Welcome to the Quest Diagnostics First Quarter 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question-and-answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved. Any re-distribution, re-transmission or re-broadcast of this call in any form without written consent of Quest Diagnostics is strictly prohibited. Now, I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Please go ahead.

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

Thanks, Shawn, and good morning, everyone. In the first quarter, we delivered strong revenue growth of approximately 12%, including nearly 2.5% in organic growth as demand rebounded in March following weather impacts early in the quarter. Our growth was due to contributions from acquisitions and large enterprise accounts, demand for our advanced diagnostics portfolio, and expanded health plan access. We also continue to expand our use of automation, robotics and AI, with the goal of improving quality, customer and employee experiences and productivity. We are reaffirming our revenue and adjusted EPS guidance for the full year 2025. Now before turning to highlights from the quarter, I'd like to briefly comment on the recent court case that vacated the FDA rule, to regulate laboratory developed tests as medical devices. The court's decision will ensure patients and providers can continue to access innovative laboratory testing services regulated under CLIA without additional regulatory costs to comply with the FDA LDT rule. We also recognize that, several growing areas of our business already operate under the FDA's existing quality management system regulations, including companion diagnostics and lab services for clinical trials. In addition, our business is increasingly global, as we expand in Canada through LifeLabs and provide reference testing for many countries. We continue to invest in quality management processes and technologies to navigate the complexity of the global regulatory environment. Now, I'll recap our strategy and discuss highlights from the first quarter, then Sam will provide more detail in our results. Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core clinical customers, physicians and hospitals, as well as customers in the higher growth areas of consumer-initiated testing, life sciences and data analytics. We enable growth across our customer channels through faster growing advanced diagnostics…

Thanks, Jim. In the first quarter, consolidated revenues were $2.65 billion, up 12.1% versus the prior year. Consolidated organic revenues grew by 2.4%. Revenues for Diagnostic Information Services were up 12.7% compared to the prior year, reflecting recent acquisitions as well as growth in our key physician and hospital channels. Total volume measured by the number of requisitions increased 12.4% versus the first quarter of 2024, with organic volume down by 0.9%. During the quarter, weather and one less day versus the prior year reduced volume growth by approximately 160 basis points. Total revenue per requisition was up 0.3% versus the prior year, driven primarily by an increase in the number of tests per rec, mostly offset by the impact of the LifeLabs acquisition, which carries a lower revenue per requisition. On an organic basis, revenue per rec was up 3.6% in the quarter versus last year. Unit price reimbursement was relatively flat, consistent with our expectations. Reported operating income in the first quarter was $346 million or 13% of revenues, compared to $300 million or 12.7% of revenues last year. On an adjusted basis, operating income was $406 million or 15.3% of revenues compared to $349 million or 14.8% of revenues last year. The increase in adjusted operating income was due to the impact of recent acquisitions and organic revenue growth, partially offset by the impact of weather, one less day versus the prior year, and wage increases. Reported EPS was $1.94 in the quarter, compared to $1.72 a year ago. Adjusted EPS was $2.21 versus $2.04 the prior year. EPS in the first quarter was impacted by higher interest expense versus the prior year. Cash from operations was $314 million in the first quarter versus $154 million in the prior year. Turning now to full year 2025 guidance.…

Thanks, Sam. To summarize, we delivered strong consolidated and organic revenue growth in the first quarter, as demand rebounded in March following weather impacts early in the quarter. In addition to acquisitions, key drivers of growth included large enterprise partnerships, advanced diagnostics and expanded health plan access. And we are reaffirming our revenue and adjusted EPS guidance for the full year 2025. Now, we'd be happy to take questions. Operator?

[Operator Instructions] Our first question comes from Luke Sergott with Barclays.

Great. Thanks, guys. Good morning. I just wanted to touch on the organic, the volumes that you guys had. When you kind of break it down on a test per day, it's roughly flattish to what you guys had last year. And so, as you're thinking about as you roll out through the rest of the year, is the pacing going to be relatively similar to what we had last year? Anything to call out there from days or what you guys have baked in from the downside on from weather, et cetera?

Yes. Good morning and thanks for your question. So, just on the organic volume, reported was down 90 basis points. But if we correct for the leap year impact and the weather impact year-over-year, it would have increased that by 160 basis points. So, we would have been up about close to 1%. Now, that really does compare with what we saw both in the third quarter and fourth quarter last year. There was a progression through 2024, but only because the first and second quarter were really still impacted by COVID from 2023. The other thing I'd mentioned is, while January and February were certainly soft because of the weather, we did see a nice bounce back, in particular during the last three weeks of March. And I would tell you, our volume trends in the first 19, 20 days of April have also been consistent with our expectations and what we saw last year. So, I think we're pleased with the utilization levels that we're seeing out there right now.

