Quest Diagnostics Incorporated (DGX) Earnings Call Transcript & Summary

Welcoming Vice President, Investor Relations, Shawn Bevec.

Thank you, and good morning, everyone. Welcome to Quest Diagnostics 2025 Investor Day. Before I run you through this morning's agenda, I just want to clear off a bit of housekeeping, the safe harbor. So now a bit about today's agenda. Jim Davis is going to lead us off this morning. He's going to talk about our views about the laboratory market and how we're driving sustainable growth, which will enable us to continue to deliver long-term shareholder value. Next, you'll hear from Karthik Kupasami and a number of other Quest executives about the investments that we're making in advanced diagnostics across 5 key clinical areas thatwe think we'll continue to drive above-average growth. We'll take a quick break. Then Cathy Doherty and Alex Louis will join us on stage to talk about how we continue to see a long runway of potential initiatives to drive 3% savings in productivity through Invigorate. And then finally, Sam Samad will talk about our long-term financial outlook and provide some financial projections. We'll end the day with a bit of Q&A to get to any of your questions. And with that, I will turn it over to Jim.

All right. Good morning, everyone. I think the best news I heard this morning is that spring is here tomorrow. For those of you that really watch the stuff, it's at 5:01 tomorrow morning in Eastern Standard Time. So everybody get up and let's celebrate spring. Okay. So driving sustainable growth and delivering long-term value. That's our goal. And let me just summarize what I'm going to say this morning. So first, look, the clinical lab market, it does remain strong. And while population growth and aging of the population always helps the clinical lab market, what's really propelling the growth is some of the health trends in the U.S. that I'm going to talk about. As well as diagnostic innovation to hear about some of the newer tests that we've brought to market ourselves. Second, our strategy to win in the physician space and with health systems has and will continue to allow us to grow above the market growth rates that I showed, both in the U.S. as well as in the Canadian market. Next, we've invested in laboratory developed tests. That's what we do. Not all of the innovation that comes industry comes from our IVD suppliers. We develop the innovation, other independent labs develop the innovation, and that also is what's going to help us to generate above-market growth rates and double-digit growth rates in the areas that we are investing, and we'll show you that. And then our op strategy, we call it Invigorate. It's been around for more than a decade. It's always meant to improve the quality and the customer experience and to drive productivity to -- wage inflation, prices and things like that. If we do all that, and we'll do all that, what you can expect is about 4% to 5% revenue growth top line beyond 2025. So we know this year is going to be a very good year higher growth than that because of the acquisition carryover that we have in 2025. And then 7% to 9% adjusted EPS, again, beyond 2025. Okay. So hopefully, many of you in this room have used Quest Diagnostics. I see some heads nodding, more than just our own employees that are here, so that's good. But look, my guess is that somewhere between 50% and 75% of you have seen Quest Diagnostics and have used Quest Diagnostics at some point in your life. But if you're new to Quest, this is our purpose. We're trying to create a healthier world one life at a time, one vial of blood, one cut, and that's what we do. And we help people make the best decision. When I say people, it's patients, it's physicians, it's health plans, it's employers, it's CDC. Much of our information goes to the CDC and the state departments of health. So we help people try to make better health in and improve their lives. That's our strategy. And how do we do it? We do it through these 5 Cs. Customer, first. Care, we will draw blood for more than 250,000 patients today, okay? You have to have a lot of care in doing that, right? This, by the way, ranges from infants all the way up to 100-year-old patients. So you have to care in that active sticking a needle into somebody's arm. Continuous improvement. We are always trying to do something better today than we did yesterday. And we would go to bed it tonight, we're going to make a commitment to do something better tomorrow than we did today. And curiosity, always looking outside the 4 walls of our own laboratories, always looking outside of our industry to bring ideas into this company and to make us, again, more productive, improving the quality of everything we do. Okay. So again, if you don't know us well, some stats on Quest. We serve 50% of the U.S. health systems that are out there. So 600 health systems manage 6,000 hospitals, we get requisitions from half of those. 1.1 million physicians in the United States aggregated into office, we serve about just under 600,000 of those 1.1 million physicians. We see about 1/3 of the U.S. adults on an annual basis. Translate that to every 3 years, we're going to see about 50% of the U.S. adult population in this country. 217 million requisitions, including what we did up in Canada last year, that was about $7 million just for the stub portion of the year that own them. And what that translates into is, again, we see about 100 million unique patients a year which means, on average, they see us about 2x per year. Now there's some that come, they're one and done, their general health and fitness. But there's others that come once a week, once a month, once a quarter, depending on the chronic condition or depending on the disease that they're managing. But on average, we see about 100 million unique people and we see them about 2 times a year. We collect a lot of blood and urine, right, at 8,000 different access points, 2,000 patient service centers and another 6,000 phlebotomists that are scattered into physician offices around the country. We pick them up every day with 5,000-ish vehicles, 90% of the lives are -- 90% of the injured lives are covered. We're in network with those plans. We've got over 80 billion data points on patients that we've accumulated in the last 10 years. And I'm going to talk later about how we're leveraging that data to help other people make great decisions. Again, the CDC, state departments of health, health plans, pharmaceutical companies. We do it with 55,000 employees, 850 MD/PhDs that have developed over 1,600 patents over time. And we are a global company. We have labs in Canada, obviously, with the LifeLabs acquisition. We have a lab in Mexico as well that service much of the population down there. Okay. So let's talk about the market. And the last time we showed this picture was the exact picture, but the numbers are different. So let's start the middle. It's the total U.S. lab market, about $89 billion, and that's about $4 billion larger than the last time we updated this model. And so it's about 2% growth overall, okay? Most of that growth, $3 billion of that $4 billion came on the physician side, the other $1 billion came on the hospital side. Now on the physician side, I think you all know what that is. You all go to the doctor, the doctor writes a lab order. Hopefully, you all come to Quest Diagnostics. And generally, that work is paid for by a commercial health and Medicare, Medicaid. But it's -- we call it the outreach market. That market is going to grow 2% to 4%. The last time we showed this picture, we had about 11% share. Now we have 12% share. And you can see the structure of that market. Other independents own about 42% of that market. But the hospitals, as you know, hospitals still gather work from outside the 4 walls of the hospital. They bring it into the hospital and they try to monetize that work as well, they're 35%. And large physician practices, generally, some of them have their own small little labs, and that's about 11%. Now you always have to remember on this physician side, Quest and the independent labs are actually paid a lot less than the hospital labs, okay? So we're always trying to convince employers. We're trying to convince patients. We're trying to convince the health plans to steer that work into the independent lab world, because it saves employers a lot of money, it saves patients a lot of money, okay? All right. Let's go over to the hospital channel side. Now on the hospital side, every hospital has to have a lab. You just coming into the ED, you have critical patients in the ICU that need rapid turnaround tests, they have to have a lab. And that $31 billion is really the cost of maintaining that lab. It's the supplies, the reagents, it's the equipment and, obviously, the labor. Now so how do we participate in that? We participate in 2 ways. So we have about 6% share of that $31 billion, which translates to just about $1.9 billion, let's say. And how do we participate, because hospitals have to refer work out. They don't have to, but they do refer work outside of their own hospital lab. And why do they do it? Generally because it's low volume work or it's capital intensive, or it requires some high degree of specialization the health system doesn't have, okay? Now also embedded in -- and we call that reference work, by the way. And of that 6%, which I said was about $1.9 billion, about $1.1 billion of that is considered reference work. The other $800 million is something we call professional laboratory services. We've rebranded that to call it, CoLab services, which I'm going to talk about later. That whole market growing to 1% to 2%. We've talked on some of the earnings calls that we see price pressure on the right-hand side of the equation, on the left-hand side of the equation, pricing has been more stable coming out of the COVID period. Okay. Let me turn to Canada. We like Canada. Canada is a good market. It's about a 5 -- let me go back 1 second, just go back for 1 second one. Just on the U.S. market, $89 billion, 340 million people, which equates to about $265 in lab spend person per year, okay? We think that's actually pretty low. I mean think about what people spend each month on their cell phone, their streaming services or cable bill, they spend more than $265 a month on that. And yet alone, we're only spending $265 a year on lab work in the U.S. Okay. Canada. It's about a $5 billion market. And you can see the structure of this market is different than the U.S. market, okay? The first thing to notice is that the independents LifeLabs, a Quest Company, plus other community labs are only 21% of the entire market, right? If you contrast that with the U.S. picture that I just showed you, the independents are about 42% of that market, both the physician and hospitals. So the independents play a significantly smaller role here in Canada. Most of the work is going into hospital labs and into public health labs. And we think that's an opportunity for us over time. The other thing to note in this market is most of that independent lab work is done in 2 provinces, British Columbia and Ontario. And so most of that -- and by the way, those 2 provinces are about 52% of the population. And really, that's where the independent labs are playing. So we think over time, there's going to be an ability to work in some of these other provinces. The next biggest one is obviously Quebec. Quebec is actually the second biggest one. Now if we take that $5 billion, divide it by 41 million people, you come up with about $120 per person per year, okay? So significantly less than the U.S. market. And again, we think that's an opportunity going forward as well, is to bring some more advanced diagnostics up to that market, and I'll talk more about that later. By the way, that market does grow faster than the U.S. market. Population growth in Canada is faster. And the aging of the population, they're a bit older than in the U.S. market. Okay. All right. Let me turn now to recap of 2024 and just talk about the sources of our revenue and the sources of our payments. On the left-hand side is the sources of our revenue, right? Physicians account for 68% of the orders -- not the revenue, 68% of the orders that are written in this business. Hospitals account for 20% of the orders, and the revenue in a second. And then 12% comes from other channels, okay? That 12% is consumers. We have this business, as you know, Questhealth.com, and it generates about $60 million, plus another $40 million that we sell through other resellers. Life science companies are in that mix. Testing and collections we do for pharma -- IVD suppliers. We have a data analytics business that harvest -- remember those 80 billion data points, we harvest that data and provide data sell that data to pharma, sell to the CDC, state departments of health, health plans. And then we have businesses that serve employers, our employer pop health business, our employer drug testing business, and then we still do risk assessments for life insurance companies, okay? So all of that, 100%. Now who pays those bills? I think the easiest way to think about that is take the hospitals at 20%, take the other at 12%, and those are all direct bills. We bill a client. We bill a hospital. We don't bill a third party for hospital work, we build a hospital, the hospital covers that under a DRG format. So the 20% and the 12% map to the 35% -- the client bill, I know it doesn't exactly equal 35%, because we still bill some physicians for the FERC we do, and then the physician turns around and builds the plan, okay? Most health plans don't like it. They're kind of putting an end to that, but it's still a small part. So the next biggest source of our revenue is the commercial health plans. It's the Uniteds, Aetnas, Humanas, Cignas, all the Blues plans, that accounts for 27%. Now we've lumped Medicare and Medicare Advantage together. That's about 16% Medicaid. Managed Medicaid, about 8%. The Canadian government, it says 2% related to LifeLabs, and you can do the math, 2%. Look, we've told you it's a $700 million entity. So on an annual basis -- remember, we only owned it for 5 months last year. So it was small last year on an annual basis, it's going to come in somewhere between 6% and 7% of our total revenue. And then patients. Still patients have to pay a portion of the bill, right? There's co-pay deductibles. And most of it's insured patients. There's some uninsured in that 12%. And that average payment -- by the way, on those co-pays and deductibles, it's 35 to 40. If that same patient goes into a hospital lab or goes to 1 of those POLs that I talked about, it's going to be 2x or 3x that, okay? And we tell patients that, we tell employers that, steer your work to independent labs. It's going to save the employer money. It's going to say the patient money it's going to save everyone money. Okay? Now the only other nuance I want to point out in this chart is you all know that Medicare Advantage and Managed Medicaid, those are administered, right, through -- it's government funded, but it's still administered through commercial plans. So of that 24 percentage points, 13 of those points fit into health plans as well. So ultimately, the revenue comes from that. But as you know, the government pays the health plans to do that work or to cover those labs. Okay. Okay. Let's turn to some trends that are shaping our industry, okay? And I'm going to talk through each one of these. So the first demographic shifts and an older, sicker population. So there was a study released remember from Lancet that looked at the health trends in the U.S. over the last 30 years. And I don't think it's any secret as you read through the statistics on this page that America is becoming less healthy. okay? And if I'd ask you to remember 2 stats on this page, it's the first 2. 74% of adults live with excess weight or obesity, okay? That's up from the high 40s in 1992. So from '92 to 2022, we went from high 40s up to 74%. Everything else on this page follows from obesity trends. And Maurice this morning is going to talk about what happens when the population becomes obese, okay? We see a lot more kidney disease, liver disease, heart disease, Alzheimer's, early onset of cancers. Now you can say, hey, look, all of that is really good for your business, okay? And it is, it throws off a lot of testing in our industry. But the fact is this is not what we want to see or I don't think anyone wants to see these trends, and believe there's a better approach by shifting some much testing into prevention and wellness, okay? So shift from sickness to prevention and wellness. And we think that's a much better use of both our capabilities and think it can lead to a healthier population. Okay. Second trend is the evolution -- continued evolution diagnostics. We still believe there's a lot of power in the blood. And we -- look, make blood testing and lab testing pervasive across screening, across diagnosis, across therapy selection and across monitoring, okay? Blood testing plays a very important role. This kind of schematic that runs across the page. There's Dr. Welby, Marcus Welby, where they went out and touched and used a stethoscope. At one point in the -- we did exploratory surgery, right, where they'd open somebody up, if they couldn't figure out what was going on. Much of exploratory surgery got replaced by imaging, right? In the '70s, '80s, '90s, every emergency in the country has a CT scanner or has an MRI scanner. And if you can't figure out what's going on with the person, you put them through that scanner and out pops these wonderful pictures. And then blood testing, which really got going in the 1950s, has become, in many cases, the way we screen, the way we diagnose and the way we select therapy. But there's still opportunity for blood testing, molecular testing, genetic testing in this industry to grow. If you think still about some of the common cancers, pancreatic cancer, ovarian cancer, those 2 are really a death sentence when they finally discovering those cancers, right? There's not really good early-stage blood test to diagnose those. A mammography, which I show in the picture there, right? That is still the gold standard for women for breast cancer, right? And what do we do there, right? We shoot x-ray through the human body, right, a harmful x-ray through the human body to look for breast cancer. So hopefully, in another 5 to 10 years, we're going to look back on that and say, just as exploratory surgery was quite barbaric, we're going to look at that procedure and say, my gosh, how barbaric was that to shoot a harmful x-ray through the human body in order to go look for cancer, okay? So still lots of room to grow in terms of the use of blood testing, molecular, genomic testing to screen diagnosed disease. Automation and AI, continue to improve the quality and the reliability and the productivity of what we do. In some of our biggest labs. If you've been to our Clifton, New Jersey lab, we can run 100,000 specimens, 100,000 requisitions a night through that laboratory. Every one of those -- can have 4 to 5 tubes of blood. So just think about the volume of tubes running through that lab on any given night, upwards of 500,000 tubes of blood. I can tell you there's no way we can sit there and put little stickers on those tubes by hand. There's no way we can process it by hand. And so we've introduced automation into these laboratories. Alex is going to show you a little more about that later in the presentation. And we have brought in some what I call nontraditional laboratory suppliers into the lab space to help us. Companies like FANC, big in industrial automation. Companies like AD, we brought into the laboratory space, and they've developed robots and automation equipment that make our lives a lot easier. On the AI side, as I walk around our loan if I see somebody looking in a microscope, we stop. We just thought, hey, what are you looking at? And we asked the question why can't what you're looking at be digitized? Because we know if we can tie whatever you're looking at in a microscope, the next thing you can do is you can run algorithms through that digital image. And generally, with the use of artificial intelligence with these algorithms, it can help whoever is looking at that image or looking at that specimen, it can help interpret that. And we have live examples today. In microbiology, where you're growing you streak plate with urine. And you grow things, you bake this in the oven. We don't look at these under microscopes in most of our labs. We take a digital picture. We feed a digital picture into a system. You apply algorithms to that. It segments the negatives and the positives. And then ultimately -- yes, we're still having somebody look at it, but we've already told them, here's your negatives, here's your positives, quickly review them. And yes, does it make take once in a while, it does, and then you feed that back into the machine, and that's called machine learning. But I can tell you, the quality is significantly higher today with this AI-assisted microbiology than it was 5 years ago. Other areas of the lab cytology, you're going to hear about digital cytology systems for analyzing PAP smear, parasitology and pathology. We're really still in the very, very early innings of digital pathology. If you think about radiology, nobody looks at film and radiology anymore. Everything coming out of an MRCT and X-ray is completely digital. It hangs -- you're looking at it on a monitor. Radiologists are applying algorithms through all those digital MRI images, helping them assist to find regions of interest, and we're probably in the second inning in digital pathology. So we have a lot more room to grow in that area going forward. Okay. The last trend, look, I said the country is getting unhealthier it is, it's well documented. But we are seeing a new consumer segment here that is taking great interest in their health. Hopefully, all of you are. Hopefully, all of you wear something digital where you can track your stress levels, your pulse, your heart rate. And you can correlate that with lab data. On the right-hand side, author, Dr. Casey Mean, Stanford doctor, wrote this book and talks about this thing called bio-observability, correlating all the things that you're gathering off of your human body with consumer to direct testing. But we see in this trend. It's called functional medicine. You see 3 companies listed on the bottom there. We get orders every single year from all 3 of those companies. These are all direct-to-consumer companies, okay? It's not health insurance. Health insurance doesn't paying for this. Function Health is one of the biggest. You may have heard of them. They were recently valued at over $2 billion based on their last money raise. It's a subscription. 