Welcome to the Quest Diagnostics' Third Quarter 2021 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 written consent of Quest Diagnostics is strictly prohibited. Now I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.

Thank you, and good morning. I'm joined by Steve Rusckowski, our Chairman, CEO and President; and Mark Guinan, our Chief Financial Officer. During this call, we may make forward-looking statements and we'll discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties, including the impact of the COVID-19 pandemic that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8-K. The company continues to believe that the impact of the COVID-19 pandemic on future operating results, cash flows and/or its financial condition will be primarily driven by the pandemic severity and duration, health care insurer, governments and clients payer reimbursement rates for COVID-19 molecular tests, the pandemic's impact on the U.S. health care system and the U.S. economy, and the timing, scope and effectiveness of federal, state and local governmental responses from the pandemic, including the impact of vaccination efforts, which are drivers beyond the company's knowledge and control. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Any references to base business, testing, revenues or volumes refer to the performance of our business, excluding COVID-19 testing. Growth rates associated with our long-term outlook projections, including total revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth, are compound annual growth rates. Finally, revenue growth rates from acquisitions will be measured against our base business. Now, here is Steve Rusckowski.

Thanks, Shawn, and thanks everyone for joining us today. Well, we had a strong third quarter as COVID-19 molecular volumes increased throughout the summer, while our base business continue to deliver solid volume growth versus the prior year, and 2019. In late summer, we experienced some softness in the base business across the country, but saw a rebound, in September. Importantly, our base business continues to improve sequentially in the third quarter, which speaks to the ongoing recovery. We have raised our outlook for the remainder of the year based on higher-then-anticipated COVID-19 volumes, as well as continued progress we expect to see in our base business, despite rising labor costs and inflationary pressures. The momentum of our base business positions us to deliver the 2022 outlook we shared at our March Investor Day. So, this morning, I'll discuss our performance for the third quarter of 2021, and update you on our base business. And then Mark will provide more detail on our financial results, and talk about our updated outlook and underlying assumptions. But before turning to our results in the third quarter, I'd like to update you on the progress we've made in our quest for health equity initiative, a more than $100 million initiative aimed at reducing healthcare disparities in underserved neighborhoods. Since we've established it, just over a year ago, we have launched 18 programs across the United States and Puerto Rico, ranging from supporting COVID-19 testing and vaccination events to educating young students on healthy nutritional choices, to providing funding support for a long-haul COVID-19 clinic in Puerto Rico. Recently, we announced the collaboration with the American Heart Association that will expand research and mentorship opportunities for black and Hispanic scholars to drive hypertension management and COVID-19 relief. We're off to a good start, and…

Thanks, Steve. In the third quarter, consolidated revenues were $2.77 billion, down 0.4% versus the prior year. Revenues for Diagnostic Information Services were essentially flat when compared to the prior year, which is reflected by lower revenue from COVID-19 testing services versus the third quarter of last year, largely offset by the strong ongoing recovery in our base testing revenue. Compared to 2019, our base DIS revenue grew approximately 6% in the third quarter, and it was up nearly 2%, excluding acquisitions. Volume measured by the number of requisitions increased 5.3% versus the prior year with acquisitions contributing approximately 2%. Compared to our third quarter 2019 baseline, total base testing volumes increased 9%. Excluding acquisitions, total base testing volumes grew approximately 4% and benefited from new PLS contracts that have ramped over the last year. We saw a rebound in our base business volumes in September, following a modest softening in August that we believe was at least partially caused by the rise of the delta variance and the timing of summer vacations. Importantly, our base business revenue and volume grew sequentially in the third quarter. This helps illustrate the ongoing recovery as historically total revenue and volume typically stepped down in Q3 versus Q2 due to summer seasonality. As most of you know, COVID-19 testing volumes grew in the third quarter versus Q2, which was in line with broader COVID-19 testing trends across the country. We resulted approximately 7.6 million molecular tests and nearly 700,000 serology tests in the third quarter. So, far in October, average COVID-19 molecular volumes have declined approximately 10% from where we exited Q3, but are still above the levels we expected prior to the surge of the delta variance, while the base business continues to improve since September. Revenue per requisition declined 5.4% versus…

Thanks, Mark. Well, to summarize, we had a strong third quarter. We have raised our outlook for the remainder of the year based on higher-than-anticipated COVID-19 volumes, as well as our continued progress we expect to see in our base business. And finally, the momentum of our base business positions us to deliver the 2022 outlook we shared at our March Investor Day. So, now, we'd be happy to take any of your questions. Operator?

