that is around new introductions of new solutions to the marketplace.

And that is something that we believe that we can continue to grow from and we believe we can accelerate the growth, and we will see some of the progress from those efforts in the second half.

And the third is continuation of the opportunity we see with the professional services organization.

That will build momentum.

We will see some volume for that in the second half that we didn't see in the first half.

So those three are the three priorities for this year.

We invested in those three priorities.

We have not yet seen the benefit of those in Q1, but we will gradually see improvement as we go throughout the year.

Let me turn it to Bob and see if there's anything he would like to add to explain the implied growth that we have in the back half, because we are sure there are some questions about that.

Bob?

Yes, Steve, this is what I tried to cover a little bit as we went through the guidance, and just to help people understand a little bit I will cover it again.

But we talked about the first quarter being impacted by several things which will either reverse or not recur as we get later in the year.

Certainly the days and the weather impact, which cost us about 2.5% in the quarter, we expect to have essentially a neutral impact for the full year; so you will see that reversing over the back half of the year.

Acquisitions, which contributed about 1% to revenues and volume in the first quarter, we are expecting to contribute about 1.5% for the full year.

That is a combination of UMass, Dignity, and other acquisitions that we intend to do and expect to do.

That could actually even be a little more than 1.5% potentially.

The revenue per requisition that was down 3.5% in the first quarter we are expecting to be down about 3% for the full year.

And again that is as a result of roughly 1% of that year-over-year decline starting to anniversary in the back half of the year.

Then the Diagnostic Solutions business, which we didn't talk about much, but was down 2% in the first quarter, that is a business that we are expecting to have a positive -- or a group of businesses that we are expecting to have a positive contribution for the full year.

So again, stronger performance there in the back half.

When you look at all of that together, it implies that the underlying volume growth for the full year has got to be somewhere in the range of a little less than 1% to about 1%.

And that compares to the negative 2% we saw in the first quarter.

Steve just took us through all of the reasons that we expect that underlying volume growth to improve over the course of the year.

And that is how we have thought about the year and piecing it together and how we get comfortable with the full year.

No, that is very helpful, Bob.

Thank you.

Then just to clarify, does guidance also include the potential buybacks that are associated with the potential monetization of the Celera assets?

Or will this represent upside?

Nothing specific with respect to the potential monetization of the Celera assets, although as we said we are actively exploring all of our options there and that could present an additional opportunity for share repurchases beyond what we have contemplated so far.

Okay, great.

Thank you very much.

Kevin Ellich, Piper Jaffray.

Good morning.

Thanks for taking the questions.

I guess first off, Bob, is this your last conference call?

It is, Kevin.

It is my 65th and my last conference call.

Well, I want to say -- wish you well and it has been great working with you, and I hope you have a good venture in your next -- best wishes is what I am trying to say.

Thank you.

So I guess first off, looking at your 3.4% pricing pressure, and you made the comment about the 1% that is going to anniversary, can you give us any more specifics?

Is that going to be in Q3, or is that later in the year?

It is really later in the year.

Certainly all in the back half is where it anniversaries, Kevin.

And that is principally associated with commercial pricing changes.

Understood.

Then you provided some good detail in your prepared remarks, but I was wondering if you could maybe even give us some more color on the breakdown of that 3.4% pricing pressure.

How much of that is attributable to commercial?

And that did start on January 1, as well as the Medicare pressure you are seeing?

Right.

As we said coming into this year, we expected that Medicare reimbursement, exclusive of the pathology cuts, would cost us about 5% on the Medicare book of business or close to about 1% or so, almost $50 million.

And then additionally on top of that, the pathology codes are going to have a more significant impact on us than others because of the relative size of our pathology business.

That coupled with commercial price changes is really what gets us to the 3% that we are estimating for the full year.

And that is something that we feel as though we've got very good line of sight to at this point.

So if I back into it, would you commercial maybe pressure is 50 basis points of the 3.4% you saw?

Well, we didn't give out components of it, Kevin, at this point.

But yes, you can clearly -- the Medicare fee schedule changes, aside from pathology, they are easily quantifiable.

It is roughly 5% on $1 billion or so in revenues.

Again, the pathology cuts are going to have a relatively significant impact to us because of the relative size of the business.

And then the rest really is the commercial pricing.

Understood.

