Q2 2024 Quest Diagnostics Inc Earnings Call

Operator: Welcome to the Quest Diagnostics second quarter 2024 conference call. At the request of the company, this call is being recorded.

Speaker Change: Welcome to the Quest Diagnostics second 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 question and answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved.

Operator: The entire contents of the call, including the presentation and question and answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. Now, I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Please go ahead

Speaker Change: Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited.

Speaker Change: Now, I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Please go ahead, sir. 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.

Shawn C. 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-GAAP measures to comparable gap measures in the tables in our earnings press release. However, actual results may differ materially from those projected.

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

Speaker Change: During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release.

Speaker Change: Actual results may differ materially from those projected.

Speaker Change: 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 reports on Form 10-Q , and current reports on Form 8-K.

Speaker Change: For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Any references to base business, testing, revenues, or volumes refer to the performance of our business excluding COVID-19 testing.

Speaker Change: 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.

Speaker Change: Finally, revenue growth rates from acquisitions will be measured against our base business.

Shawn C. Bevec: 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. Now, here's Jim Davis.

James E. Davis: Thanks, Shawn, and good morning, everyone. We delivered another strong quarter with base business revenue growth of nearly 4% and total revenue growth of 2.5%, as well as continued improvement in productivity and profitability in the base business. This performance is due to growth of new physician and hospital customers, a more favorable test mix that includes greater adoption of advanced diagnostics, and Continued Strength in Healthcare Utilization. We also make progress improving our operational quality and efficiency through greater use of automation and AI.

Speaker Change: Now, here's Jim Davis. Thanks, Shawn, and good morning, everyone. We delivered another strong quarter with base business revenue growth of nearly 4% and total revenue growth of 2.5%, as well as continued improvement in productivity and profitability in the base business.

Speaker Change: This performance is due to growth of new physician and hospital customers, more favorable test mix, that includes greater adoption of advanced diagnostics, and continued strength in healthcare utilization.

Speaker Change: We also make progress improving our operational quality and efficiency through greater use of automation and AI.

James E. Davis: In addition, we're excited to announce four acquisitions that meet our criteria for growth, profitability, and returns and that will enable us to expand in strategic growth areas. Our planned acquisition of LifeLabs, a trusted name in laboratory services for millions of Canadians, will enable us to grow in Canada, which has a population that is growing and aging faster than in the U.S. Life Labs is especially strong in two of Canada's largest and fastest growing provinces, British Columbia and Ontario, which collectively account for about half of the country's population. We are familiar with the Canadian market, having delivered reference testing to many providers there for over 20 years.

Speaker Change: In addition, we're excited to announce four acquisitions that meet our criteria for growth, profitability and returns, and that will enable us to expand in strategic growth areas.

Speaker Change: Our planned acquisition of LifeLabs, a trusted name in laboratory services for millions of Canadians, will enable us to grow in Canada, which has a population that is growing and aging faster than in the U.S.

Speaker Change: Life Labs is especially strong in two of Canada's largest and fastest growing provinces, British Columbia and Ontario, which collectively account for about half of the country's population.

Speaker Change: We are familiar with the Canadian market, having delivered reference testing to many providers there for over 20 years.

James E. Davis: LifeLabs has been one of those reference partners for about a decade, so we know firsthand that their business team and reputation are strong and provide a solid foundation for growth. We expect to complete the transaction by the end of this year. Our recently announced acquisition of select lab assets of Alina Health, a leading nonprofit health system, will enable us to extend our reach in Minneapolis and throughout Minnesota and Wisconsin. We have also announced our plans to acquire the Outreach Lab Assets of Ohio Health, a nationally recognized charitable health system in Ohio.

Speaker Change: LifeLabs has been one of those reference partners for about a decade, so we know firsthand that their business team and reputation is strong and provides a solid foundation for growth. We expect to complete the transaction by the end of this year.

Speaker Change: Our recently announced acquisition of select lab assets of Alina Health, a leading nonprofit health system, will enable us to extend our reach in Minneapolis and throughout Minnesota and Wisconsin.

Speaker Change: We also announced our plans to acquire the Outreach Lab Assets of Ohio Health, a nationally recognized charitable health system in Ohio.

James E. Davis: Both transactions will broaden our presence in geographic areas of the United States where we've had limited access to providers due to the predominance of health systems. These acquisitions show our ability to attract and partner with top-growing health systems that share our commitment to expanding patient access to innovative and more affordable testing. We expect to complete both transactions in the third quarter. We have also completed our acquisition of Path AI Diagnostics, which provides a ready-made platform on which to scale digital pathology and AI to help health systems and other providers improve quality, speed, and efficiency in cancer diagnosis.

Speaker Change: Both transactions will broaden our presence in geographic areas of the United States where we've had limited access to providers due to the predominance of health systems.

Speaker Change: These acquisitions show our ability to attract and partner with top growing health systems that share our commitment to expanding patient access to innovative and more affordable testing. We expect to complete both transactions in the third quarter.

Speaker Change: We also completed our acquisition of PathAI Diagnostics, which provides a ready-made platform on which to scale digital pathology and AI to help health systems and other providers improve quality, speed, and efficiency in cancer diagnosis.

James E. Davis: These acquisitions take time and involve teams of dedicated individuals. I want to personally thank my Quest colleagues for delivering on our M&A strategy, and we will now turn our attention to the hard work of integrating these deals. Now I'll recap our strategy and discuss highlights from the second 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.

Speaker Change: These acquisitions take time and involve teams of dedicated individuals. I want to personally thank my Quest colleagues for delivering on our M&A strategy, and we will now turn our attention to the hard work of integrating these deals.

Speaker Change: Now I'll recap our strategy and discuss highlights from the second quarter. Then Sam will provide detail on our financial results and talk about our updated financial guidance for 2024.

Sam A. Samad: 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 within brain health and molecular genomics and oncology. In addition, acquisitions are a key growth driver with an emphasis on accretive outreach purchases as well as other 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 some updates on progress we have made in each of these areas.

Sam A. Samad: We enable growth across our customer channels through advanced diagnostics with an intense focus on faster growing clinical areas, including within brain health and molecular genomics and oncology.

Sam A. Samad: In addition, acquisitions are a key growth driver with an emphasis on accretive outreach purchases as well as other independent labs.

Sam A. Samad: 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.

Sam A. Samad: Here are some updates on progress we have made in each of these areas.

James E. Davis: While we grew total volumes from diagnostic information services 1.1% with base business volume growth of 1.7%, volumes from our base clinical business grew 3.2% in the second quarter due to the strength among physicians and hospitals. In Physician Labs Services, we delivered another quarter of high single-digit base business revenue growth. This growth is driven by continued strength in healthcare utilization, as well as overall market growth and share gains due to new customer wins.

Sam A. Samad: While we grew total volumes from diagnostic information services 1.1%, with base business volume growth of 1.7%, volumes from our base clinical business grew 3.2% in the second quarter due to the strength among physicians and hospitals.

Sam A. Samad: In Physician Lab Services, we delivered another quarter of high single-digit base business revenue growth.

Sam A. Samad: This growth was driven by continued strength in healthcare utilization, as well as overall market growth, and share gains due to new customer wins.

James E. Davis: We drove favorable test mix, as well as growth in test per requisition, which we attribute to greater utilization of our expanding portfolio of advanced diagnostics. Finally, we also saw strong volume and revenue growth within Medicare Advantage plans, where narrow network strategies direct testing to high-quality, cost-efficient options like Quest. Our broad health plan access, which extends to approximately 90% of covered lives in the U.S., enabled us to take advantage of high demand for lab services consistent with recent quarters.

Sam A. Samad: We drove favorable test mix, as well as growth in test per requisition, which we attribute to greater utilization of our expanding portfolio of advanced diagnostics.

Sam A. Samad: Finally, we also saw strong volume and revenue growth within Medicare Advantage plans, where narrow network strategies direct testing to high-quality, cost-efficient options like Quest.

Sam A. Samad: Our broad health plan access, which extends to approximately 90% of covered lives in the U.S., enabled us to take advantage of high demand for lab services consistent with recent quarters.

James E. Davis: Health plans value our ability to improve access, scale innovation, and drive costs out of health care. We are also working to develop opportunities to serve new geographies with our health plan partners. In hospital lab services, we grew base business revenues by nearly 4%. Growth of reference testing remains higher than historical levels as hospitals struggle to fill open positions, especially in technical fields such as histotechnology, microbiology, and cytotechnology. Our advanced diagnostics portfolio provides a compelling alternative for hospitals to send us more reference work. However, hospitals face several challenges, including high supply costs, high wages, and decisions about how and where to deploy their capital.

Sam A. Samad: Health plans value our ability to improve access, scale innovation, and drive costs out of health care. We are also working to develop opportunities to serve new geographies with our health plan partners.

Sam A. Samad: In hospital lab services, we grew base business revenues by nearly 4%. Growth of reference testing remains higher than historical levels as hospitals struggle to fill open positions, especially in technical fields such as histotechnology, microbiology, and cytotechnology.

Sam A. Samad: Our advanced diagnostics portfolio provides a compelling alternative for hospitals to send us more reference work.

Sam A. Samad: Hospitals face several challenges, including high supply costs, high wages, and decisions about how and where to deploy their capital. Patients want better value from lab services, as well as easier access.

James E. Davis: Patients want better value from lab services as well as easier access. Plus, diagnostic innovation is evolving at a fast pace. These dynamics are contributing to an accelerating trend of outreach acquisitions and professional lab service arrangements with the national lab. Our specialization and scale empower us to deliver a breadth of quality, innovative, and accessible services that are often far more affordable for the patient. That's why top hospitals are choosing Quest for reference testing, professional lab services, and outreach asset sales that deliver quality and efficiency.

Sam A. Samad: Plus, diagnostic innovation is evolving at a fast pace. These dynamics are contributing to an accelerating trend of outreach acquisitions and professional lab service arrangements with the national labs.

Speaker Change: Our specialization and scale empower us to deliver a breadth of quality, innovative and accessible services that are often far more affordable for the patient.

Speaker Change: That's why top hospitals are choosing Quest for reference testing, professional lab services, and outreach asset sales that deliver quality and efficiency.

James E. Davis: In consumer-initiated testing, our consumer-facing platform, QuestHealth.com, grew total revenues by nearly 40%, while base business revenues grew more than 50% versus the prior year. As we learn more about our customers as our portfolio expands, we are improving growth and marketing productivity. Today, about 25% of our revenues are from existing customers, and 20% of our revenues are from tests we introduced in the past year. In advanced diagnostics, several key clinical areas drove double-digit revenue growth, continuing the trend in recent quarters. This growth was particularly strong in brain health, women's health, particularly prenatal and hereditary genetics, and advanced cardiometabolic health.

Speaker Change: In consumer-initiated testing, our consumer-facing platform, QuestHealth.com, grew total revenues nearly 40%, while base business revenues grew more than 50% versus the prior year.

Speaker Change: As we learn more about our customers as our portfolio expands, we are improving growth and marketing productivity. Today, about 25% of our revenues are from existing customers and 20% of our revenues are from tests we introduced in the past year.

