Q2 2025 Quest Diagnostics Inc Earnings Call

Welcome to The Quest. Diagnostic, second quarter 2025 conference call at the request of the company, this call is being recorded the entire contents of this call including the presentation and question and answer session that will follow are the copyrighted property of questing gnostics 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.

Speaker Change: Now, I'd like to introduce Sean bewick, vice president of investor relations for Quest Diagnostics.

Speaker Change: Please go ahead.

Jim Davis: Thank you and good morning. I'm joined by Jim Davis, our chairman chief executive officer and president and Sam Sam mod our Chief Financial Officer.

Jim Davis: 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 gaap measures in the tables to our earnings press release.

Jim Davis: Actual results May differ materially from those projected.

Jim Davis: 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, 10K and subsequently filed. Quarterly reports on form 10q and current reports on Form 8K.

Jim Davis: For this call references to reported, EPS referred to reported diluted DPS.

And references to adjusted EPS referred to adjusted diluted DPS.

Jim Davis: Growth rates associated with our long-term Outlook projections, including Consolidated Revenue growth, Revenue growth from Acquisitions, organic Revenue growth, and adjusted earnings growth, our compound annual growth rates.

Jim Davis: Now, here is Jim Davis.

Jim Davis: March we communicated our strategy to drive growth through innovative solutions that meet the evolving needs of our customers, our strong second quarter results, reinforce the Strategic Direction,

Jim Davis: given our performance in the quarter and continued utilization trends for raising our full year 2025 guidance.

Jim Davis: During the quarter, we saw strong Topline growth of 15.2% including 5.2% organic Revenue growth as increased demand for our Innovative clinical Solutions and expanded business from Enterprise accounts. Complimented growth from acquisitions.

Our adjusted earnings per share grew 11.5% as a result of strong Topline growth combined with productivity gains from our deployment of Automation, digitization and other Advanced Technologies.

Jim Davis: Before Sam provides more detail on our results. I'll highlight a few ways. Our strategy is enabling growth.

Jim Davis: We are focused on delivering solutions that meet the evolving needs of our core clinical customers, Physicians and hospitals, as well as customers in the higher growth areas of consumer, life, sciences and data analytics.

Jim Davis: We enable growth our customer channels through faster. Growing Advanced Diagnostics in 5, key clinical areas which are Advanced cardio, metabolic autoimmune, brain, health oncology, and women's, and reproductive health.

Jim Davis: in addition, Acquisitions are a key growth driver and our strategy emphasizes a creative Outreach purchases and independent labs,

Jim Davis: Finally, we are focused on driving operational improvements across the business with the deployment of automation Ai and other Advanced Technologies for improved quality productivity and customer and employee experience.

Here are some of the updates. On the progress, we have made in these areas in the second quarter.

Jim Davis: In the physician Channel, we delivered approximately 20% Revenue growth driven, primarily by acquisitions complemented by organic Revenue growth in the high single digits.

Demand for our Innovative clinical Solutions, contributed significantly to organic Revenue growth as Physicians. Ordered more tests per requisition across our portfolio supported by strong commercial execution.

Jim Davis: We also saw robust growth from large Enterprise accounts, particularly in functional medicine, a growing area of preventive, Health Care in which providers often order. A range of lab tests to identify and act on multiple health risks.

Jim Davis: Large Enterprises value, our ability to scale, diagnostic Innovation, to improve access quality and affordability.

Jim Davis: Later this summer, we expect to begin. Providing Laboratory Testing under our previously, announced relationship with percent Medical Care to support over time, more than 200,000 kidney, dialysis patients in the US.

Jim Davis: In the hospital Channel revenues grew low single digits with Collaborative, lab Solutions driving, our growth in the quarter.

As hospitals grapple with financial pressures and shortages of skilled lab technologists. They are choosing quests to access our best-in-class expertise, Innovation and efficiency instead of running their own lab.

Jim Davis: Our acquisition of Outreach Labs also provides hospitals, with capital for investment in their core care missions.

Jim Davis: Our pipelines for Hospital, Outreach m&a in Collaborative lab Solutions, remain strong.

Jim Davis: In addition to our physician and Hospital channels, we are highly focused on expanding access for our consumer Channel during the quarter. We continue to see strong growth across our expanding. Array of offerings, including a new women's hormone panel on Quest health.com.

