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Welcome to the Quest Diagnostics Third 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 the question and answer session that will follow, are 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. I’d now like to turn the call over to Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Sir, please go ahead.

Thank you and good morning. I’m joined by Jim Davis, our Chairman, Chief Executive Officer and President, and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics’ future results include but are not limited to those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth are compound annual growth rates. Now here is Jim Davis.

Thanks Shawn, and good morning everyone. Before we get into the details from the third quarter, I want to recognize the Quest employees who are working hard to serve our patients and customers impacted by Hurricanes Helene and Milton while also contending with the effects on their personal lives. I’m inspired by their commitment to our values, especially customer focus, collaboration and care during this very difficult time. They bring to life our purpose, working together to create a healthier world one life at a time. Now turning to our results. We delivered a strong third quarter with total revenue growth of 8.5%, including 4.2% organic growth, driven by new customer wins and expanded business with physicians and hospitals, as well as acquisitions. During the third quarter, we completed three acquisitions. We finalized our acquisition of LifeLabs, a trusted lab leader serving millions of Canadians. LifeLabs provides a strong foundation for us to expand in Canada, and we are excited about the growth opportunities serving a population that is growing and with more favorable demographics than in the U.S. We also completed our transaction with Allina Health, a leading non-profit health system serving Minnesota and western Wisconsin; and at the end of the quarter, we acquired the laboratory business of three physician groups in New York. During the quarter, we also announced the plans to acquire select outreach lab assets from Ohio Health and University Hospitals, two leading non-profit health systems in Ohio. We completed the transaction with Ohio Health just last week and expect to complete the acquisition with University Hospitals later this quarter. Our recent outreach acquisitions highlight our ability to attract top health systems seeking to evolve their lab strategies to improve access and affordability. They also position us to expand in geographic areas of the U.S. where the influence of health systems had previously limited our reach. We are now on track to complete eight acquisitions this year that meet our criteria for growth, profitability and returns. Now I’ll recap our strategy and discuss highlights from the third quarter, and then Sam will provide detail on our financial results and talk about our updated financial guidance for 2024. Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core customers: physicians, hospitals and consumers. We enable growth across our customer channels through advanced diagnostics with an intense focus on faster growing clinical areas, including brain health and molecular genomics and oncology. In addition, acquisitions are a key growth driver with an emphasis on accretive outreach purchases, as well as other independent labs. Our strategy also includes driving operational improvements across the business with the strategic deployment of automation and AI to improve quality, service, efficiency, and the workforce experience. Here are some updates on the progress we have made in each of these areas. In physician lab services, we delivered another quarter of high single-digit revenue growth. Our performance was driven by new customer wins and expanded business, largely due to increased utilization of our advanced diagnostics. Our acquisitions also contributed to growth within this core customer channel, and as a reminder, volumes from both hospital outreach and independent lab acquisitions originate in physician offices. We also continued to see strong volume and revenue growth within Medicare Advantage plans, where narrow network strategies direct testing to high quality, cost efficient options like Quest. During the quarter, we also made progress to expand into new geographies through our health plan partnerships. We renewed a large national health plan agreement with Elevance Health that will extend our reach in Virginia, Georgia, Colorado and Nevada, markets in which we had previously limited access. We also broadened our access in Virginia and Florida with our recently announced arrangements with Sentara Health Plans. In hospital lab services, we grew revenues mid single digits, which is above historical levels. Hospitals continues to struggle to fill specialized lab positions, including histology, cytotechnology, and microbiology. In addition, the range and scope of testing being ordered is increasing as hospitals take advantage of our expanding advanced diagnostics portfolio rather than building their own in-house capability. These dynamics contributed to strong continued demand for reference testing. Our expertise managing laboratories can help hospitals improve quality and efficiency in their core lab operations. During the quarter, we formed a professional lab services collaboration with a leading health system in New Jersey that includes reference testing as well as laboratory and supply chain management. Quest specializes in scaling diagnostic innovations to improve access, quality and affordability. This ability enables us to help hospitals address the many challenges that they face, from workforce shortages to capital constraints to the demand for more affordable care from patients, health plans and employers. That’s why premier health systems continue to seek us out for a range of collaborations, ranging from reference testing to professional lab management to outreach acquisitions. In consumer initiated testing, our consumer-facing platform, QuestHealth.com grew total revenues more than 40%. Our repeat customer rate has grown to 30% from less than 10% two years ago, driven by demand for comprehensive health, chronic disease, and STI testing. During the quarter, we also introduced micronutrient blood tests to help identify vitamin and mineral deficiencies. In addition, we continued to expand our partner network with resellers and ecommerce providers. In advanced diagnostics, we drove double-digit revenue growth across several clinical areas. The growth was particularly strong in areas of brain health, especially for our AD-Detect blood-based Alzheimer’s disease testing as well as in women’s health, cardio-metabolic health, and autoimmune disorders. Our investments in advanced diagnostics enable us to deliver and scale innovative services that improve patient care and drive growth. In molecular genomics and oncology, we are pleased with the results to date from our Haystack MRD early experience program through which providers from many leading academic and community oncology centers have used our Haystack MRD blood test to assess cancer recurrence and treatment response for solid tumor cancers. We are on track to make Haystack MRD available nationally to providers in the fourth quarter. Our growth in women’s health was largely driven by prenatal and hereditary genetic testing, consistent with recent quarters. We also saw continued robust testing demand in genital tract infections, which includes several STIs. This month, we introduced a specimen self-collection option at our 2000 patient service centers that give women a fast, convenient and discrete way to access GTI testing. In the area of autoimmune disorders, we saw strong demand for our testing solutions which help primary care physicians comprehensively screen for autoimmune disorders in order speed diagnosis and care by specialists. Finally, we were pleased to have been selected by the CDC to be one of a handful of diagnostic service providers to support the development of laboratory tests for H5N1 avian flu and oropouche viruses. We plan to introduce an H5N1 avian flu test later this month. Now turning to operational excellence, our Invigorate program aims to deliver 3% annual cost savings and productivity improvements driven largely through the use of automation and AI to improve productivity, as well as service levels and quality. During the quarter, we completed the build-out of full end-to-end automation for our core routine tests at our Lenexa, Kansas laboratory, making it the third fully automated lab in our national network. We are now piloting automated specimen accessioning in our Clifton lab, which will help increase productivity in specimen processing and improve quality. Finally, we are pleased to extend our collaboration with Hologic to include their automated cytology solution, the Hologic Genius digital diagnostic system which utilizes AI to help analyze cervical cell samples. We expect this solution will help us improve quality and efficiency in cervical cancer screening. Now before I turn it over to Sam, I want to take a moment to recognize the decision by Congress to delay Medicare reimbursement cuts and data collection scheduled under PAMA for 2024. While we are pleased with the delay, we continue to collaborate with our trade association, ACLA, to encourage Congress to secure a permanent legislative solution that provides fair reimbursement. Now Sam will give more details on our third quarter performance and our updated guidance for 2024. Sam?

