Quest Diagnostics(DGX) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements for Quest Diagnostics and its subsidiaries, along with detailed notes on business, accounting policies, and specific financial items Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Quest Diagnostics Incorporated and its subsidiaries, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity for the periods ended September 30, 2025 and 2024, along with detailed notes explaining the company's business, accounting policies, and specific financial items Consolidated Statements of Operations This section provides a summary of the company's financial performance over specific periods, detailing net revenues, operating income, net income, and diluted earnings per share | Metric | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net revenues | $2,816 | $2,488 | $8,229 | $7,251 | | Operating income | $386 | $330 | $1,170 | $985 | | Net income attributable to Quest Diagnostics | $245 | $226 | $747 | $649 | | Diluted EPS | $2.16 | $1.99 | $6.57 | $5.74 | Consolidated Statements of Comprehensive Income This section outlines the company's total comprehensive income, including net income and other comprehensive income or loss components | Metric | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $259 | $237 | $790 | $685 | | Other comprehensive (loss) income | $(24) | $4 | $48 | $(1) | | Comprehensive income attributable to Quest Diagnostics | $221 | $230 | $795 | $648 | Consolidated Balance Sheets This section presents a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time | Metric | Sep 30, 2025 (in millions) | Dec 31, 2024 (in millions) | | :-------------------------------- | :------------------------- | :------------------------- | | Total assets | $16,197 | $16,153 | | Total current assets | $2,407 | $2,392 | | Total liabilities | $8,821 | $9,257 | | Total current liabilities | $2,134 | $2,169 | | Total stockholders' equity | $7,295 | $6,813 | Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities, showing the overall change in cash and cash equivalents | Metric | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $1,421 | $870 | | Net cash used in investing activities | $(440) | $(2,046) | | Net cash (used in) provided by financing activities | $(1,101) | $1,254 | | Net change in cash and cash equivalents and restricted cash | $(117) | $78 | | Cash and cash equivalents and restricted cash, end of period | $432 | $764 | Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity accounts, including retained earnings and treasury stock, over specific periods | Metric | Balance, Dec 31, 2024 (in millions) | Balance, Sep 30, 2025 (in millions) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Total Quest Diagnostics stockholders' equity | $6,778 | $7,258 | | Retained earnings | $9,360 | $9,837 | | Treasury stock, at cost | $(4,857) | $(4,896) | - For the nine months ended September 30, 2025, Quest Diagnostics' stockholders' equity increased by $482 million, primarily driven by net income of $747 million, partially offset by dividends declared of $270 million and treasury stock purchases of $150 million[17] Notes to Consolidated Financial Statements (unaudited) This section provides detailed explanations and additional information supporting the consolidated financial statements 1. Description of Business This section describes Quest Diagnostics' core business operations, primarily focusing on diagnostic information services and its smaller Diagnostic Solutions group - Quest Diagnostics provides diagnostic information services (DIS) through laboratory testing, offering insights to improve health outcomes for physicians, hospitals, patients, and other healthcare entities[21] - The DIS business accounts for over 97% of consolidated net revenues[21] - The Diagnostic Solutions (DS) group provides risk assessment services for insurers and healthcare IT solutions[21] 2. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the interim financial statements, including updates on new accounting standards and their expected impact - The interim financial statements are unaudited and reflect management's necessary adjustments, with accounting policies consistent with the 2024 Annual Report on Form 10-K[22] - New accounting standards for income tax disclosures (effective 2025) and disaggregation of income statement expenses (effective 2027) are not expected to materially impact financial statements[23] - The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, making 100% bonus depreciation and domestic research cost expensing permanent, is not expected to materially impact the statement of operations, but increased