Our next question comes from Kevin Caliendo with UBS.

Thank you. Good morning. Thanks for taking my question. I want to ask the tariff question, and just try to understand sort of what kind of exposures Quest has to this. In the context of how much of your supply costs come OUS. How much of it is fixed contracts, how should we think about the risks of this going forward, have you adjusted your model or your expectations for tariffs in any way? Any details you can provide would be super helpful.

Sure. Thanks, Kevin. Let me just start with, look, we buy about $2 billion of reagents, supplies, and that $2 billion is capital, equipment cost and also service contracts, so about $2 billion of total spend. Now, first of all, less than 1% of that we source directly from China ourselves, okay. And we have plans already activated, where that less than 1% small number, we are moving some of those and by the way, that less than 1% is pre-analytical supplies, gowns, gloves, masks, tubes, really simple types of things. So, some of it we've already moved. We're in the process of moving others. So, we actually think our exposure there is not that great. Now, if you come back to that $2 billion, about 75% to 80% of that spend is really reagents and supplies for the laboratory. And that is actually manufactured here in the U.S. So, we can have global suppliers like Siemens and Roche, but the manufacturing of that is in the U.S. So again, we believe our exposure is small. The other thing I'd say is, most of our supplies are under multiyear contracts. Obviously, those contracts come up every four to five years. So 20% will come up this year, but we compete those things. So as we said in the prepared remarks, any tariff impact we think we can cover at this point, given the guidance that we've put out there.

Yes. And I would just add, Kevin, this is obviously based on under current law and current regulations. So, this is what we're assuming based on today, what we know today, the impact is not zero, but the impact is very manageable for us, and it's baked into our current guidance.

That's super helpful. I appreciate the color. Can I ask a quick follow-up? Just in the last week or so, we've read some stories about strikes up in LifeLabs. The stories don't give a ton of details. It sounds like it's somewhat organized, but non-union. Can you just maybe talk about what that is, and if it's impacting LifeLabs in any way or impacting the potential accretion from LifeLabs?

Yes, sure, Kevin. So first of all, the strike is just on the British Columbia side. Recall LifeLabs broadly participates in the Ontario marketplace and the British Columbia marketplace. British Columbia is actually the smaller of the two sides. There are about 1,200 employees that are involved in the strike. Those 1,200 employees are part of a much bigger union of roughly 70,000 employees called the BCGEU. It's largely a public service union. Now, there are certain statutes about how strikes are conducted in British Columbia. And one of those is, you can only -- we have 128 patient service centers in British Columbia. You can actually only strike at 17 of those 128. So on any given day, actually there's a small amount of people that are actually out on strike and our management team in British Columbia has to backfill those open positions, which they've been doing. We do have a mediator involved. We are making progress and we hope to have things settled within the next 30 to 45 days.

Our next question comes from Patrick Donnelly with Citi.

Hi, guys. Thank you for taking the questions. Sam, maybe just a quick one, just on pacing on margins. Can you talk a little bit about 2Q? I know typically seasonally that's the strongest quarter, so just want to talk through margins and earnings there. Any impact again from some of the tariff noise, freight surcharges, things like that? And then just quickly LifeLabs, outside the strike, just how it performed this year or in the quarter would be helpful.

Sure, and good morning, Patrick. Listen, let's talk first about margins in Q1 and then I'll talk about the pacing and address your question about LifeLabs. Q1 margins came in operating margins at 15.3%, so a 50 basis point expansion from prior year. That was driven by volume, impacted somewhat negatively by the weather impacts that we talked about, which were more severe than what we saw last year. But in general, strong margins, 15.3% operating margins. As we think about the full year, Patrick, the pacing is really very consistent with what we expect to see in terms of traditional or historic seasonality, even going back pre-COVID seasonality, because COVID impacted a little bit the seasonality. So traditionally, what we've seen, and I'm talking really here EPS pacing, not necessarily operating margin pacing. But EPS pacing, usually what we see is roughly 49% in the first half of the year, about 51% in the second half of the year. And so, you see Q2 being the best quarter, Q3 slightly lower than that, Q4 lower than Q3 and then usually Q1 is actually the lowest quarter of the year in terms of EPS contribution. So that's what we expect in terms of pacing. In terms of expectation for full year 2025, still the expectation is that, we continue -- that we grow operating margins rate versus last year, both dollars and rate. In terms of LifeLabs?