Thanks Jim. In the third quarter, consolidated revenues were $2.49 billion, up 8.5% versus the prior year. Consolidated organic revenues grew by 4.2%. Revenues for diagnostic information services were up 9% compared to the prior year, reflecting strong growth in our key physician and hospital channels as well as the contribution from recently closed acquisitions. As a reminder, our acquisition of LifeLabs closed towards the end of August, and our outreach acquisition from Allina Health closed in September. Total volume measured by the number of requisitions increased 5.5% versus the third quarter of 2023, with acquisitions contributing 5% to total volume. The impact of weather and the Crowdstrike global IT outage in July negatively impacted volume by approximately 40 basis points in the quarter. Total revenue per requisition was up 3.3% versus the prior year, driven primarily by an increase in the number of tests per req and favorable test mix driven by advanced diagnostics demand, partially offset by the impact of the recent LifeLabs acquisition which carries a lower revenue per requisition than our typical average. Unit price reimbursement was stable, consistent with our expectations. Reported operating income in the third quarter was $330 million or 13.3% of revenues compared to $342 million or 14.9% of revenues last year. On an adjusted basis, operating income was $385 million or 15.5% of revenues compared to $380 million or 16.6% of revenues last year. The increase in adjusted operating income was due to strong organic revenue growth and the impact of recent acquisitions, partially offset by the impact of weather and the Crowdstrike outage, as well as wage increases and higher performance-based compensation. We estimate the impact of weather and the IT outage on operating margins to be approximately 50 basis points. LifeLabs had a negligible impact on operating margin rates in the quarter. Reported EPS was $1.99 in the quarter compared to $1.96 a year ago. Adjusted EPS was $2.30 versus $2.22 the prior year. We estimate the EPS impact of weather and the IT outage to be approximately $0.08 in the quarter. Cash from operations was $870 million year-to-date through the third quarter versus $745 million in the prior year. In the third quarter, we issued $1.85 billion of senior notes with an average coupon of approximately 4.8%. Turning now to our updated full year 2024 guidance, revenues are expected to be between $9.8 billion and $9.85 billion. Reported EPS is expected to be in a range of $7.55 to $7.65 and adjusted EPS to be in a range of $8.85 to $8.95. Cash from operations is expected to be approximately $1.3 billion and capital expenditures are expected to be approximately $420 million. The following are key assumptions underlying our updated guidance for you to consider. The increase in our updated revenue guidance is related to recently announced and closed acquisitions, with the majority being from LifeLabs. As a reminder, new acquisitions are typically breakeven to slightly profitable initially with profitability expanding over several quarters, therefore we are not expecting a material contribution to earnings from these acquisitions in 2024 but do expect increasing profitability next year. We are projecting the disruption from Hurricane Milton to negatively impact revenues by approximately $15 million and EPS by approximately $0.08 in the fourth quarter. Operating margin is expected to be down versus the prior year due to the integration of LifeLabs and the combined impact of weather and Crowdstrike headwinds. Excluding the impact of these items, full year operating margin is expected to be up. Net interest expense is expected to be approximately $200 million, weighted average share count to be flat compared to the end of 2023. We have narrowed our adjusted EPS guidance and maintain the midpoint of $8.90 despite the impact of Hurricane Milton in the fourth quarter. While we aren’t prepared to provide 2025 guidance today, I’d like to share some initial considerations as you think about next year. We are reaffirming our long term outlook from 2023 through 2026, which assumes a mid single digit revenue CAGR with at least 1% to 2% growth from acquisitions, and a high single digit earnings CAGR with approximately 75 to 150 basis points of margin expansion over the three-year period. Given the eight acquisitions we expect to complete in 2024, we will exceed our 1% to 2% revenue growth targets from acquisitions next year. Excluding LifeLabs, we already expect to be towards the high end of this range due to the carryover contribution from the other acquisitions that will be completed this year. Interest expense is expected to increase next year as a result of our recent debt issuance. As I noted previously, we raised $1.85 billion of senior notes with an average coupon of approximately 4.8% in August, and in March of 2025 we plan to retire $600 million of senior notes with a coupon of 3.5%. Finally, as we consider all the moving pieces heading into 2025, we expect to deliver earnings growth consistent with our long term outlook in the high single digits. With that, I will now turn it back to Jim.