Thank you. We will now open it up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you please fall back in the queue. Our first question comes from Kevin Caliendo, UBS. Your line is now open.

Good morning, Kevin.

Thank you. Thanks. Good morning, everybody. Thanks for all the details and the guidance for '21. I really want to talk about into 2022, and sort of you reiterated your guidance from March, which I believe it was at the higher end of the $7.40 to $8.00 range. And I'm just wondering at this point, what are the assumptions baked in for COVID testing into next year? Do you anticipate that it's going to continue? Do you anticipate there's going to be a meaningful decline? Any color around how you think COVID testing will proceed into next year?

Mark, why don't you start, and then I'll follow.

Sure. And, Kevin, just to be clear upfront, we haven't provided guidance yet for 2022; we provided an outlook. And we did confirm that today. And things have largely played out where we saw them for 2022, back in March, and base volumes have recovered. And we thought we were ahead in June, when it was close to being flat to 2019, and potentially saw some upside, obviously, with Delta, it's -- it took a little bit of a step back. But we still expect to enter 2022 with a base volume utilization level similar to pre-pandemic, so that's good. The second thing is we did assume that COVID will continue at a much lower level than we saw in '20 and '21, but still to be significant, and certainly much larger than our current flu testing. And we've referenced, in the past, that at some point COVID testing will still be here, but maybe more on the level of flu testing. At this point, we feel comfortable with what we had assumed, back in March, around continued need for COVID testing for PCR. And we envision a stronger role for serology going into 2022, and think that's a potential. So, we feel good about that. And then, we did reference inflationary pressures. We certainly have longer-term contracts on a lot of our purchases, but things, like fuel, certainly were subject to inflation in the near-term and going into 2022. And then most notably, as many have talked, there's certainly inflation in wages and in benefits, and especially in wages. And that, as we look at that, we gave a range, and we still feel very comfortable that when you put all those pieces together, that the $8.5 billion baseline for revenue and the $7.40 to $8.00 is certainly still deliverable, maybe in slightly different way, and -- but still very comfortable, that that's likely where we're going to land when we do finally provide guidance for 2022.

Just as a quick follow-up, can you in any way quantify the higher inflationary pressures, supply chain, any of that? Is there any way to put numbers around that?

Yes. So, I'm sure you're most interested in 2022, so, we'll see what we can provide when we come out with guidance, in early next year, to provide clarity. Certainly at this point, well, we're experiencing some of that given the performance of the business; it hasn't prevented us from significantly over-delivering our previous guidance. So, we'll take a note of consideration, Kevin. We appreciate the question. We'll see what we can do when we talk more about next year.

Thank you.

Operator, next question?

Yes, our next question comes from Brian Tanquilut, Jefferies. Your line is now open.

Hey, good morning, guys. Congrats on the quarter. So, just a follow-up just as I think about costs and all the moving pieces. Obviously, the Clifton lab just opened. So, how are you thinking about the flow-through of the benefits from that and how it would potentially offset some of the inflationary pressures that you're seeing on the cost side?

Yes, so, thanks, Brian, for the question. So, as you know, and what I reiterated in our prepared remarks, we've been marching with our two-point strategy for some time. And the second strategy is to drive operational excellence, and we have maintained, and just reiterated, that we do believe we can continue to deliver 3% efficiency or productivity gains going forward. And that 3% comes from a variety of programs across Quest Diagnostics, and one of which is what we did in Clifton. And I actually also reiterated a couple other programs on the prepared remarks, are working with our suppliers with new integrated platforms, what we're done around immunoassay, what we're doing around our analysis is -- are two good examples of more work we can get the benefits from, and there's others. So, there's a lot more efficiencies in productivity we can continue to get. And as I said before, this isn't cost-cutting, this is improvement. And so, every time we make an improvement in our operation we expect our quality improves, and our service performance improves, and it has. So, we continue to make progress. You see it in our numbers this year, and you'll continue to see it in our '22 numbers as well. And that's always been used to offset headwinds, and we do have headwinds, we've had headwinds from wage bill increases in the past, albeit maybe it could be a little bit higher going forward, given what we see in the labor market. And then second is, we have seen headwinds from price consequences as well, which we've been able to offset, and we'll have some of those in '22 as we've outlined before. And then, also any additional inflationary pressures, we will be able to offset most of that, if not all of that, to be able to hit the outlook, and we just reiterated our confidence, our ability to do that. So, hopefully that's helpful.

