Quest Diagnostics Incorporated
10/21/2025 | Press release | Distributed by Public on 10/21/2025 04:31
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Our Company
Diagnostic Information Services
Quest Diagnostics works across the healthcare ecosystem to create a healthier world, one life at a time. Our diagnostic information services ("DIS") business provides diagnostic insights from the results of our laboratory testing to empower people, physicians, and organizations to take action to improve health outcomes. Derived from one of the world's largest databases of de-identifiable clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. In the right hands and with the right context, our diagnostic insights can inspire actions that transform lives and create a healthier world. We provide services to a broad range of customers within our primary customer channels - physicians (including those associated with accountable care organizations and Federally Qualified Health Centers), hospitals, and patients and consumers. Our other customers include health plans, employers, emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories. We offer broad access to clinical testing through a nationwide network of laboratories, patient service centers, phlebotomists in physician offices, and our connectivity resources, including call centers and mobile phlebotomists, nurses and other health and wellness professionals. Our large in-house staff of medical and scientific experts, including medical directors, scientific directors, genetic counselors and board-certified geneticists, provide medical and scientific consultation to healthcare providers and patients regarding our tests and test results, and help them best utilize our services to improve outcomes and enhance satisfaction. Our DIS business makes up greater than 97% of our consolidated net revenues.
We assess our revenue performance for our DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition. Each test requisition accompanies patient specimens, indicating the test(s) to be performed and the party to be billed for the test(s). Revenue per requisition is impacted by various factors, including, among other items, the impact of fee schedule changes (i.e., unit price), test mix, payer mix, business mix and the number of tests per requisition. Management uses number of requisitions and revenue per requisition data to assist with assessing the growth and performance of the business, including understanding trends affecting number of requisitions, pricing and test mix. Therefore, we believe that information related to changes in these metrics from period to period are useful information for investors as it allows them to assess the performance of the business.
Diagnostic Solutions
Our diagnostic solutions ("DS") group, which represents the balance of our consolidated net revenues, includes our risk assessment services business, which offers solutions for insurers, and our healthcare information technology businesses, which offer solutions for healthcare providers and payers.
Third Quarter Highlights
| Three Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (dollars in millions, except per share data) | |||||||||||
| Net revenues | $2,816 | $2,488 | |||||||||
| DIS revenues | $2,755 | $2,427 | |||||||||
| Revenue per requisition change | 0.8% | 3.3% | |||||||||
| Requisition volume change | 12.5% | 5.5% | |||||||||
| Organic requisition volume change | 3.9% | 0.5% | |||||||||
| DS revenues | $61 | $61 | |||||||||
| Operating income | $386 | $330 | |||||||||
| Net income attributable to Quest Diagnostics | $245 | $226 | |||||||||
| Diluted earnings per share | $2.16 | $1.99 | |||||||||
| Net cash provided by operating activities | $563 | $356 | |||||||||
| Capital expenditures | $144 | $106 | |||||||||
For further discussion of the year-over-year changes for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, see "Results of Operations" below.
Acquisition of select clinical testing assets of Spectra Laboratories
On August 4, 2025, we acquired select clinical testing assets of Fresenius Medical Care's wholly-owned Spectra Laboratories in an all-cash transaction for $34 million. The acquired business is included in our DIS business. See Note 5 to the interim unaudited consolidated financial statements for further discussion.
Invigorate Program
We are engaged in a multi-year program called Invigorate, which includes structured plans to drive savings and improve productivity across the value chain, including in such areas as patient services, logistics and laboratory operations, revenue services, information technology and procurement. The Invigorate program aims to deliver 3% annual cost savings and productivity improvements to partially offset pressures from the current inflationary environment, including labor and benefit cost increases and reimbursement pressures. We are leveraging automation and artificial intelligence to improve productivity and also improve quality across our entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent.
