Quest Diagnostics, Inc. Q4 FY2024 earnings call

Strategy Focus

• Drive growth by delivering solutions to core customers (physicians, hospitals, consumers), using acquisitions, automation, and AI for operational improvements.

Q4 and Full-Year Highlights

• Fourth quarter: 15% revenue growth, ~5% organic growth; reported operating income $361 million or 13.8% of revenues. Full year: 7% revenue growth, ~3% organic growth; completed 8 acquisitions, expanded Advanced Diagnostics menu, improved employee retention.

Operational Excellence

• Invigorate program delivered 3% annual cost savings and productivity improvements; automation and AI implemented in labs (e.g., tuberculosis testing automation, AI parasitology screening) to improve quality and efficiency.

In the fourth quarter, physician lab services delivered high single-digit revenue growth, driven by strong organic growth and acquisitions. Hospital lab services grew revenues nearly 3% in the fourth quarter, primarily due to solid continued demand for reference testing. Consumer-initiated testing: Questhealth.com grew total revenues nearly 50% in the fourth quarter, and approximately 40% for the full year to just over $60 million, with total consumer-initiated testing revenues growing to nearly $100 million in 2024. Advanced Diagnostics experienced double-digit growth across several clinical areas in the fourth quarter, including in brain health, advanced cardiometabolic, autoimmune, and women's health.

2025 Guidance

• Revenues expected to be between $10.7 billion and $10.85 billion. Reported EPS expected in range of $8.34 to $8.59, adjusted EPS in range of $9.55 to $9.80.
• Assumes ~3% organic revenue growth, contributions from 2024 acquisitions; no prospective M&A contribution. Expect margin expansion, investments in IT and LDT compliance, Haystack MRD to generate revenue in 2025.

• Weather impact on volume. - PAMA regulatory environment and potential changes. - FDA LDT compliance costs depending on court outcomes.

Q: Kevin Caliendo with UBS asked about guidance assumptions and one-timers.

A: Sam and Jim responded on one-timers, weather impact, and margin expansion expectations.

Q: Patrick Donnelley of Citi asked about margin cadence and utilization.

A: Sam discussed margin components and Jim talked about utilization trends in core segments.

Q: Michael Cherny of Leerink Partners asked about rev per rec drivers.

A: Jim and Sam discussed test per rec, price, and payer mix as drivers of rev per rec.

Q: Joanna Zhou of Evercore ISI asked about IT investment for LDT regulation.

A: Jim and Sam discussed FDA court case impact and ongoing IT investments.

Q: Unidentified Analyst asked about outreach lab acquisition revenue contribution.

A: Sam and Jim discussed acquisition valuation and value-based incentives.

Q: Pito Chickering of Deutsche Bank asked about payer landscape.

A: Jim discussed payer access improvements and RFP expectations.

Q: Andrew Brackmann of William Blair asked about Haystack.

A: Jim talked about Haystack commercialization and pull-through effects.

Q: Noah Kava of Jefferies asked about preventative screening.

A: Jim discussed shift towards prevention and wellness.

Q: Jack Meehan of Nephron Research asked about Haystack progress.

A: Jim talked about Haystack commercial arrangements and clinical study expectations.

Q: Erin Wright of Morgan Stanley asked about market share and PAMA.

A: Jim discussed PAMA reform prospects and market share gains from hospital outreach lab acquisitions.