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DATE
Tuesday, July 22, 2025 at 8:30 a.m. ET
CALL PARTICIPANTS
Chairman, Chief Executive Officer, and President — Jim Davis
Executive Vice President and Chief Financial Officer — Sam Samad
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RISKS
PAMA cuts could result in approximately $100 million pricing impact if not deferred or permanently fixed, with management stating, "We're unable to take actions to offset the majority of $100 million, but we will take some actions to offset a portion of this negative impact if there is no permanent fix or if, you know, there is no delay."
Tariffs in Europe and China are expected to have negative impacts in Q3 and Q4 2025, though management believes these are "manageable within our guidance."
TAKEAWAYS
Total Revenue: $2.76 billion, up 15.2%, driven by 5.2% organic growth and recent acquisitions in Q2 2025.
Diagnostic Information Services Revenue: Up 15.7% in Q2 2025, reflecting both acquisition and organic channel performance.
Volume Growth: Total requisition volume increased 16.3%, with organic volume up 2.1% in Q2 2025.
Revenue per Requisition: Down 0.4% in Q2 2025 due to the LifeLabs acquisition; Organic revenue per requisition rose 3.3% in Q2 2025, driven by higher tests per requisition and a favorable test mix.
Adjusted Operating Income: Adjusted operating income was $466 million, or 16.9% of revenues, in Q2 2025, compared to $398 million at 16.6% in Q2 2024, reflecting margin expansion partially offset by wage increases.
Adjusted Earnings per Share (EPS): Adjusted EPS was $2.62 in Q2 2025, up from $2.35 in Q2 2024, with growth partially offset by higher interest expense.
Cash from Operations: $858 million year to date through Q2 2025, representing a 67.1% increase, driven by operating income, a one-time CARES Act tax credit, and favorable timing of receipts and disbursements.
Updated 2025 Revenue Guidance: Raised to $10.8 billion–$10.92 billion for full-year 2025, reflecting 3.5%–4% organic revenue growth plus acquisition contributions.
Updated 2025 Adjusted EPS Guidance: Increased to $9.63–$9.83 for adjusted EPS guidance; reported EPS guidance raised to $8.60–$8.80 for full-year 2025.
Capital Expenditure Guidance: Approximately $500 million in capital expenditures for 2025, with most Project Nova modernization investments planned for the second half.
LifeLabs Acquisition Contribution: Responsible for roughly 8% of a 10% M&A-driven revenue increase in Q2 2025, with integration and margin cadence tracking ahead of or in line with expectations.
Payer Mix Shift: Government payer proportion rose and client pay decreased, both attributable to the addition of over $700 million in LifeLabs revenue in 2025.
Physician Channel Revenue: Grew nearly 20%, primarily through acquisitions and supported by high single-digit organic growth in the physician channel in Q2 2025.
Advanced Diagnostics Performance: Double-digit revenue growth in areas such as advanced cardiometabolic, chronic kidney disease, autoimmune, and notable increases in brain health testing volumes in Q2 2025.
Operational Productivity: Attrition rates dropped toward pre-pandemic levels, with wage inflation staying in the 3%–4% range for the year.
Hospital Channel Revenue: Low single-digit growth in the hospital channel in Q2 2025, led by collaborative lab solutions and ongoing M&A activity.
SUMMARY
Quest Diagnostics Incorporated (DGX 7.04%) delivered double-digit revenue and earnings growth in Q2 2025. This performance drove an upward revision to both its annual revenue and earnings guidance. Margin expansion was achieved in Q2 2025 despite increased wage costs and higher interest expense, with strong organic growth supplemented by significant acquisition contributions. The company is advancing automation and digitization initiatives to drive further productivity and has identified functional medicine entities and advanced diagnostics as meaningful sources of current and future volume. Management reiterated that potential headwinds from PAMA cuts and tariffs are factored into its guidance, with mitigation strategies in place, and confirmed a $100 million impact estimate from PAMA if reforms are not enacted.
Chairman Davis noted, "On the exchange, we estimate that no more than 4% to 5% of our revenue today comes from the exchange." quantifying limited exposure to possible shifts from health coverage legislation.
Samad highlighted that cash from operations benefited from "a one-time CARES Act tax credit, and the timing of receipts and disbursements." specifying the unique drivers behind the operating cash flow surge.
Quest reached a record milestone with its consumer web platform, fulfilling "one million customer orders since launching this enhanced online platform in the fall of 2022," as of Q2 2025.
In brain health, the company launched its new AB4240 and PTOW2 217 AB detect panel, with management emphasizing its application "to help physicians confirm amyloid brain pathology in symptomatic patients."