150,000 people have subscribed to their service. They get extensive lab panels twice a year. We do all of the work for Function Health. They have 350,000 people on a waiting list to get this service. Extensive lab panels twice a year. They get advice back from physicians. And again, functional medicine is seeking to improve the health of the individual through diet, exercise, sleep, stress reduction and supplements, where needed, and pharmaceuticals where needed. But they don't start with that, okay, it's an intense focus on prevention and wellness. This trend is going to improve, and we're going to see more and more of these functional health companies pop up all over the U.S. Okay. So all of these. Look, it's a sicker population that continues to generate lab work across the industry. You're going to continue to see a stream of innovations that are going to help propel our growth as blood testing and other specimens takes on more of what diagnostic imaging is doing. Greater adoption of AI and automation. And again, this consumer-focused of functional health medicine should help propel growth in the industry. Okay. So I talked about the market growth rates in each of these segments. Physician market is going to go 2% to 4%, we're committing to 4% to 5%. We're capitalizing on expanded health plan access that I'll talk about in a moment. We still can extend our geographic reach. There's markets in this country that we do not serve very well. And we're going to become a partner of choice for these large enterprise physician groups that continue to emerge. We said the health system market will grow 1% to 2%, we're committing to much bigger growth in that, 5% to 6%. Much of this growth, the reference business is going to grow nicely 2% to 3%, 4%. But much of this growth is going to come from, what we call, again, CoLab services, previously Professional Lab Services. On the higher growth segments. So we have 3 segments that are really going to grow double digit. One is our Consumer segment. We continue to be very excited about that. It grew over 40% last year. Second is a Segment -- Life Sciences companies, pharmaceutical companies, CROs and our own IVD suppliers. And then we have a data analytics business, harvesting that 80 billion test points that I talked about. Our major customers there are really pharma, health plan, the CDC and other state departments of health. Now across all of these segments is our leadership position in advanced diagnostics that Karthik is going to talk later this morning. Kathy and Alex are going to talk about our Invigorate program that helps us generate productivity, always improving the customer experience, always improving the quality of what we do. And again, we do all this and we generate the kinds of returns that I talked about previously. All right. Let me talk about some trends that help us on the physician side and give us a competitive advantage. First is our scale. As I mentioned, we're connected with over just under 600,000 physicians across the country. The goal is to be electronically connected with them through their EMRs. There are 10 big EMRs that are still important, but I can tell you that there's hundreds of other EMRs, have that connectivity capability to connect with all of them, and that's a big source of a competitive advantage. I mentioned we serve half of the U.S. health systems. Many of those health systems on -- or are on Epic. Epic seems to be winning the race in the health system arena, and we connect to all those Epic systems very, very easily. I mentioned we have over 2,000 patient service centers. We're in places in the inset like Walmart stores. In addition to the 2,000 patient service centers, we have 6,000 phlebotomists that are stationed in in physician offices. And I can tell you, every other independent lab out there calls Quest Diagnostics and says, can we leverage that patient service network? And the answer is mostly no, go build it yourself. But from time to time, we will allow people to -- from other companies to come through there, if we believe it's in our own strategic best interest. We have access to over 90% of the lives in the U.S., that's important. It's important for patients that may be in the Boston market in a different time. And in the wintertime, they're down in Florida. Doctors want to know that they can move anywhere across the U.S. and still have the same lab serve them. All of this, by the way, translates into the scale that we have. We are generally the #1 or #2 customer of every IVD supplier that is out there. And what that translates to is a superior cost position that we're able to negotiate with suppliers, which then allows us to bring value back to the patient, okay? What's important to the physician is that their patient gets a low-price bill. They don't want their patients to end up with hundreds of dollars of co-pays and codeductibles or tests that are denied. And so our role is to convince physicians that we're going to bring best value to the patients that they serve. Now in terms of our health plan access. We said earlier in the year on an earnings call that we're back in network with Elevance, on a countrywide basis. We weren't in network in a few of the states, those states being Nevada, Colorado, Virginia and parts of Georgia. Or we were in Georgia, but we didn't -- we weren't in with all of their plants. And then we are now in network with the Sentara Health system. The Sentara system has their own health plan, that is in Virginia as well as in the Carolinas and down into Florida. And all of that gives us access to 1 million more lives than we had in 2024. Our goal now is to go out and capture the physician offices that are serving those lives. Now on the right-hand side of the page, you've all heard of MSAs, metropolitan statistical areas. We -- country, there's more than 50, but we just took the 50 largest MSAs. And we cut them on 2 dimensions. One is do we on dimension, do we have a strong share or presence with them? And that's on the right-hand side. There's 24 that we have a very strong position with today. The other dimension is, is the MSA growing fast? Or is it growing a little bit slower? And that's the up-down dimension. And of those 24, where we have a very strong presence, 4 of them aren't the fastest growing, but 20 are very, very fast growing. Now where we're really focused is on these 14 MSAs that are growing fast, but we have very little presence in those markets today. And so why don't we have presence? One of it could have been access to those patients because we weren't in network with a health plan. So Denver is in that category. And so our goal now is to make Denver a big growth market, now that we're back in network with Elevance. Another one is Columbus, Ohio. Columbus is actually a faster-growing MSA Intel is building a big plant in that market. It's growing fast. But we didn't have great access because the 2 health systems in that market, Ohio Health and Ohio State University Health System, really most of the physicians work for 1 of those 2 health systems, and they're directed to send that work inside the hospital. Well, we purchased the outreach assets of Ohio Health, and so all of that work now flows into Quest Diagnostics. We have a much stronger presence in Columbus, Ohio, and we're using that as a beachhead to grow in all other parts of Ohio. So that's where we'll remain focused. Okay. Look, the chart on the left is no secret. I think we showed a version of this in 2023, last time we were together. No secret that the independent physician market is shrinking, right? Two reasons why. One is people graduating from medical schools today aren't hanging their shingles out and it's just too complicated, right? For individual doctors or small groups of doctors, they try to get access to all the different health plans, negotiate prices. It's just complicated. And many of the older physicians that are in this bucket are selling their practices. My brother laws in OB/GYN. He was part of an 8-person OB/GYN group. They sold it to a big health system in Fairfax, Virginia. Another best run from college, OB/GYN in Detroit market, again, part of a group of 10 OB-GYNs, they sold their practice to a private equity firm. So now by the way, he calls me and asked me things like, well, what does this EBITDA thing mean that this PE firm is always bugging me about? But the independents are just declining. And where are they going? Well, you see the biggest growth is coming from these corporate entities, okay, who are they? you know them all, Summit Health City MD. Locally, it was owned by Warburg Pincus. Warburg Pink has sold it to Walgreens. Oak Street Health, the biggest Medicare Advantage provider of services in the country, now owned by CVS, MinuteClinic owned by CVS. Function Health, I talked about, it's all digital, but it's growing across the country. And then Optum. Optum, as you know, has the largest group of physicians in the country. There's 85,000 either employed contracted or affiliated. It is a large national group. And just recently, we were named as the only first national lab provider to be select by them to serve them across the country. So as these larger corporate entities emerge, we think that's good for our business. We're national, they're national. What do they value? Number one, connectivity integration. They want to play with players that have national scale. Two, is they want great access, okay? They want to be able to send their patients to local patients centers. In some cases, we will put phlebotomists into their practices. They want quality scores. They want metrics. They want utilization studies. They want population health studies. And these are all the things you can do as a large national lab company serving them. So we think it in to their hands. All right. Hospitals, let me turn to that segment now. Look, coming out of COVID, it was a tough story for them on wage and supply pressures. You know what happened to nursing during COVID, it's moderated a bit. There's still workforce shortages. We get calls from hospitals to take on buckets of work for a period of time. It could be a month, it could be 3 months, it could be 6 months. It's things like cytology, they're short of cytotechs. It could be pathology work, they're short of histotechs. It could be microbiology. But from time to time, they're having labor shortages and they call class and say, hey, can you take on this small little book of business for 3 or 4 months. And then obviously, with rising capital costs, the cost of acquiring new equipment to maintain a state-of-the-art inventory continues to go up for them. And so all of these trends continue, and we position ourselves to help these health systems. So again, the 3 types of things we do for health systems today. Number one is just pure reference testing. We chose not to do within the 4 labs of their hospital. Again, it's generally capital intensive, low volume or requires a high degree of specialization that they may not have. The second bucket is collaborative lab solutions. This is Quest Diagnostics in the 4 walls of their hospital. It could be supply chain agreement solely, where we own the equipment and all the supplies running through there. It could be we're providing management services and in some cases, we take on the entire lab staff that's in that health system and hospital. I can say Meridian Hospital, most of you know right here in New Jersey. Got at least 15, 20 hospitals across the state of New Jersey, it's Quest employees inside of that hospital, running those laboratories, working with the clinicians in that hospital to making sure we make the best possible services. The last thing we do with hospitals is we'll embark in joint ventures with them. So Pittsburgh, UPMC, our lab business there is a joint venture with the UPMC Health System. Integris Health System in Oklahoma, our lab system -- we have a joint venture to Integris system. We go to market together in that state. And then in Arizona, we're partnered with the Banner Health System. It's called Sonora Quest, and it's a great partnership that's been with the company for more than 10 years. Now in some cases, again, agreed to buy that outreach book of business. We entered into the markets of Minneapolis with the line of Health System. Columbus, Ohio Health System. And the most recent one, university hospitals, a big academic medical center in Cleveland, Ohio, where we took on their outreach business as well. All right. So just a little deeper dive here on these collaborative partnerships. Here's the things we do, lab management, workforce management, supply chain analytics. Remember, when you're running a hospital lab, you're not billing a third-party payer, right? Most of the work you're doing in a hospital lab are for patients that are in the hospital. The hospital gets a bundled payment for service, it could be a kidney transplant. And lab work is a -- that comes out of that DRG payment. So the real focus when you're running these hospital labs is to manage them better quality at a much lower cost. And some of the things we do around the analytics of what doctors order, for what different types of patients with the same condition. We bring standardization. We help them improve the types of things that they're ordering to make sure that they're ordering the right task for the right patient at the right time. Not too much lab spend, not too little. Always ensure the best quality to ensure that the patient gets out of the 4 walls of the hospital as quick as possible. You can see the growth rate. We started this business back in the 2012, 2013 time frame. It grew to $300 million in 2019. By '24, with a couple of a couple of large relationships, Hackensack Meridian being one of those. We grew it to $800 million. And we're committed to getting this up over $1 billion by the end of 2025. We did 6 -- we entered into 6 new relationships over the last 2 years that are now generating about [ $100 ] of growth in this coming year. n Okay. 3 segments that I talked about that are all going to grow greater than 20%. The first 1 is our consumer questhealth.com. I told the person who runs that business, I'd mentioned that 3 times today. questhealth.com, so that you're all aware. And if you need consumer -- that's where we want you to go. Look, it's a great business. It's a fun business. It gets our brand out there. We ran a little special on St. Patrick's Day, and it turned out to be the third highest volume day that we've had in this business. He texted me yesterday and said he was going to run a kidney special after St. Patrick's Day, so we'll see what business that generates. It's a $100 million business -- of it direct. We have 40 through channel partners. It serves a very important purpose, right? There's people that want to maintain privacy that don't want anyone else to know what they're getting testing for. A lot of that is STD work, right? It's people that are 18 to 26 years old. They're still on their parents' health plan, they don't want their parents to know what they're getting tested for so they come and they pay out of pocket. These are people that are watchful warriors. They have diabetes. They have hepatitis. They have [indiscernible]. They want to get tested more often than what the health plan will pay for. Some health plans that may only pay for 2 A1c tests a year, these people worry about it. And so they come to us once a month to check their A1cs. And the reason they do it is because if they go to the doctor, the doctor writes an order, it's only going to get denied and they're going to end up paying a higher price through their health plan. So they come to us direct to Quest. The second segment is our Life Sciences segment. We do serve pharma. We do serve CRO. We do Phase I to Phase IV. We call it decentralized trials. It could be a Phase I trial, first in body just looking at basic safety and testing. We have a lab closets being administered. And so we take on that type of work. We do companion diagnostic work, right? These are tests that need to be done before therapies given. And that has become a bigger business within Quest Diagnostics. On the analytics side, I mentioned the $40 million segment, again, growing north of 20%. We'll license data or we'll sell data directly to pharma. We'll bundle that data with other medical records and other prescription data, that then is deidentified. And that bundle of data, we sell to a third party who then sells to pharma. The CDC is a customer, right? We have to send the CDC certain information. But the CDC comes to us often and asks about certain disease trends that might be pervasive across various ZIP codes in the U.S. So big growing businesses that are going to generate those 3 segments will continue to grow at over 20%. So later this morning, you're going to hear from both clinical experts here that really define the clinical road maps that we put out in front of physicians and patients. Here's the 5 clinical areas that they're going to talk about. Oncology, Dan is going to keep on our Haystack MRD assay. Advanced cardiometabolic health, if I could make 1 public service announcement, Maurice is going to touch on this, there's 2 very important tests called ApoB and LP(a). You all want to have those done. There's people that have the HDLs -- no, high HDLs, low LDLs that still have heart attacks. It's not just LDL and HDL and A1c, it's more complex to that. And these 2 very important tests, and Maurice will talk about a couple of others. They're really low-cost tests that you just ought to have done to ensure that you are in the right range for each of these, one of which is a genetic market. Kathleen is going to talk about women's health, our QNatal and our QHerit screening test for pregnant women. Brain health, our AD-Detect. This is 1 of these tests that I talked about. When I talked about the diagnostic innovation and how we can do some things that imaging is doing, that AD-Detect is 1 of those. PET CT is a wonderful imaging modality. It can see deep into the brain. It can look for structural and functional changes in brain. But what it can't do is detect amyloid plaque or beta -- tal beta bundles at a very early stage. But these blood tests can. And the point is these therapies that are emerging start to work when these amyloid plaques on these tow bundles first start to develop in the brain. So important that we find that early and not wait until it's seen in in a PET CT. Autoimmune disorders, a lot of these are linked to obesity trends. We've got some tests that help primary care physicians. There's lots of different autoimmune disorders. The important piece is finding out which one the patient has, so you can direct them to the right specialist. All of these areas will generate about $900 million growth as we move forward here. 2024 was an active year from a deal standpoint. Now we didn't walk into 2024 and say, hey, let's do 8 deals this year. Sometimes the deals move at a certain pace. Sometimes you can't roll them like you want. But it was a very, very active year. On the left-hand side, there's really 3 types that we do. One is we will continue to look for regional consolidation opportunities of other independent labs. Quite frankly, there's not a lot out there. Beyond -- and our nearest competitor, it drops off the really, really small labs that are left. Lenco was one of those. It was in Brooklyn, New York. The laboratory shut. We moved all of that work into our Clifton Laboratory. LifeLabs, we talked about in Canada gives us a nice foothold in that country. And then we took on the book of business from 3 large physician office labs in the New York area, okay? These were large physician groups that had POLs. They shut those PLs down, we moved all that work left in Clifton, and you get really strapped down on that incremental volume that moves through. On the health systems side, we bought some small assets from Steward at the very beginning of the year. But the big 3 we did, Allina in Minneapolis. We had a very small presence in Minneapolis before we did that. Ohio Health, again, Columbus, Ohio, fast-growing MSA. And then University Hospitals in Cleveland. Prestigious academic medical center that no longer wanted to take -- reach in their lab, we moved all of that work into our Pittsburgh, Pennsylvania lab. The last thing we do is we look for assets that can improve our capability. PathAI had an anatomical pathology lab in Memphis. It had really nice digital capabilities. And PathAI is still around as a company. We're partnered with them on the use of some of these new advanced analytics and AI to start to look at the digital images that are being created and assisting our pathologist to improve the quality and the productivity of what they do. Now we're often asked is -- those are a lot of deals, is -- what's the size of your funnel look like? Are there still opportunities out here? And the answer is yes, okay? There's only -- we've done 20 different transactions with health systems over the last decade. I've talked about 600-plus health systems. You can see this just pulls that chart from earlier, hospitals still have 35% outreach. So yes, there's still opportunity. And I'll tell you the trend that we see is hospitals are just kind of getting less and less interested in this work. One of the big academic medical center CEOs was speaking at a health system conference recently, he got a question is, well, why did you sell your outreach work to Quest Diagnostics. And his answer was really interesting. And what he said is he said, look, patients don't choose my health system because I have a better lab than the competitor down the street. That's not why they choose me. They choose me because of my neurology capability, my cardiology capability, my cancer capability, by women's health capability, those are the areas in my health system where I am going to invest. The other things, we can partner, we can JV, we can sell. So we're seeing this trend across the country. Now our goal is to go win it organically. I don't want to have to buy that 35%. But in some cases, it's very difficult to grab those physicians to grab the work from those physicians without working closely with the health system. Fresenius Medical Care is a relationship that we just entered into. It will go live hopefully later this summer. I think you're all familiar with them. They're in the dialysis business. There's about 37 million people in this country that have chronic kidney disease that are on dialysis. And they have over 200,000 dialysis patients that have to go to those centers several times a week to get dialysis. Now once a month, those patients also need clinical laboratory testing. And that testing work is going into 1 of 2 very large centers that Fresenius owned. All of that work is now going to go to 1 of 10 regional labs in Quest Diagnostics. It's very common routine testing that we do every single day. And much of that work will be done during daytime hours. As you know, our labs work very, very hard from 9:00 at night to 9:00 in the morning. We still do some work during the day, but this work can fit in nicely during the daytime when the assets that we have are being less utilized. It will bring value to Fresenius. We're going to lower their cost of testing by doing this. So a win for Fresenius, a win for Quest and most importantly, a win for patients who will get better service. Okay. Later this morning, you're going to hear from Kathy and Alex about our Invigorate program. We've been running this program for more than a dozen years. The goal is always improve the customer experience, whether it's the patient experience, the physician experience, always improve the quality of what we do and generate enough productivity to offset wage inflation, offset any price declines of supplies inflation, but just make sure that it's delivering enough value that we can get earnings growth off of the revenue growth. The system focuses really on 3 things: people, technology and process. Every so often, we make big technology change in our laboratory where we get a step function improvement in quality and productivity. And then post that implementation, we drive it across other labs and then it's continuous improvement for 3 or 4, 5 years. until you get that next big step function change in technology, and then it's continuous improvement across all of our [indiscernible]. So they're going to talk more about this, this morning. It's a part fabric of the company. It's what we do every day, again, committed to doing something better today than we did yesterday and something better tomorrow than we did today. You're going to hear more about Project Nova this morning. It's taking a look at our entire order to cash process. We talk a lot about order to cash. What flows through here is there's a patient flow through this process. There's a physician flow through this process. There's a specimen flow through this process. And most importantly, there's an information flow through this process. Let me just walk through that really quickly. When we win a new account, we want to get connected to that physician EMR, so that we always get electronic orders, no paper. That electronic EMR hits 1 of our hubs. And when that patient shows up at 1 of our 2,000 patient service centers, any 1 of those patient service centers can pull that order down, and we can service that patient. We then have to sell to a vehicle to come pick up a specimen. Some of them come to the same location every day. Some don't have specimens, but there's an electronic system that signals where the vehicles need to show up to pick up spending that are waiting. That information, that electronic order needs to get to 1 of our laboratories. So when that specimen arrives at our laboratory, we scan in a little label. We pull that order down, it tells the 4 instruments in the lab that you're going to get some type of test later tonight. Those instruments do the task. The information is moved into our results system. Those results can go to 1 of 4 different places. It's always going to go to a patient, it's going to go to a physician. It's going to go to the entity that pace for the work, whether it's Medicare or United or Aetna. And sometimes it goes to the CDC and other state departments of health. That information then moves to a billing system, which we use to generate a claim to 1 of, hopefully, the commercial payers, Hopefully, they pay the bill. And then ultimately, we have a service center that provides service to both patients and physicians. So it's really just a stream. What it is -- what's the product that we provide in Quest Diagnostics? At the end of the day, we provide data. We provide information. Sometimes we provide a digital image of pathology, but we provide data. And all of this system today, this information flow, it's a multitude of systems in Quest Diagnostics. I listed a few of them here, that are older and that require upgrading. So we've launched this thing called Project Nova that's going to redo the architecture within the company to do 3 things. Number one, it's got to improve the patient and physician experience. Number two, our goal is to retire a lot of these systems, which are costing us a lot of money to maintain. In some cases, we can't find the skill sets anymore to maintain some of these systems because they were written in cobalt over 40 years ago. It will ultimately lower our IT spend, and it will ultimately improve productivity as we reengineer processes across the system, streamline processes that will help us drive productivity. It is a program that will take 5 to 7 years. We'll see benefits along the way. It's not all the benefits at the end as we upgrade some of these laboratories, you're going to see benefits that start to flow through. So Kathy is going to talk later is going to talk more about this this morning. All right. So let me summarize. As I said at the beginning, the clinical lab market is going to remain strong. Utilization, we think, will remain strong, driven by both the underlying health trends that we see in the country as well as the diagnostic innovation that we're bringing to market, like Haystack, like our AD-Detect for Alzheimer's. We've got the right strategy to grow above market growth rates. I highlighted that in the physician and health system. You're going to hear more about this morning about the leverage test that we're developing to drive growth. We are passionate about maintaining the ability to do our own laboratory developed test. As you know, there's -- the FDA has proposed a set of regulations. Unfortunately, we think those set of regulations would slow innovation. You have to remember, the innovation in this industry does not come -- does not always come from our big IVD suppliers. It's independent labs like Quest Diagnostics and others that really bring new laboratory tests to the market. Our operational strategy is designed to improve quality, customer experience and productivity. It's part of the fabric of this company. And we do all this well, and we're committed to 4% to 5% revenue growth and 7% to 9% EPS growth beyond 2025. So with that, we're going to show a little video and then Karthik Kuppusamy is going to come up and start the next section of our program. So thank you. [Presentation]