Thanks Sam. To summarize, our business delivered strong total and organic revenue growth driven by new customers wins and expanded business with physicians and hospitals, as well as acquisitions. We are now on track to complete eight acquisitions by year’s end that meet our criteria for profitability, growth and returns. Our growing advanced diagnostics offering and increasing health plan access positions us to drive new customer business next year. Given the strength of our business and revenue from acquisitions, we are well positioned to drive accelerated revenue growth and earnings growth in 2025. With that, we’d be happy to take your questions. Operator?

Thank you. We will now open it up to questions. [Operator instructions] Our first question will come from Ann Hynes of Mizuho Securities. Your line is open.

Good morning. Thank you. Thanks for all the details on 2025. When you think about next year, how do you think the organic growth profile of the business will do? And within that, can you remind us with Haystack, is there any change in your assumptions now that you’ve had the asset for over a year on how you think it will do in 2025? Thanks.

Yes. So good morning, Ann. We just came off a very strong quarter of organic growth of 4.2%, driven by good volume growth and really nice improvements in rev per req, those improvements in rev per req coming with basically price being about flat, price per test, but really nice increases in tests per req and test mix. So as we enter into 2025, we would put out there at this point approximately 3%, I mean, it’s hard to judge what’s going to go on with utilization, but by all means and based on some of the payor report outs earlier in the week and last week, it appears that utilization remains strong. So I think an assumption of roughly 3% is solid. In terms of Haystack, we’ve said the dilution this year is approximately $0.20. We said the dilution going into next year would be less, and we’re still on track to achieve that.

Yes, with regards to Haystack, Ann, the incremental dilution this year is $0.20, so it’s a total of $0.35 to $0.40 dilution, and it will improve next year. And we are preparing to launch the assay in the next few months here and expect to get reimbursement as we go forward as well.

The next question is from Michael Cherny of Leerink Partners. Your line is open.

Thanks so much for taking the questions. Maybe if I can go back to just some of your commentary about the marketplace and your positioning, if I heard correctly, I think you had some incremental share gains from Elevance, obviously, you have a combination of inorganic growth. As you think about building on Ann’s question a bit relative to the organic side, how much do you feel like the growth profile is within your control relative to that share pick-up, relative to what you’re doing on the pricing side versus market driven? If there’s any we can break that down, that’d be great.