Plans are underway to scale automation across lab sites, with operational pilots already completed and being rolled out "through the rest of the year and into 2026."
INDUSTRY GLOSSARY
PAMA: The Protecting Access to Medicare Act, a U.S. law governing Medicare reimbursement rates for clinical laboratory services.
Haystack MRD: Quest's minimal residual disease (MRD) test for oncology, providing enhanced detection of cancer recurrence through blood-based assays.
Functional Medicine Entity: An organization or practice focusing on holistic, preventative care that often leverages extensive diagnostics for personalized treatment.
Requisition: The formal laboratory order for tests, serving as the primary service volume metric for the company.
Project Nova: Quest’s modernization initiative aimed at upgrading the end-to-end order-to-cash process via technology investments.
CARES Act: Coronavirus Aid, Relief, and Economic Security Act, a U.S. federal stimulus bill with tax credits impacting financial results.
Client Pay: Payments for diagnostic testing made directly by individual patients or healthcare providers, as distinct from government or insurer payers.
Full Conference Call Transcript
Jim Davis: Thanks, Shawn, and good morning, everyone. At our investor day in March, we communicated our strategy to drive growth through innovative solutions that meet the evolving needs of customers. Our strong second quarter results reinforce the strategic direction. Given our performance in the quarter and continued utilization trends, we are raising our full-year 2025 guidance. During the quarter, we saw strong top-line growth of 15.2%, including 5.2% organic revenue growth as increased demand for our innovative clinical solutions and expanded business from enterprise accounts complemented growth from acquisitions. Our adjusted earnings per share grew 11.5% as a result of strong top-line growth combined with productivity gains from our deployment of automation, digitization, and other advanced technologies.
Before Sam provides more detail on our results, I'll highlight a few ways our strategy is enabling growth. We are focused on delivering solutions that meet the evolving needs of our core clinical physicians and hospitals, as well as customers in the higher growth areas of consumer, life sciences, and data analytics. We enable growth across our customer channels through faster-growing advanced diagnostics in five key clinical areas, which are advanced cardiometabolic, autoimmune, brain health, oncology, and women's and reproductive health. In addition, acquisitions are a key growth driver, and our strategy emphasizes accretive outreach purchases and independent labs.
Finally, we are focused on driving operational improvements across the business with the deployment of automation, AI, and other advanced technologies for improved quality, productivity, and customer and employee experiences. Here are some of the updates on the progress we have made in these areas in the second quarter. In the physician channel, we delivered approximately 20% revenue growth driven primarily by acquisitions, complemented by organic revenue growth in the high single digits. Demand for our innovative clinical solutions contributed significantly to organic revenue growth as physicians ordered more tests per requisition across our portfolio supported by strong commercial execution.
We also saw robust growth from large enterprise accounts, particularly in functional medicine, a growing area of preventative health care in which providers often order a range of lab tests to identify and act on multiple health risks. Large enterprises value our ability to scale diagnostic innovation to improve access, quality, and affordability. Later this summer, we expect to begin providing leverage with Fresenius Medical Care to support over time more than 200,000 kidney dialysis patients in the US. In the hospital channel, revenues grew low single digits with collaborative lab solutions driving our growth in the quarter.
As hospitals grapple with financial pressures and shortages of skilled lab technologists, they are choosing Quest to access our best-in-class expertise, innovation, and efficiency instead of running their own lab. Our acquisition of Outreach Labs also provides hospitals with capital for investment in their core care missions. Our pipelines for hospital outreach M&A and collaborative lab solutions remain strong. In addition to our physician and hospital channels, we are highly focused on expanding access for our consumer channel. During the quarter, we continued to see strong growth across our expanding array of offerings, including a new women's hormone panel on questhealth.com.
We recently fulfilled our one million customer orders since launching this enhanced online platform in the fall of 2022, demonstrating ongoing consumer demand for greater health information. Complementing our consumer-initiated channel, we continue to expand our partnerships with top consumer and wellness brands who value our high-quality lab testing, broad access, and flexible technology integration. In advanced diagnostics, we delivered double-digit revenue growth in several areas, including advanced cardiometabolic, especially testing for metabolic and endocrine disorders, and chronic kidney disease, as well as for our analyzer autoimmune solution. In brain health, we drove robust growth for our AV detect blood test for Alzheimer's disease.
During the quarter, we launched our new AB4240 and PTOW2 two seventeen AB detect panel, which is designed to help physicians confirm amyloid brain pathology in symptomatic patients. In oncology, we are ramping up our commercial outreach to drive haystack MRD market adoption while we also continue to convert participants from our early experience program. A recent study in the New England Journal of Medicine affirmed the high sensitivity and specificity of our Haystack MRD test, finding it identified complete response to an immunotherapy in phase II trials several months before standard imaging tests. Finally, Quest continues to be at the forefront of serving public health needs.