Please welcome to the stage, Senior Vice President, Clinical Solutions, Karthik Kuppusamy.

Thank you, Jim, and good morning, everyone. I'm responsible for clinical solutions for Quest Diagnostics. As Jim highlighted, we are deeply committed to bringing new innovations to our company. We are deeply committed to science and innovation that helps us solve for unmet clinical needs. So today, we're going to talk specifically about how Quest is uniquely positioned with our clinical solutions model to identify clinical needs in the marketplace. So there are several unmet needs and some of the unmet needs that we look at are clinical unmet need and economic unmet need or an access-related unmet need. So with that, I'm going to share with you what I'm going to cover, along with what panelists are going to talk about. So first we are committed to delivering a most comprehensive portfolio of diagnostic innovation in our company. Jim talked about 5 areas -- there are 5 clinical areas where we are investing and accelerating double-digit growth. Haystack MRD is going to drive revenues in oncology with our legacy leadership in our overall core oncology portfolio. And lastly, by empowering earlier diagnosis and therapy monitoring, we are going to solve clinical -- we're going to improve clinical outcomes as well as economic and patient access related outcomes. So let me start with by saying that when you look at any disease state, any disease state, you have to look at this from a continuum of care perspective. The continuum of care involves risk evaluation, periodic screening, diagnosis, progress, therapy selection, therapy monitoring and flow up care. So maybe let me demystify a little bit. Take for example, cancer care. In the area of cancer care, today, Quest Diagnostics has capacities for prostate cancer for screening. We have screening capabilities for colorectal cancer and we have skinning capabilities for cervical cancer using HPV and PPS mirrors. On the diagnosis side, if you think about blood cancer, where we are trying to identify hematological malignancies, we have a robust portfolio of heme testing, like AML testing, like leucovontage testing to help us with the diagnosis there. And then when you go to therapy selection, we have tumor DNA-based profiling that enables oncologists to actually select the right therapies to be administered for patients. So that's exciting. But in the case of breast cancer, historically and traditionally, the standard care has been mammography, x-ray mammography. So there is a clear unmet need where women would actually prefer to do a blood test rather than x-ray mammogram. So there is an opportunity for Quest to innovate, and we're going to talk a little bit more about that. On a completely different disease state, let's talk about Alzheimer's disease. So people typically have something called mild cognitive impairment, then the dementia and they end up in Alzheimer's disease, right? The standard of care today is actually something called a mini mental state exam. It's a questionnaire. You are asked to draw a clock and you're assessing people with that, okay? So that's what the screening is. Diagnosis is actually done by expensive PET imaging system and then follow-up care and treatment monitoring is actually done through MRI and PET. So that is an opportunity to again help with early diagnosis and assessment of mild cognitive impairment patients. There are more than 17 million people over the age of 60 that could actually benefit from a blood-based testing. So what did Quest do? We innovated in 2022, even before any therapies were available, with blood-based testing in the market, okay? So this is able to dectect amyloid beta -- and other protein biomarkers enabling that. So clearly unmet need that we are solving for that could provide solution for 17 million Americans over 60 years of age. Fascinating stuff. So we know what disease states, right, and we talked about we're going to from an advanced diagnostics perspective. We are focused to 5 areas: oncology, cardiometabolic health, women's and reproductive health, brain health and autoimmune disorders. We're going to hear more about the MRD. I know there's a lot of interest there. So we're going to talk of MRD separately. I'm going to talk about IsoPSA. This was a test that we actually introduced a couple of years ago. So people we all go actually get a PSA test. When somebody has an elevated level of PSA, if there is inflammation in prostate, your PSA levels can actually go up. That does not mean a patient needs to go and have a biopsy. So IsoPSA differentiate between benign and malignant prostate cancer cells, and you're able to detect and send the right patients for biopsy okay, a breakthrough that we have done in partnership with Cleveland Diagnostics. In the area of advanced cardiometabolic, Jim mentioned about ApoB. ApoB is a protein that gets attached to LDL. We all are aware of LDL and HDL. Elevated levels of ApoB in body leads to higher risk or elevated risk of heart disease. So there is a variety of advanced cardiomarkers that we'll be covering. In the women's and reproductive health, we will deep dive with the prenatal genetics. In brain health, we briefly discussed about blood-based biomarkers and we're going to deep dive there. And lastly, the autoimmune disorders. Autoimmune disorders a very complicated disease. It's not 1 disease, it's 100 different autoimmune conditions. It takes 4 to 5 years for a definitive diagnosis, a clear unmet need. So what is Quest going to do about it? We have a unique capability with a panel, which we will talk about, called analyzer panel, to primary care physicians understand and do a differential diagnosis and very, very complex hates that take 4 to 5 years. So specific test in this advanced diagnostics portfolio generated $900 million in revenue in 2024. It's expected to grow in double digits, and we expect to get $1.2 billion or more in revenue by 2027. So pretty strong portfolio where we are invested in. So okay, we know these 5 key areas, we know we need to work on unmet clinical needs. So what does Quest do? How does Quest bring new innovative -- innovations to market? The first thing we do is actually we leverage our IVD players. We see this unmet need. We see a disease strength, hey, do you have your IVD team developing any of these IVD products. They are great. We can bring this into Quest diagnostic FDA-approved. Not always the IVD suppliers have innovating their pipeline because they really want the market to be on a very high scale they put those investments in. In this case, I'm going to show one example which we have brought to market, it's called enhanced liver fibrosis. the ELF test. It's able to understand and detect and stage liver fibrosis on patients. okay? And it's using the power in the blood to talk about enhanced liver fibrosis. The next area is probably the most important way that we develop using our organic innovation. We have talented R&D scientists and franchise team who focus on this unmet need. We develop it organically at Quest Diagnostics, okay? So we have introduced a lot of LDTs, we call laboratory developed tests, in the market through our own scientific team. AD-Detect was actually developed before any therapies were actually available. And I can say there's a new test called PFAS, which is 4 of our chemicals test, which 97% of the U.S. population actually has for our chemicals in our bond, and how can Quest Diagnostics help those people lead a better life. We constantly innovate with our organic R&D team. Number three, we talk to academic partners. We talk to universities., We talk to boutique companies to see if there is something that could be actually licensed from them. One example of that is actually noninvasive prenatal testing for advanced QNatal product that we actually use in market today. This is actually licensed from a company and we have been using this for quite some time. The fourth area is, Jim highlighted, many companies want to partner with us to use our scale and capabilities. If that is a diagnostic innovation that's going to benefit the Americans, we are going to be working with those partners, solving for the unmet need. The example here I would like to highlight is GRAIL’s Galleri test. It's a multi-cancer early detection test that now -- that solution is available through 8,000 access points at Quest Diagnostics, connected with 100-plus EMRs with all the physicians that we serve. So a unique capability that we are bringing to market. So we look at these 4, these are the 4 primary ways we bring new innovations to market. But in case there is not capability available, we go out and acquire that capability. In case there's not enough time to do it internally and we see huge market opportunity. We go and acquire. And one of those acquisitions is the Haystack MRD product, okay? So with that, what I'm going to do is I'm going to go into the panel discussion session, and I'm going to invite a series of speakers first. First, I would like to actually invite Dr. Mouris Saghir. Mouris is an experienced leader in our company. He has been a leading health systems as well as pioneer development of cardiometabolic health in our company. Welcome to the panel.