deferred income tax liabilities to $378 million as of September 30, 2025, from $278 million at December 31, 2024[28][29][31] 3. Earnings Per Share This section provides a detailed breakdown of basic and diluted earnings per share calculations, including net income attributable to Quest Diagnostics and weighted average common shares outstanding | Metric | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to Quest Diagnostics (in millions) | $245 | $226 | $747 | $649 | | Basic EPS | $2.18 | $2.01 | $6.66 | $5.80 | | Diluted EPS | $2.16 | $1.99 | $6.57 | $5.74 | | Weighted average common shares outstanding – diluted (in millions) | 113 | 113 | 113 | 112 | 4. Restructuring Activities and Impairment Charges This section details the company's restructuring initiatives, including the 'Invigorate' program, and associated employee separation and asset impairment charges - The company's multi-year 'Invigorate' program aims for 3% annual cost savings and productivity improvements through automation and AI, focusing on patient services, logistics, laboratory operations, revenue services, IT, and procurement[34] | Charge Type | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Employee separation costs | $6 | $7 | $18 | $21 | | Asset impairment charges | $5 | $— | $29 | $— | | Total restructuring and impairment charges | $11 | $7 | $47 | $21 | - Restructuring charges for Q3 2025 included $6 million in employee separation costs and $5 million in asset impairment charges related to a business exit[37] - For the nine months ended September 30, 2025, total charges were $47 million, including $18 million for employee separation and $29 million for asset impairment, primarily recorded in the DIS business[37][39] 5. Business Acquisitions This section provides an overview of recent acquisition activities, including the LifeLabs Inc. and Spectra Laboratories deals, and a new venture with Corewell Health - On August 23, 2024, Quest Diagnostics acquired LifeLabs Inc. for approximately CAN $1.35 billion (USD $1 billion), with the purchase price allocation finalized in Q3 2025, resulting in a $9 million increase to deferred income tax assets and a corresponding decrease to goodwill[40] - In February 2025, the Company agreed to acquire select clinical testing assets and dialysis-related water testing assets of Spectra Laboratories, with the clinical testing assets acquisition closing on August 4, 2025, for $34 million cash[44][45] - The Spectra Laboratories acquisition included $25 million of tax-deductible goodwill and $9 million of customer-related intangible assets, with the dialysis-related water testing assets acquisition expected to close by the end of 2025[46] - In August 2025, Quest Diagnostics and Corewell Health signed an agreement to form a venture for laboratory testing in Michigan, with Quest owning 51%, expected to close in Q1 2026 with a new facility operational in 2027[49] 6. Fair Value Measurements This section details the fair value of the company's assets and liabilities, including debt and contingent consideration, categorized by valuation hierarchy levels | Asset/Liability | September 30, 2025 (in millions) | December 31, 2024 (in millions) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Total Assets Measured at Fair Value | $175 | $136 | | Total Liabilities Measured at Fair Value | $266 | $280 | | Redeemable noncontrolling interest | $81 | $83 | - The fair value of the Company's debt was estimated at $5.7 billion as of September 30, 2025, compared to $6.1 billion as of December 31, 2024, primarily classified within Level 1 of the fair value hierarchy[66] - Contingent consideration liabilities, primarily from the Haystack Oncology acquisition, increased from $106 million at December 31, 2024, to $114 million at September 30, 2025, due to fair value adjustments and classified within Level 3 due to unobservable inputs[59][62] 7. Debt This section provides information on the company's debt instruments, including amendments to credit facilities and repayment of senior notes - In April 2025, the Company amended its $750 million senior unsecured revolving credit facility, extending its maturity to April 2030 while maintaining borrowing capacity, with no outstanding borrowings as of September 30, 2025[68] - During the nine months ended September 30, 2025, the Company fully repaid its $600 million of 3.50% senior notes that matured on March 30, 2025, and has $500 million of 3.45% senior notes due June 2026 now classified as current portion of long-term debt[69] 8. Financial Instruments This section describes the company's use of derivative financial instruments to manage interest rate and foreign