Quest Diagnostics Incorporated · NYSE:DGX
Quest Diagnostics — William Blair 43rd Annual Growth Stock Conference 2023
32 slides from Quest Diagnostics's conference presentation, Jun 6, 2023
Slide 1: Driving Sustainable Growth in a Post Pandemic World
Driving Sustainable Growth in a Post Pandemic World Sam Samad EVP, CFO
Slide 2: Safe Harbor Disclosure
SAFE HARBOR DISCLOSURE The statements in the following presentation which are not historical facts may be forward looking statements. Readers are cautioned not to place undue reliance on forward looking statements, which speak only as of the date that they are made and which reflect management’s cur
Slide 3: Key highlights
We are poised to grow based on our exceptional capabilities and relationships Key We have the right strategy to accelerate growth highlights Investments in advanced diagnostics and CIT will drive profitable growth Invigorate will continue to drive operational productivity while improving the custome
Slide 4: Quest is the leader in diagnostic testing insights and services
Quest is the leader in diagnostic testing insights and services Serves 1/3 of the ~208M >60B Serves 50% of US US adult population requisitions patient hospitals and annually and 50% in 2022 data points physicians within 3 years ~13,600 ~4,900 ~ 4,000 26 phlebotomists ~9,400 Med Techs couriers and re
Slide 5: Approximately 90% of our revenues come from physicians and hospitals
Approximately 90% of our revenues come from physicians and hospitals Health Systems • Reference: >$1B ~$8.4B • Professional Lab Services: ~$600M 2022 base business revenues $1.6B 19.1% Consumer Health & Other ~$1.5B • Consumer 2022 COVID-19 revenues • Pharma Services $0.9B $8.4B 10.7% • Employer Sol
Slide 6: Quest fully participates in an $85 billion U.S. lab market
Quest fully participates in an $85 billion U.S. lab market PHYSICIAN LAB SERVICES 2022 TOTAL US LAB MARKET HOSPITAL LAB SERVICES $55B $85B $30B DGX 5% Other Independent POLs Labs 11% DGX 13% 11% Hospital Lab Services Hospital $30B Outreach Physician Lab 36% 35% Services Other Independent $55B Other
Slide 7: We have the right strategy to accelerate growth
We have the right strategy to accelerate growth Physician Lab Services Hospital Lab Services Consumer Health 4-5% 5-6% $250M CAGR CAGR revenue • Partnering with health plans • Expanding reference capabilities • Direct sales • Value-based care • PLS 2.0 • Partnerships • Retail expansion • Acquire out
Slide 8: We grow our physician business by leveraging our industry leading health plan access
PHYSICIAN LAB SERVICES HOSPITAL LAB SERVICES CONSUMER HEALTH We grow our physician business by leveraging our industry leading health plan access ACCESS 90% Health Access plans CAPTURE We will improve access over Focused on high access, Partnerships to engage with: the next three years low capture r
Slide 9: We have expanded our retail presence, from patient service centers to COVID-19 testing sites
PHYSICIAN LAB SERVICES HOSPITAL LAB SERVICES CONSUMER HEALTH We have expanded our retail presence, from patient service centers to COVID-19 testing sites, to reaching consumers directly INITIAL RELATIONSHIPS PANDEMIC PARTNERSHIPS FUTURE OPPORTUNITIES 9
Slide 10: PLS 2.0 will expand our offerings to drive continued growth
PHYSICIAN LAB SERVICES HOSPITAL LAB SERVICES CONSUMER HEALTH PLS 2.0 will expand our offerings to drive continued growth and help health systems achieve their strategic objectives PROFESSIONAL LAB SERVICES REVENUE ($M) PLS 2.0 EXPANDED OFFERINGS ~$590 ~28% Support achievement of CAGR health system o
Slide 11: Our recent launch of QuestHealth.com is off to a strong start
PHYSICIAN LAB SERVICES HOSPITAL LAB SERVICES CONSUMER HEALTH Our recent launch of QuestHealth.com is off to a strong start + Nearly doubled conversion rate + Increased order volume and fulfillment rates + Improved customer acquisition cost and return on ad spend 11
Slide 12: QuestHealth.com serves diverse customer types with different needs
PHYSICIAN LAB SERVICES HOSPITAL LAB SERVICES CONSUMER HEALTH Recently launched QuestHealth.com serves diverse customer types with different needs TOP CUSTOMER TYPES TOP TEST TYPES Watchful Chronic Worriers diseases Privacy STIs and Seekers STDs Healthcare Comprehensive Avoiders health profiles 12
Slide 13: Advanced Diagnostics fuels growth across all clinical areas
Advanced Diagnostics Advanced Diagnostics fuels growth in physician offices, hospitals and among consumers across all clinical areas Neurology Rare disease Cardiovascular Oncology Reproductive health Consumer health Infectious disease Platform approach 13
Slide 14: Investments to drive profitable growth in molecular genomics and oncology
Advanced Diagnostics Investments we are making will enable us to drive profitable growth in molecular genomics and oncology PROJECTED GERMLINE AND SOMATIC TESTING MARKET ~$30B ~10% CAGR $11B ~$15B Germline $4B $19B Somatic (cancer) $11B 2022 2030 14
Slide 15: MRD testing market opportunity projected to reach nearly $2B by 2028
MRD testing market opportunity is projected to reach nearly $2B by 2028, driven by colorectal (CRC), breast, and lung cancer Solid tumor MRD clinical testing market size forecast (2022-2028E) Millions of USD $1,800 Forecast $1,600-1,900 Other 1,600 1,400 Lung 1,200 1,000 800 Breast 600 400 ~$150 CRC
Slide 16: Acquisition of Haystack Oncology
