Kevin Caliendo: Hi, thanks for taking my question. I’m really just trying to understand all these puts and takes a little bit. I guess my first one is, is the $100 million of SG&A, it’s incremental. Is that–you know, Invigorate typically offsets some other inflationary pressures, labor costs and the like. Is this $100 million incremental such that it drops to the bottom line, or are there other offsets there? Two, is there any change with the pricing benefit that you’re talking about, better pricing is certainly a tailwind, I would think for ’23, so how do we think about that in terms of–or is there an offset there on mix on the margin for, basically, your volume mix, something to that effect? I’m just trying to understand the puts and takes.
Jim Davis: Yes, again the $100 million, it is incremental to our Invigorate plan of record, and yes, it drops right to the bottom line. In terms of pricing, no, the improvement drops to the bottom line as well. We’re not suggesting any other offset at this point. Obviously we had strong both in Q4 and for the year. That benefit, we would put in three buckets: test mix, which was very positive for the year; we saw a big surge of flu and RSV testing along with COVID, but flu and RSV that came in Q4, that has since moderated; and then our business mix was good in terms of payor mix. Then finally, year-over-year we made nice improvements in patient concessions, so our ability to collect, our ability to reduce denials and get paid for the work we do was certainly a positive tailwind for us in 2022.
Kevin Caliendo: And if I can just ask one quick follow-up, should we assume in our models the billion dollar buyback gets used in 2023?
Sam Samad: No, Kevin. The billion dollar share authorization increase, that’s in addition to the $311 million that we currently have on the previous authorization, but you should not expect that that is what’s assumed in the guidance. What we’ve assumed, actually, is that any share buybacks we do are to offset equity dilution, so essentially the share count is roughly flat with where we are at the end of the year, so don’t assume the $1 billion to be built into the projections.
Kevin Caliendo: Very helpful, thank you guys.
Operator: The next question is from Andrew Brackmann with William Blair. Your line is open.
Andrew Brackmann: Hey guys, good morning. Thanks for taking the questions. Maybe as it relates specifically to COVID test reimbursement with the PHE ending, maybe just give us a little more detail on how those conversations with commercial payors are trending and how we should be thinking about expectations there. Then I guess just related to that, how are you thinking about any permanent changes to your respiratory testing portfolio broadly, now that we’ve lived through three years of COVID? Thanks.
Jim Davis: Yes, so again, CMS–and we’ve had direct discussions with them, it’s very clear that once the public health emergency ends, the rate will go to $51. We are certainly expecting and driving those discussions with commercial payors that we expect that rate to be $51 as well. It’s a new test that should be treated as such. Some may have a slightly different opinion on that, Andrew, so that’s where we negotiate. In addition to that, there’s coverage policy decisions that all need to be worked out as well, asymptomatic versus symptomatic testing, so we’re bullish that the country needs these tests, commercial payors need these tests, and we’re going to drive these discussions in the most favorable way that we can. In terms of respiratory panels, obviously with COVID still out there, it’s not going to go away in 2023.
When patients presented in the fall, winter and here in January with respiratory symptoms, some physicians ordered three tests, some physicians ordered one and then re-flexed to others, depending on if the first one turned out to be negative, so there were a variety of patterns that were out there. But you know, we don’t expect COVID to go away in 2023, so whether RSV and flu tick up like they did in 2022 remains to be seen, and so we’ll just have to see how it plays out in the late fall, early winter.
Operator: The next question is from Derik de Bruin with Bank of America. Your line is open.
Derik de Bruin: Hey, good morning. Thank you for taking my question. One quick housekeeping question and then a follow-up. The housekeeping question, just expectations for net interest expense for the year, and then how should we think–and also then, how should we think about the M&A contribution that’s embedded in your revenue and your volume growth in the ’23 guide, and should we still think about that 2% bogey at the way to look at it for going forward on the revenue contribution? Thanks.
Sam Samad: Yes, so I’ll handle the questions, but I missed the part on the expense. What type of expense?
Derik de Bruin: I’m sorry – net interest expense.
Sam Samad: Oh, net interest expense – okay. That’s roughly flat, I’d say year-over-year in terms of €˜222 to ’23, Derik, is the assumption to take there. In terms of M&A, what we have assumed in our guide for 2023 is really no material prospective M&A, so essentially what’s closed already, what was included in ’23 in terms of deals that have been made – any outreach, for instance, hospital deals that have already closed in ’22, those you’ll see a benefit from in ’23, but there is no prospective M&A included. When you think about our long term target that we had talked about, around 2% contribution from M&A, we have not assumed any prospective M&A in ’23 on top of our base revenue growth.
Derik de Bruin: All right, so with completed M&A, then what’s the contribution for ’23?
Sam Samad: It’s not significant. We’re not going to give the exact contribution, but it’s really not that material in terms of what we have this year that carries into next year.
Shawn Bevec: Derik, we had one month of Pac Health, because that’s what closed last year at the end of January, and then the Suma Health and the Northern Light outreach acquisitions, those were pretty small.
Derik de Bruin: Great, thank you.
Operator: The last question in the queue is from Elizabeth Anderson with Evercore ISI. Your line is open.
Elizabeth Anderson: Hi guys. Thanks so much for the question. I had a question about advanced diagnostics and your assumptions for ’23, including contribution and then more specifically on the positive impact in pricing, and any kind of incremental investments that you think specifically for 2023 will be necessary to sustain that growth, accelerate it.
Jim Davis: Yes, so we’ve talked about our investments in really three categories. First, consumer initiated testing, which we covered, that business will continue to grow on the base side of our testing in 2023, and as we’ve indicated, it will certainly be less dilutive than it was in 2022. The second big area of investments has been in oncology and what we call genomic sequencing services, and really building out what we call our integrated genomics platform. As I mentioned in the prepared remarks, we brought up a new LDT in Q4 using the Illumina platform – it’s referred to as the TSO 500, but it is a Quest LDT, and it’s really important in therapy selection decisions for cancer. We’re really happy about that. We brought it up at our SJC facility and we’ll be expanding that to a second facility here in early 2023, so we certainly expect that business to grow.
On this integrated genomics platform, look – the world has moved from micro array testing to whole exome to whole transcriptome, and now moving quickly to whole genome testing, and we expect with this platform to have a really good sample to complete information platform, low cost, high throughput, really good turnaround time, and we’ll update you more about that at our upcoming investor day. The final thing is–you know, we referred to it as pharma services, which grew over 15% last year, and this is us participating in companion diagnostics. We participate in phase 1 clinical trials, either from a pharma company or from a CRO, and then we do a lot of testing and validation work for our IVD partners in the industry, and that business continues to grow as well.
The last thing I’d say is, look, we felt really good about our growth in prenatal testing this year and other rare genetic disorders, so it’s a business that continues to grow in the high single, low double digits for Quest Diagnostics.