Jim Davis: We recently fulfilled our 1 millionth customer order since launching this. Enhanced online platform in the fall of 2022, demonstrating ongoing consumer demand for greater health information.

Jim Davis: Complementing our consumer initiated Channel. We continue to expand our Partnerships with top consumer and wellness Brands, who value our high-quality lab testing broad access and flexible technology Integrations as the lab engine inside of their offerings.

Jim Davis: in endocrine disorders, and chronic kidney disease as well as for our analyzer autoimmune solution in brain health, we drove robust growth for our ad detect blood tests for Alzheimer's disease during the quarter, we launched our new Ab 4240 and petal, 217 add detect panel, which is designed to help Physicians, confirm omalo, brain, pathology in symptomatic patients,

Jim Davis: In oncology, we are ramping up our commercial Outreach to drive Haystack, mrd market adoption while. We also continue to convert participants from our early experience program.

Jim Davis: A recent study in the New England Journal of Medicine affirmed, the high sensitivity, and specificity of our hstack mrd test. Finding it identified complete response to an immunotherapy in Phase 2 trials, several months before standard Imaging tests.

Finally Quest continues to be at the Forefront of serving Public Health needs.

Jim Davis: Earlier this month, we announced the launch of a molecular test for diagnosing Oro. Push virus which we developed under a CDC contract to enhance the nation's preparedness for emerging infectious diseases.

Jim Davis: Turning now to operational excellence, we continue to Target 3%, annual cost savings and productivity improvements through our invigorate program.

We are deploying Innovative Automation and AI Technologies including digitizing processes, to improve quality productivity, and customer and employee experiences.

Jim Davis: We have now installed our front-end automation solution, which speeds specimen aloquin and labeling and half a dozen sites. We also recently completed a successful pilot of our automated accessioning platform at our Clifton lab.

We plan to roll out both Solutions across our lab Network through the rest of the year and into 2026.

Jim Davis: Along with the automation enhancements, strong employee retention improves productivity, across our operations and service lines.

Jim Davis: During the quarter employee retention. Further, improved building on Trends and recent quarters.

Jim Davis: Overall, we are pleased with our progress in the quarter, executing on our strategy, to serve customers and drive, gains in revenue and productivity.

Jim Davis: And now Sam will provide more details on our performance and 2025 guidance, Sam.

Thanks Jim.

Jim Davis: In the second quarter Consolidated revenues, were 2.76 billion up 15.2% versus the prior year.

Jim Davis: Consolidated, organic revenues grew by 5.2% revenues for Diagnostic Information Services were up 15.7% compared to the prior year.

Jim Davis: Reflecting recent acquisitions as well as organic growth in our physician and Hospital channels.

Total volume measured by the number of requisitions increase 16.3% versus the second quarter of 2024 with Organic, volume up 2.1%.

Total revenue per acquisition was down 0.4% versus the prior year driven primarily by the impact of the LifeLabs acquisition, which carries a lower Revenue per wreck on an organic basis. Revenue per acquisition was up 3.3%, and the quarter versus last year, driven primarily by an increase in the number of tests per requisition and test mix.

Jim Davis: Unit price, reimbursement, remained consistent with our expectations.

Jim Davis: Reported operating income in the second quarter was 438 million or 15.9% of revenues compared to 355 million or 14.8% of revenues last year.

Jim Davis: On an adjusted basis. Operating income was 466 million or 16.9% of revenues compared to 398 million or 16.6% of revenues. Last year. The increase in adjusted operating income was due to recent acquisitions and organic Revenue growth. Partially offset by wage increases.

Jim Davis: Reported EPS was $2.47 in the quarter compared to $2.33 a year ago.

Jim Davis: Adjusted EPS was $2.62 versus $2.35 the prior year.

EPS in the second quarter was impacted by higher interest, expense versus the prior year.

Jim Davis: Foreign exchange rates had no meaningful impact on our results.

Jim Davis: Ion dollars year to date through the second quarter versus 514 million. In the prior year this year over year, increase of 67.1%, was driven by higher operating income.

Jim Davis: at 1 time cares Act tax credit and the timing of receipts and disbursements

Jim Davis: turning now to our updated full year, 2025 guidance.

Jim Davis: Revenues are expected to be between 10.8 billion and 10.92 billion.

Jim Davis: Reported EPS is now expected to be in a range of 8.60 to 8.80 and adjusted EPS in a range of $9.63.

Speaker Change: To $9.83.

