Quest Diagnostics Aktie

Good morning, everyone. My name is Eric Coldwell. It's really a great pleasure to have Quest Diagnostics with us here today. Jim has been incredibly gracious over the last couple of years -- last few years now, I guess, where are we? Time runs together.

Year 4.

Gosh. Hard to believe.

Yes. Year 4.

Hard to believe. We knew each other for a long time before that. So really gracious with his time, great leadership example at the company. The performance at Quest has been exceptionally strong in the last few years, and it's been a lot of fun covering this space, which used to be a bit of a stable, but maybe some would say boring industry, and there's not much boring to it anymore. So it's been...

Boring and good results are okay.

Yes, boring with good results, stable and good growth. Of course, Jim, President and CEO, we have Damini and Dan, still gracing us from the IR team here. So Dan, I bet you can't wait to go on to new pastures, and Damini is getting up to speed quickly. So we're not going to do a slide show. We're going to jump straight into Q&A, but I don't know if you have 30 seconds of prepared remarks or even want to go off the cuff or I can just jump right in?

Why don't we jump right in. We've got some great questions, yes.

Awesome. All right. Well, I wanted to just tee this up or start this off with a bit of a report card. You had an Investor Day a couple of years back, and you laid out some long-range plans, and you've done incredibly well versus those plans, tracking very nicely. But how you're getting there is a little different than what was set up, how this was staged. And for example, I believe the original target was $1.5 billion of M&A, and you've done maybe a couple of hundred million of M&A, 2/3 of the way through.

So what really happened or changed versus that -- if you can set yourself back in time versus that original LRP, the plan to get more of your growth through M&A, to spend more on M&A. In fact, it's been more partnership, it's been more organic. What really changed, number one? And number two, should we read into that anything about, hey, you don't like the pipeline that's out there or it just there were better alternatives to go after? Or is there a big chunk? You've got to -- to hit your target, you got to spend $1.3 billion in the next year. So I kind of doubt that's going to happen, but you steer me in the right direction.

Yes. So first of all, the guidance we put out there, 4% to 5% revenue growth, we thought 1% to 2% would come from acquisition. And I think we said 7% to 9% EPS growth. So in '25, our revenue growth was just north of 10% and our -- I'm sorry, just was more 12% -- revenue growth of 12%, earnings growth of just north of 10%. This year, we've guided to revenue growth of close to 8% and earnings growth of north of 13%, closer to 14%. So yes, we're beating that long-range plan. Most of this year's growth is primarily all organic. And now I would say that the funnel has changed. The funnel still looks good. If you back up 1 year, the numbers are -- we've deployed since 2024, $2.8 billion worth of capital in M&A. 2024 was a heavy, heavy year from an acquisition standpoint, right, with LifeLabs out of Canada, 3 large substantial outreach deals, including Allina Health, Ohio Health and University Hospitals, a very large physician group in the metropolitan New York area that shut down their lab, and we purchased that outreach, and a few others.

So in 2025 and even into this year, we had to digest all that. It's a lot of organizational capacity devoted to integrating these things. Now also in 2026, it wasn't -- it started in the back half of '25. It wasn't M&A, but taking on Corewell Health, the collab arrangement, $250 million business and then taking on the Fresenius laboratory testing. Fresenius shut down their labs and all of the laboratory testing associated with these dialysis patients now comes to Quest Diagnostics. It's another $100 million book of business. So they're not acquisitions, Eric, but they take substantial organizational time. Now the funnel is still good. There's not that many substantial regional labs left out there. And the ones that are out there, I can tell you, they're in some way, shape or form, impaired, okay? If they're for sale, they're largely impaired. They're melting ice cream cones. And so we have a 10% ROIC target after year 3. We're picky, we're choosy. But the funnel is still there, and there's still some active things going on.

When you think about -- you've already highlighted the unique nature of Fresenius and Corewell and how that faded your -- what is reported as organic growth because you bought little pieces, but a lot of this was customer onboarding. So depending -- regardless of how you define it, you're putting up solid mid-single-digit growth rates even excluding those. What part of that is would you define as structural, whether that be a permanent reset in the number of tests per requisition or just the volume of new lab tests, the utilization of lab tests in general, things like that versus maybe things that were a little more company-specific or transitory like picking up some new lives with Sentara or Elevance, getting back into some states with Elevance.

Maybe you could parse that for us. And what I'm really going to drive to put you on the spot, and you'll find a great way to deny me, but you're going to have another LRP at some point. You're going to have another Investor Day where you're going to lay out a new plan. Are we walking into a plan at least at this juncture where you'd say, look, maybe we could be a little more optimistic on organic growth the next time?

Yes. So let me start with some of the drivers, and then we'll talk about our next Investor Day March of next year. So First of all, the physician -- our core book of business, right, $12 billion company, about $9 billion comes from physician offices, all types, general practitioners, interns, cardiologists, every ologist orders lab work. That is still structurally sound, stronger than it was post-COVID than it was pre-COVID. Why is that? The first thing I would tell you is the country is not really getting healthier at this point, okay? When we look at rates of diabetes, rates of cardiovascular disease, liver disease, you name it. It's not declining. The aging of the population, continued chronic care.

And by the way, how do we know this? We're going to test 250 million people this year, 250 million. Unique, it's probably 110 million to 120 million people. So we have our hands and arms around the health of the U.S. population. And when we look at things like LDL, A1c, insulin resistance, other liver function, kidney function, we don't see a decline in these chronic conditions. So that seems stable, and it's different. Now why is it different as well? There's new tests added into the portfolio, okay? Lp(a), ApoB, insulin resistance are now common test ordered by physicians. Second is the whole brain health phenomenon, the Alzheimer's testing, okay? These blood-based biomarkers are AB 42/40, a proprietary test, p-tau217, proprietary algorithm that helps assess originally positioned for neurologists, these tests are actually taking off in primary care. Primary care are using these tests to then make decisions do we refer to a neurologist or not.

So these are some of the things that are driving the growth on our core physician business. Now we all know at the other end of the spectrum, this wellness phenomena that is taking off, okay? I don't -- our belief right now is this is sustainable. This is a sustainable segment of the population. It's people aged, people born in, let's say, 19 -- late 1980s, all the way through the Gen Z, 2012, people are owning their health, okay? This model of let's go to a primary care doctor, let's see what the primary care doctor says, maybe they'll order lab work. That model is being turned upside down. People are proactively getting lab work. They're checking their biomarkers, right? I have a loop on my hand. You combine these biomarkers with your biometrics, you feed it into an AI engine, you get a wonderful report, and now you make a decision whether I need to see a physician or not.

So it's proactive, it's sustainable. You got to remember, wellness is not the absence of sickness. And people that want to stay well are becoming much more proactive about it, and we're seeing it. And we -- our own questhealth.com business, a direct business, plus the partnerships that we have formed with Function Health, Junction Health, Hims & Hers, Hone Health, WHOOP, Oura and most recently, Apple Health. These are all -- now Apple Health is not yet contributing. It won't start until December, but all of these are contributing to both the volume growth as well as the mix up from a test per rec and a test mix standpoint.

Let's stick with consumer for a second. You opened the door there for me. Was there an updated comment on sizing of that business made another event yesterday?

I don't know if Sam gave some update of it. What we said is at the end of last year, it was a $250 million book of business growing at a minimum of 30% this year. Sam may have said it had an exit rate of $300 million or something. I'm not 100% sure. But it's a fast-growing portion of our portfolio. The margin rate on this business is accretive to the company average. We like the partnerships that we have formed. These are strong, sustainable brands that are in the marketplace, and we've been very pleased with the progress.

Have you seen price per partner, what they offer, the pricing they're offering consumers in their battery. Have you seen that pricing being reduced?

We have not. I mean, originally, Function Health when they first launched the company, I think, had a price of north of $400. But now they're advertising $1 a day, $365 for one large wellness panel and then a check, a smaller panel later in the year. So no, we don't see people pricing against each other. WHOOP and Oura and the rest are about the same.

What is the -- I know some of these -- I've seen tests advertised that have 500 markers, right? That's not the norm, but I've seen some pretty enormous ones. Most are dozens or maybe 100, 200 tests, what are you seeing as an average?

Yes, there's a lot of confusion between some will advertise analytes, some will advertise tests. And there's a difference, right? A CDC complete blood chemistry has a lot of analytes. That is really -- we consider that one test. And so there's a lot of, I would just say, marketing practices, some talk analytes, some talk tests, some don't know the difference. So I can't -- all I can say is versus a physician office rec, which averages north of 4 tests per rec, these are obviously up in the 10 to 12 and sometimes north of that. When you explode 10 tests into analytes, yes, it can quickly add up to hundreds of analytes.

So one of the pushbacks I've heard from, let's just say, others on why they may not want to be as exposed here is that there's a view that perhaps over time, a very crowded market, a lot of players, the pricing comes down. the battery of tests that are offered or need to be offered to engage consumers to choose one versus the other have to go up. Is this not a price erosion category over time? How do you outperform on margin versus the overall book?

Well, remember, we have 2 approaches to the market. questhealth.com, consumers come direct to us. I think our pricing has been very, very stable there. Remember, there's a wholesale price from us to them and there's their retail price. Their pricing can go up and -- up and down all day long. Our wholesale prices to them are staying relatively steady. I think the other important thing to know about this segment is it's cash pay. There's no denials, right? 12% of the work we do for physician offices is denied at first pass. We ultimately work that back to about 7% patient concessions still running at about 4%. So in the Consumer Health business, it's all cash pay. It's all direct. There are no denials. There are no patient concessions.

And by the way, when you think about it, they're all coming to our patient service center. They now know who we are. They know who the Quest brand is. And there's no real incremental logistics costs. I have to send a courier to these patient service centers every single day, whether they pick up 100 recs or 120 recs, there's no incremental cost. So we're largely leveraging the fixed cost base that we have in the company as we grow this Consumer Health segment, which is why I said that the average margin in this business segment is accretive to the overall company average.

Going back briefly, we won't stick here the whole time, but I do want to keep hitting on this volume and your performance over the last several years. At the last IR Day, you highlighted -- you put up a map, you said 50 MSAs, you highlighted 14 where you were previously unexposed -- not unexposed, but underexposed low relative mix. And you were going to go after those. Is there an update on those 4 MSAs and how they've done?

I'll tell you with 3 of them, we went after, and it started with an acquisition of the outreach business. Our market share in Minneapolis, our market share in Cleveland, Ohio, our market share in Columbus, Ohio and the characteristics of those markets in Minneapolis, 3 very large health systems that own probably 80% to 85% of all the primary care docs. Cleveland, Ohio, dominated by 2 large health systems, university hospitals, Cleveland Clinic and Ohio -- Columbus, Ohio, largely driven by Ohio Health and then Ohio State health system. So we simply didn't have access. There's just not a lot of independent physicians in those markets. They're owned by the health systems.

Health system physicians use health system laboratories. So we built relationships with 3 large health systems in each of those markets, and we purchased that book of business. And now we start to see growth rates well beyond what we purchased, okay? Because now we're in the market, you see Quest people, Quest logistics, Quest patient service centers, and we can grow the books of business from there. So those are ways you enter -- there are some geographies where it's structurally disadvantaged to the independent labs. And sometimes the only way in is to go and do a deal with a health system and then you grow it out from there.

I want to talk about your team, people -- a couple of people questions. So you had -- I would consider what I would say would be 2 larger changes or hires over the last several months, a new SVP, Chief Strategy and M&A Officer. Ben started in February. I know Dermot was retiring, but Ben has a bit of an interesting background, right? CDMO, some diagnostics, some specialty pharma. Obviously, great to get a health care guy, probably just a natural fit. But is there something more to read in terms of the nature of that hire what his background was in terms of how you're thinking about growing the company, the strategy, philosophy on what markets you're going after?

Yes, I wouldn't read too much into it. Ben was a seasoned strategy, M&A person. We loved -- he knew health care wasn't in our space per se on the service side. But he came from Danaher. Danaher, as you know, is a great company, very polished from an M&A standpoint, integration standpoint. I would even argue they bring lean processes to M&A transactions. So really, that's why we hired them. His experience, his strategy experience and a lot of respect for the work he did at Danaher.

And not -- you've already hit on this. So I don't want to beat a dead horse, but going back to that comment that M&A was a couple of hundred million versus a $1.5 billion target was a retirement and a transition part of being a little less? Or was it just, hey, we're so busy with Corewell and Fresenius and other things that...

It was more of the latter. Dermot is still with us in many ways as a consultant. So there's been a very smooth transition and no -- again, the funnel looks good. It's just -- some of these take time, and we're more discerning or very discerning.

And then on the Board, Tim Wentworth. So on one hand, interesting because your top competitor has probably 500 or 600 access points inside of the pharmacy that Tim most recently ran, but he also brings not only that retail and pharmacy experience, but also a deep insurance PBM background as well. What is Tim -- how is he helping you the most?

Yes. So first of all, we brought him on to the Board after he had completely left Walgreens. They broke the company up, as you know. We have a presence in CVS stores. Yes, nearest competitor more in Walgreens. I can tell you, though, while we value the presence in those settings, those settings are not what I would call the optimal settings to place patient service centers because you generally can -- they're small spaces, you can generally only have 2 draw rooms. And we prefer larger patient service centers where you have some scale. So we certainly didn't hire Tim to try to get us into Walgreens. He's just a genuine -- we like former CEOs that have been in health care. He's got great retail experience, great consumer experience. His payer experience is terrific. And Tim started out as an HR professional in his career, and that was a skill set that we wanted on the Board as well.

So on the 2 big partnerships, which are arguably getting -- one of them in particular, should be the next year should have a lot of margin enhancement in it. But talk about Corewell and Fresenius. Corewell entering into low single-digit margin, working up to low double digits. Fresenius starting out very strong. I think you've made some positive comments on where that is today. Any change in your outlook on time line to getting to those margin profiles? Any certain circumstances over the next year, opening the Michigan lab with Corewell? Does that cause any kind of a gyration in profitability even if it's a quarter or 2 phasing difference? Is there -- I know we're going to move on to the next deal eventually, but these are the ones in the moment...

So just to remind everyone, Corewell Health, very large health system in Michigan, 21 hospitals, adding about $250 million of revenue. So this year, we're just running the Corewell laboratories inside those 21 hospitals. Why is the margin rate low when you initially start these things? Because we have to, over time, bring Quest equipment with our preferred suppliers, Quest reagents, and that's how we bring them savings. That's how we accrue better margins is when we use the relationships that we have established from a supply base standpoint to bring the supply base savings. So you don't change out all the equipment overnight. That takes time. It's a 3-year pathway to do that.

Next year, all the work from an outreach perspective that flows into those 21 laboratories will now flow into one central lab that we're building with Corewell is a joint venture in Southfield, Michigan. When you do that, you're taking a lot of work out of the hospital labs, moving into one central lab and you get scale economies, benefits from that. We put our Michigan book of business in there, the legacy Quest business, and now you have a substantial laboratory that is now going to compete for all other work in the state of Michigan. It will be the largest laboratory in the state, and we're damn proud to be partnered with Corewell, and we'll have a commercial team, logistics team. It will be like a stand-alone business. Fresenius, $100 million book of business. By the fourth quarter of this year, it will start to achieve the average margin rate in the company. It's been improving each quarter. And next year should be accretive to the average margin rate of the company.

Got a question from the audience on sticking with deals, partnership deals, which could include M&A, of course, but may just be coming in to help with management in those facilities. What are the largest challenges that the health systems are facing today? And how do you differentiate yourself when you're going after that business? How do you differentiate yourself versus your arguably one competitor that can compete everywhere, maybe a couple of others who could do some deals in some regions. But how do you differentiate? What is -- when a customer says, I want to outsource or I want to sell my outreach business, et cetera, how are you differentiating in that conversation?

Yes. So let me just first touch on the structural changes, some of the things that health systems. Look, their environment is obviously tougher because of the changes in Medicaid and the changes in the exchange plan. So to the extent these health systems are serving more of a Medicaid population have more exchange lives, it certainly creates a more difficult operating environment for that. Laboratory is one area. It's a substantial expense within a health system. And to the extent an independent lab can come in and bring our scale, our economies, our procurement synergies, we can generally save them 15% in terms of running their hospitals. Why are some of them in addition to us running the labs, some of them sell their outreach book of business, could be a couple of things.

One, they come to the conclusion that they're really not making money on it, just probably getting paid higher rates, but still not making money on it. Two is they see the writing on the wall in terms of health plans starting to bring their rates down and not paying 200% of Medicare, 300% of Medicare. And three is sometimes they just need the capital, okay? They need the capital infusion. Having said that, New York Presby right here in town, they sold us their outreach book of business. And honestly, for them, it was more a judgment of where is their next dollar of capital best spent, neurosurgery, cardiology, oncology. And at the end of the day, the returns in these other areas were stronger. And they said, we don't need to be in the outreach business. So what differentiates us?

Look, in some cases, it can be, honestly, location, proximity to a nearest central lab. Where you have -- where we have a large central lab in New Jersey, Hackensack Meridian has hospitals all around that. It makes moving that work from the hospitals into our core lab really, really simple. So proximity matters. Some of the other service elements can be around data, helping the health systems manage utilization, especially on the inpatient side. Remember, inpatient lab work, you don't get paid for it. It's part of the DRG. To the extent you can help physicians reduce the utilization of the lab work, it actually brings savings beyond just our supply cost savings. So we think we're very, very good at helping health systems manage utilization. We think our service levels are very good. We think our people's skills when we run our patient service centers, and we think our MyQuest application and the -- some of the AI things that we've added to that are differentiating.

I actually hate asking the PAMA question at the end of a great session, but I'll be left out of the room if I don't. So we're sitting here a few months away from having an answer one way or the other. There's still -- we can get a delay. Technically, we could get Results Act passed by the end of the year. I personally feel like that's going to be pretty tough. I want your perspective on that. But I think the other part, which is a bit different this year than the past is that CBO recently -- not only are we doing a new data run and we're waiting on those answers possibly in the next, who knows, 20 days or so, we could possibly be getting some answers, how many hospitals participated, et cetera.

But what's different this year is that unlike prior delays that were implemented, almost effectively another version of Doc Fix that lasted forever, we had PAMA delayed 6 times here. CBO actually scored enacting or coming back to PAMA as a budget saver for '27 and beyond as opposed to a budget cost. So a lot of stuff to throw at you with 2.5 minutes left, but where do we sit on this? What is the real gut feeling on what's going to happen and when we're going to know -- actually have some better answers.

Yes. So there's a lot of balls in the air right now with respect to PAMA. The things that we do know is a data collection process was conducted. We have no idea how many labs reported. Remember, last time when the data collection process occurred in 2016, less than 1% of all eligible labs sent data in. We know we sent data in. We know our nearest competitor did and a few other labs. So it largely became a price profile established by less than 1% of all the labs. The data collection process has stopped. CMS has said end of September, early October, they would give a view of the data. We hope that they'll provide the number of labs that reported. I can tell you if it's anything less than 95%, 90% of all the labs, we're going to throw the challenge flag, and we're prepared to do that.

Our trade association is prepared to do that because it's a volume-weighted median calculation. So to the extent that you're throwing out a lot of hospital labs that we know are priced at 200% to 300% of Medicare, it simply won't be fair, okay? And so we're prepared -- we'll see what comes back, but we're going to be prepared. At the same time, we are pushing hard and furious for the Results Act. We think it is a fair approach. We think it's the right way to collect the data. It simplifies the data collection process, and it will provide a more accurate view of market-based pricing. We've got 130 cosponsors. It's bipartisan. Now the problem, Congress basically leaves town at the end of this week. They go back, they campaign. They come back into session post-election in November.

So a lot to get done between that date and the end of the year. I do believe there'll be some type of health care package. In the past, delays have been part of that health care package. We're going to push hard to get results as part of that package. It's gone through energy and House Energy and Commerce. They had a hearing on it. It was a very positive hearing. The bill sits in Senate Finance. It sits in the other House Ways and Means. They have a view of that as well. And so we're going to continue to push hard. Congress doesn't want to have to keep dealing with the structural flaws that are part of PAMA today. They would like a long-term fix just like we would. I can't give you a probability on what will happen here. I don't think a delay is the highest probability.

All right. We've just hit time, but I have to squeeze this in. Your competitor had an Investor Day a week ago. They came out and said, we really don't know, but $100 million, give or take, is our best guess on where we should start with a potential gross and net headwind, pretax headwind. And we would hope to offset some of that if PAMA came into effect. Are you comfortable even putting a number out there when you don't know how many hospitals reported, you haven't seen the data yet.

Well, what we do know is there's a max cap of 15%. So worst-case scenario, it's about 8% of our revenue. And by the way, it has been falling, okay? I know it's always said 8%, but if you look at -- we don't give the decimal point. But I think we all know lives are shifting from Medicare into Medicare Advantage plans. When I came into the business, it was 65% Medicare, 35% Medicare Advantage. Today, it's less than 50% Medicare and more than 50% Medicare Advantage. So lives can -- that book of business has not grown substantially. It's grown a lot less than our normal business because lives are shifting. So the max exposure, if every test went down by 15%, I don't think that would happen. But if every single test went down by 15%, max exposure, 8% of $12 billion times 15%, you get something a little north of $100 million, okay? So -- but that's kind of the worst case sizing of it, and we're going to push hard for a fair and equitable solution.

Really appreciate your time today.

Yes. Thank you, Eric.

Thank you so much. Everyone, please join me in thanking Jim and great story here.

Good morning, everyone. Welcome to the Morgan Stanley Global Healthcare Conference. I'm Erin Wright, healthcare services analyst at Morgan Stanley. We're happy to have Quest Diagnostics with us today, the Chief Financial Officer, Sam Samad. Thank you so much for coming. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com. And with that, we'll get started with our fireside chat. So, I think we'll start out with the most recent quarter, if that works, Sam. So, you raised 2026 guidance again to -- I think it was 8.3% to 9.2% growth on top of the first quarter trend. So, can you talk a little bit about the key drivers in the first half strength that led you to the guidance increase, those broader tailwinds, headwinds that you're contemplating in your guidance range for the second half?

Sure. And thank you for having us, Erin, first of all. I'm accompanied here by Damini Chokshi, who's my -- who's our new Head of Investor Relations. So, I don't know if you've met her. She came to us from Merck. Now it's been, what, 2 months. So, welcome. So, let's talk about 2026 and the guidance increase and the take-up that we had. Listen, first, I'd say very strong start or first half of the year. I mean, we're seeing some really broad-based strength across utilization, across revenue per requisition. We have these new partnerships that we established towards the end of last year with Corewell Health, which is a large health system in Michigan, as well as Fresenius around performing testing for their dialysis business, clinical testing for their dialysis business.

So, all of those things are giving us lift in addition to our consumer business, which is really performing, also, very well. So, almost 30% growth year-on-year. So, all of those things, I would say, have given us confidence about the year, especially the strong utilization environment that we're in that I do believe, by the way, is durable.

Now, as we think about the remainder of the year, I'd say we expect that strength to continue. In the first half of the year, we didn't see any impact -- material impact from the healthcare exchanges, the subsidies expiration.

We were expecting with the disenrollment for that to start to have a bearing on revenue and volume growth. We haven't really seen it. We have seen disenrollments, but not really materially felt that impact. We do expect that to be felt in the second half of the year, whether that's the right assumption to be determined, but that's what we have baked into guidance.

And so, that's really one thing that we expect to have an impact in the second half of the year, if you're looking at growth rates second half versus first half. There's always the uncertainties or variable items like weather. So far, weather has been good. We haven't seen much in terms of hurricanes, but that always has an impact on our business in terms of disruption. And usually, what we do see in the latter part of -- well, in the summer months, et cetera, is we do see some more weather activity, but we haven't felt it yet. So, those, I think, are the key ingredients. But I'll leave you with strong -- very strong first half and confidence about the year.

Okay. And so, that deceleration in the second half that's implied in guidance, that is largely attributable to, kind of, your assumptions around HIX and enrollment dynamics.

Yes. That's really most of the impact.

And an element of weather conservatism.

Right, exactly. And then the other one is the lapping of those Corewell and Fresenius partnerships, which helps our margin rate, but have an impact on revenue growth because those started in October of last year, and we're going to lap them in October of this year.

Great. That brings me to my next question, which is on margins for the year. So, you are anticipating or expecting full year operating margin expansion. What does that mean? And how do you think about that into the second half?

We are expecting operating margin expansion for 2026. So, I'll repeat that. We talked about it on our 2Q call. We still expect it. We're making really good progress on margin rate post this whole, kind of, period post-COVID, where we've been working very actively on improving our productivity in the labs, margin rates, et cetera, and we are expecting margin rates to be up in 2026. If you're looking at Q2, for instance, Q2, we had a 40-basis-point reduction in operating margin rate versus same period last year. It had a few things in it, what I would call not necessarily just one-timers, but things that impacted it. The Corewell, Fresenius mix impacted margin rates by about 30 basis points. That -- those are profitable relationships, but they are, at least at this stage of the partnership, dilutive to operating margin rate.

Nova expenses, which is our multiyear transformation of order-to-cash, was about a 20-basis-point impact in Q2. And then you have this thing we call supplemental deferred compensation impact, which is a net neutral EPS impact, but it impacts operating margin rate because it's really based on market performance across our deferred compensation plan.

As we think about the full year, Erin, here are some things that improve, especially as we look at the next 6 months for the same or the second half. For the same reasons that I mentioned about Corewell and Fresenius, lapping those partnerships will improve the margin rate because they are dilutive to our overall margin rate at this point. But as of October, we lapped them, so they're not a dilutive impact anymore. And then those partnerships themselves, both Corewell and Fresenius, we are improving the profitability. We have some initial expenses, initial integration costs, especially with Fresenius.

With Corewell, as is typical with Co-Lab relationships in our business, they always start out less profitable. And as we go further, we start to improve the productivity of those relationships. So, as we exit the year, Corewell will be approaching double digits or at double digits in terms of -- when I say double digits, I'm referring to approximately 10% margin rate. And Fresenius is definitely improving in terms of margin as well. So, not only do we lap them, but we also are improving the margin rates of those relationships.

Yes. I want to go back to, kind of, the organic trends that you're seeing. You have 4% to 5%, for instance, long-term revenue CAGR in your guidance, that implies about organic growth of about 3%. Over the longer term, you've been tracking well ahead of that. What are some of those key drivers? And even excluding some of the dynamics around whether it's Corewell or Fresenius, your underlying trends here are still relatively strong. Like, break down what's really driving that?

The underlying rates are very strong. You're right. I mean, we've had underlying volume growth, excluding those 2 partnerships, of about 4%. And we've had the revenue per requisition in Q2 approaching 3%. It was 2.9%, excluding those partnerships. And I'm talking -- the volume growth that I mentioned was organic volume growth, excluding those partnerships. I think there are a few key things, Erin, that factor into it. When I think about our physician channel, where we call on physicians and they order tests for their patients in the physician office, expanding guidelines favoring early screening. And it's not just cancer screening. It's brain health, it's cardiometabolic screening. We're definitely seeing a shift from acute treatment care to preventive care. So, we are seeing high single-digit growth or utilization on the physician channel.

If I think about our health system business, in the Co-Lab side, we've talked about Corewell that's definitely driving it. But we also continue to see good traction in terms of onboarding new relationships on the Co-Lab side. If I think about another key channel in our business, which is consumer, we're seeing pretty significant growth in consumer. That business is now annualizing to close to $300 million, and it's growing at about 30%. And we think it can grow over the next 3 to 5 years by north of 20%. So, that's another driver.

So, when you look at all of these things, I think a lot of it is driving -- the key factors are similar. People owning their health, owning their health outcomes, shifting more focus to preventive care from treatment care, and that's really helping our business. And I do think there's durability to that.

What are you seeing, though, across your hospital customer base? And we get the question a lot in terms of bad debt exposure, but there's also just this swirling narrative of a potential slowdown in broader medical utilization trends. Are you seeing that at all?

We're not really seeing it. We're seeing typical utilization rates from our health systems customers. So, we operate in health systems across, I would say, 2 categories. One is reference business, where health systems reference out certain testing to us, which is usually advanced diagnostics, nonroutine testing that they don't perform themselves in their own labs. And then the other portion is the Co-Lab business, where we basically perform a key service for health systems and we run their hospital lab, their inpatient lab.

It's, kind of, really a partnership. On the reference side, I mean, that is a competitive business. We compete with other players who perform that testing service for health systems. We're seeing mid-single-digit growth in that business. And traditionally, we have seen that same type of growth, maybe low to mid is what traditionally we've seen, and we're seeing, kind of, mid-single-digit growth there.

On the Co-Lab lab side, setting aside Corewell, which was a big partnership that we had this year, listen, hospitals, I will not dispute the fact that they are feeling the pinch. They are struggling. There's definitely -- I mean, some of the coverage issues, the health exchanges, subsidies impacting patients, them having to perform work for uninsured patients, that is impacting them. But we perform an essential service there. When we run their hospital lab on the Co-Lab side, for instance, we usually give them -- provide savings for them. We provide 10% to 15% savings to perform that service for them to run the lab. And so, that helps them in terms of managing their own cost structure as well.

Yes. I think that's a good point in terms of labs being a solutions provider, kind of, for a strained healthcare system. But how much of the growth that you're seeing improved access, for instance, whether it's Elevance or otherwise? Or is there any way to parse out, for instance, like, underlying market share gains where you're going into some of these physician relationships and really seeing some of that halo effect and reaching that tipping point in terms of the volume going to the low-cost, high-quality, kind of, provider across this industry.

Yes. So, first, I'd say we've definitely seen market share gains in our space for us. We're definitely gaining share in the market. Some of it has been gaining access in those 4 new states with Elevance, which happened at the beginning of 2025. And the way to think about that is in the first year, when you gain access in a new state, and in our case, we gained access in 4 new states, you -- that's the bulk of your market share gains is in that first year. You'll get some in the second year, which is this year, and then it will start trailing off. The impact, I would sort of cap it at about 50 basis points in terms of growth, Erin, from gaining access in those new states and the ability to win new businesses because now you have full access with all payers.

But in addition to that, we're gaining market share through -- I think you alluded to it, redirection efforts we make with -- we partner with the payers on figuring out how we can redirect volume from high-cost labs, meaning health systems, to labs, which are high-quality labs like us that perform the work at much lower cost. We also have made acquisitions over the last 2, 3 years, physician outreach acquisitions in states where we had really good access, but let's say, lower capture. So, Ohio, where we acquired the physician outreach business of OhioHealth and University Hospitals, and Minnesota, where we acquired the physician outreach business of Allina Health, those have driven market share gains as well because today, they're part of our organic growth picture, but they're helping us in terms of growing volumes.

And just you mentioned during the most recent quarter that the last 3 weeks of July were consistent with what you were seeing in the second quarter. I guess, any update on that front? And then you mentioned at the beginning, your HIX expectations into the second half. So, is that actually playing out like you thought?

Yes. So, I won't talk much about what we're seeing in 3Q, but I will give you a sense as to broad-based what we are -- what -- the trends that we have been seeing. I mean, structurally, no change in our commentary about utilization, durable, strong and continue to see elevated utilization as we exited 2Q into July. And we feel confident about the guidance that we've given this year. In terms of health exchanges, so here's what's happened with the health exchanges, just to give some background to the audience here, and I'll talk about the second half. What we saw was over 20% disenrollment in the exchanges when the subsidies were removed. After the dust was settled, roughly 21% disenrolled from the exchanges. The impact to us in Q2, what we saw was basically an 8% reduction in requisitions. However, a 6% increase in tests. So, basically, test per rec actually went up.

So -- what we are seeing there is, frankly, what we saw in Q2 was relatively a neutral impact. So, no real impact for us as a negative from these -- the people that disenrolled. So, what it's telling you is the people that remained are more acute, high-acuity patients that require more care and more healthcare. And the people that disenrolled were ones that really were very low, in some cases, nonutilizers of healthcare. So, we saw no impact on the first half. We said 30 basis points for the year. We saw no impact in the first half. We still have kept the 30-basis-point assumption for the full year, which by default obviously means 60 basis points for the second half. I would say that's what's in the guidance, but we haven't seen that so far.

Okay. All right. That's helpful. This brings me to my next question, which is about, kind of, test per rec and driving much of the revenue per rec rather than necessarily unit price. So, how do we think about the incremental margin on that mix benefit?

Yes. The margin is definitely significantly higher because when you see higher tests per rec, you're not having to incur proportionately the same cost. As you know, you know our business well. If you're doing 4 tests per rec or if you're doing 6 tests per rec, you're going to incur more reagent costs, you're going to incur some more material or supply costs, but you're not going to incur, in most cases, more labor cost. You're not going to incur, if you're performing a draw in one of our patient service centers, a higher cost because you're performing a draw on a 6 tests per rec or 4 tests per rec. The cost of the draw is still the same. So, it's definitely a higher drop-through.

But not something you can quantify.

I wouldn't give a number, but it's -- let's just say it's a good step-up from our usual 35% to 40% drop-through that we get.

That's fair. On PAMA, I want to switch gears to PAMA. How are you thinking about the next set of data? Your peer competitor out there was out there still somewhat pointing to that $100 million in terms of their impact. Do you anticipate it being drastically different this time around?

I don't. I mean -- but there's a lot of still uncertainty around this. I don't think it will be more than the $100 million. I think there's a 15% cap in the way that they've communicated this. So, I don't expect it to be more than the 15% at worst case. But then again, we have to see what the data collection brings. There's uncertainty still as to who participated in the data collection. Obviously, the results of the data collection. I can tell you, we participated. We submitted well before the deadline. We think that we will get clarity maybe by beginning of October is currently the prevailing thought. There's going to need to be CBO scoring of, also, that data collection to see what the impact is on CMS budgets.

I don't think the prevailing assumption, I would say, for us is that if -- obviously, it will depend on the data collection, but it shouldn't differ materially from the $100 million is at least what we're expecting. Now, as I said before, we would offset a portion of it. It's not going to be the majority of the $100 million, but we will definitely offset a portion of it. So, it's not going to be $100 million drop to us. But again, I caveat the $100 million by saying it really depends on the data collection and based on the number of labs that participated.

Right. Would 30% mitigation sound about right to you?

Yes. I won't give a number. I know you're cornering me into a number. You've done that before, but there'll be a mitigation. It won't exceed 50%.

Okay. That's fair. Okay. And then you're going to still push for RESULTS.

Absolutely.

Even if this does get even put into place, right?

Absolutely. Our efforts on the RESULTS Act still are working concurrently with this. It definitely requires some work to get it through. But there's 100 congressmen and women that are supporters of the RESULTS Act. So, it's a bipartisan effort.

Okay. And one other thing on regulatory, just because we were talking about HIX earlier at the exchanges, Medicaid and work requirements, what are your anticipations or anticipation there?

Yes. We've sized it before and I'll size it again consistently. And I'll say it's -- we expect between the health exchanges, which I said this year is expected to be 30 basis points. So far, it hasn't been. And Medicaid, which only begins to impact us in late '27, we believe, and '28. We think the combined impact of both of those by '28 is about 50 to 60 basis points of impact on volume.

Okay. And then I want to switch gears a little bit to advanced diagnostics or esoteric testing or specialty testing, however we want to characterize it. But whether it's liver fibrosis, Alzheimer's, oncology, how do we think about what will really, kind of, move the needle for you?

Yes. Well, we've got 5 key high-growth areas that we've identified as part of advanced diagnostics. It's about $1 billion in those high-growth areas that's growing mid-teens, okay? So, not in that order, but I would capture here are the key things that are really growing -- driving our growth: brain health, this whole early onset dementia testing, blood-based testing and introducing more biomarkers, more analytes into testing, whether it's amyloid beta 42/40, whether it's p-tau217/181, whether it's introducing ApoE, all of those help you really identify and diagnose with better sensitivity, the early onset dementia and earlier than CT scan can. So, that's critical, and we continue to advance that menu.

Cardiometabolic. So -- and guidelines are favoring these, by the way. They're favoring AD-Detect and early onset dementia testing. They're favoring cardiometabolic with tests like ApoB, I mean, and Lp(a). Those are really critical now for understanding cardiovascular risk based on genetic factors, based on not just your cholesterol score, but including your Lp(a) risk markers. Then you have oncology. Oncology, the whole journey of oncology in terms of early cancer screening, therapy selection, MRD, and we play in that. We play in all through that journey.

Then you have women's and reproductive health with noninvasive prenatal screening and carrier screening, for instance, to identify risk for pregnant women or risk for women and men who want to have children. And then finally, and very importantly, autoimmune. We have this test called ANAlyzeR, which really allows us to diagnose and understand what type of autoimmune condition. And a lot of these autoimmune conditions represent in similar ways, but with ANAlyzeR, you can diagnose and understand what type of autoimmune condition a patient has so that you can treat it appropriately. So, those are, kind of, this basket of -- and these are not all the tests, by the way. I just gave you some samples, but those are really high-growth tests that are helping advance our advanced diagnostics portfolio.

And so, I want to ask on Haystack. You received New York State approval in the second quarter, integrated with Flatiron, you have a pilot underway with American Oncology Network. What is the next important step from a commercial milestone perspective? Obviously, reimbursement is a huge factor here. And I think relative to some competitors that have made inroads into the space, I think you're taking a relatively measured approach as you think about the cost and sort of profitability of thoughtfully expanding this?

Yes. No. I mean, I think your point is very accurate, which is we are taking a more measured approach, especially commercially. We do have about 40 sales reps that are promoting this test. But until we get reimbursement, full Medicare reimbursement, not third-party payer reimbursement, that's a ways off. But Medicare reimbursement, we'll end up performing a lot of testing that we don't get reimbursed for. We do get reimbursed on a case-by-case basis today, but that's -- we'd like to have more Medicare Advantage reimbursement.

And that's why the next milestone is the approval by MolDX of our technical assessment, which we have submitted, and we do expect hopefully in the near future to get. But to your point, we have also integrated Haystack MRD in the oncologist EMR to make the experience much easier, much more seamless for oncologists. And we have ramped commercial efforts, but we have taken a more measured approach. I think that's the right way to put it. We did get New York State approval, which was a big milestone, and we had also breakthrough designation on the test as well.

Yes. And I do think that Jim has characterized it as not exactly high switching costs either across the segment. So, there's still an opportunity even with a more measured approach.

Exactly.

Okay. So, consumer. We've done a lot of work in this space. It's roughly $250 million or you're saying, $300 million annualized, I think, this year. So, growing at a really fast clip. Can you talk about the TAM, how you think about that? Is it bigger than what you expected? Is it more durable than what you expected? Do you have some data points around repeat testing with some of these subscription services and like what types of partners make sense for you? And sorry, this is a bigger, broader question, you can go where you want with it.

No, it's an exciting area. And it is right now annualizing at about $300 million, growing at about 30%. So, think about it, $300 million, 30%. We think we can grow this more than 20% over the next 3 to 5 years. 1/3 roughly of this $300 million is our own direct-to-consumer business, questhealth.com, where any patient can get online, order a test out of many, many tests that we have on the menu. But the 2/3 of that business is partnerships, partnerships with wellness enterprise customers, either that have a membership subscription model. And I know probably in this room, some have tried them, or that are wearables and have -- basically, you can measure your biometric, your biomarker through ordering lab tests. We're excited about the Apple partnership that was announced last week during the Apple event. So, that's our newest partner that we have signed up.

The way we think about this -- and the market is fairly large, Erin, I mean, depending on how you define it. You can look at wellness across so many areas in terms of looking at the market. But if we think about our own portion of the market, it's probably like somewhere in the mid-single-digit billions. So, there's still a long road to go here in terms of potential uptake. But the way we think about it in terms of the strategy is grow our direct-to-consumer business by offering a best-in-class experience for those patients, the convenience, the fact that you don't have to go through a payer, the repeat testing that you can do without having to worry about what's covered, what's not covered for our own direct-to-patient customers. But then really being the engine for a lot of these partners that want a seamless partnership with a provider that can offer scale.