Acquisition of Haystack Oncology Quest to acquire Haystack Oncology for $300M + $150M in milestones Haystack has developed a “best-in-class” MRD test in terms of assay performance The acquisition will also help our commercial team sell the broader portfolio of oncology testing Quest has to off
Slide 17: Invigorate will continue to deliver operational productivity through four major initiatives
Invigorate will continue to deliver operational productivity while improving the customer experience through four major initiatives Leverage Reduce automation denials and and AI write-offs Enhance Standardize, the Digital optimize and experience automate ~3% Reduce Annual denials Productivity Select
Slide 18: 2023 represents a more normalized baseline for future growth
2023 represents a more normalized baseline for future growth Updated full year 2023 guidance and assumptions 2023 REVENUE GUIDANCE 2023 ADJUSTED EPS 2023 GUIDANCE ASSUMPTIONS GUIDANCE • Base business margin expansion year-over-year BASE $8,780M - $8,880M $8.45 - $8.95 • More favorable unit price out
Slide 19: We expect operating margin expansion beyond 2023
We expect operating margin expansion beyond 2023 Targeting ~75-150 bps of operating margin expansion by 2026 OPERATING MARGIN LOW END ASSUMES: PAMA cuts return in 2024 +150 bps HIGH END ASSUMES: SALSA is passed in 2023 DRIVERS OF OPERATING +75 bps MARGIN EXPANSION: ~17% • Revenue growth • More favor
Slide 20: Balanced capital deployment priorities
Balanced capital deployment priorities Execute on our Execute M&A strategy with Reinvest more share Consistently raise a goal to deliver in the repurchases the dividend 1-2% revenue business in the absence over time growth from of M&A acquisitions Committed to returning majority of free cash to shar
Slide 21: Consistently returning cash to shareholders while investing for growth
Consistently returning cash to shareholders while investing for growth Majority of free cash flow returned to shareholders since 2012 ~ 16.4B $ CASH GENERATED FROM OPERATIONS AND DIVESTITURES ~$3.5B ~$3.1B ~$7.3B ~$2.6B CAPEX M&A SHARE REPURCHASES DIVIDENDS INVESTED RETURNED TO SHAREHOLDERS Note: Th
Slide 22: M&A priorities: Continued focus on three key areas
M&A priorities: Continued focus on three key areas Targeting hospital outreach, regional independent labs and capability building assets HOSPITAL OUTREACH REGIONAL CAPABILITY INDEPENDENT LABS BUILDING ASSETS 22
Slide 23: Positioned for long term profitable growth: 2023-26
Positioned for long term profitable growth: 2023-26 Establishing 2023 as the new endemic baseline Total revenues Mid single-digit CAGR Organic ~3% Acquisitions 1-2% Adjusted EPS* High single-digit CAGR Adjusted EPS* + dividend yield High single-digit to low double-digit CAGR Free cash flow growth co
Slide 24: Key takeaways
We are poised to grow based on our exceptional capabilities and relationships Key We have the right strategy to accelerate growth takeaways Investments in advanced diagnostics and CIT will drive profitable growth Invigorate will continue to drive operational productivity while improving the customer
Slide 25: Appendix: Non-GAAP Reconciliations
Appendix Non-GAAP Reconciliations
Slide 26: Note on Non-GAAP Financial Measures
Note on Non-GAAP Financial Measures As used in this press release the term "reported" refers to measures under accounting principles generally accepted in the United States ("GAAP"). The term "adjusted" refers to non-GAAP operating performance measures that exclude special items such as restructurin
Slide 27: Adjusted Diluted EPS from Continuing Operations
Adjusted Diluted EPS from Continuing Operations The following table reconciles adjusted diluted earnings per share from continuing operations ("Diluted EPS") to reported results under GAAP. Twelve months ended Twelve months ended December 31, December 31, 2023 2019 2020 2021 2022 Low High Diluted EP
Slide 28: Adjusted Diluted EPS from Continuing Operations
Adjusted Diluted EPS from Continuing Operations (a) Income tax impacts were primarily calculated using combined statutory tax rates of 25.5%. (b) Represents costs primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and
Slide 29: Adjusted Diluted EPS from Continuing Operations
Adjusted Diluted EPS from Continuing Operations (e) For the twelve months ended December 31, 2022, primarily represents a $14 million impairment charge on certain property, plant and equipment and a $5 million loss associated with the increase in the fair value of the contingent consideration accrua
Slide 30: Adjusted Diluted EPS from Continuing Operations
Adjusted Diluted EPS from Continuing Operations (g) Represents the costs associated with donations, contributions and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities). Income tax imp
Slide 31: Adjusted Operating Income as a Percentage of Net Revenues
Adjusted Operating Income as a Percentage of Net Revenues The following table reconciles adjusted operating income as a percentage of net revenues to reported results under GAAP. Twelve months ended December 31, 2019 2020 2021 2022 2023 Operating income - as reported - as a percentage of net revenue
Slide 32: Adjusted Operating Income as a Percentage of Net Revenues
Adjusted Operating Income as a Percentage of Net Revenues (a) Represents costs primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business. (b) Principally includes expense associated with payments
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