Earlier this month, we announced the launch of a molecular test for diagnosing olo pooch virus, which we developed under a CDC contract to enhance the nation's preparedness for emerging infectious diseases. Turning now to operational excellence, we continue to target 3% annual cost savings and productivity improvements through our Invigorate program. We are deploying innovative automation and AI technologies, including digitizing processes to improve quality, productivity, and customer and employee experiences. We have now installed our front-end automation solution which speeds specimen aliquotidine and labeling in half a dozen sites. We also recently completed a successful pilot of our automated accessioning platform at our Clifton lab.
We plan to roll out both solutions across our lab network through the rest of the year and into 2026. Along with automation enhancements, strong employee retention improves productivity across our operations and service minds. During the quarter, employee retention further improved, building on trends in recent quarters. Overall, we are pleased with our progress in the quarter executing on our strategy to serve customers and drive gains in revenue and productivity. And now Sam will provide more details on our performance and 2025 guidance. Sam?
Sam Samad: Thanks, Jim. In the second quarter, consolidated revenues were $2.76 billion, up 15.2% versus the prior year. Consolidated organic revenues grew by 5.2%. Revenues for diagnostic information services were up 15.7% compared to the prior year, reflecting recent acquisitions as well as organic growth in our physician and hospital channels. Total volume, measured by the number of requisitions, increased 16.3% versus the second quarter of 2024, with organic volume up 2.1%. Total revenue per requisition was down 0.4% versus the prior year, driven primarily by the impact of the LifeLabs acquisition, which carries a lower revenue per rec.
On an organic basis, revenue per requisition was up 3.3%, driven primarily by an increase in the number of tests per acquisition and test mix. Unit price reimbursement remained consistent with our expectations. Reported operating income in the second quarter was $438 million or 15.9% of revenues, compared to $355 million or 14.8% of revenues last year. On an adjusted basis, operating income was $466 million or 16.9% of revenues compared to $398 million or 16.6% of revenues last year. The increase in adjusted operating income was due to recent acquisitions and organic revenue growth, partially offset by wage increases. Reported EPS was $2.47 in the quarter, compared to $2.03 a year ago.
Adjusted EPS was $2.62 versus $2.35 the prior year. EPS in the second quarter was impacted by higher interest expense versus the prior year. Foreign exchange rates had no meaningful impact on our results. Cash from operations was $858 million year to date through the second quarter versus $514 million in the prior year. This year-over-year increase of 67.1% was driven by higher operating income, a one-time CARES Act tax credit, and the timing of receipts and disbursements. Turning now to our updated full-year 2025 guidance.
Jim Davis: Revenues are expected to be between $10.8 billion and $10.92 billion. Reported EPS is now expected to be in a range of $8.60 to $8.80. And adjusted EPS in a range of $9.63 to $9.83. And capital expenditures are expected to be approximately $500 million. Our 2025 guidance reflects the following considerations. Our updated revenue guidance assumes approximately 3.5% to 4% organic revenue growth in addition to contributions from acquisitions completed in 2024 and announced to date. It does not assume any contribution from prospective M&A. We are making investments in 2025 related to Project Nova, which we expect will modernize our entire order-to-cash process. Most of these investments will occur in the second half of the year.
Operating margin is expected to expand versus the prior year. Our below-the-line assumptions for net interest expense, adjusted tax rate, and full-year share count remain unchanged from our prior guidance. Finally, our updated EPS guidance assumes that we can absorb the impact of tariffs currently in place, primarily in Europe and China. With that, I will now turn it back to Jim.
Jim Davis: Thanks, Sam. To summarize, we delivered robust top-line and bottom-line growth in the second quarter on strong execution of our strategy and utilization trends. Through our sharp customer focus, we grew demand for innovative clinical solutions and expanded business from enterprise accounts to complement growth from acquisitions. Given our performance in the quarter and continued utilization trends, we are raising our full-year 2025 guidance. Finally, I want to thank our more than 55,000 colleagues for their hard work this quarter to fulfill our purpose: to create a healthier world one life at a time. Now we'd be happy to take your questions. Operator,
Operator: Thank you. We will now open it up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you please fall back in the queue. To be placed in the queue, please press star one from your phone. Our first question comes from Ann Hynes with Mizuho Securities. Your line is open. You may ask your question.