Yes, I just wanted to add a reference that the Clifton lab and its increased productivity efficiency is really part of our invigorate work that we talk about 3% productivity every year. It's not over and above or separate whatever common is that what we've done there like we did up in Massachusetts. We have added more automation. Obviously, as you add automation, you insulate yourself a little bit from labor inflation. So, certainly, we have that going as we operate that lab, but it is built-in, and part of what my assumptions I had putting together that outlook for 2022 that we would achieve that ongoing 3% efficiency is not something specially…

Awesome. Thank you.

Our next question comes from Ricky Goldwasser, Morgan Stanley. Your line is now open.

Good morning, Ricky.

Hi, good morning. So, one follow-up question on the cost, I mean, clearly we're all interested in a magnitude of the potential impact of paper and inflation. So, maybe you can help us by reminding us what percent of your cost structure today is labor and how should we think about it breakdown between cost of goods and SG&A?

Mark?

Yes. So, Ricky, we've shared in the past pre-pandemic, that about $3 billion of our cost was related to salary and benefits. Obviously with COVID moving around it's hard to cite the precise number with including the COVID testing. So, I think that should give you a pretty good idea of what proportion of our costs a $6 plus billion. Cost base we had prior to the pandemic has made up the labor at somewhere in the 50% range. And then as we said, as we continue to automate that certainly offset some of that, but also we are seeing an increased amount of demand for phlebotomy. So, that is going the other direction. We obviously considered a net benefit because giving access helps us grow our business and certainly makes us more attractive, especially in a world of consumerism. And it's a good thing, but it certainly will drive costs, the labor costs as a percentage of all of all costs in the other direction.

And then just a follow-up on the direct-to-consumer point, Steve, you mentioned a soft launch of comprehensive health plan, all that's directed in consumer. Can you just share with us what has been the response to date and maybe some data points about pricing?

Sure. So, as I said in my introductory remarks, we have a product that we sold for years to employers called blueprint for wellness. And we offer it to request employees as well. So, it's a fabulous dipstick reading on an annual basis for people to get an indication what's going on with their health. And if we do it year upon year, you've got a good nice trending capability that I found beneficial since I've been here in question, I know many of our employees have as well and many of our customers. So, we're now using that is the product to introduce that through our direct-to-consumer channel request direct. We're very optimistic about the possibility that this has we believe that it has a unique capability that few others provide. And we also believe it's hitting the market at the right time, where many people have not gone to their primary health care providers. And we believe that there's a lot of opportunities now for people to directly engage with us as a consumer to buy this directly from us. As far as pricing marketing share what we're thinking about in terms of pricing, even though this is a soft launch.

Yes. So, it's going to be a couple of hundred dollars. And when you look at the individual elements that are contained in here, it's a reasonable price for everything that you get. And I can also tell you that we've gotten a lot of feedback that this score that we give people with really simplifies how to interpret the results is a huge consumer positive. So, a lot of reason to believe that this could get some additional momentum for our consumer business, and we think the pricing is reasonable and we feel that the product we're delivering is something that consumers really find interesting valuable.

And just to follow-up on the price, we actually did some market research to understand that the value that this provides to consumers justifies the price that we're pricing it for initially. So, we feel good about value delivered and price charged.

Operator, next question?

Our next question comes from Jack Meehan, Nephron Research. Your line is now open.

Hey, good morning, Jack.

Good morning, Steve. Good morning, Mark and Shawn. I wanted to continue on the inflation topic, but looked at a different way. If operating costs were to remain elevated, do you think there's an appreciation by payers that the cost of doing business is moving higher? How do you feel about your ability to get price increases? Maybe just talk about recent negotiations.

Yes, but let me start it, Mark, please add. Yes, we've been on this march, as I said in my remarks to continue to demonstrate to our health plan partners, that we continue to deliver value and I believe we make -- we're making tremendous progress. One is that we're picking up access in the number of lives. I mentioned 90% of insured lives are -- we're a network within the United States. And we're happy about the progress of picking some more up this coming year. So, that's moving along. Second, as far as pricing is concerned, we continue to march through our contracts as they are up and renewal. And we have said in earlier calls that we're now very fairly arise and matter of fact, we believe we offer a very affordable price offering to the health plans and their memberships with great quality, great service and very competitive pricing so much so that we're part of these preferred lab networks. So, we're justified, we are getting some modest price increases and we do believe going forward that we can continue to pound that drum. And we are using what other people are using across the United States that in fact, now that we're renting a new inflationary period. Our costs are going up just like yours. And therefore, we need to start talking about modest price increases going forward. So, Mark, you'd like to add anything to that?