Speaker Change: In Advanced Diagnostics, several key clinical areas drove double-digit revenue growth, continuing the trend in recent quarters. This growth was particularly strong in brain health, women's health, particularly prenatal and hereditary genetics, and advanced cardiometabolic health.

James E. Davis: Our Alzheimer's disease portfolio was the primary driver of growth for our brain health offerings. Demand was strong for our AD-DETECT blood test, which assessed risk based on amyloid, P-tau, and ApoE biomarkers. Demand was also strong for our CSF test options for aiding treatment decisions. Yesterday, we introduced our Neurofilament Light Chain Test, which helps assess neuronal damage that may signify Alzheimer's disease, as well as multiple sclerosis and other neurodegenerative conditions.

Speaker Change: Our Alzheimer's disease portfolio was the primary driver of growth for our brain health offering. Demand was strong for our AD-DETECT blood test, which assessed risk based on amyloid, P-Tau, and APOE biomarkers.

Speaker Change: Demand was also strong for our CSF test options for aiding treatment decisions.

Speaker Change: Yesterday we introduced our neurofilament light chain test which helps assess neuronal damage that may signify Alzheimer's disease as well as multiple sclerosis and other neurodegenerative conditions.

James E. Davis: In molecular genomics and oncology, we are encouraged by early results from our Haystack MRD early experience program prior to the broad national launch later this year. Physicians from leading cancer institutions are using the Haystack MRD blood test to assess cancer recurrence and treatment response for a range of cancers, including colorectal, lung, and breast. We also grew the body of evidence on the clinical and economic value of ctDNA blood testing in cancer care.

Speaker Change: In Molecular Genomics and Oncology, we are encouraged by early results of our Haystack MRD Early Experience Program prior to the broad national launch later this year.

Speaker Change: Physicians from leading cancer institutions are using a Haystack MRD blood test to assess cancer recurrence and treatment response for a range of cancers including colorectal, lung, and breast.

Speaker Change: We also grew the body of evidence on clinical and economic value of ctDNA blood testing in cancer care.

James E. Davis: A study published in JAMA Health Forum in June found that MRD testing could reduce costs for health plans, particularly commercial payers, by identifying patients that would benefit from chemotherapy after stage 2 colon cancer surgery. In addition, research presented at the June ASCO conference showed that Haystack MRD testing identified complete clinical response to immunotherapy for patients with colorectal cancer earlier than standard assessments, such as PET, MRI, and endoscopy scans. Finally, we recently expanded our Haystack research collaborations to include Lysada Therapeutics, which will use Haystack MRD to study an investigational treatment for advanced pancreatic cancer. Turning to advanced cardiometabolic testing, we are seeing interest in several biomarkers that improve early detection of cardiovascular and metabolic diseases like diabetes and kidney disease.

Speaker Change: A study published in JAMA Health Forum in June found that MRD testing could reduce costs for health plans, particularly commercial payers, by identifying patients that would benefit from chemotherapy after stage 2 colon cancer surgery.

Speaker Change: In addition, research presented at the June ASCO conference showed that the Haystack MRD testing identified complete clinical response to immunotherapy for patients with colorectal cancer earlier than standard assessments such as PET,

Speaker Change: MRI and endoscopy scans.

Speaker Change: Finally, we recently expanded our Haystack research collaborations to include Lysada Therapeutics, which will use Haystack MRD to study an investigational treatment for advanced pancreatic cancer.

James E. Davis: These include insulin resistance, which can identify pre-diabetes risk before A1C tests, and ApoB, a more precise marker of heart attack risk than traditional lipid panels. They also include LP little a, which is an inherited marker of heart disease risk found in up to 20% of the population and for which several therapies are now in development. Turning to operational excellence, our Invigorate program aims to deliver a targeted 3% annual cost savings and productivity improvement.

Speaker Change: Turning to advanced cardiometabolic testing, we are seeing interest in several biomarkers that improve early detection of cardiovascular and metabolic diseases, like diabetes and kidney disease.

Speaker Change: These include insulin resistance, which can identify pre-diabetes risk before A1C tests, and ApoB, a more precise marker of heart attack risk than traditional lipid panels.

Speaker Change: They also include LP-a, which is an inherited marker of heart disease risk found in up to 20% of the population and for which several therapies are now in development.

Speaker Change: Turning to operational excellence, our Invigorate program aims to deliver a targeted 3% annual cost savings and productivity improvements. During the quarter, we expanded our use of automation and AI in order to improve productivity as well as service levels and quality.

James E. Davis: During the quarter, we expanded our use of automation and AI in order to improve productivity, as well as service levels and quality. For instance, we advanced our use of automation in front-end specimen processing to now include five of our labs, bringing more of our processors to focus on value-added work. We also expanded our A.I. capabilities in microbiology to include the ability to segregate out specimens with no evidence of microbial growth so our medical scientists could concentrate on reviewing those with the greatest likelihood of disease.

Speaker Change: For instance, we advanced our use of automation and front-end specimen processing to now include five of our labs, bringing more of our processors to focus on value-added work.

Speaker Change: We also expanded our AI capabilities in microbiology to include the ability to segregate out specimens with no evidence of microbial growth so our medical sciences can concentrate on reviewing those with the greatest likelihood of disease.

James E. Davis: In addition, we're broadening our use of AI in customer service to help our representatives access answers more quickly, improving their efficiency and service quality. Now, I'll turn it over to Sam to provide more details on our performance and our 2024 guidance.

Speaker Change: In addition, we broaden our use of AI in customer service to help our representatives access answers more quickly, improving their efficiency and service quality.

Speaker Change: Now I'll turn it over to Sam to provide more details on our performance and our 2024 guidance. Sam?

Sam A. Samad: Thanks, Jim. In the second quarter, consolidated revenues were $2.4 billion, up 2.5% versus the prior year, while base business revenues grew 3.8%. Organic-based business revenues grew by 3.1 percent. Revenues for diagnostic information services were up 2.8% 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 1.1% versus the second quarter of 2023, with acquisitions contributing 40 basis points to total volume.

Sam A. Samad: Thanks, Jim. In the second quarter, consolidated revenues were $2.4 billion, up 2.5 percent versus the prior year, while base business revenues grew 3.8 percent.

Sam A. Samad: Organic-based business revenues grew by 3.1%.

Sam A. Samad: Revenues for diagnostic information services were up 2.8% 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 1.1% versus the second quarter of 2023, with acquisitions contributing 40 basis points to total volume.

Sam A. Samad: Total base testing volumes grew 1.7% versus the prior year. Total revenue per requisition was up 1.6% versus the prior year, driven primarily by an increase in the number of tests per REC and favorable test mix, partially offset by the timing of certain value-based arrangements in the second quarter of 2023 that did not repeat this year, and lower COVID-19 test. Base business revenue per WREC was up 2.4%. Unit price reimbursement was flat

Sam A. Samad: Total base testing volumes grew 1.7% versus the prior year.

Sam A. Samad: Total revenue per requisition was up 1.6% versus the prior year, driven primarily by an increase in the number of tests per rec and favorable test mix.

Sam A. Samad: Partially offset by the timing of certain value-based arrangements in the second quarter of 2023 that did not repeat this year and lower COVID-19 testing.

Sam A. Samad: Base business revenue per WREC was up 2.4%.

Sam A. Samad: Unit price reimbursement was flat.

Sam A. Samad: Clinical-based business revenues were up 5.1% while volumes grew 3.2%. This primarily reflects growth through our physician and hospital channels, which comprise approximately 90% of our total revenues and excludes the impact of lower volumes primarily in our employer businesses providing workforce drug testing and employee population health services. Reported operating income in the second quarter was $355 million, or 14.8% of revenue, compared to $348 million, or 14.9% of revenue last year.

Sam A. Samad: Clinical base business revenues were up 5.1% while volumes grew 3.2%.

Sam A. Samad: This primarily reflects growth through our physician and hospital channels, which comprise approximately 90% of our total revenues.

Sam A. Samad: and excludes the impact of lower volumes primarily in our employer businesses providing workforce drug testing and employee population health services.

Sam A. Samad: Reported operating income in the second quarter was $355 million or 14.8% of revenues.

Sam A. Samad: compared to $348 million or 14.9% of revenues last year.

Sam A. Samad: On an adjusted basis, operating income was $398 million, or 16.6% of revenues, compared to $389 million, or 16.7% of revenues last year. The increase in adjusted operating income was due to strong growth in the base business, partially offset by lower COVID-19 testing revenues and a wage increase. Reported EPS was $2.03 in the quarter compared to $2.05 a year ago. Adjusted EPS was $2.35 versus $2.30 the prior year. Cash from operations was $514 million year-to-date through the second quarter versus $538 million in the prior year.

Sam A. Samad: On an adjusted basis, operating income was $398 million, or 16.6% of revenues, compared to $389 million, or 16.7% of revenues last year.

Sam A. Samad: The increase in adjusted operating income was due to strong growth in the base business.

Sam A. Samad: partially offset by lower COVID-19 testing revenues and wage increases.

Sam A. Samad: Reported EPS was $2.03 in the quarter compared to $2.05 a year ago.

Sam A. Samad: Adjusted EPS was $2.35 versus $2.30 the prior year.

Sam A. Samad: Cash from operations was $514 million year-to-date through the second quarter versus $538 million in the prior year.

Sam A. Samad: Turning now to our updated full year 2024 guidance. Revenues are expected to be between $9.5 billion and $9.58 billion. Reported EPS is expected to be in a range of $7.57 to $7.77, and adjusted EPS to be in a range of $8.80 to $9.9.00. Cash from operations is expected to be approximately $1.3 billion, and capital expenditures are expected to be approximately $420 million.

Sam A. Samad: Turning now to our updated full year 2024 guidance.

Sam A. Samad: Revenues are expected to be between $9.5 billion and $9.58 billion.

Sam A. Samad: Reported EPS expected to be in a range of $7.57 to $7.77.

Sam A. Samad: and adjusted EPS to be in a range of $8.80 to $9.00.

Sam A. Samad: Cash from operations is expected to be approximately 1.3 billion dollars. And capital expenditures are expected to be approximately 420 million dollars.

Sam A. Samad: Given the uncertainty around when the LifeLabs acquisition will close, we are not including this transaction in our updated 2024 guidance. However, in the first 12 months after closing the acquisition, we expect the transaction to generate approximately $710 million in annual revenues and to be slightly dilutive to GAAP EPS, due primarily to amortization of intangibles and other items, but approximately 10 to 15 cents accretive to adjusted EPS. These assumptions include the impact of expected debt financing to close the acquisition.

Sam A. Samad: Given the uncertainty around when the LifeLabs acquisition will close, we are not including this transaction in our updated 2024 guidance.

Speaker Change: However, in the first 12 months after closing the acquisition, we expect the transaction to generate approximately $710 million in annual revenues and to be slightly dilutive to GAAP EPS, due primarily to amortization of intangibles and other items.

Speaker Change: but approximately 10 to 15 cents accretive to adjusted EPS.

Speaker Change: These assumptions include the impact of expected debt financing to close the acquisition.

