Q1 2024 Quest Diagnostics Inc Earnings Call

Operator: Welcome to the Quest Diagnostics first quarter 2024 conference call. At the request of the company, this call is being recorded. The entire content of the call, including the presentation and the question and answer session that will follow, is 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. Sir, please go ahead.

Welcome to the Quest diagnostics first quarter 2024 conference call.

At the request of the company this call is being recorded.

The entire contents of the call, including the presentation and the 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.

Strictly prohibited.

Now I'd like to introduce Shawn <unk>, Vice President of Investor Relations for Quest diagnostics. Sir. Please go ahead.

Shawn Bevec: Thank you and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer, and President, and Sam Samad, 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-gap measures to comparable gap measures in the tables in our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties 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. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS.

Shawn: Thank you and good morning, I'm joined by Jim Davis, Our Chairman, Chief Executive Officer, and President and Sam Smith, Our Chief Financial Officer. During this call. We may make forward looking statements and will discuss non-GAAP measures we.

Shawn: We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release.

Shawn: Actual results may differ materially from those projected.

Shawn: Risks and uncertainties 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.

Shawn: For this call references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS.

Shawn Bevec: 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 consolidated 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.

Shawn: Any references to base business testing revenues or volumes referred to the performance of our business, excluding COVID-19 testing.

Shawn: Growth rates associated with our long term outlook projections, including consolidated revenue growth revenue growth from acquisitions organic revenue growth and adjusted earnings growth are compound annual growth rates.

Shawn: Finally revenue growth rates from acquisitions will be measured against our base business.

James E. Davis: Now, here is Jim Davis.

James E. Davis: Now here's Jim Davis.

Jim Davis: Okay.

James E. Davis: Thanks, Shawn. And good morning, everyone. In the first quarter, we delivered nearly 6% base business revenue growth, continuing the strong momentum of the recent quarters. We also grew total revenues for the first time since the height of the pandemic nearly three years ago. Our strong commercial focus on physicians and hospitals, combined with our broad health plan access, has enabled us to take advantage of sustained high rates of health care utilization and drive new customer growth.

James E. Davis: Thanks, Sean and good morning, everyone in the first quarter, we delivered nearly 6% base business revenue growth continuing the strong momentum of recent quarters. We also grew total revenues for the first time since the height of the pandemic nearly three years ago.

James E. Davis: Our strong commercial focus on physicians and hospitals combined with our broad health plan access enabled us to take advantage of sustained high rates of health care utilization and drive new customer growth.

James E. Davis: Our investments in advanced diagnostics also enable double-digit growth within multiple key clinical areas, including brain health, women's health, and advanced cardiometabolic health. In addition, our Invigorate initiative, which includes ongoing investments in automation and AI, continues to improve productivity as well as service levels and quality. Given the strength of our business, we are raising our guidance for the full year. Before turning to highlights from the quarter, I'd like to briefly discuss the FDA's proposed rule to regulate laboratory-developed testing services.

James E. Davis: Our divest mentioned advanced diagnostics also enabled double digit growth within multiple key clinical areas, including brain health Women's health and advanced cardio metabolic health.

James E. Davis: In addition, our invigorate initiative, which includes ongoing investments in automation and AI continue to improve productivity as well as service levels and quality.

James E. Davis: Given the strength of our business, we are raising our guidance for the full year.

James E. Davis: Before turning to highlights from the quarter I'd like to briefly discuss the Fda's proposed rule to regulate laboratory developed testing services.

James E. Davis: We still encourage the administration to withdraw the proposed rule and engage in advancing appropriate legislation that preserves the critical role of laboratory diagnostics. We are disappointed that the FDA continues to move forward with this regulation, which, we believe, if enacted, will compromise patient access to critical lab testing, slow diagnostic innovation, and add unnecessary health care costs. We also believe that the rule raises serious legal issues, including that the FDA lacks the statutory authority to unilaterally regulate these services.

James E. Davis: We still encourage the administration to withdraw the proposed rule and engage in advancing appropriate legislation that preserves the critical role of laboratory diagnostics. We are disappointed that the FDA continues to move forward with this regulation, which we believe if enacted will compromise patient <unk>.

James E. Davis: Assess to critical lab testing slow diagnostic innovation and add unnecessary health care costs.

James E. Davis: We also believe that the rule raises serious legal issues, including that the F. D. A lacks the statutory authority to unilaterally regulate these services.

James E. Davis: While we will be prepared to comply with the rule, we will continue to work with our trade association, ACLA, on potential next steps. Now, I'll recap our strategy and discuss highlights from the first quarter. Then, Sam will provide detail on our financial results and talk about our updated financial guidance for 2024. Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core customers, physicians, hospitals, and consumers.

James E. Davis: We will be prepared to comply with the rule. We will continue to work with our trade Association <unk> a potential next steps.

James E. Davis: Now I'll recap our strategy and discuss highlights from the first quarter and then Sam will provide detail on our financial results and talk about our updated financial guidance for 2024.

James E. Davis: Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core customers physicians hospitals and consumers.

James E. Davis: We enable growth across our customer channels through advanced diagnostics with an intense focus on faster growing clinical areas, including brain health, molecular genomics, and oncology. In addition, acquisitions are a key growth driver, with an emphasis on accretive hospital outreach purchases, as well as smaller independent labs. Our strategy also includes driving operational improvements across the business with the strategic deployment of automation and AI to improve quality, service, efficiency, and the workforce experience. Here are a few key updates on the progress we've made in each of these areas.

James E. Davis: We enabled growth across our customer channels through advanced diagnostics with an intense focus on faster growing clinical areas, including brain health and molecular genomics and oncology and.

James E. Davis: In addition acquisitions are a key growth driver within an emphasis on accretive hospital outreach purchases as well as smaller independent labs. Our strategy also includes driving operational improvements across the business with the strategic deployment of automation and AI to improve quality service.

James E. Davis: Efficiency and the workforce experience.

James E. Davis: Here are a few key updates on the progress we've made in each of these areas.

James E. Davis: In Physician Lab Services, we delivered high single-digit-based business revenue growth driven by sustained high healthcare utilization, overall market growth, and share gain. This growth also reflects new customer wins and our strengthening relationships with physician practices of all sizes, including large multi-specialty physician groups and those owned by large retailers. A significant driver of our success in the Physician Channel is our broad health plan access, as approximately 90% of health plan members in the U.S. have access to laboratory services at Quest Diagnostics.

James E. Davis: And physician lab services, we delivered high single digit base business revenue growth driven by sustained high health care utilization overall market growth and share gains. This growth also reflects new customer wins, and our strengthening relationships with physician practices of all sizes, including large multi.

James E. Davis: <unk> specialty physician groups and those owned by large retailers.

James E. Davis: A significant driver of our success in the physician channel as our broad health plan to access as approximately 90% of health plan members in the U S have access to laboratory services at Quest diagnostics.

James E. Davis: Health plans value our size, scale, and innovation. We partner closely with them to reduce laboratory costs through programs that redirect volume from hospital outreach labs and out-of-network labs, which often charge significantly higher prices than we do, raising healthcare costs for patients and employers. We also remain disciplined in our pricing strategy as we increase our investments in improving the customer experience, such as through digital platform enhancements and adjustments to frontline pay.

James E. Davis: Health plans value our size scale and innovation, we partner closely with them to reduce laboratory costs through programs that redirect volumes from hospital outreach labs and out of network labs, which often charged significantly higher prices than we do.

James E. Davis: Raising health care costs for patients and employers.

James E. Davis: We also remain disciplined in our pricing strategy as we increase our investments in improving the customer experience such as through digital platform enhancements and adjustments to frontline pay as.

James E. Davis: As we highlighted previously, we successfully renegotiated our large health plan contracts that were up for renewal last year. In addition, more than 50% of our health plan revenues now have some type of value-based incentive. In physician services, our recent acquisition of Lenco, an independent lab in New York, has also contributed to growth in the corridor. Our M&A pipeline continues to be robust, and we are making progress with several promising opportunities. In hospital lab services, we grew base business revenues by mid-single digits.

James E. Davis: As we highlighted previously we successfully renegotiated our large health plan contracts that were up for renewal last year.

James E. Davis: In addition, more than 50% of our health plan revenues now have some type of value based incentives.

James E. Davis: And physician services, our recent acquisition of Lingo and independent lab in New York also contributed to growth in the quarter.

James E. Davis: Our M&A pipeline continues to be robust and we are making progress with several promising opportunities.

James E. Davis: In Hospital Lab services, we grew base business revenues by mid single digits Hospital reference testing in particular continued to grow faster than pre pandemic trends maintaining the momentum from last year.