Yes, let me just give you a little color on LifeLabs in the quarter. First of all, I think as you all know, most of the revenue is capitated. So there's generally not surprises on the revenue side. There's a small amount of patient. It's patient physician revenue where you're selling tests directly to physicians, outside of the capitated agreement. But the revenue was really basically in line with our expectations. On the margin side, as we indicated, we expect to have LifeLabs at the corporate average within two to three years. And I would just tell you, we made again nice progress in the quarter. We've seen quarter-over-quarter improvements in margin rate, and we expect to be, if anything, on the early side of our plans of having it, at the company corporate margin in two to three years.

Our next question comes from Elizabeth Anderson with Evercore ISI.

Hi, guys. Good morning. Thanks so much for the question. Are tariffs or any of the potential hospital reimbursement challenges, creating an opportunity in the hospital lab management space or outreach space or you would just say sort of too soon? If you could just sort of talk about the maybe the progression of some of those questions and debates that you've been hearing recently?

Yes. I think it's a bit too soon. It's not to say, we won't contemplate price increases, if tariffs start to hit us in a meaningful way. As you know, the health plan contracts probably don't give us a chance to go back and open those up. Having said that, 20% to 25% of the contracts come up every year. And if we're seeing a meaningful impact on our business, we're certainly going to try to pass that through. The health system pricing landscape, I would still say is the most challenging of all that we deal with. But again, if we are hit in a meaningful way, we're certainly going to try to pass that along to both health systems, client bill, consumer bill and anything outside of health plans.

Sorry, Jim. I meant more like our hospitals like increasingly seeking relations like in your acquisition strategy. Sorry, if my question wasn't clear.

Okay. The funnel of opportunities on what we now call our Co-Lab, collaborative lab services agreement continues to be very robust. We're in the process of negotiating with several institutions on this. So, if anything, you're right, it can accelerate those opportunities, if suppliers start to pass those tariffs in the form of price increases to our health systems.

Our next question comes from Michael Cherny with Leerink Partners.

Good morning and thanks for taking the question. Maybe to kind of get at the market dynamics in a little different fashion. I appreciate the color you gave on the tariff impact. That's certainly helpful. I would assume that, other entities in the market, smaller than you and your largest peer are going to be in slightly more challenging position in trying to get to, managing any offsets on costs similar to potentially what happened with the inflationary environment on the wage side from a couple of years back. How do you think about strategic discussions you're having with payers on potentially driving more share about opportunities you have to service a wider swath of their membership bases, given your reach, your scale and your ability to absorb and/or offset any of these cost dynamics? Curious, I know it's early, but if you're seeing any changes in terms of strategic payer dynamic and then looking to you more closely given you're on much more stable financial footing?

Yes. So, Mike, I would tell you that, our discussions and collaborations with the health plans are ongoing, continuous. As you know, we have all sorts of programs in place on the redirection of work to try to redirect work from expensive out-of-network labs, from expensive health system labs. Several of our large payers, we have collaborative relationships. They provide us with information of physicians, that are using these very expensive labs and our teams go and work those lists really hard and try to convert that over. As we also mentioned in the prepared remarks, we are now a preferred lab network provider for Optum Health services, and that went into place during the quarter. And in a similar way, we work with the roughly 85,000 physicians that are in the Optum network. We work with the management team at Optum Health to try to redirect as much of that work into labs, to Quest Diagnostics, where you're going to get really great quality, at a great value. So if anything, yes, I agree these tariffs may push probe and help do that and move that work even quicker.

Our next question comes from Pito Chickering with Deutsche Bank.

Hi, good morning guys. A follow-up to Kevin's question on the tariffs and I think I missed one of the numbers that you gave out. Of the $2 billion spend, what's the spend on supplies on the sort of low-end that could be sourced in China like syringes, gloves and gowns?

What we did -- I didn't give that exact number. The number I gave is of the $2 billion, less than 1% is sourced directly from suppliers in China by Quest Diagnostics. And within that less than 1% are mostly pre-analytical supplies, so gallons, gloves. Now, that's not to say that the entirety of our pre-analytical low tech supplies comes out of China. They come across in all parts of the world. Now what I said is to minimize our exposure on that spend in China, we've actively been moving from suppliers in China to outside of China, including suppliers in the U.S., including suppliers around the rest of the globe, where tariffs are significantly lower.