Thank you.

Next, I would like to invite Dan Edelstein. Dan is the co-founder copter of Haystack MRD. Now Dan leads Haystack MRD at Quest Diagnostics. And Dan worked the Burt Wergelstein, Professor [indiscernible] in Johns Hopkins. So Dan, welcome to the panel.

Thank you.

Looking forward to hearing from you on Haystack. Then we have a very scant leader in our company who have a strong finance operations as. That's Kathleen Valentine. And Kathleen has led prescription drug monitoring for us as well in urology. So today, Kathleen's going to share with us our progress and journey on women to reproductive. Welcome, Kathleen.

Thank you.

And lastly, I'm going to invite Dr. Yuri Fesko. Dr. Yuri Fesko is an oncologist by training. He was the chief of Community Care Oncology at Duke University. And he was an associate professor. Welcome, Dr. Fesko. So I'm going to sit down here with you guys, okay? So I've been standing for a while. But so Mouris, let me start with you. So you have been pioneering advanced cardio health. And over the last several quarters, we have seen double-digit growth in advanced cardio biomarkers. So what is going on? What does Quest Diagnostics are you doing to enable that double-digit growth? Can you share that with the audience, please?

Sure. Thanks, Karthik. Good morning, everyone. So Jim mentioned earlier about bad eating habits, obesity, right? He mentioned the statistics. Over 50% of Americans are obese. Childhood obesity is skyrocketing. All this is leading to the explosion of these cardiometabolic disease, interconnected cardiometabolic diseases that you see on your screen, right? Diabetes, heart disease, kibdisease, liver disease, endocrine-related conditions. These diseases have become so pervasive. Unfortunately, you, me or love the ones that we know, most probably have at least 1 of these. As Jim also mentioned, right, these are things that are good for business, but really not good for health care in America. So to address this epidemic, we came up with our cardiometabolic approach, which actually focus on prevention and early risk identification of disease, and I underline that the prevention and early risk identification of disease. Jim mentioned our focus on prevention. What the advantage of this approach is twofold, first, it's actually nonsiloed, it's interconnected. You know today, unfortunately, health care is siloed. I have symptoms, maybe have diabetes, I go to my doctor, they order a blood test, maybe glucose. If it's high, they prescribe the medication. They probably describe GLP-1 if it's still available in the market, right? Well, if that's not necessarily the best way to do it, right? What we're doing is to really look at this collectively as opposed to siloed approach. We don't want the doctor order diabetes testing and treat and stock. We want them to look at this full picture to -- and that's what we do in this our cardiometabolic approach. We offer these busy docs a quick solution where all of this is happening at the same time. Advantage number two, which is probably more important is that these biomarkers are not your traditional biomarkers that you grew up with, right? This is not glucose. This is not cholesterol. These biomarkers are really early risk identifying biomarkers, advanced testing that identify the risk of disease year before the disease takes place because we want patients who are using our testing, do we know about the risk the prior. So they actually can modify their lifestyle and reverse these conditions before they actually go on medication, before they go into other type of intervention. Examples, I'll give you a few examples, insulin-resistant [indiscernible]. This test actually predicts prediabetes and diabetes years, 10 years before hemoglobin A1c, which today is the current standard of care. If there's one important test in our portfolio, this is probably one of the most important tests because it identifies risk of diabetes. As you know, diabetes is the mother of all diseases. So if we can stop this circle from starting in the first place, then we can stop all diseases from happening. And this is, by the way, a lab to loop test. We innovated it. ApoB. ApoB, as Jim mentioned, as Kotik mentioned, is actually a better predictor of heart disease than doing lipid panel alone, right, which is unfortunately still the standard of care. And finally, myeloperoxidase, it actually predicts heart attacks years before how attacks would happen.

So what so we have advanced part. We are a laboratory company, right, so we have insulin resistance, ApoB, MPO. But really, how much is this penetrated in the market? And what's the runway of growth SP680950996 Associated with these new biomarkers? .

Yes, a really good question. So these biomarkers are still in their early stage of adoption, right? Only a small proportion of the population are using these through the functional medicine providers, those providers that look at root cause. However, things are changing, right? Awareness is increased science increasing. I think you know last year, the American Heart Association came up with their cardio kidney metabolic, which is very similar to our approach. So all of this is increasing the utilization of these biomarkers. So to answer your question, this -- the double-digit growth on the East should continue for a long time as we move these biomarkers from the hands of only the functional providers to the primary care physicians and mainstream medicine.

That's terrific. It's good to see that both functional medicine providers as well as the primary care physicians are adopting this Excellent. So maybe I'll go to Dan next to you. Dan, you are a co-founder of Haystack, leader at Quest Diagnostics for Haystack MRD. So there's a lot of interest even before -- a lot of interest on Haystack MRD. So tell me, what is really unique about Quest Diagnostics' Haystack MRD? And what's going on here?

Yes. Great question. Thanks, Karthik. So I think, first, let's just start with what MRD is, right? And it is one of the most transformative diagnostic tests in oncology today. And it is assisting the physician and the patient to ask some very basic questions that they've been asking for decades. And that is after surgery, did I remove all the cancer, right, is any cancer remaining. And then if a patient go on to treatment, that patient and the physician have an immediate question as to whether or not the therapy is working. And then for patients that are successfully treated, there's always a question as to whether or not the cancer is coming has come back, right? And traditional tools in oncology, like PET CT, protein biomarkers like CEA or CA125, have been used in the past to kind of answer some of these questions. But oftentimes, imaging picks it up when it's a certain size. And protein biomarkers lack the sensitivity and specificity. So that's what's really unique about MRD testing, right? We can get a real-time picture of what's happening with the patient and guide the physician and really adapt to treatment on an individual level for that patient, right? So avoiding unnecessary treatments for those patients who after surgery do not have cancer, and then following the patient through treatment. And what's really unique about Haystack is that it was designed from the ground up by pioneers and genomics from Johns Hopkins, who have been working in both cancer genomics and liquid biopsy testing for decades. And it exhibits a very high sensitivity and specificity for ctDNA for cancer, right? So we're down to 6 parts per million ctDNA molecules reliably detected, which gives physicians and patients the confidence to act on those results.

So thanks, Dan. Look, I really love the limit of detection and 6 parts per million and excellent sensory. So that's great from a technology perspective. But are oncologists and clinicians using Haystack MRD today? Have they used it? .

Yes. Yes. Great question. So we actually just concluded the early experience program, where we made available the Haystack MRD test to a number of physicians and then surveyed them for how they use the test in the clinic and the general experience of Haystack MRD in Quest. And what we found was really encouraging. Over -- multiple physicians at 75 leading academic and community health systems utilized Haystack MRD across 30 different tumor types. And encouragingly, more than 90% of those who were surveyed said that they reported that Haystack MRD results impacted the management of their patients, right? So we're really excited about this. We also observed many patients who -- or many physicians who hadn't used MRD before really speaking to the early innings of MRD implementation in the clinic, right? Many of these clinicians are transitioning to the commercial program and ordering Haystack MRD routinely.

Okay. That's terrific. Look, fascinating technology. I'm glad it's in clinical use and 18 million to 20 million cancer patients are going to benefit from this. Thank you.

Thank you.

So maybe I'll shift to Kathleen Valentine. Kathleen, you actually lead a very large book of women's and reproductive health, right, working with OB/GYNs, MFMs, genetic counselors and everybody. So what is the content of this women's and reproductive health? And why should this audience pay attention to mention reproductive health?

Yes. Thanks, Karthik, and good morning, everybody. In women's and reproductive health, we provide solutions that support each woman's unique wellness, sexual health and family planning journey. We serve about half of all OB/GYNs in the U.S. in order to make sure that we meet the needs of our providers and patients, we're investing in 3 key areas. First, we support guideline-based screening for cervical cancer and STIs. Cervical cancer and STIs continue to impact large numbers of women. And in the case of STIs, it's not just about women STIs. STIs also impact men, and we take care of you too, okay? When it comes to cervical cancer, 14,000 women are diagnosed and 4,000 women die each year from it. We're excited to bring innovation to this clinical area and improve patient care. And we're doing that by implementing Hologic's AI-powered solution for cervical cancer screening. This solution helps cytologists and pathologists identify precancer in and cervical cancer cells. It will also improve efficiencies in our labs. Second, we provide symptomatic solutions that help diagnose and inform treatment decisions for patients who are experiencing pain or discomfort. And third, we provide testing for every step of the reproductive journey, from fertility to trimester based and prenatal genetic testing. Quest is differentiated with comprehensive women's and reproductive testing capability as well as service experience. We're also improving the customer experience for OB/GYNs and patients with enhanced genetic counseling and prior authorization services.

So Kathleen, really broad area. But is there anything specific that's growing in high double digit that we should be thinking about and we should be considering?

Yes, there's 1 area that we're particularly excited about and very focused on, Karthik, and this is prenatal genetics. One trend that we're seeing is that people are waiting longer to have children, and the risk of a congenital anomaly rises with maternal age. This trend increases demand for our prenatal genetics offerings. We're also improving the customer experience, as I said, with additional client services as well as the genetic counseling and prior authorizations that I mentioned.

Great. Terrific. Look, 5.5 million pregnancies in the U.S. and we're going to greatly benefit with the work that you and the team are pioneering on prenatal genetics. Maybe I'm going to shift to Dr. Fesko. So Dr. Fesko, Jim talked about AD-Detect Alzheimer's testing. There are, as I said, more than 70 million people over 60 years of age. So what does Quest done in the area of blood-based biomarkers for early detection of MCI and dementia?

Absolutely, Karthik. So Alzheimer's disease is, as many of you know, there's about 7 million people in the U.S. that are afflicted by Alzheimer's disease, but that's not the end of the story. There's about 12% to 18% of patients or people in the country who are over the age of 60 who have some what's called cognitive impairment. This is the beginning, and a lot of these patients are going to go on to develop Alzheimer's disease. If you can look -- I'm not going to give you a biology lesson, but if you can look at the brain under a digital picture, you would see that proteins are deposited in the neurons and the brain. These are beta amyloid. These are something called the P tau. It happens -- it's sort of like grains of sand they keep building up, keep building up and eventually you clog the drain. Well, same thing is happening in the brain here, where eventually, they cause these neurologic tangles and then you go on to develop Alzheimer's disease. What's really important here is early detection of this. Right now, the gold standard is PET scan, as we talked about. That is a very fancy CAT scan. Well, you say, well, what's the problem with that? The issue is being at Duke for a long time, I can tell you that at the main campus, yes, you can absolutely get a PET scan. If you go out into other areas of North Carolina, it is very difficult to get a pet scan. We've been working on biomarkers, which we did AD-Detect back in 2022. We've had a very good uptake of it. Well, why is that? It's because it's been able to pick up these beginning biomarkers early in the stages. It's also had a lot of uptake with primary care physicians who are looking to see, hey, listen, is my patient developing something concerning here, are they going on to develop the prerequisites for Alzheimer's disease. It can also be drawn at these like 8,000 points that Jim talked about, that's great. That brings in the barriers to basically getting the patient access. Well. In 2025, we've updated it. We added to the beta amyloid, something called phospholated tau. What's really important, you'll see it on the graphic up here is -- so you see a PET scan. PET scan is really done at the time that the patient has symptoms, progressing over into dementia. You basically are diagnosing the disease. What we did with these biomarkers, and we showed it in a clinical study, is that the patients that we pick up that are having these biomarker abnormalities it's correlating with that later PET scan. These patients are going on to develop Alzheimer's disease. At this point, PET scan remains the diagnosis. With the PET, we think that will change over time. But this is allowing the right patients to get into specialty neurologic care to get on these new therapies. The other point that's really important is these new therapies that are coming out, they work best the earlier you pick it up. Once you've lost brain function, we're not getting it back. If you can pick it up in the prodromal phases, these patients seem to be doing much better.