James E. Davis: Hospital reference testing, in particular, continued to grow faster than pre-pandemic trends, maintaining the momentum from last year. Hospitals are sending us more reference testing largely because of our innovation, our quality, and our value. They also face persistent challenges with staffing certain roles in specialized fields like histology, microbiology, and cytotechnology, which we can more easily fill with our talent and our technology. In general, as hospitals face both staffing and cost challenges, they continue to reevaluate their lab strategy. Additionally, as the cost of capital continues to rise, some are revisiting their investment priorities and are directing more capital into other clinical areas that generate better returns.

James E. Davis: <unk> are sending us more reference testing largely because of our innovation, our quality and our value.

James E. Davis: They also face persistent challenges with staffing certain roles and specialized feels like histology microbiology, and Cytotechnology, which we can more easily fill with our talent and our technology.

James E. Davis: In general as hospitals face, both staffing and cost challenges they continue to reevaluate their lab strategies. Additionally, as the cost of capital continues to rise some are revisiting their investment priorities and are directing more capital into other clinical areas that generate better returns.

James E. Davis: Quest provides hospitals with a range of ways to help optimize lab operations, whether through reference testing, savings and efficiencies through professional lab services, or access to capital by selling their outreach programs. Many hospitals and health system leaders are approaching us with a heightened sense of urgency for help with their lab strategies. As a result, our pipeline of both PLS and outreach opportunities remains very strong. Consumer-initiated testing revenues grew double digits, while base business revenues nearly doubled, building on the gains that we delivered last year from our consumer-facing platform, QuestHealth.com. Some of our most popular test categories included general health panels, STDs, and tuberculosis testing.

James E. Davis: Quest provides hospitals with a range of ways to help optimize lab operations, whether through reference testing savings and efficiencies through professional lab services or access to capital by selling their outreach programs. Many hospitals and health system leaders are approaching us with a heightened sense of urgency for help with there.

James E. Davis: Lab strategies as a result, our pipeline of both Pls and outreach opportunities remains very strong.

James E. Davis: Consumer initiated testing revenues grew double digits, while base business revenues nearly doubled building on the games that we delivered last year from our consumer facing platform plus health Dot com.

James E. Davis: Some of our most popular test categories included general health panels, Stds and tuberculosis testing.

James E. Davis: We also continue to expand our test menu, such as with our launch of PFAS testing for assessing potential exposure to dangerous forever chemicals and are extending our reach through various channel partners. In advanced diagnostics, we generated strong double-digit revenue growth within several key clinical areas, including brain health, women's health, particularly prenatal and hereditary genetics, and advanced cardiometabolic health. Growth in brain health was driven largely by our Alzheimer's disease portfolio of tests, which includes our Quest AD-Detect blood tests for early risk assessment of Alzheimer's disease, and our CSF tests for diagnosing and monitoring.

James E. Davis: We also continued to expand our test menu such as with our launch of P. Fast testing for assessing potential exposure to dangerous forever chemicals and are extending our reach through various channel partners.

James E. Davis: In advanced diagnostics, we generated strong double digit revenue growth within several key clinical areas, including brain health Women's health, particularly prenatal and hereditary genetics and advanced cardio metabolic health.

James E. Davis: Growth in brain health was driven largely by our all timers disease portfolio of test, which includes our quest <unk> detect blood tests for early risk assessment of all time risk disease, and our CSF tests for diagnosing and monitoring.

James E. Davis: We are launching our AD-DETECT P-Tau-217 blood test to providers this week, and we intend to add additional biomarkers this year to further expand our menu. In Molecular Genomics and Oncology, we completed the validation of our Haystack MRD test in March and have oversubscribed our Haystack MRD Early Experience Program with nearly 20 leading cancer institutions as participants. The Early Experience Program is the final step to prepare for our broad national launch of the clinical test later this year.

James E. Davis: We are launching our <unk> detect P. Tau $2 17 blood test to providers. This week and we intend to add additional biomarkers. This year to further expand our menu.

James E. Davis: In molecular genomics in oncology, we completed the validation of our Haystack MLR D test in March and have oversubscribed, our haystack M. D. Early experience programs with nearly 20, leading cancer institutions as participants.

James E. Davis: The early experience program is the final step to prepare for our broad national launch of the clinical test later this year.

James E. Davis: We are also excited about the opportunities in early blood-based cancer screening. This quarter, our Louisville, Texas, site received the first specimens for the promised clinical trial on a liquid biopsy screening test for colorectal cancer from our partner, UniversalDx. We look forward to supporting Universal's efforts to gain U.S. regulatory approval for this. And lastly, our Step 500 Somatic Tumor Sequencing Service, which helps providers select therapy for late-stage cancers based on tumor mutation profiles, is generating interest from large cancer centers.

James E. Davis: We are also excited about the opportunities in our early blood based cancer screening.

James E. Davis: This quarter, our Lewisville, Texas site received the first specimens for the promise clinical trial on a liquid biopsy screening test for colorectal cancer from our partner Universal Dx.

James E. Davis: We look forward to supporting Universal's efforts to gain U S regulatory approval for this test.

James E. Davis: And lastly, our step five hundred's somatic tumor sequencing service, which helps providers select therapy for late stage cancers based on tumor mutation profiles is generating interest from large cancer centers.

James E. Davis: Our investments in cancer screening, treatment selection, and monitoring are positioning us to be a leader in the MRD space and other fast-growing molecular genomics and oncology markets. Turning to operational excellence, our Invigorate program aims to deliver a targeted 3% annual cost savings and productivity improvement. During the quarter, we continued to deploy automation and AI to improve productivity, as well as service levels and quality. For instance, we made progress creating what we term a digital front door, which will use A.I.

James E. Davis: Our investments in cancer screening treatment selection and monitoring are positioning us to be a leader in the <unk> space and other fast growth molecular genomics and oncology markets.

James E. Davis: Turning to operational excellence, our invigorate program aims to deliver a targeted 3% annual cost savings and productivity improvements during the quarter, we continued to deploy automation and AI to improve productivity as well as service levels and quality.

James E. Davis: For instance, we've made progress, creating what we term a digital front door, which will use AI in our website and service center kiosks to answer basic questions for patients, reducing workload on phlebotomist and calls to our customer service team.

James E. Davis: in our website and service center kiosks to answer basic questions from patients, reducing the workload on phlebotomists and calls to our customer service team. We have also recently automated elements of the specimen preparation process in several labs and expect to deploy these systems across other sites in 2024. These systems make our front-end operations more efficient and improve quality, while also freeing our employees to focus on other value-added work. Finally, I'd like to personally thank my Quest colleagues for delivering a superior customer experience.

James E. Davis: We also recently automated elements of the specimen preparation process and several labs and expect to deploy these systems across other sites in 2024.

James E. Davis: These systems make our front end operations more efficient and improve quality, while also freeing our employees to focus on other value added work.

James E. Davis: Finally, I'd like to personally thank my colleagues for delivering a superior customer experience our industry just celebrated last week, which reminds us of the key role lapsed play at the heart of health care.

James E. Davis: Our industry just celebrated Lab Week, which reminds us of the key role labs play at the heart of health care. I'm proud that our nearly 50,000 employees bring Quest's purpose to life every day, working together to create a healthier world, one life at a time. Now, I'll turn it over to Sam to provide more details on our performance and our 2024 guidance.

James E. Davis: I'm proud that our nearly 50000 employees bring crest purpose to life every day working together to create a healthier world one life at a time.

James E. Davis: And with that I'll turn it over to Sam to provide more details on our performance and our 2024 guidance Sam.

Sam A. Samad: In the first quarter, consolidated revenues were $2.37 billion, up 1.5% versus the prior year, while base business revenues grew nearly 6%. Revenues for Diagnostic Information Services were up 1.7% compared to the prior year, reflecting strong growth in our base testing revenues, partially offset by lower revenues from COVID-19 testing services. Total volume measured by the number of requisitions increased 1.6% versus the first quarter of 2023, with acquisitions contributing 60 basis points to total volume.

Sam A. Samad: Thanks, Jim.

Sam A. Samad: In the first quarter consolidated revenues were $2 $37 billion.

Sam A. Samad: Up one 5% versus the prior year, while base business revenues grew nearly 6%.

Sam A. Samad: Revenues for diagnostic information services were up one 7% compared to the prior year, reflecting strong growth in our base testing revenues, partially offset by lower revenues from COVID-19 testing services.

Sam A. Samad: Total volume measured by the number of requisitions increased one 6% versus the first quarter of 2023.

Sam A. Samad: With acquisitions, contributing 60 basis points to total volume.