For the nine months ended September 30, 2025, we incurred $37 million of pre-tax charges in connection with restructuring and integration activities, including $18 million of employee separation costs, with the remainder including integration costs. Most of the charges will result in cash expenditures. Additional restructuring and integration charges may be incurred in future periods, including as we identify additional opportunities to achieve further savings and productivity improvements.
Outlook and Trends
In July 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted. The OBBBA and other possible legislation is expected to impact healthcare providers in the United States, including us, primarily through changes to Medicaid and the Affordable Care Act ("ACA"). These changes could lead to reduced funding, increased regulatory burdens and potential shifts in patient populations among payer types and utilization. Additional federal and state guidance is expected to be issued in order to implement the various provisions of the OBBBA, many of which have effective dates in 2027 and 2028. In addition, if Congress does not act to extend the enhanced Premium Tax Credits ("PTC") that were part of the Inflation Reduction Act of 2022, which have helped drive an increase in Individual Public Exchange enrollment, they will expire at the end of 2025 and could also have an impact on patient populations and result in shifts among payer types and utilization.
Revenues generated under Medicaid and managed Medicaid programs, and through the ACA related Exchange Plans, represented approximately 8% and less than 5%, respectively, of consolidated revenues for 2024. Based on the provisions of the new legislation (including various effective dates), we currently believe that the OBBBA, and expiration of the enhanced PTCs, are not likely to have a material impact on our consolidated revenues for 2025 and 2026. In addition, we currently estimate that for 2026 through 2028 the OBBBA and the planned expiration of the enhanced PTCs at the end of 2025 could reduce our consolidated revenues by up to 50-60 basis points by 2028, compared to 2025, primarily reflecting the impact on our ACA related Exchange Plans revenues.
While the impacts outlined above represent our current estimates, we continue to assess the impact of the OBBBA and the planned expiration of the enhanced PTCs on our outlook for the remainder of 2025 through 2028.
The OBBBA also makes permanent key elements of the Tax Cuts and Jobs Act of 2017, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation, among other tax changes. Many of the tax provisions of the OBBBA are designed to accelerate tax deductions, which could lead to lower cash tax payments. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others in the future. While we continue to assess the impact of the tax provisions of the OBBBA on our consolidated financial statements, we currently believe that the tax provisions of the legislation are not expected to have a material impact on our statement of operations. Our consolidated deferred income tax liabilities as of September 30, 2025 and December 31, 2024 were $378 million and $278 million, respectively. The increase was principally due to the domestic research cost expensing and bonus depreciation elements of the OBBBA.
For additional discussion regarding regulatory trends and uncertainties, and the risk factors that could cause actual results to differ materially from those described above, see Part I, Item 1, "Business - The Clinical Testing Industry," and "Business - Regulation", Part I, Item 1A, "Risk Factors" and the "Outlook and Trends" section of Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2024 Annual Report on Form 10-K.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies from those disclosed in our 2024 Annual Report on Form 10-K.
Impact of New Accounting Standards
The adoption of new accounting standards, if any, is discussed in Note 2 to the interim unaudited consolidated financial statements.
The impact of recent accounting pronouncements not yet effective on our consolidated financial statements, if any, is also discussed in Note 2 to the interim unaudited consolidated financial statements.