Speaker Change: Cash from operations is now, expected to be approximately 1.55 billion dollars and capital expenditures are expected to be approximately $500 million.

Speaker Change: Our 2025 guidance reflects the following considerations?

Our updated Revenue guidance assumes approximately 3.5% to 4% organic Revenue growth in addition to contributions from Acquisitions completed in 2024 and announced to date. It does not assume any contribution from prospective m&a.

We are making investments in 2025 related to Project Nova, which we expect will modernize our entire order to cash process.

Speaker Change: Most of these investments will occur in the second half of the Year. Operating margin is expected to expand versus the prior year.

And full year share count remain unchanged from our prior guidance.

Finally, our updated EPS guidance assumes that we can absorb the impact of tariffs currently in place primarily in Europe and China.

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

Speaker Change: Thanks Sam to summarize. We delivered robust Top Line and bottom line growth in the second quarter and strong execution of our strategy and utilization trends.

Speaker Change: Through our Sharp customer focus. We grew demand for Innovative clinical Solutions and expanded business from Enterprise accounts to compliment growth from acquisitions.

Given our performance in the quarter and continued. Utilization Trends. We are raising our full year 2025 guidance.

Speaker Change: Finally, I want to thank our more than 55,000 colleagues for their hard work. This quarter to fulfill our purpose to create a healthier world, 1 life at a time.

Now, we'd be happy to take your questions, operator.

Speaker Change: Thank you. We will now open it up to questions at the request of the company. We ask that you please limit yourself to 1 question. If you have additional questions, we ask that you, please fall back in the queue to be placed in the queue. Please press star 1 from your phone to withdraw your question. You may press star 2.

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

Our first question comes from Anne Hines with MSU Security's. Your line is open, you may ask your question.

Anne Hines: Great, thank you, good morning. I want to focus my question, just on the Washington backdrop. Obviously, with the 1, big, beautiful, bill passed and the CBO came out yesterday and said, um, this this will lead to 10 million more uninsured over the next few years between the ACA and Medicaid. How do you view? Um, you know, the that many people going uninsured. How should we view that impact on quests? Over the, um, coming years and then, secondly, as it relates to Washington, um, what are your thoughts on Pam are going into 2026? Thanks?

Anne Hines: Okay, good morning, and thanks for the question. So first. Um, let's put the 1, big beautiful bill into into uh some context here first, you know, the the US Healthcare System. We spend 5 trillion dollars a year and over the next 10 years, um, with a 5% inflation.

Anne Hines: You know, that all amount to 62 trillion.

Anne Hines: 62 trillion.

What the 1 beautiful bill act is taking out, is 1 trillion dollars. So less than right right around 1.5%.

Anne Hines: Now um, what we did read yesterday, yes about 10 million lives uh could come out over the next 10 years.

Anne Hines: From a Medicaid standpoint. It's actually, uh, no impact in 26 very, very little impact in 27 given that they're giving the states time to react to the to these changes

Anne Hines: I mean of when these lives would come out of those plans, uh, at at best we you know, it works case scenario, we estimate no more than a 30 to 40 basis point impact on volume in 2026,

Anne Hines: So we we don't really see that big of an impact you know, in 26 or in 27. I think the other thing to keep in mind is with the people that are on the exchange, these people are working. They have jobs.

Anne Hines: In some cases, they're small business owners or they're self-employed. And um, so they have incomes and and so they may be able to pay higher premiums to keep their their insurance. We also know that um, some people go to The Exchange um because they they are subsidized and they could hop on to their employer's health insurance, but they're choosing the exchange today because it is a cheaper alternative than signing on to their own employer's Health Plan.

Anne Hines: So so and this is Sam good morning just to underscore or um, you know, re-emphasize these the financial assumptions that Jim briefly mentioned. Um, and make sure that I'm sure we'll get more questions on this on the call. So I just want to make sure people are clear for the Medicaid impact. We don't believe there's a material impact. We don't believe there's any impact in 26. And and in material impact in 27 for The Exchange impact, um you know, assuming these subsidies are not renewed at the end of this year, you know, we expect them

Anne Hines: 26 approximately 30 basis points of impact on our volumes, that's what we've sized. Obviously there's assumptions around that but that's that's what we believe.

