DGX - Earnings call transcript Q2 2024 | Quest Diagnostics Incorporated

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Operator

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

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

Shawn Bevec

good Executive joined Sam Officer Officer. Chief and our Samad, Jim Chairman, Financial Chief and morning. you, by I'm Davis, our Thank President; and

discuss those that may may and are non-GAAP materially of affect to from Quest may earnings comparable in the statements results During annual future recent press a but to, on in subsequently measures Form XX-K uncertainties make measures Diagnostics' not those to call, We XX-Q provide reports projected. we and include, report this differ will tables non-GAAP GAAP release. measures. limited reconciliation and results forward-looking and X-K. described reports Form most our our current Risks on Form on Actual filed

EPS long-term Any references associated refer business base or excluding call, reported adjusted to organic to and our of to are the to growth adjusted from references rate. earnings revenues this diluted growth, compound to revenue our EPS. refer COVID-XX including and acquisitions, growth references to growth Growth rates consolidated revenue diluted performance volumes EPS growth revenue annual reported with refer business, outlook testing, testing. adjusted projections, EPS For

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

Now here is Jim Davis.

James Davis

health that hospital good profitability diagnostics greater This advanced performance care or business adoption X.X% and base as and as business. everyone. revenue Sean, to well in mix of continued physician in and productivity due morning, strong includes revenue base another strength utilization. and customers the growth of growth new Thanks, favorable test is and improvement of growth We X% quarter with delivered total of nearly continued in

use and operational made through efficiency of progress improving quality and We also automation AI. our greater

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

which is strong has a aging and in enable LifeLabs, growing is to a in Ontario, of account Canada, of population. about and country's of U.S. X laboratory Canada's will population for Canadians faster trusted us especially for LifeLabs grow the in millions Columbia acquisition largest of British in that collectively name planned than half and Our which provinces: services fastest-growing the

Canadian strong decade, We familiar those reference firsthand over so there for growth. delivered know the years. business, with been of partners many and market, LifeLabs testing solid a we having for are team for foundation provides to has a about reference that reputation XX one is and their providers

this complete year. to expect We the by end of the transaction

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

in announced We outreach charitable lab recognized to where areas presence United plans transactions our health States also will system Both geographic acquire broaden nationally of the our Ohio. the access OhioHealth, predominance in of had we've health due limited the providers system. assets to a to of

growing These expanding acquisitions commitment ability and affordable our with and that share testing. partner to attract show more innovative health top to patient to systems access our

quarter. to expect transactions third complete the both We in

pathology will on PathAI quality, the work dedicated my These of and in of efficiency to delivering and integrating scale ready-made individuals. to speed strategy. providers and hard Diagnostics, attention acquisition our which diagnosis. turn take for colleagues completed M&A to on our a time to improve now involve teams these thank of deals. we want which personally Quest and other our I And also We digital provides acquisitions cancer health systems platform help AI

financial about for our the recap guidance highlights I'll quarter, Sam provide XXXX. our will then strategy talk our results discuss financial Now second on and detail from updated and

advanced growth solutions genomics oncology. health focused of hospitals our diagnostics channels consumers. needs core intense customers, We with molecular is growth that enable through an drive on brain to and and within faster-growing meet clinical including physicians, areas, our evolving strategy on and Our delivering the focus customer across

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

operational deployment improve across quality, also of the with improvements AI includes and experience. the to and strategic business automation Our service, workforce the driving strategy efficiency

Here are progress some these of have on made in updates each areas. we

lab clinical delivered from While strength base the business our quarter of X.X% Services revenue we to of another the volumes quarter In high grew business total X.X%, volumes in among X.X%, and Diagnostic with hospitals. from second base Information volume due growth services, grew physician we single-digit growth. base physicians business

growth to we utilization market attribute test growth This advanced as as customer care of as and to per due expanding was mix We in health as gains test which wins. well utilization favorable of strength greater portfolio diagnostics. growth well new our driven overall requisition, share in continued by drove

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

in lives care. scale to Our enabled quarters. to drive costs demand lab broad access, us consistent and extends ability health high approximately of innovation of advantage plans the XX% services with to recent out plan access, take improve Health of for our U.S. covered value which health

struggle X%. in working are to remains especially our higher as geographies open Growth historical such serve of health fields also levels develop new and technical histotechnology, with we fill lab base positions, revenues hospital plan opportunities to cytotechnology. as business We by microbiology than reference grew services, hospitals partners. In to nearly testing

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

arrangements access. to evolving an several supply and pace. accelerating Patients service lab better fast innovation capital. decisions costs, are to These as services and including about a as acquisitions high trend and diagnostic where professional dynamics with of outreach want wages value faced labs. national from lab how at challenges, contributing high deploy is their easier Hospitals Plus the well

accessible outreach patient. more scale that top asset a of the often services and services empower for Our deliver specialization are and for quality and why that us Quest efficiency. deliver testing, are reference professional sales breadth lab far choosing quality affordable That's innovative hospitals to and