Yes. A couple of percentages though, Pito, just to keep in mind is, we also said, roughly 80% is basically manufactured or sourced in the U.S. So at least based on the law today, not impacted by tariffs. And also 70% to 80% of the total supplies that we have are under contract. So they have fixed pricing and we think we can manage the exposure. The exposure is not zero, but we think it's manageable.

Yes. Just to clarify, the 80% that is manufactured in the U.S. are really the reagents, the expensive reagents for running the lab test.

So, of the $2 billion or 20% of the price source out inside the U.S., a combination of obviously split between Malaysia, China or a series of other sources, I'd just sort of think about that, right?

That's about right.

Okay, fair enough. And then for your M&A pipeline, just can you sort of talk about sort of how the pipeline looks? It's just been a while since we haven't seen the deal close in a quarter, going back in the cash flow statement since fourth quarter 2023. Does the pipeline for how we still look as robust as it has been? Do you sort of see the pace continuing as expected or as hospitals continue to do well operationally, excluding the current political environment, do you see that change the pace of as you do outreach deals?

Yes. The funnel is still healthy and it's a mix of hospital outreach types of endeavors plus small regional labs that are still left out there. So I think it's healthy. We did, as we mentioned in the prepared remarks, enter into a collaboration with Fresenius Medical Services, where we are now going to start doing the lab testing associated with dialysis treatment in our regional labs. In addition, Fresenius also provided third-party laboratory testing services for other dialysis centers and we purchased that small book of business and that too will come into Quest Diagnostics. So that represents, as I mentioned, over 200,000 dialysis patients, patients getting tested at least once a month and that represents a nice chunk of volume that will be coming our way, when we officially close on this later in this year.

Our next question comes from Tycho Peterson with Jefferies.

This is Noah on for Tycho. Thanks for taking our question. I wanted to ask about Haystack particularly and how you're receiving commercial orders, how you're thinking about reimbursement submissions and timelines? And then on the data side, anything you think needs to be done to generate more evidence?

Yes. So, as we discussed in the remarks, we launched the Haystack assay commercially in the quarter. We are pleased with the progress that we've made. We had over 75 customers that were part of the early experience program and many of those customers are continuing to do business with Quest Diagnostics. In terms of reimbursement, the test is being offered to Medicare and patients in commercial plans and we offer to any patient. We've just started to submit for reimbursement. We're working with one of the big Macs on getting the coding and coverage policies in place. And that requires a bit of time and it requires a bit of reimbursement experience and that experience is well underway.

And in terms of evidence, stay tuned. We'll continue to work on potential evidence, as we move forward here.

Yes. You'll see more and more publications and the fruits of the ongoing clinical trials that Haystack had in place even before we purchased them well more than a year ago.

Our next question comes from David Westenberg with Piper Sandler.

Hi. Thank you very much. So I just wanted to, on the collaboration with Google Cloud to streamline data management and you generate GenAI to personalize customer experience and employee experiences. How does that translate into some of the financial benefits? I was thinking about maybe the personalized customer one, maybe you get higher compliance rate and testing or something like that? And does the employee one lead to maybe some benefits from the cost side? What kind of specific KPIs should we be looking at to measure success in here this second?

So step one in the overall relationship with Google Cloud is simply the movement of what I call pockets that reside in a lot of various places across Quest Diagnostics, mostly on premise. So, the benefits of moving that information to the cloud, I'll give you a couple. One, we have a data analytics business and whenever we have to search the entire Quest database, it's a complex task today to basically conduct searches across data that's sitting in pockets all across the country in various places. So, it's really going to improve the efficiency and the effectiveness of our data analytics business. That business is primarily serving pharmaceutical companies, CROs. It serves the health plans and it's really going to make that business more efficient, more effective and will lead to greater growth. In terms of some of the benefits for employees, for customers, our employees that are constantly searching databases to get information for patients, to get information for physicians, it'll speed up those searches. At some point, we're going to allow AI-based chat services for physicians and patients to get the information that they need. And honestly, at some point, look, patients and physicians, we have a test menu of over 4,500 tests. If you think every physician knows exactly what test to order at what specific time, for what specific condition they're seeing, it's just beyond the capability of many, many physicians. So having those types of GenAI interactive tools that allow patients and physicians to query our test menu and understand, what is the best type of vitamin D test to order, what is the best type of testosterone test to order, is really going to make their lives easier, faster, simpler and actually get the best information into their hands. So those are some of the quick, easy things that we're anticipating with this, but it all starts with having our data in one location, easy-to-access, streamlined, efficient and leading to higher quality answers.