Thank you, Yuri. Look, it's good to see primary care physicians adopting this. As you know, I lost my mom several -- a few years ago with dementia and Alzheimer's disease. So I know I'm grateful what Quest Diagnostics is doing for 70 million people who are more than 60 years of age. So thank you for sharing that. But I do have one more question for you. The next question is actually on autoimmune disease, a very complex disease, so we need you as a.S. clinician to tell us. 100 different conditions, differential diagnosis is needed, there's really less number of rheumatologists. So what is Quest doing here in autoimmune disease to get us better to solve that unmet need for earlier diagnosis?

So if you look at autoimmune diseases, there's a lot of them. There's over 100 of them. They have a lot of overlapping symptomatology. There are diseases like rheumatoid arthritis, lupus. People have heard at these different types of diseases. The issue is because they have overlapping symptoms -- and there's a shortage of specialists, as you said, in rheumatology. Patients are going to their doctor they're sort of saying, hey, I got this, I got that. Doctors having a hard time putting together, hey, listen, is this real, is this not real. We've been sort of listening to what's the problem in the market and have put together an assay that basically helped to put together in a comprehensive assay, hey, listen, does this patient appear to have something that meets the definition for an autoimmune disorder, allow the doctor to then give primary care, get the pit over to specialty care. Allowing the rheumatologists that we do have to see patients who actually have an autoimmune disorder. Stopping the cycle where we've got to years to get to a diagnosis. Well, if you're somebody who has rheumatoid arthritis, that's really unacceptable because your joints are being damaged and we can't get that back. We're not really resting on our laurels there. The other thing that much like we've talked about in some of the other areas, we're talking about looking at assays to help to predict what is the therapy that this patient is going to respond to, rather than right now, a lot of patients go on TNF inhibitors, there's a lot of different ones. Not every single one is going to work. We try one, and then we see if the patient simplest get better, do they not get better. If they're progressing, we try a different one. It will be much better to have, hey listen, the patient is most likely to respond to this class of drug. Also, similar to Haystack, disease monitoring. So today, if you have 1 of these autoimmune conditions, your doctor on a medication, we look to see whether or not you are improving. Well, a a lot of time that how are we determining whether or not you are improving is based on whether or not we're finding damage to either end organs or if it could be an imaging study. Are your joints looking worse? Well, again, these drugs don't really reverse that. they slow it down. It would be much more ideal to sort of say, hey, listen, this patient is showing biomarker that they are responding to this, they don't go on to develop that end organ and bone damage.

So Yuri, I think this is great. I mean, we are using the power in the blood to take it from a 4- to 5-year time frame to diagnosis to, call it, less than 2 weeks or less than 30 days to a definitive diagnosis. This is powerful. So thank you for sharing that. So look, I'm going to come back to you, Dan. Look, we want to keep to a future theme. So I want to talk about futures. So Dan, what is the future of MRD looks like with Quest overall oncology portfolio? How excited are you about that? .

Yes. Great question, Karthik. Very excited for a number of reasons. But I think having a test like Haystack MRD within Quest,is really important to deliver it to patients and physicians, right? So I mean, Quest, as we heard from Jim and heard from you, has really unique ability, unmatched ability in a lot of areas to scale diagnostic innovation. And that's really important for an oncology test, right? So I think of 3 key areas, right? One is connectivity, access and comprehensiveness of Quest capabilities. So on the connectivity side, one really important piece is the EMR integration. So Quest has over 900 EMR interfaces serving over 0.5 million physicians, right? We're building modules in oncology, like Epic Ora and others, to ensure that physicians have an easy process to order and result test. Not just Haystack, but also other tests within the Quest portfolio. And then there is access, right? So access is very important for a tumor-informed MRD test. So we have access to 400 pathologists at Quest Diagnostics, right, to unlock the tumor tissue and the pathology lab, identify appropriate patients for testing, et cetera. As well, MRD testing and liquid biopsy testing for monitoring patients, it's not a once and done type of test. There's a longitudinal component here. So accessing thousands of blood draw points, right, across PSCs and interoffice phlebotomists is really important to create access for patients to conveniently have their blood drawn throughout their care and then post care. And then finally, comprehensiveness. Quest has a great portfolio in oncology, right, from tumor profiling to heme testing, to heme malignancy testing, and Haystack MRD really fits well within that portfolio to create a one-stop shop for the oncologist.

Thank you, Dan. It's super impressive. With Quest having 400 pathologists, 10,000 tissue that's drawn for them being tested per day at Quest Diagnostics, coupled with an MRD assay that's a tumor-informed assay, seems like a tremendous opportunity here. So thank you for sharing that.

Sure. Thanks.

So let's keep with the same future theme. I'm going to come back to you, Mouris. So on the future theme, look, cardiovascular disease has been there for a long time. So what's the future? I talked about a few markets, but is there something beyond that, that you're excited about, that could change the paradigm here in cardiovascular disease, Mouris? .

Yes, absolutely. Don't get me too. I'm actually super excited about the need for better diagnostics to identify the risk of heart disease and heart to attack. I bet many in this room will be surprised -- not the Quest people, the Quest people know this. But the rest of you may be surprised to know that about 50% of heart attack patients have normal lipids. That's staggering. So scientists now, because of this, are challenging the existing hypothesis. Normally just reducing LDL, raising HDL is enough. Jim talked about it earlier. The emerging science is saying it's not only normal lipid, it's not only about reducing LDL, it's not only about raising HDL. It's the quality of HDL is as important. So at our cardiometabolic center of excellence, we developed this blood biomarker to actually measure the functionality of HDL. HDL functions as a vacuum. It goes into the arteries, clear cholesterol, removes it to the liver to be destroyed. So if the vacuum is broken even if the level of HDL is high, the cholesterol is going to still accumulate in the artery and increases the risk of heart disease. So I'm very excited about it.

So I love the vacuum analogy, Mouris, but also -- so this HDL function rather than looking at quantitative HDL, but really functional aspect of HDL or quality aspect, so is this available today? And what's the runway and future growth opportunity on this HDL function?

Yes. So the great news is that the biomarker already exist, we developed it. We actually have an exclusive patent on this innovation. This is of the -- again, the LDT developed test. So what we're doing actually this year and next year, we're building on the science. We are generating additional clinical evidence to demonstrate the association between bad HDL quality and increased risk of heart attacks. Once these studies are done, we will publish them and then partner with external stakeholders to promote this test wider, okay?

I'm looking forward to my primary care physician actually proactively auditing the HDL function test, Mouris. So keeping with the same future theme, I'm going to go to you, Kathleen. So Kathleen, is there any area that's prime for disruption, not only disruption from a clinical standpoint, but provides us some accelerated growth opportunities? anything in the women's health area?

Yes, there certainly is. One important area of unmet clinical need is preeclampsia. Preeclampsia is a severe condition that can develop during pregnancy. And it's characterized by high blood pressure and can raise the risk of stroke, seizures, kidney failure and other problems. It can only be cured by delivering the baby. Of the 5.5 million pregnancies in the U.S. each year, 16% of pregnant women develop hypertensive disorder. Half of them develop preeclampsia. That's more than 400,000 women who are affected each year. Early identification and intervention can reduce risk to the mom and the baby and significantly reduce health care costs.

And Kathleen, is this a blood-based test as well?

Yes, it would be a blood-based test. Again, power in the blood. I took the words right out of your mouth.

Power in the blood. Excellent. Excellent. Power in the blood is again able to diagnose and solve for unmet clinical nature. Thank you for sharing that. So maybe a last question to you, Dr. Fesko. Specifically, look, you and the panelists talked about a lot of breakthrough innovations, exciting, right? As a physician and as physicians at large in the United States, how excited are you and the physician should be about the breakthrough solutions that Quest Diagnostics is bringing to market?

Whilst I'm very excited. I will give you a couple of examples of why. So we're going after unmet clinical needs. Dan talked about Haystack MRD. This, to me, is super exciting as an oncologist, and I'll give you an example of why. So I am a brand-new fellow at University Hospitals in Cleveland, going to do my first bone marrow biopsy. PAs teach me how to do the bone marrow biopsy, great. I get the result back on this lady who's on bone marrow transplant, and the report on her, chromosomal abnormalities goes on for like 2 pages. And I remember the PA saying to me, do you know what that is? And I said I have no idea. What is this? Why is it so complicated? She said, that's adjuvant chemotherapy for breast cancer. That's why this patient is here. So to me, this brings it home. Why do I like Haystack? The fact that you have clinical data to show that in an adjuvant setting, I can potentially withhold chemotherapy on patients that are cured and spare some patients from ever having to go through that experience, tells you why I believe in it. The other thing about this is if you look at -- we've all heard about immunotherapy, great, using the immune system to go after cancer. Wonderful. The issue is in practice, it doesn't work on every patient. To have an assay that helps me to determine, is this chemotherapy actually working or am I seeing on a scan something called -- progression, where the disease appears worse before it gets better because the inflammation comes out, to have a concrete way of helping me to determine what am I seeing here. Because there is nothing worse than putting a patient through additional cycles of a therapy that really isn't working. If you look at other areas, like Kathleen, we just talked about preeclampsia, being able to identify these patients early when we can do something about it before you go into, hey, we have to deliver the baby at 30 weeks, they're going to be in the NICU now for 2 months, that's really exciting to me. So through this, we are delivering it through earlier insights. I think that goes to what Mouris was talking about. Nothing would make me happier. If you look at the roots of a lot of the diseases we've talked about here, whether it's cancer, whether it's autoimmune disease, whether it's Alzheimer's disease, they go back to cardiometabolic routes. So we talked about -- Jim talked about the fact that the country seems more unhealthy. I think through what you're seeing through the EMR connectivity doctors working increasingly in the future with AI, et cetera, to put these biomarkers together is going to give primary care physicians the ability to see the disease before it's happening, to take intervention while the patient is still well, before the patient goes on to develop signs and symptoms of end organ damage, saving the health care system a lot. But also empowering in to live their best life. Finally, I think the thing that's really important to take away from this is that the power of Quest is the scale of the company and the ability to access the patient where they are. There is nothing worse than saying to a patient, hey, listen, you got a travel 2.5 hours to main campus to basically get this test. No, Quest is where you are. And we provide it, because of our scale, at a price point where the patients as well as the providers are -- they're appreciative of the fact that their patient can afford the testing that we're providing them. And I think that's a very important point that is overlooked.

Okay. Thank you, Dr. Fesko. Thank you for sharing a physician perspective of the exciting work that's happening. So look, I want to thank all of you, but Mouris, you are continuously driving breakthrough innovation, so exciting. Dan, I can see the care that you bring the 18 million to 20 million oncology cancer patients, pretty remarkable what Haystack is going to do. Kathleen, you're always collaborating with a complex team of OB/GYNs, MFMs, genetic counselors and even primary care physicians. So -- and you're bringing new solutions, like preeclampsia, very exciting. And Dr. Fesko, you always put customer first, patient first in everything we do in terms of new innovation. So very exciting. Look, at Quest Diagnostics, we are curious, always curious about identifying unmet need. The unmet needs can be clinical, can be economic or can be access related and we bring those breakthrough solutions to market. So I want to thank all the panelists and then be able to take a break shortly. Thank you, everybody. Thank you.

So we're just going to take a 10-minute break. Please be back in your seats at 10:55 a.m. We'll come back with Kathy and Alex. Thank you. [Break]

Our session is about to begin. [Operator Instructions] Executive Vice President, Regional Businesses, Cathy Doherty; and Senior Vice President, Enterprise Operations, Alex Louis.

So good morning, everyone. I'm here with Alex Louis, who is Senior Vice President, Enterprise Operations, and we're going to cover why we believe there is ample opportunity to continue to deliver 3% in annual cost savings while we improve the customer experience and quality. Again, we see ample opportunity, ample runway to continue to generate 3% in annual cost savings and productivity through Invigorate. The improvements will be across the entire order-to-cash process. And our path to achieve this includes standardizing, simplifying and digitizing prices. It includes optimizing quality and productivity with AI and automation and attracting and retaining engaged customer-centric employees. At Quest, we are committed to delivering the promise of a superior customer experience and higher quality at our cost. We believe this isn't an either/or imperative. The enablers include people that are talented and highly engaged, processes that are lean, standardized and digital and technology, specifically automation and AI. As Jim mentioned earlier, we have our 5 Cs. And at Quest, we have a culture focused on continuous improvement across the order-to-cash value stream that again, leverages our people, process and technology. So if we start with the onboarding process on the physician side, we've automated and digitized account setup for the male positions. Why have we done that? To accept orders in a shorter time to enable electronic orders right out of the gate and to free up commercial time to pursue new business. On the order side, we're doing all that we can to drive electronic orders and eliminate every piece of paper. While we're connected electronically to all of our customers, all of our orders are not electronic. On the collection side, we're working very hard to make the job of our phlebotomists easier so that they can be more focused on providing service including treating that patient with care and compassion. As Jim mentioned earlier, we have about 5,000 vehicles that make 73,000 stops per day to pick up our specimens. Here, we're working on reducing unproductive stops and completing our routes in the most effective way. You're going to hear more from Alex about how we're leveraging technology to enable dynamic route optimization. And for testing, we're driving automation and AI, and Alex is going to share a whole lot more about what we're doing in the lab. As you know, it's been our goal to digitize all we can across the patient journey, and that includes billing. We send about 27 million bills to patients each and every year. You're going to hear from Alex how we have improved that digital billing operations experience to improve our ability to collect from our patients. Jim talked a little bit about what portion of the bill is patient responsibility. Well, while it's not all that large, it's really important that we collect that, and we want to make it easy for our patients. And then finally, service. Within our customer service contact centers, we handle about 9 million calls we've deployed an omnichannel strategy to reduce the number of calls per 100 requisitions. And I'm happy to say that we're seeing results. We've increased the number of accounts set up in 3 days by 12%. And again, why is this important? It's so that we can serve our customers faster. We've increased the electronic order rates by 3%. Now keep in mind, when we think about an electronic order, it's about $1 a less costly than a manual rep, so clearly important to our cost structure. Relative to let, Here, we've been able to eliminate administrative tasks for our phlebotomists so that they can take care of more patients. We've reduced the number of nonproductive stops by 14%, and through automation and AI, we've improved productivity in the lab. And lastly, total calls have decreased by 11% per 100 acquisitions, a result of our omnichannel strategy. And while we improved all that productivity, we're also delivering on excellent patient and physician experience. with an 89% customer patient satisfaction score and an 86% physician satisfaction score, and that represents the sum of the top 2 scores on a 5-point scale described as extremely satisfied or very satisfied. And a patient NPS score of 74, which compares favorably to the health care industry average of 58. Now I'm going to turn it over to Alex, who's going to share more specifics on how we are transforming the order-to-cash value stream.

