Quest Diagnostics - Q4 2025

Transcript

Shawn Bevec (VP of Investor Relations)

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's Jim Davis.

James E. Davis (Chairman, CEO and President)

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, formed strategic collaborations with elite healthcare organizations, and further advanced our position as the premier lab engine powering the wellness industry. We also continued 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 one-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 one-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+ 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 three 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 Results 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 the Results Act 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 five key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology, and women's and 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 eight 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 tests 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 tests like our newest AD-Detect panel, which fulfills guideline criteria for confirmatory blood testing, could decrease costs to the healthcare 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 the 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 Diagnostics System at two 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. Now, Sam will provide more details on our performance and our 2026 guidance. Sam?

Sam Samad (CFO)

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 deliver 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 startup 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 one-time 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-$11.82 billion, which represents a growth rate of 6%-7.1%. Reported EPS is expected to be in a range of $9.45-$9.65, and adjusted EPS in a range of $10.50-$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%-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 multi-year 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.

James E. Davis (Chairman, CEO and President)

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 one-time benefits in the prior year and one more payroll cycle in 2026 than 2025. The one-time 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, formed 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 healthcare 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 (participant)

Thank you. We will now open up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you fall back in the queue. To be placed in the queue, please press star 1 from your phone. To withdraw, press star 2. Again, to ask a question, please press star 1. Our first question comes from Luke Sergott with Barclays. Your line is open. You may ask your question.

Luke Sergott (Vice President and Equity Research Analyst)

Great. Thanks for the questions, guys. I guess as you're looking for 2026, can you just give a sense of what the underlying growth drivers are as you think about or the assumptions on the growth drivers? As you think about the consumer piece, new tests as you think, MRD coming on, potential reimbursement there, chronic disease management, etc., just kind of break it out as to what you guys are thinking from the as we kind of bridge that build.

James E. Davis (Chairman, CEO and President)

Yeah. Hey, good morning, 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 Aβ42/40, 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 new 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 WHOOP, with Oura, with Function Health, with several other types of wellness companies, all of that helping. The last thing I'd mention is we got back into network with Elevance in several key states last year: Nevada, Colorado, Colorado, Georgia, and Virginia. 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.

Luke Sergott (Vice President and Equity Research Analyst)

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

James E. Davis (Chairman, CEO and President)

Yeah. 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, we're very strong, very strong growth. And so we're convinced that the majority of 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 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.

Sam Samad (CFO)

Yeah. So, Luke, 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 2025, I think the seasonality is very similar in terms of how you should think about the pacing.

Luke Sergott (Vice President and Equity Research Analyst)

Great. Operator, next question.

Operator (participant)

Thank you. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. You may ask your question. Erin, your line is open. Please check your mute feature. Erin, your line is open.

James E. Davis (Chairman, CEO and President)

Operator, let's go to the next question. Yep.

Operator (participant)

Thank you. Our next question then comes from Patrick Donnelly with Citi. Your line is open. You may ask your question.

Patrick Donnelly (Managing Director)

Hey, guys. Thank you for taking the questions. Sam, probably one for you. I just want to talk through the moving pieces on the margins. It seems like a lot has been going on in 2026 between Corwell, Project Nova, Haystack, an extra week of the payroll, which you mentioned. It does sound like they'll be slightly up year-over-year. So can you 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 two Qs are the highest, but it will be helpful just to talk through the cadence and then the moving pieces on the margins. If you're able to quantify, that'd be even better. Thank you, guys.

Sam Samad (CFO)

Yeah. Thanks, Patrick. So let me go through all the moving parts here, or at least the moving parts that we have in 2026. First of all, let me just say operating margin is expected to increase in 2026 versus 2025. So that's the starting point here in terms of how you think about 2026. It is impacted somewhat negatively by the ramp of Corwell and Fresenius businesses, mostly Corwell, actually, in terms of the roughly $250 million of Corwell revenue increasing in 2026, which comes at a lower margin. It's a co-lab business. It's low single-digit margin in 2026, improving to normal co-lab margins later in 2027 and beyond. But in 2026, it's impacting operating margin rate. It is 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. 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 ±30 basis points that we've talked about. In terms of Haystack, Haystack is less dilutive in 2026, so it's actually helping. That's consistent with what we've shared in terms of 2026.

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 2026 that's impacting our margins. So that's going to happen across 2026. It started to ramp more significantly in Q4 of 2025, and it's going to continue in 2026 as we stated prior, and we've quantified it now for 2026. 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.

Luke Sergott (Vice President and Equity Research Analyst)

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?

James E. Davis (Chairman, CEO and President)

Yeah. 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 margin rate standpoint as we continue to grow that business north of 20% relative to the portfolio growing 6%-7%. The other thing I would mention is LifeLabs in Canada. The margin rate continues to improve. We said by year three, it would be at the company average, and it is definitely heading in that direction, very close to that. And as that margin rate of that business continues to improve, it will help our margin rate as well.