Sam A. Samad: With that said, the following are some key assumptions underlying our updated guidance for you to consider. The increase in our revenue guidance reflects the recently announced acquisitions of Path AI Diagnostics, Alina Health, and Ohio Health, as well as the strength of our base business. The PATH-AI Diagnostics acquisition closed in June, while Alina Health and Ohio Health are expected to close in Q3.

Speaker Change: With that said, the following are some key assumptions underlying our updated guidance for you to consider.

Speaker Change: The increase in our revenue guidance reflects the recently announced acquisitions of Path AI Diagnostics, Alina Health, and Ohio Health, as well as the strength of our base business.

Speaker Change: The PATH-AI Diagnostics Acquisition closed in June , while Alina Health and Ohio Health are expected to close in Q3.

Sam A. Samad: The revenue contribution from these acquisitions represents the majority of the increase in our updated revenue guidance. As a reminder, new acquisitions are typically break-even to slightly profitable initially, with profitability expanding over several quarters. Therefore, we are not expecting a material contribution to earnings from these acquisitions in 2024 but do expect increasing profitability next year. There is no change to our expectation for dilution from Haystack Oncology of an incremental $0.20 to adjusted EPS for the full year.

Speaker Change: The revenue contribution from these acquisitions represents the majority of the increase in our updated revenue guidance.

Speaker Change: As a reminder, new acquisitions are typically break-even to slightly profitable initially, with profitability expanding over several quarters.

Speaker Change: Therefore, we are not expecting a material contribution to earnings from these acquisitions in 2024, but do expect increasing profitability next year.

Speaker Change: No change to our expectation for dilution from Haystack Oncology of an incremental 20 cents to adjusted EPS for the full year.

Sam A. Samad: Operating margin is expected to expand for the full year driven by volume growth and improved productivity. Net interest expense is expected to be approximately $190 million. This does not include interest expense related to debt financing for the LifeLabs acquisition, and we expect the weighted average share count to be flat compared to the end of 2023. Finally, our operations were affected by the worldwide IT outage last week, which limited our ability to collect and process specimens on Friday and through the weekend.

Speaker Change: Operating margin to expand for the full year driven by volume growth and improved productivity.

Speaker Change: Net interest expense expected to be approximately $190 million. This does not include interest expense related to debt financing for the Life Labs acquisition.

Speaker Change: Weighted average share count to be flat compared to the end of 2023.

Speaker Change: Finally, our operations were affected by the worldwide IT outage last week, which limited our ability to collect and process specimens on Friday and through the weekend.

Sam A. Samad: Our labs were processing specimens by Friday afternoon, and the rest of our operations, including patient service centers, were largely restored to normal by yesterday morning. At this point, we estimate the IT outage and the minor impact from Hurricane Barrow in Texas earlier this month could amount to a roughly $0.06 to $0.08 headwind on our Q3 earnings. This is currently reflected in our updated full-year guide. With that, I will now turn it back to Jim.

Speaker Change: Our labs were processing specimens by Friday afternoon, and the rest of our operations, including patient service centers, were largely restored to normal by yesterday morning.

Speaker Change: At this point, we estimate the IT outage and the minor impact from Hurricane Beryl in Texas earlier this month could amount to a roughly $0.06 to $0.08 headwind on our Q3 earnings.

Speaker Change: This is currently reflected in our updated full-year guidance.

Speaker Change: With that, I will now turn it back to Jim.

James E. Davis: Thanks, Sam. To summarize, our business delivered strong total and base revenue growth across our core customer channels due to strong commercial execution, innovative offerings, and ongoing strength in our healthcare utilization. We announced four acquisitions that meet our criteria for growth, profitability, and returns and position us for growth in new geographic and service areas. We improve productivity, as well as service levels and quality through greater use of automation and AI. Finally, I'd like to personally thank my nearly 50,000 Quest colleagues for our strong performance this quarter, which is largely the result of the dedication, care, and collaboration that they show patients and customers each and every single day.

James E. Davis: Thanks, Sam. To summarize, our business delivered strong total and base revenue growth across our core customer channels due to strong commercial execution, innovative offerings, and ongoing strength in our health care utilization.

James E. Davis: We announce four acquisitions that meet our criteria for growth, profitability and returns, and position us for growth in new geographic and service areas.

James E. Davis: We improve productivity as well as service levels and quality through greater use of automation and AI.

Quest: Finally, I'd like to personally thank my nearly 50,000 Quest colleagues for our strong performance this quarter, which is largely the result of the dedication, care, and collaboration that they show patients, customers, each and every single day.

James E. Davis: This commitment was exemplified by the tireless efforts of our teams to restore outstanding service for our patients and customers this past weekend following the global IT outage. I'm proud to work with so many talented people committed to living our purpose, working together to create a healthier world, one life at a time. Operator. Thank you.

Quest: This commitment was exemplified by the tireless efforts of our teams to restore outstanding service for our patients and customers this past weekend following the global IT outage.

Quest: I'm proud to work with so many talented people committed to living our purpose, working together to create a healthier world, one life at a time.

Speaker Change: And with that, we'd be happy to take your questions. Operator?

Operator: 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 additional questions, we ask that you please fall back into queue. To be placed in the queue, please press star 1 on your phone.

Speaker Change: 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 additional questions, we ask that you please fall back into queue.

Speaker Change: To be placed in the queue, please press star 1 from your phone. To withdraw, press star 2.

Operator: To withdraw, press star 2. Again, to ask a question, please press star 1. The first question will come from Ann Hynes of Missouho Security. Your line is open. Hi, good morning.

Speaker Change: Again, to ask a question, please press star 1.

Speaker Change: The first question will come from Ann Hynes of Mizuho Securities. Your line is open.

Ann Kathleen Hynes: I just have a follow-up question on volumes. I believe you said the total base volume was up 1.7%. But if you exclude employer-based, it's up 3.2%. Can you just give us more detail on what's happening in that business? Is it just the overall job market? And maybe you can provide some profitability versus that position-based business versus the employer-based business and whether or not it was in line with your estimate.

Ann Kathleen Hynes: Hi, good morning. I just have a follow-up question on volumes. I believe you said the total base volume was up 1.7%.

Ann Kathleen Hynes: But if you exclude employer base, it's up 3.2 percent. Can you just give us more detail what's happening in that business?

Speaker Change: Is it just the overall job market and maybe if you can provide some like profitability versus that position-based business versus the employer-based business and whether or not it was in line with your estimate?

James E. Davis: And then my second question just has to do with the Canadian acquisition. Can you just give us more details on that market? How is it different from the U.S.?

Speaker Change: And then my second question just has to do around, you know, the Canadian acquisition. Can you just give us more details on that market?

James E. Davis: Why do you view it as attractive? And maybe some long-term growth revenue algorithms versus the U.S. business. Is it growing in line with the business? Is it growing faster? That would be great.

Speaker Change: How is it different than the U.S.? Why do you view it as attractive? And maybe some long-term growth revenue algorithms versus the U.S. business. Is it growing in line with the business? Is it higher growth? That would be great. Thank you.

James E. Davis: Thanks. Yeah, good morning, Ann. So let me start here. On the employer side, we have two principal businesses that serve employers. One is our employee drug testing business. Second, our employee population health business. There is a third business, as you know, called Exam One that does health risk assessments for life insurance companies. Taken together, all three of those businesses showed meaningful declines in the quarter and really largely represent the difference between the 3.2% that Sam referred to and the 1.7%.

Speaker Change: Yeah, good morning, Ann. So let me start here. So on the employer side, we have two principal businesses that serve employers. One is our employee drug testing business. Second, our employee population health business. There is a third business, as you know, called Exam One that does health risk assessments for life insurance companies.

Speaker Change: Taken together, all three of those businesses showed meaningful declines in the quarter and really largely represent the difference in the 3.2% that Sam referred to in the 1.7%.

James E. Davis: In the drug testing market, there's a couple of shifts going on. Number one, a lot of the job growth is still coming in the services industry, hotel workers, restaurant workers. And a lot of those industries just have given up on drug testing, and other companies that still do drug testing.

Speaker Change: In the drug testing market, there's a couple of shifts going on. Number one, a lot of the job growth is still coming in the services industry. Hotel workers, restaurant workers, and a lot of those industries just have given up on drug testing.

Speaker Change: and other companies that still do drug testing. As you probably know, many have eliminated marijuana off the panel, so that has created some pressure.

James E. Davis: As you probably know, many have eliminated marijuana from the panel, so that has created some pressure. And then the final thing I'd tell you is there's a shift going on in employee drug testing where more companies are doing what we call on-site or oral testing, and if that test is positive, it eventually goes back to a central lab. But if it's a negative test, it's just an on-site screen, and the employee passes, and we don't get that job.

Speaker Change: And then the final thing I tell you is there's a shift going on in employee drug testing where more companies are doing what we call on-site or oral testing.

Speaker Change: And if that test is positive, it eventually reflexes back to a central lab, but if it's a negative test, it's just an on-site screen, and the employee passes, and we don't get that work.

James E. Davis: On employee population health, we're just seeing companies not spend as much money on these wellness events that they typically did in the past. Finally, again, exam one, our life insurance business that does risk assessments for life insurance, just the life insurance policies, we saw a spike during COVID. People started to get life insurance again.

Speaker Change: On the employee population health, we're just seeing companies not spend as much money on these wellness events that they've typically done in the past.

Speaker Change: Finally, again, EXAM1, our life insurance business that does risk assessments for life insurance.

Speaker Change: Just the life insurance policies, you know, we saw a spike during COVID. People started to get life insurance again. Post-COVID, that negative trend has continued, which we were seeing actually pre-COVID.

James E. Davis: Post-COVID, that negative trend has continued, which we were seeing actually pre-COVID. Now, let me turn to the Canadian market for just a minute here. So, Look, there's a lot to like about the Canadian market. First of all, you know, a population of roughly 41 million people.

Speaker Change: Now let me let me turn to the Canada market for just a minute here so

Speaker Change: Look, there's a lot to like about the Canadian market.

James E. Davis: The population growth rate is actually faster than the U.S. The population growth rate there is about one point one percent here in the U.S. You know, population growth, you know, less than 50 basis points. The aging of the population there as well is is is a good trend that we like. And, you know, Life Labs is really centered in two key markets, British Columbia and Ontario, Ontario being the biggest province in Canada, and British Columbia being the second largest province. Collectively, those two provinces are over 50 percent or close to 50 percent of the Canadian population.

Speaker Change: Largest province collectively those two provinces are over 50% or close to 50% of the Canadian population.

James E. Davis: We like the reimbursement model in Canada. It's steady and consistent. We think it'll see growth over the coming years. And when we look at things like test per rec, when we look at the types of testing done here in the US versus Canada, we think there's opportunity to grow the types of testing that we bring into that market from an esoteric standpoint, from an advanced testing standpoint. So we feel great about entering the Canadian market.

Speaker Change: We liked the reimbursement model in Canada.

Speaker Change: It's steady as consistent we think it will show growth over the over the coming years.

Speaker Change: And you know when we look at things like test per req, when we look at the types of testing done here in the last versus Canada. We think there is opportunity to grow the types of testing that we bring into that market from an esoteric standpoint from an advanced and.