Ann Hynes: Great. Thank you. Good morning. I want to focus my question just on the Washington backdrop. Obviously, with the one big beautiful bill passed and the CBO came out yesterday and said, this will lead to ten million more uninsured over the next few years between the ACA and Medicaid. How do you view, you know, that many people going uninsured? How should we view that impact on Quest over the coming years? And then secondly, as it relates to Washington, what are your thoughts on PAMA going into 2026?
Jim Davis: Okay. Good morning, Ann, and thanks for the question. So first, let's put the one big beautiful bill into some context here. First, you know, the US healthcare system, we spend $5 trillion a year. And over the next ten years, with a 5% inflation, you know, that'll amount to $62 trillion. What the one beautiful bill act is taking out is $1 trillion. So less than right around 1.5%. Now, what we did read yesterday, yes, about ten million lives could come out over the next ten years. From a Medicaid standpoint, it's actually no impact in 2026. Very, very little impact in 2027, given that they're giving the states time to react to these changes.
On the exchange, we estimate that no more than 4% to 5% of our revenue today comes from the exchange. And again, given the timing of when these lives would come out of those plans, at best, we, you know, worst-case scenario, we estimate no more than a 30 to 40 basis point impact on volume in 2026. So we don't really see that big of an impact, you know, in 2026 or in 2027. I think the other thing to keep in mind is with the people that are on the exchange, these people are working. They have jobs. In some cases, they're small business owners or they're self-employed. And so they have incomes.
And so they may be able to pay higher premiums to keep their insurance. We also know that some people go to the exchange because they are subsidized and they could hop on to their employer's health insurance, but they're choosing the exchange today because it is a cheaper alternative than signing on to their own employer's health plan.
Sam Samad: So, Ann, this is Sam. Good morning. Just to underscore or, you know, reemphasize these financial assumptions that Jim briefly mentioned. And make sure that I'm sure we'll get more questions on this on the call, so I just want to make sure people are clear. For the Medicaid impact, we don't believe there's a material impact. We don't believe there's any impact in 2026, and an immaterial impact in 2027. For the exchange impact, you know, assuming these subsidies are not renewed at the end of this year, you know, we expect in 2026, approximately 30 basis points of impact on our volumes. That's what we've sized. Obviously, there's assumptions around that, but that's what we believe.
Jim Davis: Now, and you also asked about PAMA. So here's the most recent update. So look, we're pursuing two strategies. Number one is PAMA reform. And number two, is a six-month delay in the cuts. With respect to PAMA reform, our ACLA Trade Association has introduced line language that would turn into legislation and a bill to the three committees, two in the house and one in the senate, that ultimately decide on healthcare policy in the US. That language is in front of the committees. We expect that to be turned into a bill later this summer. And then the traditional process will start from there. The committees, you know, discuss the bills.
If there's differences between the two committees, in the house and the one in the senate, if together, they reconcile this. And our hope is that it will turn into a bill. And, whether it gets, you know, voted on as an independent bill or it gets put into some larger healthcare type of package towards the end of the year. That remains to be seen. The alternative path is obviously to continue to push for another delay if we don't see the PAMA reform getting enacted this year. But I can tell you we have strong bipartisan support in each of the three committees, where this legislation will be discussed. Operator, next question, please.
Operator: Thank you. And this question comes from Kevin Caliendo with UBS. Your line is open. You may ask your question.
Kevin Caliendo: Morning, guys. Thanks for taking my question. Wanted to talk about the comment of the modernization investments. It sounds like some of it may have come forward into 2Q. Are you still anticipating sort of 20 cents for the full year? And I guess the second part of that is in the context of margins expanding year over year, you've been able to do that the first two quarters. Do you still anticipate that happening in the second half even with these modernization investments?
Sam Samad: Yeah. So, hey, good morning, Kevin. So this is Sam. Let me tackle the two components of your question here. With regards to modernization expenses, you know, we had called out approximately 20 cents around modernization, and we had talked about also some QRA expenses that we're gonna incur as well. So and we said, you know, that we're gonna incur these expenses this year. We've had some QRA expenses already in the first half. We haven't had much in terms of modernization expenses yet in the first half. So the bulk of those are gonna occur in the second half. You know, in terms of margin expansion, yes. We had good healthy margin expansion in Q2.
And in the first half. And our expectation for the full year is that we continue to see operating margin expansion for the full year. So that's still the prevailing assumption in our guidance. Great. Thank you. Operator, next question, please.
Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open. You may ask your question.
Elizabeth Anderson: Hi, guys. Good morning, and thanks so much for the question. Maybe a follow-up from Ann's question about the Hixx exposure and maybe more broadly. If we think back to sort of uninsured utilization rates, are there the 30 basis points of impact that you're talking about? What are you assuming in your assumptions for potential utilization of, like, an uninsured population? And how do we think about that as maybe a potential offset to some of the headwinds that you described from the One Big Beautiful bill?