Sam A. Samad: Total base testing volumes grew 3.3% versus the prior year, despite the impact of severe weather in the first two weeks of January. During the quarter, weather negatively impacted volume growth by approximately 30 basis points. Revenue per requisition was up slightly versus the prior year, driven primarily by an increase in the number of tests per rec and favorable test mix, largely offset by lower COVID-19 test revenue. Base business revenue per REC was up 2.6% due to an increase in the number of tests per REC and favorable test mix. Unit Price Reimbursement was flat.

Sam A. Samad: Total base testing volumes grew three 3% versus the prior year. Despite the impact of severe weather in the first two weeks of January.

During the quarter weather negatively impacted volume growth by approximately 30 basis points.

Sam A. Samad: Revenue per requisition was up slightly versus the prior year, driven primarily by an increase in the number of tests per req.

Sam A. Samad: And favorable test mix, largely offset by lower COVID-19 testing.

Sam A. Samad: Base business revenue per req was up two 6% due to an increase in the number of tests per req and favorable test mix.

Sam A. Samad: Unit price reimbursement was flat.

Sam A. Samad: Reported operating income in the first quarter was $300 million, or 12.7% of revenue, compared to $305 million, or 13.1% of revenues last year. On an adjusted basis, operating income was $349 million, or 14.8% of revenues, compared to $350 million, or 15% of revenues last year. Adjusted operating income was relatively consistent versus the prior year due to strong growth in the base business, largely offset by lower COVID-19 testing revenues, wage increases, and higher benefit costs.

Sam A. Samad: Reported operating income in the first quarter was $300 million or.

Sam A. Samad: Or 12, 7% of revenues.

Sam A. Samad: Third to $305 million or 13, 1% of revenues last year.

Sam A. Samad: On an adjusted basis operating income was $349 million or.

Or 14, 8% of revenues.

Sam A. Samad: Compared to $350 million or 15% of revenues last year.

Sam A. Samad: Adjusted operating income was relatively consistent versus the prior year due to strong growth in the base business largely offset by lower COVID-19 testing revenues wage increases.

Sam A. Samad: And higher benefit costs.

Sam A. Samad: Reported EPS was $1.72 in the quarter compared to $1.78 a year ago. Adjusted EPS was $2.04. Slats versus the prior year. Cash from operations was $154 million in the first quarter versus $94 million in the prior year. Subsequent to the end of the first quarter, we repaid $300 million of senior notes which matured on April 1st.

Sam A. Samad: Reported EPS was $1.72 in the quarter compared to $1 78, a year ago.

Sam A. Samad: Adjusted EPS was $2 <unk>.

Sam A. Samad: Flat versus the prior year.

Sam A. Samad: Cash from operations was $154 million in the first quarter versus $94 million in the prior year.

Subsequent to the end of the first quarter, we repaid $300 million of.

Sam A. Samad: Our senior notes, which matured on April one.

Sam A. Samad: Turning to our updated full year 2024 guidance, revenues are expected to be between $9.4 billion and $9.48 billion. Reported EPS is expected to be in a range of $7.57 to $7.82, and adjusted EPS is expected to be in a range of $8.72 to $8.97. Cash from operations is expected to be approximately $1.3 billion, and capital expenditures are expected to be approximately $420 million. The following are some key assumptions underlying our guidance that you should consider as you update your model.

Sam A. Samad: Turning to our updated full year 2024 guidance revenues are expected to be between $9 4 billion and $9 four 8 billion.

Sam A. Samad: Reported EPS is expected to be in a range of $7 57 to.

Sam A. Samad: The $7 82.

Sam A. Samad: And adjusted EPS to be in a range of $8 72.

Sam A. Samad: To $8 97.

Sam A. Samad: Cash from operations is expected to be approximately $1 3 billion and capital expenditures are expected to be approximately $420 million.

Sam A. Samad: The following are some key assumptions underlying our guidance to consider as you update your models.

Sam A. Samad: COVID-19 testing revenues to decline approximately $175 million for the full year. In terms of M&A, our guidance only includes acquisitions that have been announced or closed to date. No change to our expectation for dilution from haystack oncology of an incremental 20 cents to adjusted EPS for the full year. Operating margin to expand for the full year, driven by volume growth and improved productivity, net interest expense to be approximately $190 million, and weighted average share count to be flat compared to the end of 2023.

Sam A. Samad: COVID-19 testing revenues to decline approximately $175 million for the full year.

Sam A. Samad: In terms of M&A, our guidance only includes acquisitions that have been announced or closed to date.

Sam A. Samad: No change to our expectation for dilution from haystack oncology of an incremental 20.

Sam A. Samad: The adjusted EPS for the full year.

Sam A. Samad: Operating margin to expand for the full year, driven by volume growth and improved productivity.

Sam A. Samad: Net interest expense to be approximately $190 million.

Sam A. Samad: Weighted average share count to be flat compared to the end of 2023.

Sam A. Samad: While we are only one quarter into the year, given the strong volume trends in Q1, we have raised our adjusted EPS guidance by $0.10 at the midpoint, which more than offsets the $0.05 to $0.07 headwind we experienced from weather in January. With that, I will now turn it back to Jim.

Sam A. Samad: While we are only one quarter into the year given the strong volume trends in Q1, we have raised our adjusted EPS guidance by <unk> 10 cents at the midpoint, which more than offsets the five to seven cent headwind, we experienced some weather in January.

Sam A. Samad: With that I will now turn it back to Jim.

James E. Davis: Thanks, Sam. To summarize, our business delivered strong revenue growth across our core customer channels, physicians, hospitals, and consumers, building on trends from 2023. Our strong customer relationships, broad health plan access, and investments in advanced diagnostics are enabling us to take advantage of sustained high healthcare utilization and drive new customer growth. We are steadily improving productivity as well as service levels and quality, giving us confidence in improved profitability in 2024. Now, we'd be happy to take your questions, operator.

Thanks, Sam to summarize our business delivered strong revenue growth across our core customer channels physicians hospitals and consumers building on trends from 2023, our strong customer relationships broad health plan access and investments in advanced diagnostics are enabling us to.

James E. Davis: Take advantage of sustained high health care utilization and drive new customer growth.

James E. Davis: We are steadily improving productivity as well as service levels and quality, given us confidence and improved profitability in 2024.

Speaker Change: Now we'd be happy to take your questions operator.

Operator: Thank you. We will now open it up to questions. At the request of the company, we ask that you limit yourself to one question. If you have any additional questions, we ask that you please fall back in the queue. To be placed in the queue again, please press star 1 on your phone. To withdraw, press star 2. Again, to ask a question, please press star 1. Our first question for today will come from Patrick Donnelly of Citi. Your line is open, sir.

Speaker Change: Thank you.

Speaker Change: We'll now open it up to questions at the request of the company. We ask that you limit yourself to one question. If you have an additional questions. We ask that you. Please fall back in the Q.

Speaker Change: To be placed in the queue again, please press star one from your phone to withdraw or to start to occur.

Speaker Change: Again to ask a question please press star one.

Speaker Change: Our first question first question for today will come from Patrick Donnelly of Citi. Your line is open Sir.

Patrick B. Donnelly: Hey, guys, good morning. Thanks for taking the question.

Patrick B. Donnelly: Hey, guys. Good morning, Thanks for taking the question.

Sam A. Samad: I want to focus on the margins, Sam. Obviously, a big story throughout last year. It's nice to see them come in a little bit better than expected this quarter. Can you talk about the moving pieces? It sounds like Haystack was as expected in terms of the dilution for the year. You're kind of maintaining that expectation. But can you talk about the better performance this quarter and then expectations as we work our way through the year, the right way to think about the cadence there? I just want to make sure we have that metric kind of ironed out as we think about the progress as we work our way through 24 here?

Patrick B. Donnelly: But I wanted to focus on the margin Sam obviously big story throughout last year, and nice to see them come in a little bit better than expected. This quarter. So can you talk about the moving pieces. It sounds like haystack was as expected in terms of the dilution for the year, you are kind of maintaining that expectation.

Patrick B. Donnelly: But can you talk about the better performance this quarter and then expectations as we work our way through the year the right way to think about the cadence there.

Patrick B. Donnelly: Want to make sure we have that metric kind of ironed out as we think about the progress as we work away through 'twenty four year.

Sam A. Samad: Yeah, sure, Patrick. And good morning.

Speaker Change: Yes, sure Patrick and good morning so.