We have 2,000 patient service centers across the country. We can generate results within a day or 2 that can feed some of those providers and help them work -- provide a comprehensive report to their patients. If you're a wearables manufacturer like Whoop and Oura, you go on the app, you order a lab panel and you book an appointment with Quest Diagnostics. And it's really ease of use. It's a seamless experience. With Apple, which will be introduced later this year, through the Apple Health app, you can order a panel, which is 8 to 10 tests, 50 biomarkers. You can get your results in the Apple Health app, and it's a really cool experience as well for their users, and we know they have a lot of users of Apple Health.

So, it gives us really access to a very exciting area. Why do I think it has durability? Again, it's those fundamental drivers of people focusing on their health and preventive medicine, not treatment. It's Gen Z who don't really want to deal with a primary care physician sometimes and they just want to be able to interact directly with an app, for instance. We think there's a lot of durable features to this.

And with a partnership like with Apple, there's nothing you need to -- like you don't need to build out anything, right? This is leveraging your existing, kind of, capabilities and size and scale and infrastructure that you already have in place.

Absolutely. And whether it's Apple or the other providers or wellness customers that we work with, we are not directly undertaking any patient acquisition initiatives, incurring costs on patient acquisition. They manage that. We are the engine for them. Now, what I'm focused on, what we are focused on at Quest is the patient, the user having the best experience possible. If they go to one of our PSCs, we want to make sure they have the best experience. We want to make sure they have the best experience in terms of getting the results early. There's -- the turnaround time is quick. That's sort of making sure there's no sand in the gears behind their experience.

And so, they can serve as a marketing engine for you to some extent where we didn't really have one before and that world. On that front, though, margin profile for these types of partnerships, like how do they compare to either Quest direct margins or the broader enterprise?

Yes. So, overall, the consumer business has better margins than our enterprise margins. Reason being 2 things. One, we don't have to deal with denials, patient concessions. In our Quest Health business, we are getting paid directly online through a credit card by the patient who orders the test. In our enterprise business where we deal with other -- where we support other companies, it's a client bill business. So, they pay us. So, no denials, no patient concessions.

Number two, equally importantly, if not more, is -- and this is especially true in the enterprise business where we support other players, is the revenue per requisition and the number of tests per rec. In certain cases, we're getting 10 tests per rec. We're getting in certain other cases, 18 tests per rec. So, it helps really with the rec density. And for the reasons I mentioned to you before, when you ask me about the profitability of more tests per rec, it really helps our profitability and our margins. In terms of the last part of your question, comparing between the 2, the direct and the indirect, so to speak, the enterprise business where we're powering other companies is -- gets us a higher margin rate, and that's primarily because of the test per rec.

And so, margins, broadly speaking, across the entire enterprise, now I'm flipping to broader Quest, you have initiatives like Project Nova, you have Invigorate Savings, which are tracking, kind of, 3% kind of annual cost saves -- what do long-term margins look like at Quest?

Well, I mean, our focus -- I won't give you a number, and we have our Investor Day in March of next year. And so, stay tuned. But our focus is to continue to expand margins. We had a target going into '25 of 75 to 150 basis points of margin expansion for the 3 years. We're still on track for that target. There's always certain things that impact the margin rate, not margin dollars. Like, for instance, the partnerships that we have with Corewell and Fresenius are lower margin rate, but still very profitable and strategic partnerships for us. But if you're asking about what are the key drivers, Erin, I would say structurally, volume growth is going to be the #1 key factor because every incremental dollar of revenue or volume percent will come -- will drop down at a 35% to 40% margin rate.

The other one is the consumer business structurally is a margin improver because it is a higher-margin business. Continuing to see more technologies and expanding test per rec and these guidelines favoring more early screening will help margins because as you get your revenue per requisition up, that will help you. Price is obviously a key ingredient. Today, our expectations ex the PAMA noise, which is uncertain, is that the price forces in our business are relatively neutral price, not favorable pricing, not negative pricing. So, it's definitely not a headwind. It used to be before COVID. But going forward, we expect neutral pricing across our business.

Okay. I'm going to squeeze this all into one question. But okay, so capital deployment, what does the M&A pipeline look like relative to like, let's say, what you were looking at a year ago? Are you seeing that sort of hit some sort of inflection point with pressure across, kind of, health systems? And then when I think about all these different drivers, I mean, some of this is relatively recent, whether it's the health system pressures that may drive more opportunities from a capital deployment standpoint or consumer and relationships like Apple or some of the more esoteric testing type stuff as well and underlying utilization, like why doesn't underlying like long-term growth inflect higher? And why isn't margin expansion even higher from a long-term -- target standpoint. Maybe we just wait until March.

I'll try to squeeze it into one answer. But I mean, number one, on capital deployment, we are focused on acquisitions driving growth. We said 1% to 2%. We are committed to our dividend, which we've been growing sort of almost at the same rate as EPS. And we will do share repurchases to offset equity dilution, but our principle is return the majority of free cash flow back to shareholders. The acquisition landscape is still, I would say, robust. The physician outreach potential opportunities are still robust. They take time because you have to deal with hospitals, you have to navigate the bureaucracy and unions in certain cases. They take time to come to fruition, but they are still there.

In '24, we did over $2 billion worth of acquisitions, and we've been sort of digesting some of them. You know one of the big ones with LifeLabs, the business up in Canada. In terms of the long-term growth algorithm, yes, you'll have to wait until March. But listen, again, I go back to structurally, this business is performing better. And I don't think it's a timing issue. I don't think it's pent-up demand. I don't think it's a onetime thing. I do think there are factors, all the things I've talked about around guidelines, early preventive focus, the dynamics, macro dynamics that -- where people want to take ownership of their own health. They want to see everything in an app in terms of biometrics and biomarkers. Those are here to stay, I think.

Okay. Thank you so much. Appreciate your time.

Thank you.

Welcome to the Quest Diagnostics Second Quarter 2026 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and the question-and-answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited.

I'd now like to introduce Dan Haemmerle, Vice President of Finance for Quest Diagnostics. Please go ahead, sir.

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. Also joining us is Damini Chokshi, our new Head of Investor Relations, who joined Quest Diagnostics last week.

During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K.

For this call, references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates. Now here is Jim Davis.

Thanks, Dan, and good morning, everyone. Before we get started, I want to welcome Damini, who brings to Quest a strong record of Investor Relations and financial management experience from her nearly 2 decades with Merck. I also want to thank Dan for his leadership over the past few months as we completed the hiring process. Dan will continue to work closely with Damini over the coming weeks as she transitions into this new role.

Now turning to our results. Our strong performance in the second quarter demonstrates focused execution of our strategy to connect people and providers to innovative testing and actionable insights that illuminate paths for better health. In the quarter, we grew revenues by over 10%, driven by broad clinical demand from physicians, hospitals and consumers and increased volume from our collaborations with Corewell Health and Fresenius Medical Care.

We also grew adjusted diluted earnings per share by over 19%. Our implementation of automation and AI across our business is driving continuous improvements in quality and productivity, both in and outside our labs. We are also using advanced technologies to make it easier for our customers to engage with us and draw greater insights from our lab data. With our strategic execution and demographic and technological trends driving sustained demand, we are again raising our guidance for the year.

I'll now provide more detail on how we executed our strategy across our key customer channels and operations during the quarter. Quest Diagnostics operates at the center of health care, providing insights to make health more proactive, personal and connected. We deliver solutions that make testing simpler and smarter for our core clinical customers, physicians and hospitals as well as for our customers in the higher growth areas of consumer health, life sciences and data analytics.

In the physician channel, we delivered high single-digit revenue growth in the second quarter on broad-based demand for our clinical innovations, new customer wins and increased business with existing customers. We continue to deliver strong growth in several geographies where we have expanded our reach to physicians through increased health plan access and acquisitions in recent years.

We also continued to grow our enterprise accounts, especially in clinical areas where providers value our ability to deliver solutions that serve the growing interest in prevention and wellness. In addition, our collaborations with Fresenius Medical Care continued to support growth in the quarter. Through this relationship, we have fostered new capabilities for serving nephrologists and other providers caring for the nearly 36 million people in the U.S. with chronic kidney disease. Today, we provide a highly comprehensive kidney testing portfolio spanning risk assessment to post-transplant monitoring for providers focused on this growing area of medicine.

In the hospital channel, we grew revenues at a double-digit rate during the quarter, primarily from Co-Lab Solutions with Corewell Health in Michigan.

In addition, revenues from reference testing grew versus the first quarter and prior year. Hospitals continue to contend with workforce, financial and other pressures. As a preferred strategic partner, we empower hospitals to improve quality, expand access to new test innovations and maximize cost efficiencies and capital allocation.

As one example, during the quarter, we formed a new Co-Lab agreement with a nonprofit regional health system in California. Through these deep relationships, we have created a strong pipeline of potential collaborations and acquisitions of hospital outreach as well as independent labs.

In the consumer health channel, we deliver solutions that enable people to own their health. Wellness is not the absence of sickness. It's health that is proactive, personal and connected. And we're helping to make wellness possible by illuminating early signals of disease and by making it easier for people and partners to link our biomarker insights with biometrics. We expect to continue to expand our own platform and solutions for partners as interest and investment in preventative health and wellness continues to grow.

During the quarter, QuestHealth.com continued to generate robust revenue growth and strong demand for existing wellness panels and new services such as our thyroid test offering. In addition, we continue to attract new partners as a result of our diagnostic innovations, flexible technology integrations and scale. Our customer channels are also growing as we continue to deliver advanced diagnostics in 5 key clinical areas: Advanced cardiometabolic and endocrine, autoimmune, brain health, oncology and women's and reproductive health.

During the quarter, we grew revenues by double digits across several of these areas. These include advanced cardiometabolic tests like ApoB and Lp(a) as well as liver fibrosis testing, an area poised for additional growth given new treatments for late-stage liver disease. We also continue to drive strong growth for our analyzer solution, which aids the diagnosis of autoimmune disorders.

In brain health, we continue to drive robust double-digit growth across our portfolio of AD-Detect blood tests, which include amyloid beta, p-tau and other biomarkers, demonstrating the clinical value of our multi-biomarker approach to dementia care.

In oncology, we achieved key milestones for Haystack MRD during the quarter. New York State approved the test, placing it among an elite group of solid tumor ctDNA MRD tests to fulfill the state's rigorous quality criteria. This approval allows us to extend our commercial efforts to all 50 states.

We also became the largest reference lab to extend access to cancer tests such as Haystack MRD through Flatiron Health's OncoEMR Molecular Profiling Integration platform. We began a pilot of the solution with American Oncology Network, a leading community oncology organization and plan to roll it out to Flatiron's 4,700 clinicians and other providers nationwide later this year.

I'd like to turn now to operational excellence. We remain on track to deliver 3% in annual cost savings and productivity improvements through our Invigorate program. We are also making testing simpler and smarter by investing in AI and automation to improve our operations, services and experiences, both in and outside our labs. For instance, in our labs, we recently installed the Hologic Genius Digital Diagnostics System in 2 more locations following successful implementations at about half a dozen sites over the past year. The system first digitizes a Pap test slide and then uses AI to scan for signs of cervical cancer, helping to improve the quality of the slide review by our medical team.

Our front-end specimen processing automation is delivering meaningful gains in productivity, and we look forward to extending the solution to other sites later this year. Beyond our labs, we recently launched IntelliDraw, a web-based tool that guides the clinical staff of our physician customers through the process of specimen collection, improving quality and the service experience.

In addition, we will be implementing an AI tool at patient service centers this year to cut the time it normally takes to track and order supplies. Overall, we are pleased with our growth, momentum with customers and strategic execution in the second quarter.

I'll now turn it over to Sam for more details on our performance and guidance. Sam?

Thanks, Jim. In the second quarter, consolidated revenues were $3.04 billion, up 10.2% versus the prior year. Consolidated organic revenues grew by 10%. Revenues for Diagnostic Information Services were up 10.3% compared to the prior year with 10.1% organic growth, reflecting strong growth in our physician, hospital and consumer channels.

Total volume measured by the number of requisitions increased 13.1% versus the second quarter of 2025, with organic volume up 13%. Our Corewell Health and Fresenius Medical Care relationships contributed 9% to volume in the quarter. Excluding these 2 relationships, volumes grew by 4.1%. As anticipated, total revenue per requisition was down 2.8% versus the prior year due to the Corewell and Fresenius business mix. Adjusting for that business mix, revenue per requisition was up by 2.9% versus prior year, driven primarily by an increase in the number of tests per requisition. Unit price reimbursement remained flat, consistent with our expectations.

Reported operating income in the second quarter was $459 million or 15.1% of revenues compared to $438 million or 15.9% of revenues last year. On an adjusted basis, operating income was $502 million or 16.5% of revenues compared to $466 million or 16.9% of revenues last year. The increase in adjusted operating income is largely due to organic revenue growth, partially offset by wage increases. Operating income as a percent of revenues was impacted by investments in Project Nova and the lower operating margin rate associated with the ramp of the Corewell Co-Lab business. Operating income was also adversely impacted by higher supplemental deferred compensation expenses. The total of all 3 drivers amounted to a 70 basis point reduction of operating income as a percent of revenues.

Reported EPS was $2.84 in the quarter compared to $2.47 a year ago. Adjusted EPS was $3.12 versus $2.62 the prior year. The improvement in EPS in the second quarter was largely driven by strong organic operating performance as well as the favorable resolution of various tax contingencies, which contributed $0.10 of EPS in the quarter. As previously indicated, adjusted EPS grew by 19.1% and excluding the onetime tax benefit, grew by 15.3%. Cash from operations was $875 million year-to-date through the second quarter versus $858 million in the prior year. This year-over-year increase is the result of higher operating income in the current year, largely offset by a onetime CARES Act tax credit a year ago.

Turning now to our updated full year 2026 guidance. With our strong first half performance and continued momentum, we are raising our full year revenue and EPS estimates. We now expect revenues to be between $11.95 billion and $12.05 billion, reflecting a growth rate of 8.3% to 9.2%. Reported EPS to be in a range of $9.97 to $10.17 and adjusted EPS in a range of $11.05 to $11.25. Cash from operations to be approximately $1.8 billion and capital expenditures to be approximately $550 million.

Our 2026 full year guidance reflects the following considerations: The revenue guide does not include any contribution from prospective M&A. Nova expenses are unchanged for the full year, but we anticipate increased spend in the second half of the year compared to prior expectations. Higher fuel costs in the second half of 2026 versus prior expectations. Operating margin is expected to expand versus the prior year. Share count is expected to be slightly below 2025. Interest expense to be consistent with 2025 and adjusted effective tax rate is now expected to be consistent with 2025.

With that, I'll now turn it back to Jim.

Thanks, Sam. In summary, during the quarter, we generated robust top and bottom line growth on focused execution of our strategy and sustained demand across physicians, hospitals and consumers. Revenues increased by over 10%, almost all from organic revenues, while adjusted diluted EPS grew by over 19%. Given our growth momentum and continued interest in our lab insights, we are again raising our guidance for the full year. As we head into the back half of the year, we remain focused on our strategy to connect people and providers to innovative testing and actionable insights that illuminate paths for better health.

I want to close by thanking my colleagues across Quest who enable those insights with care and commitment every day. Now we'd be happy to take your questions. Operator?

[Operator Instructions]. Our first question will come from Erin Wright of Morgan Stanley.

Great. I think you mentioned in your prepared remarks, double-digit growth across the hospital channel. I'm just curious what you're seeing across that channel right now, how those relationships are progressing? And just given some of the headwinds, whether it's reimbursement or otherwise across the hospital segment, I guess, are you seeing a building hospital deal pipeline?

And how do some of those relationships work? How do we think about bad debt exposure, that kind of stuff when we think about your Co-Lab relationships on that front. But anything to call out on the hospital side from a utilization standpoint would be great.

Sure. Thanks, Erin. So when we look at our hospital business, as you know, we look at it in 2 pieces. One is our pure reference business and the second is our Co-Lab business. Now in total, that portfolio was up significantly, driven primarily by the Corewell Health relationship. But let me give you a couple of the pieces underneath. Our core reference business, which is hospital labs referring work out to Quest Diagnostics, the revenue growth was mid-single digits and actually the volume growth slightly higher than that. So we are seeing no slowdown at all from reference testing coming to Quest Diagnostics. Now if we look at our Co-Lab business ex Corewell, and we just look at same-store sales year-over-year, we see, again, mid-single-digit growth in that book of business.

So we're not seeing any slowdown in our hospital business, whether it's Co-Lab or reference. You mentioned bad debt. That is not a concern with hospitals or any of our clients. We're not seeing any bad debt trends at all. We mentioned in the prepared remarks that we took on one new relationship with a regional hospital in California, supply chain relationship. And the opportunities as we look into our funnel and look out for the rest of the year look good.

The next question will come from Lisa Gill with JPMorgan.

Previously, you had 30 basis points of a headwind because of changes in ACA and Medicaid. I'm just curious, one, what you saw in the quarter specific to ACA changes? And two, if you still have something in the updated guidance around potential headwinds?

Yes. So the guidance, Lisa, has not changed. We still think it's a 30 basis point impact. Now look, we've all seen the data on enrollment. Enrollment is down north of 20%, estimates of 21%, I think we've read. But that's not translating into our business. So what we do see is the following. We see a req volume growth that's down around 8%. However, the test per req are up 6%. So we see fewer reqs, but we're getting more test per req.

Now why is that? Because I think the common wisdom is prevailing here that the healthier people dropped off, the sicker people remained. So what we see is a book of business that is only down 2% from a test standpoint. And quite frankly, it's flattish from a revenue standpoint because the mix of tests, the tests per req and a little bit of payer mix is keeping our revenue from the exchange relatively flat. Now could it get worse in the back half of the year? Maybe. But at this point, we're not seeing a major impact on our business.

So Lisa, just to reaffirm what Jim said. In terms of our guidance for the year, we're still assuming for the full year that there's a 30 basis point impact on revenue from the ACA exchange subsidy expiration.

The next question will come from Michael Cherny of Leerink Partners.

Maybe if I can just jump into the back half assumed margins. You talked about year-over-year margin improvement. That means that the second half margins, just based on year-to-date math, have to be a bit better. When we square together the timing of the Nova expenses and the gas price increases, can you give us the offsets that help build towards that second half margin ramp embedded in getting you year-over-year margin expansion?

Yes, for sure, Michael. So I mean, first, let me talk a little bit about Q2, and then I'll talk about the second half. Again, to reconfirm in terms of Q2, our operating margin was 16.5%, was down 40 basis points from the same quarter last year. Now that was impacted by, I would say, 3 key things that I think we need to keep in mind. One is Nova, which was probably about 20 basis points of that. You've got also the impact of Corewell and Fresenius, which is about 30 basis points. And then you've got SDCPs, so supplemental deferred compensation plans, which is how we value this plan, these investments that we have, we essentially mark-to-market them. And that was a 20 basis point impact on the quarter. So if you put all those together, that was a 70 basis point impact.

Now as we look forward for the rest of the year, yes, we are still expecting for the full year that we are going to be up in terms of operating margin. So what are the things that change? We do have -- in the back half of the year, on the headwind side, we have fuel costs, as you said, right? Now we're expecting the fuel cost impact for the year to be at the high end of the range that we previously gave, which is equivalent to close to about $10 million. We're expecting Nova expenses in the second half to be about 70% of the full year. Previously, we had said about 60%. So we've changed that expectation a bit.

But the things that are offsetting that are 2 key things. I mean, number one, continued growth in volumes and continued strength of volumes. Number two is we lapped Corewell and Fresenius in Q4 of the second half. So you see less of a dilutive impact from Corewell and Fresenius in the second half on our total operating margin. So again, still expecting operating margins to be up for the full year versus prior year.

The next question will come from Michael Ryskin of Bank of America.

This is [ Lu ] on for Michael. I just wanted to go back to the Corewell relationship. Anything -- like any changes in the full year revenue guide? Is it still the same versus prior quarter? And then also I wanted to double-click on the pricing. It does seem a little bit worse than Q1, but you only have like 2% sequential increase in volume. Just wanted to double check on that and then kind of the impact to the margin in the second half.

Yes. So thank you for the question. This is Sam. So with regards to Corewell, still in line with what we had said at the beginning of the year, which is basically that it's a $250 million impact -- positive impact on our revenues this year in total. So it's largely playing as expected. I would say the margin rate, which we had set is going to be in the low single digits, improving to mid-single digits is still largely playing out as we expected. So really no meaningful change in terms of our expectations from Corewell. The deal is going -- or the Co-Lab relationship right now is going really well. We anticipate to scale this up to a JV next year as we build the lab in Michigan, and we look to launch that JV in early next year.

With regards to pricing, so I'm not sure if your question was specific to Corewell or overall. But with regards to overall pricing for the company, our pricing expectations are still the same, which is we expect basically roughly flattish pricing year-over-year, and that's what we're seeing actually in Q2. And we see, I would say, a positive -- flat to slightly positive impact from the health plans. We see a slightly negative impact from the hospital reference business, which is largely playing out as expected. No change there. It's a competitive sector, and the pricing is slightly negative there. But overall, I would say pricing for the company overall is still relatively flat.

The other thing you didn't ask, but it came up in the prior question. Look, the Fresenius book of business is a significant revenue increase year-over-year as well, close to $100 million. And the margin profile of that business continues to improve from Q1 to Q2 to Q3 and into Q4. So that is also giving us lift from an operating margin perspective in the second half of the year.

The next question will come from Ann Hynes of Mizuho Securities.

So I think in your remarks or one of your answers, you said you have not seen any change in bad debt. Obviously, one of the big hospital companies preannounced and most of that was just an increase in bad debt. But can you make us comfortable, maybe talk about like what your bad debt is as a percentage of revenue, what you haven't embedded in guidance? And why wouldn't we see kind of that downstream impact to clinical labs? And maybe in your answer, if you can just let us know what your bad debt policy is regarding look backs and how timely it is.

Yes. Thank you, Ann. So this is Sam. I would say to reemphasize or reconfirm what Jim said earlier, we are not seeing any meaningful change in terms of bad debt, okay? Bad debt is still very much in line with our expectations with what we were seeing last year and in previous periods. So I know the hospitals have talked about some challenges there, but we have really not seen any meaningful impact for us. We track, obviously, hospital collections very closely. We make sure that we are on top of those. And in fact, we have not seen any deterioration in terms of the rate of collections or the timing of collections from hospitals. We track those really on a very -- very diligently every quarter.

In terms of -- I'd say the one thing that we also look at is patient concessions, which we track closely as well to see if there's any deterioration in terms of our ability to collect from patients for co-pay, for amounts that patients owe us. And usually, that hovers around, I would say, 5% or so of revenues. And that, in fact, has also not seen any material or any deterioration at all. In fact, it slightly improved this quarter versus last year same quarter. So both in terms of bad debt, which we track really closely and we manage very closely and in terms of patient concessions, we are not seeing any adverse impact of both of those.

And you asked on what our policies are. With respect to patient concessions, first of all, we have a sliding scale for people that are at the poverty, below the poverty, slightly above the poverty line. Second is after time, we do turn the receivables over to collections agencies, and we have some success with that. The last thing I would tell you is that when a patient comes back into our patient service center, if they owe us a significant amount of money, we actually require them to pay up before we provide that next service. So we have pretty tight controls over patient balances, and I think we manage it very effectively.

The next question will come from Luke Sergott of Barclays.

This is Anna Kruszenski on for Luke. Congrats on the quarter. I was wondering if you could talk about -- help us understand why DSOs are up again both year-over-year and sequentially in the quarter...

Yes. So there's a couple of reasons for that. One is minor, which is technical around the number of deposit days that we had in the quarter, which is really just a technical item, doesn't have anything to do with performance of receivables. The other one has to do with mix, our business mix. As we see some of our client bill portion of the business, specifically our consumer business as well increase, and it's increasing quite robustly; those have higher DSOs and higher collection or longer collection periods than our health plan reimbursed business, our third-party payer business. So really, this has just to do with a business mix nuance in our revenues overall.

The next question will come from Tycho Peterson of Jefferies.

This is Noah on for Tycho. I wanted to ask about PAMA as we get closer to the next phase of implementation here. How are you thinking about potential reimbursement outcomes? And what actions can you take to offset potential future reimbursement risk?

Yes. Thanks for the question. So look, at this point, there's 3 possible outcomes on PAMA. I think, as you know, the first is there's a current data collection process going on by CMS. And that data collection process ends on July 30. We expect to hear something, let's say, late September -- early August. Now at this point, we don't have any idea on how many of the 10,000 labs are going to report the data. What we do know last time is that only 1% of the labs submitted data. But if that process continues on, there could be new rates that are implemented by CMS effective January 1.

The second outcome is we get the RESULTS Act passed. The bill -- the RESULTS Act that was introduced last September, September of '25. It has incredibly strong bipartisan support. Over 115 cosponsors have signed on. In addition, there's 60-ish patient and consumer-based organizations that are endorsing the bill. There's been one successful hearing in the House Energy and Commerce Committee. But it still needs to go through a markup process. It has to be scored by CBO and CMS needs to do their own tech assessment of that. So no matter what, we are going to continue to push for the RESULTS Act. Even if CMS does go ahead and implement new rates, we would still push for the RESULTS Act because we believe it's a better and fair way of collecting the data and collect some of the flaws under that original process. As you know, as part of the RESULTS Act, we've advocated for a third-party group that collects adjudicated claims across the industry, and we believe it's a much more effective, higher quality and more efficient way to arrive at what is the market price for lab data.

The third possible outcome is if RESULTS is not passed, we will again push for another delay. As you know, there's been 6 delays now. Congress has acknowledged that the original PAMA cuts were not sustainable. The original estimates on those cuts, by the way, provided by CBO was on the order of $2.5 billion in savings over 10 years. But the first 3 cuts that were executed in '18, '19 and '20 actually saved the government $4 billion over a 3-year period. So there's acknowledgment that the process, as originally designed, did not work as intended. And so if we don't get results done this year, we will push, obviously, for another delay.

The next question will come from Elizabeth Anderson of Evercore ISI.

You talked a lot about sort of the hospital and the changing environment. Could you update us on the pipeline of hospital deals or some of the pressures that they're seeing as a result of the ACA, which as you talked about, you haven't seen in your side, causing them to sort of be more interested in perhaps partnering with you guys going forward? Are you seeing any changes in that perspective?

Yes. So again, on the hospital side, there's multiple ways we work with hospitals. One is just we take on their reference work, work that they choose not to do. As I indicated in previous comments, that book of business grew nicely in the second quarter. So maybe what we are seeing is a willingness to outsource more tests, those tests that they don't feel they can make money on.

The second way we work with them is through these Co-Lab arrangements. Again, we closed one arrangement in the second quarter. And our pipeline of other opportunities from managing the health systems laboratories, that funnel of opportunities looks good.

The third way we work with them is on outreach deals. And the funnel of outreach deals continues to be good. Some deals are better than other deals. We would like to work with health systems that are growing, that are expanding their services, expanding their doctors as opposed to working with health systems that are closing hospitals, shedding hospitals and shedding doctors. So those are the kinds of health systems that we search for. We also look into markets where our presence may not be that strong and is a good way to get a foothold into that local market, we'll reach out to these hospitals and see if we can work with them more closely.

The next question will come from Caliendo of UBS.

Congrats. I wanted to talk about the rev req number. It was really strong, 2.9% is up from even what you did in the first quarter. And just what's the makeup of that? Is it a number of tests per session is driving that? Is it more consumer testing that's causing that? Is it a different mix of more esoteric or higher cost testing? And is this number sort of sustainable going forward? How should we think about that actual -- the trends in the rev req number into the second half and even beyond?

Kevin, this is Sam. So I think you've hit on the key things there, frankly, in terms of some of the things that are driving rev per req. So yes, revenue per requisition was very strong in the quarter. It was up 2.9% if you exclude the Corewell and Fresenius mix impact on that. And really, the key things, number one, I would say, tests per req is definitely continuing to improve. So we continue to see that tests per req number creep up every quarter. And I think I've mentioned before the stat where prior to COVID, we were sitting at somewhere between 3.5 and 4 tests per req. And today, we're somewhere almost north of 4.5. So we've added almost an additional test per req, which really makes a big difference on the revenue per requisition.

You mentioned consumer, and that's definitely also helping revenue per requisition. These are high value or high -- very robust panels, let's put it this way, with a very high-value rev per req as well. So some of that consumer business that we have where we power a lot of these functional and wellness companies that are operating in this space. And advanced diagnostics or esoteric mix also helps drive rev per req as well. So I think you mentioned the key things, but I would say tests per req is really the key one. Consumer is definitely helping as well. Those are the 2 key main ones.

Yes. And just to add a little color there. On the advanced diagnostics, our brain health portfolio continues to grow at high double-digit rates. And it's both the p-tau markers as well as the amyloid plaque markers, the AB42/40. Our cardiometabolic -- advanced cardiometabolic book of business continues to grow at significant rates. The AD, the ApoB, the Lp(a) and also the insulin resistance test are robust. And then finally, autoimmune disorders continue to grow. And this analyzer assay that we have put out for primary care physicians that helps them diagnose autoimmune disorders and helps them refer the patient to the right specialist.

Now all of those things, by the way, are not mutually exclusive, right? These kind of work together. Many of these advanced diagnostics were seen in the functional health space. And because of many of the chronic conditions, whether it's diabetes, HIV, hepatitis C, hepatitis B, we're seeing a pickup of testing from those types of patients as well.

The next question will come from Pito Chickering of Deutsche Bank.

Can you talk a little bit more about Haystack, like how we think the volumes can increase sort of post the New York State approval? And also talk about the deal with Flatiron and how we should think about that partnership?

Yes. Thanks, Pito. So importantly, we did get New York State approval of our Haystack tumor-informed test in the quarter. I believe there's only one other company that has approval from New York State from a tumor-informed standpoint. I think there's some naive tests that they've approved as well. But look, the New York State approval process is very, very rigorous. So we believe it sends a strong signal about the quality and efficacy of the assay that we have. New York is also, as you know, an important market from a cancer standpoint. You have Memorial Sloan Kettering. You have Cornell Hospital, Roswell in Buffalo, leading cancer hospital, and Strong Memorial, the Upstate institutions. So a lot of big cancer institutions in New York that this will open us up to. So we feel good about that.

The Flatiron relationship is significant. It just provides ease of ordering to a large, large group of medical oncologists across the country. we're now integrated into Epic Aura. We're now integrated into Flatiron. We have our own portal as well. And these are all things that just make ordering and tracking of test results simpler and easier for clinicians.

What I would tell you, look, we're pacing our commercial investments, and we're pacing the growth of tests that we're doing commensurate with reimbursement. We don't want to get too far out in front of ourselves. We don't need to get too far out in front of ourselves because the switching costs are next to nothing, a clinician can switch. So we're driving reimbursement. As you know, we sit in the Novitas MAC and then we submitted to MolDx for Medicare Advantage reimbursement, and hopefully, that comes in the back half of this year.

Next question will come from Patrick Donnelly of Citi.

Maybe a follow-up on one of the earlier ones. Just in terms of the utilization backdrop, what you guys are seeing overall, what you're assuming as we work our way into the back half? And then on the back of that, just the pricing conversations, I know those roll each quarter. Any changes in terms of the tone from the payer side as you guys have those pricing discussions?

Yes. So again, the utilization remains strong. So if we look at the primary segments in the business, we talked about hospital systems, our reference book of business, mid-single-digit growth. Our core physician business, so ex consumer, ex all the wellness, our core consumer business also is getting growth in the high single digits, both volume and revenue. And then finally, our Consumer business, last year, we sized the entirety of that consumer business, both direct and indirect at about $250 million. We said it would grow in 2027 somewhere between 20% and 30%. And I would tell you right now, it's on the high side of that estimate. So we feel good about the utilization through those channels as well. So put all that together, and it's painting a good utilization story.

Now look, it's driven by 2 things -- driven by multiple things. One is the chronic conditions that continue to exist in this country as well as this consumer taking on of their own health and taking charge of their health and looking for the signals off their body to get in front of sickness trends. So we feel good. And the only other thing I would add is we're 3 weeks here into July and the volumes thus far, 3 weeks into the quarter are consistent with what we saw in the second quarter.

I'd add a couple of things, Patrick. This is Sam. So first of all, really to add to what Jim said, the utilization has been very strong, and we really are expecting the same tailwinds to continue in the second half. So really no assumption of any slowdown or anything different on utilization.

There are 2 or 3 key things, I think, that are more around -- that are more discrete, let me put it this way. The ACA subsidies, we're still expecting that there's going to be, call it, approximately 30 basis point impact on the year. So obviously, that will have a higher impact on the second half. We lapped Corewell and Fresenius in Q4, so that has an impact on the year-over-year growth rate, at least in the second half and specifically in Q4.

Elevance, where we gained access in 4 key states back in Q1 of 2025. That -- we continue to see good progress and progression on that, but we're deep into the second year, at least in the second half, and that's going to start to slow down as we lap some of those wins.

And then finally, I would say one key thing is weather in Q3, always a wildcard. Last year, we had very little weather disruption, thankfully. We hope it's the same in Q3, but that's not what we're counting on at this point when we look at our outlook and when we build some, what we call weather reqs in our outlook. So those are the few key discrete things that impact growth in the second half, but everything else in terms of the core utilization is just very strong.

In terms of pricing, you asked on the pricing with health plans. I would say those conversations, those renewals are very constructive. We have great partners that we are working constructively with. They recognize and see the value that we bring in terms of high-quality testing, but really lower cost testing into their network. So I think that's playing out as we expected in terms of, as I said earlier, flattish pricing.

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

Congrats on the quarter. This is Karan on for David. Maybe a couple on oncology. First, the Shield Guardant partnership, if you could maybe speak to early adoption there? And then going back to Haystack, can you maybe speak to priorities around maybe evidence generation to compete with other MRD tests and drive further adoption and reimbursement?

Yes. So on the first part of your question, Shield Guardant, we don't comment on volumes of that test. As you know, we offer it on our menu and we offer it to do draws at a price, obviously, Guardant pays us for that. So -- but they'll talk to volumes, I'm sure, on their call.

On Haystack, from a clinical evidence standpoint, look, we're solid from a colorectal cancer standpoint. We have some great studies that have been published along the way and feel good about that. We have ongoing studies across breast and lung that will also bear fruit. But look, at the end of the day, there's both clinical evidence and just proving that your assay from a sensitivity and specificity is leading and one of the best in the industry and better than some of the competitors that are out there.

So it's a dual approach. We're going to present the clinical evidence, but we also have very good evidence that when we look at the sensitivity, specificity of the Haystack assay, when we look at the detection in terms of parts per million, it's a leading test.

The next question will come from Jay Lewis with Baird.

Elevance recently added coverage for certain blood-based biomarker tests for Alzheimer's. I think that makes it one of, if not the first major payer to do so. How big of an opportunity or driver is this new coverage policy for a major payer? And was anything like this embedded in 2026 expectations? And as a quick follow-up, if you'd be able to size the Alzheimer's book of testing right now and the growth that you're seeing there, that would be great.

Okay. So on Elevance, yes, they are now reimbursing for the p-tau217 biomarker. It's a biomarker we offer. It's actually -- we get it through one of our suppliers. There's a range of suppliers that offer the test. They're all very similar. They are not yet reimbursing, though, on the other very important biomarker called AB42/40. At the recent International Alzheimer's conference, there is a widespread perspective of the importance of both biomarkers, both the p-tau biomarker as well as the AB -- the amyloid biomarker we call AB42/40. And by the way, that's the panel, that combined panel, along with an algorithmic interpretation of that, that provide -- that we are selling today, and it's doing quite well. In terms of -- look, there's other payers that are certainly reimbursing for one or both of these tests. Medicare, there's broad reimbursement and Medicare Advantage, there's broad reimbursement of those panels.

And you can imagine, the majority of the testing we see is patients that are above 60 years of age. I'm not -- we're not going to provide today the absolute size of that business. But what I did say in an earlier question is that it is growing in the high, high double digits.

And our last question for the day will come from Jack Meehan of Operon Research.

I wanted to get your latest thoughts on the policy outlook with PAMA and the outlook for the RESULTS Act and how you were thinking about how things play out through the rest of the year?

Great. And good to hear from you, Jack. We're glad you're still on the call with us here. So I -- there was an earlier question, maybe you didn't quite catch it, but I'll just repeat it quickly. So again, 3 possible outcomes from a PAMA perspective. First is the current data collection process, which I think everyone knows about. It ends on July 31. We have submitted -- by the way, we would expect CMS to report out on that in the September -- late September, early October time frame. What we hope to hear is also some assessment of the quality of the data and the number of labs out of the 10,000 labs have submitted. As you know, last time, only about 1% of the labs submitted, and it was a very, very biased statistical sample of actual laboratory market-based pricing.

The second possible outcome is we get the RESULTS Act passed. There is broad support, bipartisan support, over 115 cosponsors have signed on as well as many other patient and consumer organizations. There's been a hearing with the House Energy and Commerce that was viewed as favorable. And as you know, as part of the RESULTS Act, what we've put forward or what our trade association and others have put forward is that there's a third party used to provide a really good robust statistical sample of all the adjudicated claims in the industry. If the RESULTS Act is passed, by the way, rates stay flat for '27 and '28, would be a data collection of the 2027 data and new rates would go into effect in 2029 with a cap of no more than 5% cuts per year.

And then the third possible outcome, if we can't get results through this year, is another delay. And as you know, there's been 6 delays. Why? Because Congress has acknowledged that the PAMA cuts were not sustainable and the process was not -- didn't come out as intended. So those are the possible outcomes. Under any scenario, we push for results. Even if CMS was to set new rates based on this data collection process that's going on, we'll still push for results. We're never going to give up on that because we think that is the best approach to figuring out what the actual market rates are for laboratory testing.

Great. Operator, thank you. That was our last question. [indiscernible].

Okay. Thank you, everyone, for joining in today. We certainly appreciate the continued support. We'll see some of you soon, and thank you, and have a great day.

Thank you for participating in the Quest Diagnostics Second Quarter 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) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on July 23, 2026, until midnight Eastern time on August 6, 2026. Thank you, and goodbye.

Welcome to the Quest Diagnostics First Quarter 2026 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question-and-answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without written consent of Quest Diagnostics is strictly prohibited.

Now I'd like to turn the conference over to Dan Haemmerle, Interim 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. 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 quarterly filed 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's Jim Davis.

Thanks, Dan, and good morning, everyone. Our strong first quarter performance reflects a focused business, delivering innovative solutions that meet our customers' evolving needs for lab insights. During the first quarter, we grew revenues over 9%, almost entirely from organic revenue growth on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. In addition, we grew adjusted diluted earnings per share by approximately 13%, supported by productivity gains from our deployment of automation and AI across our operations both in and outside our labs. Given our strong first quarter momentum and continued strategic focus, we are raising our revenue and EPS guidance for the year.

Now I'll provide more detail on how we executed our strategy across key customer channels and operations during the quarter. Quest operates at the center of health care, delivering solutions that make testing simpler and smarter for our core clinical customers, physicians and hospitals as well as customers in higher-growth areas of consumer health, life sciences and data analytics. In the physician channel, we delivered high single-digit revenue growth in the first quarter on strong demand for our clinical innovations, geographic expansion from greater health plan access and increased volume from our growing business in enterprise accounts.

We are also pleased with our growth during the quarter in end-stage renal disease, a new clinical area for us, focused on lab testing for dialysis patients. In addition to volume from serving thousands of dialysis clinics operated by Fresenius Medical Care nationwide, we also added independent dialysis clinics and other providers as clients of our lab and water purity testing. In the hospital channel, we grew revenues at a double-digit rate with the majority of this growth coming from our collaborative lab solutions for Corewell Health, a leading health system in Michigan.

Our Co-Lab solutions combine our scale, clinical depth and operational excellence to improve quality and cost efficiencies. Our implementation with Corewell Health is proceeding smoothly. We are also advancing our joint venture with Corewell Health with plans to open a state-of-the-art lab in Southeast Michigan next year. Hospitals value our flexible solutions that enable them to free up capital while benefiting from our expertise and innovation. Our pipeline of potential Co-Lab collaborations as well as potential outreach and independent acquisitions remain strong.