Anne Hines: Now and you also asked about Pamela. So here's the most recent update. So look, we're pursuing 2 strategies. Number 1 is Pam a reform. And number 2 um, is a is a 6 de in the cuts with respect to hammer reform, our accla trade Association, has introduced language that would turn into legislation and a bill to the 3 commission 2 in the house and 1 in the Senate that ultimately, uh, decide on Health Care policy in in the US that language is in front of the committee's. Uh, we expect that to be turned into a bill later this summer and then the traditional process, uh, will start from there. Um, the committee's, um,

Anne Hines: Uh, you know, discuss the bills. If there's differences between the 2 communities in in the house and the 1 in the Senate, they get together, they reconcile this and our hope is that it, it will turn into a bill and, um, whether it gets, um, you know, voted on as an independent bill or it gets put into some larger Healthcare, um, type of package towards the end of the year. Um, that remains to be seen. The alternative path is obviously, uh, continue to push, uh, for another delay. If we don't believe, if we don't see the pamer reform, getting enacted this year, but I can tell you, we have strong bipartisan support.

Anne Hines: In each of the 3 committees uh, where this legislation will be discussed.

Speaker Change: Operator next question, please.

Speaker Change: Thank you. Our next question. Comes from Kevin colando with UBS. Your line is open. You may ask your question.

Kevin Colando: Good morning guys. Thanks for taking my question.

Kevin Colando: Um, wanted to talk about the comment, um, the modernization Investments. It sounds like some of it may have come forward into 2 Q. Are you still anticipating sort of 20 cents for the full year? And I I guess the second part of that is in the context of margins expanding year-over-year, you've been able to do that the first 2 quarters, do you still anticipate that happening?

Kevin Colando: In the second half even with these modernization Investments.

Yeah, so, uh, hey, good morning, Kevin. So this is Sam. Let me tackle. Uh, your 2, the 2 components of your question here. Uh, with regards to modernization expenses, um, you know, we we had called out approximately 20 cents around modernization and we had talked about also some qra expenses that we're going to incur as well. So, um, and we said, um, you know, that we're going to incur these expenses, this this year, we've had some qra expenses already in the first half. We haven't had much in terms of modernization expenses yet in the first half, so the bulk of those are going to occur in the second half.

Kevin Colando: Um you know in terms of margin expansion uh yes we had good healthy margin expansion in Q2 um and in the first half and our expectation for the full year is that we continue to have operating margin expansion for the full year. Um, so that's still the prevailing assumption in our guidance.

Speaker Change: Great. Thank you. Operator. Next question, please.

Speaker Change: Hi guys. Um, good morning and thanks so much for the question. Uh, maybe a follow up from Ann's question, um, about the the Hicks exposure and and maybe brought more broadly. Um, if we think back to sort of uninsured, utilization rates are the the 30 Pips of impact that you're talking about. What are you assuming in your assumptions for potential utilization of like an uninsured population? And how do we think about that as maybe a potential offset to some of the headwinds that you described from the 1 big beautiful bill?

Speaker Change: Yeah, so, um, thanks for the question. So the uninsured is, is a very small, uh, portion of our Revenue today. Um, now again, um, if, if you take all, if you take all of the lives that you expect to fall out of the exchange, um, again, um, we believe Ian will call it 6570 %. Um, are going to find other Alternatives, okay? With the alternative number 1 is they just simply pay the higher rate. Alternative number 2 is they hop on to uh, an employer's insurance plan that already exists out there. The third alternative is is that they go uninsured, but again, we don't think that's going to be the majority of the people because, again, the majority of the folks that are on Exchange programs, today they have incomes, uh, by definition, they're not on Medicaid, because they have incomes, and um, again they've got the 2 alternatives.

We don't feel like it's going to be a Major Impact as Sam said. You know, 30 basis point impact on volume in 2026.

Operator next question, please.

Speaker Change: Thank you. Our next question comes from Aaron Wright with Morgan Stanley. Your line is open. You may ask your question.

Great thanks so much. So last quarter, you talked a little bit about how it progressed throughout the quarter in terms of utilization Trends. And and how that was accelerating, some of that was because of the weather Dynamics at the time. But how are we trending now into kind of the third quarter? I guess, how would you characterize the utilization throughout the quarter as well? And was it relatively consistent and anything you can do, uh, I guess parsed out in terms of underlying utilization versus market share gains, that, that would be helpful. Thanks.