Jim Davis: Yeah. So thanks for the question. So the uninsured is a very small portion of our revenue today. Now, again, if you take all the lives that you expect to fall out of the exchange, again, we believe, you know, call it 65%, 70% are going to find other alternatives. Okay? Alternative number one is they just simply pay the higher rate. Alternative number two is they hop on to an employer's insurance plan that already exists out there. The third alternative is that they go uninsured, but again, we don't think that's going to be the majority of the people because, again, the majority of the folks that are on exchange programs today, they have income.
By definition, they're not on Medicaid because they have incomes. And, again, they've got the two alternatives. So we don't feel like it's gonna be a major impact as Sam said. You know, 30 basis point impact on volume in 2026.
Elizabeth Anderson: Okay. That's helpful. Thank you.
Jim Davis: Yep. Operator, next question, please.
Operator: Thank you. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. You may ask your question.
Erin Wright: Right. Thanks so much. So last quarter, you talked a little bit about how it progressed throughout the quarter in terms of utilization trends. And how that was accelerating. Some of that was because of the weather dynamics at the time, but how are we trending now into kind of the third quarter? I guess, how would you characterize utilization throughout the quarter as well? Was it relatively consistent? And anything you can do, I guess, parse out in terms of underlying utilization versus market share gains, that would be helpful. Thanks.
Jim Davis: Yeah. Thanks for the question. So we did see strong utilization in the second quarter, and, yes, it was a definite uptick from the first quarter. I would tell you that the drivers of that utilization, you know, first and foremost, it's our expanded access that, you know, that we gained on January first of this year. And you don't instantly just start to pick up that business. So we saw a nice steady increase from Q1 to Q2. And, what I'm talking about is our access through Elevance and our access through Centerra. Elevance got us, you know, we're in network in Nevada, Colorado, West Virginia, Georgia.
And together with the Centerra plan, we picked up a million new lives. So we feel good about the progress that we're making there. Second, is our advanced diagnostic test. Our Alzheimer's AB4240 test, our advanced cardiometabolic test, we continue to see nice volume growth in some of these advanced diagnostics testing. And then finally, as you cite, yes, weather had a big impact in our Q1 results. So I'm sure just the timing of, you know, people coming back into the healthcare system after they missed general health and wellness exams certainly did help in the second, in the second quarter. In terms of utilization rates as we sit here in the first part of Q3.
We're no real changes where it's consistent with what we've been seeing. And, again, there's a combination of good utilization plus some big wins and the expanded access through the new health plan access.
Jim Davis: Operator, next question, please.
Operator: Thank you. Our next question comes from Michael Cherny with Leerink Partners. Your line is open. You may ask your question.
Michael Cherny: Hi. Morning, and thanks for taking the question. Maybe if I can just ask a question on mix. I think, Jim, you said 3.3% organic rev per rec mix. Do you dive a little bit more into what were the drivers of that dynamic? How much of it was contracting on your side, offensive moves versus just the way the market developed, and how that should factor into your guidance for the remainder of the year?
Jim Davis: Yeah. I would say the majority of it is offensive. So you're right. 3.3% organic rep per rec increase. We've said for the year, prices flattish. You know, it'll come in somewhere between plus or minus 30 basis points. So the other components in RevPAR are test per rack and test mix and business mix, payer mix. Test per rack, again, continue to be very strong, and we see it again with the advanced diagnostics testing, our AB4240. Significantly, significant growth, you know, quarter over quarter as well as year over year. Our work with functional medicine entities continues to grow in a very meaningful way. Our own CIT business, as we mentioned in the script, was up 40%.
And with that comes strong test mix, strong test per rep, improvement. So those are the underlying drivers don't see a change in those drivers, to tell you the truth. And we just I don't expect it'll continue here in the rest.
Jim Davis: Operator, next question, please.
Operator: Thank you. Our next question comes from Patrick Donnelly with Citi. Your line is open. You may ask your question.
Patrick Donnelly: Hey, guys. Thanks for taking the questions. Any quick ones, Sam, just on the cadence in the second half, can you just talk about, you know, the 3Q setup in terms of margins, earnings would be helpful. And a follow-up on PAMA. Can you just talk about the financial setup here, what the implications are, how you guys think about potential offsets, what the pacing there would be, would be helpful to frame up the PAMA piece of it. Thank you, guys.
Sam Samad: Yeah. Thanks, Patrick. I think I heard your question just let me know if I didn't quite capture it all. So I think you had mentioned, you know, what's the pacing here, especially as it relates to Q3 in terms of margin and earnings. Then you wanted some more color on PAMA, the financial impact and potential action. So in terms of the pacing, really, you know, I'd reiterate what we've said at the beginning of the year and I think on the Q1 call as well, which is, you know, we do expect that the pacing usually is that Q2 is our best margin and earnings quarter of the year.