In the consumer channel, we deliver solutions that empower people to own their health. Similar to recent quarters, we generated significant revenue growth during the quarter, both from questhealth.com and from our portfolio of top consumer health collaborations. Growth from questhealth.com featured robust double-digit customer repeat rates and notable demand for new solutions such as our Elite health profile and autoimmune and hormone tests.

Quest is a trusted health care brand with broad reach, which enables us to drive efficient customer acquisition for questhealth.com. In addition, we are the preferred lab engine for top consumer health brands and a key part of our growth this quarter was due to consumers accessing our lab insights within the apps and wearables of our collaborators.

Our customer channels are also growing as we continue to deliver advanced diagnostics in 5 key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology and women's and reproductive health. We delivered double-digit revenue growth across several of these areas in the first quarter. I'll comment briefly on a couple of examples.

In the areas of brain health, Alzheimer's disease is a progressive dementia that affects over 7 million people in the U.S. and is expected to affect nearly 13 million Americans by 2050. For several quarters, we've spoken about delivering double-digit revenue growth from our AD-Detect blood test for Alzheimer's disease, a trend that continued in the first quarter.

To understand this growth, consider that until recently, clinicians typically diagnosed Alzheimer's using PET/CT scans, which are costly and inaccessible for many. While these scans are highly accurate at identifying mid- and late-stage disease, they are less sensitive at detecting Alzheimer's in early stages before major impairment has occurred. Years ago, we recognized the power of blood testing to reveal disease earlier and more affordably so more patients could benefit from the emerging therapies with potential to slow progression sooner. Today, Quest provides a range of tests under the AD-Detect brand, featuring sensitive mass spec tests for amyloid beta and ApoE, a genetic risk marker to complement p-tau217 and p-tau181.

We also developed a proprietary algorithm that combines multiple biomarker results to establish Alzheimer's pathology with sensitivity and specificity of 90% or greater. At the same time, we are seeing that physicians are becoming more confident using blood test to aid diagnosis and guide pharmaceutical treatment decisions often in lieu of imaging. As blood tests are increasingly used both in primary and specialty care, we expect to remain a leading source of diagnostic innovation and insights for managing this disease.

In other areas, we drove double-digit revenue growth across much of our cardiometabolic and endocrine portfolio, including for tests for Lp(a) and ApoB as well as for kidney, liver and reproductive hormones. New guidelines from the American Heart Association recommend Lp(a) and ApoB testing for the first time, underscoring the clinical value of these important biomarkers. We are also encouraged that the guidelines now recommend screening for high cholesterol at young ages as new research has found dangerous cardiovascular events are increasingly occurring in young adults.

In oncology, we recently announced a research collaboration with City of Hope, a cancer and research treatment organization to study the use of our Haystack MRD test to aid recurrence monitoring and treatment decisions in clinical trial participants with solid tumor cancers across 14 U.S. sites. In addition to driving top line growth through innovation and collaborations, our focus on operational excellence aims to improve productivity as well as quality and the patient experiences. Through our Invigorate program, we expect to continue to deliver 3% in annual cost savings and productivity improvements.

We have spoken in the past about our growing use of AI and automation in our labs. And while that continues to be a major focus in the first quarter, we stepped up our deployment of these technologies in several other areas. As one example, we boosted productivity by 40% in the first quarter among customer service agents that used AI to triage and route customer emails to speed responses.

We are also deploying AI to make testing simpler and smarter for everyone, including our patients. Our new Quest AI Companion transforms complex biomarker data and reference ranges on test reports into clear plain language. By empowering patients with lab insights, our AI tool, which is powered by Google Gemini, can help shift the doctor-patient relationship to be focused on shared decision-making instead of data gathering, potentially improving care outcomes. Patients have engaged Quest AI Companion approximately 350,000 times since we rolled it out to users of our MyQuest app in the first quarter.

Lastly, we are scaling the planning and design work for Project Nova, our multiyear initiative to transform our order-to-cash processes and systems and are on track to implement our first wave of solutions in the fall of 2027.

And now Sam will provide more details on our performance and 2026 guidance. Sam?

Thanks, Jim. As Jim mentioned, our solid first quarter results reflect the disciplined execution of our strategy. Consolidated revenues were $2.9 billion, up 9.2% versus the prior year, and consolidated organic revenues grew by 9% in the quarter. Revenues for Diagnostic Information Services were up 9.4% compared to the prior year, reflecting strong organic growth in our physician, hospital and consumer channels. Our total volume measured by the number of requisitions increased 10.9% versus the first quarter of 2025, with organic volume up by 10.8%. Fresenius Medical Care and Corewell Health contributed approximately 7% to organic volume growth in the quarter.

Our organic volume growth in the quarter was 3.8%, excluding the favorable impact from these 2 relationships. As expected, Fresenius Medical Care and Corewell Health's business mix impacted total revenue per requisition, which was down 1.3% compared to the prior year. As a reminder, the business mix from these 2 collaborations includes a greater proportion of routine tests than most of our clinical testing. Excluding this business mix impact, total revenue per requisition increased by approximately 2.5%.

Unit price reimbursement was relatively flat, consistent with our expectations. Reported operating income in the first quarter was $399 million or 13.8% of revenues compared to $346 million or 13% of revenues last year. On an adjusted basis, operating income was $447 million or 15.4% of revenues compared to $406 million or 15.3% of revenues last year. This increase in operating income was primarily due to organic revenue growth and increased productivity, partially offset by the impact of wage increases and to a lesser extent, weather.

Reported EPS was $2.24 in the quarter compared to $1.94 a year ago. Adjusted EPS was $2.50 versus $2.21 a year ago. Adjusted EPS grew in the first quarter versus the prior year, largely due to organic revenue growth, increased productivity and lower interest expense, partially offset by the impact of wage increases and weather.

Cash from operations was $278 million in the first quarter versus $314 million in the prior year. Cash from operations was lower than a year ago due to the timing of operating receipts and disbursements and higher bonus payments in the current period versus a year ago, partially offset by an increase in operating income.

Turning now to our updated full year 2026 guidance. Given the solid performance in the first quarter, we are raising our full year revenue and EPS estimates. We now expect revenues to be between $11.78 billion and $11.9 billion, a growth rate of 6.8% to 7.8%. Reported EPS to be in a range of $9.58 to $9.78 and adjusted EPS in a range of $10.63 to $10.83. Cash from operations to be approximately $1.75 billion, capital expenditures to be approximately $550 million, share count and interest expense to be consistent with 2025, and our 2026 guidance reflects the following considerations. Our revenue guide does not include any contribution from prospective M&A. Operating margin is expected to expand versus the prior year.

With that, I will now turn it back to Jim.

Thanks, Sam. We are very pleased with our start to the year. More than ever, people are turning to our lab insights to illuminate their path to better health. In summary, our first quarter results reflect a strong focused business delivering innovative diagnostic solutions to meet our customers' evolving needs for lab insights. We grew the top line on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. We also grew the bottom line with productivity benefits from automation and AI.

Given our first quarter momentum, we are raising our guidance for the full year. I'd like to thank each of my nearly 57,000 Quest colleagues for living our purpose every day, working together to create a healthier world, one life at a time. Your passion and commitment are the engine that empowers Quest to deliver diagnostic insights that improve health and transform lives.

Now we'd be happy to take your questions. Operator?

[Operator Instructions] our first question comes from Michael Cherny with Leerink Partners.

Congrats on a nice quarter. If it's possible to unpack the organic volume dynamics a bit, clearly, that was a standout, especially against a broader macro backdrop. How should we think about the impact of mix, the impact of commercial activities on your part? And if you can, can you just reaffirm the same expected contribution from Corewell and Fresenius relative to what was embedded in your guidance to start the year?

Yes. Sure, Michael. This is Sam. So let me just start with some of the facts about Q1 that we talked about in the prepared remarks. Organic volume growth was 10.8% in the quarter. Total volume growth was 10.9%. So the contribution to volume from Fresenius and Corewell was about 7%. And so if you exclude those from organic volume growth, the organic volume growth, excluding those 2, was 3.8%. The revenue per requisition in total was down 1.3%. If you exclude the impact of Corewell and Fresenius, it was actually up 2.5%. So a solid revenue per requisition.

If you look at the impacts within that revenue per requisition, excluding Corewell and Fresenius impact, if you look at what's driving that 2.5%, which is a really strong revenue per req, I would say test per requisition was really the key driver. We continue to see a step-up in terms of the number of tests per requisition. This is being driven by a lot of the things that we have shared over the course of last year and this year, more advanced diagnostics testing, more early detection options and screening options, our consumer business contributing to it as well.

So we continue to expect that, that test per req continues to be solid and has benefited Q1 rev per req significantly. Now I think your other question was how should we think about the balance of the year. As we think about Q2 to Q4, we're looking at continued growth in terms of organic utilization. A continued impact, I would say, on revenues from Fresenius, we said it was about a $250 million impact for the year in terms of revenue growth impact from Corewell. So that's, I think, what you should be thinking about in terms of the impact of Corewell.

And Fresenius would be an additional roughly, let's call it, between $80 million and $100 million on top of that. So between those 2, it's about a 3.3% increase to our revenue that's embedded in the guide. And we expect an impact on volume, I would say, somewhat consistent with what you saw in Q1, but still expect very strong utilization as we go forward and expect strong revenue per requisition, excluding the impact of those 2 businesses. And Jim had a couple of comments there.

Yes, Mike, the mix impact has really benefited our business from an organic revenue standpoint. And specifically, our commitment to consumer health and wellness and these partnerships in the wellness industry have really helped us nicely. There's really 2 things there. It's both the absolute test per req, which has a big impact, mixes us up from a test per req standpoint. And then the advanced types of tests that are being ordered on these panels from advanced cardiovascular test to autoimmune testing to hormone testing. And then the last thing, and this comes mostly from our physician channel, both neurologists and primary care physicians. As I mentioned in the script, our Alzheimer's book of testing more than doubled year-over-year. So we're really, really seeing nice lift from our Alzheimer's set of tests.

All of those things together, Mike, is what's really driving this nice organic test mix.

Our next question comes from Elizabeth Anderson with Evercore ISI.

I guess on just a couple of things on a short-term basis. Can you talk about sort of any embedded like weather and sort of flu expectations for the short term in the quarter? And then if we think about going forward for the rest of the year, can you talk about sort of any other expectations in terms of puts or takes on timing for the quarter, particularly in regards to margins on that second part of the question.

Yes. Liz, on the weather, I'll take that first, and Sam can comment on the second part. If we look at it on a year-over-year basis, it was like a $9 million revenue impact, $7 million operating income. So -- but that's on a year-over-year basis. So now we know in January, it was a rough month. We had some weather in February. But honestly, what we did see in March is that the people who canceled appointments during those bad weather events, about 70% of them made appointments and came back to Quest. So the follow-on from canceled appointments was really good. And that only comes from us e-mailing out to patients, texting patients and really trying to encourage patients to come back from missed visits.

Yes, and with regards to the weather, as Jim said, so we had some impact in the quarter, some negative impact year-over-year, but a good recovery in the last month of the quarter. Now I think the second part of your question, Elizabeth, was on the go forward, what should we expect? If you think about at least from a year-over-year compare, we are expecting in the second half of the year this year that we're going to have some negative weather, which we usually have. Usually in the summer, we'll have the hurricane season and some negative weather. So that's embedded in our guide expectation. And if you compare it to last year, last year was actually a very mild weather season in the summer from -- I think we virtually had no to -- very little to no hurricanes in the summer of last year.

So there is some embedded expectation of some more negative weather in the next, let's call it, in the summer versus what we saw. And in terms of the cadence over the next 3 quarters, I think you should expect that similar cadence to last year to some extent with maybe more of a contribution in the first half than what you saw last year than in the second half. So I would call it just over 49% of our revenue and EPS in the first half, just over 50% in the second half. So that's kind of a cadence to think about also to give you more precision on how to think about revenue and EPS.

Our next question comes from Patrick Donnelly with Citi.

Maybe similar, Sam, on some of the moving pieces on the cost. Can you just talk about the Project Nova piece, how the investments are progressing there? Wondering if potentially higher expenses tied to some of the macro conflicts caused you to move those investments around at all. I think it was $0.25 dilution. Is that still the right way to think about it? And again, where those investments are kind of heading and when we see the fruit of those would be helpful.

Yes. Thanks, Patrick. So let me break down some of the impacts that you mentioned. Yes, Nova expectations are still $0.25 for the year, as we shared last quarter. In terms of the cadence of those expenses, slightly changed from my comments on the Q4 call. I think we're expecting now more of those expenses to happen in the second half of the year than in the first half of the year. We had some expenses in Q1. That's going to ramp in Q2. And I'd say we're going to see probably more than 60% of those expenses be in the second half of the year. So that's one portion in terms of just thinking about the cadence of the year. I think it goes back to also the question that Elizabeth asked.

And then if you think about the macro, I mean, listen, we're impacted by, obviously, fuel costs. We have a fleet of transportation vehicles. We have a fleet of planes. We have some fuel expenses that were going to be impacted by the higher fuel costs. That, I will size it for you as somewhere in the $7 million to $10 million range, and it's embedded in our guidance. Our expectation is that fuel costs will continue to be elevated somewhere at the $4 per gallon and above. And that embedded in guidance is somewhere in the $7 million to $10 million of fuel cost that, again, will impact the next 3 quarters. So we've sized it. We've included it. It's not that significant, but it's still somewhere between $0.05 to $0.07 of EPS.

Our next question comes from Ann Hynes with Mizuho Securities.

Just on the organic volume front, was there anything that came in better or worse than your expectations? And maybe just on the ACA, I know the subsidies ran out in December. Did you see any meaningful impact versus what's embedded in your guidance in Q1?

We didn't, Ann, on the ACA subsidies. I think it's too early to tell. As we've said in the past as well, we can't tell 100% with every requisition, is it an ACA req or not. Not all the commercial plans code the reqs that way. But we think about 60% of our reqs, we know discrete are ACA. And so based on that, we're not seeing any impact to date.

On the organic growth, it was strong across the board. I mean our hospital reference business had up 3%. It was very strong. Our Co-Lab business, obviously, with Corewell was up significantly double-digit growth. Our physician business organically was high single digits as we indicated on the call. So it's broad-based. And then obviously, the contribution from all the consumer health in both our direct channel plus our partnerships were strong, strong double-digit growth in that area. So it was pretty broad-based and across all segments that we serve.

And just one clarification, Ann, on the ACA to add to Jim's comments, we have built in, in our guide still the expectation that we do see a 30 basis point impact to revenues as a result of ACA disenrollments or higher subsidies. The enrollments have been good in Q1. We just need to validate that actually the enrollments lead to utilization and some people don't drop off. So we kept the assumption in our guide of 30 basis point impact. But to Jim's comment, we haven't seen really that negative impact in Q1.

Our next question comes from Jack Meehan with Nephron.

I wanted to ask you about PAMA. So the survey kicks off in 10 days or so. How is your prep work in terms of participating in that? And then just your latest thoughts on how you think the Medicare rates for 2027 will shake out that whole process?

Yes. Jack, so we're ready. Obviously, we submitted last time. We're going to submit this time. That's the law. And we're going to abide by the law and submit the data after May 1 of this year. I think the period is open until -- basically until the end of July. As you know, Medicare actually this year provided some guidance as to what labs need to submit. So anybody that makes more than $25,000 a year from a revenue standpoint from Medicare requisitions is supposed to submit -- that would really say there's over 2,600 hospital labs that are going to need to submit. Now whether that happens or not, we can't tell. We'll have to wait and see. CMS also came out again and said, if you don't submit, there's potential fines of upwards of $10,000 per day to those that don't submit data.

Now they didn't collect those fines last time. So again, it remains to be seen. At the same time, we're going to drive the RESULTS Act as fast and furious as we can. There's a few things that still have to be completed in order for the bill to get through this year. Number one, there has to be a tech assessment done. CMS does that. That is underway. And then second is the CBO scoring. We think that process is underway as well. There's over 80 cosponsors for the bill. There was a hearing already this year in the health subcommittee of Energy and Commerce. It was a good hearing, very positive.

So we're hopeful. But we're also mindful of the fact that there's summer vacations coming up and then obviously, elections. And so there's a lot to get done before the end of this year, especially with those 2 things coming up.

Now in terms of rates for 2027, I think it's too early to speculate. If RESULTS Act gets done, it would keep rates as is for 2027. If the RESULTS Act does not get done, and we rely on this data collection process. If everybody submits, Jack, we're hopeful that the data will come out and show that our rates should actually go up. If you think about it this way, the last time there was a data submission, there were probably 2 companies that submitted over 80% of the data. And so the 2 companies probably -- and we're one of them and our nearest competitor is the second one, we probably have at best 17% to 20% share of the Medicare market, right? We were disproportionately lower in that portion of our business than in other segments because it's any willing provider.

So when only 2 providers submit -- basically 2 providers submit 80% of the data and you have less than 20% of the market, it's obviously going to lead to a very skewed data set. So we're hopeful that the other 80% submit. We know that, that other 80% is paid 2 to 3x Medicare rates by most health plans. And you put all that together, Jack, and it should indicate a price increase.

Our next question comes from Luke Sergott with Barclays.

This is Anna Kruszenski on for Luke. We were hoping to hear more about the consumer business and how that momentum has been building with your recent partnerships. And we saw that Function Health acquired a mobile lab testing company during the quarter. So just any color on how you're thinking about that potentially impacting volumes to Quest?

Yes. So our consumer business, again, we think of it in 2 segments: our own questhealth.com, our direct-to-consumer business, that grew very nicely in the quarter, somewhere -- let's just call it somewhere between -- in the high 20s. And then all of our partnerships. We have value-added resellers that we provide lab testing to. These include 2 of the wearable companies that we've talked about in the past. And I would just say that the growth in that combined non-Quest Direct is even stronger than our own direct channel in the quarter.

Yes, Function Health did acquire Getlabs. We think that's a real positive for Function Health. There's many parts of the country where even though we have 2,000 patient service centers to conduct blood draws and urine collections, there's parts of the country where we simply don't have some of the coverage, and that includes areas in the upper Midwest, the Great Plains. We also know that there's a segment of customers that would prefer a home draw. And so Function having this capability now, Getlabs will acquire the specimens, bring them to our Quest PSC or have them transported to directly and we'll continue to do that lab testing. So we think it's a positive.

And the one addition I'd make to Jim's comments is the growth that we're seeing from some of the collaborations that we have, the wellness companies that we're partnering with is broad-based. We're seeing a lot of growth from different players and a broad ecosystem that we're very encouraged about.

Our next question comes from Eric Coldwell with Baird.

A couple of weeks ago, we had this odd day in the market where labs were getting hidden on a Friday afternoon, I think it was. And apparently, there were rumblings or rumors going around about some impact from the CMS' CRUSH RFI. I don't think that's a big deal, but I'd love you to put that in perspective and maybe talk through what you see happening in the government in terms of various fraud, waste and abuse initiatives and then your exposure to any tests that are in question and what potential impacts, positive or negative may come out of this in the future?

Yes. Thanks, Eric. And we're glad you don't think it has an impact because we don't think it does either. But just for those who may not have heard of CRUSH, it stands for Comprehensive Regulations to Uncover Suspicious Health Care. And first of all, I want to say we applaud the government's efforts to crack down on any fraud waste or abuse. So certainly applaud those efforts.

The second thing I'd say is if you look at the test, first of all, it came out of an OIG report, right? There was an OIG report that looked at 2024 Medicare lab spending, and the report noted that lab spending was up 5%. And as you know, Medicare enrollees are probably flat to down. So why would it be going up 5% if pricing stayed flat across the industry. And what the report noted is that there were 10 tests that drove the majority of the increase, okay? Now 7 of those 10 tests were PLA codes, meaning they're very proprietary tests to individual laboratories, okay? We had nothing in those categories, okay?

The other 3 categories were genetic or molecular-based tests. And when we look at our billing or our revenue from those tests, it was de minimis, okay? So it really, really wasn't a factor at all. So we don't put Quest in the bucket of driving that 5% increase in Medicare spend.

Now the last thing I'd say about the report, and we all ought to be concerned about this. If you looked at that report, it did show that routine and wellness tests that are critical to preventative health and wellness, critical to making the country healthy again, those test categories were actually down. And what I'm talking about is basic CBC panels, CMP panels, those panels and information that really illuminate chronic care conditions, progress towards those conditions or people that aren't making progress. And those are absolutely the kinds of tests that we want to see growing across the Medicare population in order to make sure that people's chronic conditions aren't worsening and become a bigger cost and health burden to the country.

So in summary, Eric, we don't think it's an issue, and thank you for asking the question.

Our next question comes from Erin Wright with Morgan Stanley.

On consumer, I have a follow-up. I understand there's a broad range of types of partnerships that you're engaged in and the economics may vary. But can you speak to the overall margin profile outside of the Quest Direct business? And how should we think about the pipeline of future partnerships. Do you have -- are you talking with several different types of platforms from a wellness or wearable standpoint. And then a follow-up, just a broader question. You gave some interesting stats on AI and automation. And just how do we think about your targets or your goals on that front from an efficiency gain standpoint and what you can leverage from an AI use case?

So this is Sam. I'll take the first question around the margin profile, and then I'll hand it over to Jim, who'll talk about the pipeline and AI. I'll keep it simple. I mean the margin on these deals, both in terms of the deals and collaborations that we have, whether they're wearables collaborations, whether they're wellness companies, but also the margin profile on the questhealth.com business is on par, if not slightly better than our overall enterprise average. These are tests that are out of pocket at least on questhealth.com. And then it's a client bill business with the wellness companies that we engage with. It's all cash pay. So there's no denials. There's no patient concessions. So it's clean business in terms of just at least the complexity or the lack thereof. And it provides a really good margin profile for us.

Yes. So Erin, yes, we continue to pursue other partnerships. It's part of our goal. As we've said before, we're trying to empower people to own their own health. We want people to be the CEO of their own health care. And there's -- if we find other partnerships out there that meet our brand criteria that are in line with the mission of our company, then we'll certainly support it. And there's others out there that we continue to talk to. So we're encouraged by the growth in both our direct channel as well as the growth that we're getting through these partnerships.

In terms of AI and automation, certainly, we continue, I would say, 60%, 70% of our efforts are in the 4 walls of our laboratory because that's where still opportunity exists. Anytime we see somebody looking through a microscope, we ask the question, is what you're looking at? Can we digitize that image? If you can digitize an image, you can apply algorithms to that image. And if you can apply algorithms to that image, it can assist whoever is reading that image and make a higher quality diagnosis as well as improve the productivity.

So there are still plenty of areas in our laboratory where we have laboratory technicians or MDs looking at data or looking at slides or looking at pathology, and we know there's ways to automate that. We've made tremendous progress in cytology. We've made great progress in microbiology, hematology, and there's still other areas for us to go.

Outside of the laboratory, as I mentioned in the script, we've deployed some tools in our call centers. Our call centers are a big part of our operations. So anything we can do to improve the productivity of the call centers as well as e-mails and text messages that come into the company, we're certainly going to drive that. The last thing I mentioned is we did put that Quest AI assistant out on our MyQuest application. This empowers people to now ask questions about the lab results that we've just provided to you. And we were pleasantly surprised by the use of that AI tool for people trying to decipher what all of these 40, 50, 60 analytes could possibly mean. We think it's a great way to educate patients so that patients can have more proactive discussions with their clinicians, and we think it's a win-win for the industry.

Our next question comes from Kevin Caliendo with UBS.

Sam, if I'm taking your comments correctly, it sounds like the north of 49% comment for one -- for the first half of the year is pretty consistent with what you said before. But then you also commented that you're pushing maybe more of the Project Nova expenses to the second half. There's some higher fuel costs that are going to be impacting the second half of the year. So within your guidance, what's the offset that makes the second half a little bit better?

And then just one quick follow-up to Eric's question on CRUSH. Part of the proposal talked about prior authorizations and looking at that. And can you discuss that aspect of it, which isn't necessarily just on the molecular test, but I don't know if they're talking more broadly about how prior authorizations might be handled and if there's anything we should think about with regards to that part of the proposal?

Yes. Thanks, Kevin. So let me start with the second half, first half comment. I would say some of the fuel costs that I mentioned, I mean they basically start now, right? So it's not like just the second half that you have to phase those across. And again, I don't want to make too much of them because it's $7 million to $10 million of additional fuel costs. It's not that significant, but I was just giving it for completeness and to give a full view as to EPS. But they do start now, and they impact Q2 and they impact the second half. Nova steps up in the second quarter. But obviously, the first half, because it's -- because Q1 was lower in terms of Nova spend, the second half is going to be over 60% of the Nova expenses, but it does step up in the second quarter.

In terms of why we see the contribution being over 50% in the second half, I mean, I think it's really primarily the margin profile across, again, those 2 partnerships, those 2 important partnerships that we have, Corewell and Fresenius, that margin profile improves in the second half, notably for Fresenius as that business ramps. I've said before that, that business a year in starts to approach the average enterprise margin. It's just the ramp up. There's some ramp-up costs that initially impact us. So I think you start to see some improvement in the margin profile of those businesses and then just the normal seasonality of the business with the strength of utilization. So that's really what I'd point to.

Yes. And then, Kevin, in terms of your questions on CRUSH, again, I'll remind you that there were 10 tests that contributed to the vast majority of the growth in the spend. 7 of those 10 tests, we have no participation in and 3 of those 10 tests, it's de minimis. So it really Quest was not a driver of those increased costs.

In terms of pre-authorization, CMS did put out a request for information, a response. They asked people to comment on the CRUSH initiative. Our trade association did that. I can tell you that pre-authorization is not something we would ask for. But rather, I think what's appropriate is CMS ought to require some type of certificate of accreditation for the labs that are performing these higher complexity tests. That's a way to ensure that those labs that are producing these tests and some of these tests are absolutely necessary in health care today that you know they're being done by certified labs with good quality and a commitment to science, technology and excellence.

Our next question comes from Andrew Brackmann with William Blair.

Jim, I want to ask on the advanced diagnostics strength and all the color that you gave on that business. Can you maybe just sort of talk about any specific investments that are going to those areas in 2026 or in 2027? Just sort of anything to call out with respect to maybe specific clinical trials in some of those areas or sales team increases. I really just sort of want to get a sense of the opportunities that might exist there to maybe further accelerate that growth.

Yes. Thanks, Andrew. Yes, again, some of these advanced diagnostics tests were certainly a strong contributor to the mix that we saw in the quarter in the organic rev per req increase of 2.5% that Sam cited. But the biggest area again is brain health. As I indicated, the business more than doubled from Q1 of last year to Q1 of this year. We are committed to the space. There are other biomarkers that we are investing in and doing research on in addition to the AB 42/40, in addition to the ApoE, NFL. And then commercially, we procure the p-tau181 and 217 assays.

But there's other biomarkers we're working on. We're in constant discussions with the therapy makers who are collaborating with us on looking at different biomarkers that help identify the disease at the earliest possible point. We continue to invest in advanced cardiometabolic testing in various biomarkers, one specifically in the HDL arena that goes beyond just the basic HDL test. And then obviously, I'd be remiss if I didn't talk about Haystack, we continue to invest in the space. We've made progress quarter-over-quarter.

As we discussed in the script, we have a great partnership now with City of Hope, which is a leading cancer treatment detection and treatment center on the West Coast. And there's all types of clinical partnerships that we have there. We've discussed a few in the past, Rutgers and MGH. So we continue to invest in that area and continue to make progress.

Yes. And Andrew, maybe to add to Jim's comments, a healthy portion of our $550 million capital investment goes towards our esoteric labs to drive capacity upgrades given the growth that we're seeing in that business, in that advanced diagnostics business. So I don't want to -- I'd be remiss if I didn't mention that as well because in addition to the investments that Jim talked about, which are more on the business side that we do have a significant portion of capital investments going towards those tests as well.

Our next question comes from Tycho Peterson with Jefferies.

This is Noah on for Tycho. I wanted to ask a few on oncology. I believe the partnership with Guardant for Shield went live 1 month ago. If you could speak to early adoption there. And then just on Haystack, what should we be expecting in terms of the phasing of EPS contribution throughout the year and kind of getting to breakeven?

Yes. Thanks, Noah. Yes, we announced a partnership to distribute -- do blood collections for the Guardant colon cancer CRC test. And so it started in the quarter. We are listing the test on our test menu so that Quest physicians can order that test and patients, regardless if it came from a Quest physician or another physician, patients can bring that requisition to a Quest PSC and we'll draw the blood and send this specimen on to Guardant's lab. I would say it's early. We just got going in the middle part of the quarter. So I can't make a comment yet on the volumes, but it's certainly starting to take hold.

On the Haystack margin profile, Sam, I'll ask you to comment on that.

Yes. Thanks, Noah. So Haystack, listen, we're making some really good progress on the test with regards to the order experience, the commercial, both ramp in terms of resources and the uptake in terms of tests ordered. I think oncologists are starting to recognize just the impressive profile of the test with its low limits of detection. Making good progress on the reimbursement front. We have submitted to MolDX, the technical assessment to get Medicare Advantage reimbursement. We have PLA codes now that are basically priced a $3,900 baseline and an $800 monitoring reimbursed price.

So we're making really good progress. It's early days to talk about EPS ramp in terms of the dilution or the improvement over the course of the year. We'll provide updates as we go. Again, it's a test, and we have many tests in our portfolio, both in terms of AD, advanced diagnostics and routine tests. So I don't want to be overly focused on just one test. But we -- obviously, it's an important business for us, and we're making good progress on it.

Our next question comes from Lisa Gill with JPMorgan.

I just was wondering the current M&A environment. I appreciate that there's nothing in your guidance for '26. But are you seeing anything different? Are you seeing any incremental opportunities in the market? I heard your comments earlier around hospitals and their need to submit their rates. Is that changing any of their views around the potential for reimbursement cuts for Medicare going forward? So just anything on an update on the M&A side would be helpful.

Yes. Thanks, Lisa. The M&A funnel is good. We have a mix of various health system outreach types of deals that are there. And there's not a ton, as you know, of remaining independent labs across the country, but there's still some out there, and we still take a look and sometimes they proactively come to us. I don't think that the Medicare reimbursement changes are affecting a hospital's view of their outreach business. You got to remember, in general, Medicare is our best payer here at Quest Diagnostics. And in general, it's the worst payer for a health system.

So if the worst payer goes down a little bit in pricing, I don't think that affects your viewpoint on outreach. What I do think affects their viewpoint on outreach is the commercial view of the lab market in the lab industry. And I think you got a lot of really smart health plans that are starting to wake up and say, "Hey, why am I paying these health system labs 200% to 300% of what we pay 2 of the leading independents across the country." And furthermore, that 200% to 300% price premium that they get, it affects patients. It affects co-pays. It affects co-deductibles. It affects employers who are paying for this health care. And so there's nothing easier to get a quick hit, a quick win from an employer standpoint, from a patient standpoint is to normalize these rates. And we strongly advocate that health plans ought to pay all labs the same amount of money for outreach work.

It doesn't do anyone any good to penalize patients and penalize employers who are paying for the majority of the health care cost in this country to reimburse some labs 200% to 300% of what the 2 leading independents are getting paid.

And our last question comes from David Westenberg with Piper Sandler.

So I wanted to talk about the convergence of multiple factors, AI, wearables, consumer-initiated testing. Just given the fact that these AI wearables, et cetera, and consummation tested gamify longitudinal testing, it seems like there would be an increase in longitudinal testing. So am I thinking about this the right way? And how should we think about test per patient right now and where it could go in the next 5 to 10 years? Are you monitoring test per patient right now? And is it trending indeed the right way? And maybe one of the things that I might want to look at is something like are the Function Health people, for example, also doing their annual labs? And is that increasing? I mean where is the momentum going with this?

Yes. So that's a great question, David. Look, we continue to think that this convergence of consumer health, wellness, wearables and AI are going to have a profound impact on how people think about their health care going forward. I don't think the physical of today where you go see a doctor, they do a physical in the office, they order labs generally after they've done the physical and then the information flows back to the physician, back to the patient and maybe somebody calls the patient and says, here's a few things that are out of range and here's what you should do about it. I honestly think that the future, the physical of the future is going to be really before you ever see the doctor, you're going to download your wearable information. You're going to get your lab work done ahead of time.

And all that information is going to be fed into an AI engine and it's going to provide you the patient with a report. It's going to provide the physician with a report. And then when you actually go and see the physician, the physical exam itself is informed by all of that information. And then it becomes more of a discussion between you and the physician on the things that you really need to work on from a biometric standpoint, sleep, diet, heart rate variability, blood pressure, stress, the things that you really need to work on to improve your biomarkers. This linkage between biomarkers and biometrics is so incredibly important.

Just this past March, I believe it was March 13, there was a really interesting article written in Nature, some work that Google Health did. It was a study between us, Google Health and Fitbit that really highlighted the linkage between biometrics and biomarkers and the use of artificial intelligence to actually calculate some of these biomarkers in between lab tests. So what we're actually seeing is, I think, this trend that you check your biomarkers, combine it with your wearable data, combine it with artificial intelligence, it's just making people more and more conscious of their -- of what's going on inside their body. And then I think as you indicated, we're likely to see an increased trend of consumers continuing to test certain biomarkers to check to make sure that the things that they're working on, the things they're trying to optimize are actually improving.

Okay. Operator, I think that wraps up today's call. I want to thank everyone for joining our call today. We certainly appreciate your continued support. Have a great day, everyone, and good health to all of you.

Thank you for participating in the Quest Diagnostics First Quarter 2026 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) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 21, 2026, until midnight Eastern Time, May 5, 2026. Goodbye.

Perfect. Good morning, everyone. Welcome to Day 3 of the Leerink Global Healthcare Conference. I'm Mike Cherny, the health care tech distribution analyst here at Leerink. But it's my pleasure to have Quest Diagnostics with us, CFO, Sam Samad, finance exec -- temporary IR, Dan Haemmerle, long time Quest exec with us as well. Team didn't bring any slides, which I appreciate, which good jump rate questions.

Maybe, Sam, to kick things off, capsulating 2025, we saw a year building volume strength that really resonated in 4Q with a particularly impressive performance. Can you maybe just give us a little bit more of a breakdown of what you're seeing in terms of where you're pulling from the pockets of improving volumes?

Sure. And Michael, first of all, thanks for having us here. So a pleasure to be here. You're right. I mean '25 was a very strong year for us. If I think about utilization specifically, think about a few things that both we are driving, but also from a macro utilization sort of environment are helping create a really positive tailwind. But in terms of the things that we are driving, I would say, access -- increased access across the country. We are up to 92% now in terms of coverage across the entire country. We recently got -- and when I say recently, at the beginning of 2025, we got access in 4 remaining states with Elevance, which helped us also increase our share and increase our capture in those states.

We are gaining share overall. In addition to access, I think some of the acquisitions that we've done, some of the offerings that we have, have enabled us to gain share as well. And then as I think about the utilization market overall and what's driving some of that higher utilization. I think about things like, for instance, increased access to early cancer screening to increase screening overall, things like, for instance, brain health screening, more screening options that physicians are relying on that are driving more utilization in certain cases. The focus on wellness, the consumer offerings that I think a lot of -- whether it's baby boomers or patients that are more focused on having control of their own health outcomes are really going to, those are driving utilization as well.

So there are a number of factors. But in general, I would say things that we've driven like increased access things that are, from an overall health care utilization standpoint are also helping us like early access to screening options and also improved guidelines favoring those.

And I'm going to come back on the specialty side, but I'm glad you mentioned Elevance, because called out a significant payer 4 states. What about that book of business has been added. Is it just simply that you have access to lives? Is there anything you've seen from a behavioral perspective that has driven excess growth in that book of business, especially as part of that share gain dynamic...

Yes. I don't think it's anything unique to that book of business, Michael. I think it's more as you -- we had those 4 states where we really didn't have access. And so you really -- it's hard to go to certain physician offices get that business when you're not basically in network with a certain payer. So as you get more coverage, and as I said, now we're up to 90-plus percent you're able to just drive market share in those states because you can go to physician offices, you can now compete for that business, you're in network with all their payers, and so they're more likely to shift that business over to you. And then you can build on that with additional market share gains.

So I don't think that's -- what we saw in '25 is the end of that expansion of our capture in those states. I think that was the bulk of it, but we will likely see also a tail to that as well going forward.

And along that dynamic of share gains, share capture, seems fairly straightforward, that it is happening based on where we see market growth versus your growth. How is the share gain changing, especially against the hospital labs at this point in time? It's been obviously a long-time push by you to make sure you're establishing a position? Like what are you seeing now that's changing some of the behavior that's allowing you to gain share?

Yes. I think I'd like to break that down into sort of the physician market, the physician testing market and then the hospital market because there are 2 different dynamics there. In the physician testing market, where we today have about 12% of that market. It's about a $60 billion market. We've gained share. Obviously, the things that I just mentioned around having more coverage across the country, having a very comprehensive test menu having, frankly, better prices as well than the health systems, which helps the payers. It helps the patient because they have sometimes lower co-pay that's out of pocket for them. And it helps employers because they know that their employees are not going to incur the same cost and for self-directed care or employers that are basically funding their own health care, it saves them money.

So I think we've been able to grow our share, both organically but also through acquisitions, acquisitions of some of these physician outreach books of business from the hospitals. And the reason for the acquisitions getting momentum is the reasons that I've just mentioned around it's more cost beneficial and we can perform the work more cost effectively.

Now in the hospital space, I think a key driver of our share gains has been the collab initiative. The -- what we used to call PLS, now we call it collaborative lab solutions. And basically, it's the ability to grow our scale through taking on the operations of labs across health systems. Again, health systems realize we can do this more effectively. We can do this more cost effectively. We can drive cost reduction. And so there's been this, I would say, real attitude on the part of health systems to basically outsource some of that lab management to us.

And maybe using that as an example, I'm going to jump back to some other questions. But on the collab side, you have a more sizable collab agreement going on with Corewell an additional JV that's building. Can you walk us through a little bit about the tenor of that relationship, especially given that there is a double component to it beyond just doing the collaborative work?

Right, sure. Yes, it's a very important relationship and a really big collab partnership. So -- but this has basically 2 facets to it to your point. Number one is we've taken on the collaborative lab solutions for -- across their entire health system. And Corewell, very large health system in the state of Michigan. And I think it's in excess of 20 health -- 20 hospitals that they run, and we're going to be running basically all of their labs across these health systems. And that started to happen across Q4 in 2025. We started to basically ramp that business. It's going to happen across 2026, and it's going to be an additional $250 million for us in terms of revenues this year in that collaborative lab solutions business.

Now in addition to that, we have formed a JV with Corewell. And what JV means is that we basically bring our assets together, our employees together, and we're going to be building a lab together again in Michigan to basically stand up all of that work across their physicians, our physicians, their book of business, our book of business to come together. We're a majority owner. We have 51% of that JV. They have 49%. But we're going to be building the lab together this year across the majority of this year to stand it up, build it, staff it, put all the equipment in there. We expect to have that stood up early 2027. Okay. So the collab business, really important. As I said, it's ramping up now. It's $250 million. The margins on that business, especially in the first year are lower than our average book of business. The margins on that business in 2026 are going to be somewhere in the low single digits, okay, 3%, 4%.

For Corewell specifically.

For Corewell specifically, right? Collab overall is about a 12%, 13% margin business. And that's what Corewell by the way, will grow to eventually in its second year, maybe towards the end of its second year. Now the JV business, which ramps up in 2027, ramps to become, over time, almost on par with our enterprise average. It's regular business. It's not necessarily collab business.

Got it. Maybe jumping back to some of the other recent trends. The other dynamic that's driven organic growth has been test per session. There's some clear mix dynamics you've called out on the consumer side. But if you unpack what's going on with test per session, which has been durably higher than historical trends, what are you seeing in terms of the why behind that?

Yes. No, it's a good point. And just the fact in terms of where we are on tests per req, we call it test per requisition. So back before COVID, we were sitting at somewhere in the, I would say, 3.5 tests per requisition. And when I say before COVID, I'm going back to maybe 2015, 2016, we're somewhere about 3.5, 3.6. And now we're sitting at around 4.5, okay? So we've basically grown the density of our requisition over the last 10 years by almost an additional test. That's really important when you think about it because the cost to perform an accession and additional test is not proportional in terms of -- you already have the fixed costs covered. All you're incurring are some additional reagents and cost of testing but it's very profitable to have that increase in test per requisition to your question.