Results of Operations
The following tables set forth certain results of operations data for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| DIS business | $ | 2,755 | $ | 2,427 | $ | 328 | 13.5 | % | $ | 8,043 | $ | 7,058 | $ | 985 | 14.0 | % | |||||||||||||||||||||||||||||||
| DS businesses | 61 | 61 | - | (1.0) | 186 | 193 | (7) | (4.0) | |||||||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 2,816 | $ | 2,488 | $ | 328 | 13.1 | % | $ | 8,229 | $ | 7,251 | $ | 978 | 13.5 | % | |||||||||||||||||||||||||||||||
| Operating costs and expenses and other operating income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of services | $ | 1,867 | $ | 1,677 | $ | 190 | 11.3 | % | $ | 5,474 | $ | 4,865 | $ | 609 | 12.5 | % | |||||||||||||||||||||||||||||||
| Selling, general and administrative | 501 | 448 | 53 | 12.0 | 1,463 | 1,304 | 159 | 12.2 | |||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 39 | 32 | 7 | 21.2 | 117 | 90 | 27 | 29.0 | |||||||||||||||||||||||||||||||||||||||
| Other operating expense, net | 23 | 1 | 22 | NM | 5 | 7 | (2) | NM | |||||||||||||||||||||||||||||||||||||||
| Total operating costs and expenses, net | $ | 2,430 | $ | 2,158 | $ | 272 | 12.6 | % | $ | 7,059 | $ | 6,266 | $ | 793 | 12.6 | % | |||||||||||||||||||||||||||||||
| Operating income | $ | 386 | $ | 330 | $ | 56 | 16.8 | % | $ | 1,170 | $ | 985 | $ | 185 | 18.7 | % | |||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (66) | $ | (49) | $ | (17) | 37.2 | % | $ | (200) | $ | (136) | $ | (64) | 47.7 | % | |||||||||||||||||||||||||||||||
| Other income, net | 8 | 15 | (7) | NM | 18 | 27 | (9) | NM | |||||||||||||||||||||||||||||||||||||||
| Total non-operating expense, net | $ | (58) | $ | (34) | $ | (24) | NM | $ | (182) | $ | (109) | $ | (73) | NM | |||||||||||||||||||||||||||||||||
| Income tax expense | $ | (77) | $ | (65) | $ | (12) | 19.1 | % | $ | (233) | $ | (205) | $ | (28) | 13.7 | % | |||||||||||||||||||||||||||||||
|
Effective income tax rate
|
23.6 | % | 21.9 | % | 23.6 | % | 23.4 | % | |||||||||||||||||||||||||||||||||||||||
| Equity in earnings of equity method investees, net of taxes | $ | 8 | $ | 6 | $ | 2 | NM | $ | 35 | $ | 14 | $ | 21 | NM | |||||||||||||||||||||||||||||||||
| Net income attributable to Quest Diagnostics | $ | 245 | $ | 226 | $ | 19 | 8.5 | % | $ | 747 | $ | 649 | $ | 98 | 15.0 | % | |||||||||||||||||||||||||||||||
| Diluted earnings per common share attributable to Quest Diagnostics' common stockholders | $ | 2.16 | $ | 1.99 | $ | 0.17 | 8.5 | % | $ | 6.57 | $ | 5.74 | $ | 0.83 | 14.5 | % | |||||||||||||||||||||||||||||||
| NM - Not Meaningful | |||||||||||||||||||||||||||||||||||||||||||||||
The following table sets forth certain results of operations data as a percentage of net revenues for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| DIS business | 97.8 | % | 97.5 | % | 97.7 | % | 97.3 | % | |||||||||||||||
| DS businesses | 2.2 | 2.5 | 2.3 | 2.7 | |||||||||||||||||||
| Total net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
|
Operating costs and expenses and other operating income:
|
|||||||||||||||||||||||
| Cost of services | 66.3 | % | 67.3 | % | 66.5 | % | 67.1 | % | |||||||||||||||
| Selling, general and administrative | 17.8 | 18.0 | 17.8 | 18.0 | |||||||||||||||||||
| Amortization of intangible assets | 1.4 | 1.3 | 1.4 | 1.2 | |||||||||||||||||||
| Other operating expense, net | 0.8 | 0.1 | 0.1 | 0.1 | |||||||||||||||||||
| Total operating costs and expenses, net | 86.3 | % | 86.7 | % | 85.8 | % | 86.4 | % | |||||||||||||||
| Operating income | 13.7 | % | 13.3 | % | 14.2 | % | 13.6 | % | |||||||||||||||
Operating Results
Results for the three months ended September 30, 2025 were affected by certain items that on a net basis decreased diluted earnings per share by $0.44 as follows:
•pre-tax amortization expense of $39 million recorded in amortization of intangible assets, or $0.25 per diluted share;
•pre-tax charges of $22 million, recorded in other operating expense, net, or $0.15 per diluted share, comprised of a $15 million charge to earnings related to legal matters, a $5 million impairment charge on certain long-lived assets related to the exit of a business and, to a lesser extent, losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; and
•pre-tax charges of $11 million ($1 million recorded in cost of services and $10 million recorded in selling, general and administrative expenses), or $0.07 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business; partially offset by
•$3 million of excess tax benefits associated with stock-based compensation arrangements, recorded in income tax expense, or $0.03 per diluted share.