Speaker Change: Yeah, thanks for the question. So, um, we did see strong utilization in the second quarter and yes, it was a definite, um, uptick from the first quarter, I would tell you that the drivers of that utilization, you know, first and foremost, it's our expanded access um, that, you know, that we gained on January 1st of this year and you don't instantly just start to pick up that business. So we saw a nice steady increase from q1 to Q2. And, uh, what I'm talking about is our access, uh, through elevance and our access through Sentra elevance, um, got us, um, you know, we're in network in Nevada, Colorado West, Virginia,

Uh, Georgia, um, and, um, and together with the senta plan, we picked up a million new lives. So we feel good about the progress that we're making their, um, second um, is our Advanced diagnostic tests, um, our Alzheimer's AB 4240 test, our Advanced cardio, metabolic tests, we continue to see nice, nice volume growth. In some of these Advanced Diagnostics testing and then finally, as you cite yes, weather had a, a big impact in our q1 results. So I'm sure just the timing of, you know, people coming back into the healthcare system after they missed General Health and Wellness. Exams certainly did help in the second, uh, in, in the second quarter in terms of utilization rates, as we sit here, um, in in the first, uh, part of Q3, um, we're um, no real changes where it's consistent with what we've been seeing. And, um, again, there's a combination of of good utilization, Plus

Speaker Change: big wins, and the expanded access through the new uh, Health Plan access

Speaker Change: Operator next question, please.

Speaker Change: Thank you. And next question comes from Michael Turney with Ling Partners. Your line is open. You may ask your question.

Michael Turney: Uh, good morning and thanks for taking the question. Maybe if I can just ask a question on mix I I think Jim you said uh, 3.3% organic route. Correct mix. Do you dive a little bit more into? What were the drivers of that Dynamic? How much of it was um Contracting on your side? Offensive moves versus just the way the market developed and how that should factor into your guidance for the remainder of the year.

Michael Turney: Points. So the other components in rep. Correct are tests per rep and test, mix and business. Mix, payer mix, um, test. Perre again, continue to be very strong and we see it again with the Advanced Diagnostics testing, um, our AB 4240 significantly, uh significant growth, uh uh, you know, quarter over quarter as well as year-over-year. Um, our work with functional medicine, um entities. Um continues to grow in a very meaningful way. Our own CIT business, as we mentioned in the script was up 40%. Um and with that comes strong test mix, strong tests, per wreck, um improvements. So those are the underlying drivers. Um, I don't see a change in those drivers to tell you the truth. Um, and and um, we just kind of expected. It'll continue here, the rest of the year.

Operator next question, please.

Speaker Change: Thank you. And this question comes from Patrick Donnelly with City. Your line is open, you may ask your question.

Michael Turney: Thank you, thanks.

Um maybe a quick 1 s just on the Cadence of second half. Can you just talk about, you know, the the 3 Q setup in terms of margins earnings will be helpful and then a follow-up on Palma. Can you just talk about the financial setup here? What the implications are? How you guys think about potential offsets with the pacing? There would be uh would be helpful just to frame up the payment piece of it. Thank you guys.

Speaker Change: Yeah. Thanks Patrick. I think I heard your your question. Just just let me know if I didn't quite capture it all. So I think you had mentioned. Um, you know, what's the pacing here? Specially as it relates to Q3 in terms of margin and earnings and then you wanted some more color on Palma the financial impact and potential actions. So, um, in terms of the pacing really, um, you know, I reiterate what we've said uh, at the beginning of the year and I think on the q1 call as well, which is, you know, we do expect that uh the pacing usually is that Q2 is our best margin and earnings quarter of the Year Q3 is usually um and and I'm talking about traditionally what we've seen and especially if you take out and normalize some of the co impacts that we've seen in in past years, at least the last few years, but usually Q3 is is a slight step down from Q2 and then Q4 is a step down from Q3 with uh, q1 being the weakest quarter. Um, and uh so that's usually our our

Michael Turney: I would say normal pacing in terms of margin and earning

Michael Turney: Um in terms of pamma, I would say um you know the impact that we currently size is approximately 100 million if if Pam does not get deferred for another year, or if we don't get a permanent fix, we're looking at about a 100 million in terms of pricing impact on our business. We we've mentioned that, um, previously. Um, now we will take some actions to offset some of that. I will not give you a number in terms of how much exactly that.

Michael Turney: Would be, but we will offset a a portion of that. It's not going to be the majority. We we're not unable to take actions to offset the majority of 100 million but we will take some actions to offset a portion of this, this negative impact. If there is no permanent fix or if you know, there is no delay.

Speaker Change: Operator next question, please.