XX%, questhealth.com, revenues nearly more revenues platform, year. XX% business grew testing, grew while the total our versus than base prior In consumer-initiated consumer-facing

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

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

health treatment for was decisions. primary also CSF our Demand offering. based strong portfolio of our on disease was our the was ApoE amyloid, Alzheimer's which Demand growth assessed biomarkers. Our AD-Detect, and for for for strong p-tau brain driver aiding test options risk

test, oncology, our MRD early Chain of neuronal experience damage of are program In treatment cancers, Neurofilament that results multiple Haystack using are introduced by which early as helps MRD cancer a other prior to genomics Light and breast. as disease and assess leading signify our institutions the lung year. may from Haystack molecular launch encouraged we and conditions. we test sclerosis neurodegenerative Alzheimer's assess later broad a Yesterday, and cancer Physicians this including recurrence to colorectal, blood national range for well response

Forum colon care. ctDNA reduce cancer Stage health and benefit of plans, evidence published grew that would JAMA could blood testing particularly in for commercial the Health June study in value of by from economic A chemotherapy that II clinical found surgery. identifying body costs after also payers testing cancer in MRD on patients We

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

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

Turning to testing. advanced cardiometabolic

found interest marker up marker which risk early than lipid cardiovascular Lp(a), panels. APO are which AXc We precise can of of and disease identify for heart include prediabetes now population several is several detection before seeing the inherited to attack tests are diseases and that risk development. heart and risk resistance, They biomarkers diabetes in include of a improve like and therapies insulin also XX% These traditional disease. B, in kidney more of which in metabolic an

operational to Turning excellence.

targeted annual savings a X% productivity improvements. deliver to cost aims program and Invigorate Our

the our and of well service AI quarter, improve quality. productivity automation order as use During and to we expanded as in levels

use include specimen work. our to labs, of we X value-added our on bringing of instance, front-end of processors now our in automation to advanced focus processing more For

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

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

to turn and on Sam? Sam I'll more XXXX it provide to our guidance. performance Now our details over

Sam Samad

revenues year, base revenues Information up partially our grew second testing the lower X.X% from while Thanks, for up services. to COVID-XX grew Revenues year, Organic business base X.X%. X.X%. strong compared business reflecting revenues prior base by Services quarter, the Jim. in versus revenues offset growth were consolidated testing $X.X In prior by were X.X% revenues, Diagnostic billion, the

this testing did per tests Total offset XXXX lower the prior points per basis total increased quarter the driven versus req partially with of requisitions, in Total was req up testing. the value-based increase number quarter by and volume, was arrangements business XX of per X.X% was requisition revenue and of XXXX, primarily X.X% in favorable of that price mix, measured grew the prior the X.X% the Unit timing up flat. the number second contributing revenue versus the certain year, test versus volumes acquisitions by of by reimbursement second volume. year. of Base COVID-XX repeat an base year X.X%. not Total

volumes of base volumes, our excludes primarily of drug reflects and revenues impact This employee testing total which while the population businesses, growth services. and revenues hospital health X.X%, channels, our were and XX% approximately Clinical comprise grew in through primarily employer business X.X%. lower up workforce our providing physician

an revenues strong revenues or in basis, in compared growth and in second wage the last million COVID-XX income revenues XX.X% to million revenues income $XXX compared $XXX of operating of $XXX was by income XX.X% XX.X% business, was million year. to XX.X% million operating last due to revenues of The $XXX increase On offset testing lower of year. Reported the operating adjusted or or was partially increases. base adjusted quarter or

$XXX year-to-date $X.XX Adjusted in year. versus the versus $X.XX Cash prior EPS in $X.XX prior million million the the quarter EPS was second $XXX ago. compared year $X.XX year. was operations from Reported quarter a was the through to

approximately is to and expected range EPS to Turning now billion; and capital are operations Revenues full to in of approximately be reported expected expected guidance. $X.X between our expenditures $X.XX of is range million. are to to adjusted a $X; EPS to XXXX be expected $X.XX; be and be updated from cash be $X.XX in $XXX to to $X.X a billion $X.XX year billion;