Results for the nine months ended September 30, 2025 were affected by certain items that on a net basis decreased diluted earnings per share by $0.86 as follows:
•pre-tax amortization expense of $117 million recorded in amortization of intangible assets, or $0.76 per diluted share;
•pre-tax charges of $52 million, recorded in other operating expense, net, or $0.36 per diluted share, primarily comprised of a $29 million impairment charge on certain long-lived assets related to the exit of a business, a $15 million charge to earnings related to legal matters and, to a lesser extent, losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; and
•pre-tax charges of $37 million ($8 million recorded in cost of services and $29 million recorded in selling, general and administrative expenses), or $0.24 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business; partially offset by
•pre-tax gains of $54 million ($46 million recorded in other operating expense, net and $8 million recorded in equity in earnings of equity method investees, net of taxes), or $0.36 per diluted share, from a $46 million payroll tax credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") associated with the retention of employees and, to a lesser extent, an $8 million non-recurring gain related to a lease;
•pre-tax gains of $2 million ($1 million recorded in other income, net and $1 million recorded in equity in earnings of equity method investees, net of taxes), or $0.01 per diluted share, representing net gains associated with changes in the carrying value of our strategic investments; and
•$15 million of excess tax benefits associated with stock-based compensation arrangements, recorded in income tax expense, or $0.13 per diluted share.
Results for the three months ended September 30, 2024 were affected by certain items that on a net basis decreased diluted earnings per share by $0.31 as follows:
•pre-tax amortization expense of $32 million recorded in amortization of intangible assets, or $0.21 per diluted share;
•pre-tax net charges of $18 million ($5 million recorded in cost of services and $15 million recorded in selling, general and administrative expenses, partially offset by a $2 million gain recorded in other operating expense, net), or $0.13 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;
•pre-tax charges of $5 million ($1 million recorded in selling, general and administrative expenses and $4 million recorded in other operating expense, net), or $0.04 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; and
•pre-tax charges of $2 million recorded in equity in earnings of equity method investees, net of taxes, or $0.02 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; partially offset by
•a pre-tax gain of $8 million, recorded in other income, net, or $0.06 per diluted share, representing a non-recurring gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition, and
•$3 million of excess tax benefits associated with stock-based compensation arrangements, recorded in income tax expense, or $0.03 per diluted share.
Results for the nine months ended September 30, 2024 were affected by certain items that on a net basis decreased diluted earnings per share by $0.96 as follows:
•pre-tax amortization expense of $90 million recorded in amortization of intangible assets, or $0.59 per diluted share;
•pre-tax net charges of $45 million ($19 million recorded in cost of services and $28 million recorded in selling, general and administrative expenses, partially offset by a $2 million gain recorded in other operating expense, net), or $0.31 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;
•pre-tax charges of $12 million ($2 million recorded in selling, general and administrative expenses and $10 million recorded in other operating expense, net), or $0.10 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; and
•pre-tax charges of $11 million recorded in equity in earnings of equity method investees, net of taxes, or $0.07 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; partially offset by
•a pre-tax gain of $8 million, recorded in other income, net, or $0.06 per diluted share, representing a non-recurring gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition, and
•$6 million of excess tax benefits associated with stock-based compensation arrangements, recorded in income tax expense, or $0.05 per diluted share.
Net Revenues
Net revenues for the three months ended September 30, 2025 increased by 13.1% compared to the prior year period. For the three months ended September 30, 2025, organic growth was 6.8% compared to the prior year period.