Yes. So, Jack, I think you appreciate, I'm sure a lot of people do as well that our health plan contracts typically are three to five years. So, it's not as if every health plan contract is up for renegotiation in any window of time. But so we've been socializing PAMA and how that is changing the dynamic and how they can look at the NLA rates and be competent that, that they have competitive rate because they know what the -- that's the market for the independent labs, which we've said is lower than the market, but the market for the independent labs. So, this whole notion of a price below Medicare, which was the historical practice is going away with PAMA. Now, you add inflation as you suggest and it's absolutely part of the conversation we've been having over the last number of months. And I can tell you that although it's not final. There is one national payer that we've been negotiating and it's not final, but it looks like the first price increase we will have gotten from them. And certainly my tenure and I'm sure more than a decade. So, we've been stabilizing as we shared our commercial negotiations to go from a world of price declines every contract extension to getting it more flat. And we actually have shared there's a handful of regional plans where we've got increases over the last couple years and now we have a national contract that I'm very optimistic we're going to get an increase. And so, how much of its inflation, how much of its PAMA, how much of it is our value proposition and seeing that working with us is a benefit for everyone versus training us as a commoditized provider of laboratory results. Can't tell you, but we're in a much better place.

Just to remind everyone, our health plan channel business is a significant portion of our revenue every year. But what we've also highlighted, the reason why we do have unit price decreases and our typical assumptions annually is because we have other pressures in our business. We do have break business to physicians, which we call clients and our client business as under price pressure over the past several years. And that has contributed to the price pressure we see. Secondly, as we sell the hospitals and we're doing quite well in the hospital segment, but is price competitive. And then we have other product lines, where we sell our services directly to employers or to insurance companies is price pressure there as well. So, when we talk about our unit price changes, it's not all in the commercial health plan area. There's other area that we have price pressures as well.

Our next question comes from A.J. Rice, Credit Suisse. Your line is now open.

Thanks, everybody. I'm just trying to maybe ask you a high level question about how the pandemic is maybe impacting your business for the long term. It seems like in the pandemic we've seen people move away from just traditional physician office visits at some level virtual care, other alternative sites to get their primary care. Are you seeing and does that help you or hurt you if people go to these other avenues, which may generate testing volume, do you think you capture a disproportionate share of that? And then the other thing, I was going to ask you about the pandemic was related to the -- you've said that if you have outperformance because of COVID testing, you accelerated some of your programs for cost savings and other efficiencies. Should we think of that as just enhancing the visibility on the 3% cost reduction annual goal? Or are there things you're doing that might even present some upside to 2022 and beyond?

Yes. So, thanks A.J. for your question. Let me take the first one, I'll ask Mark to comment on the second part of your question. First of all, telehealth as we all know has really increased considerably during the pandemic and it has really hit an inflection pouring in in-patients and consumers are now very comfortable with getting a portion of their healthcare delivered through telehealth networks, whatever that might be. And as we have watched it initially, a lot of the telehealth visits started with mental health and behavioral health and have now transitioned to more general health and primary care and even specialized care. So, with all those visits happening in telehealth, you have to engage with the patient and have to be able to enter orders. And unfortunately for us, despite the pandemic and before the pandemic, we have strong relationships with all the telehealth companies. And as you would expect, they're only going to work for us with a small group of laboratories. And question would be one of those laboratories. So, we're very well positioned with the telehealth providers, but you also know that even though there are telehealth companies, telehealth is provided through integrated delivery systems, hospital systems in different ways, and they might use one of the telehealth provider platforms, but they're still providing that through their physicians and using their EMR. And so, when they enter the order, it's going to be into the order of the same way as in the past. So, we're watching it carefully. We do believe it's as a positive trend for us given what I just described, but it's complicated because it all depends how telehealth platforms are deployed in particularly with so many on physicians, by integrated delivery systems. And they're still conducting the business as they do. It all depends how they actually implement their telehealth services throughout their network and how that will affect our business. But again, for us, we believe it is a positive. So Mark, do you want to take the second part?

