Quest Diagnostics (NYSE:DGX) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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The full earnings call is available at https://events.q4inc.com/attendee/380412929

Summary

Quest Diagnostics reported a 10.2% year-over-year increase in consolidated revenues for Q2 2026, reaching $3.04 billion, with strong growth in physician, hospital, and consumer channels.

The company raised its full-year 2026 guidance, expecting revenues between $11.95 billion and $12.05 billion and adjusted EPS between $11.05 and $11.25, reflecting robust demand and strategic execution.

Quest Diagnostics continues to invest in automation and AI to enhance productivity and quality, contributing to operational excellence and a 3% annual cost savings target.

Collaborations with Corewell Health and Fresenius Medical Care significantly boosted volumes, contributing 9% to Q2 volume growth, while organic volumes increased by 4.1%.

The company is expanding its consumer health and advanced diagnostics offerings, with notable growth in brain health, cardiometabolic tests, and oncology, especially after gaining New York State approval for Haystack MRD.

Management emphasized a strong pipeline of potential collaborations and acquisitions in hospital outreach and highlighted the strategic importance of the RESULTS Act in the context of PAMA reimbursement discussions.

Full Transcript

OPERATOR

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 Hamerly, Vice President of Finance for Quest Diagnostics. Please go ahead, sir.

Dan Hamerly, Vice President of Finance

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 Dominique 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's Jim Davis.

Jim Davis, Chief Executive Officer and President

Thanks, Dan, and good morning, everyone. Before we get started, I want to welcome Dominique, who brings to Quest a strong record of investor relations and financial management experience from her nearly two 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 Dominique 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 continue 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 CoLab 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 CoLab 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 and flexible technology integrations and scale. Our customer channels are also growing as we continue to deliver advanced diagnostics in five 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, 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 Diagnostic system in two 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 Samad, Executive Vice President and Chief Financial Officer

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 two 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 CoLab business. Operating income was also adversely impacted by higher supplemental deferred compensation expenses. The total of all three 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 one-time 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 one-time 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.

Jim Davis, Chief Executive Officer and President

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, and to innovative testing and actionable insights that illuminate a path 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

Thank you. We will now open it up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you please fall back in the queue. To be placed in the queue, please press star one from your phone. To withdraw, press star two. Again, to ask, please press star one. Our first question will come from Erin Wright of Morgan Stanley. Your line is open.

Erin Wright, Analyst at Morgan Stanley

Great, thanks. 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, you know, bad debt exposure, that kind of stuff when we think about your collaborative relationships on that front.

But anything to call out on the hospital side from a utilization standpoint would be great. Thanks.

Jim Davis, Chief Executive Officer and President

Sure. Thanks, Erin. And good morning. So when we look at our hospital business, as you know we look at it in two pieces. One is our pure reference business and the second is our CoLab 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 CoLab 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 CoLab or reference. You mentioned bad debt. That is not a concern with hospitals or any of our client bills. 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, a supply chain relationship, and the opportunities as we look into our funnel and look out for the rest of the year look good. Great. Operator, next question.

OPERATOR

The next question will come from Lisa Gill with JPMorgan. Your line is open.

Lisa Gill, Analyst at JPMorgan

Thanks very much and thanks for taking the question. 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.

Jim Davis, Chief Executive Officer and President

Yeah, 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 read—but that's not translating into our business. So what we do see is the following. We see req volume growth that's down around 8%. However, the tests per req are up 6%. So we see fewer reqs, but we're getting more tests 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.

Sam Samad, Executive Vice President and Chief Financial Officer

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.

Jim Davis, Chief Executive Officer and President

Great. Operator, next question.

OPERATOR

The next question will come from Michael Cherney of Leerink Partners. Your line is open.

Michael Cherney, Analyst at Leerink Partners

Good morning and thanks for taking the question. 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?

Thank you.

Sam Samad, Executive Vice President and Chief Financial Officer

Yeah, 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, three 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 SDCP—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, you know, 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 two key things.

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

Jim Davis, Chief Executive Officer and President

Great. Operator, next question.

OPERATOR

The next question will come from Michael Riskin of Bank of America. Please go ahead, sir.