XXXX updated guidance. Given the uncertainty are we will around when the including acquisition our close, transaction LifeLabs this not in

first However, approximately to months intangibles the acquisition, and and transaction $XXX million slightly generate acquisition. to items other of to expected but dilutive EPS. to impact expect debt include assumptions amortization closing close $X.XX These financing the annual in the due approximately be XX in $X.XX GAAP after to the to accretive adjusted of revenues we primarily the to EPS,

key acquisition expected acquisitions The our the the to our represents in of contribution Health PathAI increase for With the revenue following updated Allina business. revenue in QX. updated Diagnostics acquisitions PathAI that in strength OhioHealth well of to Health increase The as the closed base said, our some of Diagnostics, these assumptions are while in Allina you guidance and OhioHealth underlying from majority announced revenue The guidance reflects June, and consider. guidance. close as our the are recently

are As increasing XXXX, material initially in contribution to several but are profitable new a breakeven we typically these to earnings expect over profitability expecting not profitability with from acquisitions acquisitions Therefore, next year. expanding a do slightly reminder, quarters.

from compared by to No Net driven share approximately $XXX our full expected productivity. be for XXXX. EPS an to volume be and interest LifeLabs end acquisition. interest average financing include count expense the flat the margin to Haystack expense expectation This $X.XX year. change to not to Weighted does Operating of debt the expand million. for to improved growth related for full of incremental the to for dilution adjusted Oncology year,

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

$X.XX afternoon, this yesterday normal Friday headwind impact outage we of by and specimens including operations, minor processing morning. At Texas IT to service were roughly to full labs QX earlier earnings. centers were restored rest reflected in Hurricane in our this the could patient the point, a our year amount estimate by to our month, updated largely guidance. and the is currently from $X.XX Our Beryl on This

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

James Davis

delivered in meet criteria execution, and service that business use acquisitions strength and our summarize, We utilization. offerings service strong and customer care geographic To our as greater total AI. improved and channels us our in announced and Sam. and to innovative returns levels across through commercial Thanks, growth growth growth core health as ongoing position base profitability due We our strong revenue new for for of and productivity well areas. automation quality X

healthier Finally, our Quest following to dedication, for a this which our working this tireless of outstanding and and largely personally colleagues I'd work our one day. performance patients care restore outage. so of efforts at people my to time. to the to talented every living to quarter, past was together nearly global customers the weekend with exemplified service and world, create that single like many is a customers collaboration teams they our patients, proud I'm life show for the each by XX,XXX thank purpose, the IT This commitment committed result strong

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

Operator

[Operator from come question first Mizuho Instructions] Ann The Securities. will of Hynes

Ann Hynes

if job as versus happening in versus attractive? I That Canadian versus employer-based exclude had estimate? And acquisition. why different said us profitability and just market? growth that just it you X.X%. you employer Is what's physician-based total overall more great. up like volumes. is be view growing it it market? revenue to base, the around that in then business? us question or long-term X.X%. was line in details give the business Can in But business provide a can U.S., you maybe is you And more a you give some just it the detail maybe follow-up Can the not has on base you line do if that higher the I believe volume just second some was it your whether algorithms up it's the or And just business question with business? U.S. with would How it the my Is growth? on

James Davis

Yes.

start me let So here.

two risk So business. employee on business; as a businesses insurance the employee third our for we testing serve drug population called life you principal have ExamOne employers. side, health employer that companies. know, There business, that our health assessments is is One second, does

that the together, all declines largely X meaningful to in the those Sam the Taken showed referred the of really difference in in represent businesses quarter X.X%. X.X% and

shifts one, have job workers, a probably off growth market, testing, going Number still marijuana the other panel. a lot coming of testing that know, still lot there's up drug And the In the just of industries have as a couple eliminated industry, drug in is of on drug on. services do given testing. And the hotel restaurant many you those companies workers.

some pressure. created has that So

a central And on-site we going work. On population typically And lab. don't employee spend then and testing. if that testing, money is seeing an shift employee a employee it companies I'd not eventually it's oral the thing we is in drug to negative they've reflexes the you we're final where there's tell events test past. much a get more doing are back if But what wellness on-site on that these that positive, companies in or screen done just test, passes and health, on just the as it's call

again spike a business to we Finally, for that has life continued, again, actually the post-COVID, life we risk ExamOne, seeing life assessments get that trend during life saw just insurance, insurance started People pre-COVID. insurance which policies, does were our negative COVID. insurance

let minute to Canada just turn here. me a for the Now market

lot a to about market. So Canadian the look, like there's

about actually a million rate of the population growth all, First there the XX the faster X.X%. growth than roughly U.S., at people population is of population

population U.S., points. the XX in less growing than basis Here

the trend to provinces LifeLabs Canadian Ontario are XX% biggest is markets: aging largest as the population. the Ontario, population Columbia there of British The British key a of that over X really we good like. And close those X in well being Collectively, is in second Canada, province or centered and being proppants. XX% the Columbia

when done test at it look We in it's we steady, growth when It's the look consistent. like here the of reimbursement versus that types model an we esoteric grow think in of the at things to years. testing an market We from standpoint. types from we U.S. the Canada, into that we coming will testing opportunity And like the advanced bring over Canada. req per there's fill standpoint, think testing

feel as labs hospital many, way, great served we We've that labs many reference market. served So a LifeLabs, and other entering served Canadian about We've for the independent the up market we provider. years And a know. in by market Canada. we've it's

we We're the familiar for opportunity and it's think know we market. Diagnostics. great it, with Quest So a