Speaker Change: Thank you. And this question comes from pedo triggering with Deutsche Bank, your line is open. You may ask your question.

Speaker Change: Hey uh, good morning guys. And thanks for taking my question. Uh, question here. Uh, uh on terrorists? Yeah, for your presentation, you can talk about your being the impact of tariffs from China and Europe. Uh, can you quantify uh, the impact that you're absorbing any? Any color on how that hits the third quarter and fourth quarter and should be analyzed at fourth quarter impact or something about 2026?

Yeah. Uh, we're not going to give a specific number pedo. Um, but as we've said before, I'll go back to our previous comments. We think the impact is manageable within our guidance. And so we, we are estimating that we would absorb this impact. Did we have tariff impact in Q2? Yes. We had some, some impact from tariffs in Q2 that we absorbed in our results. Um, Q3 and Q4 we do expect some negative impact, but again, we can manage it within our guidance and the updated guidance that we provided on the call. Um, you know, what's assumed in our guidance today is the tariffs that are in place, um, that are currently in place and currently in

Speaker Change: Um you know Supply channels that we have looking at different vendors where we can resource some of the supplies from us manufacturers or at least us-based manufacturing, not you know, China based Manufacturing.

Speaker Change: Yeah, just again, to frame this, our spend of 2 billion dollars. 80% of that spend uh, is in the US. We've said less than 1% was China. We had already executed on some moves, um, out away from China, that minimized is Sam. Said the impact in q1 and Q2 the other 20% is spread outside of the US outside of China, with the majority of that coming from Europe, with our traditional big suppliers that are located there. But as Sam said, you know, we have contracts in place, um the language is favorable to us. So we feel very comfortable that it is manageable within the

Speaker Change: Guidance that we've given this year.

Speaker Change: Great. Thanks for your next question, please. Yep.

Speaker Change: Yep, our next question comes from Jack man, with nef nef on Research. Your line is open. You may ask your question.

Thank you. Good morning everyone.

I wanted to ask about the Life Labs acquisition is it possible you could call out within the 240 million or so of m&a contribution in the quarter how much came from Life Labs versus other deals and then just more broadly. How's the integration going and just the latest thoughts around EPS secretion thanks.

Let me I'll start then maybe talk just briefly on the financials. Maybe Jim can give uh some qualitative commentary on the acquisition. Listen, the acquisition is going really well as the punchline, but in terms of the contribution Jack from uh, on Revenue. So we had 10% growth from m&a. In the quarter, I would say approximately uh, 8% was from LifeLabs. So that's the portion of the the growth that came from LifeLabs of the 10% contribution from m&a, you know, in terms of financial, uh, Cadence or improvements that we're seeing, you know, we we had said operating margin. It's going to take a couple of years to get to get to be on parity, with overall, Enterprise Quest rates. I think we're we're tracking to that goal. It's not better. Uh, you know, and it's it's generating the EPS contribution that we expect when we, when we size this deal. And when we put our plans in place for this year, so progressing really well? But maybe I'll let them speak to the other qualitative.

Yeah. So Jack first, um, we have a very strong management team in place, uh, in Canada. Um, that is doing a terrific job, uh, from an execution standpoint. Um, I would tell you that, um, we've, um, already gotten, you know, some really good procurement synergies as you would expect when we look at contracts that we have contracts that they have uh we've gotten what I would call Niece operational. Know-how synergies right? How we do things, how they do things. And by the way, something

Speaker Change: Things.

Speaker Change: You know, it's not just a 1-way street, you know, we've certainly learned some things, uh, from them from an operational standpoint that have helped us, so put all that together. And as Sam said, we're really pleased with, uh, with the execution, we're pleased with the acquisition, it's generating nice Topline growth for us. Um, obviously it's inorganic, but when we look at the growth of Life Labs itself, even though it wasn't in our numbers, last Q2, we're pleased with that growth. Um, so all in all, um, we're we're really happy with how we're tracking.

Operator next question, please.

Speaker Change: Thank you. And this question comes from David westenberg with Piper. Sandler. Your line is open. You may ask your question. Uh, thank you very much and, um, um, congrats on the good quarter. Um, you, uh, well, first of all, I want to talk about, uh, 1 of the slides that has client pay. It looks like it's contracted by about 5% over the last few years and then government has kind of gone up is some of that life lab and if not, what else would that be? And then how should we look at that on on? Kind of a go forward basis and then just the clarity on on on wage increases, you kind of mentioned um uh Acquisitions helped um, Drive net. Operating income offset by a little bit of wage inflation. Uh are we training back to normal? Is that at least still going down. I know you had that that's been a headwind for the last few years. So I mean at least is that heading in the right direction now. Thank you.