Yes, actually, A.J. could you repeat that the second part?

It had to do it accelerating our drive program because of our enhanced performance. And I think he's speaking to some of the acceleration and capital purchases that we've made and spending some additional money to get more improvements than what we would have realized if we didn't have the pandemic. A.J. is that a correct…

Still there --

Yes. So, we have had an opportunity to invest more than we probably would have otherwise given the stronger growth than we would have anticipated in 2021. We've talked about that. A lot of that investment has actually been more towards top line acceleration. So, we've talked about, what we're doing in advanced diagnostics, we talked about what we're doing, what requires to build a consumer business. So, I'd say a disproportionate amount of the opportunity, as we try to balance near term results with longer-term, value accretion has really been in top line. But yes, as we looked at some of the things we did during the pandemic, we have an opportunity to update our molecular equipment and into more efficient – into more state-of-the-art, probably faster than we normally would have cycled. So, that'll give us some efficiency that maybe wouldn't have otherwise. So, I wouldn't -- at this point suggest that we're ready to commit to more than the 3% productivity, because obviously that's the large number of unit of itself and small basis points changes are really significant. But directionally, I would say, yes, A.J., this pandemic goal was of value accretion in additional cash has enabled us to accelerate some investments. Most of it on the top line growth, but certainly some on the productivity side as well.

Next up is Ann Hynes, Mizuho Securities. Your line is now open.

Hi, good morning. So, I just want to talk about the base volume trends. I know revenue was up versus 2019, but can you give us some color on how much your based volume trends are still down versus pre-pandemic, maybe ex some of the PLS deals that you've signed during the pandemic, and if it's still down maybe just to give a geographic breakdown and I guess my second question would be obviously testing was a very strong for molecular PCR test for COVID-19. Can you give us a breakdown, how much of that was contributed to like this back to life initiative, whether it's schools, cities, states more like maintenance testing, and I know you said in your prepared remarks that you assume revenue per test goes down in Q4. Can you give us what it was in Q3 and maybe just directionally what we should model for Q4? That would be very helpful. Thanks.

Okay. Thanks, Ann. Mark, why don't you just start with giving the numbers on base business performance system there.

Yes. So, hopefully, I can clarify, base volume in total is obviously anything on COVID-related as we've been through the pandemic, we've been recording strong growth in base volume, which includes our M&A and our PLS, as you would expect. But we've also been trying to provide some color on utilization, in the absence of independence way to measure that. We look at our base volume ex, the acquired volume and facts the new PLS deals. And we've talked about that continuing to improve in addition to the growth we're getting from M&A and from PLS. So, in June, the organic base volumes and the new PLS deal was getting close to back to the 2019 levels. And then it kind of stabilized in August – in July, and it took a little bit of a step in August. And then as we see where we are through September and into October, it's getting back again, very close to being fully recovered in 2019. And that's why I said earlier that we would expect certainly by the end of this year and going into '22, that we'd be fully recovered. Now, it is regionally, very variable as we've talked in the past, and that really has not changed. There are certain regions that are actually above where they were in 2019, most notably our Southwest region, as we're looking at Florida in the south, the volume trends are above, and then a couple other areas that are kind of in that middle point. And then the one area of note that's really been lagging is the east, and it continues to lag while it certainly has improved from where it was several months ago. It's still down and kind of an outlier especially in the five boroughs of New York City. And then quickly, I'll answer the question on the revenue expectations for molecular testing, and I'll let Steve talk about the back to life. So, we're still around $90 in the quarter. We're not expecting a meaningful decline in the fourth quarter. Certainly, if back to life really, really took off, which is not, what we're expecting in the middle of our guidance here, it could have a little bit of a row, but again, it's still net positive. It's just math. So, you can expect for your modeling purposes, that just a very, very slight decline in Q4, nothing of significance.

And the last question Ann, you had asked for the breakdown of what we describe is, first of all, the clinical portion of our PCR volumes versus return to life portion of our clinical volumes. And as you can expect, it's tough for us to know exactly particularly, which bucket we can put those in. But I can tell you that the trend line is trending towards more of the return to life. We see the infection rates coming down and we see programs that we've worked on going up, examples are the return to school programs, we mentioned 20 states and five more coming. We also doing some testing for employers if they have mandates in place where they're requiring vaccination or testing. So, we'll see some increase in testing related to again, employers bringing people back to the workplace and requiring testing or vaccination for that. So, I would say trending wise, it is a larger percentage than before, but it's very difficult for us to give you exact numbers on that because we just don't get it through the orders that we received. But we think what we've provided for guidance is clearly what's going to happen in '22.