Sam Samad

of give solutions at less behind of them and on businesses just you the businesses, services you add a workforce population the the employer health sense some or some our least employer percentages. to to give bucketing Maybe how those just mean comments of of a businesses, are X% couple revenue, health overall are. to Ann, much I financials so solutions than

material our Jim impacted So in or not dynamics the business. the been somewhat significantly market said, they're that to COVID revenues. But have and with material drug not some as they post overall testing of

So rates. impacting they growth our are

that, And coming it's that some COVID. then out of Jim of is impacted but said the on of by dynamics also ExamOne top

as year-over-year, are these So businesses but we forward. deterioration down we expect significantly don't look further

we So to that we a further forward. year-over-year there impact, is as amplify but expect go don't

Operator

question come Caliendo from of next will Kevin The UBS.

Kevin Caliendo

want had impact the the like, originally from we issues, in had you you than and the there second IT appears if what by greater the core, even raise any mean. the strike you to out and a I a of upside the in particular actually hurricanes to half what now out back more did. guidance It's be was beat quarter, -- a usually find a yet your than not And

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

lot wasn't M&A mentioned, that the you there stuff a of you had said You but contribution.

So I'm in I'm that Is mix? of wondering, to better, it thing? it's guessing labor, expected wage, it expected core, Is volume? kind it cost churn, come but is expected

Sam Samad

Yes.

can maybe I'll Jim comments. and Kevin start. So add

We revenues First, the about up $X.XX at We're is we're take terms take details by up the said shared. this going EPS, what talk million. midpoint. in up let's we to to kind we're to of and $XXX going going of by We to $X.XX EPS said to $X. take

million we talked majority Within that the $XXX the of really that about, M&A. new is

So signed, that related and mid-QX essentially M&A between transactions sometime have or close year. the M&A that are the those expect Health, end Allina of the And we the OhioHealth. we to reflect which

some which we from have in but QX, our as in PathAI original well, We closed upside guidance. wasn't

revenue the has -- So remarks, revenue this contribution M&A driven by expect terms we talked of of is the the The ramps EPS close. as in M&A in to a about really the the is although from profitability. majority increase up that majority to prepared we M&A, related

get the detail This is $X.XX absorbing that sized. go, second we you we the is business IT of contribution very that now We'll but say, outage, And base we half, from as expect have we from which to M&A, -- better is in in $X.XX are QX little would that preliminary. but impact absorbing, we remainder, XXXX the impact. as little. So M&A. and to of contribution some I The are said, in terms profitability the

about. a reductions in of continuing the lot we raise the EPS and driving work cost improvement So talked of we're productivity of had basically the with that terms or this what's

improving Jim We the and productivity that on lot have the of a of margins. mentioned, focus a AI lot improvements

would driver volumes that's strong. improved I in the to base say, Importantly, very be the And terms of margins in continue biggest business.

volumes see utilization will We continue base be to be strong. strong,

improving have, impact it's reimbursement and flat really, cost So as that see now also times driver, to a we've many stabilized, to a to that talked opposed used in that's continued of which about over the prior is improvements. the and pricing as we is key positive volumes years. now strength environment, previous we calls, price It's fact which negative productivity

James Davis

you per a Kevin, calculation, as test, Yes. that saw price rev rev year. Sam improvement to per within probably in in req flat meaningful mentioned, quarter. And last req the per

in was to continue X. coming the So Xs. was in of areas. number the per req is of One, X, that strong, improvement it be X that Pre-COVID, really a test south was very north

allergy, testing. that's tick So a comes advanced improvement neurology coming some testing, from tests. from that also some mix testing, is those of of that's our uptick, metabolic cardio in and around nice that And advanced the a testing

we The our book than advanced requisitions. those is Medicare Medicare final thing pricing, tends the know, health more requisitions of and general be say also see to And tests That saw, again, and overall versus you I'd as in strength our average. normal business. Advantage coming wellness we on better

we back those So improvements the out trends expect of the year, laying the half we're there. to to that contributing into continue and that's

Operator

The Cherny from comes Michael next of question Leerink.