Now what's driving it? A number of things. Consumer is one of them, and we can talk about it. But in terms of other things, the advanced diagnostics growth in our business that what we call esoteric testing. These highly specialized advanced diagnostics tests are really a key driver. The availability of new tests that are now being favored by physicians because if you have a patient coming in for whether it's for their annual physical or for a general routine testing visit, if they have certain risk factors, you might add an AD detect test, which is for brain health for early screening of early onset dementia. If you have certain risk factors, you might add a colorectal cancer screening test. You might add a general cancer screening test, for instance, a pan-cancer screening test. You might add a cardiometabolic test that you didn't have before.

So there are many different things, I think, on the screening side that are starting to become much more prevalent and being favored by physicians and guidelines are driving towards that as well. We saw last year that blood-based testing was added to the guidelines as a screening option for brain health. So all that is helping, I think, driving test per requisition.

And as you think about the next leg, I'm not asking for guidance beyond the 4.5, but should we assume that there's a continuation of these trends you've seen? Obviously, we all have better information, better data applications of AI, are all these factors -- should we think about test per req being something that's a more permanent additive piece to organic growth?

Yes. I mean it's hard to project this out, right? Because you have to think about just physician behaviors, guidelines evolution, a lot of things that -- some of which we control, some of which we don't control. But I think at the least, I would say, we expect these trends to continue. Now is it -- does it mean that in the next 10 years, we add yet another test per req. No, I'm not saying that. But I do expect that these trends qualitatively would continue because I think that's where care is heading. Is more prevention, more screening, more rather than shifting a little bit of that equation from treatment to prevention. And I think U.S. health care is starting to catch up to the importance of that.

Give we're sitting here in the middle of March. I have a couple of start of year questions for you. First of all, a lot of people here live in Northeast, multiple weekends getting snowed in? Like what are you seeing in terms of how your network responded to some of the snow days and any impact that you think is relevant to think about at this point in time?

Yes, sure. Some of it we talked about on the Q4 call as well. Listen, January was a tough month in terms of weather. I mean, I'm not saying anything that maybe a lot of us didn't experience firsthand. The Northeast had some really bad weather. The Southwest had some bad weather, we had bad weather across the country. Leading up to that sort of third week, maybe fourth week of January, we were seeing very strong utilization. Obviously, and as usually happens when you have bad weather, you get impacted by that because if you're snowed in, your first thought isn't going to be to go rush to a patient service center to get blood-based testing. You can defer that. Now we do think that a lot of these reqs, Michael, 30% to 40% of them do come back.

So it's not like you lose that business and it's gone. 30% to 40% of them we estimate do come back. The general wellness type of testing usually does come back. If it's more episodic, if you're going in every 3 weeks to get a blood test done for a certain chronic condition, that might not come back because you might miss a certain visit, and then you do the next one. But the general wellness and the routine testing stuff does come back. We've seen that. We also have now the ability, and we've developed this over the last, I would say, number of months to really target patients as well that have missed appointments. We do campaigns to go and make sure we remind them to come back for testing. So we control some of that. But as I said, leading up to that bad weather, and thankfully now, it looks like we've turned the corner and weather is starting to become more manageable.

But leading up to that, the utilization was really strong. And I expect it to continue at the same trends that we were seeing before. There is no reason for it to not to get back from that short-term disruption we saw.

And then, obviously, early in the year, but you've been pretty transparent on your views on the health insurance exchange and the volume headwinds. Is there anything you can parse out from your data yet, just see how it's tracking relative to your targets, your plans?

Yes. Just to remind everybody, we put in an estimate of roughly 30 basis points impact on revenue growth this year as a result of people not renewing their coverage because of the subsidies expiring. And the removal of the subsidies. I would say I'm encouraged by the early signs. In terms of enrollment, the enrollments have been stronger than we expected. The drop-off in enrollments has been lower than we thought as a result of the subsidies expiring. And there's still, I think, a bit of a wait and see to see the type of coverage that people opted to. For instance, if you signed up, but you before had maybe a gold plan. Now you're going to a bronze plan, you're going to a lower utilization plan because you just want to make sure you have catastrophic coverage, but you're not going to really utilize the plan. Will that impact utilization? Yes, of course, even though you're still covered, but you're going to be covered, but utilize your health care less.

Now we factored that into our 30 basis point estimate. It's not like we expected everybody to even the people that stay on, we expected there to be a bit of a drop off in utilization. So I would say overall, Michael, I think it's probably gone better than we thought.

And then we're 1.5 weeks into some expanded geopolitical strike and obviously, subsequent increases in oil and gas commodity prices. It's been a while since we've talked about sensitivities of your business relative to some of the commodity dynamics. Can you just remind us how you manage through potential changes, both up and down when you do see spikes like we've seen? Obviously, no one knows how long it's going to be. But just curious to think about how Quest attacks it?

Yes. I mean, obviously, anything that's -- whether it's price of oil or other disruptions or other, I would say, shocks in the system, so to speak, are going to have an impact. We have a very large logistics network. We have 16 planes that fly across the country and transport samples. So the price of oil is going to impact us as do some whether other utility type sort of impacts that are out there. Now I'm not too worried about it. First of all, we started to really make this push to move our whole logistics fleet, our ground-based fleet to hybrids, which helps really save on the cost of on the cost of gas because that was a big cost factor for us regardless of whether the price of oil was $100 or $60.

And I think to your point, now if this disruption is 8 months in terms of higher prices, yes, it will have a cost that I think we can manage, but it will have a cost increase. But I think we've started to take some steps to offset some of the negative impacts of that.

Got it. Turning back to some of the mix dynamics, especially around specialty. We talked about some of the growth in tests. Where do you see your portfolio lies today? AD detect has been a good advancement. What have been some of the other success points you've had in terms of the proactive push to drive better specialty mix?

Yes. We've got -- first, let me talk about the portfolio overall. I mean we've got these 5 high-growth areas that we are really focused on. And those are in the areas of oncology, brain health, autoimmune, women's health and then cardiometabolic. Those are the key areas that have high-growth tests that are now about $1 billion in terms of size. And those high-growth tests within these 5 areas basically are growing in the double digits, somewhere close to the high teens. So we're seeing really solid growth there. And that impacts the mix overall back to your question about revenue per requisition and mix benefits, that really impacts favorably that revenue per requisition and also the number of tests per req.

In terms of key tests, Michael, so let's focus on a few. Brain health, I talked about AD detect. But this is a really important test, and it's a portfolio of tests with different analytes. We have 4 analytes. You've got amyloid beta 42, amyloid beta 40, you've got p-tau217, p-tau181. So depending on the patient and what the specialists or the GP because this test is being prescribed by a lot of GPs or ordered by a lot of GPs. I mean they can order 4 analytes for that test, and it could be a test that's a price that gets reimbursed at about $400. So it's a good, high priced, high value test for us as well. But that test is really important for the early onset dementia patients, at least the ones that have risk factors.

If you look at autoimmune, we have this test called analyzer, which is also fairly new. I mean, it's been around for maybe close to 2 years now. But it really can help physicians detect of 8 autoimmune disorders, which one they might be suffering from because for these autoimmune disorders, it's really hard sometimes to figure out autoimmune disorder does a patient have? How do they treat it? What's the next step. So this is a test that really informs of those 8 large autoimmune disorders, which one does the patient have and what are the next steps in terms of treatment.

You have -- obviously, on the oncology, you have Haystack MRD, the MRD test that we have, which is having good momentum. We partner in oncology on some tests as well with companies like Guardant, with companies like GRAIL on their early cancer screening options as well.

And in cardiometabolic, it's really a focus on a large number of tests, some of which really help in terms of understanding of patients' risk based on their cholesterol but also getting away from the traditional options like just looking at LDL and HDL -- that's a little bit outdated. Now we look at things like Lp(a) and ApoB, which really helps you understand the full risk factors behind cardiometabolic disease.

And on Haystack, in particular, what is the status update right now? Where are you seeing the commercial expansion and how is it tracking relative to your expectations for the ramp?

Yes. So we've made a lot of progress on Haystack, and I'll tell you in which areas we've made progress. First of all, back in late '24, early '25, we had this early experience initiative, which was with about 75 cancer oncology centers many more oncologists within those cancer centers that have tried Haystack, 90% of them based on the experience they had said that this really helped them think differently about their -- basically their MRD options going forward. So really big success.

Now we launched the assay fully for commercially in April of 2025. So we've been at this now almost a year, not quite. We've scaled commercially in terms of the number of reps. We're now about 40 dedicated reps. And in total, between reps that are dedicated to Haystack and ones that co-promote it, it's about 60 or just over 50 reps that we have driving it. We've gotten reimbursement for the test for both baseline and recurrence monitoring. So the baseline test now is priced at close to $3,900, the monitoring is close to $800, the repeated monitoring, the blood-based monitoring. We've launched this ordering -- EMR ordering platform to help oncologists with the ease of ordering, ease of resulting which really helps oncologists not to have to deal with paper recs, et cetera. So that was really important.

And I think we're getting really good feedback on the low limits of detection that we have for the assay, Michael. I mean we're getting feedback in some cases where they say, "I've used another option I got a negative test. I used your option and I got a positive test, which is really critical for patients. That means they had recurring tumor basically tumor fragments in their blood that were being shed by that tumor. And the previous test didn't catch it, and that's really critical.

And what comes next in terms of hitting your milestones to get Haystack to breakeven and eventually profitable?

Yes. No, I mean, continue to ramp. Obviously, we're going to continue to drive the commercial focus and execution. That's going to be the key thing. I mean at the end of the day, reps talking to oncologists are what gets adoption going. You can talk about all the scientific merits and those are really important. But unless you have reps really promoting the product, explaining to physicians and oncologists what this does, you're not going to get traction. And that's why we've increased the commercial focus. We have also the reimbursement that we got was with Medicare, and 50% of cancer cases are over 65. So that covers a big portion of the population. We're now focused on Medicare Advantage as well. So we submitted this technical assessment to MolDx for the purpose of getting Medicare Advantage coverage. That's next.

And continued commercial adoption. That's the key thing. Now I won't give you revenue targets in terms of what the success look like for revenue targets because it's a test. At the end of the day, this is not a P&L. This is a test. We have many tests. We have hundreds of tests in our menu. But what's going to -- what the success look like? I mean, this is a market today, Michael, that's $1 billion, the MRD market. In 5 years, many have estimated this could be 5x that, $5 billion market. So every point of share really matters in this market. We're not expecting to have 50% share in this market in 5 years. No, that's that would be an unreasonable expectation. But we are expecting to gain share in a market that's growing. And every point of share really matters. And for a company like us, this can help us really be more accretive in terms of growth.

Turning internally a bit before we run out of time because it's going fast. Let's talk about AI. I mean you have obviously the Project Nova large-scale implementation going on. You're also doing some interesting things on AI. I was at one of your labs in December, I saw some of the microbiology sample work that you're doing sample sorting. How do you think about the strategic optionality on AI as both within the clinical side, so actually like testing advancements, analytical advancements versus the internal side, i.e. your world on finance operations?

Right, right. Yes. And I'm glad you went to Clifton and saw sort of the automation AI in action because that's a really impressive lab. I would say it's, if not the most advanced lab out there. It's definitely among the most advanced labs. But here's how we think about AI, Michael, and it's an evolving thought process, I'm sure for a lot of people because AI keeps changing in terms of how the use cases, the potential, how we size the value from AI, all these are still evolving, I think. And I'm struggling with them as much as I think any other CFO is. But we think about it as inside the lab and outside the lab, okay? That's how we categorize our AI efforts.

Inside the lab, I'd say we're more advanced than probably a lot of companies out there in terms of how we think about AI, how we've deployed AI. I mean, we've deployed both automation and AI until a lot of our workflows. We've got 3 labs now that are -- that have end-to-end automation. Clifton is one of them. We have automated sample sorting. We are piloting automated accessioning, things where no human touches the sample. This all gets done by machines. On the AI side, we've got algorithms for detecting regions of interest around cytology, so automated cytology and also microbiology and pathology as well, where we basically have AI and large language models or AI algorithms, I should say, detecting regions of interest, highlighting them for either the lab tech or the pathologist to help them really diagnose much quicker and improve their productivity. You're always going to need a human to make the diagnosis but you don't need a microscope anymore for looking at samples. You don't need people looking at cultures.

You need digital images that are being essentially assessed by an AI algorithm that's pointing regions of interest that's helping focus the detection on a much more concentrated area that now helps the -- either the lab tech or the pathologist/physician make that diagnosis. So that's in the lab.

Outside the lab, there are many areas that we're looking at. More recently, we just launched this -- essentially, this language model and chatbot for interacting with your results. If you have MyQuest, the app that we have for all of our patients that can choose to download it and you get your results there, you go in and you interact with your results in a way that's much more fluid than it ever was. Now when you see outliers in terms of some of your results, you can ask questions, you can get answers. It's never going to give you a treatment option because you need a physician for that, but it's going to direct you to probably how you should be thinking about this and what questions to ask your physicians potentially. So it's a very interactive language model for your results.

We're looking at what we call dynamic route optimization and logistics, where AI figures out the best routes on a very dynamic basis, not just a static hey, here's how we think you should go to point A to point B, but really helps both in terms of flight mapping and ground mapping how we think about the most cost-effective routes on a, as I said, a dynamic basis. In my area, there's tons of things. I mean I have a group now that's dedicated to focusing on how do we improve back-office functions, how do we make sure that we -- my goal, Michael, is in 3 years, take out every transactional function, every transactional function, not just, hey, 1 or 2, really, I think that's what we should be aspiring to.

And then last minute, Project Nova, you introduced it around this time last year at the Investor Day. You talked about the headwinds, I think it's $0.25 for this year embedded in the numbers. As you've gone through the process, any surprises yet on what's been unveiled, opportunities for more spend, opportunities for more optimization? Anything you could call out?

No, no surprises. It's going as planned. We signed with Epic in the second half of last year. We're starting to ramp all of the efforts around starting to think about how we're going to roll this out across our 24 labs. It's going to be a staggered rollout. We're going to have the esoteric labs, namely 2 esoteric labs being the first phase of rollout to be basically operational on the new lab information system by end of 2027. So that's the goal. That's the first step, and then you start to stagger the rollout post that. That obviously helps you to manage the risk. So you're not doing many labs at once. You want to do them over time.

Our expectation is that we're going to start to see benefits in late 2027 when we start to roll this out, benefits in terms of easier integration with health systems, with physician offices that help you onboard businesses faster, lower denials through AI and automation there. We didn't talk about actually denial management as one of the AI initiatives, but that's also ongoing with companies that we partner with in the AI space. But Nova will help us do that. We're going to actually pull some of Epic's AI capabilities with our own as well that helps with Nova benefits realization. I think that's going to be important.

We're out of time. All right. Sam, thanks so much for being here.

Thank you.

Thank you everybody.

It's a pleasure.

Welcome to the Quest Diagnostics Fourth Quarter and Year-end 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and the question-and-answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited.

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. 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, Dan, and good morning, everyone. With diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we expanded our category defining clinical innovations to meet robust demand, form strategic collaborations with elite health care organizations, and further advanced our position as the premier lab engine powering the wellness industry. We also continue to improve quality, productivity and the customer and patient experience with process enhancements, AI and automation.

As we look ahead to 2026, our guidance reflects our continued confidence in our business strengths and market fundamentals which include favorable demographic trends, increasing use of blood-based lab diagnostics and growing interest in preventative health and wellness.

Now before I turn to this year's highlights, I'd like to take a moment to comment on PAMA. Last week, bipartisan legislation was enacted that delays the implementation of PAMA until the end of 2026. This 1-year delay in rate cuts was paired with an update to the data collection period to the first half of 2025, from the first half of 2019, based on the data to be supplied by applicable laboratories to CMS later this year. We greatly appreciate Congress for recognizing the need to reform PAMA and for providing this 1-year delay of PAMA cuts which provides meaningful short-term relief. However, these steps do not fix PAMA's structural flaws, which include relying on an estimated 10,000-plus labs to self-report data to establish industry representative data for payment rate setting.

As a reminder, fewer than 1% of all the clinical laboratories reported commercial payer data to CMS in 2017, resulting in 3 rounds of excessive rate cuts based on data that did not reflect the market. A different approach is needed to prevent a repeat of excessive rate cuts. The [ RESULT ] Act provides a common sense long-term solution that corrects these deficiencies by, for example, eliminating the need for thousands of labs to self-report data and instead, leveraging an independent third-party database that provides comprehensive and representative data to set accurate market-based rates. We will continue to work with our trade association, ACLA, to build on progress in securing the necessary support in Congress to pass results into law this year.

Now I'll provide more detail on how we executed our strategy across our key customer channels and operations during the quarter and the year. We are 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, life sciences and data analytics. In the physician channel, we delivered high single-digit organic revenue growth in the fourth quarter on broad-based demand for our clinical solutions, including several areas of advanced diagnostics and from geographic expansion resulting from increased health plan access. We also grew revenues in enterprise accounts as we added new customers and extended business with existing customers.

In addition, during the quarter, we scaled our lab testing to serve more than 200,000 patients at [ Fresenius ] Medical Care's dialysis centers in the United States. We also added water purity testing capabilities to our menu to support dialysis customers nationwide. In the hospital channel, revenues grew low single digits with collaborative lab solutions driving our growth in the quarter. Our Co-Lab solutions harness our lab and process management expertise to optimize quality and drive cost efficiencies in areas ranging from hospital lab and supply chain management to analytics and blood utilization.

At the start of 2026, we began to scale our Co-Lab solutions across all 21 hospitals of Corewell Health, a leading health system in Michigan, and our largest implementation of these solutions to date. We expect Co-Lab solutions to generate approximately $1 billion in annual revenues in 2026. Additionally, we recently finalized our laboratory joint venture with Corewell Health, and are jointly constructing a state-of-the-art laboratory in Southeast Michigan from which we plan to serve the state in 2027.

Hospitals value our flexible solutions for accessing expertise innovation and capital. We are pursuing several potential hospital outreach and independent lab acquisitions as well as Co-Lab opportunities, while also continuing to integrate and generate value from our recent transactions. In the consumer channel, we are leveraging our diagnostics expertise and technology to drive growth through our consumer initiated test platform, questhealth.com, as well as through collaborations with industry-leading wellness and wearables companies.

In the fourth quarter, we expanded questhealth.com to offer more than 150 tests including our new 85 biomarker Elite health profile. Our innovation, quality and technology integration into existing apps and experiences make us the clear choice for organizations seeking to add diagnostic insights to their offerings, and we added new consumer brands to our extensive roster of collaborations in the fourth quarter.

At our Investor Day in March last year, we said that we would expect consumer-initiated testing to generate revenue growth in excess of 20%, and we exceeded that growth rate in 2025. Across the consumer channel, we delivered nearly $250 million in revenues for the full year. We enable growth across our customer channels through faster-growing advanced diagnostics in 5 key clinical areas. Advanced cardiometabolic and endocrine, autoimmune, brain health, oncology and women's in reproductive health. During the quarter and full year, we delivered double-digit revenue growth across several clinical areas of our advanced portfolio. I'd like to highlight a couple of these innovations today.

Our analyzer solution provides a comprehensive yet simple approach for aiding the diagnosis of the 8 most common autoimmune disorders. About 24 million Americans suffer from at least one of over 100 autoimmune disorders. Because symptoms of these disorders often overlap, and a shortage of rheumatologists exists nationwide, patients may go for years before receiving the correct diagnosis. Analyzer helps primary care clinicians identify the likely category of disease affecting the patient and thereby speeding referral to the right specialist for faster diagnosis and treatment.

In brain health, our portfolio of Quest AD detect blood test for Alzheimer's disease extended its year-long double-digit growth momentum into the fourth quarter as providers increasingly adopted the high-quality blood-based biomarker tests for the most prevalent type of dementia. A recent study by our scientific team suggests that blood test, like our newest AD detect panel, which fulfills guideline criteria for confirmatory blood testing could decrease cost to the health care system by reducing the use of higher-cost PET CT imaging for diagnosis, improving access and affordability.

In oncology, we continue to build our presence in blood-based minimal residual disease testing. New research presented at ASCO GI in early January highlighted the strong clinical value of our Haystack MRD test in monitoring for colorectal cancer. We further expanded in the MRD space with the launch last week of our cutting edge flow MRD test for blood-based cancer myeloma. This test enables ultra-sensitive detection of residual disease in a blood specimen sparing patients to pain and complications of conventional testing of bone marrow biopsies.

Along with driving top line growth across our business, we are focused on delivering operational excellence with enhanced processes and strategic implementation of automation, AI and other advanced technologies. Through our Invigorate program, we achieved our full year target of 3% annual cost savings and productivity improvements in 2025. Inside our labs, we deployed automated sample processing across our network and collaborative accessioning at multiple sites to streamline and optimize our processes. We also implemented the [ hologic ] Genius Digital Diagnostic System at 2 of our laboratories, and look forward to scaling the solution for enhancing quality and productivity in cervical cancer screenings at several of our labs this year.

Outside the lab, we're using AI to make the customer and employee experiences easier, faster and more insightful. For example, our virtual AI agent has reduced routine logistics calls by up to 50%, and we expect a new AI logistics tool will help us reduce courier transportation times as we roll it out this year.

And now Sam will provide more details on our performance and our 2026 guidance. Sam?

Thanks, Jim. In the fourth quarter, consolidated revenues were $2.81 billion, up 7.1% versus the prior year. Consolidated organic revenues grew by 6.4%. Revenues for Diagnostic Information Services were up 7.3% compared to the prior year, reflecting organic growth in our physician, hospital and consumer channels as well, as recent acquisitions. Total volume measured by the number of requisitions, increased 8.5% versus the fourth quarter of 2024, with organic volume up 7.9%. Total revenue per requisition was down 0.1% versus the prior year.

As a reminder, Corewell Health and [ Fresenius ] Medical Care delivered significant volume growth at a lower revenue per requisition than our company average. Excluding these two relationships, our organic volume growth accelerated to 4.1% in the fourth quarter, while our revenue per requisition growth remained solid at approximately 3%. Unit price remained consistent with our expectations. Reported operating income in the fourth quarter was $386 million or 13.8% of revenues, compared to $361 million or 13.8% of revenues last year. On an adjusted basis, operating income was $429 million or 15.3% of revenues, compared to $409 million or 15.6% of revenues last year. The adjusted operating income dollar increase was due to organic revenue growth and revenue growth from recent acquisitions, partially offset by wage increases. Operating income percent was reduced in the quarter by start-up expenses related to [ Fresenius ] Medical Care and Corewell Health, as well as Project Nova expenses.

Reported EPS was $2.18 in the quarter and adjusted EPS was $2.42, compared to $1.95 and $2.23 the prior year, respectively. Foreign exchange rates had no meaningful impact on our results. Cash from operations was $1.89 billion for the full year 2025 versus $1.33 billion in the prior year. This significant year-over-year increase was driven by higher operating income, favorable working capital due to timing of disbursements, a cash tax benefit related to recent tax legislation and the onetime Cares Act tax credit. As Jim said, we successfully executed on our strategy in 2025 to deliver these results, and we will continue to build on this as we progress through 2026.

Turning now to our full year 2026 guidance. Revenues are expected to be between $11.7 billion and $11.82 billion which represents a growth rate of 6% to 7.1%. Reported EPS is expected to be in a range of $9.45 to $9.65, and adjusted EPS in a range of $10.50 to $10.70. Cash from operations is expected to be approximately $1.75 billion. Capital expenditures are expected to be approximately $550 million. Our share count and interest expense are expected to be consistent with 2025.

This guidance reflects the following considerations. We assume approximately 6% to 7.1% in revenue growth, and this does not include any contribution from prospective M&A. The severe weather impact experienced in January 2026 is creating a greater headwind than what we experienced during the same period a year ago. We have contemplated the impact to date in our full year guidance. We expect the seasonality of our business to be generally in line with last year's and pre-COVID seasonality.

Based on the passage of federal funding legislation last week, there will be no impact from PAMA in 2026. For Project Nova, our multiyear initiative to modernize our order to cash process, we expect approximately $0.25 of EPS dilution related to increased investment spend versus 2025. Operating margin is expected to expand versus the prior year. The Co-Lab relationship with Corewell Health will add approximately $250 million in organic revenue at low single-digit margins in 2026.

We continue to make progress with our launch of Haystack MRD, and expect it will be less dilutive versus the prior year as we ramp volumes. We expect our adjusted effective tax rate to increase approximately 100 basis points in 2026 versus 2025. Our lower operating cash flow guidance in 2026 compared to 2025 reflects several onetime benefits in the prior year, and one more payroll cycle in 2026 than 2025. The onetime benefits in 2025 were approximately $150 million, and the impact of the one additional payroll cycle in 2026 is approximately $120 million.

With that, I will now turn it back to Jim.

Thanks, Sam. To summarize, with diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we delivered category-defining clinical innovations that fulfill customer needs, form strategic collaborations to create new growth opportunities and further advanced our position as the premier lab engine in consumer health. Our 2026 guidance reflects our continued confidence in our business strengths and market fundamentals supporting enduring interest in our diagnostic innovations.

Looking ahead, I'm excited about our path forward. We are focused on connecting everyone, from clinicians to consumers to illuminate a path to better health, and are well positioned to serve growing interest in accessing the health insights that only laboratory diagnostics can deliver. Quest sits at the center of health care as a trusted provider, and that's because of the dedication of our nearly 57,000 colleagues to living our purpose, working together to create a healthier world, one life at a time.

I'd like to close by thanking each of my colleagues for what we accomplished together in 2025 and for their ongoing commitment to transforming lives for the better in the years ahead.

Now we'd be happy to take your questions. Operator?

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

I guess as you're looking for '26, can you just give us a sense of what the underlying growth drivers are as you think about -- or the assumptions on the growth drivers? Do you think about like the consumer piece, new tests as you -- MRD coming on potential reimbursement there, chronic disease management, et cetera? Just kind of break it out as to what you guys are thinking from the -- as we kind of bridge that build.

Yes. Luke, I think you touched on most of those. Look, we expect the organic growth to remain strong, as Sam indicated. I think from a testing standpoint, we're seeing tremendous uplift in our Alzheimer's portfolio of tests. Those include the [ AB 4240 ] several [ P-tau ] markers, as well as our algorithms that assess the likelihood of disease.

Our autoimmune testing, as I indicated in the script, is again, very, very strong. The diagnosis rate of autoimmune disorders continues to grow. Diabetes continues to grow. Cardiovascular testing. And not just the routine testing. The more advanced testing, what we call Cardio IQ, that includes Lp(a), ApoB, insulin resistance, all of those doing very, very well. Some of that being generated by the consumer segment.

Our own questhealth.com just saw tremendous growth throughout last year. The partnerships that we've developed with [indiscernible] [ AURA ], with Function Health, with several other types of wellness companies, all of that helping. The last thing I'd mention is you know we got back into network with [indiscernible] in several key states last year. Nevada, Colorado, Colorado, Georgia and Virginia. And I'd still say we're in the early innings of winning our fair share in those states. So all of that continues to just propel the organic growth as we enter this year.

Great. And then a follow-up here, as you think about 1Q, you talked about the bigger weather impact, that headwind, do you think about like consumer ramping? And just from a pacing perspective, how are you guys thinking about the 1Q and then how that ramps throughout the year?

Yes. Let me just comment on the weather impact. It was a tough January versus last January. But the good news is it was in January. So we have the rest of the quarter, the rest of the year to make it up. Now we can't predict the weather in the last 6 weeks of the quarter here.

But what I'll tell you is the first 3, 3.5 weeks of January were very strong, very strong growth. And so we're convinced that the majority -- some portion of it comes back. Whether it's 30%, 40%, it's hard to predict. The general health and wellness types of work always comes back to us. Some of the episodic work, if people were getting tested every 2 weeks for some chronic care condition, maybe they missed that appointment.

But the other thing I'd tell you is that we have really good systems in place today to track the appointments that were canceled, to track the appointments that we canceled because we couldn't open our patient service centers. And we continue to remind patients that they missed their appointment, and we see nice uptick from those reminders in terms of patients rescheduling.

In terms of the pacing of the quarter, I'll let Sam comment on that.

Yes. So I mean, I'd echo, first of all, the comment that Jim made around very strong utilization in the first part of January. And then we had some real historically bad [ storms ] across the country that impacted the month, but we're still confident about the recovery in the quarter and what we're seeing is also that strength coming back.

But in terms of seasonality, I think what you should expect is something similar to what we saw last year in terms of pacing across the quarters over the full year and something similar to what we saw pre-COVID seasonality. If you go back before 2020, specifically referring to the 2016, 2019 period, that type of seasonality is very, I would say, consistent in our business. It was disrupted during COVID. But if you compare to '25, I think the seasonality is very similar in terms of how you should think about the pacing.

Our next question comes from Erin Wright with Morgan Stanley. Our next question that comes from Patrick Donnelly with Citi.

Sam, probably one for you. I just want to talk through the moving pieces on the margins. I mean it seems like a lot been going on in '26 between Corewell, Project Nova, Haystack, an extra week on the payroll, which you mentioned. It does sound like they'll be slightly up year-over-year. So can you just talk through the impact, a little bit of a bridge if you're able to? And then the cadence, it sounds like typical seasonality, I know typically, 2Q is the highest it would be helpful just to talk to the cadence and then the moving pieces on the margins. And if you're able to quantify, that would be even better.

Yes. Thanks, Patrick. So let me go through all the moving parts here, at least the moving parts that we have in '26.

First of all, let me just say operating margin is expected to increase in '26 versus '25. So that's the starting point here in terms of how you think about '26. It is impacted somewhat negatively by the ramp of Corewell and [ Fresenius ] businesses, mostly Corewell actually in terms of the -- roughly $250 million of Corewell revenue increasing in '26, which comes at a lower margin. It's a Co-Lab business. It's low single-digit margin in '26, improving to normal Co-Lab margins later in '27 and beyond. But in '26, it's impacting operating margin rate. It is a very good business. It's $250 million in terms of additional revenues, but at low single-digit margins this year. So that's impacting the operating margin rate expansion. But even with that operating margin rate is improving.

Obviously, we have very strong organic volumes. The 6.6% at the midpoint guide that we've given is mostly organic growth. It's almost all organic growth. Actually, there's only about roughly 15 basis points of M&A carryover in that. So think about it as all organic growth and driving margin expansion.

There -- in terms of price impact, again, another piece of the story here. Price is relatively flat year-over-year, consistent with our expectations and consistent with what we've been seeing in practice over the last couple of years. So no negative impact from price. Roughly flat within that plus or minus 30 basis points that we've talked about.

In terms of Haystack. Haystack is less dilutive than '26, so it's actually helping. That's consistent with what we've shared in terms of '26. So the test is ramping, good volume ramp that leads to less dilution on Haystack.

And then you have as an offset, Project Nova. We've quantified that in the guide that we provided. It's roughly $0.25 of incremental expenses in '26 that's impacting our margins. So that's going to happen across 2026. It started to ramp more significantly in Q4 of '25, and it's going to continue in '26. As we stated prior, and we've quantified it now for '26.

In terms of seasonality, the last thing I think that you asked, Patrick, and then I'll hand it over to Jim who wanted to add a couple of comments. But seasonality, consistent with what we saw last year. But if you think about it in terms of maybe more specific terms across the quarters, Q1 is usually our weakest quarter as we say in terms of EPS contribution to the year. Q2 is the strongest quarter. Q3 is a step down from Q2 and Q4 is a step down from Q3. In terms of seasonality, first half, second half, I think you should expect somewhere just north of 49% in the first half and just north of 50% in the second half in terms of EPS contribution to the full year. That's just giving you more specifics. That's the seasonality pacing.

Jim?

Yes. Patrick, a couple of the things that are enhancing the margins, margin rate. One is our consumer business. We mentioned in the script, it's a $250-ish million book of business that continues to grow at 20%. Remember, with that business, there's no denials and there's no patient concessions or bad debt. It is definitely a help from a margin rate standpoint as we continue to grow that business north of 20%, relative to the portfolio growing 6% to 7%.

The other thing I would mention is LifeLabs in Canada. The margin rate continues to improve. We said by year 3, it would be at the company average, and it is definitely heading in that direction very close to that. And is that margin rate of that business continues to improve and will help our margin rate as well.

Our next question comes from Michael Cherny with Leerink Partners.

Maybe if we can talk about the competitive environment as you see it, and you talked, obviously about above expectations, organic growth. Some of these are contract oriented. But as you think about the current health of the market, I think about where you sit across the hospital labs in an environment where you continue to have differential partnerships. Where do you see your biggest competitive strengths are as you kick off the '26 and '27? And how much of the expectations for organic growth are for lack of a better term, share gain?

Yes. Mike, Look, I think there's absolutely share gains in the organic growth that we saw in 2025, and I think it will continue into 2026. As I mentioned, getting back into network in those key states with [ Elevance ], that's all share gain in those states. I didn't mention [ Centerra ], but [ Centerra ] is a big health system health plan in the Southeast along the Atlantic Coast. We are back in network with them, and that's been a tremendous help.

Look, our strengths are simply our national coverage, right? We have over 1,200 sales reps out there positioned with primary care with all of the various channels. And that really helps when it comes to positioning our autoimmune testing, our brain health testing, our cardiometabolic testing, having that broad national coverage really, really helps.

Now in terms of -- everyone wants to make a lot about Quest and our nearest competitor. But I got to tell you what, [indiscernible] competitor are probably less than [indiscernible] the market, 30% -- [ and ] less than 30% of the market. So I think we're making inroads versus hospital outreach. I think we're making inroads against physician office labs. And perhaps these big health systems are just not as -- not going after that business as strongly, right? They have other things to invest in. They have other priorities, other investments that generate higher returns than laboratory testing. So I think we're capitalizing on those trends.

Our next question comes from Kevin Caliendo with UBS.

What are you guys seeing in terms of the [ HICS ] now that we have further visibility? Is that sort of in line with your original expectations around the potential impact? And just a clarifying question around volumes. I appreciate that you're now including [ Fresenius ] and Corewell in this. But if we were to take that out, what would it have been? And what would your organic sort of volume spend in 4Q?

Yes. Sure, Kevin. Let me comment on both and Jim can add color as well. But first on the health exchanges. I'll remind you about what we modeled and what our expectations are.

We modeled a 30 basis point impact on growth -- on revenue growth from the exchanges. So -- and that's factored into our guide for the year. So that was our modeling and that's what our expectation is. Now in reality, what we've seen in terms of enrollment has actually been better than expected. It's early days to measure utilization as a result of that and what the loss of utilization is off of the enrollments, but I would say we're encouraged by what we saw so far in terms of -- by the end of the year, and also what we saw in January in terms of enrollment.

Now again, we need to see the mix of those enrollments of potentially patients going to higher deductible plans, bronze plans versus gold plans. I mean, there's a lot of moving parts there. And it's very early days to be able to say this is really encouraging. But so far, based on the enrollments, we've seen it better than expected.

In terms of the -- you asked about [ Fresenius ] and Corewell. Listen, both of these are -- Corewell is all organic growth. It's a Co-lab relationship. It's all organic growth. Fresenius is mostly organic growth as well. In terms of -- we did talk about the fact that in Q4, where our DIS business grew by roughly close to 8% organically in terms of volumes, the volume growth ex Fresenius and Corewell was just over 4%. So basically, from a volume perspective, they had a sizable impact because the nature of the Fresenius business specifically -- and to some extent, Corewell, but more so [indiscernible], it's very routine business. Very high-volume business that's done on a very regular basis. It's a lower [indiscernible] business still very profitable based on the fact that we don't do [ draws ], we don't incur as much cost, but it's a high-volume business. The impact on revenue in Q4 was much less. It was just less than 1%. So our organic revenue growth was 5.6%, excluding those two businesses, and it was 6.4% in total.

Yes. Kevin, the other thing I'd point out is in addition to the 4.1% organic growth when you strip out [indiscernible] and Corewell, we also had 3% organic [ rev per req lift ]. And again, that's coming from price being stable, number one. Number two, the continued [indiscernible] increase we're seeing, some of that coming from the mix of our consumer business. So all of that just continues to point to strong organic revenue growth that we're seeing.

Our next question comes from Jack Meehan with Nephron Research.

Jim, I wanted to ask you about how you see PAMA playing out this year. So we do have the survey coming up from May through July. I assume like are you ready to participate in that? And do you think this data ultimately is read out later in the year, and could inform rates in 2027?

Yes. So first, Jack, we're really thankful that we got a delay for the sixth year in a row. And I think that is reflective of the fact that Congress feels that the original methodology was flawed, and it led to excessive cuts, and that's why we got the further delay.

As you indicated, they move the data collection process from 2019 to 2025. And yes, we're absolutely prepared to report. The problem, Jack, is I'm not sure the other 10,000 labs, maybe there'll be a few, are prepared to report. So if we end up with less than 1% of the labs reporting like what happened before, it's just going to lead to inaccurate market-based pricing. So that's why we continue to push the RESULTS Act. And we remain optimistic that the Act will get, for a [indiscernible] of a better word, acted on this year.

There was a hearing on January 8 with the Energy and Commerce Committee, the Health Sub Committee. Our [indiscernible] President testified at that meeting. There's over 65 cosponsors of the bill. And as you know, under the RESULTS Act, that leads to a different type of data collection process, one that uses a third-party database. There's many third-party databases out there, the one we've recommended represents a sample of over 80% of the adjudicated laboratory racks. And we think that's going to be a much better indicator of what the market price will be.

And when you mix in the roughly 9,800 labs that failed to report the last time, and those are labs that are primarily hospital outreach labs, physician office labs, other smaller independent labs. When you mix all that data into the two largest national labs, we think it is good news for the calculations related to the absolute market rate of the testing that is out there today. So we're optimistic, but we're going to keep pushing it hard in the first 6 months of this year and hopefully get it done before the fall.

Our next question comes from Erin Wright with Morgan Stanley.

Great. Sorry for the issue earlier. But can we dig into some of the consumer testing dynamics in the environment that you're seeing? You've launched several new partnerships, new initiatives, [indiscernible] or Function Health. Like -- what do you -- can you speak to some of the sustainability of growth across the segment, the margin profile? Are you seeing anything new or different in terms of consumer utilization trends across this segment? And how should we think about what's embedded in guidance in 2026 on this front?

Yes. So thanks, Erin. We remain very optimistic about this. This is all about consumers who are interested in their own health. They're interested in prevention. And as you know, prevention is not about waiting for symptoms. Prevention is doing some things before diagnosis, doing something before symptoms set in.

Let me start with the [ wearable ] companies. I think this notion of linking your biometrics with your biomarkers so that you understand the influence of those biometrics, whether it's sleep, nutrition, movement, heart rate variability pulse, you can create these correlations between those biometrics and your biomarkers ultimately giving feedback to the consumer on what they need to do in order to improve their biomarkers. And I think these wearable companies are really on to it. And we're seeing a nice lift from -- it's still very early with both those companies, but we're seeing nice lift.

I think some of our value-added resellers that are providing, let's just say, other value-added medical guidance to the laboratory testing that we do for them, I think it's serving the need. Honestly, that consumers can't get, or aren't getting from their physicians. Many of the tests on these panels won't be covered by normal health plans under normal conditions, under normal general health and wellness testing. And yet the same tests are covered if the patient is sick. So again, people are worried about prevention, not waiting until they get sick to get these types of tests. So look, we're looking at the renewal rate of these companies. Many of these value-added resellers are subscription based, and we look at the renewal rates, and we're positive about what we're seeing.

The last thing I'd leave you with is our own questhealth.com channel is a $100 million run rate business right now. And we continue to see nice uptick there. And it's not just in the wellness panels that we offer on questhealth.com. But there's a lot of what I call episodic testing that occurs. This could be allergy testing, [ tick ] testing. This could be diabetics who just want to check their A1c. It's a lot of STD testing. So that -- our own channel continues to grow very nicely and we certainly look at the repeat business of our own consumers and are happy with that.