DIS revenues for the three months ended September 30, 2025 increased by 13.5% compared to the prior year period. For the three months ended September 30, 2025:
•The increase in DIS revenues compared to the prior year period was driven by both organic growth and the impact of recent acquisitions. For the three months ended September 30, 2025, recent acquisitions contributed approximately 6.5% to DIS revenues.
•DIS volume increased by 12.5% compared to the prior year period driven by the impact of recent acquisitions, which contributed approximately 8.6% to DIS volume, with organic volume up 3.9%.
•Total revenue per requisition was up 0.8% versus the prior year period as an increase in organic revenue per requisition was substantially offset by the impact of the LifeLabs acquisition (which carries a lower revenue per requisition). On an organic basis, revenue per requisition was up 3.0% in the quarter versus the prior year period driven primarily by an increase in the number of tests per requisition and test mix.
DS revenues for the three months ended September 30, 2025 decreased by 1.0% compared to the prior year period principally due to lower revenues associated with our risk assessment services offered to insurers.
Net revenues for the nine months ended September 30, 2025 increased by 13.5% compared to the prior year period. For the nine months ended September 30, 2025, organic growth was 4.8% compared to the prior year period.
DIS revenues for the nine months ended September 30, 2025 increased by 14.0% compared to the prior year period. For the nine months ended September 30, 2025:
•The increase in DIS revenues compared to the prior year period was driven primarily by the impact of recent acquisitions and, to a lesser extent, organic growth. For the nine months ended September 30, 2025, recent acquisitions contributed approximately 8.9% to DIS revenues.
•DIS volume increased by 13.8% compared to the prior year period driven by the impact of recent acquisitions, which contributed approximately 12.0% to DIS volume, with organic volume up by 1.8%.
•Revenue per requisition was flat compared to the prior year period. An increase in the number of tests per requisition and test mix was offset by the impact of LifeLabs, which has a lower revenue per requisition. On an organic basis, revenue per requisition increased 3.3% during the period.
DS revenues for the nine months ended September 30, 2025 decreased by 4.0% compared to the prior year period principally due to lower revenues associated with our risk assessment services offered to insurers.
Cost of Services
Cost of services consists principally of costs for obtaining, transporting and testing specimens as well as facility costs used for the delivery of our services.
For the three months ended September 30, 2025, cost of services increased by $190 million compared to the prior year period. The increase was primarily driven by the impact of recent acquisitions, wage increases and higher employee health care costs and, to a lesser extent, higher supplies expense, partially offset by cost savings and productivity improvements from our Invigorate program.
For the nine months ended September 30, 2025, cost of services increased by $609 million compared to the prior year period. The increase was primarily driven by the impact of recent acquisitions, wage increases, and, to a lesser extent, higher supplies expense, partially offset by cost savings and productivity improvements from our Invigorate program.
Selling, General and Administrative Expenses ("SG&A")
SG&A consist principally of the costs associated with our sales and marketing efforts, billing operations, credit loss expense and general management and administrative support as well as administrative facility costs.
For the three months ended September 30, 2025, SG&A increased by $53 million compared to the prior period. The increase was primarily driven by the impact of recent acquisitions, and, to a lesser extent, higher compensation costs.
For the nine months ended September 30, 2025, SG&A increased by $159 million compared to the prior period. The increase was primarily driven by the impact of recent acquisitions, and, to a lesser extent, higher compensation costs and higher depreciation expense.
The changes in the value of our deferred compensation obligations is largely offset by changes in the value of the associated investments, which are recorded in other income, net. For further details regarding our deferred compensation plans, see Note 17 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K.
Amortization Expense
For the three and nine months ended September 30, 2025, amortization expense increased by $7 million and $27 million, respectively, compared to the prior year periods as a result of recent acquisitions.
Other Operating Expense, Net
Other operating expense, net includes miscellaneous income and expense items and other charges related to operating activities.