Speaker Change: In advanced testing standpoint, so.

Speaker Change: We feel great about entering the Canadian market and by the way. It's a market. We know we have served that market for many many years as a reference provider. We've served life labs, we've serve other.

James E. Davis: And by the way, it's a market we know. We've served that market for many, many years as a reference provider. We've served Life Labs, we've served other independent labs and hospital labs up in Canada.

Speaker Change: Independent Labs and hospital labs up in Canada. So we know the market we're familiar with it and we think it's a great opportunity for quest diagnostics, maybe a couple of comments to add on the.

Sam A. Samad: So we know the market, we're familiar with it, and we think it's a great opportunity for Quest Diagnostics. Maybe a couple of comments to add on the Services businesses and just to give you some financials behind them, or at least some percentages. I mean, the Workforce Health Solutions businesses, Employer Population Health, and Employer Solutions are less than 5% of our overall revenue. So just to give you a sense of how much, you know, those businesses are.

Speaker Change: Services businesses and just to give you some.

Speaker Change: Financials behind them or at least some percentages I mean, the workforce health solutions businesses employer population health and the employer solutions are less than 5% of our overall revenue. So just to give you a sense of buckets of how much those businesses are so theyre not that material or not material to our overall revenues.

Sam A. Samad: So they're not that material or not material to our overall revenues. But as Jim said, they have been impacted post-COVID somewhat significantly, and with some of the market dynamics in the drug testing business, so they are impacting our growth rates. And then exam one is on top of that.

Speaker Change: As Jim said, they have been impacted post COVID-19 somewhat significantly and with some of the market dynamics and the drug testing business. So they are impacting our growth rates and then exam. One is on top of that but it's also impacted by some of the dynamics that Jim said coming out of Covid. So these businesses are down significantly year over year, but we.

Sam A. Samad: But it's also impacted by some of the dynamics that Jim said coming out of COVID. So these businesses are down significantly year over year, but we don't expect further deterioration as we look forward. So there is a year over year impact, but we don't expect that to further amplify as we go. The next question will come from...

Speaker Change: Don't expect further deterioration as we look forward. So there is a year over year impact, but we don't expect that to further amplify as we go forward.

Speaker Change: The next question next question please.

Operator: Yes, the next question will come from Kevin Caliendo of UBS. Your line is open. Thanks for taking my question. It's not usually you want to raise guidance by more than a beat, you know, in any particular quarter, yet you did. And now we find out there was actually, but appears to be, a core.

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

Kevin Caliendo: Thanks for taking my question.

Speaker Change: <unk>.

Speaker Change: It's not usually you want to raise guidance by more than it would be you know in any particular quarter you did and that we find out there was actually from what appears to be a core.

Kevin Caliendo: Even a greater upside in the second half than what you had originally had if you back out the impact of this strike and the hurricanes and the like, and the IT issues. So is that mostly driven just by core? Are you expecting margins to expand a little bit, you know, on a year-over-year basis more than what we saw in the second quarter? I guess I just want to understand what's driving the enthusiasm for the second half improvement. You had the M&A stuff that you mentioned, but you said there weren't a lot of contributions. So I'm guessing it's core, but I'm wondering, is that expected volume? Is it an expected mix?

Speaker Change: Even a greater upside in the second half than what you had originally had if you back out the impact of the strike and the Hurricanes.

Speaker Change: And the like.

Speaker Change: The IP issues I mean.

Speaker Change: So is that mostly driven just by core are you expecting margins to expand a little bit on a year over year basis more than what we saw in the second quarter I guess I just want to understand what's driving the enthusiasm for.

Speaker Change: For the second half improvements.

Speaker Change: You had the M&A stuff that you mentioned, but you said there wasn't a lot of contribution so im guessing its core but I'm wondering is it expected volume as expected mix was as expected.

Speaker Change: Cost to come in better wage labor churn that kind of thing.

Sam A. Samad: Is it expected the cost to come in better? You know, wage, labor, churn? Yeah, so maybe I'll start, Kevin, and Jim can add comments.

Speaker Change: Yeah, So maybe I'll start Kevin and.

James E. Davis: Jim can add comments.

Sam A. Samad: You know, first, let's kind of talk about the details in terms of what we shared. We said we were going to take up revenues by $100 million. We said we're going to take up EPS, and this is at the midpoint; we're going to take up EPS by $0.05 to $8.80 to $9. Within the $100 million that we talked about, the majority of that is really new M&A. So essentially, the M&A that we have signed that we expect to close sometime between, you know, mid-Q3 and the end of the year, and those reflect the deals related to, or the transactions, which are Alina Health and Ohio Health.

Speaker Change: First let's let's kind of talk about the details in terms of what we shared we said we're going to take up revenues by $100 million. We said, we're going to take up EPS and this is at the midpoint, we're going to take up EPS by five two.

Speaker Change: Two $8 80 to $9.

Speaker Change: Within the $100 million that we talked about the majority of that is really new M&A. So essentially M&A that we have signed that we expect to close sometime between mid Q3, and the end of the year and those reflect the M&A related.

Speaker Change: Or the transactions, which are our lineup helps Ohio health, we have some upside from past AI as well, which we closed in Q2, but it wasn't in our original guidance. So the revenue has a majority the majority of the revenues is really driven by the M&A that we expect to close.

Sam A. Samad: We have some upside from Path AI as well, which we closed in Q2, but wasn't in our original guidance. So, you know, the revenue has a majority, the majority of the revenue is really driven by the M&A that we expect to close. The EPS increase is related to, you know, contribution from this M&A, although as we talked about in the prepared remarks, M&A ramps up in terms of profitability. So in 2024, you know, in the second half, very little contribution in terms of profitability from M&A.

Speaker Change: The EPS increase is related to contribution from this M&A, although as we've talked about in the prepared remarks, M&A ramps up in terms of profitability. So 2024.

Speaker Change: In the second half very little contribution in terms of profitability from M&A. The remainder I would say is contribution from the base business and some M&A, but little.

Sam A. Samad: The remainder, I would say, is contribution from the base business and some M&A, but a little. And we are absorbing, as you said, the impact of the IT outage, which is 6 to 8 cents in Q3 that we expect to, that we have now sized. This is preliminary. We'll get better detail as we go, but we are absorbing that impact.

Speaker Change: And we are absorbing as you said the impact of the outage, which is six to eight in Q3 that we expect to that we have now size. This is preliminary we will get better detail as we go but we are absorbing that impact. So you know in terms of what's driving this.

Sam A. Samad: So, you know, in terms of what's driving this improvement or, you know, the raise in EPS, we're basically continuing with a lot of the productivity work and the cost reductions that we have talked about. We have a lot of the AI and productivity improvements that Jim mentioned, a lot of the focus on improving margins. Importantly, base volumes continue to be very strong, and that's, you know, the biggest driver, I would say, in terms of improved margins in the business.

Speaker Change: Improvement or the raise of EPS, we're basically continuing with a lot of the productivity work and the cost reductions that we had talked about we have.

Speaker Change: A lot of the AI and productivity improvements that Jim mentioned, a lot of the focus on improving margins.

Speaker Change: Importantly, based volumes continue to be very strong and thats. The biggest I would say driver in terms of improved margins in the business. We continue to see base volumes be strong utilization be strong. So really that's that's the key driver its strength of volumes.

Sam A. Samad: You know, we continue to see base volumes be strong, and utilization be strong. So really, that's the key driver. It's strength of volumes, and its continued productivity and cost improvements. It's also the fact that we have, as we've talked about many times on previous calls, a positive pricing and reimbursement environment, which is now stabilized, which is now flat to improving, as opposed to a negative price impact that we used to see in prior years.

Speaker Change: Continued productivity and cost improvements. It's also the fact that we have as we've talked about many times over previous calls our positive pricing and reimbursement environment, which has now stabilized which is now flat to improving as opposed to a negative price impact that we used to see in prior years, Yes, Kevin you probably saw.

James E. Davis: Kevin, you probably saw a meaningful improvement in rev per rec in the quarter. And as Sam mentioned, within that rev per rec calculation, price per test, you know, flat to last year. So the improvement is really coming in three areas. One, test per rec continued to be very strong north of four pre-COVID. You know, that was a number that was south of four; it was in the threes.

Kevin Caliendo: A meaningful improvement in Rev per req in the quarter and as Sam mentioned within that Rep, correct calculation price per test flat to last year. So the improvement is really coming in three areas. One test per req continued to be very strong north of four pre COVID-19 that was a number that was.

Sam A. Samad: South of four was in the threes.

Sam A. Samad: So that's a nice uptick and that's coming from some of our advanced has seen around allergy tech testing cardio metabolic testing in neurology testing.

James E. Davis: So that's a nice uptick. And, you know, that's coming from some of our advanced testing around allergy, tick testing, cardiometabolic testing, and neurology testing. And in that, also, there is a mixed improvement that comes from some of those advanced tests.

Speaker Change: And in that also is a mix improvement that comes from some of those advanced test. The final thing I'd say is we saw again strength in our overall Medicare advantage and Medicare book of business.

James E. Davis: The final thing I'd say is, you know, we saw, again, strength in our overall Medicare Advantage and Medicare Book of Business. That pricing, as you know, tends to be better than the average, and we also see more advanced tests coming on those requisitions versus our normal general health and wellness requisitions. So we expect those trends to continue into the back half of the year, and, you know, that's contributing to the improvements that we're laying out. Operator, next question. The next question comes from Michael Cherny of Lear, Inc. Your line is open.

Speaker Change: That pricing as you know tends to be better than the average and we also see more advanced test coming on those requisitions versus our normal general health and wellness requisitions. So we expect those trends to continue into the back half of the year.

Speaker Change: And.

Speaker Change: And.

Speaker Change: That's that's contributing to the improvements that we're that we're laying out there.

Speaker Change: Operator next question.

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

Operator: Good morning, and thank you so much for taking the question. Maybe I can just dive a little bit into the market. I know there's still some small moving pieces.

Michael Aaron Cherny: Good morning, and thank you so much for taking the question maybe if I can just dive a little bit into the market I know there is still so small moving pieces I appreciate the color you've given so far on some of the employer testing if I sort through all of the data point you have the $3 2 billion base business volumes, So I'll make sure I got.

Michael Aaron Cherny: I appreciate the feedback you've given so far on some of the employer testing. If I sort through all of the data points you have, the 3.2 billion base business volumes, A, I just want to make sure I got that number correctly, and then B, as you think about that number, how do you think about that in terms of translating where you see the health of broad-based market utilization versus where your competitive position is allowing you to take share? I guess just trying to understand fully where you see utilization baked into the implied second half guidance versus what we've seen over the last 612 Months on a Baseline Business. Thanks.

Speaker Change: That number correctly and then B as you think about that number how do you think about that in terms of translating where you see the health of broad based market utilization versus where your competitive position is allowing you to take share I guess, just trying to understand fully where you see utilization baked into the implied.

Speaker Change: Second half guidance versus what we've seen over the last six to 12 months on a baseline business. Thanks, so much.