Next up is Ralph Giacobbe with Citi. Your line is now open.

Hey, good morning. Thanks. First, just a quick follow-up on a comment you made, can you give us a sense of how much flu testing you do a year, if that's what you're anchoring for baseline COVID testing going forward. And then separately, I was just hoping you could talk about COVID reimbursement and the outlook of that for next year? Obviously, you mentioned PHG got extended at least for the early part of next year, if that continues to expand, if you expect reimbursement to be better than what you assumed in that $8 EPS for next year? And then also, what about commercial pricing specifically for COVID is that that tied to PHG? Or help us understand sort of how that's negotiated and if there's a step down there for next year? Thanks.

Mark, do you want start with the flu?

Yes. So, it was quite a bit there, Ralph, we'll see if we can touch on all of them. So, we don't generally share the precise revenue for any given test offering, but it's significantly lower than our current levels of COVID and what we would anticipate. So, the flu is not the baseline for 2022. We still expect COVID testing to be multiples of our fleet revenues in 2022. And the reason flu testing is smaller than what the otherwise is. There's not a ton of molecular testing done. Physicians have become very comfortable with doing point of care. And even though the molecular is more precise, they feel that it gets good enough in the office and they have an opportunity to make money on it. So, I would probably be several years, although I don't have the ability to call it precisely before we would expect COVID to be at our flu level. And then in terms of the pricing we have either specific agreements or general agreements that as long as in the commercial rates, that as long as the federal health emergency continues, that the pricing will reflect what we're being paid by the federal government. So, it's not mechanistically tied to every contract, but we know that the expectation would be when that goes away. And again, there's still always a possibility they can decouple that $100 reimbursement rates from the health emergency. So, there's some other risks as well, but as long as that continues, we would expect most of our commercial pricing to be at the same rate. And then, obviously, when that goes away, that we would expect a negotiations to take it down to more the NLA level. So, when I talked about 2022 at the Investor Day, I talked about a reimbursement rate around $50, which is what the NLA is. And so, again, when you put all these pieces together, I want to be clear, we still fully expect to be in the upper end of that $7.40 and $8. I just wanted to caution against upside to that given everything that's going on with inflation and so on, because we do have some positive things that have developed over the last six months or so. And some of that is probably going to be partially offset if not largely offset by labor inflation. So, we're still pretty much where we were back in March. So, in the higher end of the $748, and then certainly at least $8.5 billion of revenue, which importantly ties back to the 2018 CAGR that we've shared with you at Investor Day, and so, just getting there in a little different way, but still getting to where we said we would be.

Next question comes from Matt Larew, William Blair. Your line is now open.

Good Morning, Matt.

Yes. Hi, good morning. So, a number of questions around labor issues, I actually want to ask about supply chain. I'm just curious if you're starting to see any challenges in sourcing anything, either for your PSCs or the labs, either longer lead times, and then if you're having any issues with the sample transport logistics?

Well, so far Matt we're keeping up, we always have battles here and there, even despite the pandemic with supplies got a complicated business and a lot of pieces have to come together to do what we do, but not a meaningful disruption so far, but we're watching it carefully because we're not through this yet. So, the last part of this is around logistics and again, logistics have become a little more complicated given we do use commercial carriers for some portion of our logistics, but we've been managing our way through that. Fortunately, we have our own network of carriers. We have about 3,500 carriers and automobiles that are request employees. We have a fleet of small airplanes through some of the connections between our collection locations and our laboratories and they're employed by us. And so we're happy we had those in these uncertain times and we continue to have strong relationships with the national carriers as well, so far so good.

Next up is Pito Chickering, Deutsche Bank. Your line is now open.

Hi, Peter.

Hi, good morning guys. I follow-up on Ann's question around the base testing business, once you exclude M&A and POS, can you give us color on where the tests are coming in from specifically looking at primary care visits versus specialty visit versus hospital visits? Just curious if hospitals slowdown in fourth quarter with the COVID surge, does it impact anything on your fourth quarter growth?