Maybe I'll add a couple of comments, Erin, just on the financial side. So with regards to the direct consumer that Jim just mentioned, the questhealth.com, we've talked about that business growing somewhere in the 35% range over the course of the year. And that's, in fact, where it ended, is approximately 35% for the full year '25. So that business is really doing very well.

And then if I think about the direct consumer, but also the partnerships that we have, and the partnerships are wearables, and other wellness companies, et cetera, we've got a vibrant ecosystem there that we're supporting and that we are the engine for. The margin rates on those businesses, both direct and the other collaborations that we have, is an attractive margin rate above our corporate average because -- basically, it's simple. We -- it's all cash pay. It's -- we don't have patient concessions. We don't have denials. So that business is an attractive margin profile.

You asked about guidance for '26. I mean, I'm not going to give you a specific number. But all I'll say is that greater than 20% growth in terms of a CAGR over the long term, we still feel very confident about in terms of consumer and these other high-growth businesses that we called out during Investor Day. And the expectation this year is that we're going to continue to sign up new partners as well in collaborations because we are powering a whole ecosystem here.

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

I want to go back to Corewell and [ Fresenius ] contribution in '26, just given that it's organic [indiscernible] of like traditional M&A basket. But I also want to focus on margin opportunity and the ramp there over time? I think you talked about sort of dilutive to margins and price in 2026, and improving over time. Could you just walk us through the ramp and what gets you there? And just sort of give us a sense for the time frame for both of those businesses going beyond this year?

Yes. I think it's pretty straightforward, Michael. On Corewell, we said it's a $250-ish million book of business for us in 2026. And we said in total -- and we said that, that would start out at low single-digit margin rate. As we get into 2027, we expect that to be in the low teens. [ Fersenius ] will -- the margin rate will continue to improve through the end of the year. And by the end of the year, we expect that book of business to be at or slightly above the company operating margin rate average.

So just real quick. Is that -- when we think about the moving pieces to the margins in 2026, you talked about margins will grow this year, but it sounds like it's a little bit less than we would have expected in prior years. Is that the biggest swing factor? Or is there something else that we're keeping in mind for margin this year?

I think the Corewell one is the biggest swing factor, Michael, because of the fact that it's a $250 million incremental business at low single-digit margin. So that is definitely a swing factor. Fersenius as Jim mentioned, I mean, think about it as kind of a somewhat similar profile to a physician outreach acquisition where it starts out below the margin average. We've got integration costs, we've got some setup costs. And then over time, maybe it takes us longer than a typical physician outreach acquisition. But over time, it improves and by the end of the year, I think we'll be at the average.

The only other thing I'd point to, which I mentioned earlier, when I answered Patrick's question is Nova expenses. And the fact that we have an incremental $0.25 of Nova expenses in '26. But we still have a healthy operating margin rate expansion impacted to some extent by the Corewell growth. But Corewell will ramp over time to improve the normal co-lab margin rates.

Our next question comes from Tycho Peterson with Jefferies.

A couple on oncology. So Haystack, you've got the [ BOLDIX ] reimbursement decision effective January 1. Maybe just touch on the path to getting commercial coverage, Medicare Advantage, some of the next steps we should be thinking about on the back of [indiscernible]?

And then on the flow cytometry-based MRD test. I'm just curious how you think about the value proposition there. Obviously, more of that market is moving towards sequencing-based tests. And then just lastly, are you baking anything in for your multi-cancer risk stratification test launching this year? And what about the partnership with Guardant and GRAIL?

Yes. So there's a lot there, Tycho. Look, with respect to Haystack reimbursement, Novitas is the [ MAC ] that we submit to. And it did receive a PLA code. It received reimbursement. We continue to adjudicate through Novitas and are successful there. With respect to Medicare Advantage, we're still waiting on the [ MolDx ] tech assessment. Once that tech assessment is complete. The first -- we will be well positioned with the Medicare Advantage plans. And then look, we're having ongoing discussions with all the major payers in terms of commercial reimbursement. In some cases, we get paid in other cases, you don't. And so we build them all. We have doctors right letters around medical necessity, and we continue to make progress on that.

Look, the flow MRD is an ultrasensitive flow test that has incredibly good sensitivity specificity, and we think it is very, very competitive with next-gen sequencing-based test. We're very confident of that. We'll continue to do studies to show that. The value proposition is really around speed. So as you know, patients with myeloma, that disease moves very, very quickly. Speed is of the essence, and we can get an answer back within 3 days. It's also a significantly lower cost test. So from a reimbursement standpoint, it will offer payers a choice that will offer physicians and patients a choice to have a test that is highly comparable with the next-gen sequencing test. And again, a turnaround time that is very, very short, 3 days, not weeks, and with -- again, ultra good sensitivity specificity.

In terms of the multi-cancer early detection test. Yes, we have a partnership with GRAIL. We will do the blood draws for GRAIL. We've listed it in our test compendium and GRAIL obviously pays us to do those draws and handle the logistics for them. And then we did announce a partnership to draw for the Guardant colon cancer based blood screening test, and that will be underway later in the first quarter.

Yes. And from a guidance perspective, Tycho, the partnerships with GRAIL and Guardant are reflected in our guide. There are modest contribution in terms of the percentage of the total. The risk stratification test is, again, very modest. It doesn't launch until later in the year. So -- but we are excited about that launch.

Our next question comes from Andrew Brackmann with William Blair.

So Jim, maybe a big picture question for you, sort of related to the opportunity for Quest and sort of monetizing the data that you generate. You obviously generate quite a bit of it. So as you sort of think potentially about monetizing some of those longer term, or maybe even partnering with some of the [ AI ] companies to further unlock that value. So sort of what are the things that you're putting in place today to maybe, sort of, going after that opportunity?

Yes. The data business has been a nice business for Quest. It's growing double digits. It has been growing double digits for the last several years. There's multiple customers when we think about who are the customers for that data.

Number one, the pharmaceutical industry, whether it's targeting clinical trials, targeting patients with certain conditions, type 2 diabetes. You name the condition, pharma turns to us to look for patient cohorts. We give patients when they're getting a blood draw, the option to make their names available for clinical trials, and that has been very successful as well.

The payers tend to be a very good customer of this data. As an example, you know that people switch from [ Medicare ] Advantage plan to [ Medicare ] Advantage Plan. If a patient switches from Plan A to Plan B, Plan B will come to us and ask us for previous lab data, lab history of that patient so they can quickly understand what chronic conditions and other issues that, that patient may be dealing with.

And then I would say the public health agencies are also -- there's certain tests that -- certain results that we have to provide public health agencies, including the [indiscernible] But very often, these public health agencies come to us and want to understand viral conditions, STD break -- outbreaks and things like that, and we highlight to that.

I will say we've got partnerships with several different AI-based companies that we are working with to better use the data to provide health insights in other population health insights to all the constituencies that I mentioned to Bob.

And this question comes from Elizabeth Anderson with Evercore ISI.

I just had two quick modeling questions. One, and I apologize if I missed it, but can you just highlight the elements into [indiscernible] reinclusion in their networks and sort of the impacts to you think that, that will put through in 2026 volumes?

And then in response to Luke's question, I understand that like [ core ] volumes are continued to be strong. I just didn't quite understand whether you were calling out that there was any weather impact from the cold weather and storms in January? So I just want to make sure I have that down exactly.

Yes. So again, on [indiscernible], we mentioned in 2025, we got back in network in the states of Nevada, Colorado. We were partially in network in Georgia, but we were not in network with all of their plans, so back in Georgia and Virginia. And let's just say it's a 3-year ramp from our current share position with other health plans to get to that same level with [indiscernible] in those states. So we're now in year 2. So we expect continued share gains with that.

[ Centerra ], as you know, is a health system in Virginia, and it has its own health plan. And we're the only one in their network on their health plan side. So we'll continue to get share gains in Virginia. And the health plan actually goes even further south. So the health plan extends beyond just the Virginia border. So we're excited about that as well.

With regards to weather, Elizabeth. So what we said is the weather impact was significant in January, but it's embedded in our guide for the year. So as we think about the year itself and the seasonality, as I mentioned earlier, we expect the seasonality to be similar to what we saw last year. Even with this weather impact that we saw in January, which was actually worse than January of last year, which in itself was pretty bad. So but we had some pretty bad storms across the country in the second half of January.

We do expect some recovery in the next 2 months, or the next 1.5 months remaining in the quarter, and we've seen the underlying utilization has been very strong. So we're encouraged by that.

Our next question comes from Pito Chickering with Deutsche Bank.

You've got [ Benjamin Shaver ] on for Pito. Just a quick one on '26 guidance. How should we think about the price per rec versus requisition growth assumptions as it pertains to that? And also within the pricing assumption, how does the test [indiscernible] versus unit pricing play out?

Yes. So we're not going to provide a specific guidance around revenue per requisition. We usually don't. We provide revenue assumptions in terms of the guide.

On a qualitative basis, I will tell you -- I mean, the impact that we talked about with regards to the high volume impact from [ Fresenius ] at a lower revenue [ per rec ], still very profitable business, but that will impact revenue per req as a total in 2026. If you look at it more from an organic -- or sorry, not organic, but just excluding those two businesses, Corewell and [ Fresenius ], I think the [ rep for rec ] assumptions would be consistent with what we've been seeing. But those two businesses, Corewell and Fresenius will impact -- and mostly Fresenius will impact [indiscernible] negatively as we saw in Q4.

In terms of the other factors within revenue per requisition, I think the key thing that you should factor in is the fact that we continue to see test per req improve. We saw that across all of 2025. And that improvement is driven by a number of factors, whether it's the advanced diagnostics, more options for early screening, both cancer and other disease states, guidelines evolving and physicians really gravitating towards more testing. So all of those continue to play out, and we're still encouraged by -- definitely based on what we saw in Q4 in terms of continued growth [indiscernible] and what we expect to see in 2026.

Our next question comes from [indiscernible] with Baird.

Can you quantify the impact from setting up this [indiscernible] and maybe break out the Project Nova cost in 4Q? And if you can elaborate more on how much [indiscernible] there is [indiscernible]? And if you can provide more color on 1Q '26 on potential impact?

Yes. So I think I heard most of your question. I didn't catch all of it, please correct me. But in terms of 4Q, I mean, without quantifying the exact impact because we don't want to get into quantifying every single quarter, the impact of Nova and also Fresenius, Corewell. All I would say is there was a significant impact from the setup expenses of Fresenius and Corewell because we're standing up these businesses, there's integration costs. There's a lot of costs that you incur when you initially set up these new partnerships. Both the Co-Lab partnership and in the case of Fresenius a new partnership across dialysis testing.

And then Nova, we had also expenses in Q4. We had previously called out the fact that with the delayed signing of the contract with [ EPYC ], we had some expenses that got pushed out in Q4, and that's, in fact, what played out in the quarter. As you think about next year, in terms of specifically Nova, we called out roughly $0.25 impact from Nova expenses in -- sorry, when I say next year, I mean '26. So when you think about '26, the impact is roughly $0.25. The way I think about it is fairly even in terms of quarterly impact across the quarters. maybe slightly more in the first half than the second half, but not materially different. So I think you can model it fairly equally across the quarters.

Okay. Operator, thank you. And I'd like to thank everyone again for joining the call today. We certainly appreciate your continued support. Have a great day and stay healthy.

Thank you for participating in Quest Diagnostics Fourth Quarter and Year-end 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) 388-5361 for domestic callers, or 203-369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on February 10, 2026, until midnight Eastern Time, February 24, 2026. Goodbye.

Good afternoon, and welcome. My name is Lisa Gill, and I head up health care services here at JPMorgan. It is with great pleasure this afternoon that we have Quest Diagnostics. Presenting for Quest is CEO, Jim Davis. And then for the Q&A, Sam Samad will join us up here. So with that, let me turn it over to Jim.

All right. Thank you, Lisa. Just delighted to see a few people here at 4:30 in the last presentation of the day. So thank you for coming and not yet making your way to the pub. Hopefully, you've all heard of Quest Diagnostics. My name is Jim Davis. I've been the CEO for 3 years. I've been with Quest Diagnostics for 13 years and privileged to be leading this company.

It is the safe harbor disclosure. I'll be making some forward-looking statements here today. So I hope, again, everybody in the room has heard of Quest Diagnostics. The statistics would show that we've tested more than 50% of the people in the room. We test 1/3 of the U.S. population every year. Every 3 years, we probably touch about half of the U.S. population. I know we have data on Lisa. Lisa is a great user of Quest Diagnostics. So look, it starts with our purpose, working together to create a healthier world, one life at a time. We've been talking about creating a healthier world long before others started talking about it. It's been a decade-long message.

We're at the center of health care. I'm going to show a slide that talks about where we play across all of health care. But on any given set of labs, when you ask who is our customer, our customer is you, the patient. Our customer is the physician. Our customer is the payer. Our customer could be a public health entity like the CDC or a State Department of Health. Every time we hit the button to release results, the results really go to that many entities. So we really do sit at the center of health care.

Again, if you're not totally familiar with this, we touch 50% of the U.S. hospitals and the U.S. physicians in the country. As I mentioned, we test 1/3 of the U.S. adult population in 2024, and we'll update this on February 10. But we did close to 220 million requisitions. 80 million of those 217 million we saw personally in Quest Diagnostics. We drew their blood. We drew blood for 80 million people in 2024. So it's a large data. When we say we touch people, we literally touch 80 million. I can't think of any other health care provider that actually touches 80 million people a year. Now the 217 million, they're not all unique patients. About 110 million are unique. The rest come to us once a week, once a month, once a quarter, depending on what type of chronic or viral condition they're dealing with.

We have over 8,000 locations where we draw blood, 2,000 patient services centers and then another 6,000 phlebotomists that are in medical office buildings. We call those in-office phlebotomists, 5,000 vehicles that pick up specimens. We drive over 330,000 miles a day. So we would circle the globe 22x if you did the math on that. We're in network with 90% -- we cover 90% of all lives we're in network with, 80 billion patient data points over the last 10 years. As you can imagine, a lot of people come to us for data, including public health agencies. 850 MD/PhDs. We do develop our own tests, our own LDTs. That's why we were so passionate about the FDA legislation, which was favorable to us. 1,600 patent pendings, and we do play beyond the U.S. We have a lab in Mexico. We have a very large laboratory up in Canada, which we will test on.

As I said, look, lab testing informs every stage of a patient's journey. When you think about what we do, risk evaluation, what is my risk of getting the disease. How are -- how is my overall test? Those first 2 buckets we refer to as prevention and wellness testing. Diagnosis, you go to a physician or an urgent care center because you're sick, what is causing you to be sick? What direction prognosis will my sickness take? What type of therapy is best for me? Is my therapy working? And are these results sustainable? Lab testing plays at every single one of those points.

About 2% of the entire health care spend of the $5 trillion spend is laboratory testing. It's not that much, but it informs over 70% of the decisions that physicians make along the way. Now our business today that prevention and wellness is really about 1/3 of our revenue. Most of the work we do, fortunately or unfortunately, depending on how you look at that, is really chronic disease and sick care testing. We honestly believe it should be the other way around. We believe that 2/3 of our testing should be prevention and wellness and 1/3 on that. The only way you get ahead of the chronic care conditions in this country is to do more prevention and wellness.

The statistics aren't great on this, but only 50% to 65% of the U.S. population actually gets preventative wellness screenings done once a year. And so there's still plenty of demand. And I'm going to talk about the consumer segment later. It's the consumers that are really driving this segment of testing. Why? Because the tests that you really should be getting in the general health and wellness exam are not always covered by commercial payers. So it, therefore, forces you to come to us as a consumer.

Some of the trends that are driving this business, demographic shifts in the older sicker population. Those aging into Medicare today have, on average, 2.5 chronic conditions. If I go back 40 years ago, it was about 1 chronic condition. So almost 2.5x, 250% increase in people as they age into Medicare, it's a sicker population. You've obviously heard Health and Human Services CMS talk about this. This is what's causing all the financial concerns with Medicare.

Innovations in lab diagnostics. As I mentioned, we develop our own tests. What we do is we look out there and we say anywhere laboratory testing is not the primary screening or diagnostic tool, we're going to focus on that. The laboratory test that we developed for Alzheimer's test was a direct result of that. Alzheimer's testing was not the paradigm of blood testing. It was -- the modality of choice for diagnosing and monitoring Alzheimer's disease was PET/CT. We now have blood-based biomarkers, AB 42/40, some of the tau-based tests that can diagnose Alzheimer's at a much earlier point than when you will see it in imaging, and that's where these therapies work.

Greater adoption of AI and automation in our labs. I'll talk about that later in the presentation. And then again, an intense focus on consumer in our business around prevention and wellness. We made a big bet on that 4 years ago, and I'll talk about how that bet has paid off. In general, the entire laboratory market, about a $90 billion business. So when I say it's about 2% of the health care spend, it just depends on what you assume. Recent estimates are a $5 trillion health care spend market. If it's $5 trillion, we're a $90 billion market. We're obviously even less than 2% of the spend. So we're not a big portion of spend in the U.S. We look at that market in 2 ways. The first is the physician office market. These are requisitions that are written for patients if the patient visits a doctor. This could be primary care, this could be OB/GYN. Those are the 2 biggest segments, but every ologist out there orders laboratory testing, whether you're an endocrinologist, a cardiologist, a nephrologist, a neurologist, everybody, psychologists, psychiatrists included, order laboratory testing.

You can see our share of that market is about 12%. Other independent labs, specialty labs as well as general diagnostic labs, about 42%. And then hospital outreach labs, you can see is 35% of the market and physicians, physician-owned laboratories in their medical office buildings, and they do -- I can't see the number that well, but about 12% of the market. Now look, many times, people characterize this market as us against our nearest competitor. That is the case. It's us against the hospital labs, it's us against the physician office labs. They're the ones that are charging 2 to 3x what the independent -- the 2 largest independent labs charge in this industry, and it just makes economic sense. There's a lot of great quality reasons why people come to the independent labs.

On the other side of the equation is the hospital laboratory market. This is the size of the market for testing patients that are sick and in beds in hospitals. It's really the spend, what do hospital labs spend to take care of these patients. You generally don't bill for that. It's part of some DRG bundle that they're getting paid for to treat that patient in a hospital. It's about a $31 billion market. They send out, they refer out about $5 billion worth of business. These are tests that hospitals can't do, choose not to do, low volume, capital-intensive or require some degree of medical specialization that they turn to Quest Diagnostics or some type of specialty lab. Now also in that pie there is Quest Diagnostics running hospital labs. We call it our collab arrangement, where we go into a hospital, we take on the employees, we take on the equipment, it's our supply chain, and it's Quest Diagnostics inside the 4 walls of the hospital. I'm going to talk more about that. It's an $800 million business in Quest today. It will be a $1 billion business in 2026.

We made a big acquisition in Canada in the latter part of 2024, a $700 million business at the time. We like Canada, 41 million Canadian, the population is 41 million. We primarily play in British Columbia and Ontario. That's about 52% of the total population. We served over 10 million Canadian citizens last year, so about 25% of the total population. But if Ontario and British Columbia are about half, it means we're touching about 50% of the population in Ontario and in British Columbia. It's been a very good acquisition. It's met all of our deal criteria. It's ahead of the deal model that we created, and we feel very, very good. We feel good about the expansion capabilities in Canada because we don't play in Quebec and we don't play in the other provinces, Quebec being the second largest.

Now as we think about our business, Quest is largely a B2B business. That's how we grew up. We serve physicians, we serve hospitals, and I'll talk about some of these higher growth areas. As you know, we've guided this year to a 4% to 5% organic growth that largely comes from the physician market. That market has been growing faster than that organically. It's driven largely by -- we're back in network with Elevance. So we got new network access in Colorado, in the states of Nevada, in Georgia, in parts of Virginia and Washington, D.C.

We've extended our geographic reach. We're serving larger and larger customers, and I'll talk more about that on the next few slides. Hospitals. We've been growing that business 5% to 6%. The reference side of that business doesn't grow that quickly. It's a 1% to 2% business. It's the things, again, that hospitals refer out to us. What's really driving our growth in that segment is Quest inside the 4 walls of the hospital. It's Quest Diagnostics running hospital labs. And then where we have been investing is 3 really great growth segments. The #1 segment is our consumer-initiated testing, which I'll talk about in more detail.

And then our support of life sciences companies doing work for pharmaceutical companies, doing work for life insurance companies, employers. But primarily, our work with pharmaceutical companies has been a great growth business. And then our data business, we sell data. As I mentioned, we sit on 80 billion patient data points. We're testing 1/3 of the U.S. adult population annually. Without sounding arrogant, we do know more about the health of the U.S. population than any other organization in the country. We do that by developing new advanced tests, which I'll talk about. And all along the way, it's all about delivering a better patient experience, a better physician experience to drive growth.

Now specifically on the physician side of our business. Look, some of the recent trends here, you would suggest may not be good for independent labs. And one of those trends is a loss of independent physicians. The fact is, as physicians graduate from college today, they're not joining independent practices. They're joining large health systems or they're joining some of the entities that I list across the top of that page. So while the independent physician segment has shrunk, you can see where physicians are going. They're going to other corporate type entities, which I'll talk about, and they're working for health systems. That is not all bad. In fact, I think the trends of corporate types of ownership are good.

As you look across the top of that page, Duly Health, 1,000 physicians in Indiana, Illinois and Iowa. MinuteClinic, several hundred MinuteClinics in 33 states. Obviously, Optum, 90,000 to 100,000 either owned or affiliated physicians. Oak Street plays in 27 states, 600-plus physicians. Summit Health, CityMD. We are set up to serve these types of large physician groups. We play in all 50 states. We have labs in over 20 -- in 18 different states. We're set up to serve national health providers. And when you serve these providers, by the way, you're not calling on individual doctors to win an individual doctor. You're calling on the Chief Medical Officer, you're calling on the head of procurement of these types of groups. So it becomes more of a corporate sell. It's about data. It's about IT integration. It's about scale. It's about having -- being in network for the -- all the different payers that these health systems serve. So we're set up to win in this space.

Again, on the health system side, there's really 2 major elements to our value proposition. One is reference testing. We do the tests that hospitals don't want to do. We do the capital-intensive tests, some of the very advanced cancer tests, some of the very advanced infectious disease tests. Capital-intensive, low volumes or require a high degree of medical specialization. Every health system outsources some amount of work. And by the way, we serve some of the most prestigious academic institutions. Northwestern Hospital is a very big customer, University of Michigan. UCSF here locally, Stanford, all of them refer test out to Quest Diagnostics.

Again, our fastest-growing segment, the Collaborative Lab Solutions, again, it's where we come in and run the hospital lab. Now generally, we can come into any hospital laboratory and guarantee a 15% reduction in cost by bringing our supply chain. We are the first or second lab -- largest lab. We generally negotiate very good prices with our vendors, and we can bring the benefits of that scale right into that hospital. In addition, most hospitals are near one of our central labs. Not all the tests that are done on site in that lab need to be done on site. We can move those to lower-cost environments like our central labs and bring savings like that as well.

The last piece of it, while it grows our physician business, it starts with discussions in the health systems. Most health systems over time have used their laboratory dedicated for inpatients to go serve physicians in the outlying communities. It's mostly physicians that they own. Some have come to the realization that it's not a great business. It's not an area where they want to spend capital. New York Presby outsourced that -- sold that book of business to us. Why? Because they simply said the investment, the returns on investments in neurology, cardiology, cancer, women's health care are much greater than the investments than the return on investments that they can make in their laboratories, and it just wasn't a priority from a capital standpoint. And so they sold that business to us. It's been a great growth opportunity.

But the one thing we're most proud of over the last few years is the growth of our consumer business. In 2021, we did about $30 million of work with consumers. These are consumers coming directly to Quest Diagnostics through questhealth.com or going through one of our channel partners. It was really a $30 million business. Today, based on our fourth quarter run rate, we achieved our goal of hitting a $250 million book of business. Questhealth.com is about a $100 million business. And we then have channel partners that are bringing us another $150 million.

Now we have 2 types of channel partners. The first, we call value-added resellers, VARs. These are people that run lab tests. We provide the information back, and they're generally doing analysis on this laboratory data and providing additional insights back to the patient, back to the customer, the biggest of which is Function Health. Function Health has been an incredible partner to Quest Diagnostics. They're serving a very useful medical need. They're offering tests through Quest Diagnostics that you otherwise -- if you go in for a general health and wellness exam, your provider generally isn't going to order ApoB. They're not going to order Lp(a). They're not going to order insulin resistance. Why? Because the payer isn't going to pay for those tests. So you're better off going to one of these consumer companies.

Now we give that data back to Function Health. They put it through some very sophisticated analytical tools and AI types of environments and then provide feedback back to the patient on how to optimize their biomarkers. That could be through nutrition, it could be through exercise. It could be through supplements, it could be through sleep. I'd love to ask how many people in this room have gone through the Function test, but it's becoming more and more popular. And again, they've been a great partner.

The other type of reseller, if you will, are the -- we call them the wearables. I personally wear a WHOOP. I am sure if you raise your hand and wear a WHOOP or worn Oura Ring, there would be a lot of folks out there. But the whole goal here is to marry your biometrics, the physiological data that we're -- that I'm acquiring here real time. I'll go back and look at my stress levels after this presentation. But the idea is to marry your biometrics with your biomarkers, okay? And over time, we can monitor all the physiological data in your body, heart rate variability, stress, sleep, Eventually, there'll be nutrition built into this. And then let's correlate that with your biomarkers.

We're then working with these companies to develop algorithms to then determine for each individual, what is the influence on all those what we call X variables over your ultimate biomarker. So if you're trying to optimize A1c or you're trying to optimize your insulin resistance, what do you need to change personally in terms of your sleep, your stress, your nutrition and your exercise in order to optimize the chosen biomarker that you're trying to improve. These are incredibly powerful relationships. This is not a one-off. It was a focused strategy that we had with these wearable companies, and that we're really excited about the growth that this offers us. I just described in that circle what I was discussing. Okay.

In terms of the types of testing, look, we have focused on 5 key clinical areas, advanced cardiometabolic health. Look, the world has moved well beyond LDL, HDL, A1c. If your physicians aren't ordering ApoB, Lp(a), insulin resistance, omega, they should be. These are common biomarkers that provide a lot of insight. It's not let's just minimize your LDL. You can have a great LDL. And if you're Lp(a), which honestly is a one-and-done test, you just need to have it done once. If your Lp(a) is elevated, I don't care what your LDL is. You have -- you're at an elevated risk for carotid blocking of your -- have blockage of the coronary arteries, and you need -- you really need to understand that.

Autoimmune disorders. There's over 100 autoimmune disorders that are out there. It's a very, very difficult disease to detect. About 15% of the U.S. population now has some type of autoimmune disorder. It's increasing the diagnosis in 2024. About -- it was increasing at a 7% to 8% rate. What we've done is we've introduced tests to the primary care physicians that allow them to better discern what type of autoimmune disorder you have so that they can refer you to the right type of specialists. If you've known people that have autoimmune disorders, these can be 2- to 3-year diagnostic odysseys that end up costing a lot of money and a lot of painful side effects for patients that aren't getting the right types of treatment.

Brain health, one of the things that we're most proud of is our Alzheimer's blood-based test. The AB 42/40 test, which discovers the protein biomarkers that come from the amyloid plaque, Quest developed, Quest implemented. We were the first lab to really offer that test commercially. We then sourced some of the tau-based tests from some of our industry partners. But the combination of looking for the biomarkers from the amyloid plaque and from the tau bundles, it's going to give you an indication of the presence of Alzheimer's long before you're going to see it in a PET/CT. The therapeutic companies love this because it's at that point that you really want to treat that disease. These therapeutics work much better on earlier-stage disease than they do on late-stage disease.

Oncology. We've talked about women's health and reproductive health, our QNatal, QHerit genetics offering is doing great. Look, the mainstay of the company is really -- we've called it our Invigorate program. We continually focus on what we call the order-to-cash model in order to make that a better patient experience, make it a better physician experience and at the same time, continue to take cost out of that. The average req for Quest Diagnostics is a $38 req. We try to generate 38 -- about 3% variable cost productivity every year.

We work this equation incredibly hard. We talk about in our PSCs improving patient serve per phlebotomist, draws per FTE per day. We're not trying to push our phlebotomists to go faster. We're taking work out of the PSC. When you make an appointment in Quest Diagnostics, I want to get your insurance information. I want to get your credit card. I want to get your license, so I don't have to ask you for that information when you come and visit us in a patient service center. Nonproductive sites. We have all sorts of sophisticated software that are telling our drivers where to go, when to go.

We've given our clients Uber-like capabilities to order a pickup only when they need a pickup so that I don't go there and there's no specimens. Our revenue cycle management services have been terrific. And most importantly, we've been reducing our calls per requisition. These are physician calls and patient calls into our call center. We've deployed some really good AI tools that help patients, help physicians get the information they need.

AI and automation are a mainstay in our environment today. If I look inside the 4 walls of our laboratory, we have 2 labs that are -- 3 labs that are now end-to-end automated. In other labs where we haven't deployed full-scale automation, we have these Roche front-end automation systems. It has really improved our productivity and specimen processing and sorting. We have systems that actually open up bags on paper requisitions and do all of that work. And then digital cytology, you see that picture in the middle.

Pap smears are actually read today with the use of artificial intelligence. It tells the cytotechnologist where to look. It highlights what we call regions of interest. So it makes the cytotechnologist smarter. Human eyes are still being applied, don't get worried. But these systems, region of interest tools, are making the systems a lot smarter than they are. All sorts of deployments of AI outside of the laboratory and our customer service centers and our logistics. And most importantly, we've just rolled out some dynamic route optimization where you're not going to -- you're not taking the same pathway to each customer every single day. The system tells you where to go and directs you where there's the least amount of traffic and the easiest pathway.

M&A still remains a key growth opportunity. Over the last 3 years, we've deployed $2.8 billion of capital. It's deployed in those areas, 50% in regional independent labs, about 30% in health system outreach and about 20% in capability building. Now quite honestly, the majority of the deals are in the middle bucket. If you take out the $1 billion we paid for LifeLabs in Canada and took that out of the $2.8 billion, the $1.8 billion is really 50% in the middle bucket. Those were the likes of Alina, Ohio Health, university hospitals and some large physician group -- physician office labs that we acquired.

We're disciplined about this. We try to ensure at least the things on the left-hand side and the left in the middle are always going to be accretive in year 1 and hit 10% ROIC targets after 3 years. Fresenius Medical Care, we've recently taken on the laboratory testing associated with dialysis -- patients that are receiving dialysis. As you know, patients that get dialysis typically, they're treated 3 times a week. There's a lot of laboratory testing that is done in the early part of the month, the middle month and the end of the month. Fresenius is closing down 2 labs. All of that work is moving into Quest Diagnostics. It will be $100 million worth of business in 2026.

Finally, from a capital deployment strategy, from '25 to '27, we expect to generate $4.5 billion to $5 billion of operating cash flow. CapEx will consume $1.5 billion to $1.7 billion. That leaves us with $3 billion to $3.3 billion of free cash flow. And we do 3 things with it. Number one, we're going to continue to make smart acquisitions that create value. Second is we continue to increase the dividend and the cash that is left over, we're committed to buying shares. We don't sit on a lot of cash in the company.

We're reaffirming the guidance we gave at Investor Day last year, total revenue growth of 4% to 5%. We're going to be well above that this year, both on the organic side as well as the inorganic side. Operating margin improvement of 75 to 150 basis points. You've seen that in the first 3 quarter results this year, adjusted EPS of 7% to 9% and the free cash flow consistent with what I showed on the previous page.

So I know I've moved quickly, but look, we're bullish about the lab market. We expect it to remain strong. The utilization trends that you have seen, we expect to continue. Our proven strategy and innovation and scale allow us to achieve above-market returns. Our operating strategy is always designed to improve the patient experience, improve quality. When you do that, the productivity and cost savings naturally come. M&A will continue to be a large part, a portion of our strategy. We've said 1 to 2 points of growth each year, and we're committed to the long-term outlook that we presented to you at Investor Day.

So with that, Lisa, we'll turn it over to you.

Great. I think, Sam, you're going to come up and join us as well. All right.

So let me start with PAMA. You didn't discuss PAMA in the presentation. I think that there's still a lot of focus. PAMA was pushed out by 1 month till the end of January. One, any update there? And two, is $100 million still the right way to think about it? And are there potential offsets to the $100 million?

Yes. So I'll give the update, Sam, to talk about the potential impact. So the good news last week is that there was a -- the subcommittee on health care that is part of Energy and Commerce. They met our trade association President testified at that committee on the Results Act. I can tell you, there was really strong bipartisan support, including all the way up to Chairman Guthrie of the overall committee. So we feel good about that. There's another committee that's part of House Ways and Means that has a subcommittee on health care. They too have to look at the bill, mark it up.

From there, it would go over to the Senate. The Senate Finance Committee has jurisdiction over health care. You get congruence between the House and the Senate. Still remaining though, is CMS has to do a technical assessment, a technical feasibility. Can they implement this Results Act? And then CBO has to score it. So what I would say is that's a lot of work to get done in 18 days, okay? I'm optimistic that the Results Act will get passed in 2026. I'm not highly optimistic that it will get passed by January 30. We were given a 1-month delay. To get that 1-month delay required both the executive branch and the legislative branch to agree to do it. So I do think as long as the Results Act is making progress, we're a strong believer and we're optimistic, highly optimistic that we'll continue to get a delay while the bill is going through the process.

Yes. And we're optimistic that we're going to get the delay, but you always plan for potential worst case. And if PAMA were to come back, as you said, it's a $90 million to $100 million impact this year. We do have actions in mind that we've been planning for, Lisa, in terms of some cost reductions around open positions that we continue to keep open, look at the support functions and reduce some of the infrastructure and people that we have there in case the cuts come back.

We've got discretionary investments every year that we start out the year with towards our R&D and investments behind some products, not things that are absolutely critical, but things that are more discretionary that we will roll back in case PAMA comes back. But again, I want to emphasize, we are optimistic that we will see a delay this year.

Delay or also passing of results?

Well, results passing this year, but I think...

Yes. An incremental delay. Okay.

Before that, there's probably going to need to be a delay of PAMA.

Okay. That makes sense. So we only have about 9 minutes left together. So I really want to hone in on a couple of things. The first would be, I know it's a smaller piece of the business, but has grown incredibly fast, and you seem to be very passionate about the consumer side of the business. And you talked about that going from roughly $30 million to $250 million in a 4-year period of time. When I think about that over the next several years, how big do you think that business can be?

Yes. Look, I think our own direct channel grew in that 30% to 35% range in 2025. So let's think that these things are going to grow -- continue to grow at 20% plus. There's -- we're working exclusively with WHOOP and Oura. There's other wearables companies, [indiscernible] or Garmin. So there's lots of other wearable companies out there that are thinking along the same lines.

Function Health is doing incredibly well. Their repeat, it's an annual subscription, and they've published numbers that say about 65%, 68% of the people are renewing the subscription. So their growth model appears to be sustainable. So look, we feel great about that. It's part of the mission of the company. As I mentioned, 2/3 of our business is really focused on sick care. The only way to get out of sick care as a country is to spend more time, more money on general health and wellness and prevention testing.

It feels that this administration, and I think many of you will see Dr. Oz as a keynote tomorrow is really focused on that, right, whether it's MAHA or -- it's some of the initiatives that Dr. Oz has talked about. Do you feel any confidence that this administration could do something around encouraging more preventive rather than...

Yes, I really do. Look, I think they've sent the right signal to the wearables companies, right? Will from Whoop. I was with him last week. The FDA is looking at these wearables. And I think they're looking at it more favorably now. Look, it's a fiscal imperative, right? We spend more as a country on health care than any other country in the world. I mentioned the $5 trillion mark we surpassed in 2024. And yet our outcomes, right, are like 33, okay, when you rank the country. So something is not working. And it's not that the health care system is broken, okay? The health care system isn't broken. The health care system works pretty good. I think the human condition is broken, quite honestly, okay?

If you go back 40 years, the average American consumed 2,200 calories. Today, we consume 3,600 calories. The quality of those calories is less. We're getting less exercise. So what do you think was going to happen over 40 years? Of course, it puts an incredible strain on the health care system. And what do we do as a society, as a med tech industry, we've developed better and better ways of keeping chronic care patients alive longer. That's where the real innovation in therapeutics and med devices has come, not on prevention and wellness. So I do think this administration is doing the right things and saying the right things. The only way to get out of this health care spend is to get in front of it.

One of the things you've highlighted in the last few quarters is the elevated test per requisite as a large contributor to the organic growth rate. And when we think about that baseline versus pre-pandemic, what we are seeing in the marketplace today, do you see yourselves better positioned for margin expansion as this continues to give you a healthy contribution to margin as you see incremental tests? Maybe just talk a little bit about that from an incremental margin perspective.

Yes. I mean, facts first, right? So we -- if we look back to 2019, pre-pandemic, our test per requisition were sitting somewhere in the high 3s, 3.8, 3.7. Now we see for every requisition a test per req of about 4.3, 4.4. So we've basically grown that requisition, what we call the density of that requisition by almost half a test. And the reason for that is not really surprising. It's things like more availability of screening. There's more advanced tests out there. If you look now, if you have potentially risk factors for dementia, you have an AD-Detect test that you can take, which is a blood-based test because there's therapy as well. So now you can detect early onset dementia sooner and you can get some therapy. To your question about margin, absolutely, it helps our margin because the cost to perform a requisition is not going to go up commensurate with the number of tests. You've got a lot of fixed costs that are already covered. So you get a higher contribution margin off that requisition.

You highlighted your long-term goal or guidance around 75 to 150 basis point expansion on the margin, and you've started to add to that in 2025. Anything that you would highlight going into 2026 as we think about margins?

Yes. So maybe talk about some of the puts and takes, right? So we're seeing some really healthy utilization, and that's expected to continue. So the momentum on that is really positive. We're seeing great performance in our consumer business, and we expect that to continue as well. We talked about revenue per requisition. We continue to see momentum there. Advanced diagnostics, helping in terms of the mix of our business. We expect to see that. So all of those, I think, are really good tailwinds. Now on the flip side, I think as you think about margins, obviously, PAMA is one offset. But as I said and as we said earlier, we are optimistic that we're not going to see PAMA come back in 2026. We've got expenses. I mean, Jim detailed in his summary around order to cash. We've got one of the big initiatives is a project called Nova, which is modernizing our entire order-to-cash infrastructure. And that's going to have cost with it in 2026. That's an offset from a margin perspective. So I would say, obviously, we'll give more details on February 10 when we announce our Q4 earnings, but those are some of the, I think, the puts and takes that you have to consider.

And you highlighted utilization and continued strong utilization. I'm not sure if you had a chance to see the ACA numbers today, which were somewhat surprising. For those of you that didn't see it, it looks like it's only down about 4%. I think originally, when you had talked in the fall, you talked about maybe a 30 basis point headwind. Is that right?

We did. Yes.

What were you anticipating as far as the level of membership decline in ACA?

Yes. So let me talk a little bit about the assumptions behind that, right? So first of all, the ACA enrollment and that business is about 4% of our overall business. So that was the starting point in terms of assessing that impact. And we think over a period of 10 years of that 23 million people that are enrolled in exchanges, 1/3 of them will basically get off the exchanges. And that's going to be a glide path, right? It's not all going to happen 1 year. So when we looked at that and we looked at external indicators in terms of what the utilization is for those individuals that we expect to start to disenroll, so to speak, we sized it at about a 30 basis point. But there was a lot of assumptions that we made, but we are very comfortable that 30 basis points is the right assumption. Now again, that's the expectation for 2026. What we saw today, I think, was surprising in that it's not as significant as...

We continue to disenroll, right? I mean I think that there could be people that, hey, the subsidies are going to come back, right?

Yes, we have to see how many people pay that first month...

Exactly. So there's still time to assess that, and I think we need to see more data. But the 30 basis points, I think we're still comfortable that that's the right assumption.

One of the other big themes is obviously artificial intelligence. You touched on it in your presentation today, and you talked about it from both sides. Which do you think has the bigger opportunity when we think about the labs?