Yes. So first, thanks for the question, Mike. With respect to Elevance, none of those changes take effect until the first of the year in 2025, and those changes, which are allowing us to be in network in the states of Colorado and in the states of Nevada, with expanded access in Georgia and Virginia. But again none of those changes have any impact on our third quarter results, but we expect those to help fuel organic growth going into next year.

Maybe if I add also, with regards to pricing and share gains, I think in terms of pricing, we still expect flattish to slightly improving reimbursement dynamics within our business - I think that’s the expectation going forward, as it is this year, so we’re seeing a positive improvement in reimbursement dynamics. And in addition to the increased access that Jim just talked about, we are also seeing share gains as a result of the hospital outreach acquisitions that we’ve made, where we’ve gained some -- we’ve shifted share and we’ve gained some good market share recently as a result of these acquisitions.

Operator, next question, please?

The next question will come from Patrick Donnelly of Citi. Your line is open.

Hey, guys, thank you for taking the questions. Sam, maybe one on LifeLabs, nice to see that close early. Can you just talk a little about both the margin impact that you see near term there, I know obviously accretive to earnings, but just the margin impact; and then the progression on the earnings accretion as we get into next year? I know there’s some accounting stuff that maybe holds it back a little bit and then it should step up, but it would be helpful just to talk through that profile. And then lastly just Jim, on the M&A side, since we’re on the topic. What the pipeline looks like? Should we expect continued smaller deals versus something like LifeLabs, being a much larger one, and what you’re seeing there? Thank you, again.

Yes, you’re welcome, and good morning, Patrick. So with regards to -- I’ll talk maybe briefly about operating margins first, and then I’ll talk about how LifeLabs impacted it in Q3 and what the trajectory is going forward, just at a high level. We won’t go into too much details in terms of the actual specifics around the deal. But in Q3, operating margins were 15.5%. I would say adjusted for weather, that was closer to 16%. We had both weather and CrowdStrike impacted us by about 50 basis points. There was a slight negative impact from LifeLabs as well in the quarter. As you know, we had about five weeks’ worth of LifeLabs revenues in there. The deal is scaling up in terms of profitability. There are some adjustments at the beginning as well in terms of some accounting adjustments, as you mentioned. But really, the margin profile of the deal is expected to increase as we go forward. Now, we talked about potential $0.10 to $0.15 EPS accretion from the deal in year one, and that was assuming that the deal would close basically at the end of the year, so we’d have a full year in 2025. So, the deal closed a bit earlier, so we still -- we’ll give more color on the Q4 call in terms of what the expectation is for 2025 specifically. But listen, at a high level, Patrick, I would just say that the operating margin to start will be below our overall operating margin as an enterprise. So it’s going to be a bit dilutive in terms of operating margin rates but accretive in terms of operating margin dollars and EPS. And it’s going to ramp up over the next two to three years to eventually be at the level of Quest operating margins, but that’s going to take some time. So, I’d say focus more on operating margin dollars and EPS accretion that we get from the deal, as opposed to the operating margin rates in the short term.

Yes. Patrick, in terms of your question on -- the last part of your question on the funnel and the M&A pipeline. So it does remain strong, and lots of discussions going on with various health systems around the country. But what I would say now is we’re in this phase of integration and digestion of the deals that we’ve just completed, including the lab assets of PathAI, Allina Health System, Ohio Health, University Hospitals, the three physician office labs here in New York, and then obviously LifeLabs. So we are hard at work at integrating these and getting the margin accretion that we’ve talked about. Our appetite will continue for small outreach deals, and we’re always on the look for those.

The next question will come from Pito Chickering of Deutsche Bank. Your line is open.

Hey, good morning guys. Can I go back to the questions on Elevance and Sentara Health, on those contracts you talked about earlier? I guess, why weren’t you in those contracts previously? Did you have to give any pricing concessions in any states in order to go in those markets, or did you give pricing concessions to enter the states? Who was previously servicing those patients? It’s just been a long time since we’ve seen such large managed care contract wins for you guys, so just curious were other central labs servicing these guys or is it simply payors pushing large labs, who take share from hospital-based labs? Thanks so much.

