As I mentioned to Patrick, what’s assumed is also volume growth that’s going to help us grow margins. The deferred compensation, that’s just noise. We don’t really budget for that. If there’s a headwind or a tailwind in ’24, that just gets offset on the non-operating line and it shows up as neutral in EPS. And then as I said, we made some additional investments in Q4 to position the business for 2024, and that’s factored into the guide in terms of any additional investments that we make in ’24. So we feel confident about our growth in terms of operating margins next — this year.
Jim Davis: Yes. Pito, let me just go back to Q4 just to talk about the progress we made year-over-year. So as Sam indicated, our revenue in Q4 versus ’22 was down $45 million. And if you look at the mix of that revenue, COVID was down $145 million year-over-year. And remember, we were getting paid $100, a record at that point. Our base business offset $100 million of that, which is why we were down $45 million. Despite that, bad mix and the lower revenue, we still improved our operating margin by 60 basis points. So we made significant progress in the quarter and that progress will continue as we march into 2024.
Operator: The next question comes from Jack Meehan of Nephron Research.
Jack Meehan: Thank you. Good morning. Jim, I was hoping to hear from you, like what are you assuming in terms of core utilization in terms of the guide? You’ve had elevated rates the last couple of years coming out of the pandemic. Do you think that can sustain? Or are you seeing moderation in any areas?
Jim Davis: Yes. So for the fourth quarter, Jack, we saw volume growth of 5.1%. For the total year, we had volume growth of 6.5%. Now, I would tell you at the very beginning portion of this year, the first two to three weeks with the weather that we saw across the U.S., volume growth was stunted a bit. But in the last week or so, we’ve seen volume recover to the normal rates and expectations that we have for the year. So you’ve heard several of the health plans have reported higher utilization in the fourth quarter. We, ourselves, because of our own health care costs, we know there was higher utilization of our own employees. So we expect it to continue at slightly above the normal market rates, albeit the first month of the year has been tempered a little bit by weather.
Operator: The next question will come from Brian Tanquilut of Jefferies.
Brian Tanquilut: Maybe, Sam, as I think about all the comments from Jim on how it looks like the revenue outlook is good, right? You have all these tailwinds potentially going forward with new tests and whatnot. Help us bridge to getting back to that EPS or earnings growth in the long-term outlook that you’ve provided? Because obviously, ’24 is an aberration. Are there some one-timers here? But how do you guys comfortable in that long-term earnings growth, ’25 going forward?
Sam Samad: Yes. Thanks, Brian. So first of all, let me say definitively that we are absolutely still confident about our long-term growth guide that we gave, which is essentially to grow revenues in the mid-single digits to grow EPS in the high single-digits. So long-term growth is unchanged. As you yourself mentioned, there are some headwinds in 2024 that I think are transient or temporary that we see this year. So we’ve got a COVID revenue decline, which is approximately $175 million or roughly $0.50 year-over-year. You’ve got — and we’ve called this before, but you’ve got Haystack dilution, which is now full year dilution versus a half year dilution that we saw in ’23. And then you’ve got interest expense, which is to the tune of about $0.25, which is really as a result of the additional debt that we took on and the higher borrowing costs driven by the macro environment that we’re in.
But that’s really to fund acquisitions and to fund growth in the business as well in the base business. We’ve got a strong pipeline, and we feel really confident about the M&A landscape and the M&A opportunities ahead of us. And we upsized the issuance in November to basically partly pay for the acquisitions that we made in ‘23, Haystack and to some extent, NewYork-Presbyterian, but also to fund the future acquisitions, some of which are not included in this guide. So I would say the punchline is we’re definitely still confident about the long-term growth of the business and the EPS guide that we gave.
Operator: The next question comes from Kevin Caliendo of UBS.
Andrea Alfonso: It’s Andrea Alfonso in for Kevin. Unfortunately, I’m in the enviable position of asking yet another question around margin expectations. But I guess my question is, when we think about just the expansion of margins you expect and thinking about the puts and takes into next year. I guess I want to isolate like what gets better? I know that there’s maybe some assumption in there around the M&A you’ve absorbed so far? Is that mildly accretive or just sort of in line or maybe below the margin. Some of your — in one of your slides, I think there was some mention of GAAP charges around workforce reductions, et cetera. Is that sort of just lingering on from 2023 or is that a new tranche? Just trying to get an understanding on those two items.
Sam Samad: Yes. So thank you for the question. With regards to margin expansion, I mean as I mentioned earlier, a big factor is going to be driven by volume growth that we see in 2024. That’s really the key factor. We’re going to continue to invigorate actions that we have talked about to the tune of 3% cost reduction across our entire cost base. And that’s — we actually met that target in ’23, we slightly exceeded it. And in ’24, it’s going to be continuing with those initiatives. With regards to any workforce reductions, there aren’t any workforce reductions planned right now. Usually, when we have — when you look at that GAAP to non-GAAP, we just have a placeholder for potential workforce reductions there or potential restructuring charges.
But there isn’t anything that’s related specifically to any headcount cuts. Now we do have the cost reductions in ’24 that we continue to see. So in Q1, for instance, we have some benefit from some cost reductions that we didn’t see in Q1 of last year, but then we’ll continue to be very disciplined about our P&L as we go forward in ’24. Yes, so that’s really the key driver in terms of our margin growth.
Operator: The next question will come from Lisa Gill of JPMorgan. Ms. Gill, please check the mute button on your phone.
Lisa Gill: You talked a lot about volume growth this morning, but I’m just curious on the price side. So if I go back to the last couple of quarters, you talked about stabilizing pricing with health plans. You talked earlier about health plan leakage and the opportunity there. So maybe can you put those two pieces together for us as we think about the growth for next year of how much is volume and how much of that is on the price side?
Jim Davis: Yes. So let me just recap ’23 and then we’ll get into ’24. So in 2023, price, pure price, price per test provided us a slight lift year-over-year, okay? So our base rev per req that we’ve reported was up 1.2% and price was a positive contributor towards that. Now going into 2024, we expect, again, price to be flat to slightly up for the year. We concluded all of the significant health plan renegotiations in ’23. Obviously, there’s a new tranche that always comes about one-third — 25% to 33% renew every year. But we feel confident that prices will remain flat to slightly up as we enter 2024.
Operator: The next question will come from Derik de Bruin of Bank of America.