For the threemonths ended September 30, 2025, other operating expense, net is comprised of a $15 million charge to earnings related to legal matters, an impairment charge of $5 million on certain long-lived assets related to the exit of a business and $2 million of losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.
For the nine months ended September 30, 2025, other operating expense, net includes a $46 million gain from a payroll tax credit under the CARES Act associated with the retention of employees. Additionally, during the nine months ended September 30, 2025, we also recorded an impairment charge of $29 million on certain long-lived assets related to the exit of a business, a $15 million charge to earnings related to legal matters and $8 million of losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.
For both the three and nine months ended September 30, 2024, other operating expense, net primarily represents losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.
Interest Expense, Net
For the three and nine months ended September 30, 2025, interest expense, net increased by $17 million and $64 million, respectively, compared to the prior year periods primarily due to the issuance during August 2024 of $1.85 billion of senior notes.
Other Income, Net
Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets.
For the three and nine months ended September 30, 2025, other income, net included $7 million and $16 million, respectively, of gains associated with investments in our deferred compensation plans.
For the three and nine months ended September 30, 2024, other income, net included $6 million and $18 million, respectively, of gains associated with investments in our deferred compensation plans. Additionally, both periods included an $8 million gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition.
Income Tax Expense
Income tax expense for the three months ended September 30, 2025 and 2024 was $77 million and $65 million, respectively.
The effective income tax rate for the three months ended September 30, 2025 and 2024 was 23.6% and 21.9%, respectively. The effective income tax rates benefited from $3 million of excess tax benefits associated with stock-based compensation arrangements for each of the three months ended September 30, 2025 and 2024.
Income tax expense for the nine months ended September 30, 2025 and 2024 was $233 million and $205 million, respectively.
The effective income tax rate for the nine months ended September 30, 2025 and 2024 was 23.6% and 23.4%, respectively. The effective income tax rate benefited from $15 million and $6 million of excess tax benefits associated with stock-based compensation arrangements for the nine months ended September 30, 2025 and 2024, respectively.
Equity in Earnings of Equity Method Investees, Net of Taxes
Equity in earnings of equity method investees, net of taxes, increased by $2 million for the three months ended September 30, 2025, compared to the prior year period.
Equity in earnings of equity method investees, net of taxes, increased by $21 million for the nine months ended September 30, 2025, compared to the prior year period, primarily due to the nine months ended September 30, 2024 including $11 million of net losses associated with changes in the carrying value of our strategic investments and the nine months ended September 30, 2025 including an $8 million non-recurring gain related to a lease.
Quantitative and Qualitative Disclosures About Market Risk
We address our exposure to market risks, principally the risk of changes in interest rates, through a controlled program of risk management that includes the use of derivative financial instruments. We do not hold or issue derivative financial instruments for speculative purposes. We seek to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve this objective, we have historically entered into interest rate swap agreements. Interest rate swap agreements involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements are recognized as an adjustment to interest expense, net. We believe that our exposures to foreign exchange impacts and changes in commodity prices are not material to our consolidated results of operations, financial position or cash flows.
As of September 30, 2025 and December 31, 2024, the fair value of our debt was estimated at approximately $5.7 billion and $6.1 billion, respectively, principally using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. As of September 30, 2025 and December 31, 2024, the estimated fair value was more than (less than) the carrying value of the debt by $56 million and $(112) million, respectively. A hypothetical 10% increase in interest rates (representing 45 basis points and 35 basis points as of September 30, 2025 and December 31, 2024, respectively) would potentially reduce the estimated fair value of our debt by approximately $141 million and $184 million, respectively, as of September 30, 2025 and December 31, 2024.
Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates. Interest on our secured receivables credit facility is based on either commercial paper rates for highly-rated issuers or the adjusted Term Secured Overnight Financing Rate ("Term SOFR"), plus a spread. Interest on our senior unsecured revolving credit facility is based on certain published rates plus an applicable margin based on changes in our public debt ratings. As such, our borrowing cost under this credit arrangement is subject to fluctuations in interest rates and changes in our public debt ratings. As of September 30, 2025, the borrowing rates under these debt instruments were: for our secured receivables credit facility, commercial paper rates for highly-rated issuers or the adjusted Term SOFR, plus a spread of 0.80%; and for our senior unsecured revolving credit facility, the adjusted Term SOFR, plus 1.00%. As of September 30, 2025, there were no borrowings outstanding under either the secured receivables credit facility or the senior unsecured revolving credit facility.