Patrick Donnelly (Managing Director)

Great. Operator, next question.

Operator (participant)

Thank you. Our next question comes from Michael Cherny with Leerink Partners. Your line is open. You may ask your question.

Michael Cherny (Senior Managing Director and Senior Research Analyst)

Good morning, and thanks for taking the question. Maybe if we can talk about the competitive environment as you see it. You talked, obviously, about above expectations organic growth. Some of these are contract-oriented. As you think about the current health of the market, think about where you sit across the hospital labs and an environment where you continue to have different types of partnerships. Where do you see your biggest competitive strengths are as you kick off in 2026 and 2027, and how much of the expectations for organic growth are, for lack of a better term, share gains?

James E. Davis (Chairman, CEO and President)

Yeah. Hey, Mike. Look, I think there's absolutely share gains in the organic growth that we saw in 2025, and I think it'll 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 Sentara, but Sentara 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. Quest and our nearest competitor are probably less than 25% of the market, 30%, 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.

Michael Cherny (Senior Managing Director and Senior Research Analyst)

Great.

James E. Davis (Chairman, CEO and President)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Kevin Caliendo with UBS. Your line is open. You may ask your question.

Kevin Caliendo (Managing Director)

Hi. Thanks for taking my question. What are you guys seeing in terms of the mix 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 volumes have been in 4Q?

Sam Samad (CFO)

Yeah. 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, 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 enrollments 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 enrollments.

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, Corwell, but more so Fresenius, is it's very routine business, very high-volume business that's done on a very regular basis. It's a lower ref per rec 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.

James E. Davis (Chairman, CEO and President)

Yeah. Kevin, the other thing I'd point out is in addition to the 4.1% organic growth when you strip out Fresenius and Corwell, we also had 3% organic ref per rec lift. And again, that's coming from price being stable, number one. Number two, the continued test per rec 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.

Shawn Bevec (VP of Investor Relations)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Jack Meehan with Nephron Research. Your line is open. You may ask your question.

Jack Meehan (Research Analyst)

Thank you. Good morning, guys. Jim, 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, 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?

James E. Davis (Chairman, CEO and President)

Yeah. So first check, 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 moved 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 lack of a better word, acted on this year.

There was a hearing on January 8th with the Energy and Commerce Committee, the Health Subcommittee. Our ACLA president testified at that meeting. There's over 65 co-sponsors 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 recs. And we think that's going to be a much better indicator of what the market price will be.

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. We're optimistic, but we're going to keep pushing it hard in the first six months of this year and hopefully get it done before the fall.

Jack Meehan (Research Analyst)

Great.

Shawn Bevec (VP of Investor Relations)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. You may ask your question.

Erin Wright (Senior Equity Research Analyst)

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, HIMSS, Oura, Function Health. Can you speak to some of the sustainability of growth across this 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? Thanks.

James E. Davis (Chairman, CEO and President)

Yeah. 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 something 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 onto it. And we're seeing nice lift from it; 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, these same tests are covered if the patient is sick. So again, people are worried about prevention, not waiting till 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 on a $100 million it's 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 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.

Sam Samad (CFO)

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 2025. 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, etc., 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. It's all cash pay. We don't have patient concessions. We don't have denials.

That business is an attractive margin profile. You asked about guidance for 2026. I mean, 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 doing yesterday. 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.

Erin Wright (Senior Equity Research Analyst)

Great.

Shawn Bevec (VP of Investor Relations)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Michael Ryskin with Bank of America. Your line is open. You may ask your question.

Michael Ryskin (Managing Director)

Hey. Thanks for the question, guys. I want to go back to Corwell and Fresenius' contribution in 2026, just given that it's organic and not sort of traditional M&A basket. But I also want to focus on margin opportunity and the ramp there over time. I know you talked about sort of dilutive 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 timeframe for both of those businesses just going beyond this year? Thanks.

James E. Davis (Chairman, CEO and President)

Yeah. 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. Fresenius, 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.

Michael Ryskin (Managing Director)

Great.

Okay. Good. And is that the.

Next question.

James E. Davis (Chairman, CEO and President)

Go ahead.

Go ahead, Michael. Go ahead.

Michael Ryskin (Managing Director)

Sorry, just real quick. 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 margins this year?

James E. Davis (Chairman, CEO and President)

I think the Corwell one is the biggest swing factor because of the fact that it's a $250 million incremental business at low single-digit margins. So that is definitely a swing factor. Fresenius, 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 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 25 cents of Nova expenses in 2026.

But we still have healthy operating margin rate expansion impacted to some extent by the Corewell growth. But Corewell will ramp over time to improve the overall lab margin rates.

Shawn Bevec (VP of Investor Relations)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Tycho Peterson with Jefferies. Your line is open. You may ask your question.