Yes, so with respect to Elevance, we’ve been in their network broadly on a national basis, except for the markets that I indicated - Colorado and Nevada, we were completely out of their network. Georgia, we had limited access to some products but not all, and the same with Virginia. This is just an opening up, like many of the other large national labs, that provide access to all the independent labs, so we feel great on that. Sentara, we were previously not serving - it was being served by other laboratories, and they made the decision to put us in their network. It’s a great health plan, a great health system that was in Virginia, but the health plan actually goes down well below Virginia into the Carolinas and Florida, so we feel really, really good about that. Look, I think it represents just a commitment on behalf of these health plans to include independent labs that offer great quality. It starts with great quality, great service, and really competitive pricing.

Next question, Operator?

The next question will come from Brian Tanquilut of Jefferies. Your line is open.

Good morning guys, and congrats on the quarter. This is Meghan Holtz on for Brian. Just going back to guidance, at [indiscernible] core EPS guidance is up slightly, right? If I just check my math, the midpoint stays at $8.90 but you have to add back the $0.08 from Milton, while LifeLabs should be a little less, so can you just kind of break down that EPS guidance?

Yes, sure. To talk about EPS guidance, let me talk a little bit about revenue as well, because--you know, we took up revenue, as you know, by $285 million at the midpoint. The majority of that was really M&A, and the majority of the M&A was really LifeLabs, so in terms of the $285 million at the midpoint, I would say the majority really is driven by M&A, which as we said scales up with profitability, so little to no profitability in the initial term. To your point around EPS, we tightened the range by a nickel on each side. The midpoint remains unchanged at $8.90. We are absorbing an $0.08 headwind from Milton in Q4, so yes, you are correct in the sense that EPS excluding the impact of Milton would have gone up, and that’s driven by the strength of the organic business. We’re seeing some, as you saw in Q3, great rev per req at 3.3%, organic rev per req was even higher than that. We’re seeing good utilization, so some of that strength is offsetting the impact of Milton, but largely kept the EPS unchanged at the midpoint.

Thank you.

The next question will come from David Westenberg of Piper Sandler.

Hi, thanks for taking the question, and congrats on a good quarter. I believe [audio loss] reduced pretty meaningfully. I think you’re still seeing wage inflation here above historical norms, so can you just talk about some of the pushes and pulls in terms of historically low unemployment rate? Are there actually maybe some tailwinds you’re seeing with insurance and other things, maybe even price increases that could help offset that, and can you talk about maybe some of the headwinds in terms of wage pressures, how long they’re expected to continue, and if we did continue to see some of those wage pressures, are there any other ways you can get operating leverage, say AI, automation, etc.? Thank you.

Dave, just real quick, you broke up there in the very beginning. What did you start with?

I started there with turnover rates being reduced; however, I still believe wage inflation is above historical norms, so can you just talk about the pushes and pulls with that, and then I think you got the rest of the question all right.

Yes, we got it, thanks.

Yes, so as we indicated in the script, our turnover rates have come down here in 2024, so last year they were in the low 20s, and we’re now below 20%, in the 18% to 19% range. Some of this still depends on job category, but overall we’ve seen really nice improvement. Now, the wage inflation of 3% to 4%, I’d say it’s slightly less than last year, but in terms of historical norms, if you want to go back to 2012 to 2019, kind of pre-COVID, I would tell you it was in the 2% to 3% range, so it’s 100 basis points higher than it historically was. As we walk into next year, it might be a bit early to tell, but I would still think it’s going to hang closer to 3%, in that range. I think you’re reading the same articles we are - the quit rate in American has certainly come down. I think unemployment is relatively stable, so I think there will be continued tightness in the labor markets, particularly on our frontline employees, and by those employees, we mean our phlebotomists, our logistics, our specimen processors. It’s actually those positions where we see a more competitive labor environment primarily because those three types of roles, they can move from industry to industry. They don’t need to stay in the lab industry. Now, there’s lots of things we’re doing to continue to offset that wage inflation. We’ve talked a lot about the use of automation and AI in our laboratories. As we indicated in the script, we just went live with our third highly automated laboratory, full automation in our Lenexa, Kansas operation. We’ve installed what we called some front end specimen automation sorting types of equipment in several of our laboratories, and we’re getting nice use out of that; and then we continue to expand some of our automated and AI-driven platforms, like the COPAN--the COPAN microbiology platform, which continues to give us a ton of productivity across our laboratories.

Yes, and if I just add a couple of things, David, with regards to just overall productivity and leverage in the P&L as both we look in 2024 and going forward, but we are seeing a couple of positive dynamics there as well that I’m sure you’re aware of. In terms of rev per req, pricing is a modest favorable. I don’t mean to say that it still isn’t a challenging pricing environment in the health system space, but overall we’re getting flat to positive reimbursement. We’re seeing tests per req continue to go up versus historically, we’re seeing a nice step up in terms of tests per req as well as test mix, which are both giving us a positive in terms of overall rev per req. Utilization, we’ve talked about continues to be positive, and also aided by the fact that we’ve gained share with some of the acquisitions that we’ve done, so overall all of these would drive us to additional productivity and improved leverage as we look forward, and this year in 2024.