Yes. So, first off, Pito to be clear, the utilization trend that I talked about being nearly fully recovery doesn't exclude all POS, it just since we're comparing to 2019, it's excluding some of the really large deals that we've done recently. So, that we don't cloud what we think utilization is. So, we had a PLS business of size back in 2019. I'm not taking that out, because obviously, that's part of the trend as well. So, when you look at the sources, we've shared that -- the recovery has been pretty broad based. There's not a lot of differences especially now, early in the pandemic there were some we talked about for certain drug monitoring, certainly being one that was lagging. A lot of that was policy driven, a lot -- some of that, not all of it, but a lot of it's been addressed and certainly we've seen the toxicology or prescription drug monitoring business coming back in the same ballpark as some of our other clinical areas. We did see hospitals recovering faster early in the pandemic as a return to trading patients for elective surgeries and so on, physician office was a little more lagging, but at this point, as we talked about in the prepared remarks, the physician business is quite strong and we're seeing the volumes especially in some of the regions above where they were in 2019. So, we don't feel other than the east that there's been any sort of a fundamental change in either patient engagement with physician offices and or the prescribing practices for our diagnostics business specifically.

Next up is Tycho Peterson, JPMorgan. Your line is now open.

Hi, Tycho.

Hi, this is Casey on for Tycho. Two quick ones for you guys, the first one, do you think that the increased cash spent per requisition or test density trends that you've called out in 2021 will continue into 2022. And is that baked into that $7.40 to $8 EPS outlook. And then my second one is just on capital deployment. You guys have completed the ASR, right? So should we expect any more buybacks in 4Q and what share account should we use for our model for 4Q? Thank you.

Yes, I'll take the first one. Mark, you take the second and versus on rec density that is the number of tests per requisition. We assume there's a lot of different moving parts as you know for our business. One of which is the mix of tests. The second is number of tests for requisition being able to we have channel mix changes. So, all of that is complicated in our outlook that we've provided. So, we assume that that's in there. And Mark, you want to talk about capital deployment question?

Sure. So, the ASR should be wrapped up sometime in the next 30 days. So, therefore for at this point, even we did additional purchases once the window opens and not committing to anything at this point, because we always say there's a balance between potential M&A and share repurchases. It wouldn't have a significant impact on our way so this year. So, any sort of additional purchases of our shares repurchases would be more of an impact for 2022. And obviously, we'll talk about that in detail when we come up to the guidance for 2022 early next year.

Next up is Derik De Bruin, Bank of America. Your line is now open.

Good morning, Derik.

Hi, this is on for Derek. I wanted to dig into the base business growth specifically within your advanced diagnostic business. Was there any notable trend for cancer and genetic testing, if you could comment on the growth trajectory that'd be great?

John, in our remarks, we're pleased with the recovery we've seen in advanced diagnostics and remind everyone that our definition of advanced diagnostics are entirely molecular and genetics. And when I say recovery and I did say molecular, it does not include our COVID testing. So, it's our base, if you will, molecular and genetic testing. And we saw very good growth in beyond recovery for our prenatal testing feel good about that. And we are seeing nice growth for our genetics business. And as you recall, we did an acquisition with blueprint genetics last year, and that's progressing nicely and give us some nice growth and strength in that business. So, we feel good about the recovery and growth we're seeing in those areas that we're really focused on and genetics in general is one of those areas.

Next up is Mike Newshel, Evercore ISI. Your line is now open.

Hey Mike.

Hey, thanks. So, do -- there's a labor and inflation costs issues you have talked about that you can absorb in your 2022 outlook. Does that have any change in the long-term sort of growth targets that you laid out for post 2022 in terms of earnings growth?

Mark?

Yes. So, I -- at this point, obviously we have a broad range, but I would say that just like we've done in other periods of time. We'll look for and identify offsets to that. So, I -- it's not significant enough that we should deviate on a multi-year outlook in terms of our earnings growth being in the high-single digits, and we -- although we have identified everything over the next several years. I'm sure as we move through time we'll look for other productivity opportunities to offset some of that.

There are no more questions.

Okay, very good. So, thanks to everyone for joining our call today. We appreciate your continued support and everyone have a great day.

Thank you for participating in the Quest Diagnostics Third Quarter 2021 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics' Web site at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at 866-360-7722 for domestic callers or 203-369-0174 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on October 21, 2021, until midnight Eastern Time November 4, 2021. Goodbye.