currency risks - The Company uses derivative financial instruments, such as interest rate swap agreements and foreign currency forward contracts, to manage exposure to interest rate and foreign currency risks, not for speculative purposes[71] | Debt Instrument | Notional Amount Sep 30, 2025 (in millions) | Notional Amount Dec 31, 2024 (in millions) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | | 5.00% Senior Notes due Dec 2034 | $850 | $700 | | 2.80% Senior Notes due Jun 2031 | $550 | $— | | 6.40% Senior Notes due Nov 2033 | $400 | $— | | Total notional amounts | $1,800 | $700 | - The Company increased its notional amount of fixed-to-variable interest rate swaps from $700 million at December 31, 2024, to $1.8 billion at September 30, 2025, to convert a portion of long-term debt into variable interest rate debt[75] 9. Stockholders' Equity and Redeemable Noncontrolling Interest This section details changes in stockholders' equity, including accumulated other comprehensive loss, foreign currency translation adjustments, and dividend and share repurchase activities | Component | Balance, Dec 31, 2024 (in millions) | Balance, Sep 30, 2025 (in millions) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Accumulated Other Comprehensive Loss | $(88) | $(40) | | Foreign Currency Translation Adjustments | $(93) | $(45) | | Net Deferred Gains on Cash Flow Hedges, net of tax | $5 | $5 | - The accumulated other comprehensive loss decreased from $(88) million at December 31, 2024, to $(40) million at September 30, 2025, primarily due to a $48 million other comprehensive income before reclassifications for the nine months ended September 30, 2025[81] - The Board of Directors declared a quarterly cash dividend of $0.80 per common share for the first three quarters of 2025, an increase from $0.75 per common share in 2024[85] - The Company repurchased 0.9 million shares of common stock for $150 million during the nine months ended September 30, 2025, with $0.7 billion remaining under the share repurchase authorization[86][87] 10. Supplemental Cash Flow and Other Data This section provides additional details on cash flow components, including depreciation, interest, income taxes, and business acquisitions | Metric | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Depreciation and amortization expense | $142 | $125 | $425 | $358 | | Interest expense, net | $(66) | $(49) | $(200) | $(136) | | Interest paid | $22 | $62 | $167 | $167 | | Income taxes paid | $2 | $61 | $112 | $179 | | Business acquisitions, net of cash acquired | $34 | $1,533 | $51 | $1,781 | - During the nine months ended September 30, 2025, the Company received a $46 million payroll tax credit under the CARES Act for employee retention, recorded in other operating expense, net[93] 11. Commitments and Contingencies This section outlines the company's outstanding commitments, including letters of credit, and details ongoing legal matters and associated reserves - The Company has $78 million in outstanding letters of credit under its Secured Receivables Credit Facility as of September 30, 2025, supporting its risk management program[96] - The Company is involved in several legal matters, including class action lawsuits related to its 401(k) plan (appeal ongoing), the AMCA Data Security Incident (discovery and class certification ongoing), and alleged internet communications tracking with Facebook (appeal ongoing)[99][102][104] - Legal matter reserves totaled $21 million as of September 30, 2025, significantly up from $4 million at December 31, 2024, while reserves for general and professional liability claims remained at $169 million[114][117] 12. Business Segment Information This section provides financial data segmented by the company's primary business operations, Diagnostic Information Services (DIS) and Diagnostic Solutions (DS) - The Diagnostic Information Services (DIS) business is the Company's only reportable segment, accounting for over 97% of net revenues in both 2025 and 2024[120] - The Diagnostic Solutions (DS) group comprises risk assessment services and healthcare information technology businesses[121] | Segment | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | DIS Net revenues | $2,755 | $2,427 | $8,043 | $7,058 | | DS revenues | $61 | $61 | $186 | $193 | | Total Net revenues | $2,816 | $2,488 | $8,229 | $7,251 | | DIS operating income | $482 | $407 | $1,390 | $1,200 | | DS operating income | $9 | $6 | $24 | $23 | | Total operating income | $386 | $330 | $1,170 | $985 | 13. Revenue Recognition This section explains the company's policies for recognizing revenue, including how consideration is estimated across