Operator, next question, please?

The next question comes from Jack Meehan of Nephron Research. Your line is open.

Thank you, good morning. I wanted to follow up--for Sam, I have a couple of follow-ups, just trying to dig into the quarterly revenue a little bit. The first was could you just tell me what the COVID sales were? I’m trying to gauge what the base was doing within the 4% organic growth. Then second is it looks like M&A added about $100 million of sales in the quarter. How much was the initial five weeks from LifeLabs versus everything else? Could it have been, like, 50/50?

Sure Jack, yes. With regards to COVID, as you have noted, we’ve stopped really reporting COVID and we’ve stopped reporting base versus total, because it’s really become somewhat insignificant. All I would say is it was largely within our expectations in Q3. It’s impacted from a year-to-year--on a year-to-year basis, it impacted growth by about 50 basis points. That was the impact of COVID in terms of total impact on revenue growth. Now with regards to M&A, I think your other question, so we grew by 8.5% in total revenues for the quarter, organic growth was about 4.2%, so we had about a 4% contribution from M&A. LifeLabs over five weeks or so was about $70 million roughly in terms of revenues in the quarter, so that should give you a sense as to the contribution of LifeLabs. Obviously it’s a significant portion of the M&A growth.

Operator, next question, please?

The next question comes from Elizabeth Anderson of Evercore. Your line is open.

Hi guys. Thanks so much for the question. [Audio loss] so long term question. One, can you just confirm the DCP impact in the quarter? I know that created some unnecessary volatility, just--you know, it was always neutral to EPS. Then longer term, I think what you guys were saying was it sounds like you’re saying in general that unit pricing, we should think of sort of as stable to slightly positive for 2025 as well - I think that’s what you are saying. Just if you could confirm that, that’d be great. Thank you.

Yes, with regards to DCP, Elizabeth - first, thanks for the question. On a year-to-year basis, it was up, I would say close to $10 million in the quarter itself, so it was a negative impact on operating margin in the quarter. That should give you the detail that you want. It’s going to ebb and flow depending on the markets, but this quarter it was a negative impact year-over-year. Then with regards to pricing, I think the current view and what we’ve been seeing in 2024 is that--you know, if I kind of bifurcate that, health systems is definitely a net negative in terms of a challenging health systems environment, in terms of the reimbursement and pricing dynamics. Health plans, I would say modestly positive, flat to modestly positive. Overall when you put the pieces together, and we’ve got the government business right now, we expect to be flat pricing as well since the PAMA cuts were deferred, so overall I’d say the expectation is flat to slightly positive, is the current view. We’ll give you more information when we give specific 2025 guidance on the Q4 call.

Operator, next question, please?

Yes, the next question is from Erin Wright of Morgan Stanley. Your line is open.

Great, thanks. With the hospital outreach deals and the market share gains, you’ve been talking about that a little bit more recently, and are there specific geographies where you’re seeing that sort of halo effect around these deals? Has anything changed in terms of your strategy around what you target or how you’re approaching these hospital outreach deals? I guess any way to quantify it as well how much in terms of market share gains is this contributing at the moment, just from either a volume or revenue perspective? Thanks.

Yes, so the three deals we announced, Allina in the Minneapolis market and closed Ohio Health in Columbus, Ohio, and University Hospitals which we expect to close later in the quarter in Cleveland, Ohio, all three of those markets had the characteristics of the majority of independent physicians were owned by health systems and therefore using the labs of those health systems. It puts us into those three marketplaces. Our share in those markets was de minimis before these acquisitions, and so now we have a strong presence in those three markets, all of which are big markets, growing markets. We will continue to look for other markets in the U.S. where we have strong payor access. By the way, in all of those markets, we were in network with obviously all the nationals and all the Blues plans that play in those markets, so we had strong access but our ability to sell, given that the physicians were largely owned by the health systems, was very limited. Those are the characteristics of the markets that we look for in terms of these outreach acquisitions. We look for markets where we have strong access, which we do nationally, and we look for markets where health systems have dominated in that space and they may be willing to get out of that market.

Operator, next question, please?

The next question comes from Stephanie Davis of Barclays. Your line is open.