Luan, Analyst at Bank of America

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

Thank you.

Sam Samad, Executive Vice President and Chief Financial Officer

Yeah, 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 slightly negative impact from the hospital reference business, which is largely playing out as expected.

No change there. It's a, you know, it's a competitive sector and the pricing is slightly negative there. So. 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, 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.

Jim Davis, Chief Executive Officer and President

Great, thank you, operator. Next question.

OPERATOR

The next question will come from Ann Hines of Mizuho Securities. Please go ahead with your question.

Ann Hines, Analyst at Mizuho Securities

Great, thank you. So I think in your remarks and one of your answers, you said you have not seen any change in bad debt. Obviously one of the big hospital companies pre-announced and most of that was just an increase in bad debt. So can you make us comfortable, maybe talk about like what your bad debt is as a percentage of revenue, what you have 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.

Thank you.

Sam Samad, Executive Vice President and Chief Financial Officer

Yeah, thank you, Ann. So this is Sam. You know, I would say, to re-emphasize 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. You know, we track obviously hospital collections very closely.

We make sure that, you know, 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 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, you know, copay, for, you know, 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, you know, 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.

Jim Davis, Chief Executive Officer and President

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. Operator, next question.

OPERATOR

Thank you. The next question will come from Luke Surgot of Barclays. Your line is open.

Anna Krasinski, Analyst at Barclays

Hi guys, this is Anna Krasinski on for Luke. Thank you for taking our questions and congrats on the quarter. I was wondering if you could help us understand why DSOs are up again both year over year and sequentially in the quarter. Thanks again.

Sam Samad, Executive Vice President and Chief Financial Officer

Yeah, so there's a couple of reasons for that. One is minor, which is technical around, you know, 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 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.

Jim Davis, Chief Executive Officer and President

Operator, next question.

OPERATOR

The next question will come from Tycho Peterson of Jefferies. Your line is open.

Noah, Analyst at Jefferies

Hey team, this is Noah on for Tycho. Wanted to ask about PAMA as we get closer to the next phase of implementation here. How are you thinking about the potential reimbursement outcomes and what actions can you take to offset potential future reimbursement risk? Thanks.

Jim Davis, Chief Executive Officer and President

Yeah, so thanks for the question. So look, at this point, there's three 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 30th. We expect to hear something, 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 1st. The second outcome is we get the RESULTS Act approved. The bill, the RESULTS Act, it was introduced last September, September of 25. It has incredibly strong bipartisan support. Over 115 co-sponsors have signed on. In addition, there's 60ish 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 fairer way of collecting the data and corrects 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, we will again push for another delay. As you know, there's been six 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 three cuts that were executed in '18, '19, and '20 actually saved the government $4 billion over a three-year period. So there's acknowledgement 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. Operator, next question.

OPERATOR

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

Elizabeth Anderson, Analyst at Evercore ISI

Hi guys, good morning. 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 on 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? Thanks.

Jim Davis, Chief Executive Officer and President

Yeah. 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, you know, 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 for 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 it is a good way to get a foothold into that local market. We'll reach out to these hospitals and see if we can't work with them more closely. Operator, next question.

OPERATOR

The next question will come from Aliendo of UBS. Your line is open.

Aliendo, Analyst at UBS

Good morning, guys. Congrats. I wanted to talk about the rev rec number. It was really strong. 2.9% is up from even what you did in 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 rec number into the second half and even beyond?

Thank you.

Sam Samad, Executive Vice President and Chief Financial Officer

Yeah, yeah. Good morning, 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 yeah, 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 mentioned before the stat where prior to COVID we were sitting at somewhere between three and a half and four tests per req and today we're somewhere almost north of four and a half. 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 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 the 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 two key main ones.

Jim Davis, Chief Executive Officer and President

Yeah, just to add a little color there on the advanced diagnostics, it's our brain health portfolio continues to grow at high double-digit rates. And it's both the pTau markers as well as the amyloid plaque markers, the Aβ42/40. Our cardiometabolic, advanced cardiometabolic book of business continues to grow at significant rates. 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 we’re seeing 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.