James E. Davis: Yeah, again, the 3.2% represents the volume growth that we see through what we call our core base business, and that is our physician business, our hospital reference business, our hospital PLS business, and embedded in that is both clinical as well as anatomical pathology. So that entire book of business, which is about 90% of the company, the volumes grew 3.2%, down from Q1, but the comparison in Q2 was higher.

Speaker Change: Yes, again, the three 2% represents the volume growth that we see through what we call our core base business and that means our physician business. Our hospital reference business, our hospital Pls business and embedded in that is both clinical as well as anatomical.

Speaker Change: Pathology, so that entire book of business, which is about 90% of the company. The volumes grew three 2%.

Speaker Change: Down from Q1, but the compare in Q2 was higher but again the three 2% we feel really good about that now that three 2% volume growth again translated into five 1% revenue growth and that was coming again on the strength of test mix plus the test per req inquiry.

James E. Davis: But again, the 3.2%, you know, we feel really good about that. Now that 3.2% volume growth, again, translated into 5.1% revenue growth. And that was coming, again, on the strength of test mix plus the test per rec increase that we've been seeing year over year.

Speaker Change: That we've been seeing year over year, so we feel good about that.

James E. Davis: So we feel good about that again going into the second half of the year. In terms of implied growth for the second half of the year, you know, it's in the 3.7% revenue range. So, you know, again, and that's just the base or organic that's without acquisition, the timing of the close of these acquisitions has been set in Q3 with Alina in Ohio Health. We just don't know when in Q3. Okay, so there's still some uncertainty about when these deals will officially close. And Mike, good morning.

Speaker Change: Going into the second half of the year in terms of the implied growth in the second half of the year.

Speaker Change: In the 337%.

Speaker Change: Revenue range so.

Speaker Change: Yeah.

Speaker Change: Again, and that's just the base organic that's without acquisition.

Speaker Change: Of the close of these acquisitions, we've said in Q3 with a lineup and Ohio health.

Speaker Change: We just don't know when in Q3, okay. So there's still some uncertainty about when these deals will officially close.

Sam A. Samad: Maybe I'll add a couple of comments just in terms of utilization. I mean, as we have been mentioning, utilization continues to be strong. We saw it strong in Q1. We saw it strong in Q2. The year over year comparison for Q2 was maybe a little bit tougher versus Q2 of 2023. We had some lapping of some wins.

Mike: And Mike Good morning, maybe I'll add a couple of comments just in terms of utilization.

Mike Good: As we have been mentioning utilization continues to be strong we've seen it's strong in Q1, we've seen it's strong in Q2 the year over year compare in Q2 was maybe a little bit tougher versus Q2 of 2023, we had some lapping of some wins and just overall, we saw more of a resurgence in the base business in Q2.

Sam A. Samad: And just overall, we saw more of a resurgence in the base business in Q2 of last year. But in terms of the dynamics there, we do believe that both in terms of there being strong utilization out there. We think some of it is return to care, but also just general strength of utilization by just additional testing, and that's reflected in the higher number of tests per rec that we're seeing.

Mike Good: Last year, but in terms of the dynamics. There. We are we do believe that both in terms of.

Mike Good: There is strong utilization out there we think some of it is returned to care, but also just general strength of utilization by just additional testing and thats reflected in the higher number of tests per req that we're seeing.

Sam A. Samad: But we are also gaining share. We do believe that we are gaining share and, you know, we're gaining share through some of these outreach acquisitions that we're doing that help us direct more testing to Quest. Operator, next question. The next question comes from Patrick Donnelly of Citi. Your line is open.

Mike Good: But also we are gaining share we do believe that we are gaining share and we're gaining share through some of these also outreach acquisitions that we're doing that help us.

Mike Good: Direct more testing to quest.

Mike Good: Okay.

Speaker Change: Operator next question.

The next question comes from Patrick Donnelly of Citi. Your line is open.

Speaker Change: Okay.

Speaker Change: Taking the question guys.

Operator: Sam, maybe just expand on the utilization piece, pretty nice elevated levels there the past couple quarters. Can you talk about what you're seeing and then and then what the guide implies in terms of how you're feeling about it? I know previously the guidance assumed normal utilization, but obviously it stayed a little bit elevated here, and just how are you thinking about the trend, does it gradually come down to normal? We'd like to just discuss that.

And maybe just expand on the utilization piece, obviously, you guys have seen pretty nice elevated levels. There. The past couple of quarters can you just talk about what you're seeing and then what the guide implies in terms of how youre feeling about I know previously the guidance assume normal utilization, obviously stayed a little bit elevated here and just how you're thinking about the trend.

Speaker Change: Or does it gradually come down to normal would love to just discuss that a bit.

Operator: Yeah, I mean, as we've talked about before, Patrick, we do expect utilization to eventually level off to, you know, essentially what we've talked about in terms of our long-term growth algorithm, which is roughly around, you know, 3%-ish in terms of organic growth. And then, as we said before, in terms of long-term growth, we expect 1% to 2% contribution from acquisition. So, we still think longer term. If you're thinking, you know, over the next, let's say, longer period. I'm not necessarily going to necessarily bracket it with a time period, but I think that's the right algorithm to be thinking about.

Speaker Change: Yes, I mean, as we've talked about before Patrick we do expect eventually utilization to level off to essentially what we've talked about in terms of long term growth algorithm, which is roughly around.

Speaker Change: Three percentage in terms of organic growth and then as we said before in terms of long term growth, we expect 1% to 2% contribution from acquisitions.

Speaker Change: So we still think longer term if youre thinking over the next let's say longer period, I'm not going to necessarily.

Speaker Change: <unk> with the time period, but I think that's the right algorithm to be thinking about in terms of for US Our current guide right.

Patrick Bernard Donnelly: In terms of, for us, our current guide, you know, right now at the midpoint, we're saying total growth is close to 3%, 3.1%. Our base revenue guide is somewhere around 5% for the full year. Our second half, if you think about the second half, you know, that's essentially on the base revenue growth, it's about a 5.3% second half growth. Now recall, the 5.3% in the second half, and this is revenue, includes, as we said, the majority of the $100 million take up of the guide is acquisition.

Right now at the midpoint, we're saying total growth is close to 3% three 1% our base revenue guide is somewhere around 5% for the full year or second half if you think about second half.

Patrick Bernard Donnelly: So in that 5.3% second half, there is a significant portion which is acquisition. So, you know, in effect, if you look at just organic growth, as Jim just alluded to, it's actually a slightly slower second half than what we saw in the first half.

Speaker Change: That's.

Speaker Change: Essentially on the base revenue growth, it's about a five 3% second half growth now recall.

Speaker Change: The five 3% in the second half and this is revenue includes as we said the majority of the $100 million take up of the guide is acquisition. So in that five 3% second half there is a significant portion which is acquisitions. So in effect. If you look at just organic.

Speaker Change: Jim just alluded to it's actually a slightly slower second half than what we saw in the first half.

Sam A. Samad: So, you know, embedded in that is the expectation, Patrick, that this utilization doesn't continue at the same level but starts to slow down a bit. So, you know, again, total growth, first half base, or sorry, full year base, is 5%. Operator, next question. The next question comes from David Westenberg of Piper Sandler. Your line is open. Hi, Noah.

Speaker Change: So embedded in that is the expectation Patrick this utilization doesn't continue at the same level, but starts to slow down a bit. So again total growth first half base or sorry, a full year basis, 5% second half basis, five 3%, but within that there is some acquisitions. So the second half.

Patrick: Closer to something between three 5% to 4% in terms of base.

Operator: Operator next question.

Speaker Change: The next question comes from David Westenburg of Piper Sandler Your line is open hi.

David Michael Westenberg: Hi, Thank you for taking the question.

Operator: Thank you for taking the question. I just want to take a little bit more of a long-term look at the business here. How should we think about digital pathology in light of the acquisition with PathAI? Can we see a more immediate path to incorporate it more broadly? If so, would there be cost savings in the intermediate term?

David Michael Westenberg: Wanted to get a little bit more of a long term look at the business here, how should we think about digital pathology.

Speaker Change: In light of the acquisition with the <unk>.

Speaker Change: Path AI can we see a more immediate path to incorporate it more broadly if so would there be cost savings in the intermediate term and then is there any maybe potential for pricing benefits given that a human plus AI kind of reading probably is a better outcome and so maybe would justify kind of a high.

David Michael Westenberg: And then, maybe, potential for pricing benefits given that a human plus AI kind of reading probably is a better outcome and so maybe would justify kind of a higher price? And just as a background, can you talk about maybe a broader framework for how much revenue your business gets from pathology overall, just anything you feel comfortable with? Thank you.

Speaker Change: Their price and just as a background can you talk about maybe.

Speaker Change: Broader framework for how much revenue of your businesses is pathology.

Speaker Change: Overall, just anything you feel comfortable with thank you.

James E. Davis: Yeah, we've said in the past, just on our revenue from anatomical pathology, that it was, and this was pre-path AI diagnostics, that it was roughly a $500 million book of business. But we're excited about the digital pathology opportunity on numerous fronts. On the surface, unlike radiology, digital pathology does not naturally lower your cost because you still need to create the slide. Once you've created the slide, then you digitize the slide.

Speaker Change: Yes, we've said in the past just on our revenue from anatomical pathology that it was and this was pre path AI diagnostics that it was roughly a $500 million book of business.

Speaker Change: We're excited about the digital pathology opportunity on numerous fronts on the surface.

Speaker Change: Unlike radiology digital pathology, just does not naturally lower your cost because youre actually you still need to create the slide once you've created the slide then you digitize the slide okay. So theres actually an extra step in the process.

James E. Davis: Okay, so there's actually an extra step in the process. Now here's where it creates productivity. And as you said, we think better quality. Number one.

Speaker Change: Now, here's where it creates productivity and as you said, we think better quality.

Speaker Change: Number one.

James E. Davis: You know, we do anatomical pathology in over 20 locations across the country because you want the pathologist to sit right near where you're repairing the slides so that you don't have to move slides and vehicles and things like that. So we believe that digital pathology will allow us to collapse the network of sites that actually do what we call the histology work or the preparation of the slide. So there will be cost savings when we collapse that network.

Speaker Change: Yeah.

We do anatomical pathology in over 20 locations across the country.

Speaker Change: Because you want the pathologists to sit right near where youre preparing the slides. So that you don't have to move slides in vehicles and things like that so we believe that it's going to digital pathology will allow us to collapse. The network of sites that actually do what we call the histology work or the preparation of the slides. So there will be cost savings.

Speaker Change: When we collapsed that network.

James E. Davis: Second, it allows us to route the image to expert pathologists wherever they sit in the country. So if our guru for breast pathology sits on the West Coast, you move those slides out there. If the prostate guru sits on the East Coast, you move those slides there. So, and yes, we believe once you've digitized that slide, there are many companies out there that are working on algorithms. There are one or two that have been FDA approved that allow you to apply algorithmic analysis to the digital image in order to improve the quality of the read.

Speaker Change: Second is it allows us to route the route the image to expert pathologists wherever they sit in the country. So if our guru for breast pathology sits on the West Coast you move those those slides out there as the prostate Guru sits on the East Coast you move those slides there so and yes, we believe once you digitize that.