The notional amount of fixed-to-variable interest rate swaps outstanding as of September 30, 2025 and December 31, 2024 was $1.8 billion and $700 million, respectively. The aggregate fair value of the fixed-to-variable interest rate swaps was $18 million and $(34) million, in an asset (liability) position, as of September 30, 2025 and December 31, 2024, respectively.
Based on our net exposure to interest rate changes, a hypothetical 10% change to the variable rate component of our variable-rate indebtedness would not materially change our annual interest expense. A hypothetical 10% change in the SOFR curve (representing a 36 basis points change in the weighted average yield) would potentially change the fair value of our fixed- to-variable interest rate swaps by $46 million.
For further details regarding our outstanding debt, see Note 7 to the interim unaudited consolidated financial statements and Note 13 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K. For details regarding our financial instruments and hedging activities, see Note 8 to the interim unaudited consolidated financial statements and Note 15 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K.
Risk Associated with Investment Portfolio
Our investment portfolio primarily includes equity investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries. Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with readily determinable fair values are measured at fair value in our consolidated balance sheet with changes in fair value recorded in current earnings in our consolidated statement of operations. Equity investments that do not have readily determinable fair values (which consist of investments in preferred and common shares of private companies) are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
We regularly evaluate equity investments that do not have readily determinable fair values to determine if there are any indicators that the investments are impaired. The carrying value of our equity investments that do not have readily determinable fair values was $36 million as of September 30, 2025. In conjunction with the preparation of our September 30, 2025 financial statements, we considered whether the carrying values of our investments were impaired and concluded that no such impairment existed.
We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified as our ability to realize returns on investments depends on, among other things, the enterprises' ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.
Liquidity and Capital Resources
| Nine Months Ended September 30, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Net cash provided by operating activities | $ | 1,421 | $ | 870 | $ | 551 | |||||||||||
| Net cash used in investing activities | (440) | (2,046) | 1,606 | ||||||||||||||
| Net cash (used in) provided by financing activities | (1,101) | 1,254 | (2,355) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 3 | - | 3 | ||||||||||||||
| Net change in cash and cash equivalents and restricted cash | $ | (117) | $ | 78 | $ | (195) | |||||||||||
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly-liquid short-term investments with original maturities, at the time of acquisition, of three months or less. Cash and cash equivalents as of September 30, 2025 totaled $432 million, compared to $549 million as of December 31, 2024.
As of September 30, 2025, approximately 17% of our $432 million of consolidated cash and cash equivalents were held outside of the United States.
Cash Flows from Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2025 and 2024 was $1.4 billion and $870 million, respectively. The $551 million increase in net cash provided by operating activities for the nine months ended September 30, 2025, compared to the prior year period, was primarily a result of increased operating income, the timing of non-income tax payments, decreased income tax payments due to the OBBBA (see above for further discussion), and the payroll tax credit under the CARES Act.
Days sales outstanding, a measure of billing and collection efficiency, was 47 days as of September 30, 2025, 48 days as of December 31, 2024 and 49 days as of September 30, 2024.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2025 and 2024 was $440 million and $2.0 billion, respectively. This $1.6 billion decrease in net cash used in investing activities for the nine months ended September 30, 2025, compared to the prior year period, was a result of decreased cash used for business acquisitions, partially offset by higher capital expenditures.
Cash Flows from Financing Activities
Net cash (used in) provided by financing activities for the nine months ended September 30, 2025 and 2024 was $(1.1) billion and $1.3 billion, respectively. The nine months ended September 30, 2025 included the repayment in full of the outstanding indebtedness under our $600 million of 3.50% senior notes at maturity and $150 million of share repurchases of our common stock. The nine months ended September 30, 2024 included both the issuance of $1.85 billion of Senior Notes during August 2024 and the repayment in full of the outstanding indebtedness under our $300 million of 4.25% senior notes at maturity.