Then, Steve, are there any other commercial contracts that you haven't renewed or that are up for renegotiation that we should be thinking about?

The only one that we are in the process of renewing is CIGNA.

It is the only national --

It is the only national.

As you know, we have hundreds of contracts, but that is one that is notable.

Okay.

Right.

And that is fully baked into and contemplated in the guidance.

It is in the 3%.

Got it.

And the 1% to 2% guidance we have given past 2013.

Understood.

Then you made the comment about future tuck-in deals, and we have seen you guys do a few outreach acquisitions.

When we think about future M&A, is that along the same lines of what you are thinking, Steve, is more outreach programs?

Or is there something else that strategically you want to get into?

No.

What you have seen between UMass and now Dignity are two good examples of more opportunities that we see to build on our focus on Diagnostic Information Services.

We believe that this marketplace will continue to evaluate what is strategic and what is not strategic, particularly for integrated delivery networks.

As I said in the past, I said in my prepared remarks, many hospital CEOs are considering their options and we are actively in discussions.

So you will see more of what you have seen so far, as we go forward.

That is what we mean by tuck-ins and strategically aligned.

Understood.

Then just one last quick one.

Recently, Palmetto updated pricing on a number of their molecular diagnostic codes.

We know molecular diagnostics isn't huge for the Company, but it seems like you're starting to see some positive news on that front.

Is there anything -- any other momentum that would be positive heading into 2014 that you want to call out?

Yes, Kevin, let me give it to Dan.

He's got the latest update on that.

Yes, on the Palmetto codes, we did see that a couple of the rates did increase for a couple of codes.

Still difficult to tell what they will do with other codes.

We are sure that the number of Medicare contractors or providers are providing information to the different Medicare contractors to help them understand the costs involved with performing the testing.

But it is difficult to predict what they're going to do with respect to additional rates.

Understood.

Thanks, Dan.

That's all I have, guys.

Thanks again.

Lisa Gill, JPMorgan.

Thanks very much, good morning.

I just had a couple of follow-up questions.

Bob, when you talked about Invigorate, you talked about $600 million by the end of 2014.

So is the right way to think about that as $400 million of incremental savings in 2013?

Well, Lisa, what we said is it is going to be a $600 million run rate as we exit 2014, with $500 million in the P&L in '14.

Where we are at, at the end of last year -- or where we were at, at the end of last year -- was $200 million in run-rate savings with $160 million through the P&L.

And for this year as we exit 2013 we are expecting to be about two-thirds of the way to that $600 million run-rate; and this is all off of a 2011 baseline.

So, obviously it is ramping up as we progress throughout the year.

We feel very good about the programs that we have in place.

They are all building momentum at this point, and it is an area that we have a lot of confidence in.

Do you think that they are going to be primarily back-half driven?

Just looking at the way that the guidance is setting up, based on what we saw in the first quarter, would you expect a lot more of that to come in the back half of the year?

I know you made a lot of comments today around revenue.

But you haven't really talked about the costs as we go throughout the year.

Yes, certainly it ramps up as we go through the year.

But this isn't something that we don't have good line of sight to; we have very good line of sight to it.

There is a lot of momentum, as I said, around each of the initiatives which are part of the program.

But clearly just as we saw last year, where we delivered more at the end of the year, as we exited the year, than we had in the first quarter, we expect the same sort of ramp up this year.

Okay, great.

Then my second question, Steve, would be for you.

As we think about the Affordable Care Act and we start thinking about 2014, can you talk about the discussions that you're having with your exchange managed care partners?

Are they looking for more restrictive networks around lab?

And what do you see as the potential opportunities?

As well as what do you see on the cash pay side as far as a risk goes as we think about 2014?

Sure.

Thanks, Lisa.

First of all, we continue to believe that the Affordable Care Act will be a net positive for us going forward.

As we all know, 2014 is an important year where some of the new lives will start to enter the system, and we believe that when we have new lives in the system that they are going to be what we do.

And that will be net positive for this industry, but also net positive for us.

I can share with you that we are actively in discussions with all the health insurance companies, integrated delivery networks.

Everyone is working through how they will be engaged in this new system as we go forward.

And related to that, yes, there is discussions around different networks and more closed networks; and we are actively in discussions of how we can participate in those.

So, best way to describe it, Lisa, is there is a lot of activity going on right now.

We do believe, again, it is net positive for us as this all sorts out.