Speaker Change: Slide there's many companies out there that are working on algorithms, there's one or two that have been FDA approved that allow you to apply algorithmic analysis to the digital image in order to improve the quality of the REIT.

James E. Davis: In terms of reimbursement, we absolutely believe there's a strong case to be made for higher reimbursement using these algorithms. The final thing I would tell you is that with digital pathology, it opens up a realm of new types of just histology-only types of operations, meaning we will take on the histology work for a health system. They'll still keep the pathologist, but they'll shut down their histology operations. We'll do the slide preparation, digitize it, and send that back to the hospital pathologist for them to still do the reading. We call this a technical-only solution, and it's a solution that's starting to take off, and the margins on the technical component of histology are quite good.

Speaker Change: In terms of reimbursement, we absolutely believe there's a strong case to be made for higher reimbursement using these algorithms. The final thing I would tell you is that with digital pathology. It opens up a realm of new just histology only types of operations, meaning we will take on.

Speaker Change: The histology work for a health system, they will still keep the pathologists, but they'll shut down their histology operations will do the slide preparation digitize it and send that back to the hospital pathologists for them still to do the reading we call. This a technical only solution and it's a solution that is starting to take off and.

Speaker Change: The margins on the technical component of histology.

Speaker Change: <unk> are quite good.

James E. Davis: So we're bullish on the overall market opportunity. Operator, next question. The next question comes from Erin Wright of Morgan Stanley. Your line is open.

So we're bullish on the overall market opportunity here.

Operator next question.

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

Operator: I have two questions, but on value-based care contracts, you mentioned that you lapped some of the payments that were made through those contractor relationships last year. I guess, how much did that benefit you last year, and how should we be thinking about modeling that on a quarter-to-quarter basis? Will those incentive payments or contributions be relatively one-time in nature?

Erin Elizabeth Wilson Wright: Great. Thank you for taking my questions I think two parter here on value based care contact you mentioned that you'll lap some of the payments that were made through their contacts and relationships last year I guess, how much did that benefit you last year and how should we be thinking about modeling that on a quarter to quarter basis, well well those incentive payments are contribution.

Erin Elizabeth Wilson Wright: Is that something you'll be breaking out for us going forward, and how material have those payments been, I guess, year-to-date? And then the second part of my question would just be more on the regulatory environment, just what you're thinking in terms of PAMA and SALSA and your expectations into 2025 on that front. All right, so let me start with your value-based care comment. I'll ask Sam to add some color, and then I'll come back and address PAAMA and SALSA. So on value-based care, it made positive contributions in the second quarter of this year, but they just weren't bigger than the second quarter of last year.

Speaker Change: <unk>.

Are they relatively onetime in nature or is that something you'll be breaking out for us going forward and how material payment ban I guess year to date.

Speaker Change: And then a second part of my question would just be more on the regulatory environment, just what youre thinking in terms of Pam that Intelsat and your expectations into 2025 on that thanks.

Sam A. Samad: Alright, So let me start with your value based care comment ill ask Sam to add some color and then I'll come back and address Panama and salsa.

Sam A. Samad: So on the value based care.

Sam A. Samad: It made positive contributions in the second quarter of this year.

Speaker Change: Just words.

Speaker Change: Bigger than the second quarter of last year last year, we had a meaningful gained we acknowledged that last second quarter again. This year. It was positive but the delta between last year and this year was a headwind for us.

James E. Davis: Last year, we had a meaningful gain. We acknowledged that in the second quarter. Again, this year, it was positive, but the delta between last year and this year was a headwind for us. It is very difficult for us to give you guidance on how to model these things.

Speaker Change: It is very difficult for us to give you guidance on how to model. These things Theres really two principal components to these value based payments one is from shared savings from acquisitions.

James E. Davis: There are really two principal components to these value-based payments. One is from shared savings from acquisition, and those are lumpy.

Speaker Change: Those are lumpy they are based on the acquisitions, they do and in some cases payments can be six months post deal closure. Some cases, it could be a year post deal closure. It just depends on the contract the other type of value based.

James E. Davis: They're based on the acquisitions they do, and in some cases, payments can be six months post-deal closure. In some cases, it could be a year post-deal closure. It just depends on the contract.

James E. Davis: The other type of value-based incentive payment that we have with some of our payers is around the movement of requisitions from high-priced either out-of-network laboratories or high-priced health system laboratories. And again, that could be a once-a-year true-up, and depending on when we sign that contract, it could be in June, it could be in January, it could be in April. So very, very hard to model these things. So Sam, any other colors on this?

Speaker Change: Incentive payments that we have with some of our payers.

Sam A. Samad: Is around the movement of requisitions from high priced either out of network laboratories are high priced health system laboratories, and again that could be a once a year true up and depending on when we signed that contract could be in June could be in January could be in April so very very hard to model. These things so Sam any other color on that.

Sam A. Samad: I think you've really captured it, Jim. You know, the key thing there, Erin, is it's difficult to give you a sense as to how the pacing's gonna be. We always said these were lumpy.

Sam A. Samad: I think you would really captured it Jim.

Sam A. Samad: The key thing there Eric.

Sam A. Samad: It's difficult to give you a sense as to how the pacing is going to be we always said these are lumpy and you know sometimes there is also accounting nuances on these where if it's a shared service shared savings commitment for instance, we might accrue for that shared savings as if we're not going to achieve it but then when we do achieve it we have to release that accrual.

Sam A. Samad: And you know, sometimes there's also accounting nuances on these, where if it's a shared service, a shared savings commitment, for instance, we might accrue for that shared savings as if we're not going to achieve it, but then when we do achieve it, we have to release that accrual, so to speak, and get a benefit in that quarter. Suffice it to say that these continue to be positive for us in terms of our overall pricing.

Sam A. Samad: So to speak and get a benefit in that quarter.

Sam A. Samad: The suffice it to say that these continue to be a positive for us in terms of our overall pricing in Q2 of 2024, it was a pricing or a positive benefit for us in the quarter, but on a year over year basis, we had a significant benefit in Q2 2023, so it impacted us negatively in terms.

Sam A. Samad: In Q2 of 2024, it was a pricing or positive benefit for us in the quarter, but on a year-over-year basis, we had a significant benefit in Q2 2023, so it impacted us negatively in terms of total revenues on a year-over-year basis. So I think everything that Jim said stands in terms of the difficulty of giving you a modeling algorithm for these.

Sam A. Samad: Total revenues on a year over year basis.

Sam A. Samad: I think everything that Jim said stands in terms of the difficulty of giving you a modeling algorithm for these <unk>.

James E. Davis: And then, PAMA, Jim, did you want to comment? Yeah, in terms of PAMA and SALSA, while we continue to, we and our trade association and other independent labs continue to push the case for SALSA, we acknowledge it's going to be difficult to get that through in a year with, in an election year, and especially now given many of the changes that occurred in the last week. Having said that, we will continue to push very hard for another one-year delay in PAMA. The recent CBO scoring on this was actually bigger than it was last year.

James E. Davis: In Panama, Jim did you want to comment in terms of Tam in salt, while we continue to lead in our trade Association and other independent labs continue to push the case for SASSA, we acknowledge it's going to be difficult to get that through in a year with an election year and especially now.

Sam A. Samad: Evan.

Evan: Many of the changes that have occurred in the last week, having said that.

Evan: We will continue to push very hard for another one year delay in Panama.

Speaker Change: The recent CBO, scoring on this was actually bigger than it was last year. They projected it would save the government over $3 billion and in addition.

James E. Davis: They projected it would save the government over $3 billion. And, in addition, you know, the committee in the House that oversees this is looking for a pay-for-performance program to pay for continued telehealth benefits. So this becomes a really nice pay-for program that can satisfy the requirement to fund the telehealth. We're confident that, at a minimum, there would be a one-year delay in PAMA, and hopefully, we can get this done and figure it out in the October-November timeframe as opposed to waiting for the December timeframe like we've seen in the past. Operator, next question. The next question comes from Brian Tanquilut of Jeffries. Your line is open.

Speaker Change: The committee.

Speaker Change: In the house that overlooks is looking for a pay for program to pay for it.

Continued tele health benefits. So this becomes a really nice.

Speaker Change: Pay for a program that that can satisfy.

Speaker Change: The requirement to fund the telehealth so.

Speaker Change: We're confident that at a minimum there would be a one year delay in Panama.

Speaker Change: And hopefully we can get this done and figure it out in the October November timeframe as opposed to waiting for the December timeframe like we've seen in the past.

Speaker Change: Operator next question.

Speaker Change: The next question comes from Brian Tequila.

Speaker Change: Of Jefferies. Your line is open Sir.

Operator: Hey, good morning, guys. And congrats on the quarter. Maybe, Sam, as I think about your comments on Haystack, I understand maintaining the drag guidance for this year, but how are you thinking about the ramping up on that as we think about 2025? And given some of the announcements you've made on new partnerships there, so just curious how we should be thinking about the development and the ramp of Haystack going forward. Thanks. Yeah, sure.

Brian Gil Tanquilut: Hey, good morning, guys and congrats on the quarter maybe.

Brian Gil Tanquilut: And as I think about your comments on haystack I understand maintaining the drag guidance for this year, but.

Brian Gil Tanquilut: How are you thinking about the ramp on that as we think about 2025 and given some of the announcements you've made on new partnerships. There. So just curious how we should be thinking about.

Speaker Change: The development and the ramp up pace that going forward. Thanks.

Operator: And good morning, Brian. As we said in the prepared remarks, haystack dilution this year will be somewhere in the $0.35 to $0.40 range, which is about a $0.20 increase in terms of dilution from the prior year.

Speaker Change: Yes, sure and good morning, Brian So as we said in the prepared remarks haystack dilution. This year will be somewhere in the 35 to 40 range, which is about a 20.

Speaker Change: Increase in terms of dilution from prior year for 2025, Brian The way we see it is it's still going to be dilutive.

Speaker Change: But it's going to be less dilutive.

Then we see in 2024, because we will start to recognize revenues on the assay as we launch later this year in.

Brian Gil Tanquilut: For 2025, Brian, the way we see it is it's still going to be dilutive, but it's going to be less dilutive than we see in 2024 because we will start to recognize revenues on the assay as we launch later this year. In 2026, we expect this, we expect haystack to be slightly accreted. And we expect by the end of 2025 to also achieve a positive return on invested capital from this acquisition.

Speaker Change: In 2026, we expect this.

Speaker Change: We expect haystack to be slightly.

Speaker Change: Accretive.

Speaker Change: And we expect by the end of 2025 also to get to a positive return on invested capital from this from this acquisition.

Brian Gil Tanquilut: In terms of all the things that we've seen, the early launch has been really successful. We've had very, very high interest in terms of the number of key thought leaders and cancer centers that have signed up for this. So everything that we see today is really encouraging, and you touched on the partnerships that we've made as well. We continue to sign new partnerships in terms of cancer centers or companies that are partnering with us to evaluate the use of the assay and MRD in a specific type of cancer. We're really excited about the upcoming launch.