different payer customer groups - The DIS business recognizes revenue primarily upon completion of testing or service rendering, estimating consideration based on payer customer groups (healthcare insurers, government payers, client payers, and patients), including contractual allowances and patient price concessions[127] | Payer Customer Type | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Healthcare insurers | 39 % | 41 % | 39 % | 40 % | | Government payers | 16 % | 13 % | 16 % | 12 % | | Client payers | 31 % | 33 % | 31 % | 33 % | | Patients | 12 % | 10 % | 12 % | 12 % | | Total DIS | 98 % | 97 % | 98 % | 97 % | | DS | 2 % | 3 % | 2 % | 3 % | | Payer Customer Type | Sep 30, 2025 | Dec 31, 2024 | | :------------------------------------------ | :----------- | :----------- | | Healthcare Insurers | 29 % | 26 % | | Government Payers | 9 % | 7 % | | Client Payers | 41 % | 45 % | | Patients | 19 % | 20 % | | Total DIS | 98 % | 98 % | | DS | 2 % | 2 % | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and results of operations for the three and nine months ended September 30, 2025, compared to the prior year, covering revenue drivers, cost trends, acquisitions, strategic programs, regulatory outlook, and liquidity | Metric | Three Months Ended Sep 30, 2025 (in millions) | Three Months Ended Sep 30, 2024 (in millions) | $ Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------- | :------------- | | Total net revenues | $2,816 | $2,488 | $328 | 13.1 % | | Total operating costs and expenses, net | $2,430 | $2,158 | $272 | 12.6 % | | Operating income | $386 | $330 | $56 | 16.8 % | | Net income attributable to Quest Diagnostics | $245 | $226 | $19 | 8.5 % | | Diluted earnings per common share | $2.16 | $1.99 | $0.17 | 8.5 % | | Metric | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | $ Change (YoY) | % Change (YoY) | | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | :------------- | :------------- | | Total net revenues | $8,229 | $7,251 | $978 | 13.5 % | | Total operating costs and expenses, net | $7,059 | $6,266 | $793 | 12.6 % | | Operating income | $1,170 | $985 | $185 | 18.7 % | | Net income attributable to Quest Diagnostics | $747 | $649 | $98 | 15.0 % | | Diluted earnings per common share | $6.57 | $5.74 | $0.83 | 14.5 % | - For the three months ended September 30, 2025, diluted EPS decreased by $0.44 due to amortization expense ($0.25), legal matters and impairment charges ($0.15), and restructuring costs ($0.07), partially offset by excess tax benefits ($0.03)[148] - For the nine months, diluted EPS decreased by $0.86 due to amortization ($0.76), impairment/legal/contingent consideration ($0.36), and restructuring ($0.24), partially offset by CARES Act payroll tax credit and lease gain ($0.36), investment gains ($0.01), and excess tax benefits ($0.13)[148] Our Company This section describes Quest Diagnostics' core business segments, Diagnostic Information Services (DIS) and Diagnostic Solutions (DS), and how revenue performance is assessed - Quest Diagnostics' Diagnostic Information Services (DIS) business, comprising over 97% of consolidated net revenues, provides diagnostic insights from laboratory testing to a wide range of customers including physicians, hospitals, and patients[132] - Revenue performance is assessed by test requisitions and revenue per requisition, influenced by fee schedule changes, test mix, payer mix, business mix, and tests per requisition[133] - The Diagnostic Solutions (DS) group offers risk assessment services for insurers and healthcare information technology solutions for providers and payers, representing the balance of consolidated net revenues[134] Third Quarter Highlights This section summarizes key financial and operational performance metrics for the third quarter of 2025 | Metric | Three Months Ended Sep 30, 2025 (in millions, except per share data) | Three Months Ended Sep 30, 2024 (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% | | 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 | Acquisition of select clinical testing assets of Spectra Laboratories This section details the acquisition of specific clinical testing assets from Spectra Laboratories and its integration into the DIS business - On August 4, 2025, Quest Diagnostics acquired select clinical testing assets of Fresenius Medical Care's Spectra Laboratories for $34 million in cash, integrated into the Company's DIS business[136] Invigorate Program This section describes the company's multi-year 'Invigorate' program, its objectives for cost savings and productivity, and associated restructuring charges - The multi-year 'Invigorate' program aims to achieve 3% annual