There will be more lives.

That is good for us, and the exchanges will be a part of that.

When do you think you will have more color around specific relationships?

My expectation would be that, given your relationship with Aetna, if Aetna sees an increase in volume the relationship should be fairly similar going forward under their exchange product as well.

Am I thinking about that correctly?

Yes.

As you would expect, at those organizations that we have strong relationships we will build on those relationships.

In my commentary about bringing sales excellence to Quest, we have strengthened our health plan organization.

But also what we have improved on is total engagement with health plans, starting with me.

I will share with you that I have personally been engaged with -- in many conversations with CEOs and talking through what is happening with their business and what will happen with exchanges.

So we will build on those relationships as we go forward.

You ask about timing.

As I said, this is happening this year.

Hopefully when we get into the second half you might have a little more color on this; we can give you a little more transparency of what that could mean for 2014.

It is still very early to provide any of that, because it is happening as we speak.

Okay, great.

I also want to wish Bob all the best.

Thank you, Lisa.

Thank you, Lisa.

Appreciate it.

Tom Gallucci, Lazard Capital Markets.

Good morning, everyone.

Thanks for the color.

I guess just a follow-up on Lisa's first.

Any color that you can give us on pricing relative to some of these products in the exchanges, versus maybe whatever your commercial rates are today?

Tom, we are not expecting that pricing on the exchanges is going to be materially different than what we are seeing.

In some cases it might be a little lower, but what we have seen to date is not materially different.

And cases where you are saying it might be lower, is that because there is an exchange for a narrower network?

Or is there some other dynamic, just in terms of how this plays out?

It is a combination of things, certainly.

It is the type of product they are offering.

It is the way they are structuring the network, etc.

Okay.

Then maybe just sticking on pricing, you guys have talked a bit about some longer-term pricing pressure too, that 1% or 2% I think you mentioned a couple times on this call and in the past.

Just wanted to make sure I understood.

That is just the pure price as opposed to your revenue per requisition?

So it is just -- it doesn't include any benefits of mix or anything else?

That is the underlying pricing?

Yes.

The 1% to 2% is what we are looking at for price erosion.

Right, right.

That is past 2013.

We have modeled out what we think will happen on the commercial side and also what we know will happen on Medicare so far.

That is what is in the number.

Yes.

And Tom, that is pure reimbursement or price, as you might think about it.

And the other dynamics that we have got, obviously, are test mix, which we would expect will continue to be a favorable factor for us, and then the business mix always also factors in there.

Right.

What are the lengths of the average contracts these days on the commercial side?

They are still in the three- to five-year range, generally.

There are some that are shorter, obviously.

But we are looking generally at the three- to five-year range for some of the larger ones.

Right.

So when you're thinking out to '15 or so, a lot of that is already on the table relative to the commercial side of the equation?

I would say we have got reasonable visibility into some of that.

But as you know, every year there's always contracts that are coming up.

Right.

Just two more questions.

One, you talked a lot about the salesforce and building some momentum.

A couple times you mentioned new tools at their disposal.

Possible to get understanding of the different types of things that they might be doing?

And it sounds like you expect to gain some market share.

So where do you think that market share is going to be coming from?

Sure, sure, thanks, Tom.

Well, we had a salesforce they didn't have some of the contemporary tools that contemporary salesforces have today.

So we put in place a new CRM with salesforce.com.

We have a sales engagement tool called SAVO.

We put both in place.

We also equipped them with contemporary devices, so we gave them each an iPad.

The reason for this is to make sure that we really take advantage of the collaboration that we need with the new environment we see going forward in healthcare.

As I mentioned in my comments we are actually seeing some of this.

When I have been out in the field, sales reps are seeing the advantages of being in all their different specialties and bringing in what we can do with pathology, what we can do with neurology, what we do in cardiology, and taking advantage of that.

And also seeing the advantages of leveraging our enterprise-wide presence with integrated delivery networks.

And to make all that happen you need to have contemporary tools.

So that is what we meant by that comment.

Okay, and my last question.

Just, Bob, the Q2 buyback using the HemoCue proceeds, was all that contemplated in the original guidance?

Or is that just a tweak, given that that deal is actually done at this point?

That was contemplated in the original guidance.

Because as you recall, coming into the year, we already had HemoCue listed as discontinued operations and had fully committed to the disposing of that business.