Tycho Peterson (Managing Director)

Hey. Thanks. A couple on oncology. So Haystack, you've got the MolDX reimbursement decision effective January 1st. 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 MolDX. And then on the Flow cytometry-based MRD tests, 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 partnerships with Guardant and GRAIL? Thanks.

James E. Davis (Chairman, CEO and President)

Yeah. 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, 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 we appeal them all. We have doctors write letters around medical necessity, and we continue to make progress on that. Look, the Flow MRD is an ultra-sensitive flow test that has incredibly good sensitivity specificity. And we think it is very, very competitive with next-gen sequencing-based tests.

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 three days. It's also a significantly lower-cost test. So from a reimbursement standpoint, it'll offer payers a choice. It'll offer physicians and patients a choice to have a test that is highly comparable with a next-gen sequencing test. And again, a turnaround time that is very, very short, three 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.

Sam Samad (CFO)

Yeah. From a guidance perspective, Tycho, the partnerships with Grail and Guardant are reflected in our guide. They're modest contribution in terms of as a percentage of the total. The risk stratification test is, again, very modest. It doesn't launch until later in the year. But we are excited about that launch.

Tycho Peterson (Managing Director)

Great.

Sam Samad (CFO)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Andrew Brackmann with William Blair. Your line is open. You may ask your question.

Andrew Brackmann (Research Analyst)

Yeah. Hi, guys. Good morning. Thanks for taking the question here. So Jim, maybe a big picture question for you sort of related to the opportunity for Quest in 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 this longer term or maybe even partnering with some of these 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? Thanks.

James E. Davis (Chairman, CEO and President)

Yeah. 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 we certain results that we have to provide public health agencies, including the CDC. But very often, these public health agencies come to us and want to understand viral conditions, STD outbreaks, and things like that, and we highlight to them. 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 and other population health insights to all the constituencies that I mentioned above.

Andrew Brackmann (Research Analyst)

Great.

Shawn Bevec (VP of Investor Relations)

Operator, next question.

Operator (participant)

Thank you. And this question comes from Elizabeth Anderson with Evercore ISI. Your line is open. You may ask your question.

Elizabeth Anderson (Senior Managing Director)

Hey, guys. Good morning. Thanks for the question. I just had two quick modeling questions. One, and I apologize if I missed it, but can you just highlight the Elevance and Sentara reinclusion in their networks and sort of the impacts that you think that that will put through in 2026 volumes? And then in response to Luke's question, I understand that core volumes are continuing 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. Thank you.

James E. Davis (Chairman, CEO and President)

Yeah. So again, on Elevance Health, 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 three-year ramp from our current share position with other health plans to get to that same level with Elevance Health in those states. So we're now in year two. So we expect continued share gains with that. Sentara, 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.

We're excited about that as well.

Sam Samad (CFO)

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 of the year, 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. But we had some pretty bad storms across the country in the second half of January. We do expect some recovery in the next two months or the next month and a half remaining in the quarter. And we've seen the underlying utilization has been very strong. So we're encouraged by that. Operator, next question.

Operator (participant)

Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. You may ask your question.

Benjamin Shaver (Equity Research Associate)

Hey, guys. You've got Benjamin Shaver on for Pito Chickering. Thanks for taking the question. Just a quick one on 2026 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 per rec versus unit pricing play out? Thanks.

Sam Samad (CFO)

Yeah. So we're not going to provide the 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 rec as a total in 2026. If you look at it more from an organic or sorry, not organic, but just excluding those two businesses, Corwell and Fresenius, I think the rev per rec would be consistent with what we've been seeing. But those two businesses, Corwell and Fresenius, will impact and mostly Fresenius, will impact rev per rec 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 rec improve. We saw that across all of 2025. 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. 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 test per rec and what we expect to see in 2026.

Benjamin Shaver (Equity Research Associate)

Great.

James E. Davis (Chairman, CEO and President)

Operator, next question.

Operator (participant)

Thank you. Our next question comes from Eugene Park with Baird. Your line is open. You may ask your question.

Eugene Park (Equity Research Analyst)

Hi. Can you hear me?

Sam Samad (CFO)

Yes. Go ahead.

Eugene Park (Equity Research Analyst)

Hi. Thanks for taking my question. Can you quantify the impact from setting up Fresenius and Corwell and maybe break out the Project Nova in 4 Q? And if you can elaborate more on how much setup, if there is any left to do, and if you can provide more color on 1Q 2026 on potential impacts.

Sam Samad (CFO)

Yeah. So I think I heard most of your question. If I didn't catch all of it, please correct me. But in terms of Q4, 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 a Corewell 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 Epic, we had some expenses that got pushed out in Q4.

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, sorry, when I say next year, I mean 2026. So when you think about 2026, 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.

James E. Davis (Chairman, CEO and President)

Okay. Operator, thank you. 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.

Operator (participant)

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 10th, 2026, until midnight Eastern Time, February 24th, 2026. Goodbye.