cost savings and productivity improvements across the value chain, leveraging automation and artificial intelligence to offset inflationary pressures, focusing on patient services, logistics, laboratory operations, revenue services, IT, procurement, reducing denials, enhancing digital experience, and talent management[137] - For the nine months ended September 30, 2025, the Company incurred $37 million in pre-tax charges for restructuring and integration activities, including $18 million in employee separation costs[138] Outlook and Trends This section discusses the impact of recent legislative changes, such as the One Big Beautiful Bill Act (OBBBA), and the expiration of Premium Tax Credits on the company's financial outlook - The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, makes permanent 100% bonus depreciation and domestic research cost expensing, accelerating tax deductions and potentially lowering cash tax payments[139] - While not expected to materially impact the statement of operations, OBBBA increased deferred income tax liabilities by $100 million to $378 million as of September 30, 2025[142] - The OBBBA and the planned expiration of enhanced Premium Tax Credits (PTC) at the end of 2025 are not expected to materially impact consolidated revenues for 2025 and 2026[139] - For 2026-2028, these changes could reduce consolidated revenues by up to 50-60 basis points by 2028, primarily affecting ACA-related Exchange Plans revenues[140] Critical Accounting Policies This section confirms that there have been no significant changes to the company's critical accounting policies since its last annual report - There have been no significant changes to the Company's critical accounting policies from those disclosed in its 2024 Annual Report on Form 10-K[144] Impact of New Accounting Standards This section refers to the notes to the financial statements for details on the adoption and impact of new accounting standards - The adoption of new accounting standards and the impact of recent pronouncements not yet effective are discussed in Note 2 to the interim unaudited consolidated financial statements[145] Results of Operations This section provides a detailed analysis of the company's financial performance, examining changes in revenues, costs, and expenses over the reporting periods Net Revenues This section analyzes the drivers of changes in total net revenues, including organic growth, acquisitions, and revenue per requisition - For the three months ended September 30, 2025, total net revenues increased by 13.1% year-over-year, with organic growth of 6.8%[149] - DIS revenues grew by 13.5%, driven by recent acquisitions (6.5% contribution) and organic volume growth of 3.9%[150] - Total revenue per requisition increased by 0.8%, with organic revenue per requisition up 3.0%[151] - DS revenues decreased by 1.0% due to lower risk assessment services[152] - For the nine months ended September 30, 2025, total net revenues increased by 13.5% year-over-year, with organic growth of 4.8%[153] - DIS revenues grew by 14.0%, primarily from recent acquisitions (8.9% contribution) and organic volume growth of 1.8%[160] - Revenue per requisition was flat, with organic revenue per requisition up 3.3%[160] - DS revenues decreased by 4.0% due to lower risk assessment services[160] Cost of Services This section examines the factors contributing to changes in the cost of services, including acquisitions, wage increases, and program savings - For the three months ended September 30, 2025, cost of services increased by $190 million, primarily due to recent acquisitions, wage increases, and higher employee healthcare costs, partially offset by savings from the Invigorate program[155] - For the nine months ended September 30, 2025, cost of services increased by $609 million, driven by recent acquisitions, wage increases, and higher supplies expense, partially offset by Invigorate program savings[156] Selling, General and Administrative Expenses ("SG&A") This section analyzes the changes in selling, general, and administrative expenses, attributing them to acquisitions and compensation costs - For the three months ended September 30, 2025, SG&A increased by $53 million, mainly due to recent acquisitions and higher compensation costs[157] - For the nine months ended September 30, 2025, SG&A increased by $159 million, primarily driven by recent acquisitions, higher compensation costs, and increased depreciation expense[158] Amortization Expense This section details the increase in amortization expense, primarily linked to recent business acquisitions - Amortization expense increased by $7 million for the