Okay.

I would just like to echo thanks too over the last 15 or 20 years that we have worked together, Bob.

Good luck with everything.

Thank you very much, Tom.

I appreciate it.

Gary Lieberman, Wells Fargo.

Good morning.

Thanks for taking the question.

I am just going back to the commercial pricing.

Can you tell us, was that just the commercial payers following suit with Medicare?

Or was that more of market-driven pricing pressure?

It is not necessarily a function of Medicare, Gary.

These are contract negotiations that we've had over the years, things that we have done to expand access and the like, lock in certain contracts.

And as we have said, we expected it coming into the year.

It is pretty much consistent with what our expectations were.

You'll recall, Gary, we said 3% for the full year.

So what you saw the first quarter is what we expected, to Bob's comment.

And it will feather down as we go throughout the year, as we said.

Okay.

Then, Steve, it sounds like you remain pretty confident in the sales effort and have given some granularity.

Any challenges that you have found that you maybe didn't expect?

Just as we said in our commentary, when we kicked off our Restore initiative, it will take time.

It is always challenging to grow the top line.

It will take time to build on the momentum that we see and that we have put in place and the investments we are making.

And we believe that we will get gradual improvement over time.

So it is very important that this year we have two priorities.

One is driving operational excellence and the second is restoring growth.

So what you see in the first quarter is we have taken costs out of this business; we will continue to do that.

We have a challenging goal to get to the $600 million run-rate savings in 2014.

But as you recall, we also challenged the organization.

We are still working on that challenge.

We want more than $600 million and sooner; and so we're working on additional savings to get us to a higher number so we can drive that to the bottom line and build value.

So in 2013, we need to deliver on those cost-improvement initiatives and driving our operational excellence.

And I want to make sure it is clear -- we are also watching our customer service levels; we are watching the way we interact with our customers.

We expect both.

We expect to be more efficient.

But we also expect to have a higher-quality, better-performing organization because you know there is a lot of different variables that go into decisions why customers do business with us.

We are not underestimating that impact on our business as well.

So we are holding firm on making sure that we continue to improve our service levels, coupled with the efficiency gains.

And as we make these investments in Restore Growth, we will get that gradual improvement.

You will see some of that in the back half of the year, but that does take time.

So if there is any challenge that I didn't foresee, I can say that we did believe it will take some time, and it is turning out to take some time.

So just reiterating that.

Okay.

Then maybe just a final question on guidance.

You said you would come in probably closer to the lower end of the prior revenue range at 0%.

You didn't make any changes to the range on EPS.

So is that all a function of being able to take and accelerate the cost savings?

Or should we expect you maybe to be towards the lower end of the EPS than we would have priorly thought?

Bob, why don't you (multiple speakers) the question?

Yes, Gary, we didn't change the EPS guidance because we feel as though we have got good line of sight to the cost-reduction efforts that we have got going on.

As I said earlier, the momentum is building there.

And while we did tweak the revenue guidance a little bit, it is not significant.

Additionally, we feel as though we have got opportunities to deploy our cash more aggressively; and I cited some of those.

So all in, we felt very comfortable keeping the EPS range where it was while still tweaking the top line a little bit.

Okay, great.

And, Bob, again thanks for all your help over the years.

Thank you very much, Gary.

Glen Santangelo, Credit Suisse.

Thanks for taking my question.

Steve, I just want to follow up with something, the comments you made in your prepared remarks.

I think you seemed to suggest that volumes maybe in 1Q were somewhat of a continuation of maybe what you saw in the second half of last year, and I am just kind of curious.

I understand the ramp in the back half of the year and all the building blocks to get there.

But are you assuming any improvement in the overall market growth?

And can you give us a sense for maybe where the market growth is today?

I am trying to understand if things are getting better on the anatomic pathology side given the reimbursement cuts, or if you're still losing a little bit of share to hospitals.

If you could just help me think through that a little bit, that would be helpful.

(multiple speakers) question, I appreciate that.

My comment about comparisons versus the second half, actually if you look at our first-quarter volumes they were up a little bit versus what we saw in the fourth quarter.

Now, some of that you expect because of seasonality we typically get in Q1.

But they were softer versus last year, and we went through the reasons for that, based upon a difficult compare, the very strong year last year.

But if you look at what we are assuming in our guidance going forward, we are not looking for material change in the overall environment in the marketplace.