Thank you, Cathy. Good morning, everyone. I'm really excited about how we are transforming operations at Quest to drive the superior customer experience at the same time as an optimal cost base. So what we're doing? It always starts with the patient, right, we're starting with the patient. We're transforming the patient journey by simplifying and digitizing the journey and make it simple, where it counts, where it matters most for the patient, which is the collection and to reporting. We do, as Jim said, around 250,000 blood draws every day, and we want to make sure every draw is as efficient as possible for the patient but also for the employee, for our phlebotomists. It all starts with the previsit, where we are digitizing the customer interaction to keep patients things informed and prepared before they visit us, which includes, of course, appointment scheduling, which is important for the customer, but also for us to schedule our workforce. But it also includes collecting data early information about the patient, insurance information, even payments that are required. We want to do this upfront at the home of the patient before he comes or she comes to the patient service center. So that when the visit happens, the patient only has to check in at the kiosk and can go all the way go to the blood draw and there is no administrative work. We recently did time study, and while our encounters are only taking around 15 minutes on average, half of the time is still nonvalue-added work, admin work, data entry, checking information. We want to get rid of that admin work to make the encounter faster. Another challenge we have is faxes. We still receive around 3 million faxes from doctors today. They like fax orders. And today, a phlebotomist has to find the fax, retrieve it, enter the data into the system, so we can create an electronic order, it takes a lot of time and it's inefficient. So we're using AI technology now to automatically identify faxes, extract information from the fax into the systems. So when the patient walks into the draw room, the phlebotomist has all the information on the screen and can start drawing. Our key patient satisfier is the post-visit process to get the report. So here again, we're streamlining that patient access to results and engage the patients through the process. Like in Amazon, where you exactly know when to expect your parcel tonight or tomorrow morning, we are now providing a turnaround time expectation to our patients that they know when to expect the result. And then we have real-time communication using text or e-mail when the result is actually ready. So the patient doesn't have to call the doctor or wait for a call, they have full control on when you see their report. That's not only driving patient satisfaction. It also drives less calls into our call center because today, a lot of people call us, when is the report ready, when can I see it. Now it will all be available online. We're transforming logistics. We heard earlier, we have thousands of cars driving more than -- a little bit less than 0.5 million miles per day to pick up specimens and bring them to our labs. That's a very complicated lab logistics network, that today is still optimized manually. We have a fleet of people, a group of people that plan, track and optimize our logistics network, which is inefficient and expensive. We are currently, this year, implementing a brand-new logistics suite, a software that goes end to end from order taking to route planning, route optimization, communication with drivers and even integration of third-party couriers. But what I'm most excited about this new solution is the dynamic route optimization that Cathy talked about. As we use Waze or Google Maps at home, we will be able to dynamically real-time optimize the fleet of costs that go and pick up specimens, which in the past was not possible because technology was not ready to cover the complexity we have, but now we are ready. So we will drive -- we will reduce the dry -- the miles driven significantly, which is good for the drivers. It's good for our fleet. It's good for our P&L, but it's also good for the environment. Now about 80% of the pickups that we do every day are scheduled are routine. We know that there's a sample so we drive there anyway. But around 20% of our pickup, the customers still call us to say, yes, we have a sample please and pick it up later today. So we have a call center that does nothing else and receive those calls and then dispatch the drivers, which is, again, inefficient. So we're now using AI, voice recognition and some GenAI capability to replace that call center over time with virtual agents so that we can still continue the service of customers being able to call us, but it will be automated and simplified. We're transforming billing, and obviously, billing is a key process for Quest because we want to be paid for the work we do. And again, as for other processes in the patient journey, we are trying to create a smooth and digital journey for the patients. So we are improving currently our mobile-friendly digital billing experience on MyQuest. That includes bill lookup, shopping cart like experience for the customer. So again, he's used to Amazon, so he has a similar experience in our MyQuest site. And the convenient onetime verification. Again, make it simple and smooth for the customers to pay their bill. We're also working hard on our denials. We have a net denial rate of around 12%, which triggers a very manual and labor-intensive process of figuring out why do we get -- why do our bills get denied. So we have, again, a group of people analyzing that data and trying to push down the denial rate to the 6% that we are currently seeing. That's inefficient. So we're using AI, again AI tools, to go through a vast amount of denial data. Take the claims and the claim response information, try to understand what are the trends that drive denials. So that we can recognize those trends not in a week or in a month, because we have to manually analyze it, but in a day or 2, because it's AI. And that helps us to inform our upfront editing and tailoring process and go out and get these payable codes from our physicians faster. Cathy mentioned it, we are also transforming our clients operations. And we do do 3 things. The first one is obvious, we're trying to avoid people having to call us by delivering the service we have to deliver and by providing information proactively. But still, we have around 13 million encounters every year where people ask us a question through phone or other means. And our multichannel strategy is really all about driving the number of calls down and moving those interactions to cheaper channels like e-mail, chat and other digital means. The third lever, if people still want to call us, as in logistics, as I said earlier, to use a virtual agents and AI to at least replace the simple calls with digital solutions. So we are making good progress. Our goal is to reduce the cost per 100 reqs from 6 in 2023 to around 3 in a couple of years. We want to half the calls we received per 100 reqs. And a key driver for that strategy is our recent upgrade of our technology. So we have changed our telephony system across all of Quest. We implemented in -- and we also implemented Salesforce as the tool that our agents use to answer customers' questions. So our customer service agents and our sales people have now the same database, the same tool, Salesforce, that they use. So we have fully integrated data, which makes our agent much more efficient. Also, Salesforce will allow us to use the Salesforce AI capability going forward. So we can, again, drive productivity of our call center agents. Just 2 examples. Number one, AI will help us to summarize calls. GenAI can do that for us, including the tone of a call, the mood of a call and give direct real-time feedback to the agent. But AI will also help us -- help our agents with the next best action. So the AI system actually provides guidance to our agents and what they should be to call, on the live call with the patient, again, to make that call quicker and more productive. And of course, and I'm going to do a deep dive on the lab. Of course, we are transforming the way we operate the tests in our lab network. Around 10 years ago, we started our automation strategy with 3 major labs. Marlboro close to Boston, Clifton here in New Jersey close by, and Lenexa in Kansas last year. And what we have done so far, what we call end-to-end full automation. So these labs are fully automated from the moment the specimen arrives in specialty management until the storage. These 3 labs have a couple of things in common. They are very large, high volume, high throughput, but they also have a big open layout. So it's easy and economically feasible to implement a full end-to-end automation, which is an expensive thing to do. But not all our labs in our network have that flexibility or that size. So evolving our automation strategy to a more modular automation strategy where we automate islands of automation, islands of processes in the lab, which makes it more flexible and sometimes also more cost effective. We basically have 4 elements that we need to think about. The first is the front end, specimen management, where the specimens arrive in the lab and are treated are received, and are treated and prepared for the analytical process later on. We are right now deploying what we call the front-end automation, which is automating tech ops. It's a lot of liquid handling and sorting. We're using the Roche P612 instrument to automate that process, which is a very labor-intensive manual process today. We have done 7 labs last year, and we're going to continue to deploy this Roche solution in 3 more labs this year, driving productivity of 10% to 20% in that very labor-intensive department. The other department at the front end is accessioning, and I'm going to talk about that in a second. After the specimen management process is the analytical process where we do test. And the good news is our suppliers are today already automating many of these analytical equipment today. So we are just working with our suppliers to make sure whatever automation they are building for us is delivering to our specs and helps us drive flow and productivity. Storage and retrieval is a process at the very end in the lab, and it doesn't -- it might not sound like much. But the fact is we have to store samples around 7 days in average after we have done the test because there might be a retest or an additional test at the doctor orders. So we store 4.5 million samples every day across our network. And even worse, we have to retrieve 130,000 samples every night because of a retest or an add-on test. And that is very manual except in the 3 fully automated labs. So we are working with suppliers to build automated storage and retrieval system. Imagine a small warehouse, small fully automated warehouse for tubes, are we going to start deploying those into our labs, again, to optimize that process and to reduce our dependence on manual labor. And last but not least, transportation, if you want to get rid of conveyor belts, or people pushing cards, we need to find creative ways of transporting samples through the lab, and I'm going to talk about it in a second. Now some of the solutions over some of these challenges, there are solutions on the market, like the Roche B612. But for many of our opportunities that we have identified, there is no solution, there's no off-the-shelf product. So we have built an automation team that works with world-leading automation and robotics companies, like ABB and others, to build bespoke automation solution for Quest that only we will have in our labs and they will create a clear competitive advantage in our operations. Now let's go through some of these examples on where we're driving automation. The first is accessioning. So in the lab, when the specimen arrives from logistics, we have to do some manual work because 50% of our tests are not drawn in our PSCs, but they are drawn in hospitals or physician offices. So we have to do a couple of quality checks. Especially, we have to put a bar code label on it because these cubes that come from third parties. They don't have our automated -- our barcodes that our automated system need. So like this gentleman that you see, we have around 1,900 people in our labs across the network that every day and night, have to receive those samples, check them, check if the information on the barcode on the sample is the same as on the paper and do a couple of manual steps. And this is very inefficient. And of course, it creates a huge stress on labor. If we have callouts, if we have shortages, if you have high attrition, which we do in specimen management, that process become very inefficient. So what have we done? We have worked, as you can see on this video, with a local automation supplier to build a robot that completely automates the entire accessioning process. You still have an employee here, as you can see. He still has to open the bag and pour the tubes into the tray in the robot. And he also has to quickly scan the paper so that the robot can link electronic order and the information on the tubes, but all the other manual steps are taken over by the robot. You can also see that the robot has to trays, so the employee can actually manage 2 customer orders at the same time. This will drive productivity by a factor 3. It will also change the profile of the draw, of that accessioning station, that people who have done a very manual job in the past now become managers and supervisors of a collaborative robot, which is very exciting. We're going to start deploying this solution later this year. We're currently testing it in Clifton to make sure it works well. I talked about transportation. This gentleman here and many others in our labs spent their whole day collecting specimens at the front end of the lab and then transporting it with trolleys through the different processes in the lab. They walk between 3 and 10 miles per day, which is good for their steps, but it's not very efficient and it's pretty expensive for us. So we're working on solutions that don't require conveyor belts because again, they are expensive and inflexible, but we are trying to work or we will work with collaborative cobots that will help us transport these samples through the lab. In this video, you see one of the cobots that we are testing right now in the Clifton lab, and it's empty because we are still teaching it how to operate. So this is a very early pilot. But this robot will pick up specimens in specific management, transport them to the molecular department, where we have a work sell of 22 Panter equipments that do all kinds of testing. And the robot will not only transport the specimen, but also load and unload the equipment. So there is no person anymore involved in that entire process. And once we are able -- and once the process is stable and it works well, we will add supplies and reagents to the top of the robot. So it's not only about specimens, but he will also load and unload supplies into the machine and completely automated work cell. That's what we mean with cobots. And again, we're going to expand that use of cohorts after the successful pilot in Clifton this year and over the next couple of years. Now QuantiFERON is the third example I'd like to share with you. It's -- and again, a very complicated test. It's a tuberculosis test that we run millions of times in our network every year. It's very manual. We have 75 people in all our labs together that have to manually prepare the test for the analytical equipment. Because the issue here is that we receive a model tube from the patient, but we have to split that tube into the other tubes because they go to 4 different equipments for testing. So there's a lot of liquid handling. But again, there's a lot of bar coding, a lot of manual steps involved. And we have built a robot now that completely automates that, very similar to the accessioning station that you have seen earlier. So in the video, you see the prototype again, that is being deployed right now in Clifton. This equipment has 4 arms, so it's going to work faster. It takes the tube. It puts it on a little pedestal. It checks the volume of that sample. It takes the tubes to empty tubes, puts them onto a rack and prepare everything for the liquid handling. And at the same time, puts a barcode, as you can see here, it puts a barcode on every tube. And that might seem simple, but it's very important that the barcode is actually very precisely put on the tube. Otherwise, the automated equipment later on cannot read it. So this will not only drive productivity and speed, it will also drive quality in our processes because the robot is extremely precise and we will not make any mistakes. So we're going to drive processing speed in that department by factor 2.5. And again, we are piloting this right now, and we're going to deploy it later in the year after a successful pilot. Now Jim talked about digital cytology before. So we're not only automating manual processes, but we're also automating intellectual process where our people have to use their brain. And this is an example of digital cytology, our cytologists have to look at slides the whole day on a microscope, which is a pretty tough job to do. In addition, 28% of our cytologists are close to retirement age and it's very hard to find a new generation of cytologists. So we have a staffing challenge at the same time. So digital cytology will drive productivity of that very critical resource by 43%. What happens is that slide is digitized. It's made to a picture so that the cytologists can see it on the screen, as you can see in the video. And not only is it easier to see, AI will also count the cells, AI will identify abnormals already and sort them out so that the cytologists already gets guidance from the tool, where to look, where to find and diagnose a potential illness. Again, speed, productivity, but also medical quality. Medical quality will be a huge factor in digital cytology. We are testing the solution that is FDA approved -- has been FDA approved recently, in some of our labs, and then we're going to deploy it to our entire network this year and next year. So I hope I could show my passion about all the transformation we do across the value chain at Quest. I'm really excited about what we have done and what's to come. And I'm handing over back to you, Cathy.