Well, I think there's tremendous opportunity within the 4 walls of the laboratory. In the areas of microbiology and hematology, we're not looking at things under microscopes anymore. There's digital pictures taken of these things, the systems characterize negatives versus positives, they count colonies. So things like that. Any time you see a microscope in a lab, you have to ask yourself, why can't I digitize what they're looking at? And if I digitize what they're looking at, I can now apply a set of algorithms that assist or aid in interpreting that, okay? So still plenty of opportunity there.

Look, we're also excited outside the laboratory. If you have the MyQuest application on your phone and you're viewing your results, what we know today is people are taking their lab results and exporting those into ChatGPT or some other type of Gen AI-based. So we're going to give you the capability very soon. When you get your results, you can "chat" with your results. It will be based on a proprietary engine that we've developed. And look, we're not trying to replace the medical doctor, right? We're trying to create a more educated patient that can have more educated conversations with their physician. And we believe that will really help.

So there's plenty of tools that we're going to give consumers and physicians, physicians as well, right? Many times, physicians are just looking at lab data for that 1-point period of time. They don't always go back and look at the trends, the 3-year trend, the 5-year trend. It's not just that individual point. It's the velocity. It's the rate of change of certain tests like PSA where you really start to then -- you're able to then predict outcomes 2 years later, 3 years later. These are the kinds of tools that physicians need to serve the patient.

And I think the patient has to take ownership of that information, right, like to...

Well, and that's what you're seeing in the consumer health area, right? They're taking ownership of their body. The -- look, the social media world, we're bombarded today with the Peter Attias, the Rich Rolls, the Hubermans, the Dr. Mark Hymans. And when these people are out there and they do these podcasts and they do something on cardiovascular at ApoB and Lp(a), we look the next day and you see a surge in orders of Lp(a) and ApoB.

We know that's going to be all over my Instagram now, right?

Well, that's great. We think you need a WHOOP or an Oura ring.

All right. With that, we're out of time. Thank you, everybody, for joining us this afternoon, and thank you for the discussion. Thanks, guys. Thank you very much. That was great.

Thanks, everyone, for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Sam Samad and Shawn Bevec from Quest here with us. Thanks for coming down, guys.

Sam, maybe to start, we'll just chat about it a little bit. Just the utilization backdrop is something we hear a lot of questions about. I know you guys get questions as well. It's remained quite elevated. I think everyone thought it was a COVID phenomenon. And then the farther way we get and hanging in at these elevated levels, it doesn't seem all that connected, but maybe just give us a rundown on the utilization, what you're seeing and the expectations for this to remain elevated at least relative to historical levels.

Yes, sure. And first of all, thanks for having us, Patrick. Great to be here. So yes, utilization has been strong now for some time coming out of COVID at first, I think we're a little bit more guarded in terms of thinking, is it catch-up utilization? Is it people that have just deferred testing all during COVID? Is it a temporary thing? And are we going to see it start to come down to kind of pre-COVID levels. It's been pretty resilient and I think there are a number of factors that are feeding into that. So I don't think it's one thing. There isn't a sort of a silver bullet here. Number one is access.

We've gotten access in with at least one payer where we had four states that we didn't have access before that we got access to this year. So that's helping in terms of driving more access in more parts of the country. We had access -- exclusive access with another payer also in the East, so that's helped as well. But I think more fundamentally, it's other things that deal with kind of the health of the population and where testing is going. So chronic illness continues to be the increase, unfortunately, for all of us, but I think that's where screening comes in. You've got now screening with really a so-what in terms of what you can do about certain conditions.

For instance, early onset dementia. We've got 80 detect where you can do blood-based screening and potentially look at the overall risk of a patient and whether you need to consider therapy after you reflex the imaging. You've got oncology early screening. You've got cardiometabolic risk and cardiovascular risk and screening for that.

I think you're also seeing consumer sort of this whole consumer segment really continue to grow and gain traction as well as patients take more ownership of their overall health, and they really want to understand their health better. So we're seeing this whole aspect of wellness and consumer growth, whether it's through our direct channel of westhealth.com or whether it's through some of the partnerships that we're doing as well with other providers that are really gaining traction. So I think you put all these together, really driving to higher than, I would say, traditional utilization, which is really benefiting us.

Yes. Yes. And we can touch on a few of those. I mean, you just mentioned the consumer one there at the end. Can you just talk about that consumer channel? I know you guys have the partnerships with WHOOP, ORA, at least indirect partnerships? How that's tracking? How are those structured to in terms of just marketing the tests, requisition volume contribution? Maybe we could just run down that.

Yes. I mean, first of all, it's a really exciting part of our business. So we talked about consumer a while back when we relaunched our consumer efforts in the direct space. And we said this business can be about $250 million in terms of revenue at some point down the road. And in '21, we reestablished or kind of reenergized our growth into consumer, established this quest health.com. And this business is growing really nicely. It's growing about 35% every quarter year-over-year and approaching now $100 million in terms of top line. So that's the direct questhealth.com, where we offer tests online.

And you, as a consumer, as a patient can order the test, you can go to one of our patient service centers, get the blood draw done, get your results as early as the day. So great opportunity for people. It's usually paid out of pocket. Now we have also these collaborations with providers and partners that are really gaining traction as well, and we're very excited about partnering with some key companies there. Function Health is one of them, which, again, they have memberships subscription model that they offer to their patients. And we are the engine behind that. So the patient basically subscribes to function health, and they get referred to testing in one of our -- again, one of our PSCs, and we performed the testing and function then will provide a very comprehensive report to the patient or the consumer.

Same with WHOOP and ORA that we announced not too far back, where you have basically the wearable, you have the app. And now it's part of the app, you can order testing with WHOOP,for instance, you can order a test, which is 65 analyze, you pay a certain fee. You get the test done at Quest, and we provide and up actually provides you that report within their app. So think of it, Patrick, as we are the engine behind this. We're the exclusive testing provider for these companies, Him and Hers. Hims and Hers was also one that was announced recently. They do all the marketing. They basically deal with all the consumer aspects with getting paid by the consumer. And we basically get paid by the providers themselves or these partners that offer this either the wearables or the membership.

Yes. Okay. And then in the advanced diagnostics piece, you obviously have the wellness testing, the specialty testing pieces how are those tracking? What's the right way to think about just that contribution to overall revs as well?

Yes. There are really five areas of advanced diagnostics testing that we consider as the high-growth areas of our business. and they are really all growing in the double digits. So when you think about contribution, these are offering a positive disproportionate contribution and really helping in terms of driving, again, higher utilization to the question that you asked at the beginning. So those five key areas are cardiometabolic, autoimmune, women's health, brain health and oncology. And so within each of those clinical franchises, there are these high-growth tests that are really driving and they're now close to about $1 billion in terms of contribution and as I said, growing in the low double -- in the double digits in terms of contribution. So really an important part of our business, helping with our overall mix because these are also usually higher value tests as well.

Yes. Okay. And then maybe the test per rec, I know we talked about that a good amount. Where is that in terms of number of tests per rec growth year-to-date? Where are we on that front? And then that's another one, again, I think people look at the durability and it's held at a pretty high number for a few years here. Is that just a permanent shift now where you guys feel pretty comfortable.

Yes. It's -- I think it's structural. And I think it's resilient and it's got definitely some runway to it. Back to your question about where it was, where it is today, I mean, if you go back to pre-COVID a typical requisition we would see is about 3.8, 3.9 test per rec. Today, fast forward 5, 6 years, we're somewhere in the 4.3, 4.4. So an average requisition now has almost half a test more. to the average person, you hear that, you go, okay, what's the big deal. For us, it is a big deal actually in terms of margin because you're performing a half a test more on each acquisition other than some reagent additional costs, you've got a lot of your fixed costs already covered. So it's actually a pretty good margin lift for us.

And some of that is driven by -- some of the things that I talked about with regards to consumer and some of the partnerships that we have where you have some really rich panels that are being done with multiple tests to get an overall colitis scope of a patient's health. So the work that we do with function, for instance, and even in the -- sometimes in the Quest Health space. But it's also driven by advanced diagnostics and some of the additional work that now physicians are basically ordering for patients first, because there are therapies to certain disease states or to certain conditions that there's a so-what again. And second, because it's -- I mean, with chronic illness, aging population, I think physicians are really more focused on underlying health and ordering more testing than they were before.

Okay. And I guess when you put that all together, both the test per rec and in the volume side, how are you guys thinking about this sequentially? Obviously, you gave the 4Q guide, 3Q to 4Q, you have Life Labs. I think that flips organic this quarter. So maybe just kind of give us the bridge on the revenue side for 4Q in terms of how that built up.

Yes. I mean I'll give you a little bit of the seasonality first. I mean, always, we expect that 4Q is a slight dip from -- or is a dip from 3Q. I mean, usually, in terms of typical seasonality. The second quarter is our highest quarter of the year in terms of just the strength of that quarter. Third Q is a slight dip from that. 4Q is usually below 3Q and then first quarter is usually our weakest quarter of the year. And no surprise. I mean 4Q, you've got the holidays. First quarter, you've got usually bad weather and coming out of also the holidays and maybe more sluggish testing. But -- so that typical seasonality usually holds.

Now for the full year, we are expecting organic revenue growth to be in the 4.5 to 5. And year-to-date, where organic revenue growth were at 4.8%. So this has been a strong year for us in terms of utilization. We'll give guidance for 2016 when the time comes. But suffice it to say, I think we're seeing some very strong utilization and organic revenue growth.

Yes. And then maybe just the margin side as well. You have some project Nova expenses, we'll get into product Nova a little bit. I think it's -- like you called out the employee cost on the health care side, what's the right way to think about maybe the exit rate on margins? And then I know that's always a debate. It's just the right number to jump off into '26. But maybe we can talk 4Q and then maybe the right buildup.

There's always noise in the margin rates. I mean, first of all, let me emphasize, this year, our operating margin rate is growing from last year. So we're seeing expansion of our operating margin rate. And in fact, if I take you back to our Investor Day comments back in March of this year, we said that we expect operating margin rates to grow between 75 and 150 basis points over the next 3 years, between '25 and '27 in we still stand behind that long-term guidance. In terms of the noise between Q3 and Q4. So in Q3, our operating margin rate was 16.3%. I think we had about a 50 basis point negative impact from employee health care costs. A lot of that was also a catch-up over the course of the year based on claims data and based on information that we get around exact claims, we make the adjustment to really reflect the true cost of employee health care costs, and some of that was a catch-up in Q3.

I wouldn't expect that to necessarily repeat in Q4. But we did say that in Q4, we do have some NOVA costs that maybe we didn't have to the same extent in Q3. We signed the agreement with EPIC earlier. We were a bit delayed in terms of when we signed the agreement. So some of those costs got pushed out a bit into Q4. The bottom line, Patrick, when you put all that together, what we said, and I think we called that out on our earnings call is that typically in the pre-COVID seasonality, we usually see somewhere between a 50 to 100 basis point margin rate negative, let's just say, or reduction between Q3 to Q4. So I think that's still in the same ballpark in terms of margin rate progression from Q3 to Q4.

Okay. And then maybe we can touch on Nova and then would love to flow it to '26. But I guess with Nova, maybe just talk about where those initial investments are going. Is there a magnitude we should think about in terms of 4Q relative to the initial expectations? And then maybe when some of the benefits start to show up, we could touch on as well.

Yes. I mean just in terms of overall magnitude of cost around Nova, and by the way, Nova is not all costs. No. As you said, there's a lot of benefits that we see for that project that are going to be, frankly, potentially transformative for our business in terms of how we do things and how we manage order to cash. But in terms of the overall cost, it's somewhere between $250 million to $310 million of onetime costs for Nova. 40% of that is going to be operating expenses roughly is capital expenses. That's the overall cost of the project over the next 6 to 7 years. So that's not next year.

In terms of going back to sort of your points around where the costs go, et cetera, what's going to first be impacted. So this is going to be a stage implementation stage implementation across really our entire lab footprint. And we're going to start with our esoteric, what we call our esoteric labs, which is where we perform our advanced diagnostic testing because that's where we need to start in terms of changing the lab information systems and transforming that experience for our lab operations, and then we'll move into our regional lab. And it's not going to be, hey, flip the switch, everything starts together. It's going to be, as I said, stage. We'll turn on one lab after another, and we'll start going through our whole footprint. We're going to transform the patient experience in certain cases in terms of how they get their results. We're going to introduce AI into that also implementation as well.

In terms of 2025, Patrick, we said at the beginning of the year that we're going to spend roughly $20 million on NOVA this year. we're not going to spend $20 million. We're spending less than that because, as I said, we were delayed in terms of starting this relationship, but there will be spend in Q4 that I mentioned earlier. We'll guide in early '26 in terms of what that investment looks like for '26. But the 75 to 150 basis points for the 3 years in terms of operating margin expansion that I mentioned, that includes in it the Nova sort of implementation, okay? So we still feel confident that we can increase our operating margin rate with all of the costs that we're undertaking for Nova. Because Nova to your last question, in we expect to start to see benefits from it. benefits in terms of a lot of productivity, reducing denials, improving customer onboarding. So there's a lot of things that we think will improve productivity and cost.

Okay. That's helpful. And then again, obviously, one of the big variables as we look ahead into next year is PAMA, right? I mean you had the I guess, the 1-month delay, you have PAMA versus results. Maybe just give us your breakdown of how you're thinking about does the 1-month delay change anything? Were you surprised by -- there were obviously some numbers thrown around inside that 1 month what does this mean for the probability of PAMA and as we sit here today in December, so I mean it is approaching.

Yes. I was encouraged by the month delay, as we all were, because it does validate that this is still top of mind for both sides of the house for the administration that this is an important potential sort of reform piece on the agenda. And the fact that it was delayed by 30 days gives us some confidence that there could be on the cards a potential delay for all of next year. I would not say there's a really high probability that, that happens. But I do think this gives us confidence that more likely than not, we could see a delay of PAMA again next year. So maybe more than a 50% probability. I'm also still somewhat optimistic that we could see the results at passing.

So permanent reform for PAMA. Now less confident of that than a PAMA delay because I think it requires more work for that to go through. But we also see both sides of the house, and we saw more than 40 Congress people actually do support the passing of the Results Act and that put their support behind it. So that gives us confidence that there's some momentum there. Now again, I think it's probably more likely that we see a PAMA delay than that. But -- so we remain optimistic that we can avoid a PAMA cut next year.

Okay. And again, in a hypothetical, obviously, you guys have laid out the $100 million potential impact if it does come back. What's the right way to think about if it does show up the potential offsets? How quickly -- how nimble you can be in terms of maybe the cost side, how much of that $100 million would actually flow through I'm sure, obviously, you guys are prepared for the worst, hope for the best. But what's the view as to what you could offset if the $100 million comes through?

Yes. So we have been doing this contingency planning for a while because, as you said, we're not going to just sit there and hope that this doesn't happen and then have to scramble at if this does happen. We run our business in a very disciplined, rigorous way. We have a lot of operational rigor in our lab. So I wouldn't say that there's low-hanging fruit in terms of our cost base that we're just going to be able to take out this huge amount of cost. But we will offset a portion of the PAMA impact. It's not going to be the majority of the impact. It's not going to be 50% of the impact. If it's $100 million, it's going to be less than that. But we will offset some portion of the impact.

How we're going to do it? We're going to focus on a few things. We'll focus on, first of all, some of our support functions that are noncustomer-facing, non-patient facing, not frontline and look to find efficiencies there. Can we find efficiencies through AI to potentially not have to backfill certain roles, keep positions open and potentially allocate certain positions from maybe transactional functions to more strategic functions and be able to find efficiencies that way. could we look at some of our investments. We always have some portion -- not a big portion, but a portion of that's discretionary investments. And could we potentially delay some of those. Nova is not all nondiscretionary. There is a discretionary pacing part to it that we can potentially also manage through some of the slowing down of the pacing of spend. So there's that portion as well. So you put all that together, and that's contingency work that we're doing right now just to be prepared.

Yes. Okay. That's helpful. And then maybe staying on the policy side, you have the One Beautiful Big Bill, One Big Beautiful Bill. And then the ACA subsidiaries as well. Can you just talk through the impacts from those, the potential expiration of the ACA subsidiaries, what that could mean to you? I think you've broken out some numbers before, but it would be helpful just to run through those as well.

I mean you've got the Medicaid cuts, right, that potentially could happen, although we don't see those really impacting our business until maybe late '27, early '28. I think the health care exchange subsidies, if they were not to get extended or in some other framework that got established where they would be preserved. I see that as potentially a 30 basis point impact to our volumes and revenue next year. Am I concerned about it? Not really. I think it's -- we've got some good tailwinds on utilization. But would be an impact, right? That's about 30 basis points. I think by 28, we've sized it to be somewhere close to 50 to 60 basis points. The majority of that being from the health care exchanges with Medicaid being really a small piece of it, it's almost like 10 to 15 basis points of that being from Medicaid.

I think -- I mean, on the health care exchanges, Patrick, I don't want to minimize the impact on the average consumer because, yes, some people will be impacted by that. But I think there's been also some data that's shown that the people that have benefited from the subsidies that were established, the latest round of subsidies that might get taken away were less -- lower consumers of health care. And so less of an impact on utilization by eliminating those subsidies as you would otherwise see in the overall population.

Okay. And I guess you put those together, if PAMA comes back, I think at a lot of ifs if we see kind of the ACA impact, is there still -- you mentioned the 75 to 100 bps margin over the course of a few years. do margins still -- are they -- is there room for them to still expand or be flat in that environment? Or if those things go against you, is it a little more challenging?

If PAMA were to come back, I still feel positive that we can expand margins. But that's why we gave the range, right? $75 million to $150 million. I think we'd be definitely on the low end of the range.

And then maybe just around Haystack, obviously, an important one here for you guys, big attractive market. Where are we in terms of that rollout expectations we can get into the expenses and the dilution a little bit. But just in terms of the market opportunity, how do you see yourself set up obviously, some competitors out there already building, again, what appears to be a very large underpenetrated market. How are you thinking about your guys' approach to MRD with Haystack.

Yes. I think you've captured it well. I mean, large underpenetrated market or currently really one key player in that market, but more entrants coming in, including us, I think that market over the next 5 years could be fivefold what it is today. And that's not Sam's estimates. That's, I think, independent estimates, let's say, it could be a $5 billion, $10 billion market over the next 5-plus years. I do think we have a great test and really proud of the test. It's got the lowest limit of detection out there. It's a really highly sensitive test that offers a huge, huge life-saving value to patients. We have made some really good progress, Patrick, on a number of fronts. We did an early launch last year, had some learnings from that, signed up a lot of physicians in cancer centers.

We did the launch earlier this year and we've been increasing our commercial presence behind the test as we've worked on reimbursement. So we were very paced and staged in our kind of growth and our progress here and momentum because we wanted to get reimbursement. We applied for PLA codes, Medicare PLA codes earlier. We just got basically a reimbursement level attached to those PLA codes for baseline test at $3,900 and monitoring at $800. And those will go into effect on the first of January in '26. So we'll get Medicare -- start to get Medicare reimbursement. We are working on a technical assessment with MolDX for Medicare Advantage reimbursement as well. As I said, we took our commercial presence from 12 reps and we're going to be closer to 35, 40 reps by the end of the year. So more feet on the street to drive the adoption of this really important test.

And then finally, on the evidence generation front, we're -- we've got about 2 dozen trials right now going on with evidence generation across not just colorectal for MRD, but also other indications for cancer. So it's been a very thoughtful staged launch, and we continue to make really good progress.

Yes. And maybe you mentioned the early access program ran a bunch of tests and some great partners there. what were some learnings from that? What's the feedback been to you guys in terms of this test comparing it? Obviously, to your point, there's one large player out there, several others. What's been the feedback from the early users on the test experience.

Yes. I mean, some of the feedback -- I mean, first, some really positive feedback in cases where the low limits of detection have really played a key part in terms of uncovering positive cases where they had negative cases before. And I'm not talking about many cases, I'm talking about a handful of cases that physicians were really surprised with Haystack ability to detect circulating tumor DNA. So really important for patients. We did get some feedback around the overall workflow, the manual nature of the workflow and the fact that we needed to implement a solution called Epic ORA with oncologists to manage the whole workflow and in the physician office. And that's something that we're investing in right now. Got more and more experience also with reimbursement and what it's going to take to get reimbursement.

And so that's why we went through the reimbursement channel with the MAX and now with getting to the PLA code level. So I think there's been some good learnings that have -- we've done -- we've paced in a very, as I said earlier, a methodical way.

Yes. And in terms of driving that next leg of adoption? Is it the reimbursement side where these doctors want to see the tests get paid and then they'll start kind of running more volumes? What's the feedback you hear in terms of the driving the next big step up on the ramp and the potential revenue.

Yes. I mean, reimbursement is a part of it. I think you also have to be very disciplined in terms of your operational rigor something that I would argue we do better than anyone. I think you have to -- I mean, listen, commercial focus and commercial sort of just drive is going to really matter here in this in this space as well as making sure that you educate physicians on the nature of this test. The last piece I would say is evidence generation. I mean that's going to be critical. The more evidence you can generate, the more you can provide data to some of these oncologists, the more you're going to get adoption. But today, Patrick, I mean, we've got almost, I'd say, probably still about more than half of oncologists out there have never tried MRD. And so there's still a tremendous opportunity to expand in that market as well because these are oncologists that have never tried it. It's not like they've tried some other tests out there.

Yes. And then in terms of the dilution, I think it ended up being at $0.35, $0.40 this year. I think the hope was improved maybe as the year went and obviously, again, maybe the revenue got pushed out a little bit. How do you think about the progression? Is it purely tied to when the revenue starts to ramp, the dilution just eases? And it's that simple. Is there a revenue number where it's -- once we hit this run rate, it's breakeven, maybe just kind of frame up the P&L tied to Haystack?

Yes. I mean dilution this year is going to be roughly on pace with what it was last year. As I said, we've made -- we've been very careful to manage dilution, but at the same time, to not shortchange the test in terms of the potential for more adoption. So we've increased commercial presence. We've built this workflow and this Epic ORA system that's going to help us in terms of managing the workflow. I think next year, we're still going to expect it to be dilutive. It's going to be potentially less dilution than what we have this year. You're right, there is a certain level of volume that you have to get to before you can break even on this test. And our goal is that by the end of next year that we would get to breakeven in terms of -- not for the full year, but at some point towards the end of next year that we break even on this test.

But we also have to be mindful of the fact that we need to continue to drive adoption and not shortchange the investment on it. Some of it relates to clinical trials as well and evidence generation that we do. But I mean, you and I both know about sort of the sequencing cost environment? And what you do know as well is that until you have a certain level of volumes, you can't really bring down the cost of testing sufficiently because you need scale. You need volumes. And that's something that will happen as you get more and more volumes, you can fill these sequencers, you're going to get better gross margin, and you're going to get better profitability as well.

Okay. And maybe last one on Haystack, just on the indications to your point, you mentioned getting out beyond colorectal, any time lines around that? And then how important are guidelines like NCCN and those types? And how close are those in terms of being on your radar?

Yes. I think no specific time lines on the other indications. I mean we are focusing first on colorectal. As I said, we're working on a number of trials around colorectal and other indications down the road. We're focused on breast. We're focused on head and neck. We're focused on the use of MRD and immunotherapy we're focused on. So there's a number of indications that I think we will prove out Haystacks use in. With regards to NCCN, they are important.

I mean -- but I think that work is being done by the number of players in the space, not just us. The more there are evidence-based data that support the use of MRD and post-resection cancer therapy. I think the more there is a likelihood that this gets added to the guidelines under NCCN. And I think it's important. It will take a while.

And then you guys also have some cancer screening partnerships. I mean the Guardant one came out a few months ago. I guess how do you balance partnerships with external cancer screening companies developing your own tests in-house potentially in the future if you get into the screening world? What's the right way to think about just how you think about that screening environment and the partnership side versus the internal.

Yes. I mean, this applies to screening, but it also applies to our approach in general to how we sort of build the menu, right, and build the menu across our thousands of tests. We look at, I would say, three areas. Number one, organic investment and developing tests organically through our own R&D. AD detect is a great example of that where this test was developed in-house, and it's paying dividends for us. Then another area is really either in-licensing or acquisition. We in-licensed certain tests from key providers and key companies that we partner with, and we've acquired other tests. Haystack is a really good example of that.

And I think the third area is where we don't have a test either that's organically developed or in-licensed or acquired it's partnerships where we'll partner with certain other companies to basically provide a service for them and get paid for that service, but really enable the growth of that test in the market. So the partnership with Guardant is one example of that, where we're partnering with them on their colorectal screening assay, where we get compensated for signing up physicians for promotion work that we do. We have the test on our menu. We get paid for the draws that we do in our patient service center. So today, we don't have a colorectal cancer screening assay. That doesn't mean that we won't have one down the road.

We're actually partnering with a company called Universal DX on a colorectal early cancer screening. But until such time happens as we launch that, we're partnering with Guardant. We partner with GRAIL as well. And we also do an important service for them. We sign up physicians and we have them on our menu, and we do blood draws for them. So we have this -- because we don't have an MC, a multi-cancer early detection test right now.

Yes. And I guess in terms of the Haystack acquisition itself, it was a bit of a one-off for you guys in terms of buying pre-revenue dilutive asset. You guys have been very consistent in buying up outreach labs, hospital labs. Should we expect that to be a one-off? Is there still an appetite for those types of deals? I mean since then, you've done a bunch of good kind of volume acquisition maybe we can talk both the pipeline on the reference lab hospital side? And then again, is there an appetite to do other one-off tests? Or should we think about kind of those core deals?

Yes. I mean, I will start with what are our kind of key criteria -- financial criteria for deals because I'm usually the guy that's like pounding on the table going do they meet those criteria. Number one, is to exceed 10% ROIC by year 3. And number two, and those are not like either or they're and. Number two is to be EPS accretive in year 1. So the majority of the deals that we do, Patrick, have to meet those two criteria. The Haystack didn't because it's a pre-revenue key strategic tests that we thought has a pretty incredible potential market. But the majority of the deals that we do are going to fit into those two criteria.

Now again, it has to have like that haystack profile for us to really deviate from those two criteria. But I would say in terms of the pipeline, to your question, the majority are going to fall into this outreach physician book of business acquisitions that are most, if not all, will fit those two criteria. You have some that are more independent lab driven, where we think there's an opportunity to acquire an independent lab. And then the capability building acquisitions that sometimes are less obvious are ones that we look at much more carefully and much more selectively. But again, with the lens of, they have to meet those two criteria unless there's like a really market-driven reason.

And how is the pipeline today in terms of the acquisition side? Has the PAMA threat brought people back to the table? Is that irrelevant in terms of the deal discussions? How is the pipeline looking?

The pipeline is good and healthy. I mean, I think with a lot of emphasis on the physician outreach books of business that we buy from hospitals, from health systems. I don't think PAMA has made a huge difference, frankly. I think it's -- and I don't think even like the legislative changes and the One Big Beautiful Bill have made a big difference yet. But I do think with an eye towards potential challenges for the community-based health systems, other health systems down the road because of Medicaid cuts, that actually might drive more hospitals to consider selling those outreach books business to us as well.

When you think about the tail on that opportunity or at least what's available in terms of opportunities in that space, there's still tons of health systems where we think we can partner, acquire those books of business. So I think the pipeline is pretty robust.

Okay. And maybe just kind of put it all together in terms of some of the growth drivers, utilization, we didn't talk a ton about pricing, but pricing seems like it's still on your side, which is nice. I guess when you look to '26, it sounded like your earlier comments, Sam, was this momentum should continue. I mean any variables to call out as we think about the growth side, obviously, the LRPs, I think that mid-single-digit type top line growth sounds like you're confident, but any variables to call out as we think about next year?

No. I mean I'm confident because we've got good momentum in our business and some good tailwinds. And so maybe to describe or paint out some of the tailwinds and headwinds, Patrick. So on the tailwinds, listen, we talked about it a lot, but utilization continues to be a tailwind. And I think there's some structural elements to that, that will continue to drive growth and healthy above pre-COVID growth. I think the consumer momentum that we're making is really encouraging, right, whether it's our direct business, questhealth.com or it's the partnerships that we have with other providers that the partnerships and collaborations that we have that offer these tests to their consumer base, and we are the engine behind that.

I think that's a real positive. I think our advanced diagnostics menu and those high-growth areas that I talked about, that's a real positive. I think the -- just the general sort of emphasis on early screening, whether it's early onset dementia, whether it's cancer, whether it's cardiometabolic genetic risk, all of these things, I think, is a key tailwind as well. Another tailwind that maybe to get a little bit more specific and more transactional. But next year, we do have two portions of our business that are driving some healthy growth on the top line. One is our collaboration with Corewell on the collab side, which is basically a professional lab services side, where they outsource their lab operations where we run their lab operations, okay, across.

Eventually, it will be 20-plus hospitals that we run their lab operations. That next year is about a $200 million contribution to our top line in terms of growth. So that's a pretty healthy number. Now margin rate on that business next year is going to be pretty low. It's in the low single digits, but that grows over time. As you know, with all of our PLS relationships, usually, we start out in a low single-digit margin rate. And then as we build that business it gets to somewhere in the 10% to 12% range. But that's a tailwind on the top line, margin rate, not so much. Then we have the Fresenius business that we talked about this year, where we acquired their book of business of external clinics that they service and also where they send their kind of a reference relationship where they sell send their Fresenius clinic work to us. And we do water testing in addition to clinical testing.

That's almost $100 million top line lift as well. It starts out at lower than average margins, but it builds over time. So those are two important tailwinds as well. On the headwind side, I mean I talked about Nova. That will be -- we'll ramp investment in Nova. So from a profitability standpoint, it's an impact to profitability. I think you have -- obviously, PAMA is a potential headwind, but hopefully, we can set that aside. January and know that it's going to be delayed. But for now, it's still a potential headwind. And I mean I think then there's like the usual market-based or sort of economic-based factors like inflation, for instance. We're always keeping close eye on inflation, wage-based inflation, but I also think we have a lot of good momentum on our programs like Invigorate to help offset some of those headwinds like inflation, for instance, and cost of labor.

Yes. And maybe last one, just a minute left here. Just on the pricing side, any change in tone from the conversations with payers? I mean things are obviously getting tight on the payer side. So just curious if your discussions, I know they roll in terms of when each one comes up. But any change in tone there one the paying side?

Not really, not materially. I mean it's -- I think it's with the payers, it's all about the partnership and it's all about the value that we bring to them. And the value that we bring to them is that we do a great service at a very at a lower cost and lower cost than they would reimburse to hospital labs and health systems. So it's all about the redirection and the ability to save them important dollars by redirecting some of that work to our own labs. And so I think the tenor and tone of these conversations is still very positive.

Yes. Okay. All right. Sam, Shawn, thank you guys so much. Appreciate it.

Thank you.

Thank you, Patrick.

Okay. I want to welcome everyone to our 7th Annual Healthcare Symposium jointly sponsored by Gabelli Funds and Columbia Business School. That QR code there, if anyone can see it, that has the list of the bios for all of the speakers of panelists. So feel free to download those, if you would like.

I'm Kevin Dreyer. I'm co-CIO of the value team here at Gabelli Funds, and I am very happy to be joined by Professor Carri Chan. She's a professor and the Healthcare and Pharmaceutical Program Director at Columbia Business School. I'm also pleased to be joined by our Gabelli Healthcare research team, including Daniel Barasa, Elena Meng, Rebecca Stern and Jennie Tsai.

Now we've been doing 24 years of health care investing at Gabelli. And as you can see here, here are some of the white papers we've done recently on topics ranging from the longevity boom, IV therapies and AI-enabled diagnostics, all very relevant to some of the panels we've got today.

So why are we here? We're here because we have some problems in society, one of which is this. We have an aging population, and that aging has been growing. And as we can see, the percentage of people 65 and older has grown a lot over the last 20 years. It's going to grow even more over the next 20. So that's something that's going to need to be addressed by society and how do we care for these people.

Related to that is this slide, health care spending as a percentage of GDP, among the highest in the world, health care spending in the U.S., it's about 18% of GDP now. It's projected to grow to 20% by the early 2030s. So again, something that we need to address as society. In terms of why we're spending that money, well, certain diseases continue to burden society. Cancer is one of them. We've had 20 million cases, almost 10 million deaths recently. That's going to grow to over 35 million cases and 18.5 million deaths currently projected by 2050. So we want to work on ways that we can reduce, certainly the latter number.

Finally, we're going to talk a bit about vaccines. Maybe we'll stay away from some of the more controversial topics regarding get vaccines, but we're going to talk about access. How do people get access to vaccines. And this might be a little confusing, but the point of this slide is that higher income people make up a small percentage of the overall population of the world. You are buying over half of the vaccine. So we want to find ways to get those lower and middle-income people better access to vaccines globally. Some of the challenges and opportunities we're dealing with right now, well, longevity pressures, technology and data and aligning incentives across the health care value chain.

As for our agenda, we're going to begin with the future of multi-cancer screening at 8:50. Then we're going to be talking about empowering beneficiaries through consumerism at 9:50. 10:55, we'll talk about developments for aging in place, something near and dear to a lot of our hearts. And then at 11:55, vaccine access and development. So with -- I will note that there will be a 15-minute Q&A session at the end of every panel. Please, we want people to participate, raise your hands, someone will come to you with a microphone so that we can all hear you.

And with that, I'm going to turn it over to Professor Carri Chan, who will say a few words and introduce her panel. Thank you, Carri.

All right. Thank you, Kevin, for that lovely overview. Good morning, everyone. And as Kevin said, welcome to our 7th Annual Gabelli Funds-Columbia Business School Healthcare Symposium. My name is Carri Chan, and I am the Faculty Director of the Healthcare and Pharmaceutical Management Program at Columbia Business School. The goal of our program is to educate, support and build community for our students and alumni who are interested in the various facets of the health care sector.

Our students are bright, ambitious and eager to make a big impact as they embark on their careers. Today's event is a wonderful opportunity for them to learn from industry leaders who are pushing the forefront in healthcare. It is also an opportunity for our students to reconnect with so many of our alumni and industry friends that are here. It's wonderful to see so many of you in the audience. I'm looking forward to reconnecting with all of you. You are a testament to the strength and longevity of our community. If you are interested in getting more involved with the healthcare and pharmaceutical management program at CBS, as a speaker, a mentor or generally to support our students, please make sure to be in touch.

I want to extend our deepest gratitude to Mario Gabelli and the entire Gabelli Funds team for their continued partnership in making this symposium a reality. On behalf of our students and the healthcare program at CBS, we are so fortunate to have your consistent and enthusiastic support and engagement.

This year, we have a really exciting lineup of speakers and topics. I want to thank all of our speakers for being here. The goal is to spark discussion, so I encourage all of you to engage when we have the opportunity for Q&A and in the breaks in between. Let's make the most of this opportunity to learn from each other and contribute to the advancement of healthcare.

So with that, I'm going to invite up the speakers for our first panel on multi-cancer early detection. So first, maybe Asia, I'm going to just point you to the first seat. Asia Chang, VP and General Manager of Oncology at Quest Diagnostics; David Harding, Pipeline Product Management at Exact Sciences; Noam Krantz, SVP of Corporate Development at Guardant Health; and Alexis Tosti, VP, Strategy, Corporate Development at GRAIL. So thank you to all of you for being here.

And so to kick us off, we've all heard the data showing that early onset cancers, diagnosis in people under the age of 50 have been increasing over the past decade. This is particularly true in gastrointestinal cancers, including colorectal cancer. At the same time, cancer maybe a decade -- 2 decades ago, was often seen as a death sentence. But advances in treatment and technology have really shifted it more towards, in many cases, a curable condition or into something that's more considered chronic disease that needs to be managed over time. And the key to that, it really is early detection. And so it's really wonderful to be here today with all of you speaking about kind of how do we shift to earlier detection and how do we think about multi-cancer early detection and really helping move the paradigm forward. So today's panelist brings together a team of experts across multiple different organizations who are trying to address this.

So perhaps to get us started, you are all approaching multi-cancer early detection in different ways at your organization. So if you could each briefly describe and give to the audience a summary of how your organization is approaching MCED and how it fits into your overall organization's strategy, and we'll start with you, Asia, and go down the line.

All right. Great. Thanks for the opportunity. So I think at Quest, one of the -- there are 3 dimensions that we tend to think about this for early cancer detection. I think the first piece is actually around access to the innovation. I think Quest really is the definition of access across our healthcare ecosystem, whether that's connectivity to different healthcare systems and health systems, clinicians, when you think about your typical blood draw, that's things -- those are things that Quest naturally brings to the table. And I think our relationships with each of these amazing innovative companies really enables that access.

The other piece is actually thinking about access as an innovative dimension as well. And so I think that's the other element that at Quest, we're thinking whether that's on the technology side or even on the testing side, and I'll share more about our approach there with -- on the testing side. And then certainly, it is also thinking about whole health and wellness, because cancer is an important part of what people are typically concerned about with healthcare, but so is cardiac disease, so is brain health. So as all these other dimensions. And no primary care physician just thinks about cancer, they're thinking about whole health. And people in general are always thinking about that as well.

Great. Thank you. David?

Yes, at Exact Sciences. Good morning, everybody. Our mission is to prevent cancer, detect it earlier and optimize treatment when folks do indeed get cancer. And so as we think about our flagship product, Cologuard, which is focused in the colorectal cancer space, we say that's not enough, right? Just optimizing for colorectal cancer is not going to get us to our mission of eradicating cancer across many types.

And so from the very beginning, we have had this vision that once we get colorectal cancer squared away, let's then move on to multiple cancers. And so we view it as highly, highly complementary for us to not only focus on colorectal cancer and other product lines, but then to expand that into multi-cancer early detection, right? That's the only way we're going to get to that ultimate goal of eradicating cancer.

Good morning, everybody. I'm Noam Krantz from Guardant Health. So at Guardant, our mission is to conquer cancer with data. We've been doing that now for about 12 years. And we play really across the continuum of care in cancer, all the way from late-stage therapy selection to MRD, to screening and early stage detection.

When you think about cancer, it's the one kind of disease state where prevention is not preventing people from getting it, but just catching it early. And that really plays into this common theme that we have in our approach. And so the way we look at all of these areas of cancer is we have one sort of common tech stack that can be used and changed in different ways to get to different indication and different stages of cancer depending on kind of availability of our ability to catch it in blood. And that's really our founding is being able to detect cancer in blood.

When we look at early-stage cancer, the question -- and each one -- so we're looking at all of these different kind of indications of cancer and the different stages, and each one of them requires a different approach. And screening, of course, completely different because it's harder to catch. From our perspective, we want to understand each one of these indications, how to go at each of them, so we're going after first with colorectal cancer. We see that there's a huge need there. And then on top of that, adding an MCED related to that and then different indications.

Hi, everybody. Alexis from GRAIL. I think GRAIL is unique in that we were founded based on incidental finding at Illumina about 10 years ago, where cancer or a weird signal was detected in some blood samples, and it turns out it was reflective of cancer. And so we were really founded with the intention of being able to build blood tests that were able to detect cancer. And so that's kind of been our mission from the beginning. And we're almost 10 years in. We've launched a product a few years ago called Galleri, which is a multi-cancer early detection product capable of detecting up to about 50 cancers in the blood.

Great. So Alexis, maybe we can expand a little bit more. GRAIL, as you noted, from the beginning has really positioned itself as a company, as an innovator, addressing the challenges of multi-cancer screening. So in your view, what are some of the advantages and disadvantage do you think that this approach is kind of trying to do all together and that being your north star has brought?

Yes, I think it's important to understand kind of the derivation of that. So when GRAIL was founded based on this incidental finding, we set off to determine, okay, how do we build the best technology here? And we did a discovery study where we pitted a number of technologies head-to-head against each other to identify really what would be the best approach to doing this. And when we did that, we actually found that there was a shared signal that we were finding. So we were not finding a signal for colorectal cancer, a signal for lung cancer, a signal for breast cancer and adding them together. We were finding a signal shared across cancers, and then we were able to add kind of an additional portion to that test to differentiate where that signal might be coming from.