Q3 is usually and I'm talking about traditionally what we see and then especially if you take out and normalize some of the COVID impacts that we've seen in past years, at least the last few years. But usually, Q3 is a slight step down from Q2. And then Q4 is a step down from Q3. With Q1 being the weakest quarter. And so that's usually our, I would say, normal pacing in terms of margin and earning. In terms of PAMA, I would say, you know, the impact that we currently size is approximately $100 million.
If PAMA does not get deferred for another year or don't get a permanent fix, we're looking at about $100 million in terms of pricing impact on our business. We've mentioned that previously. Now we will take some actions to offset some of that. I will not give you a number in terms of how much exactly that would be, but we will offset a portion of that. It's not gonna be the majority. We're unable to take actions to offset the majority of $100 million, but we will take some actions to offset a portion of this negative impact if there is no permanent fix or if, you know, there is no delay. Operator, next question, please.
Operator: Thank you. And this question comes from Pito Chickering with Deutsche Bank. Your line is open. You may ask your question.
Pito Chickering: Hey, good morning guys and thanks for taking my question. Question here on tariffs for your presentation that you talked about, how you're absorbing the impact of tariffs from China and Europe. Can you quantify the impact that you're absorbing? Any color on how that hits the third quarter and fourth quarter? It should be analyzed at fourth quarter impact just something about 2026.
Sam Samad: Yeah. We're not gonna give a specific number, Pito. But as we've said before, I'll go back to our previous comments. Think the impact is manageable within our guidance. And so we are estimating that we would absorb this impact. Did we have tariff impact in Q2? Yes. We had some impact from tariffs in Q2 that we absorbed in our results. Q3 and Q4, we do expect some negative impact. But again, we can manage it within our guidance and the updated guidance that we provided on the call. You know, what's assumed in our guidance today is the tariffs that are in place. That are currently in place and currently, you know, implemented per law.
I know there's a lot of uncertainty around what's gonna happen, you know, August first, or I mean, there's always a lot of scenarios around that. We have contracts in place with almost 80% of our spend on the supply side. So again, we believe that even with an August first scenario where tariffs do go up, on certain products that we can offset that impact through the contracts that we have in place. And through the alternate sourcing, you know, supply channels that we have looking at different vendors where we can resource some of the supplies from US manufacturers or at least US-based manufacturing, not, you know, China-based manufacturing.
Jim Davis: Yeah. Just again, to frame this, our spend of $2 billion, 80% of that spend is in the US. We said less than 1% was China. We had already executed on some moves out away from China that minimized, as Sam said, the impact in Q1 and Q2. The other 20% is spread outside the US, outside of China, with the majority of that coming from Europe with our traditional big suppliers that are located there. But as Sam said, you know, we have contracts in place. The language is favorable to us, so we feel very comfortable that it is manageable within the guidance that we've given this year.
Sam Samad: Great. Thanks for your next question, please.
Operator: Thank you. Our next question comes from Jack Meehan with Nephron Research. Your line is open. You may ask your question.
Jack Meehan: Thank you. Good morning, everyone. Wanted to ask about the LifeLabs acquisition. Is it possible you could call out within the $240 million or so of M&A contribution in the quarter, how much from LifeLabs? Versus other deals? And then just more broadly, how's integration going and just latest thoughts around EPS accretion? Thanks.
Sam Samad: Let me I'll start then maybe talk just briefly on the financials. Maybe Jim can give some qualitative commentary on the acquisition. Listen, the acquisition is going really well is the punchline. But in terms of the contribution, Jack, from on revenue, so we had 10% growth from M&A in the quarter. Would say approximately 8% was from LifeLabs. So that's the portion of the growth that came from LifeLabs of the 10% contribution from M&A. You know, in terms of financial cadence or improvements, that we're seeing, you know, we had said operating margin gonna take a couple of years to get to get to be on parity with overall enterprise quest rates.
I think we're tracking to that goal, if not better. You know, and it's generating the EPS contribution that we expect. When we when we size this deal and when we put our plans in place for this year. So progressing really well, but maybe I'll let them speak to the other qualitative.
Jim Davis: Yeah. So, Jack, first we have a very strong management team in place in Canada. That is doing a terrific job from an execution standpoint. I would tell you that we've already gotten, you know, some really good procurement synergies as you would expect when we look at contracts that we have, contracts that they have. We've gotten what I would call nice operational know-how synergies. Right? How we do things, how they do things. And by the way, some things, you know, it's not just a one-way street. You know, we've certainly learned some things from them from an operational standpoint that it helped us.