If you look at our second and third and fourth quarter of last year, and we did see some softening already in those quarters.

So now, as we said in our comments about easier compare, that is factored into our discussion or in our guidance as well about the second half.

So no material change in the environment going forward.

So what we saw in the first quarter and what we saw in the second half of last year is what we expect to see going forward.

Maybe if I can just follow up, given the relationship you guys have with Aetna, obviously the Coventry deal should be closing here shortly; have you built in any increased volume assumptions based on that acquisition?

Or is that not that meaningful?

Yes, we continue to be engaged with all our partners.

Aetna is one of our strong partners.

We are working with them proactively, and as you would expect we are working on that integration plan with them.

We are hopeful that we could pick up some volume from that.

But that is one of a number of initiatives that we are working with Aetna.

But we are doing the same with other partners as well.

Maybe if I can just finish up with one last question on the reimbursement front.

The President's budget obviously was released last week; proposed some additional cuts to the lab industry looking out a little bit longer term.

Is that in line with your expectations?

Was that a little bit worse than your expectations?

Or any thoughts around the longer-term reimbursement perspective would be helpful.

Yes, well the discussion has started, so it is too early to comment on whether that is going to hold.

As you can imagine, the trade association and ourselves individually as a company is doing our share of talking to the right people in Washington.

We believe that this industry has paid.

You see it significantly in this year.

We have got 3% overall price erosion, and a large portion of that is related to our government business.

So there is a proposal on the table.

Whether that will hold up or not after all the dust settles is unclear at this time.

But we will continue to work it as we have worked it.

The position that the industry has taken is this is an industry that adds a lot of value to healthcare.

We are viewed -- the majority of healthcare decisions are made with the benefits of what we do.

Some people estimate that to be 70% of healthcare decisions and it's 3% of the cost.

We have had significant cuts so far.

We also had the pathology cut this year.

So we are making sure that Washington and policy makers hear that.

We will continue to do that, and we will see what happens as time goes on.

Okay.

Thank you.

Robert Willoughby, Bank of America Merrill Lynch.

Bob, good morning.

Bob, maybe I would tag you one last time before you leave here, but one quarter doesn't a year make.

But the deal spending is doubled, with more on the way.

The CapEx is up year-over-year.

The outstanding debt is up sequentially.

It is not exactly consistent with that improving ROIC story that you are seeing on the income statement, or trying to make on that income statement.

So is there a commitment to reduce the capital base with the $600 million in cost cuts over the next couple of years?

Yes, Bob, just a few points on that.

Yes, the debt has been reduced significantly from a year ago.

You saw a modest tick-up of about $40 million or so in the first quarter; that is just seasonal working capital, (technical difficulty) requirements there.

With respect to the deal spending, Steve has articulated that it is a key element of our strategy to deliver strategically aligned, accretive acquisitions.

And when we laid out the criteria for those deals, one of them was improving ROIC, so it had to be accretive to our planned ROIC.

In many cases we are looking at mid-teens ROIC within three years on these transactions.

So we don't see these as dilutive to ROIC.

We see them as accretive.

Then additionally, we are looking for opportunities to refocus the business and then take the proceeds from that refocusing and deploy it back to shareholders.

You have seen that with HemoCue.

We have additional opportunities as it relates to the Celera drug assets and some of our products business.

So there is a real focus on improving ROIC here.

I think we have shared with you in the past that management is heavily incented as part of our long-term incentives to drive improvements in ROIC.

So I think you will see a lot of discipline there, continued discipline.

Would it be -- can you size the expected divestiture proceeds versus the expected deal spending this year?

Is it possible to get some kind of idea?

Well, yes, without projecting deal spending this year, certainly the HemoCue transaction and the proceeds of there will fund most, if not all, of any planned acquisitions we have got this year.

Then on top of that, yes, we have got additional opportunities for proceeds from the various Celera assets, the drug assets, and the products business.

5X?

Could it be that wide, the spread between proceeds versus divestitures?

It is very, very early, Bob, and it would be very speculative at this point.

All right, Bob.

Good luck.

Thank you.

Isaac Ro, Goldman Sachs.

Good morning, guys.

Thanks for fitting me in.

We have covered a lot of ground here, but I did want to clarify your assumptions on guidance.