Michael Cherny

how your you about think the XX guess guidance into fully health last see number, to you of versus that is still Maybe color as translating little I base market that take got X, I sort far on you the the know all have, volumes, And we've allowing you can bit want versus if If given the competitive the testing. dive utilization baseline broad-based about business? in some the correctly. implied the just so there's a where I sure position I terms billion number where you half market. do data I I what over then, b, that understand just think where appreciate of share? business make see a moving of months pieces. you've to seen $X.X of trying just utilization small to I employer some you baked second points the through on into

James Davis

our hospital Yes. in as clinical And call that growth what anatomical business, embedded pathology. see we that well physician X.X% as reference is business, Again, our we the both volume through represents hospital PLS means the our And our core business. that business. base

company, compare the So book higher. good the was the XX% business, which really volumes of is of about feel QX Down from QX, we the entire that. X.X%. in X.X%, grew but about that But again,

that the growth of that the year-over-year. req test been seeing strength on mix translated X.X% per X.X% coming growth, Now was increase test we've into revenue volume again and again plus that

about into good the again, feel half that, going the we second of So year.

In terms the second X.X% of year, in implied growth the the the range. revenue in it's half of

So that's acquisitions, again -- officially these just close there's of still acquisition. of we've that's The with about organic some and when when base just the without in will QX So the said these we QX, don't timing deals okay? know Allina in and uncertainty close. OhioHealth,

Sam Samad

mentioning, Mike, resurgence in year-over-year little in a continues strong maybe of base of lapping mean, We've it overall, XXXX. of the The saw QX. year. a just And strong. add seen I'll a it We've of utilization. terms QX tougher we we compare been in more of QX. business comments wins. seen of be maybe I as have versus strong And to couple just in utilization bit We was QX QX in some some had in last

and there, doing are it just that's We testing, additional is terms we also some are that strong of to in we're testing of general just we outreach think care, utilization -- that believe test also and we're terms req But seeing. We acquisitions by through also, do believe the in the some that dynamics -- share gaining reflected that these of gaining out there. return But both help number Quest. of share. we utilization higher share, there's that are to of of we're us strength in but more we direct do gaining per

Operator

from Citi. comes Donnelly of question next The Patrick

Patrick Donnelly

I pretty the piece. there to utilization about couple what it seeing utilization. a nice talk of know on you about come just normal? it? just expand just maybe what it you was just Would guidance down terms how a quarters. the the you're thinking guide bit. past And here. have and gradually in implies trends, levels of Can that does Sam, the how Obviously, stayed to feeling seen Obviously, previously, elevated the guys about it little discuss then elevated bit you're like normal assumed you're

Sam Samad

to algorithm, talked of long-term is about our expect long-term as roughly we off I around in And X% utilization to of talked we we've which from about mean, acquisitions. Yes. organic eventually then of X%-ish expect growth. we've said growth, contribution X% level we do to essentially in terms growth before, Patrick, what in before, terms as terms

term, I you're still over period, be right think, period, going with let's longer we that's algorithm if but the So to about. it to necessarily thinking thinking bracket time I'm the next, say, think longer not a

right the us, saying of for now In to our terms growth current at X%, guide we're midpoint, total X.X%. close is

Our around guide somewhere X% for is the base revenue full year.

revenue second X.X% if you that's base about second essentially it's Our half, growth. the on half, think growth, about a second half

up of said, Now the $XXX of take is acquisitions. recall, the the X.X% we the in guide as the second half, and million includes, this is majority revenue

which second X.X% half, that there significant is a in So is portion, acquisitions.

just actually half. what effect, second you we in as saw half at look alluded first if to, just than a slightly it's organic, slower the So Jim in

same to slow Patrick, So down but this bit. starts embedded in that at is continue doesn't a utilization the that level, the expectation,

half so growth, But year X.X% X.X%. X% within total again, there's terms or is base is that, of full base half the something base sorry, So -- closer is between first to base. to second second some in X%, acquisitions, half

Operator

of Sandler. Westenberg question The comes Piper from next David

David Westenberg

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

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

James Davis

pre-PathAI book was pathology it fronts. our just said excited roughly on pathology a anatomical numerous revenue million that this $XXX past, We've in the we're Diagnostics, and the business. But that opportunity Yes. was about it digital of was on from --

On you're need create lower actually just naturally the surface, you to unlike does radiology, digital still the -- your pathology cost not because slide.