So put all that together, and as Sam said, we're really pleased with the execution. We're pleased with the acquisition. It's generating nice top-line growth for us. Obviously, it's inorganic, but when we look at the growth of LifeLabs itself, even though it wasn't in our numbers last Q2, we're pleased with that growth. So all in all, we're really happy with how we're tracking.
Jim Davis: Operator, next question, please.
Operator: Thank you. Our next question comes from David Westenberg with Piper Sandler. Your line is open. You may ask your question.
David Westenberg: Thank you very much, and congrats on a good quarter. You well, first of all, I want to talk about one of the slides that had client pay. It looks like it contracted by about 5% over the last few years, and then government has kinda gone up. Is some of that LifeLab and if not, what else would that be? And then how should we look at that on kind of a go-forward basis? And then just a clarity on wage increases, you kinda mentioned acquisitions helped drive net operating income offset by a little bit of wage inflation. Are we treading back to normal? Is that at least still going down? I know you had that.
That's been a headwind for last few years. So, I mean, at least is that heading in the right direction now? Thank you.
Sam Samad: Yeah. Just in terms of the payer mix, it's all driven by you're adding in, you know, what will be over $700 million of LifeLab revenue this year. So all of the other categories are just gonna mix down by that amount. So that's what's driving that.
Jim Davis: Yeah. And, David, we kinda lost you there on the other parts of the question. Can you repeat? Because we maybe it's on our end. But we didn't hear the other part of the question.
David Westenberg: It was on the wage increases? After the one.
Jim Davis: Oh, yeah. The wage increases. Yeah. What wage inflation has stayed in the 3% to 4% range for the year. For the first half of the year, and we don't expect that to change in the second half of the year. What has changed from a labor standpoint though is our attrition continues to come down and we're in the, you know, mid-teens and getting very, very close to where we were pre-pandemic. And so, as you know, that really helps us from a productivity standpoint. So pleased with that.
Jim Davis: Operator, next question, please.
Operator: Thank you. Our next question comes from Andrew Brackmann with William Blair. Your line is open. You may ask your question.
Andrew Brackmann: Good morning. Thanks for taking the question. Jim, a few times you mentioned working with functional medicine entities. That's sort of a larger growth driver for you guys. You maybe help us size that as a broader opportunity? And what further investments are you making there? Thanks.
Jim Davis: Yeah. I don't want to give exact numbers. But it's a sizable chunk of our business that's growing almost in line with our own consumer-initiated testing business. In many ways, look, when we sell through functional health, it is generally either patient-paid or physician-paid, and then the physician is charging the consumer. As you know in functional medicine, the goal is to analyze a lot of things in the human body hormone levels, obviously, all the cardiometabolic, all the chemistry testing, and then functional medicine seeks to treat the patient exercise changes, sleep changes, maybe supplements, but treat the patient in a very natural and holistic way.
And, you know, we're seeing just a surge in this across the US with all the focus on prevention, wellness, and, you know, and just people wanting to live longer. You see it in the podcasters Peter Attia, Rich Roll, Andrew Huberman, these guys in essence are generating a lot of free marketing for us. They have these podcasts, they start talking about April B and LP little a, the next thing you know, we see a surge in APO B and LP little a testing. So it's become a real trend in the US as people are focused again on prevention and wellness and longevity.
And it's sizable, and we expect it to grow double digits here as we move forward.
Jim Davis: Operator, next question please.
Operator: Thank you. Our next question comes from Noah Kava with Jefferies. Your line is open. You may ask your question.
Noah Kava: Hey. This is Noah on for Tycho. Thank you for taking our question. Wanted to unpack the revenue guidance a little bit. You had raised it by, you know, around $80, $85 million. And I'm wondering, you know, what contribution you have baked in from new tests, you know, things like Haystack, AD Detect, Lumipulse, and then other buckets there, like acquisitions, would really be helpful.
Sam Samad: Yeah. So just in terms of breaking it down, between acquisitions and organic growth, Noah. So we talked about the fact that we expect organic revenue growth now to be between 3.5% to 4%. So by default, I would tell you that acquisitions are 6% to 6.5%. So we're seeing strong, so two things that are driving this, and I won't go into the specifics as to which tests are driving how much. But, you know, we have talked about the fact that some of our advanced diagnostic tests in those high growth areas that Jim quoted earlier are driving good upside and good performance.
