Quest Diagnostics (DGX) investor relations material

Utilization and growth drivers

• Utilization remains elevated post-COVID, driven by increased access, rising chronic illness, and consumer demand for wellness and screening tests.

• Consumer channel, including questhealth.com and partnerships with Function Health, WHOOP, and Oura, is growing at 35% year-over-year and nearing $100 million in revenue.

• Advanced diagnostics in cardiometabolic, autoimmune, women's health, brain health, and oncology are growing in low double digits and contribute nearly $1 billion.

• Average tests per requisition have structurally increased from pre-COVID levels, boosting margins.

• Sequential revenue growth is supported by strong utilization and organic growth, with 2023 organic revenue growth at 4.8%.

Margin trends and Project Nova

• Operating margin rate is expanding, with guidance for 75–150 basis points growth from 2025–2027.

• Q3 margin was 16.3%, impacted by employee healthcare costs; Q4 expected to see typical seasonal margin dip and Nova-related costs.

• Project Nova involves $250–$310 million in one-time costs over 6–7 years, with 40% operating and 60% capital expenses.

• Nova implementation is staged, starting with esoteric labs, and expected to deliver productivity and cost benefits from 2027.

Policy and regulatory environment

• PAMA delay is seen as likely, with more than 50% probability for another year; permanent reform via the Results Act is less certain but gaining support.

• If PAMA cuts occur, less than half of the $100 million impact can be offset through operational efficiencies and discretionary investment pacing.

• Potential expiration of ACA subsidies could impact volumes by 30 basis points in 2024 and up to 50–60 basis points by 2028, mostly from healthcare exchanges.

• Margin expansion is still expected, but would be at the low end of guidance if PAMA cuts are implemented.