Great. Thanks, Alex. And that is really amazing how automation and AI is really helping, again, improve productivity, but more importantly, improve medical quality. In addition to all that Alex shared, we're also modernizing our underlying systems across the value stream through Project Nova, and Jim talked about this earlier. It's not just our LS system, but it's every element of that value stream process. And it's going to enable us to continue to transform our order to cash process. And what I wanted to do is provide a little bit of context around the operational benefits. For example, when we think about a customer that sends us a specimen today, that one specimen could require testing at our esoteric operations, where we do advanced testing, as well as at our regional business units where we do routine testing. Today, when we think about that one specimen and we think about the process that it has to go through from an accessioning perspective, it gets touched multiple times, right? And when we think about the state of tomorrow, that specimen will be accessioned onetime, touched one time and flowers through our system, thereby creating productivity improvements. When we think about launching all the innovation that Karthik and the panel talked about, or we think about productivity improvements that we make each and every day, we can't do anything without requiring support from information technology. And when we think about that support from information technology today, it requires us to touch every system within the region, within every region, right, or a system within the esoteric operations. Tomorrow, we'll make that one change within IT, and that change will be deployed across the enterprise all at once. It's going to improve the customer and employee experience. And that's going to be enhanced by the recent collaboration with Google Cloud that we recently announced that's going to enhance and streamline our data management and improve data analytics. And this is going to be the foundation for us to leverage generative AI. Of course, it's going to enable us to lower IT spend and, as I mentioned before, improved productivity. Now we've talked a lot about process and we've talked a lot about technology and super excited about all that's getting done there. But it's really our people, specifically our frontline, that is critically important to our operations. And we're investing in them and our culture, and we're doing that through targeted retention programs, targeted wage adjustments. Clearly, we're making every job easier and better for our employees. I think Alex mentioned a whole lot of examples there. And we're investing in their development, to drive highly engaged people who are empowered to problem solve each and every day. And we're seeing results. We have a highly engaged workforce, and we've reduced attrition by greater than 5 percentage points over the last 2 years. And while we're not at pre-pandemic levels, we do expect to gradually improve attrition over the next several years. In summary, our operational strategy is focused on improving quality, improving the customer and employee experience and productivity. We believe there is significant opportunity to continue to do that. And standardizing, simplifying and digitizing our processes, optimizing quality and productivity with AI and automation, and attracting and retaining engaged, customer-centric talent is the path forward to continue to deliver that 3% in annual productivity savings. So thank you.

Please welcome to the stage, Executive Vice President and Chief Financial Officer, Sam Samad.

Good morning, everyone. So you've heard from Jim on the strategy and the market for Quest and other labs. You've heard from a really exciting panel that talked to you about innovation. You've heard from Alex and from Cathy around all of the operational improvements, the automation, the quality, the productivity, everything that feeds into this Invigorate that we talk about and also all of the continuous improvements we make. And so this conclusion of our presentations today, we'll be talking about the financials and the long-term outlook. So 5 key highlights that I wanted to focus on today, First of all, our long-term outlook calls for 4% to 5% revenue CAGR beyond 2025, high single digit, 7% to 9% adjusted EPS CAGR. I want to talk a little bit about our track record of generating revenue growth and profitable growth as well, so EPS growth. So I'll spend a few minutes on that. I also want to focus on capital deployment. We have a balanced capital deployment approach with a focus on returning the majority of our free cash flow back to shareholders. That's something that we've definitely have proven over the last 10 years, and that's a commitment that we still make going forward. I'll talk a bit about Project Nova. You've heard from Cathy, you've heard a bit from Jim on it. I'll talk more about what's embedded in our outlook and what this yields potentially in terms of improvements, both qualitative, but also when we see benefits from this. And we are committed to operating margin expansion beyond 2024. We continue to be committed to this, both in '25 and in the long-term outlook. In terms of track record, I think this speaks for itself over the last 5 years since 2019, pre-COVID, we've generated 5% compounded annual growth rate on the top line, and that's driven by organic growth as well as some M&A growth. Within that, we've generated roughly 6% in terms of adjusted EPS, and that's driven by the growth that we've seen on the top line, as well as shareholder initiatives, share buybacks that we've done as a result of the outsized contribution from COVID revenues that we've seen over that period. We returned majority of that back to shareholders per our commitment. And we've done that in a tough period, in a period where we've seen really high inflation, both labor inflation and other materials inflation. We've seen high turnover. We've seen health care inflation as well and health care costs really expanding over that period. And in general, we've seen macro headwinds over that period. But yet, we continued to live by our commitment to drive profitable growth on the bottom line. And it's not only EPS, it's also total shareholder return. If you look over the last 5 years, we have actually generated -- and we're comparing here to the S&P 500 Health Care, so our peer set in the S&P 500. We have overperformed over the last 5 years in terms of what we returned from a shareholder return perspective. So we're second quartile performance. If you look at it over the last 3 years, we've actually doubled the return of the S&P 500 Health Care, 40% total shareholder return. And if you look at it over the last year, we've actually significantly outperformed our peer set as well. So -- and with first decile performance over that period. So proud of the performance that we've generated and that we've driven as a company. Today, I'm reaffirming our 2025 full year guidance that we shared back on the Q4 call earlier this year. Our revenue for the full year is $10.7 billion to $10.85 billion with a midpoint of $10.78 billion or 9.1% growth year-over-year. Our EPS, we're reaffirming our EPS commitment to $9.55 to $9.80 with a midpoint of $9.68. The assumptions that underpin this guidance are largely unchanged from what we shared on the Q4 call. Roughly 3% organic revenue growth. We have talked about Haystack and we shared today all the exciting things around Haystack that Dan walked us through. So Haystack is expected this year to be less dilutive than what we saw in 2024, as we've launched now the assay and starting to see the uptake. We have a placeholder in our guidance in these EPS expectations of $30 million that relates to -- $20 million of which relates to Project Nova and roughly $10 million that relates to the lab developed test regulations that the FDA put in place back in May of 2024. We are expecting operating margin to expand this year versus last year. And we're also expecting, from an interest expense standpoint, approximately $275 million of interest expense, which is a significant growth, almost $75 million growth versus 2024, given the debt raise that we did to acquire LifeLabs and the prefinancing of the debt that will mature this month. Tax rate is approximately 25% and 114 million approximate share count. Let me turn to capital deployment and looking here retrospectively over the last 10 years. As I said, our focus on capital deployment is, #1, a balanced approach, investing behind the business, returning excess cash to shareholders, with a commitment to return the majority of our free cash flow back to shareholders. If you look at that over the last 10 years, we've lived by that principal or those principles -- we've generated approximately $15.4 billion. The majority of that being operating cash flow over the last 10 years. We've had a balanced philosophy of -- we've invested roughly $8.5 billion. We've returned $9.1 billion for a total of $17.6 billion between invested and returned. And you can see the categories there in terms of how these -- how that deployment has been across the investments and the returns to shareholders. And importantly, since 2011, we have increased our dividend every single year with a 16% CAGR in terms of dividend growth. So our commitment to our dividend is very strong and will continue as we look forward. And in terms of returning the majority of free cash flow to shareholders, as you can see here over the last 10 years, we've generated approximately $10.7 billion of free cash flow, and we've returned over that period, the 10-year period, approximately 85% of that free cash flow back to shareholders. You can see that almost every single year, we have returned the majority of cash flow back to shareholders. The only exception being 2020 when we had COVID. Now as we look forward in terms of our capital deployment over the next 3 years, here are some key expectations around how we will deploy this capital. First of all, we will generate between $4.5 billion and $5 billion of operating cash flow, and this is looking at the period between '25 and '27, so that 3-year period starting this year. We expect to invest in the business in the form of capital expenditure is somewhere between $1.5 billion and $1.7 billion of capital expenditures. This is slightly elevated from what we've done traditionally in a 3-year period. And that's driven by a couple of things. Number one, acquisitions that we are making in the business that we've made in the business, LifeLabs and the other acquisitions that we talked about earlier. And #2 is Project Nova that I'll talk a little bit more about. That nets somewhere close to between $3 billion and $3.3 billion of free cash flow. And then in terms of how we invest and then return that back to shareholders, the expectation over the next 3 years is a 1% to 2% revenue growth from acquisitions. And to drive that, we have a $1.5 billion M&A capital allocation that we have in our capital deployment outlook. We have a commitment to our dividend, as I said earlier, so $1 billion dividend outlay over the next 3 years, which represents steady annual growth of our dividend. And then we have roughly $700 million of share repurchases. Again, this is cumulative over the 3 years, which is really to offset option dilution and make sure that we have our net share count remains unchanged. So that's how our capital deployment outlook is between '25 and '27. Now we talked about acquisitions, and I want to touch on a couple of quick things here. First, with regards to the focus, how do we focus our capital on acquisitions? What do we target? We target 3 key areas of 3 key categories. And I think Jim has already commented on that, but it's important to reinforce this. Regional independent labs, #1 is 1 big focus for us, accretive they drive real value for the business, high contribution margin. Health system outreach labs is another key priority for us. You can see that we did 4 of those. We closed 4 of those in 2024. Again, highly accretive. They drive immediate accretion within a few months after we close and integrate the acquisition and really important for our business as well. And then the capability building assets. We talked about PathAI Diagnostics, the Memphis Lab earlier. There could be other capability building assets that we've done over the last few years like Haystack, for instance, those are fewer and further between. They have to have real importance and strategic fit with the business. Now we look at 2 key criteria in terms of how we evaluate these acquisitions, and we're incredibly disciplined when we evaluate every single acquisition that we look at. Number one, it has to be accretive to adjusted EPS in year 1. That's a key requirement that we look at. Number two, it has to drive a 10% ROIC, return on invested capital by year 3. So we are very disciplined when we look at acquisitions. We look at them by that lens. Almost every single acquisition that we do has to really pass muster and has to qualify across those 2 criteria that we do. There will be exceptions like Haystack was an exception because it's a pre-revenue acquisition, but we think there's a tremendous growth in the market and tremendous opportunity for that assay to capitalize on. Project NOVA. So we touched on this, Cathy touched on this. This is really the project to modernize the entire order-to-cash end-to-end process. Everything from onboarding a customer, ordering all the way to billing. And it's really touching everything that we do through that order to cash process, as I mentioned. We expect it to net not only qualitative improvements to the customer experience, through the employee experience in terms of simplifying their workloads and improving productivity and to the patient experience. But we also expect reduced technology operating costs. So hard savings. And accelerated revenue opportunities and potentially margin enhancements. So this does have direct value to the business. We do expect the benefits to start ramping in 2027. This is a project that will take -- that we expect to complete by 2032, so somewhere around that time frame. And we'll have a cost -- the project-related costs are somewhere between $250 million to $310 million, which is all factored into this outlook that we're sharing with you today. It's a mix of roughly 60% capital expenses and roughly 40% operating expenses. And again, all of that is baked into the long-term outlook, which contemplates Nova. We're excited about this. This is a big project for us. As I said, it's going to net some pretty significant both customer experience improvements, but also hard benefits as well. So the long-term outlook. We are committed beyond 2025 to a 4% to 5% compounded growth rate on the top line with a contribution within that of 1% to 2% growth from acquisitions. We are committed by the end of 2027 the 75 to 150 basis points of operating margin expansion, we are committed beyond 2025 to 7% to 9% CAGR on adjusted EPS and the expectation is that free cash flow grows commensurate with earnings growth as well. And from a shareholder return perspective, the 7% to 9% plus our dividend yield results in high single-digit to low double-digit shareholder return. The assumptions behind this. We talked about acquisitions. Invigorate savings, again, we continue with the 3% expectation at least that we expect to drive within our business, all the great things that Alex talked about in terms of the improvements, the automation, the digitization, the AI that we inject into the business. It was a great look in terms of how do we actually realize those benefits. And that drives 40% contribution margin on the revenue growth that we get. PAMA is a big question mark. It's basically factored into this outlook at the low end. So if PAMA does return in 2026, we do expect that we can achieve this outlook, but on the low end of the range, whether it's the top line on EPS and in terms of the margin expansion improvements. We've talked about Project Nova. This outlook does reflect the investments. And then in terms of tax rate and share count, it's really consistent with what we shared in our guidance for 2025, approximately 25% tax rate, approximately 114 million shares outstanding. Talked about the free cash flow commensurate with earnings growth. And then from a leverage perspective, 2.5 to 3x is our leverage that we expect over this outlook. It really reflects the optimal leverage for us to give us the flexibility to grow the business and at the same time, attract and generate a positive attractive return on capital or cost of capital. So to reiterate, long-term outlook, 4% to 5% and 7% to 9% on the adjusted EPS line. This is for beyond 2025. Hope I've conveyed to you our track record of generating not just growth but profitable growth over the long term. We've talked about our balanced capital deployment philosophy, investing in the business, returning the majority of free cash flow back to shareholders. That's a commitment that we take very seriously and that we continue with as we go forward. I talked about Project Nova. And then, as I said, we are committed to continuing to drive operating margin expansion in this business. So thank you very much for your attention this morning. With that, we will now go to our Q&A.

At the end of the day, we'll do the Q&A. Down to Elizabeth here.

[indiscernible] But how do you think about the main drivers of that operating margin from 2025 to 2027 or not at the end.

Yes, sure. I mean as you said, Project NOVA starts to drive some benefit in 2027. But let's talk about some of the key ingredients of that margin expansion. I mean, #1, volume growth is going to be critical, right? Continuing to drive 3 to 4 -- approximately 3% organic growth, 1% to 2% growth from acquisitions. With the Invigorate initiatives that we have, that's going to drop at a 40% plus contribution margin, so you drive margin expansion as a result of that. Pricing, we expect it to be, I'd say, flattish over the outlook and the ingredients within that are health plan pricing is positive, it's favorable. It's modestly favorable, but then we have some pricing pressure on the hospital side. But if you put pricing all in kind of 1 bucket. It's flattish with a potentially swing of plus or minus 30 basis points on either end. So again, with the assumption of pricing being flattish, you can continue to drive operating margin expansion on the volume growth that you get. We talked about invigorate the 3% offset to all of the inflation and other costs that we have, that really helps us continue to drive contribution margin expansion. So those are the key ingredients. That's what really helps us drive it. Now I'm sure you'll ask next, what about PAMA and whether there's a price decrease on the Medicare part of the business. I mean if that does happen in 2026, it will be challenging to achieve on an EPS basis, the 7% to 9% that we talked about in that year. But over a 3-year period and beyond 2025, we are committed to achieving the low end of the range if PAMA does happen with a cut that's approximately $100 million impact on our business. We are still committed over a 3-year period to achieve the low end of the range, both top line and bottom line and operating margin expansion.

I mean just interject with respect to PAMA reform. So obviously, there's new Senate leadership, so all the Senate committees that weigh in on this are new house obviously stay Republican, but there's still changes in the committee makeups, the 2 committees in the house, the 1 committee and the Senate. So our trade association is hard at work. I would expect in the next, let's call it, 6 to 8 weeks that we'll have a proposal in front of these committees. You put it in front of the committees, the committees review it, but we're going to push really hard for a permanent fix, right? This has been going on for 5 years, right? The last cut we took was in 2020. It's been deferred 5 more years. And it makes it difficult to run the business as we get into the October time frame and try to figure out, are we going to get that cut and not get that cut, have to adjust our operating plans. So we're going to push hard to get it done this year.