You guys are, it sounds like, assuming 1.5 percentage points of acquisition contribution this year, minus 3 on pricing.

So if we look at the first-quarter volumes that you had, it looks like your full-year guidance for 0% revenue does call pretty much for a big acceleration in underlying volumes for the rest of the year.

Even if we put in context your easy comps, can you help us get comfortable why you would see that kind of acceleration, particularly as you reorganize the salesforce?

Bob, you want to take him through the year to kind of look, think about the year and what that means in the back half?

Yes, Isaac, let me again just take you through some of the pieces here.

The comps do have a pretty significant impact in the back half of the year.

That plus the weather impacted us by about 2.5% in the first quarter.

It is going to be neutral for the full year, so that whole amount anniversaries.

As we said we do expect there to be additional contributions from acquisitions.

We have labeled that as about 1.5% for the full year, up from the 1% that we saw in Q1.

And there is the potential for that 1.5% to be even a little higher than that.

Revenue per req, we took you through the portions of that, that anniversary.

And I did mention earlier as well the Diagnostic Solutions business, which we expect to be a contributor to revenue growth in the back half of the year and positive for the full year as well.

When you cut through all of that, clearly it does mean that we are expecting improvement in underlying volumes.

But for the full year we are looking at something in the range of about a point or so in the underlying volume growth; and that compares to down 2% in the first quarter.

So we are expecting a ramp up.

But for all the reasons Steve cited, we are pretty confident in that, because we are seeing some building momentum there and expect to see the progress, mostly as we get into the second half of the year.

Okay, that's helpful.

Then just my follow-up would be on the earnings side of the guidance range.

The scenario that gets you to the high end of the range that you guys still have, is that going to be largely a function of accelerated Invigorate savings?

Or is there an operational driver beyond that we should think about, that would actually allow you to get to the high end of the range.

Just trying to think about the bear case -- bull-case scenario.

Thanks.

Yes, it is a combination of a couple things, obviously.

Any time you're doing some modeling you always have multiple levers here; and while we are estimating that revenues are going to approximate the prior-year level, yes, that means that it could be a little bit on each side of that.

And certainly if it is to the upside of that, that contributes to positive earnings.

Certainly some of the things that we've got going on with Invigorate can give us some uplift there as well.

And then potentially anything that we might do with additional share repurchases from proceeds from divestitures could give us some upside towards the end of that range.

Okay.

Thanks very much.

All the best.

Thank you.

Darren Lehrich, Deutsche Bank.

Thanks, good morning, everybody.

Thanks for taking the questions.

Just a couple odds and ends here.

First, as it relates to the Celera portfolio, I just want to clarify.

Are there other royalty or drug license assets outside of the Celera portfolio that are included in this process?

I just want to try to clarify.

Do you expect the bulk of what you are working on there to come from the Celera piece, or are there other pieces?

Yes, Darren, when we speak about the drug assets, they are the assets that we acquired as part of the Celera transaction.

Quest prior to acquiring Celera did really not have any assets like that.

Celera had participated in the development of certain drugs.

One of them, odanacatib, which is Merck's drug for osteoporosis; the other, inbrutinib, which is the drug that -- the joint venture of J&J and Pharmacyclics, are taking through trials at this point.

That is a cancer drug.

It is one that obviously has a lot of excitement around it.

But those of the two principal drugs that we are talking about that we have some royalty rights to.

Okay, yes, just I wanted to confirm that there weren't any legacy things in there.

So that's helpful.

I guess the other question or clarification, you have given us a lot of helpful commentary on how the guidance builds, so I'm not going to revisit the volume piece.

But given that sequestration hit mid-quarter and I think your commentary was that some of the managed-care pricing impact, about 100 basis points, anniversaries much later in the year, is it reasonable to assume that Q2 pricing is actually similar or even slightly worse than what we saw in Q1?

I just want to get a sense for the progression of the pricing piece.

Yes.

Without giving -- attempting to necessarily give quarterly guidance here, the improvement that we expect in revenue per req or reimbursement is really in the back half of the year as some things start to anniversary out.

Yes, I wouldn't expect the year-over-year change in Q2 to be materially different than what we saw in Q1.

Okay, that's helpful.

Last thing is for Steve.

You and I have talked a bit about the things you are doing to develop a professional services organization, particularly to pursue some of the hospital opportunities.