Sam A. Samad: So maybe the best way to look at it is to think about it in terms of year over year. We were 14.8% operating margins in Q1 of this year, compared to 15% last year. So some moving parts for you to consider and think about, because you can look at this in many different ways. But versus last year, obviously, a big headwind in terms of COVID, both in terms of volumes but also price; we had $90 million less COVID this quarter versus last year, same quarter, at a much lower price as well, because we were getting reimbursed at $100 price back then. You know, if you think about other smaller headwinds, I mean, Haystack, as you said, we still expect it to But you saw that in Q1.

Speaker Change: Maybe the best way to look at it is think about it in terms of year over year. We were 14, 8% operating margins in Q1 of this year compared to 15 last year. So some moving parts for you to consider and think about because you can look at this many different ways, but.

Speaker Change: <unk> last year, obviously, a big headwind in terms of Covid. Both in terms of volumes, but also price we had $90 million less COVID-19 this quarter versus last year same quarter at a much lower price as well because we were getting reimbursed at $100 price back then.

Speaker Change:

Speaker Change: If you think about other smaller headwinds I mean haystack as you said, we still expect it to be 20 incremental dilution versus last year for the full year, while you saw that in Q1.

Sam A. Samad: But then offsetting, you know, these headwinds, the biggest one being COVID, was base, volume growth, and productivity improvement. So we actually offset almost, you know, the majority of the COVID headwind through base improvement in terms of margins. The consumer-initiated testing business also expanded operating margins as well. We continue to see great momentum in that business and good improvement in profitability. Our base gross margins actually improved quite significantly from Q1 of last year.

Speaker Change: But then offsetting these headwinds the biggest Colombian COVID-19 was base.

Speaker Change: Volume growth and productivity improvement, so we actually offset almost the majority of the COVID-19 headwind through base improvements in terms of margins.

Speaker Change: Consumer initiated testing business also expanded operating margins as well, we continue to see great momentum in that business and good improvement in profitability our base gross margins actually improved quite significantly from Q1 of last year. So very encouraged by the start that we've had and the momentum that we see going forward in terms of cadence I think to answer your.

Sam A. Samad: So, very encouraged by the start that we've had and, you know, the momentum that we see going forward. In terms of cadence, I think to answer your second question, it's, I'd say, the normal seasonality that you would expect going forward. A step up in Q2 in terms of operating margins, you know, maybe consistent operating margins between Q2 and Q3, and then a step down in Q4, which is, I would say, normal pre-COVID seasonality for us. Operator, next question. The next question will come from Ann Hynes of Mizzou Host Securities. Your line is open.

Speaker Change: Second question.

Speaker Change: I would say normal seasonality that you would expect going forward a step up in Q2 in terms of operating margins.

Speaker Change: Maybe consistent operating margins for Q2, and Q3, and then a step down in Q4, which is I would say normal pre COVID-19 seasonality for us.

Speaker Change: Yes.

Speaker Change: Operator next question, Yes. The next question will come from Ann Hynes of Mizuho Securities. Your line is open.

Ann Hynes: Great. Thanks, good morning.

Ann Hynes: You beat consensus by 11%, but only raised EPS by one <unk>.

Operator: Operator, next question. The next question will come from Ann Hynes of Mizzou Host Securities. Your line is open.

Ann Hynes: I'm sorry, 1% can you tell us what Q1 came in versus your <unk>.

Ann Hynes: Our internal expectations and should we view that differential as conservatism or is there something also you should consider as we model. Thanks.

Sam A. Samad: So let me start and thank you for the question. By the way, this is Sam. And, you know, Jim, if you want to add anything as well, by all means.

Ann Hynes: So let me start and thank you for the question by the way. This is Sam and Jim If you want to add anything as well.

Sam A. Samad: We beat in Q1, both in terms of versus external expectations, but also versus our own internal expectations. So we came that came in better we had called out at the beginning of the year on the Q4 earnings call that we expect to see a five to seven.

Sam A. Samad: You know, we beat in Q1, both in terms of versus external expectations but also versus our own internal expectations. So we came in better. We had called out at the beginning of the year on the Q4 earnings call that we expected a 5 to 7 cent headwind from weather, you know, in terms of EPF headwind from weather. And that was at the time driven by the fact that really the first two weeks, three weeks of January were quite tough for us in terms of utilization and in terms of weather.

Sam A. Samad: Headwinds from weather in terms of EPS headwind from weather.

Sam A. Samad: And that was at the time driven by the fact that really the first two weeks three weeks of January were quite tough for us in terms of utilization and in terms of whether we offset a significant portion of that I mean, you heard on the prepared remarks that we had a 30 30 basis point headwind impact as a result of weather, but really we offset most of the headwind in terms of.

James E. Davis: We offset a significant portion of that. I mean, you heard in the prepared remarks that we had a 30 basis point headwind impact as a result of weather. But really, we offset most of the headwind in terms of the EPF impact. So you know, the 5 to 7 cents. Generally, we feel good that that's behind us, and that's, you know, essentially taken off the table. So we felt comfortable increasing our EPF by 10 cents at the midpoint.

Sam A. Samad: The EPS impact so the five to seven largely we feel good that that's behind us and that's essentially taken off the table. So we felt comfortable increasing our EPS by <unk> 10 at the midpoint now it's only.

James E. Davis: Now it's only, you know, we're only in the second quarter here. We still have three quarters to go. Utilization was really strong, especially base business utilization in the first quarter. You know, we're expecting in the next three quarters that we go back to, I would say, more normal utilization, not what we saw in Q1. So that's what our EPS range is also driven by. But you know, I would say very pleased with the beat that we had in Q1 and take the weather headwind off the table. Yeah, the only thing I'd add is

Sam A. Samad: Early in the second quarter here, we still have three quarters to go utilization was really strong, especially base business utilization in the first quarter, we're expecting.

Sam A. Samad: The next three quarters that.

Sam A. Samad: We go back to I would say more normal utilization not not what we saw in Q1. So that's what our EPS range is also.

Sam A. Samad: Driven by but I would say very pleased with the beat that we had in Q1 and taking the weather headwind off the table.

Operator: Yeah, the only thing I'd add, Ann, is that the volume growth was broad-based. We saw it across all physician channels, and we saw it in health systems as well. So it did beat our internal expectations after a slow start in January. It came back very nicely in February and March, and we finished strong.

Speaker Change: Yes, the only thing I'd add to and is that the volume growth was broad based we saw it across.

Speaker Change: All physician channels and we saw it in health systems as well so it.

Speaker Change: It did beat our internal expectations. After a slow start in January and it came back very nicely in February and March and we finished strong.

Kevin Caliendo: The next question comes from Kevin Caliendo of UBS. Your line is open.

Speaker Change: Great. Thanks.

Speaker Change: The next question comes from Kevin Caliendo of UBS. Your line is open.

James E. Davis: Hey, thanks for taking my question. So I wanted to ask a little bit about LDT. I'm sure you were hoping that the ruling was going to come out before you reported so that you could actually address it, but maybe talk a little bit now that you've had some time to go over the initial proposal and maybe what you're expecting in the final proposal. Maybe can you let us know about the scope of the tests that you think are going to be included in any sort of financial implications that you might have for fiscal 24?

Kevin Caliendo: Hey, Thanks for taking my question. So I wanted to ask a little bit about about L. D. T. I am sure you are hoping that the ruling was going to come out before you reported so that you can actually address yet but maybe.

Kevin Caliendo: Talk a little bit now that you've had some time to go over the initial proposal and maybe what youre expecting in the final proposal, maybe can you let us know about the scope of the tests that you think are going to be included in any in any sort of.

Kevin Caliendo: Financial implications that you might have for for fiscal 'twenty for that it changed the way you're guiding is there anything in the guidance for this.

James E. Davis: Did it change the way you were guiding? Is there anything in the guidance for this? And maybe how you think it plays out with regard to whether you are going to try to get an injunction or anything like that through NACLA?

Kevin Caliendo: And maybe how you think it plays out with regards to are you going to try to get an injunction or anything like that through <unk>.

James E. Davis: Yeah, so thanks, Kim. So look, we don't know what the final rule is yet. We've all seen the proposed rule. It largely follows 21 CFR Part 820, which is the regulated device code.

Speaker Change: Yeah. So thanks, Kevin So look we don't know what the final rule is yes, we've all seen the proposed rule.

Speaker Change: Largely.

Speaker Change: <unk> 21, CFR part, a 'twenty, which is the regulated device.

James E. Davis: So we're preparing for it. But let me just tell you, look, we start, you know, with a strong quality management system and a very strong quality organization at Quest Diagnostics today. As you know, we follow the CLIA guidelines, which were implemented in 1988.

Speaker Change: So we're preparing for it but let me just tell you look we start.

