The operator introduces the Quest Diagnostics First Quarter 2024 Conference Call and reminds listeners that it is being recorded. Shawn Bevec, Vice President of Investor Relations, introduces Jim Davis, Chairman, CEO, and President, and Sam Samad, CFO. Forward-looking statements and non-GAAP measures will be discussed, and a reconciliation of non-GAAP measures will be provided. Risks and uncertainties may affect future results. References to reported and adjusted EPS, base business, testing, revenues, and volumes are explained. Jim Davis then begins the call.

In the first quarter, the company saw strong growth in base business revenue and total revenue, driven by a focus on physicians and hospitals, broad health plan access, and investments in advanced diagnostics. The company is also raising its guidance for the full year. However, the company is disappointed with the FDA's proposed rule to regulate laboratory-developed testing services and will continue to work with their trade association on potential next steps. The company's strategy and highlights from the first quarter will be discussed, followed by a recap of financial results and updated financial guidance for 2024.

Quest Diagnostics' growth strategy focuses on providing solutions for their core customers, including physicians, hospitals, and consumers. This includes advanced diagnostics in areas such as brain health and molecular genomics and oncology, as well as strategic acquisitions. The company is also working on operational improvements, such as the use of automation and AI, to enhance quality, service, efficiency, and the workforce experience. In the physician lab services channel, Quest Diagnostics saw high single-digit revenue growth due to increased healthcare utilization, market growth, and new customer wins. They also have strong relationships with health plans, with approximately 90% of health plan members having access to their services. Quest Diagnostics works closely with health plans to reduce laboratory costs and remains disciplined in their pricing strategy. They successfully renegotiated large health plan contracts last year.

Quest has seen significant growth in their health plan revenues, with over 50% now having value-based incentives. Their recent acquisition of Lenco has contributed to this growth, and they have a strong pipeline of potential acquisitions. In Hospital Lab Services, they have seen mid-single digit growth in base business revenues, with hospitals increasingly turning to Quest for reference testing due to staffing and cost challenges. Quest also provides hospitals with ways to optimize their lab operations, and they have a strong pipeline of opportunities in both professional lab services and outreach programs. Consumer-initiated testing has also seen significant growth, with popular categories including general health panels and STD testing.

Quest Diagnostics is expanding its test menu by launching new tests, such as PFAS testing for assessing exposure to harmful chemicals, and partnering with other companies to extend its reach. In the Advanced Diagnostics division, they have seen strong growth in brain health, women's health, and cardiometabolic health. They are also launching new tests for Alzheimer's disease and expanding their molecular genomics and oncology offerings, including a liquid biopsy screening test for colorectal cancer. Their STEP500 somatic tumor sequencing service is generating interest from large cancer centers and positioning them as a leader in the MRD space and other fast-growth markets.

The paragraph discusses the company's operational excellence program, Invigorate, which aims to deliver cost savings and productivity improvements. The company has been deploying automation and AI to improve productivity and service levels, such as creating a digital front door and automating specimen preparation processes. The company also thanks its employees for delivering a superior customer experience and achieving its purpose of creating a healthier world. In the first quarter, the company saw a 1.5% increase in consolidated revenues and a 6% increase in base business revenues, with strong growth in base testing volumes.

In the first quarter, weather had a negative impact on volume growth and COVID-19 testing revenues were lower. However, there was an increase in base business revenue per rec due to more tests per rec and favorable test mix. Operating income and EPS were slightly lower compared to the previous year, but cash from operations increased. The company repaid $300 million in senior notes and provided updated guidance for the full year, including a decline in COVID-19 testing revenues and expectations for M&A activity.

The company's dilution from Haystack Oncology is expected to remain at $0.20 for the full year, with an increase in operating margin due to volume growth and improved productivity. Net interest expense is projected to be around $190 million, and the weighted average share count is expected to stay flat. Due to strong volume trends in the first quarter, the company has raised its adjusted EPS guidance by $0.10 at the midpoint, offsetting the $0.05 to $0.07 impact from weather in January. The company's strong customer relationships, broad health plan access, and investments in advanced diagnostics are driving revenue growth. The company is also improving productivity, service levels, and quality, leading to improved profitability in 2024. The company's margins performed better than expected in the first quarter, and the expectation is for continued improvement throughout the year.

Jim Davis, the speaker, is discussing the company's operating margins and how they compare to the previous year. He explains that there were some headwinds, such as the impact of COVID on volumes and prices, but they were offset by base volume growth and productivity improvements. He also mentions that the consumer-initiated testing business saw good profitability. He expects normal seasonality in the coming quarters, with a step up in Q2, consistent margins in Q2 and Q3, and a step down in Q4.