Steve, I guess could you just maybe give us some color on where you are seeing the sales cycle for some of these hospital opportunities start to close in?

And just how you are looking at that.

Yes, thanks, Darren.

It is building, and it is building actually faster than what I have anticipated.

I shared with you all that I have been on a number of sales calls even last week.

Myself and Everett Cunningham went to visit a hospital system in New England, and they are contemplating what they do going forward with Diagnostic Information Services, and they are thinking about how they can work with us.

We have that as one opportunity, just as an example of -- this is happening at a very rapid pace.

That call just came in about two weeks ago and we followed up on it.

That is one of many examples.

There is a lot of interest on what we have done so far.

We are building a reputation of having a capability to do this.

We wanted to use UMass and now Dignity as great examples of where we can buy an outreach business.

But also we have other ways of working with integrated delivery networks.

So what we can see so far, Darren, is I think our reputation is building.

I think the activity level is better than I expected, and I am encouraged by it.

That's great.

Bob, all the best to you.

Thank you, Darren.

Gary Taylor, Citigroup.

Hi, good morning, guys.

Bob, good fortune to you.

You have always been very patient with us analysts, so we all appreciate it, I think.

Thank you, Gary.

Just a few quick numbers questions.

On G&A, $295 million, I guess I was a little surprised, given I guess both the revenue weakness and the cost-cutting initiatives, that perhaps G&A wasn't down sequentially.

I know you don't give quarterly guidance, but can we just talk around the run rate of G&A on a dollar basis?

Should we be expecting that to come down on a dollar basis?

Or are we still thinking about G&A avoided as a cost save, so to speak?

First of all, let me tell you that -- Bob will comment on the adjusted SG&A, and a portion of what we mentioned that we enjoyed in the quarter is the benefits of Invigorate.

We are pleased with the progress that we saw in Q1, and that allowed us to mitigate some of the softness that we saw at the bottom line because of the top-line.

Some portion of that Invigorate savings does hit G&A, but also hits our selling costs as well.

What you are probably looking at is the total reported numbers, and there were some one-time restructuring charges in that number.

So, Bob, how would you like to give him a little more transparency of our progression of expenses?

Because the trend line is good.

Gary, the SG&A line, G&A in particular, is where we are seeing a lot of the benefits of the management delayering and the like at this point.

When you look at SG&A as a percentage of revenues, it is down almost a full point versus --

Adjusted.

-- adjusted versus last year.

And actually on an absolute basis, it is down as well.

So we can circle back to you and take you through the numbers.

But both on an adjusted basis and a reported basis it is down versus the prior year; and on an adjusted basis as a percentage of revenues, down pretty significantly.

Absolutely (multiple speakers)

Right.

No, we pulled the restructuring out of that.

I just was looking at it more sequentially.

I definitely have it down year-over-year, but was thinking more sequentially.

My second question is, when we look at the total revenue decline in the quarter, do you have a rough estimate of organic revenue decline year-over-year?

Yes.

When I took you through the analysis before, when I spoke to underlying volume down about 2% versus the prior year -- that is aside from reimbursement -- yes, that is what we saw as the organic volume decline.

Right, I was just trying to think of how you thought about the total revenue number organically.

But -- just because I think there is maybe moving parts on the reimbursement side as well.

But -- so we will take the negative 2% organic volume and just assume that the price procession decline is essentially organic, and add those two together.

Right, that is a good way of thinking of it.

Right.

Okay.

Two more quick ones.

On the Dignity outreach program you acquired, can you disclose the purchase price or will you be disclosing the purchase price?

We are not disclosing that, Gary.

We typically have not on some of these fold-in deals, obviously for competitive reasons and the like.

Okay.

Can you give us a thought process on a multiple of revenue or pro forma EBITDA that makes sense for these outreach deals?

Which I assume are mostly pretty -- the bulk of which are probably routine testing.

In many cases it is routine testing.

As we said earlier, we have several criteria that we use in evaluating each of these fold-in acquisitions.

First is it has got to create real value for our shareholders.

So as we look at the purchase price that we are paying versus what we expect the value to be on a discounted cash flow basis, there has got to be a substantial value created there.

Additionally, as I said earlier on the call, we want all of these to be accretive to ROIC within a reasonable time frame, and we want them to be accretive to earnings per share within two years in each case as well.