Kevin Caliendo: With a strong quality management system, and a very strong quality organization and quest diagnostics today as you know we follow the CLIA guidelines CLIA was implemented in 1988, it's a very robust and strict set of guidelines that we follow and we feel good about that.

James E. Davis: It's a very robust and strict set of guidelines that we follow, and we feel good about that. I would also tell you that myself and many other people at Quest Diagnostics have come from regulated device manufacturing companies in the healthcare space.

Kevin Caliendo: I would also tell you that myself and many other people in quest diagnostics have come from regulated device.

Kevin Caliendo: Manufacturing companies in the health care space. So we know what to do we know how to do it.

James E. Davis: So we know what to do. We know how to do it. Certainly, there are gaps between what CLIA recommends and what 21 CFR recommends.

Kevin Caliendo: Certainly theres gaps between what clear recommends and what 21 CFR recommends.

James E. Davis: And we'll address those gaps once we know what the final rule is. But we'll be prepared. There's not going to be any impact on earnings or EPS here in 2024. As you know, the timeframe laid out was a three to four-year timeframe.

Kevin Caliendo: And we'll address those gaps once we know what the final rule is but we'll be prepared.

Kevin Caliendo: There's not going to be any impact on earnings or EPS here in 2024 as you know the timeframe laid out was a three to four year timeframe. So we will address this in a thoughtful way, we'll be prepared and we've got the confidence and in quality and quality organization in place to do it.

James E. Davis: So we'll address this in a thoughtful way. We'll be prepared. And we've got the confidence and quality organization in place to do it. The next question will come from Brian Tanquilut of Jeffries. Your line is open. Good morning. You've got Tajian supply.

Kevin Caliendo: Okay.

Kevin Caliendo: The next question will come from Brian <unk> of Jefferies. Your line is open.

Kevin Caliendo: Good morning, <unk> on for Brian. Thanks for taking my question. So first just on the M&A contribution obviously called out 60 basis points contribution to total volume. Just curious is the 50 basis point expectation for the full year contribution to revenue still stand.

Operator: The next question will come from Brian Tanquilut of Jefferies. Your line is open.

Speaker Change: Thank you.

James E. Davis: Well, if we don't do any other acquisitions this year, then yes, the 50 basis point, you know, trend will continue for the following quarters. But as we mentioned in the script, our funnel is good. It's robust.

Speaker Change: Well, if we don't do any other acquisitions. This year, then, yes 50 basis point.

Speaker Change: The trend will continue for the following quarters, but as we mentioned in the script R.

Speaker Change: Our funnel is is good it's robust and we would expect to close some some additional transactions this year.

James E. Davis: And we would expect to close some additional transactions this year, but timing is involved. And you know, these things do take time. So, we're cautiously optimistic.

Speaker Change: Timing is involved in these things do take time so.

Speaker Change: But we're cautiously optimistic yes, just to be clear our consistent approach is always going to be that we will include in the guidance that we provide only the things that have been announced and are carryover acquisition. So anything that we havent announced we will not be included in our guidance. So to Jim's point, if we do close any other.

Sam A. Samad: Yeah, just to be clear, our consistent approach is always going to be that we will include in the guidance that we provide only the things that have been announced and our carryover acquisitions. So anything that we haven't announced will not be included in our guidance. So to Jim's point, if we do close any other transactions, you know, we will include them in our guidance prospectively going forward. That's the next question. Erin Wright of Morgan Stanley, your line. Great, thanks. I wanted to ask about just the broader advantage.

Speaker Change: Transactions were.

Speaker Change: We will include them in our guidance prospectively going forward.

Speaker Change: Okay.

Speaker Change: The next question will come from Erin Wright of Morgan Stanley. Your line is open great.

Erin Elizabeth Wilson Wright: Thanks, I wanted to ask on just the broader advanced diagnostic segment and how that's tracking relative to kind of internal expectations made advances in areas like Alzheimer's for instance, in Alexandra Heath acquisition can.

Erin Elizabeth Wilson Wright: Can you talk a little bit about potential holes in your offering that you see as opportunities and then on the haystack Frank just what's the next catalyst on that front. Thanks.

Operator: The next question will come from Erin Wright of Morgan Stanley. Your line is open. Good. Thanks.

James E. Davis: Yeah, so from an advanced diagnostic standpoint, it certainly met and even exceeded our expectations here in the quarter. So, let me talk about brain health first.

Speaker Change: Yes so.

Speaker Change: From an advanced diagnostic standpoint, it certainly met and even exceeded our expectations here in the quarter. So let me talk about brain health first.

James E. Davis: The uptake of our AB4240 test, which is a blood-based test for amyloid plaque, has again exceeded expectations. We're really, really pleased with how that test is doing. We announced yesterday in a press release that we've added PTOW217. We had already introduced PTOW181.

Speaker Change: The uptake of our AAV $42 40 test, which is a blood based test.

Speaker Change: For amyloid plaque has again exceeded expectations, we're really really pleased with how that test is doing we announced yesterday in a press release that we've added.

Speaker Change: P Tau.

Speaker Change: 2017, we had already introduced <unk> 181, so we feel like the the brain health blood based <unk>.

James E. Davis: So we feel like the brain health blood-based portfolio is in great shape. As well, the CSF side of the portfolio continues to do well as well. On the women's healthcare side, prenatal genetics and carrier screening are doing very well.

Speaker Change: Portfolio is in great shape.

Speaker Change: As well the CSF side of the portfolio.

Speaker Change: <unk> to do well as well on the women's health care side, prenatal genetics and carrier screening are doing very well, we continue to see double digit growth there.

James E. Davis: With respect to Haystack, as you know, it's still pre-revenue, but we are about to embark on what we call our early experience program. We said in the script that we were oversubscribed. We sought, you know, somewhere between 15 and 20 partners to start the program with. But we filled that up a lot more quickly than we thought and had to cut it off at 20 customers. So, feel good about that. We're going to run that early experience program for the next several months, which will position us for a broader national launch later in the quarter. So, I feel good about the contribution of advanced diagnostics across our portfolio of tests.

With respect to haystack.

Speaker Change: As you know it's still pre revenue.

Speaker Change: But we are about to embark on a what we call our early experience program.

Speaker Change: We've said in the script that we were oversubscribed, we saw somewhere between 15 and 20 partners to start the program with and we fill that up a lot more quickly than we thought and had to cut it off it at 20 customers. So feel good about that we're going to run that an early experience program for the next several months, which.

Speaker Change: It will position us for a broader national launch later in the quarter. So feeling good about the contribution of advanced diagnostics across our portfolio of tests.

Speaker Change: Yeah.

Operator: The next question will come from Michael Cherney of Lyrinc Partners. Your line is open.

Speaker Change: The next question will come from Michael Cherny of Leerink Partners. Your line is open.

Michael Cherny: Good morning, and thanks, so much for taking the question, maybe Sam if I could turn back to the guidance you talked about the dynamics of utilization and the expectation that will be a slightly more normal environment.

Michael Cherney: Good morning, and thanks so much for taking the question. Maybe, Sam, I can turn back to the guidance you talked about the dynamics of utilization and the expectation that it will be a slightly more normal environment. As you think about that, how does that factor into your expectations for organic volume, not only on the total number but also on mix, and how that...

Michael Cherny: As you think about that how does that factor into your expectations for organic volume not only on the total number but also on mix and how that.

Operator: Mike, sorry, we kind of lost you for... a few seconds there. Can you please repeat the question because I missed a portion of it? Is this better? Yes, this is much better. Thank you. Okay. I'm going to try to fix my headset after this.

Michael Cherny: Mike It's Mike sorry, we kind of lost you for a few seconds. There can you. Please repeat the question because I missed a portion of it.

Mike: Is this better.

Yes. This is much better thank you.

Speaker Change: Okay, I'm going to try to fix my headset actually I apologize for that.

Michael Cherney: I apologize for that. So, it's a question just about the dynamics, what's ingrained in the organic volume expectations, including both from a normalization of the market and also from a mixed perspective and how that factors into your expectations for margin expansion. And where are the push and pull points that will allow you to make sure you hit the margin expansion versus areas that you could potentially fall short? Yeah, I mean, I can start. And by all means, Jim, you can, you can add some color as well.

Speaker Change: So it's just it's a question just on on the dynamics, what's ingrained in the organic volume expectations.

Speaker Change: It included both from a normalization of the market, but also a mixed perspective and how that factors into your expectations for margin expansion and where are the push and pull points that will allow you to make sure you hit the margin expansion versus areas that you could potentially fall short.

Speaker Change: Yes.

Speaker Change: I can start then by all means Jim you can you can add some color as well I think as Jim talked about earlier, Mike We've got some areas within advanced diagnostics that are growing in the double digits, which really helps us.