Great. Operator, next question.

OPERATOR

The next question will come from Peto Chickering of Deutsche Bank. Your line is open.

Peto Chickering, Analyst at Deutsche Bank

Hey, good morning, guys, and thanks for taking my question. Could you talk a little bit more about Haystack, like how we think the volumes can increase post the New York State approval. And also talk about the deal with Flatiron, how we should think about that partnership. Thanks.

Jim Davis, Chief Executive Officer and President

Yes, thanks, Peto. 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 are some tumor-naïve 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.

So we're now integrated into Epicora. 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've submitted to MolDX for Medicare Advantage reimbursement, and hopefully that comes in the back half of this year. Great. Operator, next question.

OPERATOR

The next question will come from Patrick Donnelly of Citi. Your line is open.

Patrick Donnelly, Analyst at Citi

Hey, thanks for your questions, guys. Good morning. Maybe a follow-up on all 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? Thank you.

Jim Davis, Chief Executive Officer and President

Yeah, thanks. So again the utilization remains strong. 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 physician business also is getting growth in the high single digits, both volume and revenue. And then finally our consumer business—you know, 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 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 multiple things. One is the chronic conditions that continue to exist in this country, as well as this consumer taking on 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 three weeks here into July, and the volumes thus far, three weeks into the quarter, are consistent with what we saw in the second quarter.

Sam Samad, Executive Vice President and Chief Financial Officer

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 two or three key things I think 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 points 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 four key states back in Q1 of 2025, 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 wild card. 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 outlooks and when we build some what we call weather risks 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.

Jim Davis, Chief Executive Officer and President

Great. Operator, next question.

OPERATOR

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

Karan, Analyst at Piper Sandler

Hey team, congrats on the quarter. This is Karan on for David. Maybe a couple on oncology. First, the 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? Thank you.

Jim Davis, Chief Executive Officer and President

Yeah. So on the first part of your question, Shield from Guardant—we don't comment on volumes of that test, as you know. We offer it on our menu and we offer to do draws at a price. Obviously Guardant pays us for that. But they'll talk the volumes, I'm sure, on their call. On Haystack, from a clinical evidence standpoint, look, we're solid. From a colorectal cancer standpoint, we had some great studies that have been published along the way and feel good about that.

We have ongoing studies across breast and lungs that will also pay proof. 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 that 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, leading test.

Great. Operator, next question.

OPERATOR

The next question will come from Jay Lewis with Baird. Your line is open.

Jay Lewis, Analyst at Baird

Hi, thanks for the question. 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.

Thank you.

Jim Davis, Chief Executive Officer and President

Okay, so on Elevance, yes, they are now reimbursing for the pTau217 biomarker. It's a biomarker we offer. We actually 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 Aβ42/40. At the recent International Alzheimer's conference, there is a widespread perspective of the importance of both biomarkers—from both the pTau biomarker as well as the Aβ, the amyloid biomarker we call Aβ42/40.

And by the way, that's the panel—that combined panel along with an algorithmic interpretation of 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.

We're not gonna 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. Great. Operator, next question.

OPERATOR

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

Jack Meehan, Analyst at Operon Research

Thank you. Good morning, guys. Wanted to get your latest thoughts on the policy outlook with PAMA and outlook for the Results Act and how you were thinking about how things play out Through the rest of the year. Thank you.

Jim Davis, Chief Executive Officer and President

Great and good to hear from you, Jack. We're glad you're still on the calls with us here. So there was an earlier question, maybe didn't quite catch it, but I'll just repeat it quickly. So again, three possible outcomes from impairment perspective. First is the current data collection process, which I think everyone knows about. It ends on July 31st. We have submitted, by the way, we would expect CMS to report out on that in the September, late September, early October timeframe.

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 that 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 co-sponsors 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, there'd 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 have been six delays. Why? Because Congress has acknowledged that the PAMA cuts were not sustainable and the process did not 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. Okay, great operator, thank you.

OPERATOR

That was our last question.

Jim Davis, Chief Executive Officer and President

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.

OPERATOR

Thank you for participating in the Quest Diagnostics second quarter 20 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.

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