Sam Samad: You’re welcome.
Operator: The next question is from Jack Meehan with Nephron Research. Your line is open.
Jack Meehan: Thank you, good morning. I had a few questions on Quest Health. First, of the $96 million you talked about of sales, is there a breakdown you can share of COVID versus base; then second, on the base sales, how did that ramp after the fall push? Then finally, just what are your expectations for consumer initiated testing revenue and investment for 2023?
Jim Davis: Yes, so Jack, let me start. On CIT, our consumer initiated testing business, the total $96 million, more of it was COVID than our base business; however, our base business, once we launched the new platform, once we launched the marketing spend actually performed as expected in November and December. We got significant growth year-over-year, over 50% growth in the month of December based on the initiatives we put in place. As we’ve said, this year we expect that business to be less dilutive versus 2022. In terms of the total revenue projection for CIT, you know, we’ll give you something at investor day. Obviously COVID will significantly ramp down, but we expect our base to significantly ramp up, and we’ll give you a better view of that at investor day.
Jack Meehan: Great, and then one follow-up on COVID. If we do a look back on 2022, is it possible to call out how much of the sales came from serology, your CDC contract or anything outside of the core molecular, and just what you’re assuming there for 2023?
Jim Davis: Here’s what I’d say. As we indicated, the volume is coming down, right – we said 10 to 15 last fall, we now expect 5 to 10 for the year. The one thing I’ll say on serology, we had a significant contract with the CDC, it was simply a test add-on seroprevalence study. That contract, as expected, ended in December. The CDC just doesn’t need that information anymore. What does remain, in addition to the PCR volume, is we’ve got a roughly $25 million contract with the CDC to do continuous sequencing work of the positive cases to help inform the CDC and others about the spread or development of new variants that continue to pop up.
Jack Meehan: Super, thank you Jim.
Jim Davis: You’re welcome.
Operator: The next question is from AJ Rice with Credit Suisse. Your line is now open.
AJ Rice: Yes, hi everybody. Thanks. Obviously there continues to be a steady pipeline of hospital-related deals. Can you tell us whether–I know your closest peer is announcing transactions too. Do you see any change in the competitive landscape for those deals, on the terms on which those deals are being done? You also mentioned seeing some more activity in small regional labs. What do you attribute that to – is it COVID testing is as running off, are you seeing some of the regional labs express more interest in potentially aligning with you?
Jim Davis: Yes AJ, thanks for the question. I would tell you no, there’s no real change in the competitive dynamic in terms of pursuit of these hospital outreach deals or professional lab services types of engagements. What I would tell you is the funnel is as big as it’s ever been. We expect to close several deals here in the first half of the year, so still feel very good about that. In terms of small regional labs that are out there, first I’d say there’s not that many left out there that are of significant size. Certainly those that participated in COVID testing, and now that that volume is declining, yes, we are seeing a few raise their hands and put up the retirement flag and potentially sell out, so we look at each and every one of them. If we think it adds to our competitive position in a certain geographic marketplace, we’ll look at it. If we don’t think we need it from a competitive standpoint, then we take a bye on those.
AJ Rice: Okay, thanks a lot.
Jim Davis: You’re welcome.
Operator: The next question is from Pito Chickering from Deutsche Bank. Your line is now open.
Pito Chickering: Hey, good morning guys. Thanks for taking my questions. Quest has a very long track record of finding cost efficiencies through Invigorate, so I’m curious how the SG&A cost cutting of $100 million compares to what Invigorate usually finds in SG&A, or most cost savings via Invigorate usually done and cost of services and fixed cost leverage on volume.
Jim Davis: Yes, so first, the $100 million cost takeout is incremental to our Invigorate plan for 2023. With our Invigorate plan, we target roughly 3% of our entire cost base for the company, so call that $6.4 billion-ish, 3%, call it $180 million, $190 million a year. We actually got very close to that target in 2022. As we’ve said in the prepared remarks, it did not completely offset wage inflation and the slight price headwind that we did see, along with just other non-labor inflationary pressures. Now as we go into 2023, we’ve got a full funnel of productivity ideas, productivity initiatives that we’re driving through the company. I would say the other thing that we think will really help us in 2023 is simply the stabilization of our workforce.
Attrition has a really major impact on your productivity when you’re constantly churning phlebotomists, logistics and specimen processing, so that has stabilized, it’s coming down. We feel good about it and we feel good about the overall productivity plan in terms of offsetting inflation, which we expect to be slightly softer, easier in 2023, and we expect price all-in across Quest Diagnostics to actually be a positive for 2023.
Sam Samad: At the risk of being redundant here, I’m still going to repeat something from what Jim said at the beginning, because it’s really important for all your assumptions. The productivity improvements and the Invigorate actions, which is the 3% that we expect to get, that’s in addition on top of the $100 million of SG&A reductions that we’ve already taken for the most part.