Speaker Change: Yeah, just in terms of the payer mix, it's all driven by a you're adding in.

Speaker Change: You know what will be over 700 million dollars of lifelab Revenue this year. So all of the other categories are just going to mix down by that amount. So that's what's driving that

Yeah. And and uh David we we kind of lost uh, lost you there on the other parts of the question, can you repeat? Because we maybe it's on our end, but we didn't hear the other part of the question.

Speaker Change: Inflation. Um, has stayed in the 3 to 4% um, range for the year. Um, for the first half of the year, we don't expect that to change in the second half of the year. Um, what has changed? Um, from a labor standpoint, though is our attrition continues to come down and we're in the, you know, mid teens and getting very, very close to where we were pre pandemic. And so as you know, that really helps us from a productivity standpoint. So pleased with that

Operator next question, please.

Speaker Change: Thank you. And this question comes from Andrew brackman with William. Blair, your line is open, you may ask your question.

Guys, good morning. Thanks for taking the question, Jim. A few times you mentioned working with functional medicine. Entities that sort of a larger growth driver for you guys. Can you maybe help us size that as a broader opportunity and what further Investments? Are you making us? Thanks.

Speaker Change: Yeah, I don't, I don't want to give exact numbers um, um, but it's a sizable chunk of our business. That's growing, uh, almost in line with our own consumer, initiated testing business. Um, and, and in many ways, um, look fun when we sell through Functional Health, it is generally, um, either patient paid, um, or physician paid. And then the physician is charging, uh, the consumer. Um, as you know, in functional medicine, the goal is to, um, analyze a lot of things in the human body hormone.

Speaker Change: Levels, obviously all the cardio metabolic all the chemistry testing and then functional medicine seeks to treat the patient through nutritional changes. Um, exercise changes sleep changes, may be supplements but treat the patient in a very natural and holistic way. And, you know, we're seeing, um, just a surge in this across the US with all the focus on prevention, wellness. And, um, you know, and just people wanting to live longer, uh, you see it, um, in the podcasters Peter attia Rich, Roll, Andrew humor. Um, these guys in, in essence, are generating a lot of free marketing for us. Um, they have these podcasts, they start talking about APO, B, and LP little a, and the next thing, you know, we see a surge in APO, B and LP little a testing. So, um, it's, it's become a, a real Trend in the US, as people are focused again, on prevention and wellness, and Longevity and um, it it's sizable.

Speaker Change: And we expect it to grow, um, double digits here as we move forward.

Speaker Change: Operator next question, please.

Speaker Change: Thank you again, if you'd like to ask a question, just press star 1. Our next question comes from, Tau Peterson with Jeffrey. Your line is open. You may ask your question.

Speaker Change: Hey, this is Noah on, for Tau, thank you for taking our question, wanted to unpack the, uh, Revenue guidance, a little bit, you would raise it by, you know, around 80, 85 million. And I'm wondering, you know what contribution do you have baked in from new tests? You know, things like, hey, stack, uh, add detect Muma pulse and then other buckets there like Acquisitions would really be helpful. Thanks.

Speaker Change: Yeah, so, uh, just in terms of breaking it down between, um, Acquisitions and organic growth Noah. So, we talked about the fact that we expect organic Revenue growth now to be between 3 and a half to 4%. So, by default that would tell you that Acquisitions are 6 to 6 and a half percent. Listen, we're seeing strong so 2 things that are driving this and I won't go into the specifics as to which tests are driving how much? But uh you know we have talked about the fact that some of our Advanced diagnostic tests in those high growth areas that Jim quoted earlier are driving. Good upside and good performance, 80 detect being 1 of them. But we have many tests across these high growth areas that are contributing to it. Uh utilization is strong as you saw in Q2, you know?

Speaker Change: Book of business to be flattish with a potential range of outcomes of plus or minus 30 basis points. So pricing is still within the assumptions that we had earlier.

Speaker Change: Operator next question, please.

Speaker Change: Thank you. Our next question comes from Michael Riskin the Bank of America. Your line is open. You may ask your question.