Sam A. Samad: I think, as Jim talked about earlier, Mike, we've got some areas within advanced diagnostics that are growing in the double digits, which really helps us from growing some of the key tests that we have in that portfolio and also helps us from a profitability standpoint as well. But overall base volumes, you know, we grew five times, you know, in revenues 5.7%, but grew less than that in volumes in Q1.

Speaker Change: From.

Growing.

Speaker Change: Some of the key tests that we have in that portfolio and also helps us from a profitability standpoint, as well, but overall base volumes we grew five.

Speaker Change: And revenues five 7% grew less than that in volumes in Q1, our expectation is that we're growing.

Sam A. Samad: Our expectation is that we're growing, you know, in the sort of close to mid-single digits, maybe slightly below that in terms of volumes, and that drives a lot of productivity and improvement in terms of our margins as we look forward. So both in terms of mix and some of these advanced diagnostics tests that we have, but also in terms of volume growth overall for the remaining three quarters, we expect that to drive an improvement in terms of productivity.

Speaker Change: Sort of close to mid single digits, maybe slightly below that in terms of volumes and that drives a lot of productivity and improvement in terms of our margins as we look forward. So both in terms of mix and some of these advanced diagnostics that we have but also in terms of volume growth overall for the remaining three quarters, we expect that to drive an improvement.

Speaker Change: In terms of productivity now I remember.

Sam A. Samad: Now, remember, you know, we are in the next three quarters. We're not assuming that we continue at the same level and the same rate of, whether you call it, base revenue growth and, maybe to some extent, base clinical volume growth. We do expect that, you know, some of this excess utilization starts to come down and normalize. Maybe that's a conservative assumption; I'm not sure. But at this point, you know, we're more comfortable saying that it's going to be, you know, volume growth is going to be closer to that, just slightly lower than mid-single digits. Jim, anything you would add there? Yeah, I would just say look, the mix in the quarter...

Speaker Change: We are in the next three quarters, we're not assuming that we continue at the same level in the same rate of whether you call. It base revenue growth and maybe to some extent.

Speaker Change: Based clinical volume growth, we do expect that.

Speaker Change: Some of this excess utilization starts to come down to normalized maybe that's a conservative assumption not sure but at this point, we're more comfortable saying that it's going to be volume growth is going to be closer to that.

Speaker Change: Just slightly lower than mid single digits, Jim anything you would add there yeah I would just say look the mix in the quarter was really good on a total basis. So all in even with Covid, we still had <unk>.

James E. Davis: Yeah, I would just say, look, the mix in the quarter was really good. On a total basis, so all in, even with COVID, we still had, you know, 10 basis points of growth from a rep-per-rec standpoint, while pricing relatively flat. So it suggests that test-per-rec and test-mix were really, really strong. And remember, that offset, as Sam said in the script, $90 million worth of COVID decline. COVID that last year was at $100 per test, so we completely offset that from a mix standpoint and still saw growth in rep-per-rec. So I am really happy with the mix that we saw in the quarter.

James E. Davis: 10 basis points of growth from a rep correct standpoint pricing relatively flat. So it suggests that test per req.

James E. Davis: Test mix were really really strong and remember that offset as Sam said in the script $90 million worth of Covid decline Covid that last year was at $100 per test so.

James E. Davis: We completely offset that from a mix standpoint, and still saw growth in rough correct. So really happy with the mix that we saw in the quarter.

James E. Davis: Yeah.

Operator: The next question comes from Jack Meehan of Nefron Research. Your line is open.

James E. Davis: The next question comes from Jack Meehan of Nephron Research Your line is open.

Jack Meehan: Thanks. Good morning, guys. I was hoping you could unpack the core growth a little bit more, so nearly six percent, that was a three percent beat versus what I was looking for. You know, historically, the lab has been a pretty steady business, so to post a beat like this is pretty notable. Can you just lay out the factors for why maybe outside of core utilization growth came in a lot stronger in the quarter and any thoughts on share gains, was that a dynamic? Thanks.

Jack Meehan: Thanks, Good morning, guys.

Jack Meehan: Was hoping you could unpack the core growth a little bit more so nearly 6% that was a 3% beat versus what I was looking for you know historically the lab, it's been a pretty steady business supposed to be like this it was pretty notable.

Jack Meehan: Can you just lay out the factors for why maybe outside of quarter utilization growth came in a lot stronger in the quarter and any thoughts on share gains was that a dynamic. Thanks.

James E. Davis: Yeah, I think it's all of the above, Jack. Certainly, utilization remains strong, consistent with what we've seen in the last three or four quarters. But we also said that, yeah, we think we're picking up share. We closed several large transactions with two integrated large physician groups in the quarter. Our core physician volume growth was strong. Additionally, our hospital reference growth was strong. Our PLS volume was relatively strong in the quarter, so that suggests utilization in hospitals was also up. And our pathology business is contributing as well to growth. So, we see it across all physician types, all physician channels, retailers, as well as these large physician groups. And it's a combination of utilization plus share gains.

Speaker Change: Yes, I think it's all of the above Jack certainly the utilization remains strong consistent with what we've seen in the last three or four quarters.

Speaker Change: We also said that yeah, we think we're picking up share we closed several large transactions with two.

Speaker Change: Integrated large physician groups in the quarter, our core physician volume growth was strong our hospital reference growth was strong our pls volume relatively strong in the quarter. So that suggests utilization in hospitals was also up in our pathology business contributing as well.

Speaker Change: Two to growth so we see it across all physician types, all physician channels retailers as well as these large physician groups and it's a combination of utilization plus share gains yes.

Sam A. Samad: Yeah, and Jack, this is Sam.

Sam A. Samad: Yeah, and Jack, this is Sam. I'll mention one other thing as well. If you're looking at overall base business growth, I mean, the Quest Health, you know, consumer-initiated testing business, as well, was a very good strength and tailwind in the quarter. Basically, that base business, excluding COVID, almost doubled in the quarter, so year over year.

Speaker Change: And Jack this is Sam I'll mention one other thing as well if youre looking at overall base business growth I mean, the quest health.

Sam A. Samad: Consumer initiated testing business as well.

Sam A. Samad: It's a very good strength and tailwind in the quarter a basic.

Sam A. Samad: Basically that base business, excluding COVID-19 almost doubled in the quarter so year over year.

Sam A. Samad: The next question comes from Elizabeth Anderson of Evercore ISI. Your line is open.

Sam A. Samad: The next question comes from Elizabeth Anderson of Evercore ISI. Your line is open.

Elizabeth Hammell Anderson: Hi guys, maybe a slight two-parter for me. First, just to pick up on Sam what you were saying about the consumer business, can you talk about when you sort of think about how you think about the margin progression of that and sort of like what your expectations are for that to get more towards the corporate average? And then secondarily, could you just comment on the continued labor environment? How are you seeing wages and turnover versus the prior quarter? Thank you.

Elizabeth Hammell Anderson: Hi, guys, maybe I'll say to you Pekka for me in the first just to pick up Sam or Youre, just saying about the consumer.

Elizabeth Hammell Anderson: <unk> business can you talk about when you sort of think about how you think about the margin progression of that and then sort of like what your expectations are for that to get more towards the corporate average and then secondarily could you just comment on the continued labor environment. How are you seeing sort of wages and turnover versus the prior quarter. Thank you.

James E. Davis: Yeah, hey, I'll address both. So the margins on our consumer business are consistent with the margins in the overall business. So it's right there. It's at the meeting for the company.

Speaker Change: Yeah, Hey, I'll address Paul so.

The margins on our consumer business are consistent with the margins and the overall business. So it's right. There it's at the insert the medium for the company and it continued to improve all last year and so feel good about that in terms of the labor environment, We definitely saw a.

James E. Davis: And it continued to improve all last year, and so I feel good about that. In terms of the labor environment, we definitely saw a tick down in, or a tick up, let's just say, our retention rates, not yet back to pre-COVID levels, but below in the high teens below the 20% threshold that we were running at last year. So we feel good about that. You know, we saw a downward tick in logistics attrition, our specimen processing, it was across the board, all frontline jobs improved in the quarter, and I feel good about the direction that that's moving in. The next question comes from Lisa Gill of J.P. Morgan. Your line

Speaker Change: A tick down in our a tick up let's just say in our retention rates.

Speaker Change: Not yet back to pre COVID-19 levels, but below in the high teens below the 20% threshold that we were running at last year. So we feel good about that.

Speaker Change: We saw a.

Downward tick in logistics attrition.

Speaker Change: Our specimen processing it was across the board all frontline jobs improved in the quarter and feel good about the direction that that's moving in.

