Quest Diagnostics Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and good morning.

I am 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 we 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, reference 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. Thanks, Dominique, and welcome everyone to this morning's call.

I am excited to discuss our strong performance in the third quarter and how our strategy to connect people and providers to innovative testing and actionable insights is illuminating paths for better health and generating shareholder value. We grew revenues 10% and adjusted earnings per share over 15% in the quarter on continued strength across our physician, hospital, and consumer channels, complemented by productivity gains from automation and AI. Our robust organic revenue growth demonstrates that our solutions are fulfilling the expanding clinical care needs of an aging population, as well as the increasing number of people focused on prevention and wellness. With these growth trends and our strong performance, we are again raising our guidance for revenues and earnings per share for the full year.

Now I'll provide more detail on how we executed our strategy across our key customer channels and operations during the quarter. Quest operates at the center of healthcare. We deliver solutions that make testing simpler and smarter for our core clinical customers, physicians, and hospitals, as well as for customers in the higher growth areas of consumer health, life sciences, and data analytics. In the physician channel, we delivered high single-digit revenue growth in the third quarter on strong commercial execution and broad demand across our test portfolio. We also continued to grow in geographies where we've expanded our access in recent years through health plan collaborations and outreach acquisitions. We are excited about our collaborations with Fresenius Medical Care and opportunities to serve new customers based on our growing kidney diagnostics expertise.

In addition, we are taking steps to serve the growing nephrology call point and were recently named the primary national lab provider for pre-dialysis chronic kidney disease testing for a kidney care organization. In the hospital channel, we grew revenues by double digits during the quarter on strong volume from Co-Lab Solutions with Corewell Health in Michigan. Reference testing revenues grew in the mid-single digits. As a preferred strategic partner, Quest provides a range of solutions to help hospitals address continuing financial, workforce, and other pressures. From reference and Co-Lab arrangements to outreach acquisitions, we improve quality, innovation, and efficiency. Our role serving half of the nation's hospitals each year continues to fuel a robust pipeline of potential Co-Lab collaborations and outreach acquisitions. During the quarter, we finalized a definitive agreement to acquire select outreach assets from a longtime Co-Lab customer, a leading health system in the Northeastern U.S.

We expect to close this transaction later this year. In the consumer health channel, we continued to generate robust growth as we delivered solutions that enable people to own their health. We are excited to announce the ability for iPhone and iPad users to order labs directly from the Apple Health app, which we see as a continuation of our strategy to deliver innovative solutions that will fulfill the growing interest in preventative health and wellness. Users of the Apple Health app will be able to seamlessly purchase, schedule, and receive test results for over 50 biomarkers, including ApoB and Lp(a), all within the app. The panel also includes biometric measurements such as blood pressure and weight at the same time blood is drawn at one of our 2,000 Patient Service Centers.

The offering will unlock greater health insights based on both biomarker and biometric data, and we look forward to the full launch of this service later this year. At Quest, we often say that wellness is not the absence of sickness. It's health that is proactive, personal, and connected. Through questhealth.com and our many collaborations, we are making wellness possible for more people. We expect our growth rate across consumer health to exceed 30% for the full year. Turning now to advanced diagnostics. We continue to focus on delivering innovative tests in five key clinical areas. Advanced cardiometabolic and endocrine, autoimmune, brain health, oncology, and women's and reproductive health. During the quarter, we grew revenues by double digits for key tests across several of these key areas, including in advanced cardiometabolic, hormone, and Alzheimer's disease.

As we approach Alzheimer's Disease Awareness Month in November, I'd like to share our view of this fast-changing area of dementia care. Many diseases today are highly preventable, thanks largely to diagnostic innovations enabling early diagnosis. We envision a future where Alzheimer's is also a preventable disease and primary care physicians, guided by blood-based tests, diagnose and even treat the disease at a much earlier stage. We also believe our multi-biomarker approach can improve clinical evaluation of Alzheimer's disease and other dementias. Over the summer, we announced that we will soon add the FDA-cleared Roche p-tau217 test to our portfolio. We launched a new AD-Detect panel with APOE, amyloid beta, and p-tau217, as these biomarkers provide different but complementary information to improve accuracy. For instance, p-tau217 can falsely elevate with some comorbidities, so a physician may need to refer to amyloid beta to confirm a true positive for Alzheimer's.

Blood testing for this highly complex disease is in the early phases of development, and we look forward to adding significant new biomarkers to our portfolio to support earlier diagnosis and treatment. In women's health, we recently formed the first industry collaboration with Waters Corporation focused on providing access to Onclarity self-collection kit through clinical, health plan, and consumer health channels, including Patient Service Centers in the U.S. This new collaboration builds on our experience providing HPV self-collection options for cervical cancer screening with a new, convenient at-home option. We expect to introduce the Waters innovation to clinicians, health plans, and consumers of questhealth.com next year. I'd like to now turn to operational excellence. We remain on track to deliver 3% in annual cost savings and productivity improvements through our Invigorate program. Automation and AI continue to be major drivers of improvements in quality, productivity, and efficiencies.

As one example, specimen aliquoting involves splitting specimens into small portions prior to testing. The process traditionally requires several human touchpoints, raising the risk of errors that can slow down the whole testing process. During the quarter, we extended an automated aliquoting solution to three drug monitoring labs to enhance quality and efficiency. Today, 10 of our labs use an automated aliquoting solution, and we plan to extend these capabilities to other labs. We also recently began to use AI at our Clifton, New Jersey lab to scan water for signs of microbes and other impurities as part of our dialysis water testing services. The solution improves quality as well as efficiency because it automatically releases specimens with negative findings, so our medical team has more time to concentrate on positive or questionable cases.

Lastly, Project Nova, our initiative to enhance the experiences of healthcare providers and patients, recently advanced from the design phase to the solutions build phase, and we are on schedule to begin to deploy Epic Solutions in our first lab in the fall of 2027. Our strong third quarter reflects the critical role lab insights play in our nation's healthcare. Before I turn it over to Sam for details of our performance and guidance, I want to share our perspective on the 2027 preliminary rate-setting process under PAMA and steps we are taking to support passage of the RESULTS Act. Since PAMA was passed into law in 2014, we have been concerned about the flaws in the data collection process. After six years of PAMA delays by Congress, labs were required for a second time to provide their lab data in 2026.