Speaker Change: Hey, this is Aaron on from Mike. Thanks for the question and congrats on the quarter. Um I wanted to touch on hey stack a little bit and you know ask about any oncologist feedback or Impressions and just get an overall update on progress made there.

Speaker Change: Yeah. So uh, we're making good progress and um as as we stated uh previously we ran this early experience program. We're seeing really nice conversion of of people that that um that sent us work. Uh as part of the early experience program and becoming um full-time customers, the um, the the the feedback from oncologist thus far has been very positive. They recognize the superior limits of detection that we have with this test. Uh, they like, uh, the turnaround time, they like the Hands-On touch that they get on the Personal Touch, uh, from our client team. So, um, we're pleased with the progress. We continue to make progress, um, from q1 to Q2 and we expect to uh, continue to grow that business. Significantly, Q3 Q4 and into 2026.

Speaker Change: Thank you. Operator. Next question, please.

Speaker Change: Thank you. And our final question comes from Luke sergot with Barclays. Your line is open. You may ask your question.

Speaker Change: Hi guys. This is Anna kazinsky on for Luke. Thank you for taking our questions and congrats on the quarter. So we now need to ask about organic tests per day, saw a nice 2 and a half. Um, Step Up this quarter, I'm just curious. How should we be thinking about this going forward? Since last year? There's only increased about 1% each quarter and if you could just talk about, what's driving that up, I thanks.

Speaker Change: Yeah, so let me start and Sam can add as we said, what's really driving it from q1 to Q2, um, was, um, our access, right? We got into network with elevance and santara, um, on January 1st of this year. And so we've seen a nice steady ramp up of new clients. Um, as a result of having access to over a million new lives, that includes in the states of Nevada, Colorado West, Virginia, Georgia. Um, the other thing driving it, we said, um, you know, was our Advanced Diagnostics testing just an uptick in some, of these Advanced cardio metabolic autoimmune testing. Um, Women's Healthcare testing especially the Advanced Diagnostics and ipt and Q hirate and then obviously our new brain health offerings has also helped

Speaker Change: Um, we did cite. Yes, weather impacted the business into 1 and, um, so people that missed appointments, especially General Health and Wellness pop back in Q2. So all of that, um, contributed to the strong, um, organic Revenue growth. Now, the other thing we saw in the quarter, um, is recall last year. Um, we had said that our employer businesses, the 2 employees employer. Pop pop Health Plus, our employer drug testing business, where a significant headwind in terms of volume and revenue growth. I would tell you those 2 businesses have stabilized this year. It's still a bit of a volume headwind, but it actually those 2 businesses combined had Revenue growth in the quarter, um, which obviously means if it's a volume headwind but um, it helped from a growth standpoint, it means we've been raising prices in those 2 segments and and we've raised those prices and they're sticking especially in our employer drug testing business, which

Speaker Change: Were very pleased with. So put all of those things together, and, um, that's what got us. The strong organic volume growth and our expectations, um, is going to continue in that range, um, for the rest of the year and, and just 1 last point, maybe to add to Jim's. Um, great explanation is, uh, because I'm not sure if this is also something that you want to color on, uh, refere as well. Organic refere was up 3.3% in the quarter and a big portion of that.

Speaker Change: Was driven by test for rack. Um, I would say almost, you know, close to 70% of that was test. Correct. Uh, appreciation. And and, you know the growth of test correct that we've seen over the past few years before the pandemic, it was less than 4 tests per wreck that we were seeing and now we're seeing more than 4 tests per wreck. Um, so the wreck density that we see from, uh, across our business has improved as well.

Speaker Change: Got it. Operating last question.

Speaker Change: Operator, any last questions?

Speaker Change: At this time, I'm showing no further questions.

Speaker Change: Okay. Thanks everyone for joining in today. I appreciate all your questions and feedback and look forward to talking to you all soon. Have a great week ahead. Thank you.

Thank you for participating in The Quest. Diagnostic, second quarter 2025 conference call, a transcript of remarks on this. Call will be posted later. Today on Quest Diagnostics website at www.questdiagnostics.com.

Speaker Change: A replay of the call may be accessed online at www.questdiagnostics.com forward, slash investor, or by phone at 866-388-5361 for domestic callers.

Speaker Change: For 2033690416 for international callers.

Speaker Change: Telephone replays will be available for approximately 10:30 a.m. eastern time on July 22nd 2025, until midnight Eastern Time on August 5th of 2025, goodbye.