During the nine months ended September 30, 2025, we borrowed $410 million under our secured receivables credit facility, which was repaid prior to September 30, 2025. During the nine months ended September 30, 2025, there were no borrowings or repayments under our senior unsecured revolving credit facility. During the nine months ended September 30, 2024, there were no borrowings or repayments under our secured receivables credit facility and our senior unsecured revolving credit facility.
Dividend Program
During the first three quarters of 2025, our Board of Directors declared a quarterly cash dividend of $0.80 per common share. During each of the four quarters of 2024, our Board of Directors declared a quarterly cash dividend of $0.75 per common share.
Share Repurchase Program
As of September 30, 2025, $0.7 billion remained available under our share repurchase authorization. The share repurchase authorization has no set expiration or termination date.
Share Repurchases
For the nine months ended September 30, 2025, we repurchased 0.9 million shares of our common stock for $150 million.
For the nine months ended September 30, 2024, we repurchased no shares of our common stock.
Contractual Obligations
A description of the terms of our indebtedness and related debt service requirements is contained in Note 13 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K.
A discussion of our lease obligations is contained in Note 14 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K.
A discussion of our noncancellable commitments to purchase products or services is contained in Note 18 to the audited consolidated financial statements included in our 2024 Annual Report on Form 10-K.
Equity Method Investees
Our equity method investees primarily consist of a diagnostic information services joint venture and an investment in a fund that purchases strategic holdings in private companies in the healthcare industry. Such investees are accounted for under the equity method of accounting. Our investment in equity method investees is less than 5% of our consolidated total assets. Our proportionate share of income before income taxes associated with our equity method investees is less than 5% of our consolidated income before income taxes and equity in earnings of equity method investees. We have no material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.
In conjunction with the preparation of our September 30, 2025 financial statements, we considered whether the carrying values of our equity method investments were impaired and concluded that no such impairment existed.
Requirements and Capital Resources
We estimate that we will invest approximately $500 million during 2025 for capital expenditures, to support and grow our existing operations, principally related to investments in laboratory equipment and facilities, including laboratory automations and information technology to support our diagnostic offerings.
In February 2025, we committed to a multi-year project ("Project Nova") to modernize our "Order-to-Cash" business processes including related information technology infrastructure and underlying enabling technologies. As part of the project, we are partnering with a third-party, Epic, via a license agreement. We expect to deliver value throughout the implementation of Project Nova, as it unlocks a variety of streamlined operational benefits, reduced technology-related operating costs, accelerated revenue opportunities and improvements to the customer and patient experience. See our 2024 Annual Report on Form 10-K for further details.
We have $500 million of 3.45% senior notes due June 2026.
As of September 30, 2025, we had $1.3 billion of borrowing capacity available under our existing credit facilities, including $522 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. There were no borrowings outstanding under either the secured receivables credit facility or the senior unsecured revolving credit facility as of September 30, 2025. In support of our risk management program, $78 million in letters of credit under the secured receivables credit facility were outstanding as of September 30, 2025.
Our secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. Our senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. As of September 30, 2025, we were in compliance with all such applicable financial covenants.
We believe that our cash and cash equivalents and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities, including acquisitions, for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund additional growth opportunities, including acquisitions, and satisfy upcoming debt maturities.
Forward-Looking Statements
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan", "aim", or "continue." These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, uncertain and volatile economic conditions, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing, changes in government policies, including related to trade, and regulations, changing relationships with customers, payers, suppliers and strategic partners, acquisitions and other factors discussed in our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the "Business," "Risk Factors," "Cautionary Factors that May Affect Future Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of those reports.
Quest Diagnostics Incorporated published this content on October 21, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on October 21, 2025 at 10:32 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]