Hey guys, thank you so much for taking my question. You had in the prepared remarks comments about volume and revenue benefits from narrower networks at the MA plans, so I was curious, given some of the challenges those clients are facing, could you see potential for an accelerated pace of adoption of this strategy and some forward benefits in the coming few years?

I think all of the Medicare Advantage plans versus Medicare are going to have, by definition, more narrow networks. Medicare, as you know, is any willing provider, and if you look at the Medicare work spread across the country, that health systems generally do fairly well in that space. Again, by definition when a life moves from a Medicare plan to a Medicare Advantage plan, most of the Medicare Advantage plans have networks that are more defined and more narrow, so there is generally good things that come from that. Now going forward, the Medicare Advantage plans, yes, they seem to be under some--they’re experiencing higher utilization - that’s generally good for us, but they’re experiencing profit pressures on that book of business as well, so to the extent more of that work comes to independent labs like Quest Diagnostics, it means good quality, great service, and generally lower costs, so we welcome the opportunity to work with all the Medicare Advantage plans to continue to move work from high priced out-of-network labs to labs like Quest Diagnostics.

Operator, next question, please?

The next question comes from Lisa Gill of JP Morgan. Your line is open.

Thanks very much, good morning. I just had a couple of follow-up questions on LifeLabs. Jim, I think in your prepared remarks, you made a comment that the demographics are more favorable in Canada. Can you maybe just help us understand what market growth looks like in Canada, and then secondly, you talked about the margins being below the corporate average at Quest today and that over two to three years, you’ll get there? Can you give us an idea of what the margins look like today for LifeLabs?

Yes, so first on the demographics of Canada, the population growth of Canada is actually significantly higher than the U.S., so it’s been north of 1% for the last several years, so that’s good news for us and for all those that participate. Second is the aging of the Canadian population is also--the average age of the population there is north of what it is in the U.S., and the demographics of older people--you know, what we see in the U.S., obviously Medicare and Medicare Advantage, there is more reqs per life, they visit physicians more frequently, generally higher acuity levels, and so serving an older population is also beneficial to the industry, to us. That’s why we like the demographics of Canada. There’s some variation between that in Ontario, in British Columbia, the two major provinces that we serve, but in total we think it’s a great place to operate. Now in terms of the margin, yes, the operating margin rate is lower than our company average, and we expect over the next couple years, through the synergies that we expect to get and through sharing of ideas, best practices from us to them and them to us, we expect to get the margin rate back to close to Quest company average.

Operator, next question, please?

The next question comes from Andrew Brackmann of William Blair. Your line is open.

Hi guys, good morning. Thanks for taking the question. Jim, I wanted to go back to your comment on integration and digestion. Can you maybe just sort of talk about how your integration efforts or tactics have evolved over the last few years, the things that you can share which maybe give a little bit more comfort on keeping up this accelerated pace of deals going forward? Thank you.

Yes, so it very much depends on the deal. I mean, let’s start with LifeLabs - LifeLabs, it operates in Canada, obviously we’re here in the U.S., so there is not what I would call big synergies across--we’re not shutting down any laboratories, we’re not changing the phlebotomy network or the logistics network at all. What we do look for in opportunities like that is--you know, we look for procurement synergies, right - what are we buying things at, what are they buying things at, and then we’re going to take the best of the best price, and in general that is on the Quest Diagnostics side. Second is we benchmark their operations versus our operations - you know, in phlebotomy, the draws per FTE, logistics, how many stops per person. In the laboratory, we benchmark not just the overall laboratory but the departments within the laboratory - microbiology, auto chemistry. Really what it is, it’s a series of best practices shared from each side, and in some cases we obviously learn things from them that we bring back into our operations. That’s the nature of LifeLabs. Now, with the health system deals, in general what we’re acquiring is a book of business. We’re not acquiring laboratories, we’re not acquiring logistics. In many cases, we take on the phlebotomists that were serving that network. Really, the integration is about, number one, IT integration, integrating with all of their physicians, whether they’re on Epic or Cerner of whatever EMR they’re on; and then second, it’s about the movement of that work from the hospital lab into Quest Diagnostics, so we look for opportunities in logistics and, again, phlebotomy to get synergies and productivity out of that. Generally, what we bring to these integrations are dedicated full time groups of people. They hit within the regional structure of Quest, so depending on the region, we come in with a dedicated team that works the IT side, the phlebotomy side, the logistics side and the laboratory side, and as Sam said in his remarks, it will take several quarters to get these books of business up to the profitability rate that we expect. It’s a lot of hard work and the team has some deep experience in doing this.