And so we didn't really have a choice to go cancer by cancer or multi-cancer, we -- the technology is a multi-cancer test. And so the one challenge there is that's not how screening is done today. So it really is an evolution of how you would approach screening in the market, and it takes a lot of education, and we're focused on that.

Great. I think maybe, Noam, we can go to you, in contrast, right? So your Shield test was first launched, as you noted, specifically for colorectal cancer. Now you're in the midst of a trial to see or detecting multiple cancers. And so can you maybe share it's like kind of the opposite approach that GRAIL has taken and help kind of illuminate in that kind of contrast.

I mean it's the opposite, but it's also kind of similar. So we have Shield, which was launched a little bit over a year ago. It is on track to be the most successful DX launch outside of COVID. So it's moving along very rapidly. And Shield is a colorectal screening product at this point, right? But at the end of the day, it was developed ultimately to detect all cancers. And so the way we look at it is, one by indication because you have to -- each one of these areas of cancer is its own little world of access, reimbursements. There are many challenges in each area from a detection perspective, from an access perspective, reimbursement, payers, all that type of stuff. So our approach was to go at an area that we saw a significant unmet need. And first, that was colorectal screening.

And the reason is because this is an area where early detection is key. You can have a really big effect on patients. It's a growing area, especially in younger patients. And it's an area that compliance is an issue. So nobody wants to go in and get colonoscopy. Even the stool tests today have a fair amount of falloff in compliance. Our test so far has shown that, I think, somewhere around 90% of the tests that we've done are in patients that have never been screened before. And in the hospital setting in different practices that we've looked at, there's about 2 -- just by offering Shield, there's about 2x the amount of screening that occurs in those offices. So it's having a significant impact.

Then what we've done is we're going after lung as a specific indication. And then you may have seen, if you haven't seen our Investor Day a couple of weeks ago, we talked a lot about multi-cancer screening. Our approach to start a multi-cancer screening, as I said before, conquering cancer with data. It's really more on the data side at this point. We're trying to understand how to go at it responsibly. We're talking to the government authorities. We're participating in the NCI Vanguard study. But we're also building a ton of real-world evidence kind of on the backs of our colorectal cancer screening product, where we're allowing physicians to opt in to the MCED and patients to opt into allowing their medical records to be shared. And we will actually share the MCED data that we're seeing coincidentally with our tech stack.

So it's really on that data side at that point. We're trying to understand -- you want to give this access to patients and physicians to understand what's going on in their DNA and their body and their epigenetics, but you don't want it to be kind of a time bomb as far as expensing all that to the system.

Great. And I think, David, from the outside, it might seem that Exact and Guardant have a similar path and approach in the sense that your -- Exact Sciences is synonymous with your high adherence at-home colorectal brand. And so you're now starting to expand into multi-cancer screening. And so how do you address the fact that people typically associate Exact with the Cologuard system and don't get product confusion as you're entering into kind of a broader scope of testing.

Yes, it's an interesting question. So first of all, we're very proud of Cologuard. We've screened over 20 million people now with Cologuard and have really bent the survival curves in a very good way. So we're super proud of that. Obviously, the brand is extremely strong, and it's very trusted in the primary care community and among consumers. And so we really believe that we can build off of that.

And it's really important to note, I think, that when you have a standard of care screening approach like Cologuard or colonoscopy or mammography or the other standard of care screening approaches, those are there for a reason. It's because they work. And what we're trying to do is say, multi-cancer early detection is complementary to those standard of care screening approaches, right? So with the Cologuard, right, you're going to get very high sensitivity, very good pre-cancer detection. And you don't want to stop doing that, right? That is the best approach for detecting colorectal cancer.

For other organ types, multi-cancer early detection is the only way you can interrogate that organ type. So what we're saying is, let's make it complementary, right? If you're getting a mammogram, great, keep doing that, because multi-cancer early detection is not going to do a particularly good job of detecting breast cancer. Similarly, with colorectal, use the Cologuard test, use other tests that are interrogating that organ directly. For other organs that you can't interrogate directly, use a blood-based test.

So we believe it's very, very complementary. We believe that the strength of the brand and the trust that we have at Exact Sciences with primary care physicians and with consumers is going to build on that with our Cancerguard test. So again, just integrating it seamlessly with our sales teams, with all of our infrastructure that we've built with health care systems is going to be really, really important to success in getting adoption.

Great. I think the good news for everybody in society is that there are so many people who are working in different types of solutions and different approaches to this. And so this brings it to you, Asia. You have a number of -- Quest has partnerships with a number of these organizations of your fellow panelists.

I think all of them.

With all of them. You're also developing your own multi-cancer risk test with MD Anderson. And so how do you manage the potential channel conflict and competition between all of these different offerings in your portfolio, with your partnerships? And how would you position your in-house test relative to these established partners tests that you have?

Yes. That's a great question. I think outside looking in, I can naturally see how that question arises. But I think as you heard from each of them that, the positioning for each test is actually quite unique. And I think the level of evidence within different populations is also quite, in many cases, complementary. And ultimately, why we have these partnerships is, again, if I bring it back to the access piece is it's giving the market and consumers, clinicians, the power choice. Because the fact is screening is a programmatic strategy. It's not a single time point. It is a series of things that have to happen in our health care system to make it an effective and adoptable and broadly used solution. And so that access enables each of the partners to develop their own evidence strategies, position it appropriately for clinicians. And I think that's an important part of Quest's role.

The other aspect is about -- I think of it as innovative access. And so with our own partnership with MD Anderson, I will say that it's shaped by my own personal experiences around looking at a lot of the data, whether that's the GRAIL data, the Shield data, the Cancerguard data, it's really interesting.

And I think -- you brought this up, Carri, around evolving cancer to be thought of as more chronic. I actually think that's a really important insight. And it actually starts right at the screening stage because most times, we tend to think of cancer as episodic. I'm finding something. I'm finding something. I'm finding -- I'm detecting something. You're detecting it as if you're catching a virus. But we actually know cancer doesn't work like that. It grows in your body. It evolves in your body. It hides. That's why it's actually really difficult to identify those signals.

And so our partnership with MD Anderson really builds upon that insight. It's a circulating tumor protein assay, and it's intended to identify cancer risk. People that have signal that there are -- growing tumors in your body are giving off signal. There's an inherent risk associated with that, not unlike any type of cardiac disease, not unlike any metabolic disease. And so part of that is helping the general population, helping people understand who actually is at risk and should be more proactively screened.

Right now, the only methods for that are, are you over the age of X? Are you this gender? There's more to it than just the gender and age. Risk is actually inherently biological, and so we think these protein tumor markers really complement and in a lot of ways, could unlock the market and accelerate the use of appropriate technologies along a continuum. It's really along a continuum.

Great. So I think maybe building on the theme of partnerships. As we noted, Quest has partnered with all 3 of you, but all 3 of you also have various other types of partnerships with pharma, with service providers, and so with payers. So we'd love to learn a little bit more about how you think about such partnerships? What are you looking for in a partner? And how much of that is contingent on what's currently in your pipeline versus what you see coming down later in the future? And so maybe we'll start with you, David.

Yes. First of all, thank you to our friends at Quest for being an important partner in blood collection, right? And I think what it all comes down to is we need to make this easy for consumers and for health care providers and for health systems and ultimately for payers. What we found in our experience with Cologuard is the more we make it convenient and easy for consumers and their clinicians, the better compliance we're going to have. Noam talked about that a little bit earlier. But having that experience, having that ability to reach out and manage the consumer through that whole process is really, really important, right? We find too many areas where if there is a barrier to screening, then people will fall out of the process. And ultimately, we want to get as many people screened as possible.

So what does that mean for our partners? For partners like Quest and Asia who are providing that service, right, we want to make it super convenient for a consumer to be able to go and get their blood drawn, right, and be able to schedule something that works with their day and in their life style.

Secondly, with our primary care providers, right, we want to make sure that, that experience from ordering to resulting, to then working up a positive patient is as easy as possible, right? We all know primary care, healthcare systems are overburdened, and we want to make that process easy. So providing a very easy diagnostic resolution pathway, providing a very straightforward interface, being able to order straight out of your EHR system. All of those are exceptionally important.

And then with the health care system, being able to publicize the fact that early cancer detection is available is really important. We think about it as kind of this 3-legged stool. You got to educate the consumer to create demand for this product and create awareness. You have to educate the primary care physician so that they can actually order it and speak to it when a consumer comes and shows up and says, "Hey, I want this thing." And then you have to have a great partnership with the health system to work up those positive cases on the back end. And all of those partnership things, right, are enabled by electronic connectivity, good awareness-building campaigns and educational campaigns and then ultimately, a straightforward diagnostic workup process that is really important.

Yes, next. So at Guardant, we're tech dev people at the end of the day. And I would say that we're completely obsessed with the idea that we can take a vial of blood and find cancer, right? And so we're trying to do that in -- some cancers that are easy to catch, which is colorectal cancer is probably one of the easier ones, for some reason, it sheds. The DNA, the epigenetic biomarkers are easier to find than some other cancers that don't shed quite as much. And so we've done, I think, 20, 30, 40 pilots with other companies to understand how we can do that better. So we can't really -- we have to go out to the external environment because there are so many different ways and different possibilities to detect all of the different types of cancer.

So from a tech dev perspective, I think partnerships are really, really critical. We want to tap into smart people. We think, at the end of the day, it's the intelligence of the company and the ability to be able to run these pilots. That's a really significant advantage for us. But it's also just that will and that kind of obsession and that desire to be able to find all of this in blood and then to drive it to an approvable and reimbursable product at the end with the data behind it.

And then comes this big lift of trying to get access and breaking down those access barriers in the U.S., outside the U.S., every market is super, super hard. You have to get the approval, you have to get the reimbursement because they're expensive tests to run for us, let alone for the customer and the patient in the end. So that's where -- the Quest, I think we're all grateful to Quest for this, I don't know, what is it, like 600,000 HCPs that you guys have access to, 8,000 different phlebotomist centers around the country that they have -- that they own essentially. So for us, it's really amazing to have that partnership as well and to be able to accelerate once we've done the tech dev.

Yes. I mean I think -- these guys have pretty much covered both stakeholder partnerships and development partnerships, and I think those are both critically important to us as well. So as we were developing test and as we continue to look into future development, research partnerships are important to us. And we're also really focused on stakeholder partnerships. So as David was describing, just enabling navigation through the healthcare system is incredibly important. It's a very complex system. And so partnerships with Asia and with a number of others really help enable that access.

Great. So everybody keeps referring back to you and Quest. And so maybe we can just build on that a little bit and clearly, what Quest has this major advantage of having an immensely vast network. I think Noam gave us a few statistics about that, that not only is across the entire geography, but really is directly integrated into patient services.

And so I would love to learn a little bit more about how you think about leveraging this infrastructure, particularly, you mentioned primary care. To move beyond just the traditional cancer screening adherence rates that are not great. People don't necessarily -- they get anxious when they need to get their colonoscopy and other types of screening. So that we can ensure that patients actually get the follow-up diagnostic tests after they do these initial screenings, right? So how do you go, once you have those positive signals, follow up and make sure that the patients get fully diagnosed and then get the care that they need?

Yes, great question. I mean I think elements, those statistics like something 650,000 clinicians connected, 6,000 in-office phlebotomists, 2,000 patient service centers. We have a huge courier fleet that ensures any lab ordered through those channels makes it to a hub within a day. That's why your CBCs can be turned around in less than 24 hours in some cases. That infrastructure is vast and the investment and the capital to support that has been made over a tremendous amount of time, and that's something that Quest continues to invest in across that -- our own technology stack. That's kind of what I mean a little bit about innovative access as well.

We recently also have partnered with Epic to look at our entire infrastructure so that we can become even more integrated with healthcare. And that's a long-term vision that our CEO, Jim Davis had. And so I think those are examples where, when I think about that connectivity, we're continuing to think about that.

And then the other piece that you're bringing up around adherence and bringing people through the care paradigm, I actually think this kind of brings it back a little bit to even just my -- our partnership with MD Anderson, along with, frankly, other diagnostic tests, I think of them as risk triage tests because I think what we're hearing and what you're -- what each of the partners could acknowledge is that different cancers have different issues related to how people follow through. In certain cases, if you take PSA as an example, PSA is like wax and wane in terms of its use. And the reason it's wax and wane is because initially people caught thinking, "Oh, this is the thing that will detect prostate cancer." It's not really the perfect test to detect prostate cancer, but it does tell you a certain level of risk. And so once you have some profile to understand that this person is at risk, there's actually additional triage tests that need to be deployed so that care providers and patients can have a shared decision-making on what the appropriate next step looks like.

So there's actually types of testing and types of information that helps people get comfortable and move through that care journey more effectively and more efficiently. And different cancers will have different requirements. So I suspect, even when the multi-cancer test, there will be follow-on tests and other aspects that actually help people understand what's next. And there's probably testing that needs to be done before that to help people understand, yes, you are an appropriate person to get this type of test. I think that's what, generally speaking, one of the challenges with this is the population health problem. And so there's a resource problem that comes into the overarching health care economy and ecosystem. And that's a really important role for Quest to play in. And we have partners and technology investments and innovative access that we think about that spread across that continuum.

Great. I love how you're kind of describing the potential impact that this could have on changing just the diagnosis journey of an individual, but also that next step. So how is this going to potentially impact cancer care, right? We've seen shifts towards more outpatient follow-up, less invasive types of procedures. And so I'd love to hear from our panelists before we open it up to the audience, how your organization is thinking about how MCED could actually transform the way that cancer care is being delivered. So maybe we'll start with you Alexis, and then we can see how others are thinking about this.

Yes. I mean, I think the vision is that with multi-cancer early detection, you'd be able to detect more cancers earlier. And so ultimately, instead of treating late-stage cancer, you're going to be able to treat earlier-stage cancer where those treatments can be more effective and more likely to lead to cure.

Right. It's a hard question. I thought a lot about it in the last couple of weeks since we've been talking about this on the side. Like I said, it's a strange disease state in that prevention is just catching it early. So there's that possible burden of people knowing that they have a cancer, they know potentially maybe where it's coming from and then you need to find out where it is and you need to remove it, right? Or you need to do some type of immunotherapy or whatever it takes. So obviously, the fear is that you kind of shine a light on the issue and then -- in each patient and then you have to solve that through some type of further diagnostics and then treatments, and that's expensive.

But I think at the end of the day, the earlier you catch it, the cheaper it is to deal with it, obviously. I think those late-stage patients are extremely expensive to the system. So I think that as we progress and advance studies and some of the studies that we're doing with the authorities that will actually track some of this data, I think you'll see that there's significant savings to the system in the end.

At Exact, we ran a health economic model. We took a simulated group of 5 million Americans between the ages of 50 and 84. We looked at them over a 10-year period and modeled out all the different potential cancer incidences and things like that. And we said, okay, that's great. We have this model. If we apply to that, not only your standard of care screening, but also a multi-cancer early detection protocol, and we have these people getting tested annually over a course of 10 years, what's the difference in outcomes for this only standard of care adherent body versus the group of people that took a multi-cancer early detection test. And I don't think our findings are unique. I think, GRAIL and others have done these types of models as well. But ultimately, what it found was we could reduce Stage 4 cancer incidents by over 40%. In addition to that, we could reduce overall cancer mortality by 18%.

Now when you think about that in comparison to advances in, say, immunotherapy, other treatment approaches and you model that out over that same 10-year period, you get about a 2% reduction in overall mortality. So all these investments that we see across the industry in advancing therapies and treatments are really, really great. But if that only gets you a 2% improvement in mortality over 10 years versus detecting it earlier, an 18% reduction in mortality, you can see how that makes a massive improvement on human health and reduces cost dramatically, right? What we've modeled is that detecting at Stage 1 or 2 is between 4 and 7x less expensive than detecting at Stage 3 or 4, right? It all is very logical, right? And our host earlier showed that chart that showed healthcare costs skyrocketing, right? How do you bend that curve in the right way? You do it by catching cancer earlier, where a surgical intervention or some other minor intervention is going to work fundamentally much better than years of expensive therapy.

Great. Yes. We've seen this play out in a number of different areas. And I think the key is really this earlier preventative type of shift rather than waiting for the acute episode to be very disastrous.

So with that, I'm going to open it up to questions from the audience. I believe we have mic runners. So if you raise your hand, someone with a mic will come to you.

I'll kick it off. You just basically answered the question I was going to ask about the cost implications. I'm curious, how do all of you work with both insurance companies and the government to make sure that incentives are aligned so that people do take these tests earlier, given the obvious payoff not just for consumers, people, but also society in lowering those costs?

I'll start. I mean, at Quest, I think because of the role we play in our healthcare ecosystem, we have great relationships with many payers, and that's spread across all the types of testing that we provide. I think when it comes to certain innovative applications of those tests, that is an area that Quest, I would say, candidly, probably struggles with because the evidence behind it requires meaningful studies that each of these partners provide, and that helps people understand where it fits in that ecosystem. And so our role is multifaceted in that enabling that access helps build the right evidence benchmarks. But certainly, our existing relationships helps pull that through to the rest of the ecosystem.

I will share a little bit of my own soapbox, if you will, that I do think our healthcare ecosystem is really funny because we tend to put diagnostics in a cost-plus payment structure, if you will, in our healthcare ecosystem. And when you really think about it, there should be more value that's provided to diagnostics in general because each of those pieces helps you get to the end goal. We've somehow assigned all value to the very last step. And that doesn't always make sense to say, "Oh, only the surgery, only the drug should recoup 90% of the value." Every single piece of that journey is incrementally important. And so I think there is an evolution that as an economy, as a society, we should really think about as a public policy, we should think about the value of actually that diagnostic information.

Yes. I think evidence is certainly crucial, and we're all collectively working on evidence strategies that will demonstrate not only the performance of these tests, but also the clinical utility of them. But we need to ultimately take that to government, right? And there are efforts underway in Congress, all of us support to introduce a multi-cancer early detection bill that will enable Medicare to actually pay for a multi-cancer early detection test. And that's working its way through Congress. We have to work very, very carefully in advocating for that with our partners to get that legislation passed. Otherwise, it's a really tough road to get ultimate reimbursement. But ultimately, it comes down to demonstrating utility. And the more we can collectively produce evidence that shows we're detecting cancers earlier, we're reducing cost of treatment, we're generating really great outcomes for patients, the more we'll have payers adopt.

Yes. I would just -- I would echo that. I mean at the end of the day, the government in this case, I think, is a good partner, and we've had a really good experiences with all the different, whether it be Republican or Democrat, and it's been a good experience partnering with the government.

I think there's mics over there.

I'm [ Henry Wei ] from Regeneron. We're a biotech with a significant portion of the pipeline in oncology right now. There may be a tailwind emerging where we move to pre-malignant conditions, pre-cancerous conditions and more aggressive preventive or risk stratification, something you talked about of transforming this into a chronic risk management. How far out are we in terms of both the diagnostic paradigms as well as the therapeutic prevention as opposed to therapeutic -- or rather the preventive regimens as opposed to the treatment regimens?

I don't know.

I think there are a number of folks looking at that, and there are some essentially early studies looking at where you can identify signals that enable you to better serve those patients, whether it's with treatment or watching or no treatment. So we're early-ish, but it's definitely on people's minds.

Yes. And obviously, with our colorectal cancer test, we are detecting pre-cancers and identifying those and enabling treatment of those. It's a little bit harder on the blood side of things, right, to really identify those pre-cancerous lesions. I'm sure as the technology evolves, we'll get better and better at that. Thus far, at least in our blood-based studies, there's not a ton of evidence that we're able to really find pre-cancer just yet, but I imagine that will evolve and improve over time.

I would say too, I mean, I think that this is the partnership and the willingness from different pharma companies, given their pipelines to decide where to invest time and energy. But there have been studies done where secondary findings, tertiary findings are -- it turns out, this anti-inflammatory drug has a statistical differentiation for people with reduced cancer rates. But that's not really surprising when you think about the pathways that cancer develops. So some of that implies there are therapeutic interventions that could be provided more proactively. Those are longer studies. Those are trickier, to your point, to sort of look at. But I think a lot of the technologies underlying that are actually in these companies shop right now. And -- but that requires relationships and partnerships to go explore that space.

I think the other component of it is the real-world evidence you're getting from the biobanks that you can build. So we have, I think, 1 million patients worth of blood at this point that can be connected to claims data, it can be connected to EMR data. When you put all that together, apply some AI to it, I think there's going to be some pretty dramatic findings that are totally coincidental to why you're taking the blood. And as you do population screening and you get to the couple of hundred million patients, it's going to be pretty amazing.

Where's the mic?

I can just talk aloud. [indiscernible]. I was wondering if maybe you could comment specifically on the early diagnosis of pancreatic cancer? Sorry. [indiscernible]. I was wondering if you could comment specifically on the early detection of pancreatic cancer? This is kind of to the general point you're making earlier, David. This is something when it's caught early enough, surgical interventions can be pretty effective. Most of the time, though, it's only caught late. And when it's metastatic, half the patients are dead within 9 months. We're making progress on that. We have a drug in Phase II, where we actually saw 86% overall survival at 9 months, we announced in September. So we're kind of making progress on the late end, but we would love it if there were more ways to detect it early, so more patients could be eligible for surgery. So anything -- any progress that you guys are seeing in pancreatic cancer early detection?

Yes. I would say that pancreatic cancer is one of those cancers that our technologies detect really well, right? They tend to shed a lot of DNA and protein into the bloodstream. We find that pancreatic cancer is one of the highest performers within our multi-cancer early detection test. So the ability to find those cancers, pancreatic, ovarian, right, early, I think, is very, very high. And so we're extremely hopeful and we love to collaborate with pharmaceutical partners who can then say, "Hey, I've got an early-stage treatment as well." We often run into clinicians that say, "Well, what's the use of really detecting pancreatic cancer early because there's no good treatment," right? And we say, "Well, okay, but we got to sort of set foot on the moon before we figure out what we're doing here first," right? So let's find those cancers early, let's partner up with the therapy companies to really create a comprehensive early detection approach.

And we are finding there are good ways to treat early-stage pancreatic cancer. So some of the critical patient stories that kind of come out of use of Galleri in the real world -- Galleri is the name of our multi-cancer early detection test. So we found early pancreatic cancers and been able to eliminate cancer in those individuals. So completely cure it, which is fantastic.

It's great news.

This is kind of like I was saying a little earlier, like the policymakers have essentially said like USPSTF gave it like a C or D rating to do pancreatic cancer for this exact reason. Like there's not a good enough treatment. It's like, well, I'm pretty sure finding the signal is halfway there. We're getting there. Like how can we say that like identifying that is not valuable.

My name is [ George Stoupakis ]. I'm a physician and CBS graduate, not an oncologist. One of the questions I have, as you start doing more early detection, I'm assuming that a lot of the sensitivities for most of these tests are going to be quite high, because I assume the negative predictive value is going to be quite high because the populations are going to have lower prevalence. Is one of the concerns that payers might have is that these patients are going to require more serial testing over time because an early negative test does not necessarily mean you're not at risk for a cancer down the road.

If I understand the question correctly, it's that a negative test does not mean you won't have cancer in the future, right?

Right. I mean because as you start screening people early on who are -- where the prevalence is probably going to be quite low and the negative predictive value of these tests are going to be quite high, naturally, the sensitivity of these tests should be quite high. So does that really effectively screen people if their likelihood of the disease is going to be low at that stage in their life?

So the way we think about it is actually -- so we've designed the test to have a very high specificity. And so you have -- if you have a negative test, we actually recommend annual cadence of screening because cancer can develop over time. So you would get an annual test and it tells you at the time, we don't see a signal, but it doesn't mean you don't have cancer, which is why, as David was talking about, we want to make sure that people are using all of the standard of care screening practices.

I would just echo that, right...

Insurance companies have as payers, that they're going to -- for vast amounts of the population, they're going to be paying for serial testing every year.

Yes. I mean, they certainly push back on that, right? And we know for every type of cancer screening, whether it's breast or cervical or lung or colorectal, right, that is a net cost adder, generally speaking, to the healthcare system. But when you look at the value of life years gained in contrast to that expense, right, we deem it to be worth it as a society to pursue that. So I think, again, the power of cumulatively screening many types of cancers with one test really is very powerful as opposed to trying to do screening with a bunch of other individualized tests, right? So we want to combine that power of combined incidents so that we can get the most economic value. But of course, it is going to cost the healthcare system to do this. But again, the value of life years gained cumulatively, I think, is going to be exceptionally powerful.

I think we have time for one last question. Do you already have a mic there?

I've heard the words population and prevention, which tends to be the world of public health [ not ] healthcare. Are any of you are currently working? Or do you anticipate any future where the CDC or state or local health departments will become involved in your businesses? And is this a public health question or more of a health care...

I think they are.

I think they already are. The short answer is that they definitely already are. I mean I think like -- Noam brought up the NCI looking at how these types of studies should be run. It is a population health question. And if I sort of connect some of the ideas that we just brought up around resources and -- like I think the net benefit elements and the intention for reducing mortality outcomes, stage shifting so that spend gets done earlier with better outcomes, are all really important avenues.

And I would add that, again, like I think the element -- one of the missing elements to this is who is actually symptomatic. Like if the symptom is only 45 in gender, that's actually not a really good like benchmark. That's where I think if I come back to our cancer risk assessment, there are actually known markers out there that point towards cancer risk, whether that's CEA, whether that's -- PSA is a good example. Like that actually is probably not perfect for detection, but it is important on a dynamic level to understand who is at risk. And we as a society should probably be measuring this on a regular basis because as you're looking at that, and those are very accessible tests, this is where economics comes into play, you actually can help build a better foundation for a lot of these really amazing technologies to build upon.

Right now, the foundation is a little bit amorphous because there's only, again, the gender, the age and maybe some rare hereditary condition. And so I think that's an element at play that I think as a group, we should look at this more as risk, same with A1c, same with your cardiometabolic profile, like it's not any different, to be honest.

All right. With that, I think we are out of time, but thank you so much for having such a wonderful discussion.

Welcome to the Quest Diagnostics Third Quarter 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question-and-answer session that will follow, are copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. 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. 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 the 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. Our third quarter performance underscores strong demand for our clinical solutions, our diligent execution to meet customer needs and our commitment to advancing our strategy. We delivered robust top and bottom line growth, extended our presence in key markets, forged new collaborations with leaders across health care and expanded our broad portfolio of diagnostic innovations to advance better health.

Revenues grew 13.1%, including 6.8% organic growth driven by broad-based adoption of our clinical innovations, contributions from acquisitions and growth in our consumer channel as we position Quest as the preferred lab engine inside top wellness brands. We also announced an agreement with Corewell Health to form a lab services joint venture serving the state of Michigan. In addition, we will deploy our comprehensive Co-Lab solutions across Corewell's nearly two dozen hospitals supporting quality, innovation, access and productivity. Given our strong performance year-to-date, we are again raising our full year 2025 guidance.

I'd like to take a moment to comment on efforts to reform PAMA. In September, congressional leaders introduced bipartisan legislation called the Results Act. Results is a smart, pragmatic and fair reform that seeks to correct the flaws of the original PAMA implementation. It would deliver foundational payment reforms for clinical labs by dramatically improving the accuracy of data used to set reimbursement under the clinical lab fee schedule. If Congress does not reform or delay PAMA this year, American labs will be forced to absorb significant payment cuts next year, threatening the ability of American seniors to access critical lab testing. We are working in partnership with our trade association ACLA and with Congress to secure meaningful PAMA relief before the new year.

Before turning to our third quarter results, I'll share some highlights on how our strategy is enabling growth. We are 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, 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 purchases of accretive hospital outreach 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 updates on the progress we have made in these areas during the third quarter. In the physician channel, we delivered approximately 17% revenue growth with organic revenue growth in the high single digits. We experienced broad-based demand across our clinical solutions supported by focused commercial execution and expanded health plan access in several states, including Colorado, Georgia, Nevada and Virginia. In addition, we continue to expand business and enterprise accounts, including functional medicine providers who utilize comprehensive laboratory testing to improve health and wellness.

During the quarter, we completed our acquisition of select clinical testing assets from Fresenius Medical Care, which will enable us to offer lab testing used in dialysis delivery to independent dialysis clinics in the U.S. More significantly, under a separate enterprise agreement, we also began to roll out clinical lab testing to Fresenius Medical Care's dialysis centers which serve about 200,000 dialysis patients annually in the U.S. We expect to finish scaling these services in early 2026. We look forward to processing these tests during periods of the day when we have open capacity, enabling us to further optimize the productivity of our labs.

In the hospital channel, revenues grew low single digits with collaborative lab solutions driving our growth in the quarter. We offer hospitals many flexible options for accessing our leading science, innovation and scale. These include reference testing, our Co-Lab solutions, outreach acquisitions and other business relationships, all of which provide meaningful improvements in quality, patient access and cost efficiencies. During the quarter, Quest and Corewell Health, a top health system announced plans to establish a laboratory services joint venture in Michigan with an advanced state-of-the-art lab serving the entire state. In our largest implementation of Co-Lab solutions to date, Corewell Health will utilize our comprehensive offering, including reference testing, lab analytics, supply chain management and blood management. Once we fully scale across Corewell's 21 hospital labs next year, we expect annual revenues from Co-Lab solutions to be approximately $1 billion.

Turning to our consumer channel. We are excited by increasing momentum we saw in the third quarter as we strengthened Quest as the preferred lab engine of consumer health companies. We are delivering our extensive menu and technology inside top consumer health and wellness brands. For example, our collaborations with WHOOP the, human performance company and OURA Health, maker of the world's leading smart ring enables seamless access to our lab testing services and results in their mobile apps. In the quarter, we also saw strong double-digit growth from our questhealth.com consumer-initiated test platform. In Advanced Diagnostics, we delivered double-digit revenue growth across several clinical areas of our portfolio. This includes advance cardiometabolic and endocrine as well as autoimmune disease testing with our analyzer autoimmune solution. Analyzer experienced strong growth as primary care physicians increasingly utilize the solution to direct high-risk patients to specialty care.

In brain health, demand for our Quest AD-Detect blood test for Alzheimer's disease accelerated and more than doubled in the third quarter. New guidelines introduced in July recognized the value of blood-based biomarker testing in assessing Alzheimer's disease pathology in patients with cognitive impairment. At the same time, we continue to publish evidence on our AD-Detect test, including a study published this month that found two of our innovative panels provide confirmatory accuracy for eating Alzheimer's diagnosis.

In oncology, during the quarter, we received breakthrough device designation from the FDA for our Haystack MRD test. This milestone reinforces the high caliber of our cancer monitoring innovation and opens avenues for developing companion diagnostics. We also commenced separate trials with Mass General Brigham and Rucker's Cancer Institute to further research Haystack MRD's clinical utility as a guide in making postoperative therapy decisions. We are also pleased that HPH, a major lab provider in Hamburg, recently introduced an in-house MRD test in Germany based on a license to our Haystack MRD technology.

We are highly focused on delivering innovations that can identify risk of cancer and other diseases in early preventable stages. During the quarter, we announced collaborations that leverage Quest's national scale in phlebotomy and connectivity to broaden access to cancer screening liquid biopsy tests, including Garden's Health shields test for colorectal cancer.

Turning 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. During the quarter, we announced Epic as our technology partner for Project Nova, our multiyear order-to-cash transformation. By deploying a suite of Epic Solutions, including Beaker, MyChart and Care Everywhere, we will deliver deeper, more connected insights with easier, faster and more efficient experiences. Combining these leading technologies with our breadth and scale will help all patients and providers regardless of their EHR provider, get the information they need to make critical care decisions. We are in the early planning stages of this work and look forward to sharing more about the implementation on future calls.

Our growth in productivity gains in the quarter demonstrate that we are executing our strategy and serving our customers and patients with both energy and purpose. And now Sam will provide more details on our performance and 2025 guidance. Sam?

Thanks, Jim. In the third quarter, consolidated revenues were $2.82 billion, up 13.1% versus the prior year. Consolidated organic revenues grew by 6.8%. Revenues for Diagnostic Information Services were up 13.5% compared to the prior year, reflecting organic growth in our physician, hospital and consumer channels, as well as recent acquisitions. Total volume measured by the number of requisitions, increased 12.5% versus the third quarter of 2024, with organic volume up 3.9%. Recall the impact of weather and the CrowdStrike global IT outage was a headwind on our volume in the third quarter last year. We estimate that our volume in the third quarter of 2025 experience a benefit of approximately 50 basis points due to the impact from those disruptions in the same period last year. .

Total revenue per requisition was up 0.8% versus the prior year as an increase in organic revenue per requisition was substantially offset by the impact of the LifeLabs acquisition which carries a lower revenue per requisition. On an organic basis, revenue per requisition was up 3% in the quarter versus last year driven primarily by an increase in the number of tests per requisitions and test mix. Unit price reimbursement remained consistent with our expectations.

Reported operating income in the third quarter was $386 million or 13.7% of revenues compared to $330 million or 13.3% of revenues last year. On an adjusted basis, operating income was $458 million or 16.3% of revenues compared to $385 million or 15.5% of revenues last year. The increase in adjusted operating income was due to recent acquisitions and organic revenue growth, partially offset by wage increases and higher-than-expected employee health care costs.

Reported EPS was $2.16 in the quarter compared to $1.99 a year ago. Adjusted EPS was $2.60 versus $2.30 the prior year. EPS in the third quarter was impacted by higher net interest expense versus the prior year. Foreign exchange rates had no meaningful impact on our results.

Cash from operations was $1.42 billion year-to-date through the third quarter versus $870 million in the prior year. This year-over-year increase of 63.1% was driven by higher operating income, favorable working capital due to timing of receipts and disbursements, a onetime CARES Act tax credit and the cash tax benefit related to recent tax legislation.

Turning now to our updated full year 2025 guidance. Revenues are expected to be between $10.96 billion and $11 billion. Reported EPS is expected to be in a range of $8.58 to $8.66 and adjusted EPS in the range of $9.76 to $9.84. Cash from operations is now expected to be approximately $1.8 billion, and capital expenditures are expected to be approximately $500 million.

Our 2025 guidance reflects the following considerations. Our updated revenue guidance assumes approximately 4.5% to 5% 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. We expect these expenses to ramp in the fourth quarter. Operating margin is expected to expand versus the prior year. Our updated operating cash flow guidance reflects a cash tax benefit related to recent tax legislation as well as favorability in working capital. With that, I will now turn it back to Jim.

Thanks, Sam. To summarize, our third quarter performance of robust top and bottom line growth underscores strong demand for our clinical solutions, our diligent execution to meet customer needs and our commitment to advancing our strategy. We formed collaborations to support future growth, including with Corewell Health in Michigan, top consumer health brands and Epic for Project Nova. Given our strong performance year-to-date, 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. They are the force that delivers on our purpose to create a healthier world, one life at a time. Now we'd be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Patrick Donnelly with Citi.

Jim, maybe just on the backdrop, the utilization backdrop, it looks like it remains elevated. What are you guys seeing there and expectations into year-end? And then just a quick follow-up for Sam. Maybe on the PAMA side, latest expectations, what you're hearing there and the potential offsets you would have as we head into '26, maybe just the probability of how you're thinking about that.

Yes. Thanks, Patrick. So on the utilization, as we said in the script, our raw req volume was up 3.9% and and then organic revpar up 3%. So let me comment on each one of those. On the req volume side, first, as you know, we're back in network with Elevance in some key states, Nevada, Colorado, in Virginia, and we're certainly picking up share and picking up momentum as we progress through the year. So you're just seeing a continuation of those volumes building in each of those states. In addition, CENTERA is another health plan that we're back in network with in the Virginia area as well, actually goes down the coast a bit. And so all of that has helped our -- aided the 3.9% organic req growth. Now in addition to that, we mentioned the strong mix on the call, autoimmune testing way up, advanced cardiometabolic testing way up, our brain health volumes more than doubled in the quarter. So all of that helping both test per re plus test volume. And then the last thing I'd mention is our consumer business. The consumer health business, our own consumer -- our own direct channel has been incredibly strong, growing 30% to 40% on a year-to-date basis. And then our partnerships with companies like Function Health, also helping our growth on the consumer side. In the quarter, we announced partnerships. It didn't really impact our volume in the quarter, but your comment about how do we think about things going into the fourth quarter. Our partnerships with and OURA, we definitely expect that to contribute volume on the consumer health side. So I would tell you, the expectations for Q4 is that the utilization levels will continue as we've seen them in Q3.

Yes. On PAMA, Patrick, so to kind of probabilizes it here or put odds on it is difficult. I would tell you the Results Act has been proposed. We still think it's going to be not an easy one to pass, but there's also a likelihood of a PAMA delay, which we think has likely more probability than the Results Act actually passing. So we remain optimistic about a PAMA delay, although it's really hard to kind of put odds on it right now. In terms of the impact of the P&L, as we have indicated before, it's a $100 million impact next year if PAMA does come back. We will offset a portion of it. It will not be the majority of it. We will offset a portion of it that's portion of that $100 million. And remember, we control the pace of some of the investments that we have next year. So we can control and pay some of these investments if PAMA does come back, and we have to offset a portion of this hit.

Our next question comes from Michael Cherny with Leerink Partners.

Maybe if I can build a little bit more on the mix in the quarter and how you think about that relative to jump off point to next year relative to the LRP. As you look back versus what you outlined in March, are some of these aspects of wellness testing and specialty testing performing above expectations, in line with? And how are you thinking about framing those in terms of the contribution rate they can provide relative to where you laid out the LRP for overall organic volume, organic revenue growth back in March?

Yes. So versus expectations we set in March, I'd say the consumer channels are both our direct and our relationships with other partners are performing slightly above what we expected going into the year. Our own direct channel is performing very well. And in addition to wellness testing that we get through that channel, there's what I would call episodic testing. So these are things like STDs, tick testing, allergy testing that people just want and -- want privacy for other reasons, they come to us directly. So our own direct channel performing better than expected. You can all see, I'm sure, on social media and things like that, what companies like Function Health and OURA are doing, and certainly, that is aiding our progress on the indirect channel as part of consumer health. Look, it's just huge momentum that is building across the country as individuals become CEOs of their own health. And with that, they turn to companies like Quest Diagnostics to get access to testing that otherwise they may not be able to get through their traditional health plans or some of the tests that these consumers want may not be acceptable through the plans. They could get denied. So that's why they turn to consumer health channels, okay? So again, as we go into the fourth quarter, and we're in the fourth quarter, as we go into the early part of next year, we expect these consumer channels to continue to gain momentum.

Michael, if I take it back to your comment compared to March, or to compare to March, largely the assumptions are still intact versus what we shared during our Investor Day in March. The mid-single-digit revenue growth, including the contribution of 1% to 2% from M&A, high single-digit EPS growth, the margin expansion over the 3 years that we shared. All those, I would say, are pretty intact. I mean there are some definitely positive things that we're seeing around utilization, around the consumer business, around the wellness business, all the things that Jim shared. And also on the revenue side, the test per req and mix improvements that we're seeing that have a direct impact on contribution and operating margins. So all of those are really positive but not to change the long-term outlook that we provided.

Our next question comes from Elizabeth Anderson with Evercore ISI.

I have a question about sort of how you're thinking about the 4Q margins. Obviously, I think, Sam, you highlighted the step-up in Nova -- Project Nova expenses, which you guys have obviously called out before. Can you talk about some of the other pluses and takes because obviously, you've had very strong margin expansion over the last four -- and I just want to make sure I understand all of the puts and takes as we think about the fourth quarter and then a jump-off into '26, but like I understand that PAMA -- ex-potential PAMA impact.