Speaker Change: In terms of all the things that we've seen the early launch has been really successful we've had a very very high interest in terms of number of.

Speaker Change: Key thought leaders.

Speaker Change: Cancer centers that are signed up for this so everything that we see today is really encouraging and you touched on the partnerships that we've made as well we continue to sign new partnerships in terms of.

Speaker Change: Cancer centers that are or companies that are partnering with us to evaluate the use of Esa in MRV in a specific type of cancer. So really excited about the upcoming launch I think the early launch has been very positive.

Sam A. Samad: I think the early launch has been very positive, and hopefully this gives you a sense as to the financial impact in terms of accretion dilution. Operator, next question. The next question comes from Lisa Gill of J.P. Morgan. Your line is open. Thank you very much and good morning.

Speaker Change: Hopefully this gives you a sense as to the financial impact in terms of accretion dilution.

Speaker Change: Operator next question.

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

Lisa Christine Gill: Thanks, very much and good morning.

Operator: Since you last reported, the LBTA rule came out, can you maybe just talk about what the impact is there? I heard your comments on PAMA and SALSA, but anything else on the regulatory front that we should be aware of? Yeah, thanks, Lisa.

Speaker Change: <unk> reported the LTTE rule came out can you maybe just talk about what the impact is there I heard your comments on Permian pass that but anything else on the regulatory front that we should be aware of.

Lisa Christine Gill: So, as you know, our trade association filed a lawsuit in the federal court of Texas, District Court of Texas, and work by outside counsel that the trade association has retained continues. We expect movement in the case in the latter part of this year, November, December, and probably into January of next year. Having said that, the rule is in place.

Speaker Change: Yes, Thanks, Lisa So as you know our trade Association filed a lawsuit in the Federal Court of Texas District Court of Texas.

Speaker Change: And work by.

Speaker Change: Outside counsel that the trade Association has retained continues we expect movement in the case in the latter part of this year November December and probably into January of next year, having said that the rule is in place we are running the company and operating the company.

Speaker Change: With the rule in place there.

James E. Davis: We are running the company and operating the company with the rule in place. There are certain requirements that we need to have in place by May of next year, including a complaint handling unit up and running as well as the ability to report adverse events.

Speaker Change: Requirements that we need to have in place by May of next year, including <unk>.

Speaker Change: Complaint handling unit up and running as well as.

Speaker Change: The ability to report adverse events.

James E. Davis: And these capabilities, some of which we already had in the company, some of which we have to add, are ongoing as we speak. We continue, and we've launched training for the organization, in particular our R&D teams, our product marketing teams around design controls. And again, we're living with the rule and implementing things for the directive of the FDA. We've said this year it's not going to add material cost to the business, but we continue to evaluate what we need to be fully compliant, especially if the law suit is not successful. Operator, next question.

Speaker Change: And these capabilities some of which we had in the company some of which we have to add are ongoing as we speak.

Speaker Change: We continue we've launched training for the organization in particular, our R&D teams our product marketing teams around design controls.

Speaker Change: And again, we're living with the rule and implementing things.

For the director of the FDA.

Speaker Change: We've said this year, it's not going to add a material cost.

Speaker Change: Into into the business, but we continue to evaluate what we need to be fully compliant, especially if the law suit is not successful.

Speaker Change: Operator next question.

Operator: The next question comes from Michael Riskin of Bank of America. Hey, thanks for taking the question, guys. I'm going to stay on the regulatory side. It's still fairly recent, but we've had a couple questions from investors on Chevron deference, the Supreme Court ruling to overturn the Chevron doctrine, and what it could mean for deregulation. It's still kind of a hypothetical, I think, but I was just curious what your take on that is, given your place.

Speaker Change: The next question comes from Michael Riskin of Bank of America.

Michael Riskin: Hi, Thanks for taking the question, Doug I'm going to stay on the regulatory side.

Speaker Change: It's still fairly recent but we've had a couple of questions coming from investors on Chevron deference.

Speaker Change: The Supreme Court ruling that overturned the chevron doctrine, and what can mean for deregulation.

Speaker Change: Still kind of a hypothetical I think but just curious what your take on that is given your place in the industry.

Michael Leonidovich Ryskin: Well, it certainly doesn't hurt that the company we believe is in front of, again, the federal district court in Texas. I'm not a legal expert by any means, but as you know, Congress is the one that sets the operating parameters for various departments that exist, like the FDA. We believe what Congress authorized the FDA to do is to regulate medical devices, and Congress also enacted the CLIA Act of 1988 that talked about the regulation of clinical laboratories.

Speaker Change: Well it certainly doesn't hurt.

Speaker Change: Chase that.

Speaker Change: We believe as in front again, the Federal District Court in Texas.

Speaker Change: I'm not a legal expert by any means but as you know what Congress.

Speaker Change: Is the one that sets.

Speaker Change: The operating parameters for various departments that exist like the FDA.

Speaker Change: We believe what Congress authorized the FDA to do is to regulate medical devices.

Speaker Change: And Congress also authorized the CLIA Act of 1988 that talks about the regulation of clinical laboratories.

James E. Davis: So we believe it's very clear what Congress intended. Obviously, others don't see it that way. But we do believe that, yes, what has come out of the Supreme Court recently is favorable and clearly dictates what should occur within the four walls of a regulatory body. Operator, next question. The next question comes from Jack Meehan of Nefron Research. Your line is open, sir. Thank you. Good morning.

Speaker Change: So we believe it's very clear what Congress intended.

Speaker Change: Obviously other.

Speaker Change #100: I don't see it that way.

Speaker Change: But we do believe that yes, what has come out of the Supreme Court recently.

Speaker Change #101: Is favorable and clearly dictates what should occur within the four walls of regulatory bodies.

Speaker Change #102: Operator next question.

Speaker Change #103: The next question comes from Jack Meehan of Nephron Research. Your line is open Sir.

Jack Meehan: Thank you good morning.

Operator: Either for Sam or for Jim, I was wondering if you'd give an update on what you're seeing in terms of cost trends, how are wage costs trending, an update on turnover, and, sorry if I missed this, what's the full year margin target? Yeah, so from a wage standpoint, you know, we said at the beginning of the year that we expected wage increases to be in that three to 4% range. We're still operating within that three to 4% range.

Sam A. Samad: Or either for Sam Moore for Jim I was wondering if you could give an update on what youre seeing in terms of cost trends hour wage costs trending and update on turnover.

Speaker Change #105: Sorry, if I missed this Sam.

Speaker Change #106: Full year margin target. Thank you.

Speaker Change #107: Yes, so from a wage standpoint.

Sam A. Samad: At the beginning of the year that we expected wage increases to be in that 3% to 4% range.

Operator: So we're comfortable with that estimate for the back half of the year that it'll play out in that range. In terms of turnover, you know, last year, all in for our frontline positions, patient services, logistics, specimen processing, our laboratory workers, we were north of 20%. In the first quarter, we came down below 20% into the mid-18s, and we kind of hung there in the second quarter.

Sam A. Samad: Still operating within that 3% to 4% so we're comfortable with that estimate.

Sam A. Samad: For the back half of the year that it will play out in that range in.

In terms of turnover.

Sam A. Samad: Last year all in.

Speaker Change #108: For our frontline physicians patients patient services logistics specimen processing, our laboratory workers, we were north of 20%.

Speaker Change #108: In the first quarter, we came down below 20% into the mid teens, and we kind of hung there in the second quarter. So we feel good that generally you can see an uptick sometimes after your first quarter after bonus payments and things like that but we've maintained a relatively flat.

Jack Meehan: So we feel good that, generally, you can see an uptick sometimes after your first quarter after bonus payments and things like that. But we've maintained a relatively flat position. We obviously have some hot spots around the country and in certain job categories that tend to be competitive, related either to health systems or with other industries. And so we address those hot spots, and we expect to make meaningful improvements in the back half of this year.

Speaker Change #109: Physician, we obviously have some hotspots around the country and certain job categories that tend to be competitive related either with health systems or with other industries and so we address those hotspots and we expect to make meaningful improvements in the back half of this year, yes.

Jack Meehan: Yeah, and for a margin target, Jack, we didn't give one, so you didn't miss it. But we did say that operating margins are expected to be up year over year, which is what we had shared also on the Q1 call. Operator, next question.

Speaker Change #109: Yes, and for margin target Jack we didn't give one so you didn't miss it but we.

Speaker Change #110: We did say that the operating margins are expected to be up year over year, which is what we had shared also on the.

Jack Meehan: The Q1 call.

Speaker Change #111: Operator next question.

James E. Davis: The next question comes from Andrew Brackmann of William Blair. Hi guys, good morning.

Speaker Change #112: The next question comes from Andrew Brachman of William Blair.

Operator: Thanks for taking the questions. Sam, maybe one for you just on the balance sheet and the upcoming debt maturities. Anything that you can sort of share in terms of your expectations for time or timing or interest costs associated with those refinancings? And I guess just related to that, any color that you can provide on the debt assumptions for the Life Labs Act? Sure, Andrew, and good morning.

Andrew Frederick Brackmann: Hi, guys. Good morning, Thanks for taking the questions Sam maybe one for you just on the balance sheet and the upcoming debt maturities Mitch anything that you can sort of share in terms of your expectations for time or timing or interest cost associated with those refinancings and I guess just related to that any color that you can provide on the debt assumptions for the life labs acquisition. Thanks.

Speaker Change #114: Sure Andrew and good morning.

Andrew Frederick Brackmann: So let's start with LifeLabs. What we are assuming, I mean, I shared in the prepared remarks that we expect the acquisition. First of all, we're not expecting LifeLabs to close this year, at least in our guidance assumptions. It could, but we're not assuming it's in the guidance. But for 2025, it's a $0.10 to $0.15 EPS accretion, or at least in its first year, let's call it that. It's $0.10 to $0.15.

Speaker Change #115: So let's start with the life labs, what we are assuming I mean I shared in the prepared remarks that we expect the acquisition first of all we're not expecting <unk> to close this year at least in our guidance assumptions.

Speaker Change #115: It could but we're not assuming it.

Speaker Change #115: We're not assuming it in guidance, but.

Speaker Change #115: For 2025, its a 10 to 15.

Speaker Change #115: EPS accretion.

Speaker Change #115: Or at least in its first year, let's call. It that it's 10 to 15, we're assuming that it's funded by a combination of debt and cash but within that assumption of 10% to 15 cents is that 75% of that purchase price was funded with debt. So the roughly $1 billion purchase price 75% of it is.

Sam A. Samad: We're assuming that it's funded by a combination of debt and cash, but within that assumption of $0.10 to $0.15 is that 75% of that purchase price is funded with debt. So the roughly $1 billion purchase price, 75% of it is debt-funded, which is what drives the $0.10 to $0.15 accretion in the first year. In terms of just broadly on debt assumptions and liquidity, et cetera, I think you talked about balance sheet assumptions.

Speaker Change #115: That funded which is what drives the 10% to 15.

Speaker Change #116: Accretion in the first year in terms of just broadly on debt assumptions and liquidity et cetera, I think you've talked about balance sheet assumptions listen a lot of that is going to depend on market conditions and depend on the timing of the close of some of these acquisitions not just life labs, primarily lifelock, but also we have.

