Quest Diagnostics, Inc. Q1 FY2025 earnings call

• Revenue growth: The company achieved strong revenue growth of approximately 12% in the first quarter, with nearly 2.5% organic growth as demand rebounded in March after weather impacts earlier in the quarter. Growth was driven by acquisitions, large enterprise accounts, demand for advanced diagnostics portfolio, and expanded health plan access. - Automation and technology: Continues to expand the use of automation, robotics, and AI to enhance quality, customer and employee experiences, and productivity. - Channel performance: In the physician channel, revenue growth was in the high-teens due to acquisitions, with organic revenue growth in the mid-single-digits. The expanding portfolio of advanced diagnostics delivered solid growth. New health plan partnerships effective January 1st enabled growth through access to new geographies. - Partnerships and agreements: Quest was named the first independent national lab in the Optum Health preferred lab network. Announced an agreement to provide comprehensive lab testing for Fresenius Medical Care's dialysis center serving over 200,000 kidney dialysis patients in the U.S. and plans to acquire select lab assets from Fresenius. - Consumer and other areas: Enhanced the online shopping experience of questhelp.com, the consumer-initiated test platform, leading to a sharp uptick in first-time orders. Advanced diagnostics in key clinical areas like advanced cardiometabolic, autoimmune, brain health, oncology, and women's and reproductive health saw double-digit growth.

In the first quarter of 2025, consolidated revenues reached $2.65 billion, marking a 12.1% increase compared to the prior year. Consolidated organic revenues grew by 2.4%. Diagnostic Information Services revenues saw a 12.7% rise year-over-year. Reported operating income in the first quarter was $346 million, accounting for 13% of revenues, while adjusted operating income stood at $406 million, representing 15.3% of revenues. Reported EPS for the quarter was $1.94, up from $1.72 in the previous year, and adjusted EPS was $2.21, compared to $2.04 prior year.

• Quest Diagnostics is reaffirming its revenue and adjusted EPS guidance for the full year 2025. Revenues are expected to be between $10.7 billion and $10.85 billion. - Reported EPS is projected to be in the range of $8.62 to $8.87, and adjusted EPS is expected to stay between $9.55 and $9.80. - Cash from operations is anticipated to be approximately $1.5 billion, and capital expenditures are expected to be around $500 million. - The guidance assumes approximately 3% organic revenue growth, with the remainder from acquisitions completed in 2024 and announced to date, and anticipates Haystack Oncology will be less dilutive compared to the prior year.

• Tariff risk: Less than 1% of the $2 billion supply spend is sourced directly from China, but efforts are underway to relocate some of these sources. Most supplies are either manufactured in the U.S. or under multiyear contracts, but tariff impact is being monitored. - LifeLabs strike risk: A strike involving about 1,200 employees in British Columbia is ongoing, with progress being made with a mediator, but still a potential concern. - Regulatory and policy risks: Uncertainties exist regarding Medicaid potential cuts, ACA exchange matters, and other regulatory developments in D.C., though the outcome of the lawsuit on LDT regulation is positive.

Q: Luke Sergott asked about organic volumes and pacing.

A: Jim Davis responded that organic volume was down 90 basis points, but when correcting for leap year impact and weather, it would have increased by 160 basis points. There was a bounce back in March and consistent volume trends in the first 19 - 20 days of April.

Q: Kevin Caliendo asked about tariff exposures.

A: Jim Davis said less than 1% of the $2 billion supply spend is sourced directly from China, and plans are in place to move some of these sources. Most supplies are manufactured in the U.S. or under multiyear contracts. Sam Samad added that the tariff impact is manageable and baked into the current guidance.

Q: Kevin Caliendo followed up on LifeLabs strike.

A: Jim Davis said the strike is on the British Columbia side of LifeLabs, involving about 1,200 employees, and progress is being made with a mediator, with hopes for settlement within 30 - 45 days.

Q: Patrick Donnelly asked about margins and LifeLabs.

A: Sam Samad said Q1 operating margins were 15.3%, and EPS pacing traditionally has Q2 as the best quarter. Jim Davis said LifeLabs revenue was in line with expectations and making progress on margins.

Q: Elizabeth Anderson asked about hospital lab management and tariffs.

A: Jim Davis said the funnel of opportunities for collaborative lab services is robust and could accelerate with tariff impacts.

Q: Michael Cherny asked about payer dynamics.

A: Sam Samad said collaborations with health plans are ongoing, and being a preferred lab network for Optum Health helps redirect work.

Q: Pito Chickering asked about M&A pipeline.

A: Sam Samad said the M&A funnel is healthy with hospital outreach and small regional labs, and the Fresenius deal adds volume.

Q: Noah Kava asked about Haystack and data.

A: Jim Davis said Haystack is commercially launched with progress, and they are working on reimbursement.

Q: Michael Ryskin asked about policy regulations.

A: Jim Davis said Medicaid and ACA are being watched, and there is bipartisan support for PAMA reform.

Q: Andrew Brackmann asked about recession and business.

A: Jim Davis said healthcare is essential, and Sam Samad added there are more safety nets today compared to the past recession.

Q: Jack Meehan asked about weather impact and EPS cadence.

A: Jim Davis said weather impact was 160 basis points, and Sam Samad said EPS cadence traditionally has Q2 as the highest quarter.

Q: Erin Wright asked about LDT investments and expenses.

A: Jim Davis said there are incremental investments for regulatory needs, and Sam Samad talked about labor costs, turnover, and SG&A leverage.