Sure, Elizabeth. Yes, happy to talk about it. So starting with Q3 because that's the jump-off point to your question. Starting with Q3, we saw strong margins in Q3, 16.3% operating margins, healthy expansion versus same period prior year. And a lot of that is driven by utilization and driven by mix as well, both in terms of the revenue per req overall, but also the business mix, the test mix. Now we did see an offset to the strength in operating margins in Q3 related to group health expenses, our medical -- employee medical expenses. Those came in higher than we expected in Q3. And we're a significant -- fairly significant headwind on margins in Q3. I would size it as roughly 40 to 50 basis points in terms of impact on operating margins. We do expect those to continue at this elevated level going into Q4. I won't talk about '26 yet. It's too early. We need to look at all of our group health plans for '26 before we can guide anything towards the impact of those in '26. But I can tell you, in Q4, our expectation is they'll continue somewhat elevated and have a negative impact on margins. In terms of Q4, the only other thing I would call out is, yes, we did have -- we do expect to ramp in Nova investments in Q4. Those have largely due to the timing of signing with Epic have been pushed more into Q4. So we expect more of those in Q4 than we initially expected. And then in terms of seasonality, I mean, I'd remind you of a couple of things that we traditionally see, nothing that's different. One is that if you look pre-COVID seasonality Q3 to Q4, usually, the OM trend is to be about 50 to 100 basis points lower in Q4 versus Q3. So I think the seasonality trends are pretty similar in general to what we used to see pre-COVID.

Elizabeth, just to summarize, on a year-to-date basis, our OM rate is up 60 basis points. And so it really does point to our productivity efforts, our Invigorate program continues to pay dividends for us. There's no let up. There's never an end goal. The goal always moves forward, and we expect those productivity efforts to continue in the back half of the year and into next year.

Our next question comes from Kevin Caliendo with UBS.

Sam, I know you just said you don't want to talk about '26, but I have to ask a little bit just thinking about now that we sort of understand the jump-off point, we understand your LRP. PAMA aside, what other sort of headwinds and tailwinds should we be contemplating? I know there was some other investment spend that was planned. Corewell might be incremental. Is there anything sort of fundamentally or company-specific we should be thinking about when thinking about '26 relative to the LRP?

Yes, Kevin, let me start, and then I'll turn it over to Sam here. So I think we've talked volume and utilization trends. We -- the test per req growth, the req per req increases that come with that, we feel good about that continuing into next year. Our commitment to advanced diagnostics, the autoimmune testing, brain health, as I talked about, doubled in the quarter. All of those point to, again, increased volume and utilization trends. We've talked about earlier, and we mentioned in the script, we've just begun to take on the testing from Fresenius. So were two parts to that. One is Fresenius' the testing that comes from over 200,000 dialysis patients across the 3,100-plus dialysis centers were in the very early innings of integrating that work into Quest Diagnostics, plus Fersenius provided lab testing for other third-party dialysis centers. That's the piece of the business that we bought, and we certainly expect to expand on that as we go into next year. Corewell, the Co-Lab portion of that just gets going here in the fourth quarter. That will expand as we -- across all 21 hospitals as we move into 2026. And then again, the strong consumer health channel. Now headwinds, we've talked about PAMA. Yes, there's the expiration of the health exchange, the subsidies for the health exchange, I still don't know how that's going to come out. Obviously, that's one of the big concerns during the shutdown here. And then other headwinds -- look, hospital reimbursement remains a challenging environment. Pricing on the hospital side remains challenging. And then as Sam indicated, yes, there will be a ramp up of Nova investments as we move through next year.

And from -- so Kevin, from an impact on margins perspective, if I take some of Jim's comments and just give you some color around margins, not to give percentage right now or any numbers. But the utilization, the healthy environment is going to continue to drive margin expansion. Similar thing with the revenue per requisition, the test mix, the -- and also the test per req is going to drive improvements in margin I think you're going to see the Invigorate program continue to drive the 3% productivity and cost reduction next year as well. So that's a tailwind as well. PAMA is obviously an uncertain one, so I'll kind of set it off to the side for now as a potential headwind. The ramping Nova investments are going to generate more expenses next year, but that's in line with what we shared back in March when we first announced this program. There's nothing new there in terms of additional cost. And also generally, in terms of all the investments that we have next year, including Nova, depending on PAMA, we have the ability to sort of ramp those and basically time those and pace those accordingly to offset the impact of any negative pricing effect from PAMA.

Our next question comes from Jack Meehan with Nephron Research.

I wanted to talk about cash flow. So it's been really strong conversion so far this year, and you increased the guide here to $1.8 billion, up $250 million. Maybe for Sam, just are there any onetimers you would call out this year besides kind of the Cares Act payment? I'm just trying to think about the puts and takes on this line into 2026 and understanding what the right baseline might be to work off of?

Yes. Thanks, Jack. So yes, cash flow has been strong. I mean we took up operating cash flow, as you indicated, to $1.8 billion as our guide so an increase of $250 million. I think we're seeing some increases and some positives related to the strength of the business, also the timing of receipts as well in collections. But there are one-timers in that that you should not expect to necessarily continue. You called out the Cares Act payment of $46 million. That is a one-timer that we don't expect to repeat next year. And then there are onetime benefits related to the recent tax legislation, the One Big Beautiful Bill Act that helped us in 2025 that don't necessarily produce the same magnitude of benefit in 2026. One is related to the acceleration of bonus depreciation and the ability to take deductions on that and gives you a cash tax benefit. And the other one is also related to R&D, accelerated R&D expenses or expensing R&D and being able to take a tax deduction on that as well, which helps you from a cash tax benefit, too. So those, in total, I would call out between sort of just over $100 million, $100 million to $130 million or so of benefits in addition to the $46 million of Cares Act.

Yes. Jack, the other thing I'd point to is the beauty of the consumer channel, it's a direct cash business. You get payment at the time of order and there's no patient concessions or bad debt. So to the extent we continue to grow that consumer channel, it certainly helps bring in the cash, the timeliness of the cash and the certainty of the cash.

Our next question comes from Luke Sergott of Barclays.

I just wanted to dig in a little bit on the consumer health momentum that you guys have in light of some of these like new partnerships you have with WHOOP and OURA. How to think about like the partnership here? And what kind of tests are what's being marketed -- and what kind of tests you guys are going to be driving through there? And any type of benefit that you could see to help the requisition volumes stay elevated within that business?

Yes. So I can talk about each of those. First of all, let's start with WHOOP. They have somewhere between, I don't know, 1.5 million and 2 million WHOOP users in the country. WHOOP announced that there were roughly 350,000 people that had signed up for advanced labs. Now how quickly those people have signed up, how quickly they convert and actually get lab testing done, it's very hard to tell at this point. The faucet is open, people have come forward, so we are seeing demand from that. You've seen the pricing that WHOOP announced in the marketplace, $199 for a limited panel of roughly 65 biomarkers. And if you do that twice, it's twice in a year, it's a $350 charge. OURA on the other hand, we're still in the final stages of the technical integration with OURA. OURA is much bigger in terms of users. They've got about 5.5 million globally, not 100% how many are in the U.S., but probably 60-ish, 65% are probably U.S.-based. They've chosen a more limited panel, a $99 a panel that has roughly 50 biomarkers on it. And so we don't have an indication of a backlog yet or anything like that. And then obviously, again, our own direct channel has put up growth numbers that are really impressive on a year-to-date basis between 30% and 40%. And and then obviously, Function Health continues to grow, and we are the sole lab that does all the testing for function health. So put all of those pieces together, and it really points to a segment that we're getting terrific road map.

Our next question comes from David Westenberg with Piper Sandler.

Congrats on a good quarter. So on the consumer channel, we are seeing a lot of great growth in this channel. We're also seeing some adds for some of the home delivery blood testing kits. Do you believe that could be a key part of consumer health? And then are there any strategies to participate in that market?

Yes. First of all, yes, there is strategies for us to participate. There's devices out there today for self-collect for both STDs as well as HPV. Today, those collections have to take place actually in one of our patient service centers. But in the future, we would expect consumers, patients to be able to do those collections in the home. We're working with a third-party provider on mobile -- on blood collection kits that go well beyond finger prick and finger sticks. We don't actually think that is an optimal way to collect enough blood that can be used to run the test that we typically run here in Quest Diagnostics. But in time, those self-collect devices will improve. And as they do, we're going to participate in that game as well.

Next question comes from Erin Wright with Morgan Stanley.

So in the 10-Q filing, you reiterated the expectation around the impact on the One Big Beautiful Bill and the expiration of ACA subsidies, I guess, in that 50, 60 bps range. I guess, how would you break the 2 of those out if we do get some sort of more favorable negotiation on the exchange subsidies? And then a completely separate question, but can you speak a little bit about the partnership with Epic a little bit more? I guess, can you talk a little bit about the genesis of that relationship and the nature of it and when we will care more on that front, too? .

Yes. Thanks, Erin. This is Sam. So on the impact in 2028 that you called out that we disclosed in our 10-Q, the way I would think about it is the majority of that is really related to the health insurance exchanges and the potential expiration of those subsidies and not being renewed. So that roughly, let's call it, 60 basis points. I would say about at least 40 to 45 basis points of that is coming from the exchanges and the rest driven by Medicaid. Medicaid ramps over time to get to a certain impact by 2034. But the impact on '27, '28 is fairly minimal still. And Jim, talk about the other.

Yes. On the Epic implementation, so the foundational element of this is the conversion and upgrading of all of our laboratory information systems to their LIS product, which is called Beaker. We're going to start that process. Obviously, a lot of planning is taking place right now. Planning will continue into 2026. We plan on starting those implementations more in our esoteric sites and then rolling it out across the regions over the next several years. We will also standardize. Today, we have the application called MyQuest, which allows patients to appointments, view your test results, pay your bills. And that application will be upgraded to what most people know is MyChart in the Epic world that provides a lot of benefits, including patients will be able to see all of their information regardless if it's from Quest Diagnostics or a health system on one MyChart site, if you will. And so it provides the integration of lab work with other medical records that they may be getting from their physicians, their health systems. And so we believe that really has tremendous benefits as well. So as we've described in the past, it's a 5- to 7-year implementation time line. And as Sam has said, we're going to pace that appropriately. It's a lot of change both internally for our own employees, a lot of change for our customers, and we're going to be very thoughtful and methodical as we embark on this change going forward.

Our next question comes from Andrew Brackmann with William Blair.

Jim, you highlighted some of the work that you're doing, expanding partnerships with some of the cancer screening players that are out there. Can you maybe just sort of talk about those opportunities broadly what they mean for Quest? But I guess more importantly, how do you balance those types of distribution partnerships with potentially doing some of the tests in yourselves in the future?

Yes. Well, the first decision we look at is do we have a test for that segment of the market. Now when it comes to some of these early-stage cancer screening tests, the answer is it's not an area where we've made significant investments. So as we've discussed in the past, you can order the GRAIL test through Quest Diagnostics. It's on our menu and we make it available to over 100,000 primary care physicians that's integrated from an IT standpoint. We announced with colo with Guardant. Their new blood-based colon cancer test. Again, we don't have a test in that segment. We were seeing -- we were getting questions from our physicians. And so it's on our menu. Physicians will be able to access that. There's complete IT integration. We do the collections and the test gets sent to the Guardant lab to be done. We have collection agreements with other players in the industry. But those two tests are actually on our menu and we enable physician offices to order through Quest Diagnostics.

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

You kind of just touched on there on the advanced diagnostics side and just a follow-up specific to Haystack. If you could just provide an update on the integration and how that's going, just reaffirm some of the comments you made in terms of how it's going to flow into the model in 2026?

Yes. So look, I'll talk about the integration, Sam can touch on some of the financial aspects. So it's totally integrated into the company. So there's -- it's part of the inner fabric of Quest Diagnostics. We've created with -- the test is run at our Center of Excellence in Texas, in our Cancer Center of Excellence. And the volumes are building. We feel good about that. We mentioned on the call, we continue to do new and innovative research with -- we mentioned Mass General Brigham, Mass Brigham in Boston, Rucker's Cancer Institute here in New Jersey and numerous other cancer studies to continue to build evidence. From a reimbursement standpoint, we are getting paid by Medicare today. And we expect this November that you'll see final reimbursement decisions in the final clinical lab fee schedule that gets published just before Thanksgiving of this year. So continued progress, continued to build volume and completely integrated into Quest Diagnostics.

Yes, I'll talk a little bit about the financials or at least in terms of what we expect the projections to be without giving a number because we're still working through our annual planning now for 2026. But listen, Mike, we're really excited about this test. It's definitely one that I think has the potential to be a leading MRD test in the market. We have had some learnings around the actual commercial presence that we need to have the number of reps that we need to put behind it. The EMR investment that we need to make in terms of the Epic, OURA investment that we're making this year. So this year, we're expecting it to be relatively on pace in terms of dilution versus last year. And we do expect in 2026 to be -- for it to be a tailwind in terms of less dilution in 2026 versus 2025. But very pleased with the market response to this test.

This question comes from Pito Chickering with Deutsche Bank.

Nice job in the quarter. As we roll forward, the organic growth for next year, if I focus on the number of tests per requisition. Can you refresh us how that grew year-to-date, how we should think about the durability of that growth going forward?

Yes. In terms of test per req, Pito, we have said that it's definitely elevated versus what we were seeing pre-COVID, okay? So without getting too specific and too many -- provide too many details and numbers, which we don't necessarily share. But definitely, it has continued to improve quarter after quarter since 2019. So right now, we are north of, I would say, 4.2 in terms of test per req. And prior to 2019 in the pre-COVID time frame, we were somewhere between 3.5 and 4, okay, maybe on the high end of that. But this constant evolution of test per req, we're seeing improved test per req and also improved mix. On the test per req, it's a number of things. I mean it's clinical guidelines that physicians over time have been gradually adhering to. It's our clinical franchise strategy. It's the availability of a broader test menu that we have. It's the default to more screening tests like advanced -- like AD-Detect, for instance, which is a blood-based Alzheimer's, dementia screening test that we didn't -- wasn't available before, that's now producing lift. And then on top of that, there's also the wellness portion of our business that's driving also an improvement in terms of test per req. So all of these things that I mentioned are helping with test per req and also on top of that revenue per requisition. If you take that into 2026, do I expect continued improvement in terms of revenue per requisition and test per req? Potentially, but it's going to get to a point where it slows down. We're not going to continue to see the same pace of improvement that we've seen traditionally. So yes, I think the direction is positive for next year, but I think at some point, we're going to see a slowing down of that improvement.

This question comes from Tycho Peterson with Jefferies.

I wanted to just to a little more on the oncology initiatives. I appreciate the color you provided. But I know evidence generation, you're working with some of the academic medical centers for Haystack, I think on head and neck, breast, lung. I guess how do we think about additional indications being introduced for Haystack? And then any thoughts on just guideline inclusion for NCCN? And then separately on Guardant, I think Shield has going to cross $100 million or so in revenues next year. So at what point did that partnership start to get more meaningful? And is that just for colorectal or is an option for multi-cancer with Guardant as well?

Yes. Let me just take the last question first. So first, on Guardant, right now, it is just colorectal. That's what we've agreed to do. That's what we've put up on our test menu. And we expect growth out of that next year. With respect to evidence generation on the Haystack MRD test. So first, first indications are obviously colo, and we're going after that hard. And I think hopefully, we'll see favorable reimbursement in the fee schedule that comes out in November for that indication. As you mentioned, head and neck are important, and we're doing that research, doing those studies with Mass General. We've got several funded studies on breast and lung as well. We have over 25 studies ongoing right this moment. So the studies get completed. We do the publications. So we expect to continue to get broader and broader base coverage on multiple cancer indications with this test. Look, we're really, really pleased with the uptake of this task by some of the more academic sites that really value precision. They value the sensitivity of the test. They value the specificity of the test. And we're seeing nice uptake from thought leaders in the industry that value these characteristics.

Our final question comes from Eric Coldwell with Baird.

A lot of moving pieces on the margin profile in 3Q and 4Q. You called out the employee health benefits as one of the short-term headwinds. I'm curious about Project Nova and other investments around that. You mentioned some slippage from 3Q to 4Q, an increase in 4Q. Is it possible to size if there's some way to frame these investments relative to last year or relative to original expectations? I'm just trying to get a sense of what the order of magnitude of the impact in 4Q is? And then how that might play out in 2026 in terms of a year-over-year investment comparison?

Yes. Thanks, Eric. So I'll give you portion of what you asked for, but I won't give you everything that you asked for in terms of the numbers. But listen, we started the year, we said we had investment spend this year of roughly $30 million. We said there was about $10 million related to the LDT reqs and there was about $20 million related to Project NOVA investments. So the QARA, the quality and regulatory, and we didn't -- the LDT regs obviously didn't go through, but we still have to make some investments to really improve that organization and our reporting capabilities. So I would say roughly of that $10 million that we had earmarked, we spent most of that. The $20 million for Nova, we have not spent a big portion of it. And so some of it went into Q4, and we're going to spend a portion in Q4, and that was largely due to timing. Now there's not going to be a bleed over effect into 2026, if kind of if you're trying to read into that. I wouldn't consider it as something that's going to impact 2026 negatively. It was really more of a timing thing within 2025. We just didn't spend it earlier and it just went into Q4. So that's how I'd look at it. In terms of just Nova spend overall. As we have called out over the next 3 years -- or sorry, over the next 6 or 7 years through the implementation, we're expecting about a $310 million investment -- somewhere between $250 million and $310 million investment in Nova. And that's going to be a combination of OpEx and CapEx. And a portion of that is going to impact 2026, but it's consistent with our expectations when we shared that range back in Investor Day. Nothing has changed. And as I said earlier, depending on PAMA, depending on the headwinds of the business, the macro environment, potential any challenges that we see, we control the pace of those investments and we will flex and pace accordingly. So just want to make sure that's clear.

At this time, I'm showing no further questions.

Okay. Thank you again for joining in. And again, strong performance for Quest Diagnostics. We again thank our 55,000 employees who made this happen in the quarter, and we'll continue to make it happen. Have a great day. Thank you.

Thank you for participating in the Quest Diagnostics Third 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) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on October 21, 2025, and until midnight Eastern Time, November 4, 2025. Goodbye.

Okay, we're going to kick it off. I'm Tycho Peterson from the life science team at Jefferies. It's my pleasure to introduce our next company, Quest Diagnostic. We are pleased to have Sam and Shawn with us today.

Maybe to kick it off, I was able to sit in on some of the group meetings. And I think 1 of the things you're talking a little bit about is some of the consumer initiations and applications. Maybe just talk a little bit about how you're thinking about some of these new initiatives, including the WHOOP partnership?

Yes. Sure, Tycho. And first of all, thanks for having us today and hosting us. The consumer health business that we have is something that we're really excited about. It's about a $250 -- or $2.5 billion market. And a while back, we said we can get to 10% of this market in terms of adoption. So almost $250 million. And we're well on our way to that. That business which is basically operated as a questhealth.com, where a patient can get on our website, order a test, get it fulfilled at a patient service center, get their blood drawn there and then get a result the next day. It's a really convenient offering to patients and 1 that's out of pocket, they pay for it directly.

So seeing great adoption in that business. But on top of that, I think, to your point about wearables, we're also seeing now more interest in that wellness, preventive medicine aspect of getting not only your -- all your vitals on a wearable through the app and being able to track your sleep patterns, your health patterns, but also your lab testing.

So we announced recently this partnership with WHOOP, which is a wearables provider that does this band that not only do you get all your vitals in the app, but you get also your blood testing. So it's basically an exclusive partnership with them where lab testing is provided by Quest. And I think there's a lot more opportunities in that regard in terms of other potential interesting things in that space. I think this focus on wellness is definitely opening up new opportunities for us.

And maybe 2 follow-ups there. You have a partnership with Function Health you've announced as well. Maybe just touch on how that's slightly different. And then also, how do you get paid on these? What are the economics?

Yes. So Function Health is a company that's operating again in this wellness space, it's a membership company. So basically, they've got thousands on the waiting list. But it's really been very popular recently with members and subscribers paying a certain fee per year and getting a panel, a very wide panel of testing. And again, we're the exclusive provider of lab testing for them. So patients who sign up for Function Health will get a panel once a year, they'll go and get it fulfilled with us, and they get a very comprehensive report. So slightly different in that regard. Again, it's out of pocket. It's not through our questhealth.com, it's through function health, but we perform all the testing for them.

The economics, whether it's WHOOP or whether it's Function Health or whether it's any other partner that we deal with is really a price that's negotiated between us and that company. So they will pay us basically depending on the test. So it's a price that's negotiated. They'll pay us if -- they do 1 test a year for instance. They'll pass a certain fee. If it's 2 tests per year, they'll pay us a higher fee. So it's a direct -- it's what we call a direct client bill price that's negotiated between us and them.

And margins comparable to your kind of enterprise margins overall?

Yes, very much so. I mean with those providers or with those other companies, I would say it's comparable to our overall margins. If you're looking at questhealth.com, our direct consumer business. I would say the margins over time will be higher than our average margins because the testing prices are set by us. There's no limits in terms of reimbursed prices that we have to negotiate with the payers. And also on top of that, we have -- it's all out of pocket. It's all patient paid. It's all -- you put in your credit card and we bill you for that test. So there are no denials. There are no patient price concessions, bad debt that we have to chase from certain patients, are unable to collect on if there's copays or stuff in our usual business which is the third-party payer business.

Maybe we can shift over to oncology. You announced a partnership with Guardant last week for Shield 3-year network. Talk a little bit about the opportunity there? How you think about screening longer term? You obviously had the Galleri GRAIL partnership before that?

Yes. I would say we're working with broad-based many different companies in this space. We have an interest in early cancer screening and screening in general. And we're pretty agnostic in terms of partnering with other companies in cases where we have a gap in our testing until we stand up 1 of our tests, we're happy to partner. We're happy to in-license. We're happy to acquire. We look at different ways of partnering with different companies or standing up our own testing. But in the example that you provided, which is in the case of Shield, which Guardant just announced on their recent Investor Day, essentially, companies are recognizing the scale that Quest Diagnostics offers and the solutions that we offer.

So they are going to be partnering with us for us to be promoting Shield to some of the primary care physicians that our commercial team calls on. We will basically get a promotion fee. We will get what we call an access fee when we essentially stand up the test with new physician practices and put it on our test list. And we will be also compensated through a blood draw fee when patients present at 1 of our patient service centers and they get their blood drawn for the test.

We have similar partnerships with GRAIL for their gallery test in the pan cancer screening space. And as I said, we continue to have interest in the screening phase and eventually in the screening space. And eventually, we might stand up an early cancer, colorectal screening test ourselves. We have a partnership right now with a company called Universal DX, which is based in Spain that we intend to, at some point down the road, potentially launch a colorectal screening test with.

Anything you can say on how far down that path you are with Universal?

It's still early. We're doing clinical trial testing on their test right now, but it's still ways off before it makes it to market. So there's still some time.

And then I think you've noted screening and MRD have kind of different appeal to you. Talk a little bit about how your MRD strategy differs.

Yes. I mean, MRD, we wanted to be directly and acquire a test in the MRD space for 2 reasons. One is, first and foremost, it's a really attractive market with tons of growth potential. It's a market that we estimate today is about $1 billion in size. We think, not just us, but independent estimates, sell-side estimates, estimate that, that market could be $5 billion plus in 5 years, maybe even more.

So we got into this MRD space because of the potential given the market growth, but also given the fact that we have natural synergies in that space. We have a pathology business, we call on oncologists. We've got $1 billion plus existing cancer business. We've got 2,000 patient service centers that collect blood from patients and do testing or at least process requisitions and send tests to our labs. So that was the appeal of MRD. Then the other reason is we saw this asset, Haystack Oncology that has a great test. And they started with research that they were doing in Germany. It's a company that was based in Baltimore. And we decided that given the profile of that test and given the appeal of the MRD market, this was a tremendous opportunity for us to get into this space.

And maybe just talk a little bit about the regulatory -- or sorry, the payer reimbursement pathway. You've got the 2 PLA codes. You're obviously working on Medicare reimbursement. Just talk a little bit about milestones we can track?

Yes, absolutely. I mean we see this path to -- we've already commercialized Haystack, but we see this path to growth resting on 3, what I call it essentially a 3-legged stool. One is commercial, and we've already ramped up commercial kind of promotion for this asset, for this test. The other one is evidence generation, and we're getting much more active on the evidence generation front, both for colorectal and other types of cancer. And the third you're asking about is reimbursement. And we're on the path to reimbursement now, and I'll talk a little bit about that. So right now, we're kind of in this case-by-case reimbursement through the MACs, the Medicare contractors, where every case we essentially have to submit a claim and get reimbursement. It's still not ideal in terms of the speed of reimbursement. But here's how things will work going forward.

First of all, we applied for PLA codes from CMS. We received 2 PLA codes in June, 1 for baseline, which is when you first perform kind of the sequencing and doing a bespoke assay on the certain type of tumor for a patient and then 1 for the monitoring, which is the ongoing blood-based testing. So we've received those PLA codes. We expect to have a price attached to those PLA codes by the end of the year, I would say, close to somewhere around Thanksgiving. And then we really expect that by early 2026, as early as January to start getting reimbursement from Medicare. More than 50% of the patients that present for MRD having done a cancer surgery are in the Medicare age. So that's where most of the patients are.

In terms of Medicare Advantage, we're doing a technical assessment or a technology assessment for the purpose of getting reimbursed by Medicare Advantage. The test received a breakthrough designation from the FDA recently. And so we think that's going to help the case for reimbursement as well. So I think we're making all -- taking all the steps that we need to take, and we really expect reimbursement, both from Medicare and Medicare Advantage by January '26.

And I guess should we think about pricing similar to Signatera, the leading test in the market?

I think that's a good proxy. Is equivalent pricing to what's out there right now.

And then how about commercial? How should we think about time lines for commercial payers?

Yes, that's still a ways off. I think that's sort of the next phase, but I would probably say there's still some work to do before that happens, which is coverage by the third-party plans. But again, as I said, more than 50% are Medicare type of reimbursement. So that's the important part right now is to get Medicare and Medicare Advantage.

And I think you're tripling your sales force getting to kind of high 30s, 40 folks by the end of the year. Is that the right number in the long run? Your largest competitor has 150 reps?

Yes. I mean for us, so we've got, as you said, we're going to have roughly 40 by the end of the year or just shy of 40 dedicated Haystack reps. All they do is they call on Haystack. And then we're going to have roughly half of our oncology health system, general commercial sales force focus on Haystack. So 50% of their time is going to be Haystack. So between those 2, I think we're going to have about close to 60 FTEs focused on Haystack. Yes, we're not going to be at 150. That's not what we're aiming for. But I think with the focus that we will offer it with the FTEs that we have, with the evidence generation that we're looking to undertake with the broad reach that Quest has within the oncology space, and with the very, very attractive profile of the test with its low limits of detection, which we think are best in class right now, we're confident that we can succeed.

And how about for evidence generation beyond colorectal, how do we think about additional indications?

Yes. I mean we're focusing on a number of cancer indications. I think head and neck, breast, there's other types eventually lung as well. So all of those were going to be working, partnering with academic medical centers, oncology thought leaders, different thought leaders in this space to come up with more evidence on that front. So more to come.

I guess just rounding it out on oncology and then we'll hit on Alzheimer's. But how do you think about multicancer, that opportunity set, both in terms of partnering and going at it on your own?

Yes. I mean, I'd say right now, more our focus is in terms of standing up our own test is, I would say, early cancer screening with colorectal or with specific types of cancer. So when it comes to pan cancer, we're happy to partner right now as we are with GRAIL, but no specific focus to stand up our own test today.

And do you think that market goes pan cancer or will be narrower panels? How do you think about how broad you'll go?

Hard to say right now. I mean, listen, GRAIL has a really good test. Galleri has very, in my opinion, attractive sensitivity and specificity. But the reimbursement path is going to be challenging. So I think the more immediate appealing path for us is specific types of cancer.

Maybe just shifting over to Alzheimer's blood-based testing growing, I think, high double digits. You've talked about that doubling year-over-year. Just talk about adoption barriers, how confident are you that blood becomes a leading modality for treatment determination?

Yes. I mean listen, it's growing really fast, and it's -- the uptake has been exceeding our expectations in terms of blood-based testing for early onset dementia and Alzheimer's. I think obviously, the catalyst for some of that has been the availability of therapies. When you, as either a patient or a provider know that there's an option to slow down the progression of the disease, if you're somebody that's either presenting with symptoms or you have high-risk factors, getting them on an early screening blood-based test, which is way less expensive than imaging and a PET scan, way less invasive than CSF. I think is a really -- has really appealing -- has a very strong appeal and a lot of promise. So we're seeing the uptake really rise fast. I mean AD-Detect portfolio includes different tests with different analytes.

We have 1 test that measures amyloid beta 42/40 and the higher the ratio, the lower the odds that you have or the lower the risk that you have early onset dementia. There's p-tau217, 181. And the reimbursement is attractive because the reimbursement is measured per analyte. So it's over $120 per analyte and you can get -- if you get a test that basically looks at 3 analytes, you can get a test that's being reimbursed at over $350. In terms of barriers, I mean, I'd say right now, it's not right now the guideline to say, based on a blood-based test, you're going to put a patient on therapy. Usually, a lot of providers, what they'll do is they'll default. If they get a positive test, they'll default to imaging and then put a patient on therapy. But if you're doing broad-based screening, it does save a lot of money and also, it's way easier to just do screening based on a blood-based test.

If the answer is negative, then you as a patient can rest assured that maybe that you don't have Alzheimer's or you don't have early onset. But if the test is positive, then you'll default to an imaging test. So I think we'd like to see the guidelines continue to evolve where you can reflex from a blood-based test directly to therapy, but we're not quite there yet.

And I guess, can you talk to the strategy of having AD-Detect and then the Fujirebio partnership that you signed? And how does that work having different 2 different tests?

Yes. I mean the AD-Detect, again, with different types of AD-Detect depending on the analytes is an LDT, and that's the test that's widely used. The other test that we stood up with as a partnership is an FDA-approved test. So in cases where you need an FDA-approved test, that's the option that we could provide. But really, the main test that we're focused on is the LDT test.

And long term, do you get a sense that imaging is still going to be a big part of the market? Or how do you think about that evolving?

I mean hard to tell. I think it's going to be a while before imaging is not the go-to when you have a positive test, I think that's still the guideline right now. And I think physicians still feel that, that's the -- probably the better option is to go to imaging. But over time, as I said earlier, we hope that given the high sensitivity, the reliability and the high predictive power of some of these blood-based tests, we hope that, that's going to be sufficient to go to therapy from that.

Maybe we could just shift to the base business then. Utilization you've seen accelerating organic growth. You've kind of said we're beyond the post-COVID catch-up testing dynamic. But maybe just talk about the structural shift you're seeing in underlying utilization.

Yes. I mean utilization has been stronger than expected over the last number of quarters. I think coming out of COVID early '23 or so. We thought that there is some catch-up demand, catch-up utilization. If I was in a room like this and I asked for a show of hands as to who had done a physical in the last 2 years, I would probably have gotten just maybe in the single digits or low single digits of hand saying they have. And a lot of people had not done because they had basically just during the course of COVID, maybe had not done their physicals or not kept current on their testing. I think we're past that now.

I think most people have gotten the catch-up care they need, having maybe left that behind during COVID. And I think what we're seeing is structural. We're seeing more structural demand and more structurally higher utilization. Now not -- we're not talking like 2 or 3 percentage points higher, but I do think we are seeing structurally higher utilization. Now what's driving that? Number 1 for us, and I don't want to gloss over this, but we are seeing a share shift that we are capturing in the market. We've done a lot of acquisitions in the physician outreach space buying up these physicians -- affiliated physician businesses that hospitals have and move them to Quest.

So as opposed to these hospitals that have affiliated physicians getting the patients from these physicians, doing their testing in their hospital labs, what we're seeing is with the acquisition of these businesses is now we're doing the testing for them. So that's caused the higher utilization and definitely as a positive share shift for us.

Other things, I mean, in addition to the usual stuff like a sicker, aging population. We're not getting any healthier, so that's driving utilization. I do think evolution of guidelines is favoring more testing, favoring more advanced diagnostics testing. So we are seeing more nonroutine advanced diagnostics testing. Listen, we talked about at length just now about AD-Detect and some of the blood-based screening. So this focus on early screening, whether it's cancer, whether it's Alzheimer's early screening is also driving more testing in general. Things that weren't available 2, 3 years ago. Therapies, availability of therapy is definitely driving more testing. So you put all those together, we are seeing a step up in utilization.

You talked about M&A being kind of part of the market share shift. Talk a little bit about that opportunity set going forward. Do you see this pace continuing? Or multiples changing? How do you think about M&A?

I do see it continuing. I mean we've called out in our long-term projections that we would expect to continue to drive 1% to 2% of top line growth from M&A. That equates to a deployment every year of about $0.5 billion of capital. Could we do more? Absolutely. If the conditions favor us doing more in the sense that there's attractive M&A that meets our criteria. Our criteria are simple. We look for EPS accretive M&A by year 1, and we look for a return on invested capital of 10% by year 3. If we find opportunities that meet those criteria, we'll do even more. But the baseline assumption is 1% to 2% revenue growth from M&A over the long term.

We are definitely seeing those opportunities and a healthy pipeline. Our main focus is these hospital outreach acquisitions. That's our #1 priority because they're easy to integrate. They generate a 35% to 40% contribution margin after a few months of integration, so they're very profitable. Our #2 priority is independent labs. We did a large independent lab acquisition last year, which was in Canada. We bought the biggest lab in Canada called LifeLabs. We'll do more of that in the U.S., not necessarily broad international expansion, but we'll continue to do those independent lab acquisitions whether it's in the U.S. or any other opportunities that we find that are appealing. And then any other acquisitions that are capability building, although those are fewer and further between. And again, they need to meet our criteria.

I think, Tycho, the 1 last thing I'd say about it is in terms of the availability of those targets. Hospitals are under a lot of pressure, as you know, I don't need to tell you this, but whether it's Medicaid challenges, whether it's reimbursement challenges, whether it's coming out of COVID and labor availability and specialized labor access, wage inflation, so they need our help. And more and more, they are deprioritizing the less strategic parts of their business, hence labs and focusing more on the more strategic parts like procedures, cardiovascular clinic or cath lab, other things that really make them more money. And so we are the beneficiary of that because they tend to look at us as either a lab insourcing provider or an acquirer of some of their outreach books of business.

And since you mentioned, how would you score the LifeLabs acquisitions growing mid-single digit. I think you just changed the reporting structure there, talk to that and then also the margin levers for that business going forward?

It's going really well. I mean just very briefly to kind of, again, remind you of why we did that acquisition, really large independent lab in Canada. It's the #1 player in the markets in the provinces that it plays in Ontario, British Columbia, Saskatchewan, which is a smaller market. Very stable payer, the provincial governments are the main payers. We usually see low single-digit price increases with -- when we renew those contracts with the payers and aging population of the G7 countries, I think, Canada is 1 of the faster-growing and also aging populations.

So really good appeal economically and really good scale for that lab in Canada. And so it's been doing really well. It's exceeding the expectations that we have in the deal model when we first acquired it. We said it's going to be at our margin levels at some point over the next few years. I think it's exceeding those expectations. And one last thing I'll say about it is another part which is really appealing about LifeLabs is the potential for growth initiatives that are not funded by the government, but really patient-funded or patient paid. So physician-initiated testing that the patient directly pays for other growth initiatives in Canada that the government needs because they need somebody else to start footing the bill, so to speak. The governments are, as all governments are, are strapped for cash. And we're seeing good progress on those growth initiatives as well. So I think there's a potential to also grow other smaller things into bigger opportunities down the road.

Okay. I made it this far without asking about PAMA, but I'm going to ask about PAMA. And you've now got the recently submitted RESULTS Act. So maybe just talk about your opinion on the likelihood of a cut next year, it's a perennial overhang, obviously, and then different paths for how CBO scoring might shake out?

Yes. So PAMA, just a reminder for everyone, it's kind of what's the law right now, which is this protecting access to Medicare Act, which was based on 2017 data that frankly, was flawed data, because it was only data representative of 1 part of the sample population, which was the independent labs. When that data was compiled the health systems never even submitted pricing data. Since then, it's been delayed 5 years in a row. So '21 all the way to this year, PAMA has been delayed every year. There's an expectation that it could be delayed again next. That's a possibility. If it doesn't, then PAMA is back in effect starting in 2026.

We have, to your point, submitted this with the help of ACLA, which is the industry body, proposed this RESULTS Act legislation. If this goes through, and we can talk a little bit about whether -- what are the odds of it going through. But if this goes through, it basically freezes the pricing that's in place today for the next 3 years. So there would be no other price changes until at least 2029. There would be another data collection process that gets done by a third party that's an independent third party. There's a company that's been proposed called FAIR Health. That would be a much more representative dataset that's collected that represents all of the pricing from the different providers, not just the independent labs.

And when that 2029 pricing change takes effect, it could either be a price increase for us or it could be a price decrease, depending on the data. But if it's a price decrease, the RESULTS Act caps the price reduction to no more than 5%. So we think it's a very positive potential legislation. Now you need both sides of the house. There is bipartisan support, by the way. Bipartisan -- I mean both sides of the house have said PAMA's is flawed, something needs to change. But it's the will and the actual execution are two different things. I mean I know we have challenges right now in Congress.

So can we get something passed? That's the big question. And it needs to be passed as part of a broader legislation. It's not going to happen just as one specific act. So that's where we are. I mean, the odds, hard to tell. Honestly, Tycho, I can't handicap it right now. I think there's a chance that it gets delayed 1 more year that meaning PAMA. There's a chance it comes back. There's a chance that the RESULTS Acts passes -- it's a bit of a tough one. It's not going to be easy to get the results active pass. CBO scoring, we don't have CBO scoring of the RESULTS Act yet. So I think that's the next step, which is the CBO has to score what is the benefit or cost of a PAMA delay? What's the benefit or cost of the RESULTS Act passing. So we're awaiting that.

Maybe just in the closing 1.5 minutes here. If you could just touch on pricing, revenue per requisition continues to move in the right direction. Just talk a little bit about how you're thinking about the pricing environment?

Yes. That's another part of our business that's really been a positive catalyst. I think, it's the revenue per requisition which is driven by 3 or 4 key things that drive it. Number 1 test per req. If you look back to pre-COVID, the number of tests per req were somewhere in the high 3s, 3.8, 3.9. Today, the number of test per req that we're seeing. So every requisition that a physician orders is now somewhere in the 4.2, 4.3. So almost half a test more, which goes back to your question about utilization, what are the things driving it? Well, part of it is the availability of more tests, et cetera, which is creating a more dense req.

Number 2 is payer mix. We're seeing more mix of Medicare business, Medicare Advantage business. Medicare is our highest reimbursement, it's our highest priced tests. So as we see more Medicare business driven by aging population, et cetera, it's helping our payer mix as well. Number 3 is test mix. We're seeing more advanced diagnostics, high-growth tests that are more high-value tests that are also helping in terms of revenue growth. And number 4 is pricing. Pricing pre-pandemic, setting aside PAMA, from the third-party payers, we were seeing usually a price erosion every year. And now our pricing has stabilized. We've been able to work on value-based incentives with the payers, which are helping us to stabilize our pricing. So I think we're definitely seeing a benefit in terms of more price stability with the third-party payers as well.

Maybe I know we're out of time. One last 1 before we wrap just Medicaid risk with Big Beautiful Bill. I know that's a little bit further out, but it's 8% of revenues. How do you think about that?

Yes. It's 8% of revenue. I mean, first of all, we don't think there'll be a material impact anywhere in the next 2 years, number one. I think these cuts will probably start to show up in '28 and beyond. I think what's been estimated is that 10% of Medicaid participants could eventually lose coverage, but that's over the next 10 years. So there's a glide path. The impact is not that material for us, frankly, Tycho. I mean we've estimated if the exchange subsidies don't renew. And if Medicaid cuts take place as we see them today and the One Big Beautiful Bill that by 2028, it could be an impact of about 50 to 60 basis points on our revenue, so in 3 years. Frankly, it's a manageable impact.

Listen, the last time there was Medicaid cuts which was in the redetermination coming out of COVID, 25 million people lost Medicaid coverage, but actually, we didn't see an impact on utilization. So there are some people that actually can opt for employer coverage, et cetera. There are other means for getting coverage. So not too concerned about it. We minimize it. It's a big issue, but not too concerned about it for Quest specifically.

Great. We got to wrap. Thanks, Sam. Thank you, Shawn.

All right.