Speaker Change: Okay.

Speaker Change: The next question comes from Lisa Gill of Jpmorgan. Your line is open.

Operator: The next question comes from Lisa Gill of J.P. Morgan. Your line is open. Thanks very much. Good morning. In your prepared comments, you talked about

Lisa Christine Gill: Okay. Thanks, very much good morning, Andrew.

Lisa Christine Gill: In your prepared comments, you talked about 50% of health plans now having some type of value based care arrangement can you maybe just give US. An example of what that looks like and talk about what that means to the margin.

James E. Davis: Yeah, so we call them value-based incentives. That's what we're talking about here. And generally, there are two types.

Andrew: Yes, so we call it.

Andrew: Value based incentives is what we're talking about here and generally theres two types. So one is related to acquisitions. So when we acquire an outreach book of business and let's say the health plan was pain that health system to 2% to 300% of Medicare.

James E. Davis: So one is related to acquisition. So when we acquire an outreach book of business, and let's say the health plan was paying that health system two to three hundred percent of Medicare, it is not going to come down to the rates that we are contracted with that health plan on day one. It will step down over time.

Andrew: It is not going to come down to the rates that we are contracted with that health plan with on day, one it will step down over time.

James E. Davis: So, in fact, there's, you know, again, since it doesn't step right down to our rate, we're getting paid a higher price for that work over some period of time. The second type of incentives is really related to volume movement. So movement of high-priced requisitions from health system laboratories or from out-of-network laboratories into Quest Diagnostics. And so, in essence, you're getting paid for share gains at that health plan that are tied to share gains coming from moving those repositions from, again, health systems and out-of-network labs.

Andrew: So.

Andrew: So in fact there is.

Andrew: Again since it doesn't step right down to our rate, we're getting paid a higher price for that work over some period of time. The second incent types. It broad based or types of incentives are really related to volume movement. So movement of high priced.

Andrew: Requisitions from health system laboratories or from out of network laboratories in the quest diagnostics and so it's in essence, it's youre getting paid for share gains at that health plan that are tied to share gains coming from moving those rep positions from again health systems and out of network labs. So really those are.

James E. Davis: So really, those are the two types of value incentives that we get. And just to confirm, there was no impact from the changed cyber attack at all on Quest in the quarter? No, less than 2% of our requisitions were ever moving through those pipes from an adjudication standpoint. There's somewhere between a $15 and $20 million cash impact, but no revenue impact in the court. And just to be clear, the cash impact is really a delay, not an...

Andrew: The two types of.

Andrew: Value incentives that that we get.

Andrew: Tim did you confirm theres no impact from the change sniper attack at all on quest in the quarter.

Tim: No less than 2% of our requisitions wherever moving through.

Tim: Those pipes from an adjudication standpoint.

Tim: There is somewhere between 15 and $20 million cash impact.

Tim: But no revenue impact in the quarter and just to be clear the cash impact is really a delay not necessarily any impact to revenue.

James E. Davis: To be clear, the cash impact is really a delay, not necessarily any impact on revenue.

Speaker Change: Okay, great. Thanks for the comments.

Operator: The next question comes from Michael Riskin of Bank of America. Your line is open, sir.

Speaker Change: The next question comes from Michael Riskin of Bank of America. Your line is open Sir.

Speaker Change: Okay.

Michael Riskin: Hey guys, thanks for the question and congrats on the quarter. I want to follow up on an earlier point you touched on, you know, the COVID headwind that you overcame in the quarter and just how to think about price for the rest of the year. So, as you said, impressively, you saw revenue growth for requisitions despite some of that headwind. How should we think about that through the rest of the year?

Michael Riskin: Hey, guys. Thanks for thanks for the question and congrats on the quarter.

Michael Riskin: I want to follow up on an earlier point you touched on the call.

Michael Riskin: With the headwind that you overcame in the quarter and just how to think about price for the rest of the year. So as you said impressively saw revenue per recognition for requisition growth. Despite some of that headwind.

Speaker Change: How should we think about the rest of the year I mean and.

Michael Riskin: I mean, and again, that's kind of a two-parter in terms of COVID headwinds and baiting as you go through the year and then the pricing benefit. You know, you had some major health plan renegotiations that concluded last year. Is that, you know, what's driving some of that growth and anything else in that arena that we should be thinking of for the rest of the year? Thanks.

Speaker Change: Again, that's kind of a two parter in terms of Covid headwinds and fading as you go through the year and then the pricing benefit.

Speaker Change: Had some.

Speaker Change: That's a major health plan renegotiations that concluded last year.

Is that is that what's.

Speaker Change: What's driving some of that growth and anything else in that arena that we should be thinking of for the rest of the year.

James E. Davis: Yeah, so let me start and then I'll let Sam make some comments. So, remember, in the rev rec calculation, there are multiple moving parts here. The first one is pure price; we said it was flat in the quarter, and we expect it to be flattish for the rest of the year. We also said in the rev rec calculation is test per rec, test per rec, test mix, and then payer, test correct positive in the quarter.

Speaker Change: Yes, So let me start and then I'll, let Sam makes some comments so remember in the Rev. Rec calculation. There is multiple moving parts here. The first one is pure price. We said it was flat in the quarter and we expect it to be flattish for the rest of the year.

Sam A. Samad: We also said in the Rev Rec calculation as tests per req.

Sam A. Samad: And tests per Req test mix, and then payer mix test per req positive in the quarter. We expect that to continue test mix was favorable in the quarter. We expect that to continue so all told we like the trend that we saw in the first quarter now there is always puts and takes as we move through each quarter end.

James E. Davis: We expect that to continue. Test mix was favorable in the quarter. We expect that to continue. So, all told, we like the trend that we saw in the first quarter. Now, there's always puts and takes as we move through each quarter, and, you know, we'll have to see how it plays out. But Sam, do you? Yeah, I mean, I

Sam A. Samad: And.

Sam A. Samad: We'll have to see how it plays out but sandy yes.

Sam A. Samad: Yeah, I mean, I'll add maybe a couple of things. First of all, the COVID point. Michael, you know, COVID, not really material for the rest of the year. We said for the full year it was going to be $175 million decline. We had $90 million of that decline happen in Q1. So the biggest impact really was going to be felt in Q1.

Speaker Change: I mean, I'll add maybe a couple of things one first of all the Covid point, Michael Covid, not really material for the rest of the year. We said for the full year is going to be $175 million decline, we've had $90 million of that decline happened in Q1. So the biggest impact really was going to be felt in Q1.

Speaker Change: There is a price impact related to us given the fact that well a small minor price impact actually because the price went down middle of May last year. So really it's a minor price impact and then just a little bit of color on the pricing dynamics, Jim as Jim said, it's flattish for the full year in terms of price impact.

Sam A. Samad: But yeah, there is a price impact related to it, given the fact that, well, a small, minor price impact, actually, because the price went down in the middle of May last year. So really, it's a minor price impact. And then just a little bit of color on the pricing dynamics, you know, Jim, as Jim said, it's flattish for the full year in terms of price impact. But if you look at the ingredients within that, the health plans, we expect them to be, you know, modestly up in terms of price. The health system has a negative impact in terms of price.

Speaker Change: You look at the ingredients within that the health plans, we expect them to be modestly up in terms of price.

Speaker Change: The health systems has a negative impact in terms of price.

Speaker Change: Then we have some other businesses, where we've had some price increases that helps so overall I think the net neutral in terms of price impact for the year.

Speaker Change: Great. Thank you.

Speaker Change: As a reminder.

Speaker Change: If I can.

Speaker Change: Excuse me here as a reminder, if you would like to ask a question. Please press Star then one our next question comes from Stephanie Davis of Barclays. Your line is open.

Sam A. Samad: You know, then we have some other businesses where we've had some price increases, and that helps. As a reminder. As a reminder, if you would like to ask a question, please press star then star. Our next question comes from Stephanie Davis of Barclays.

Stephanie July Davis: Hey, guys, Congrats and thanks for taking my question.

Stephanie July Davis: You touched a bit on the automation opportunity in your centers in your private market. So I was hoping you could help us tease out what the mix of the cost structure looks like in centers, how should we think about the slope bottom you talent that will be difficult to improve with AI solutions versus how much of that cost is more admin or front desk.

Operator: As a reminder, if you would like, Excuse me.

Operator: As a reminder, if you would like to ask a question, please press star then 1. Our next question comes from Stephanie Davis of Barclays. Your line is open.

Stephanie July Davis: You'd have that AI opportunity.

Stephanie July Davis: Okay.

