Quest Diagnostics Incorporated Q3 FY2025 earnings call

• Strong demand for clinical solutions, with revenues growing 13.1% including 6.8% organic growth. - Announced agreement with Corewell Health to form a lab services joint venture in Michigan. - Deploying comprehensive Co-Lab solutions across Corewell's hospitals. - Focused on delivering solutions to core clinical customers, consumer, life sciences, and data analytics. - Advanced Diagnostics saw double-digit revenue growth in areas like advanced cardiometabolic, autoimmune, brain health, and oncology. - Deploying automation and AI technologies through Invigorate program for cost savings and productivity improvements. - Partnered with Epic for Project Nova, a multiyear order-to-cash transformation.

Revenues grew 13.1%, including 6.8% organic growth. Diagnostic Information Services revenues were up 13.5% compared to the prior year, reflecting organic growth in physician, hospital, and consumer channels as well as contributions from acquisitions. Total volume measured by the number of requisitions increased 12.5% versus the third quarter of 2024, with organic volume up 3.9%. Reported EPS was $2.16 in the quarter compared to $1.99 a year ago. Adjusted EPS was $2.60 versus $2.30 the prior year.

• Revenues expected to be between $10.96 billion and $11 billion. - Reported EPS expected in range of $8.58 to $8.66 and adjusted EPS in range of $9.76 to $9.84. - Cash from operations now expected to be approximately $1.8 billion, and capital expenditures expected to be approximately $500 million. - Updated guidance reflects ~4.5% to 5% organic revenue growth, investments in Project Nova ramping in fourth quarter, and operating margin expected to expand.

• Risk of significant payment cuts for American labs if PAMA is not reformed or delayed, threatening access to critical lab testing for seniors. - Expiration of ACA subsidies could impact margins, with expectation of 50-60 bps impact. - Hospital reimbursement remains a challenging environment with pricing challenges.

Q: Patrick Donnelly with Citi asked about utilization backdrop and PAMA.

A: James Davis discussed utilization trends with organic req growth and strong consumer business, Sam Samad talked about PAMA with likelihood of delay and partial offset of impact.

Q: Michael Cherny with Leerink Partners asked about mix in the quarter and LRP.

A: James Davis said consumer channels performing above expectations, including direct and partner relationships.

Q: Kevin Caliendo with UBS asked about headwinds and tailwinds besides PAMA.

A: James Davis and Sam Samad discussed utilization, revenue per req, Invigorate program as tailwinds, and ACA subsidies expiration as potential headwind.

Q: Jack Meehan with Nephron Research asked about cash flow.

A: Sam Samad talked about cash flow strength, one-timers like CARES Act payment and tax benefits, and consumer channel being direct cash business.

Q: Luke Sergott with Barclays asked about consumer health partnerships.

A: James Davis discussed partnerships with WHOOP and OURA, and future self-collect devices.

Q: Erin Wilson Wright with Morgan Stanley asked about ACA subsidies and Epic partnership.

A: Sam Samad discussed ACA subsidy impact and James Davis talked about Epic partnership details.

Q: Andrew Brackmann with William Blair asked about cancer screening partnerships.

A: James Davis discussed availability of tests and IT integration for partnerships.

Q: Michael Ryskin with Bank of America asked about Haystack integration.

A: James Davis talked about Haystack integration and Sam Samad discussed financial expectations.

Q: Pito Chickering with Deutsche Bank asked about organic growth and tests per requisition.

A: Sam Samad discussed test per req growth and durability.

Q: Tycho Peterson with Jefferies asked about oncology initiatives.

A: James Davis talked about Guardant partnership and Haystack evidence generation.

Q: Eric Coldwell with Baird asked about margin profile and Project Nova.

A: Sam Samad discussed Project Nova investment timing and expectations.