Our next question comes from Michael Ryskin with Bank of America.

Great. Thanks for taking the question. I got just one. I'll roll everything together. Just wondering if you could give us your latest thoughts on other policy regulatory updates from D.C. that could happen this year, especially anything on PAMA, SALSA, just what your latest thoughts are on that. And then sort of tying into that, some concern about potential cuts to Medicare and Medicaid, just how should we think about that potential risk of the business?

Yes. So let's start with the cuts on Medicare, Medicaid. At this point, if anything, the Medicare Advantage plans just got a nice rate increase. So we are pleased with that and that should certainly help in our discussions with Medicare Advantage Plans around the country. There's a lot being written around Medicaid potential cuts. There's a lot being written around exchange, the ACA exchange related. But at this point, those bills are moving through the House and Senate. There's a reconciliation process. So I think it's too early to tell. What I would tell you is, Medicaid and managed Medicaid collectively, it's about 8% of our entire business. So it's certainly not the biggest portion of what we do, but we're watching it closely. If anything, I would say there appears to be support of the exchange plan, the ACA plan that's actually in place today. So we feel optimistic about that. In terms of other regulatory things going on in D.C., again, firstly, we're pleased with the outcome of the lawsuit on LDT regulation, very pleased with that outcome. As we said in the prepared remarks, we still have elements of our business that are FDA-regulated, including our work around companion diagnostics, our clinical lab work that we do for pharmaceutical companies with patients that are in clinical trials, all of that still remains in a regulated type of environment. In terms of PAMA and PAMA reform, so now that we have the FDA LDT issue behind us, I would tell you, the most important thing for our trade association, ACWA, and for ourselves to work from a regulatory standpoint is PAMA reform. As you know, we have a new Congress, which means and you have a new majority position in the House. So we are working with -- our trade association is actively working with the three committees that really set healthcare policy, the House -- and Means Committee, House Energy and Commerce, Senate Finance Committee. There I would tell you, there's broad bipartisan support to actually get something done this year in terms of PAMA reform. So now if it looks like if we're moving into the back half of the year and we don't see progress, we'll certainly push for another delay, a delay in the cuts that were anticipated six years ago.

Our next question comes from Andrew Brackmann with William Blair.

Hi, guys. Good morning. Thanks for taking the questions. Maybe another one just on the macro side of things. There's been some discussion around the potential for a recession later this year. So as you sort of think about the business, how it's set up today to withstand any demand pressures from unemployment rates going higher, how does that sort of -- how has it changed over the last handful of years and how might a recessionary demand sort of shocks be different today versus say '08 , '09?

Yes. So good question. And the first thing I ask to keep in mind is, look, it's important to remember, patients access the healthcare system and they need access to affordable lab testing in any environment, okay, whether the economy is booming or the economy is in a recession. We provide really essential services that are needed for both providers and for patients. Now, it's not to say, we're recession proof. If you go back to the Great Recession of 2009, 2010, we did see a modest impact on our volumes. In 2009, it was about a 70 basis point reduction. And in 2010, it was a little bit bigger, about 1%. Remember, when people get laid off, generally they have benefits that continue or cover benefits that provide coverage. So, there is a layer of insurance for some period of time for most people that lose their jobs. So while we're not recession proof, we believe healthcare services in particular diagnostic lab testing are still really essential for the health and well-being of all human beings.

Yes. Andrew, I would add a couple of things as well to Jim's comments. One, everything that Jim said, but there's also more safety nets today than there were back in 2009. You've got the Affordable Care Act. So people have in general some more coverage or backup coverage in terms of what's out there through the ACA. And even if we look back at the last Great Recession, patient collection rates held fairly steady. Obviously, we'll monitor those. We'll make sure that, we maintain our patient assistance programs and all that. But patient concession rates did not really spike up materially back in 2009.

Our next question comes from Jack Meehan with Nephron Research.

Good morning, guys. Just had a couple of follow-ups. The first was, I don't think I heard it earlier, just what was the final impact from weather when you take what you experienced in January and February and talked about the Analyst Day? That's question number one. And then question number two, just, Sam, last quarter you provided some helpful commentary around EPS cadence. I was just curious, if you still think that's a good way to think about how the guidance is set up for the year?