Once then process. actually okay? in you've digitize created an extra the slide, step the there's So slide, the you

it think like as anatomical don't in things near to Number vehicles the the you you slides better pathologist said, over the pathology Now you here's across one, where want and slides do productivity. XX where and because so And that. we you're locations we sit that country, move creates right preparing have quality. to

So call going pathology preparation do will collapse to we to work believe histology the actually that network allow the slides. digital the that or of sites it's we what of us the

be there will that cost network. So collapse we savings when

Second allows to the in they to pathologists expert wherever the is country. image sit route us it

if guru on there. guru sits on breast pathology So Coast, you for the slides out slides the sits you Coast, East move the those West our there. If move those prostate

believe of algorithmic X have allow we you've the to there you are yes, in been that analysis and approved, that that on read. once digitized FDA many algorithms. working -- the order to there's to There's image that quality improve X the So apply slide, or companies out digital

a strong higher reimbursement, In we absolutely reimbursement terms made for be there's these case using of believe algorithms. to

digital technical final the the of pathologist, still work it's them They'll operations, send still starting it We'll pathology, histology the on they'll meaning margins that I preparation, and tell operations. that's to the call good. a new, but with a off, a hospital slide solution histology down will do that of for thing the just shut the would opens for the reading. health technical-only up to to a of histology is We types this you keep back are on do The we take component quite digitize take system. and and their histology-only solution realm it pathologists

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

Operator

The from Erin next question of Morgan comes Stanley. Wright

Erin Wilson Wright

that some I nature? should or year-to-date? Is we that going did that on breaking that contributions material the about been, relatively I much value-based you have basis? payments But -- be last something have they you out that year. those modeling payments guess, us you be how last relationships a care And a payments made you'll are how thinking on year? mentioned X-parter incentive here. those in were contracts, or I how And Will contracts forward? benefit of through guess, onetime those quarter-to-quarter lapped for

more expectations second And terms what be the that regulatory PAMA SALSA environment, my of just would thinking and just question and on your in then a part of front. you're XXXX on into

James Davis

All right.

ask let to So then I'll back add and PAMA I'll and color, address SALSA. with and value-based comment. Sam come me care your start some

delta second quarter acknowledged last it this weren't year. year the Last for we year year. made gain. a it the on that us. last meaningful but than year, quarter of care, and headwind quarter. So last the contributions positive a They of positive, the second between value-based We Again, had year, was was just bigger in second this this

the in lumpy, difficult value-based And guidance very us And some model give on they're is is from these to One acquisitions months be savings are do. really on for It you There's to components based those how X payments acquisitions. things. payments. cases, post-deal X they closure. from can these to shared principal

just on closure, could it be depends a contract. deal post the cases, it Some year

out-of-network type true-up. when be of that could or high-priced, could signed payers is incentive that could laboratories. movement And of depending that system in June, in be of again, once-a-year either payment some The we high-priced we from laboratories value-based health January, in with April. other contract, could And have be requisitions a around be the on our

things. very, to model very So hard these

So color? Sam, other any

Sam Samad

is there, key thing you've these how We to The lumpy. always I sense is give to think be. said difficult going really pacing to are as Jim. a it, it's the you captured Erin,

shared accrue that to there's might sometimes, we're if that do on where that for not for to we shared have shared accrual, achieve benefit savings in commitment and get release instance, also going to so then achieve it's speak, savings as accounting we we service, but And a quarter. a these if nuances it, when it,

pricing of in a to we the continue positive but a in us a us a was year-over-year QX XXXX. It in on say quarter, for these Suffice significant it positive QX benefit terms our in that overall had basis, XXXX. for be or benefit pricing to of a

a of us revenues basis. So terms total in it year-over-year impacted negatively on

giving a said stands terms modeling that difficulty for in algorithm of So the I think of everything these. you Jim

on? And to then, PAMA, did comment you want James,

James Davis

Yes.

PAMA we and push the a that in given to -- going continue and of that through continue now in especially in to an of get other case SALSA, for terms be labs week. our In to independent changes the occurred the SALSA, have to trade acknowledge while last we we association -- many and it's with difficult year year election and

push program They And a this save in it scoring to billion. for benefits. was recent The is House the that, addition, $X looking to pay-for government overlooks pay on it we will actually that continue X-year projected said CBO the another delay for continued committee over year. in would the this very last for telehealth PAMA. bigger than hard was in Having

becomes really the nice a that telehealth. satisfy can the this program So to pay-for fund requirement

the time delay confident in get there And opposed a hopefully, past. can out December the that frame the as this minimum, figured PAMA. for like to we're a October, So done in frame we be would in at and waiting we've X-year seen November time

Operator

question of comes Tanquilut next from Brian Jefferies. The

Brian Tanquilut

made XXXX we just going curious given think should Haystack Congrats on partnerships on about about forward. and quarter. on guidance how thinking comments we about you've Sam, of new for maintaining some So how the you your ramp the as the be of development as this ramp I Haystack, the the and are drag Maybe, But the thinking think there? understand that about I year. on announcements