Actually, I had a couple. Jim, first, just on Canada. You guys laid out the 79% that's hospital or public health. Is there anything we should be aware of either structurally regulatory-wise that either creates disproportionate opportunity or challenges in terms of trying to further grow what is a faster-growing market?

No. I think if you looked at the U.S. market, 25, 30 years ago, you would have seen the same thing, right? All the hospitals were capturing most of that work independent labs, especially the 2 nationals. We were very small at that point. But things changed over time. And why? Because the larger national independent labs figured out how to do things more efficiently than the smaller individual hospital labs. So is there opportunity over time to expand a presence beyond British Columbia and Ontario? The answer is we hope so. But remember, it's a national health system up there. It's a little bit different than the U.S. So it could take some time. But they're interested in the same goal, right, is more better outcomes, better testing and more efficiency.

And then just the 2 other quick ones I had. The upper left 14 MSA quadrant. When you think about further growing in that -- is it fair to think the biggest impediment is more skewed towards an ingrained health system as opposed to your insurance coverage? And then the second question is from connectivity and EMR integration standpoint, can you give us a sense of where you are either as a percentage of your hospitals and docs or whatever metric things helpful.

Yes. So if you look closely at those 14 MSAs, it's generally not health plan access, okay? It was with Elevance in several markets. We talked about Denver, Las Vegas, Nevada. We were impeded by not having those lives covered. We're over 90% right now. So there's a couple of markets I can think of that we can't play in too well because we don't have access to the lives. The biggest impediment is I showed that picture of independent doctors, corporate-owned doctors and hospital and doctors in some of those MSAs the independents are really small. And I gave you the example of my brother-in-law who sold his practice to a large health system. And when that happens, they pretty much force those doctors to use the laboratory that sits inside of that health system. And then what they do is they all have EMRs, and the doctor can really only order electronically from that health system. Now if that doctor wants to do order from independent labs, he has a choice. He has a right, they can, but then they have to use sort of paper recs. We're connected to EPIC. We're connected to CERT. We're connected to all the health systems. But the health system that owns that EPYC system they actually have to give us access to it, okay? Otherwise, those physicians need to order through pieces of paper. It can be done. It's just not that convenient, okay? Now we as a company as a trade association, we're going to put a lot more pressure on this because we believe that all doctors should have access electronically to any lab that they want to use. And we're pretty passionate about that, and we're going to continue to drive that through our trade association as well.

Patrick Donnelly from Citi. Maybe 1 on the deal side, probably for Sam, just on the financials. How are you thinking about the impact of Haystack and LifeLabs in the revenue side, particularly, but also on the margins just in terms of Haystack getting a little less dilutive LifeLabs. I know you guys want to ramp that towards corporate average. So just curious how you're thinking about what those growth rates look like that Haystack start to contribute to revenue growth? And then just a quick follow-up on that Canada question. There's a lot of tensions everywhere, obviously, with some of these geographies, but U.S. and Canada seems to be picking up. Anything to keep an eye on there? Or is it, hey, this is a Canadian lab. It should fly under the radar, I'm curious.

Let me take the second question, and then you take the first one. LifeLabs as an entity still exists in Canada. We're not changing the name. It's a Canadian company, Canadian entity, and we believe we're okay there, okay? So we're not changing brand. It's a strong Canadian company. It always has been, and it always will be.

So let me talk about the 2 acquisitions, I think that you referenced, Patrick, and specifically things that we've either shared or that we can share. With LifeLabs, I mean, as you know, we closed this acquisition in August of last year. So we've had -- we're going to have significantly more revenues from LifeLabs this year just as a result of the fact that it's got almost between 7.5 more months. Now in terms of expectation of growth, it's a different market there. There's price increases that the government gives us. So we have more certainty in terms of the business, which is what we like about LifeLabs because it traditionally has price increases that are built in year-over-year. We're not really giving a specific growth number for the LifeLabs revenues that you should expect going forward. But we are expecting it to grow. And in terms of operating margin, it starts out being lower than the corporate average. I think we've said that before that it's at first dilutive to the operating margin rate. It's EPS accretive, it's operating margin dollar accretive, but its operating margin rate dilutive at first. Within 2 years around that time frame, not to be exactly specific, but within the 2-year time frame, we expect it to start to approach or be at the corporate average in terms of operating margin rate. Now with regards to Haystack for our comments today, it is less dilutive this year. We expect that in 2016, it does become accretive at a point in '26. So not for the full year, but it does turn accretive at some point in '26.

I just want to add on the Life labs. In addition to the demographic change, we talked about advanced diagnostics. So we are bringing the advanced diagnostics that we use in the United States in Canada. So they're benefiting with advanced cardio biomarkers, advanced Alzheimer's biomarkers and especially in a business to business and private pay settings they are benefiting from that, starting -- it's already started actually.

Luke Sergott from Barclays. You guys are talking a lot about innovation and investing in a lot of these new high-growth areas. You're talking about an incremental $30 million in '25. But just talk about how you guys think about this over the next 3 to 5 years, and especially in relation to your 75 to 150 basis points OMX target by '27. So what are some offsets there and how this R&D as a percentage of res has ticked up. You guys don't really break that out? And then kind of related to that, as you think about your 3% core LRP, you have these 5 new indications or 5 target area indications growing double digits over this time. So arguably, if they're growing double digits, you should be seeing an uplift in your core growth as they're in your portfolio? So talk about some of the offsets that you guys have embedded in that LRP for conservatism.

Right. So let me start and I'll turn it to Karthik and Sam here. So First, from an innovation standpoint, Karthik showed a chart. Look, we're always going to turn to our suppliers first and see if they've got it in their portfolio or if it's on their road map. We meet with all the IVD suppliers several times a year to go through that. If they don't have it available, we look at our R&D efforts. And our R&D as a percentage of revenue is still very small relative to other, what I would call, small up star companies, okay? But we have a very talented team, in particular, in mass spec capabilities, molecular capabilities. And so we'll go to that team. If we see an underlying clinical need, right? The whole Alzheimer's test development. We know that when you see it in a PET CT, in many cases, it's too late. It's too late to interject the therapy. You get a signal from the blood that tells you when these plaques are beginning to develop. And so we commissioned that R&D team. It was a 5-year process, but we got there and we got there first. So there's other clinical needs that we see as well. We talked across the spectrum from screening to diagnosis to therapy monitoring therapy selection gaps that only imaging does today. And where we see imaging still play in the primary role, that's where we go and attack. And again, go to our supplier first, try to R&D at second. We will chat with all the academic medical centers about what things that they're working on, what IP may be coming. And if we don't think we can do it ourselves in an appropriate time frame, then we'll look if there's a small little company that's spun out of an academic lab like Haystack, then we'll go do that.

So let me talk about a couple of things, Luke, on the investments, right? That's because you referenced the investment. So R&D, we don't call it out separately. We've got some key focus areas, and we do acquire some assays like Haystack, for instance, but it's not significant that we call it out separately and what it's going to be over the next few years. So I would say it's a small part of our operating expenses with the bigger part being running the labs and the operational initiatives that we have. In terms of -- but there are a couple of things that we are investing in over the next 3 years that are factored into the outlook. Number one, is Project NOVA that I talked about, which is about 40% of that -- that range that I gave you in the presentation, $250 million to $310 million. So that's 40% of the of that amount is expenses that are factored into the outlook. The other thing is we have some investments around the lab developed tests and the operational capabilities that we need to really stand up and maybe build on because we already have some of those but there's about $10 million in 2025, and there's also an assumption of additional lab developed test compliance with FDA reg investments that we have. So those are other things. Now you asked about all of the high-growth areas in Advanced Diagnostics. Yes, we're continuing to make investments behind those. We've acquired some of those like Haystack, for instance, they do drive for those key categories that we talked about that the panel talked about, they do drive higher growth than the rest of our business. But the rest of our business also has a lot of routine testing, more mature screening, testing for oncology, for instance, things that are also growing at like 1% for us. So you have to balance both sides of the portfolio to get to that approximately 3% growth plus 1% to 2% from acquisitions. And the approximately 3% growth we do believe is, I think if you go back pre-2019, you guys know better than I do, but it -- this does represent a step up from the growth that we used to see on the inorganic part of the business.

I think I have the microphone JPMorgan. Sam, just kind of follow-up on that, I did follow the industry back then. And we historically looked at utilization in kind of a 1% to 2% range. When we think about your expectation underlying utilization, is it really just these other areas that are driving that towards the 3%. How do we think about managed care relationships? You talked about that pricing being positive, but you also talked about relationships, whether it's with Optum or Village or others, are there real opportunities there to maybe contract directly with those organizations when we think about Quest going forward? And then just kind of putting that all together, you talked about roughly 10% or having 90% coverage, right? So is there an opportunity maybe through provider relationships to get the other 10%.

Do you want to take that?

Well, let me chat about these larger entities, is our ability to contract directly with them. So you have to remember, entities even like Optum, you know who the parent is, but they serve patients from all different health plans, okay? Health plans don't like it. When we client-bill someone and then that client builds a health plan at a higher rate. They always want the lab that's doing the test to build a test. Now there are opportunities to directly contract with these entities. And those opportunities are around when they're taking risk on lives. So if they're receiving a life and they're getting paid, let's just call it, $10,000 from some entity, whether it's Medicare or Medicaid, they're now a risk-bearing entity. And any lab work becomes a cost against that $10,000, okay? So we do directly contract on lives that they're taking risk on. And those can be risk-varying agreements as well. Well, there's upside and downside for us depending on the outcomes or depending on do we complete all the necessary tests for [indiscernible] that needs to be completed in order for that health plan or for that entity to hit a quality metric.

And Lisa, on the other part of your question, so I'm glad you called out the 1% to 2% utilization because, yes, we used to see utilization being lower. And now we're seeing it over the last, say, 4, 6 quarters, utilization has been positive and more positive than we've seen traditionally. Now the approximately 3% growth that we've called out in our long-term outlook is approximately 3% revenue growth. So that does include also some benefit from revenue per acquisition that we have been seeing. We do expect that to moderate because where we've been seeing it is primarily 2/3 of the benefit has been on test per rec. And the test per rec have been climbing pretty consistently over the last number of quarters. We do expect that to start to level off. I mean, we're sitting now just north of what, 4.5 test per req. And we do expect that to start to level off. So it's -- the 3% that we gave is total revenue growth expectation for the outlook and part of the benefits coming also from [indiscernible] within that.

Puma with Credit Agricole. Jim, you had mentioned earlier that you realized significant underpenetration in the Columbus, Ohio market, which ultimately led to the Ohio Health hospital outreach lab acquisition. I'm just curious as to whether you've been observing similar markets post that acquisition that would enable you to access the $1.5 billion capital allocation that Sam had mentioned you've allocated for the next 3 years, but whether you would be looking to access that in the near term?

So whether it's Columbus, Cleveland, whether it's Minneapolis, we did an outreach transaction here in New York City with Presby 1.5 years ago. Regardless of the market, our goal is to get an anchor position and an anchor client and then grow from there. There's still independent physicians in all of those markets but it just wasn't that big of a population to serve. So we get an anchor population. We then start talking to that anchor population around advanced diagnostics and some of the other capabilities that, that health system may not have been able to offer those physicians. So we're going to bring our portfolio of advanced tests that the team here talked about. We'll go after the other independent physicians that are in that market. And then I got to tell you, once you're there and once you've established a presence, there's physicians in these other health systems that will order from you. Once they understand the portfolio of tests that you bring and some of it may be paper racks, but we're still going to go chase those physicians as well.

It's Kevin Caliendo from UBS. And thinking about the long-term guidance, how did you contemplate the changes that are going on with Medicare and Medicaid right now? Obviously, there's a lot of uncertainties on what could be cut. Is there any delta that could impact both LRP? Or did you contemplate that in the LRP that there could be negative impacts from this? Like just trying to figure out how to quantify pricing or volume?

Yes. I think, I mean, look, there's obviously a lot of uncertainty at this point. There's been a house budget put forward. There's been a Senate budget put forward. One might suggest that on the health side, to get to the targets that they've established, there is contemplated cuts in I think more on the Medicaid side than I've seen on the Medicare side. On the Senate version of the budget, it just doesn't look like those pressures are there. Now what happens from this point forward, Obviously, the government is going to remain open. That's a good thing. And so in the next several months, you're going to see the house -- it's called the reconciliation process, right, between the House and the Senate. I don't think any member of Congress, whether it's the House or Senate wants to go back to their home territory and say, we're cutting Medicaid or we're cutting Medicare. I don't think that plays well. Now having said all that, we can only read the tea leaves as best to what we see coming out of the papers. We have a team in Washington, D.C. that stays very close to this. So we're not anticipating dramatic cuts, but there's some anticipation that there's going to be some cost shaping a bit.

But Kevin, maybe more -- and I didn't see you there, by the way. On the financial exercise, okay? Just to maybe clarify how we look at it financially in these long-term projections to add to Jim's point. We look at everything that might take us down to the low end of the range and the flip side, everything that might take us to the high end of the range. And we model scenarios based on that. I talked about 1 scenario today, which was PAMA in 2026, if there's a onetime cut that happens there. We modeled that in based on -- and to look at what happens to the range. We added things like sensitivities around utilization, for instance, and even though we didn't look at, okay, potential Medicaid cuts and what that might mean in terms of people that are insured, lower utilization could be driven off of that. So we look at a lot of scenarios. We look at slowdown in our core business, not because for any other reason other than to model a lot worst case. And then we feel comfortable that, that low end of the range that we have and the outlook that we've put together beyond 2025 reflects these more conservative scenarios.

This is Dan Clark with just a question on Project NOVA given that it's multiyear initiative with a fair amount of moving parts. How do you plan to share sort of return metrics with us, the Street and signposts of progress?

Yes. I think first of all, we disclosed some of these costs in the 10-K that we just issued back in February. We are committed to providing you updates on a regular basis. I will not say every single quarter. Obviously, it's early days. We have to still work out the details in terms of the partner that we're going to work with, et cetera. So stay tuned is all I can say. Right now, it's hard to give a commitment as to how often we're going to do this and in what fashion because it's early days, but we will. We'll keep you folks updated on the progress on this initiative.

Any final questions? Al right, I think that's a wrap.

I'd like to thank you again for all coming out on this last day of winter. And I appreciate your time and attention. And most of all, I appreciate your interest in Quest Diagnostics. We're a company, as you know, committed to improving health care and improving the health of the U.S. population. So thank you for all you do in covering our company and giving us some visibility.