Sam A. Samad: Listen, a lot of that is going to depend on market conditions and depend on the timing of the close of some of these acquisitions, not just LifeLabs, primarily LifeLabs. But we also have Ohio Health, and Alina Health. We also closed Path AI in June.

Speaker Change #116: <unk> Health Alliance Health, we also closed path AI in June so as we've been talking about we've had a busy M&A pipeline and starting to come to fruition. So we're going to evaluate market conditions were.

Sam A. Samad: So, you know, as we've been talking about, we've had a busy M&A pipeline, and it's starting to come to fruition. So we're going to evaluate market conditions. We've got the flexibility to access the capital markets. We've got very strong short-term liquidity through access to our facilities. And, you know, but our goal continues to be to target a 2.5 to 3x leverage ratio. That's our target.

Speaker Change #116: We're we've got the flexibility to access the capital markets. We've got very strong short term liquidity through the access to our.

Speaker Change #116: Facilities.

Speaker Change #116: But our goal continues to be to target at two five to three <unk> leverage ratio. That's our goal there could be some slight.

Sam A. Samad: You know, there could be some slight... tip above that higher end of three, but then we expect to de-lever back to somewhere within that two and a half to three in a short time, given the growth and the accretion from these acquisitions. So, again, no specific death number right now, but we'll keep you posted as we get more timing on the closes of these acquisitions. Operator, next question.

Speaker Change #116: <unk>.

Speaker Change #116: Pip above that higher end of three but then we expect to delever back to somewhere within that two 5% to three and short time, given the growth and the accretion from these acquisitions.

Speaker Change #116: Again, no no specific debt number right now, but we will keep you posted as as we get more timing on the closing of these acquisitions.

Speaker Change #117: Operator next question.

Operator: The next question comes from Peto Chickering of Deutsche Bank. Your line is open, sir. Hey, good morning, guys. Thanks for fitting me in.

Speaker Change #118: The next question comes from Peter Chickering of Deutsche Bank. Your line is open Sir.

Philip Chickering: Hey, good morning, guys. Thanks for fitting me in a multi part question here.

Philip Chickering: A multi-part question here. How are volumes looking, you know, from your preferred network customers versus everyone else? And looking at both the physician market and the hospital market, are you losing, gaining, or maintaining share? Any quantification of any of those would be helpful.

Philip Chickering: How are volumes looking at.

Philip Chickering: From your preferred network customers versus everyone else looking at both the physician market in the hospital market are you, losing gaining or maintaining share in any clarification of any of those would be helpful.

James E. Davis: Okay, so on volume from our pairs with preferred arrangements, the volume with, with several of them, Patrick, is higher. Now. Some of that can also be driven by Medicare Advantage, the various sizes of the Medicare Advantage books of business. But in general, when we operate within these preferred networks where we have incentives in place to move, you know, share from out-of-network labs, and high-priced health systems, we definitely see benefits. You know, in terms of market share statistics around our physician book of business and our health system book of business, it's hard to tell, right? There are just not great industry reports that talk about that.

Speaker Change #120: Okay. So on volume from our.

Speaker Change #121: Payers with preferred arrangements the volume.

With.

Patrick: With several of them Patrick is higher now.

Speaker Change #122: Some of that can be also driven by Medicare advantage. The various size of the Medicare advantage books of business, but in general when we operate within these preferred networks, where we have incentives in place to move.

Speaker Change #122: Sure from out of network Labs high priced health systems, we definitely see benefits.

Speaker Change #123: In terms of market share statistics around our physician book of business and our health system book of business.

Speaker Change #124: It's hard to tell right there isn't it just not great industry reports that talk about that but I can tell you.

James E. Davis: But I can tell you that when we said that that book of business was up 5.1% from a revenue standpoint, our physicians were growing faster than that, and the health system was growing slightly lower than that, but still, they're growing in ranges that are significantly above what we saw from a pre-COVID standpoint. So, that leads us to believe, and also just based on the number of new wins with large physician groups, the number of new wins in our reference book of business, leads us to believe that, yes, we are picking up market share in this industry.

Speaker Change #125: When we said that that book of business was up 551% from a revenue standpoint.

Speaker Change #125: Our physician growing faster than that health system.

Speaker Change #125: Growing <unk>.

Speaker Change #125: Slightly lower than that but still they're growing in ranges that are significantly above what we saw from our pre COVID-19 standpoint, so that leads us to believe and also just based on the number of new wins with large physician groups. The number of new wins in our reference book of business. It leads us to believe that yes, we are picking up.

Speaker Change #125: Sure in this industry and much of that share we believe is coming from.

James E. Davis: And much of that share, we believe, is coming from health systems that potentially aren't as aggressive in some of that outreach business, from specialty labs, and also from small, very small, little regional labs. Operator, next question.

Speaker Change #125: Health systems that potentially aren't as aggressive on some of that outreach book of business from specialty labs and also from small very small little regional labs.

Speaker Change #126: Operator next question.

Operator: We have time for one last question, and that is from Stephanie Davis of Barclays. Your line is open. Hey guys, congrats on the quarter and thank you for fitting me in. I was just curious if there's anything that's changed either the environment or maybe in strategy that's had this pick up in M&A so much this year. And how sustainable is this, or how much is this for you guys, just kind of striking all the irons out?

We have time for one last question and that is from Stephanie Davis of Barclays. Your line is open.

Stephanie July Davis: Yeah, no change in the strategy at all, Stephanie. And as we've been saying for many quarters in a row, the M&A funnel is full. Now, we don't go into a year planning on getting four deals announced in one quarter. It just, in fact, you know, you would prefer to space these out a little bit. But there's always somebody on the other end that you're negotiating with. And these things sometimes take time.

Stephanie July Davis: Hey, guys, Congrats Macquarie and thank you for fitting me in.

Speaker Change #128: Thank you.

Stephanie July Davis: Curious if there's anything that's changed either the environment or maybe in strategy that habit pickup in M&A so much.

Speaker Change #129: And how sustainable is this or how much of it does.

Speaker Change #130: Kind of striking while the iron Todd Thank you.

Speaker Change #130: Yeah, no change in the strategy at all Stephanie.

Speaker Change #131: And as we've been saying for many quarters in a row. The M&A funnel is full now.

Speaker Change #131: We don't go into a year of planning on getting four deals announced in one quarter. It just.

Speaker Change #131: In fact, you would prefer to space these out a little bit but.

Speaker Change #131: There is always somebody on the other end that youre negotiating with and these things sometimes take time.

James E. Davis: So, look, we're really excited about all of these. You know, Alina Health in Minneapolis represents a market where independent labs basically have a really, really low share in that market space. So, we're really excited about the Minneapolis marketplace. We're also very excited about Columbus, Ohio, dominated by two health systems; it's very difficult for independent labs to operate there. And so this gives us a substantial, you know, foothold within that Columbus marketplace. Obviously, we're excited about the Canadian marketplace as we talked, and again, PATH-AI represents both a nice opportunity in the Memphis marketplace itself, where we believe we can grow our book of business there. And as well, it doesn't really matter where that lab is located because a lot of the work is done digitally, so it accepts specimens from all I would tell you that there are still opportunities within the funnel. The emphasis continues to be on these outreach tuck-in deals.

Speaker Change #131: So.

Speaker Change #131: Look we're really excited about all of these.

Our line of health in Minneapolis, It represents a market where the independent labs.

Speaker Change #131: And basically have really really low share in that market space. So really excited about the Minneapolis market place. We're also very excited about Columbus, Ohio dominated by two health systems very difficult for independent labs to operate there and so this gives us a substantial.

Speaker Change #131: Foothold within that Columbus marketplace.

Speaker Change #131: Obviously excited about the Canadian marketplace, as we talked and again path AI represents both a nice opportunity in the Memphis marketplace itself, where we believe we can grow our book of business, there and as well it doesn't really matter where that lab is located because a lot of the work is done digitally so it except specimens from from <unk>.

Speaker Change #131: All over the country.

Speaker Change #132: I would tell you that theres still opportunities within the funnel. The emphasis continues to be on these outreached tuck in deals. It continues to be in to focus in markets, where our share position or access to independent labs is is waning.

James E. Davis: It continues to focus on markets where our share position or access to independent labs is waning, and that's where our focus will be in the second half of this year. One other thing I'd add, Stephanie, is that all of these acquisitions that we announced meet our criteria. You know, they basically hit the mark on all of the criteria that we have. Acquirable in the first year, they meet our return on invested capital threshold. They meet our NPV criteria. So again, you know, the activity would also depend on whether these acquisitions are going to hit our profitability criteria, the heroic hurdle rate, and they do.

Speaker Change #132: And that's where our focus will be in the second half of this year.

Speaker Change #133: One other thing I'd add Stephanie is all of these acquisitions that we announced meet our criteria basically hit the mark on all of the criteria that we have accretive in the first year. They meet our return on invested capital threshold there they meet our MPV criteria. So again the activity.

Speaker Change #133: With depend also these acquisitions are going to hit our profitability criteria, our ROIC hurdle.

Speaker Change #133: Hurdle rate and they do.

Speaker Change #133: Okay.

Operator: Okay, so that concludes our call today. We really appreciate everybody joining. Thanks for your support, and have a great week ahead.

Operator: Okay, so that concludes our call today. We really appreciate everybody joining us. Thanks for your support, and have a great week ahead.

Speaker Change #133: Okay.

Speaker Change #134: So that concludes our call today, we really appreciate everybody joining thanks for your support and have a great week ahead.

Operator: Thank you for participating in the Quest Diagnostics second quarter 2024 conference call. A transcript of prepared remarks for 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 866-887-8888, 363-1805 for domestic callers, or 203-888-4222. 3690193 for International College. Telephone replays will be available from approximately 10.30 a.m. Eastern Time on July 23, 2024 until midnight Eastern Time on August 6, 2024. Thank you for your participation, and you may disconnect.

Operator: Thank you for participating in the Quest Diagnostics, Second Quarter 2024 conference call.

Speaker Change #135: Thank you for participating in the quest diagnostics second quarter 2024 conference call.

Operator: A transcript of Prepare Grimarks 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, Ford Fashion Bester, or by phone at 866-363-1805 for domestic callers, or 203-369-0193 for international callers.

Speaker Change #136: Transcript of prepared remarks on this call will be posted later today on quest diagnostics website at Www Dot quest diagnostics Dot com.

Speaker Change #136: A replay of the call may be accessed online at Www Dot quest diagnostics dot com forward slash investor or by phone at 800.

Speaker Change #136: 63631805 for domestic callers or choose Euro 33690193 for international callers telephone replays will be available from approximately 10 30, a M. Eastern time on July 20 <unk>.

Operator: Telephone replays will be available from approximately 10:30 AM Eastern Time on July 23, 2024, until midnight Eastern Time August 6, 2024.

Speaker Change #136: 2024 until midnight Eastern time August six 2024. Thank you for your participation and you may disconnect.

Operator: Thank you for participation, and you may disconnect.

Speaker Change #136: Okay.