Operator, next question, please?

The next question is from Kevin Caliendo of UBS. Your line is open.

Thanks. Thanks for getting my question in - I appreciate it. I just want to go through some of these moving pieces. I appreciated the color that you gave on 2025, but if we just kind of think--tell me I’m not thinking about this incorrectly, revenue growth should probably be better, given all the M&A that’s maturing into next year. You talked about the organic growth is still estimated to be up 3% roughly. The cost trends, wages and the like, 3% to 4%--3%, hopefully Invigorate is there to offset that, plus you add in the benefit of the maturation of LifeLabs, which $0.10 to $0.15, is probably going to be more than that as you’re getting an extra quarter than you anticipated, and you have Haystack dilution coming down. Isn’t it-- I mean, unless I’m not thinking about the impact, or there is a negative impact to core margins, shouldn’t EPS grow faster next year than your traditional CAGR, just thinking about all those moving pieces?

Yes, so I think you’ve got the moving pieces right, Kevin. As you said, we’ve got--and as we talked about in the prepared remarks, we’ve got M&A excluding LifeLabs growing at the high end of the range that we’ve given, about 2%. We’ve got LifeLabs adding a full year worth of revenues in there, so that will help revenues as well, so yes, revenue growth will be faster. We’ve got also the carryover from some of the M&A that we’ve done this year. I mean, in terms of the cost headwinds right now, it’s, I’d say early to say that we’re going to face lesser headwinds in general, like in terms of inflation for instance. We’re still assuming in general that 3% to 4%. I wouldn’t say that we’re assuming that that’s going to moderate significantly next year, so what we’re seeing today is in that 3% to 4% range, and I think we’re expecting that to be the same. I think the pricing dynamics, we’ll give more detail on that on the Q4 call, but in general fairly in line with what we’re seeing right now, which is flat to slightly positive, although as I said before, we are seeing competitive dynamics in the health system space. For now, we’re seeing EPS is growing in the high single digits, so to the extent that we provide more information on the Q4 call that’s different than that, we will; but at this point with the visibility that we have with all the moving pieces, we feel comfortable just reaffirming that growth rate for EPS. There isn’t anything here that’s a negative that we’re--you know, that you’re teasing out, that’s something that we’re not disclosing. It’s basically we feel comfortable that with all the moving parts, that we’re at the high end of the guidance range that we gave before.

Operator, next question, please?

Our last question will come from Michael Riskin of Bank of America. Your line is open, sir.

Great. Thanks for squeezing me in, guys. I’ll close with one, a lot of this has been covered. I wanted to ask a little bit on PAMA - obviously it’s been delayed. You made some comments about potentially working on a permanent legislative solution. Could you expand on that a little bit, like what that could look like, and obviously PAMA has been delayed for a number of years now, so we’re kind of used to this, but any sense of what the future could look like there, just so we’re not in a constant delay cycle again? Thanks.

Yes, so you’re right - PAMA has now been delayed five straight years, and it is certainly a welcome relief to us and to our entire industry. Now having said that, look - SALSA has continued to be on the legislative agenda. It’s a complex task to get these things approved - there is one Senate committee, two House committees that you have to work through, and as you know with the election coming up, a lot of these committees could potentially change - the leadership can change, members can change, and so our trade association and the members of it will be hard at work once the election is over and once the committee memberships are defined, we’ll be hard at work to figure out who on these committees are going to support us and to put forth a fix to this constant year-over-year, I would say battle that we have to defer these cuts. We were happy with the SALSA solution, which called for--if enacted, called for another year of a delay followed by a new data collection process. There were agreed to reductions, but I’m not sure that’s the solution we’re going to put forth on the table. You know, we’ve had five straight years of delayed cuts, and while that sounds good, in fact it’s not good because we’ve had five really heavy years of wage inflation and other inflation, and we’re going to press the case that in fact the Medicare rates should go up. We’ve gotten rates up through our commercial plans. Yes, as Sam said, there’s been pressure on our hospital reference pricing, but we believe, given the inflationary environment that we’ve lived in from 2019 to 2024, that the rates need to go up, and so that’s the fix that we’re going to propose. We believe a new data collection process will indicate that when they benchmark our pricing across all the commercial plans, including what the commercial plans are paying hospital labs. I think we’ll find that the combination of those prices would lead one to believe that Medicare pricing should go up, so that’s what we’re going to push for going forward.

Okay, so thank you very much for joining the call today. We appreciate your support. Have a good day, everyone.