AD Detect being one of them, but we have many tests across these high growth areas that are contributing to it. Utilization is strong. As you saw in Q2, you know, we are seeing positive utilization driven by increased access in some of those states where we got access as of January 1 this year. And, you know, we saw a good bounce back from some tough weather months in January and February, and Q2 generally was strong utilization, which gives us confidence in increasing the guidance for the full year.
We're seeing very strong revenue per requisition, 3.3% organic revenue per requisition in Q2, again gives us confidence on the fact that, you know, the test per rec assumptions that we have are durable and sustainable. And we're seeing good healthy mix in terms of payer mix. So all of those things are really driving our confidence in terms of increasing the revenue guide by this $85 million at the midpoint that you quoted.
And one other thing I would just add at the end, Noah, is the fact that pricing, you know, is still we are still expecting our price overall across the Quest business book of business to be flattish a potential range of outcomes of plus or minus 30 basis points. So pricing is still within the assumptions that we had earlier. Operator, next question, please.
Operator: Thank you. Our next question comes from Michael Ryskin with Bank of America. Your line is open. You may ask your question.
Aaron Wright: Hey. This is Aaron on for Mike. Thanks for the and congrats on the quarter. I wanted to touch on Haystack a little bit and, you know, ask about any oncologist feedback or impressions and just get an overall update on progress made there.
Jim Davis: Yeah. So we're making good progress. And as we stated previously, we ran this early experience program. We're seeing really nice conversion of people that sent us work as part of the early experience program and becoming full-time customers. The feedback from oncologists thus far has been very positive. They recognize the superior limits of detection that we have with this test. They like the turnaround time. They like the hands-on touch. That they get, the personal touch from our client team. So, we're pleased with the progress. We continue to make progress. From Q1 to Q2, and we expect to continue to grow that business significantly Q3, Q4, and into 2026.
Jim Davis: Thank you. Operator, next question, please.
Operator: Thank you. And our final question comes from Luke Sergott with Barclays. Your line is open. You may ask your question.
Anna Krizinski: Hi, guys. This is Anna Krizinski on for Luke. Thank you for taking our questions, and congrats on the quarter. So I wanted to ask about organic tests per day. Saw a nice 2.5% step up this quarter. I'm just curious, how should we be thinking about this going forward since last year? This only increased about 1% each quarter. And if you could just talk about what's driving that upside. Thanks.
Jim Davis: Yeah. So let me start and, Sam, connect. As we said, what's really driving it from Q1 to Q2 was our access. Right? We got into network with Elevance and Sentera. On January first of this year, and so we've seen a nice steady ramp up of new clients as a result of having access to over a million new lives. That includes in the states of Nevada, Colorado, West Virginia, and Georgia. The other thing driving it, we said, you know, was our advanced testing, just an uptick in some of these advanced cardiometabolic, autoimmune testing, women's healthcare testing, especially the advanced diagnostics, and QHerat, and then obviously our new brain health offerings has also.
We did cite, yes, weather impacted the business. One, and so people that missed appointments, especially general health and wellness, pop back in Q2. So all of that contributed to the strong organic revenue growth. Now the other thing we saw in the quarter is recall last year, we had said that our employer business businesses, the two employer businesses, employer pop Health was our employer drug testing business. Were significant headwind in terms of volume and revenue growth. I would tell you those two businesses have stabilized this year. It's still a bit of a volume headwind, but it actually those two businesses combined had revenue growth in the quarter.
Which obviously means if it's a volume headwind, but it helped from a growth standpoint, it means we've been raising prices in those two segments. And we've raised those prices, and they're sticking, especially in our employer drug testing business, which we're very pleased with. So put all of those things together, and that's what got us the strong organic volume growth. And our expectations, it's gonna continue in that range for the rest of the year. And just one last point maybe to add to Jim's great explanation. Is because I'm not sure if this is also something that you wanted color on. Rep per rec as well organic Rep per rec was up 3.3% in the quarter.
And a big portion of that was driven by test per rec. Would say almost, you know, close to 70% of that was test per rec. Appreciation and, you know, the growth of test direct that we've seen over the past few years before the pandemic, it was less than four tests per rec that we were seeing. And now we're seeing more than four tests per rec. So the rec density on from across our business has improved as well. Got it. Operator, any last questions? Operator, any last questions?
Operator: At this time, I'm showing no further questions.
Jim Davis: Okay. Thanks everyone for joining in today. Appreciate all your questions and feedback and look forward to talking to you all soon. Have a great week ahead. Thank you.
Operator: Thank you for participating in the Quest Diagnostics second quarter 2025 conference call. 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 866-388-5361 for domestic callers. Or 203-369-0416 for international callers. Telephone replays will be available from 10:30 AM Eastern Time on July 22, 2025, until midnight Eastern Time on August 5, 2025. Goodbye.