The speaker, Sam Samad, responds to a question about the company's Q1 performance. He explains that they beat both external and internal expectations, offsetting a predicted weather-related EPS headwind. He also mentions that utilization was strong in Q1 but is expected to return to normal levels in the next three quarters. Jim Davis adds that volume growth was broad-based, with increases seen in all physician channels and health systems.

The speaker, Jim Davis, is responding to a question about the impact of a new proposed rule on LDTs (laboratory-developed tests) on Quest Diagnostics. He states that they are preparing for the rule, but do not know the final details yet. He mentions that Quest Diagnostics already has a strong quality management system and follows strict guidelines. He also mentions that there will not be any impact on earnings or EPS in 2024 and that they will address any gaps between CLIA guidelines and the proposed rule once it is finalized.

In the upcoming quarter, the company will address a matter in a thoughtful manner with confidence and a strong organization. The next question is about the expected contribution of M&A to revenue, to which the company responds that if no other acquisitions are made, the 50 basis point trend will continue. However, the company is optimistic about potential future transactions. The next question is about the advanced diagnostic segment, to which the company responds that it has met or exceeded expectations and has made advances in areas such as Alzheimer's and the recent Haystack acquisition. The company plans to continue pursuing opportunities in this area and the next catalyst for Haystack is unknown.

The speaker discusses the success of their AB 42/40 test for brain health and the addition of p-tau217 to their portfolio. They also mention the positive performance of their CSS and women's healthcare tests. They mention the upcoming launch of their early experience program for Haystack and their oversubscription for the program. They then address guidance for utilization and organic volume, but there is a brief interruption in the audio.

Michael Cherny asks about the dynamics of organic volume expectations and how they factor into margin expansion for the company. Sam Samad explains that they expect to see growth in double digits in advanced diagnostics, which will help with profitability. They also expect volume growth to be close to mid-single digits in the remaining three quarters, which will drive productivity and margin improvement. However, they are being conservative in their assumptions and expect volume growth to be slightly lower than mid-single digits due to potential normalization of utilization. Jim may add more information.

Jim Davis and Sam Samad from the lab company discuss their strong quarter, with 10 basis points of growth despite COVID-19. They credit this to a mix of factors, including strong test-pa rec and test-mix, which offset the $90 million decline from COVID. They also saw growth in rev-per-rec, which they attribute to a combination of utilization and share gains. They closed deals with two large physician groups and saw strong growth in all physician channels, including hospitals and pathology. Overall, they believe their growth is a result of both utilization and share gains.

In the paragraph, the speaker discusses the strong performance of Quest Health's Consumer-Initiated Testing business, which almost doubled in the quarter compared to the previous year. They also mention that the margins for this business are consistent with the overall company's margins. The speaker also addresses the labor environment, noting a slight improvement in retention rates and a decrease in attrition across all front-line jobs. In response to a question, they mention that 50% of health plans now have some form of value-based care arrangement, but do not provide specific details on what this looks like or how it affects margins.

The speaker discusses value-based incentives and how they are related to acquisitions and volume movement. They also mention that the cyber-attack did not have a significant impact on Quest's revenue in the quarter. The speaker also mentions that there was a COVID headwind in the quarter, but they were able to overcome it and still see revenue growth. They conclude by asking about pricing for the rest of the year.

The speaker is addressing concerns about COVID headwinds and pricing benefits for the rest of the year. They mention that while COVID will have a decline of $175 million for the year, $90 million of that decline has already happened in Q1. They also mention that test-per-rec and test-mix were favorable in the first quarter and are expected to continue, while pricing is expected to be flat for the rest of the year. They add that the impact of health plans will be modestly positive, while health systems will have a negative impact on pricing.

The speaker discusses the impact of price increases on the company's overall performance. They also mention the potential for automation in their centers, with about 50% of the cost structure being wages and labor. In the laboratories, automation efforts have been successful in the specimen processing area. In Phlebotomy, there is still a significant opportunity for improvement through the transition from paper to electronic requisitions.

The speaker discusses the company's plans for developing new kits that will allow for self-draw in phlebotomy, and mentions that the MRD market continues to grow. They also mention the Haystack acquisition and the company's continued investment in this area.

The company has signed up 20 pre-launch customers for their early experience program, which includes a mix of community-based oncologists and academic medical centers. They plan to launch nationally later this year and expect a 35% dilution in total for this year, with less dilution expected from Haystack next year and a goal to become neutral or positive in 2026. The company is pleased with the interest in their early experience program. A transcript of the call will be posted on the company's website and a replay will be available until May 7, 2024.

This summary was generated with AI and may contain some inaccuracies.