So, with that as the discipline that we go through, you should expect that the multiples that we are paying are very market-driven.

Obviously some of these are competitive situations; others not.

But really the real value that is created in these fold-in deals is through the cost synergies.

In many cases we see that the hospital reimbursement is higher than us, and there is actually negative revenue synergy when we reprice a lot of that.

But that is more than offset by the cost synergies that we realize.

Because in most cases -- and the Dignity deal is a good example -- we are not really acquiring infrastructure.

We are acquiring a book of business that we are running through our existing infrastructure, and that generates very strong incremental margins for us.

Okay.

My last quick question.

Cash from ops, $47 million versus $161 million.

You cite the $70 million deferred tax benefit you had in the first quarter of '12.

But the total tax payable line swung almost $120 million against you year-over-year.

I presume that is not recurring.

And normalized cash from ops, obviously given your reiterated your guidance, normalized cash from ops was better even than perhaps the $47 million plus the $70 million.

So is there anything else in that tax payable line that we should know about, outside of just seasonality and typical movement?

No.

I would be a little careful because sometimes you've got reclasses between the taxes payable and the deferred taxes line.

The actual change in tax payments, total tax payments, in the quarter was about $74 million versus the prior year.

About $84 million in total tax payments in the quarter versus about $10 million last year.

Okay, thank you.

Sandy Draper, Raymond James.

Yes, I think actually all of my questions at this point have been answered.

So I will just echo my comments.

Bob, it has been a pleasure working with you and good luck going forward.

Thank you very much, Sandy, appreciate it.

Anthony Vendetti, Maxim Group.

Yes, just a follow-up on CIGNA.

You mentioned, Bob, three to five years is the normal contract.

Some of these larger insurers, sometimes those contracts are obviously larger or longer in length.

Can you talk about whether or not you expect the CIGNA contract to be a five-year or longer kind of contract?

Is that your goal?

Yes, Anthony, we really don't comment on specific contracts.

Okay.

Then lastly on the Invigorate program, there is $500 million that will flow through the P&L.

What is going to happen with that other $100 million?

Why is that different than the other $500 million?

Well, the $600 million is run rate as we exit 2014, and the $500 million is realized in that period, 2014.

So (multiple speakers)

Okay, so when all the cost cuts eventually come through, they will be on an ongoing run rate; but it will be after 2014 because $500 million will be realized at that point, at the end of 2014.

Got you, got you.

Yes, I will remind you, too, we have said our goal is actually $1 billion in cost savings over time, too.

So we're not stopping at the $600 million.

Okay, great, Great.

All right, well thanks, guys, and I will echo the same comments.

Thanks for everything, Bob, and good luck going forward.

Thank you very much, Anthony.

Appreciate it.

Thank you for participating in Quest Diagnostics' first-quarter conference call.

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

A replay of the call may be accessed online at --

Operator?

Can we get one comment for Steve just to close out?

Sure.

Thank you.

Thank you very much.

Well, since I think we've answered most of your questions, we didn't want to finish this call without acknowledging Bob.

Bob does not expect this, but I am going to do it anyhow.

I know many of you have commented, but I want to make sure that we recognize the critical role that Bob has played in building this Company since he joined here in 1992.

So a long time.

As most of you know, this will be Bob's last call.

But before Bob moves on I wanted to make sure that all of us on this call, and I want to make sure that he hears it from me and also you hear it from me, that on behalf of the entire organization we want to thank you for what you have done for this Company.

We want to thank you for all your contributions.

And we wish you well in all your future endeavors.

Bob, thank you very much.

Thanks, Steve.

It has been a real privilege to be the CFO for this Company.

It has been exciting for me to be part of what we have become.

And as I have told people before, I am very excited about the future of this Company.

I am going to be watching it.

It has been a real pleasure, and I thank everybody on the call for their remarks as well.

Much appreciated.

And thank you for yours, Steve.

Much appreciated.

Thank you.

Okay, Dan?

That's it.

Gwen, I will turn it back to you.

Thank you.

Once again, if you would like to access the replay it is at www.questdiagnostics.com/investor or by phone at 800-835-4373 for domestic callers, or 402-280-1657 for international callers.

Telephone replays will be available from 10.30 a.m.

Eastern Time on April 17 until midnight Eastern Time on May 15, 2013.

Again, thank you for attending.

You may disconnect at this time.

Goodbye.