Sam Samad

Brian. sure, Yes,

in this we a terms year. year dilution be increase $X.XX is range, prior somewhere as which the will prepared the said about So to of from dilution in Haystack in remarks, $X.XX $X.XX

launch to start see on way XXXX, going Brian, we will it going it's be as recognize XXXX, the the in we dilutive it's see because revenues to dilutive still less to to capital a XXXX, slightly And Haystack XXXX this this from return invested of by In to we on acquisition. this end -- we year. be expect get to expect positive later also accretive. be is but we the than we For expect we assay

all that cancer successful. number and centers has a things In the terms up had have signed key very terms very, been the early that of we've interest thought leaders seen, of this. really high in launch of for We've

really we well. as that you And is the on today we've touched encouraging. partnerships made see everything that So

of We are centers cancer continue partnering specific to type of to -- in are of companies the sign new that with in use the that or us evaluate a cancer. terms partnerships assay MRD and

really launch. the So upcoming excited about

I positive. of accretion the the to dilution. sense in terms has you early think been And as financial launch gives this a hopefully, impact very

Operator

Lisa Gill The JPMorgan. next question from of comes

Lisa Gill

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

James Davis

Thanks, Lisa. Yes.

our know, in And of outside association trade retained a Court association lawsuit Court you District the Federal has work of as the trade So Texas. Texas, by counsel continues. filed that

We latter in expect December movement of of in this and case January year, probably into the the part year. next November,

said rule the that, Having is place. in

the by including we in running add in of ongoing company adverse and some capabilities, running had of as requirements There's some the have May and have up that certain speak. of with to year, events. unit place. we And in company, which the place as to are company which we We as these a report to are handling next need well complaint rule ability operating the the we

launched our living lawsuit year, add this and But be around And we teams it's especially the continue design implementing to we're successful. the material for continue controls. directive marketing the the business. to the of We organization, we've in cost evaluate said with particular, what going compliant, training not for into fully if product We've we need a is -- not FDA. teams, the things our rule R&D to again,

Operator

Ryskin of Michael America. The Bank of next question comes from

Michael Ryskin

to stay could Court think. coming from couple a a fairly had still deference. deregulation of what we overturn place but is just given I The in on recent, kind curious doctrine, It's side. ruling is take for hypothetical, regulatory your it the questions the to that Chevron I'm on still industry. your But Supreme of Chevron the on investors going mean what

James Davis

various that the one as that any FDA. parameters what to a expert legal that case front is also Well, believe know, authorized regulation Congress Act exist authorized medical of XXXX Court in FDA do Congress CLIA But the you about believe in operating for to is the the doesn't clinical of And the by hurt Federal is devices. talked the it not look, certainly means. regulate Texas. like departments I'm We sets laboratories. the that we the again, District of, Congress

of what Congress recently it believe it's dictates don't the others clearly has very the do out what believe bodies. and should what But clear intended. we within occur is Court yes, see that way. So it come we X walls that, regulatory Supreme Obviously, of favorable,

Operator

The next question from comes Nephron Jack of Meehan Research.

Jack Meehan

on or turnover. Sam wondering what costs trends, you for Either on wage update of I was if give cost for Jim, you're could terms update in are seeing trending, an an how

I the missed year full margin target? And this, What's sorry if Sam.

James Davis

Yes.

in wage a X%. year to increases expected that that within wage to X% beginning the we at we from of still standpoint, be So said the operating range. X% that to We're X%

the play we're that the in out back that half for estimate of that year So comfortable will with range. it

of we turnover, patient In second workers, the positions, year, hung XX%. last services, processing, below were in logistics, there And the our specimen mid-XXs. In north frontline into our of of quarter, quarter. for XX% down came laboratory the we terms all we've first in kind

So your job be competitive either with other and uptick to first bonus a have can or after after that industries. the certain we good feel categories health that. systems flat that related, see an generally, position. quarter, tend relatively maintained you payments with some But like We we've hotspots around things in obviously country sometimes

make those we hotspots, of this address improvements meaningful we back so half And in the expect to and year.

Sam Samad

we year-over-year, call. for up is margin target, QX we didn't operating it. what miss to But which so say expected be that the we on Jack, a also And had one, are Yes. did didn't you give shared margins

Operator

Blair. comes Andrew William question of next The Brackmann from

Andrew Brackmann

color that, maturities. Sam, costs just guess any that on the maybe and you Anything I the related for just can acquisition? expectations sort on upcoming refinancings? balance timing your with one assumptions you the to share sheet debt terms of the debt that for of or in associated provide those LifeLabs And interest you for can

Sam Samad

Sure, Andrew.

not are not start could, -- expecting LifeLabs first the guidance remarks we're prepared in assuming, It shared year, the in we not the at to we're we with in acquisition assumptions. I guidance. let's close assuming it's mean, we're assuming So but that all, expect of least this -- LifeLabs. What I our

debt price $X.XX to But for first at combination with that $X.XX cash. of funded by funded that XXXX, to $X.XX. But it's XX% of assumption or its debt. $X.XX It's year, let's EPS purchase in is accretion that that. is to that We're and least assuming $X.XX it a call $X.XX it's of within