Stephanie July Davis: Well, Stephanie, we've always said that about 50% of the cost structure in the company is wages and labor. And within the laboratories, it's obviously higher than that within phlebotomy. As you know, it's mostly a people expense, although there are supplies and rent for our patient services. I would say, in the laboratories, much of the automation effort continues in the specimen processing area, what we call sorting, aliquoting, pouring off tubes of urine, and things like that. That's where our automation efforts continue to pay dividends for us. On the phlebotomy side, as I mentioned, yes, it's a highly labor-intensive operation.

Stephanie July Davis: Well, it's definitely we've said always said that about 50% of the cost structure of the company is is wages labor and within the laboratories, it's obviously higher than that with Phlebotomy is you know, it's mostly eight people expense, although theres supplies and rent for our patient service centers.

Stephanie July Davis: I would say in the laboratories much of the automation efforts continue in the specimen processing area, what we call sorting outlook quieting pouring off tubes of urine and things like that.

Stephanie July Davis: That's where our automation efforts continue to.

Stephanie July Davis: To pay dividends for us on the phlebotomy side as I mentioned, yes, it's a highly labor intensive operation now in a typical.

James E. Davis: Now, in a typical 10 to 12 minute draw time, there's still probably five to six minutes of that time doing manual paperwork, computer entry type stuff. The biggest opportunity there to improve that is still the movement from paper requisitions to electronic requisitions. What still comes into our patient service center today is 35% to 45% paper that we end up having to input that information into our Quest system. We work back through the physician offices that send us that paper and try to convert it. I would also tell you that we're working on some other kits, kits that could allow for some self-draw. So these are early stages, early, early stage development. But we continue to work on some other things that should make our phlebotomy staff even more productive.

Stephanie July Davis: 10% to 12 minutes.

Stephanie July Davis: Draw time.

Stephanie July Davis: There is still probably.

Stephanie July Davis: Five to six minutes of that time doing manual.

Stephanie July Davis: Paperwork computer entry type of stop the biggest opportunity there to improve that is still the movement from paper requisitions to electronic requisitions, what's still comes into our patient service center today is.

Stephanie July Davis: 35% to 45% paper that we end up having to input that information into our quad system. So we work back through the physician offices at centers that paper and trying to convert that.

I would tell you also we're working on.

Stephanie July Davis: Some other.

Stephanie July Davis: Kits kits that could allow for some self draws. So these are early stages early early stage development, but we continue to work on some other things that should make our phlebotomy staff even more productive.

Stephanie July Davis: And our final question.

Operator: And our final question. Our final question of today will come from Andrew Brackmann of William Blair. Your line is open. Hi guys.

Stephanie July Davis: Our final question of today will come from Andrew Brachman of William Blair. Your line is open.

Andrew Frederick Brackmann: Hi guys, good morning.

Andrew Frederick Brackmann: Hi, guys. Good morning, Thanks for taking the questions maybe just following up on some of the questions related to advanced diagnostics from earlier I guess, it's been about a year. Since you guys announced that Haystack acquisition. So can you maybe just talk about how your views on the <unk> segment or that asset in particular may have evolved since then and I know you mentioned no change in dilution.

James E. Davis: Thanks for taking the questions. Maybe just following up on some of the questions related to advanced diagnostics from earlier. I guess it's been about a year since you guys announced that Haystack acquisition, so can you maybe just talk about how your views on the MRV segment or that asset in particular have evolved since then? And I know you mentioned no change in dilution or spending related to it this year, but how should we be thinking about potential additional investments here in the future to drive some of those share wins? Thanks.

Andrew Frederick Brackmann: Our spending related to it this year, but how should we be thinking about potential additional investments here.

Andrew Frederick Brackmann: In the future to drive some of those Sherwood.

James E. Davis: Yeah, well, Andrew, our thesis hasn't changed at all on the Haystack acquisition. The MRD market continues to grow, by our estimates, at strong double digits. I mean, you know, there's one primary competitor in that space today that is doing very, very well with the test and making inroads in the market, and we applaud them, and they're doing terrific. We think having a second, third credible offering in the marketplace that has a very, very, you know, good basis for competition, very strong and very low limits of detection would be very, very good.

Andrew Frederick Brackmann: Yes.

Andrew Frederick Brackmann: And our thesis hasn't changed at all on the Haystack acquisition, the <unk> market continues to grow.

Andrew Frederick Brackmann: By our estimates strong double digits I mean.

Andrew Frederick Brackmann: One primary competitor in that space today that is doing very very well with with the test and making inroads in the market and we applaud them and.

Andrew Frederick Brackmann: And they are doing terrific. So we think having a second third credible offering in the marketplace that has a very very.

Andrew Frederick Brackmann: Good basis for competition very strong.

Andrew Frederick Brackmann: And very low limits of detection. So feel good about that test. So we still feel great about the investment and where this market is going we're going to build on that we've launched our step 500.

James E. Davis: So I feel good about that test. So we still feel great about the investment and where this market is going. We're going to build on that. You know, we've launched our Step 500 assay as well. Cancer Doctors, Medical Oncologists, to get advice from a treatment planning, therapy planning standpoint, so we feel good about that. We like, by the way, Haystack, it's a tumor-informed test, and again, we feel good about the technology.

Andrew Frederick Brackmann: Assay as well that allows cancer doctors medical oncologists to get advice from a treatment planning therapy therapy planning standpoint, so we feel good about that.

Andrew Frederick Brackmann: We like by the way on Haystack, its a tumor informed test.

Andrew Frederick Brackmann: Again, we feel good about the technology.

James E. Davis: As we mentioned earlier, you know, we've signed up 20 pre-launch customers for this early experience program. These are a broad-based set of customers, from community-based oncologists to academic medical centers, so we like the mix of customers that have come to us right away for this. Once we wrap this early experience program up, we'll be launching on a national basis later this year. And, Andrew, just to add, this is Sam from a

Andrew Frederick Brackmann: As we mentioned earlier, we've signed up 20 pre launch customers for this early experience program. These are a broad based set of customers from community based oncologists to academic medical centers. So we like the mix of customers that have come to us right away for this and once we wrap this early experience pro.

Andrew Frederick Brackmann: Graham up we'll be launching on a national basis later this year and Andrew just to add this is Sam from a dilution standpoint, so our expectations. This year have not changed it's still in total 35 to <unk>.

Sam A. Samad: And Andrew, just to add, this is Sam from a dilution standpoint, so our expectations this year have not changed. It's still, in total, 35% dilution, which is 20 cents of incremental dilution versus last year. For next year, we expect less dilution from Haystack, so on a year-over-year basis, it's actually a tailwind. And then we expect to be... basically start being neutral to accretive as we look towards 26. So nothing has changed from a dilution or financial expectations, and we're really thrilled about the interest in the Early Experience Program that Jim referenced.

Sam A. Samad: <unk>, which is <unk> 20 of incremental dilution versus last year for.

Sam A. Samad: For next year, we expect less dilution from haystack, so on a year over year basis, it's actually a tailwind and then we expect to be.

Sam A. Samad: Basically to start being neutral to accretive as we look towards 26. So nothing has changed from a dilution or expect a financial expectations and we're really thrilled about the interest in the early experience program that Jim referenced.

Operator: And that was the final question.

Speaker Change: And that was the final question.

James E. Davis: All right, thanks, operator. And thanks again for joining our call today. We really appreciate your continued support. Have a good day, everyone.

Speaker Change: Alright, Thanks, operator, and thanks again for joining our call today, we really appreciate your continued support have a good day everyone.

Operator: Thank you for participating in the Quest Diagnostics first quarter 2024 conference call. A transcript of my prepared remarks on this call will be posted later today on Quest Diagnostics' website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com forward slash investor or by phone at 203-883-8888. 369-0197 for international callers, or 866-833-4232. 363-1809 for College students. Telephone replays will be available from approximately 10.30 Eastern Time on April 23, 2024 until midnight Eastern Time on May 7, 2024.

Speaker Change: Thank you for participating in the quest diagnostics first quarter 2024 conference call.

Speaker Change: A transcript of prepared remarks on this call will be posted later today on quest diagnostics website at.

Speaker Change: Www Dot quest diagnostics dot com.

Speaker Change: A replay of the call may be accessed online at Www Dot Quest diagnostics Dot Com board flash investor or by phone at <unk> III.

Speaker Change: 3690.

Speaker Change: We're a $1 97 for international callers or 8663631.

Speaker Change: 809 for domestic callers.

Speaker Change: Telephone replays will be available from approximately 10 30 eastern time on April 21, 2024 until midnight Eastern time May seven 2024.

Speaker Change: Goodbye.

Speaker Change: Okay.