Sure. Yes, I'll take the first one, Jack. In terms of weather, we said on a year-over-year basis point, a year-over-year basis, it was a 50 impact in terms of volume. We said the one less day, the leap year was worth 110 basis points, so 160 altogether. Now, yes, at our Investor Day, we suggested our revenue would be lighter in the quarter. Remember, that was at the beginning of March, we prepared those things. The first week of March, our actual volume, and it was some weather during that first week of March was actually light. But we saw a really strong recovery in the last three weeks of March, which we mentioned has continued into April, the first 19, 20 days of April. Our volume trends have been in line with what we were seeing in Q3 and Q4 of last year.

Yes, for sure. And Jack, remember the 0.5% of weather is a year-over-year impact. So it's incremental to what we saw in last year as an impact on growth. And from an EPS perspective, the seasonality is I think consistent with what we've talked about in the past in terms of traditional seasonality. So EPS in Q2 being the highest quarter, Q3 is a slight step down, Q4 is a step down from that, but second lowest quarter of the year in terms of EPS cadence. And then, Q1 is usually the lowest EPS that we get. So Q1 is the lowest quarter of the year. So that type of seasonality I think is still realistic to assume.

Our last question comes from Erin Wright with Morgan Stanley.

Great. Thanks. So you mentioned continuing investments that you're making that I guess that would offset or what would have been kind of the LDT rule. I guess what are those in terms of what you're making there and what's incremental relative to what you were thinking previously? You also mentioned labor expenses, like, has anything changed on that front, in terms of what you're seeing or your expectations there? And then, just more broadly speaking around kind of expenses, I guess, can you speak to some of the offsetting factors or levers you have from here in response to whether it's inflationary pressures like labor costs or any direct, indirect impacts kind of from tariffs that you were mentioning before? Thanks.

All right. So let me comment first on the investments from an FDA perspective and then I'll have Sam make some comments on the labor outlook and inflation. So as we said at Investor Day, we expected to spend about $10 million of incremental cost investment to prepare for the FDA LDT rule. Now that was really centered on two things that the FDA asked us to have in place for year one. One was the build out of a complaint handling unit, and two was enabling the output of that complaint handling unit, which is the analysis of complaints that potentially turn into MDRs, medical device reports and to have that the ability to exchange information with the FDA in an electronic means. Now, we're not going to spend $0 and we're likely not to spend $10 million this year. However, as I mentioned, we have a growing companion diagnostics business. We have a life sciences business that does clinical trial work for both supporting CROs and supporting pharmaceutical companies. And we take in reference testing from close to 40 countries around the world, all which operate in various ISO frameworks that require some type of regulatory framework. So we still have some infrastructure needs to be put in place. We still actually do need to have a complaint handling unit. It may not need 40 resources. It may need something much smaller than that, to support the other elements of our business that again are growing and operate under FDA regulation today. So again, the answer is not zero, the answer is not 10, somewhere in between that, but we expect to continue to improve the regulatory and quality organization that we have in place here at Quest today. Sam?

Yes. And just in general on expenses, so let me break it down into three things. Labor, first of all, which is a big piece, our expectation is still somewhere in the 3% to 4% in terms of wage inflation this year. In terms of retention or turnover, turnover is now somewhere in the mid to high teens. So an improvement definitely versus where we ended 2024, which was around 19% or so, approximately 19%. I would say, we're approaching pre-pandemic rates in terms of turnover, which was somewhere around 14%-ish. So we're making good progress there. Turnover is definitely improving, which improves productivity, which improves our expenses as well, and impacts potentially wage inflation. SG&A, we continue to drive leverage on SG&A. And you talked about some of the areas that we focus on in terms of managing expenses actively. SG&A is one of them. Our goal is to not grow SG&A more than half of the rate of growth of revenues at most. I would say, that's our target and that's our focus. And then finally and really importantly, Invigorate as a whole, which is to offset the impacts of inflation, wage inflation, any other major cost drivers in our business is to offset them through Invigorate of approximately 3% productivity and cost improvement. And I would say, we're on track and we've got that target this year and we're executing towards it.

Operator, any more questions in the queue?

At this time, I'm showing no further questions. I'll turn the call back over to your speakers.

Okay. Thanks again for joining our call today and we certainly appreciate your continued support and have a great day everyone.

Thank you for participating in the Quest Diagnostics first quarter 2025 conference call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics' website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 361-4757 for domestic callers, or (203) 369-0183 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 22nd, 2025, until midnight Eastern Time, July 1st, 2025. Goodbye.