So is $X XX% $X.XX accretion of which debt funded, $X.XX year. in billion what is drives price, the to first it the purchase roughly the

But acquisitions, going just not talked flows of think terms is Allina depend balance assumptions cetera, conditions the of and sheet debt In of broadly Health. about OhioHealth, also, liquidity, lot depend just I of on market we Listen, on to LifeLabs, that on have you primarily and assumptions. the these LifeLabs. of a some timing et

closed also We PathAI June. in

as to had So come we've to and busy fruition. a talking we've pipeline starting M&A been about,

flexibility to could facilities. given Xx got very the X% access be a these within markets. higher expect to through leverage to -- the that access And X, X.X% our continues to in time, the market X.X that we be to to We've above accretion We've of strong conditions. going acquisitions. So but to our delever somewhere then to There goal. capital we're our evaluate goal short and to That's slight the from but back end liquidity short-term the target got some ratio. tip growth

now, of specific these right we keep as again, more on acquisitions. no you posted So timing closes debt we'll the get but number

Operator

from comes question Bank. Deutsche Pito Chickering of next The

Pito Chickering

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

James Davis

Okay.

arrangements, from higher. with (sic) ], Patrick preferred So is volume [ on payers volume Pito our with them, the of several

high-priced these in the networks, benefits. also of definitely in by health operate we to within incentives of size driven business. have books where Medicare labs, systems, that be various can Advantage out-of-network place the share But some Medicare general, we see preferred Advantage, move Now of when from we

growing great In share we not you, health business, around But business talk terms reports of our book about when that, book that. slightly what and physician faster There's it's that of hard ranges that market of they're tell industry system standpoint. revenue just of right? I that tell, our our business can said health we to statistics standpoint, book that. up was above in system growing physician growing a that, than a X.X% significantly still, are than from But saw pre-COVID lower from

wins on our So reference us that believe, new business, much small aggressive systems based of we picking from very specialty of leads to number the -- some on book new with believe that to as And labs. number physician just industry. regional are and share, business, small that wins outreach from the labs -- is that large in that, from and of groups, book of little yes, believe aren't us also it potentially up we of this health leads also of coming in share

Operator

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

Stephanie Davis

iron strike curious in was is while much if And that I in sustainable there's environment quarter. that is how anything either how in the maybe is hot? pickup this just changed year? of or so this M&A on this? the Congrats Or of strategy this much kind had the

James Davis

Yes. the been in row, all, many funnel as full. No quarters a strategy M&A is saying change we've in for Stephanie. And the at

out X Now quarter. -- planning space that somebody time. just fact, would But you're little to It on prefer negotiating in on go announced with, getting there's always things X other into you in the year and we take end deals bit. sometimes these don't a these a of

in a in that have So space. market basically of Health look, Allina about really low represents excited market all independent these. we're really Minneapolis, really, share it labs the where

to very Columbus, We're really health difficult Minneapolis about the independent systems, about So X by also excited for labs operate Ohio. there. Dominated very marketplace. excited

a that this so within marketplace. foothold And us Columbus gives substantial

a of lot can And grow the business doesn't located opportunity in we that well, marketplace the we because there. talked. about of again, a is where And where we marketplace matter digitally. is lab as book believe excited the Canadian Obviously, PathAI it Memphis nice itself, done as represents our really work both

So specimens the it over country. all from accepts

where the is markets tell focus access these that's to labs still waning. It year. you second would I to be continues the this to funnel. in opportunities of in share The there's continues emphasis deals. where position tuck-in to independent within And half be will focus our or our be outreach on that -- in

Sam Samad

NPV we thing first criteria. our we of all mark in the hit Stephanie, criteria other is on add, our on criteria. They of return all the invested these they They I'd the have announced meet our that meet year. meet threshold, that basically accretive capital acquisitions One

activity again, hit if acquisitions our depend these they do. are and So criteria profitability going rate, in hurdle our would the also ROIC to

James Davis

Okay.

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

Operator

participating Second posted be Conference prepared Thank Quarter A Quest in XXXX Diagnostics' you website at remarks later Diagnostics today transcript on for the this will of on Quest www.questdiagnostics.com. Call. call

XX:XX or accessed for online X, Telephone Eastern available domestic participation, at a.m. be you callers. your callers on A be replay at international Time, from call August you the XXXX. by disconnect. Eastern phone XXX-XXXX until approximately of for Time (XXX) for (XXX) XXX-XXXX and www.questdiagnostics.com/investor replays XXXX, July Thank may will XX, or may midnight

Quest Diagnostics (DGX) 23 Jul 242024 Q2 Earnings call transcript