three months and $27 million for the nine months ended September 30, 2025, compared to prior year periods, primarily due to recent acquisitions[161] Other Operating Expense, Net This section breaks down the components of other operating expense, net, including legal charges, asset impairments, and contingent consideration adjustments - For the three months ended September 30, 2025, other operating expense, net, included a $15 million charge for legal matters, a $5 million asset impairment charge, and $2 million in losses from contingent consideration accrual increases[163] - For the nine months ended September 30, 2025, this category included a $46 million CARES Act payroll tax credit gain, offset by a $29 million asset impairment charge, a $15 million legal matters charge, and $8 million in losses from contingent consideration accrual increases[164] Interest Expense, Net This section explains the increase in net interest expense, primarily due to the issuance of senior notes in the prior year - Interest expense, net, increased by $17 million for the three months and $64 million for the nine months ended September 30, 2025, primarily due to the issuance of $1.85 billion in senior notes in August 2024[166] Other Income, Net This section details the components of other income, net, including gains from deferred compensation plan investments and foreign exchange contracts - For the three and nine months ended September 30, 2025, other income, net, included $7 million and $16 million, respectively, in gains from deferred compensation plan investments[167] - In 2024, both periods included an additional $8 million gain from a foreign exchange forward contract related to an acquisition[168] Income Tax Expense This section provides an overview of income tax expense and effective tax rates for the reporting periods, noting benefits from stock-based compensation - Income tax expense for the three months ended September 30, 2025, was $77 million (effective rate 23.6%), up from $65 million (21.9%) in 2024[169] - For the nine months, it was $233 million (23.6%) in 2025, up from $205 million (23.4%) in 2024, with both periods benefiting from excess tax benefits related to stock-based compensation[170] Equity in Earnings of Equity Method Investees, Net of Taxes This section explains the changes in equity in earnings from equity method investees, highlighting a non-recurring gain in 2025 - Equity in earnings of equity method investees, net of taxes, increased by $2 million for the three months and $21 million for the nine months ended September 30, 2025[171] - The nine-month increase was primarily due to an $8 million non-recurring gain related to a lease in 2025, compared to $11 million in net losses from strategic investments in 2024[172] Quantitative and Qualitative Disclosures About Market Risk This section details the company's strategies for managing market risks, particularly interest rate risk, and assesses potential impacts of interest rate changes - The Company manages interest rate risk through derivative financial instruments, maintaining a balanced mix of fixed-rate and variable-rate debt, with foreign exchange and commodity price impacts not considered material[174] - As of September 30, 2025, the fair value of the Company's debt was estimated at $5.7 billion, with a hypothetical 10% increase in interest rates potentially reducing its fair value by approximately $141 million[175] - The notional amount of fixed-to-variable interest rate swaps increased to $1.8 billion from $700 million at December 31, 2024[177] - A hypothetical 10% change in the SOFR curve (36 basis points) could change the fair value of fixed-to-variable interest rate swaps by $46 million[178] Liquidity and Capital Resources This section analyzes the company's cash position, cash flow activities, and available capital resources to meet its financial obligations and investment needs | Metric | Nine Months Ended Sep 30, 2025 (in millions) | Nine Months Ended Sep 30, 2024 (in millions) | Change (YoY) | | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | :----------- | | 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) | | Net change in cash and cash equivalents and restricted cash | $(117) | $78 | $(195) | Cash and Cash Equivalents This section reports the total cash and cash equivalents held by the company, including amounts held outside the United States - Cash and cash equivalents totaled $432 million as of September 30, 2025, a decrease from $549 million at December 31, 2024, with approximately 17% held outside the United States[184] Cash Flows from Operating Activities This section details the increase in net cash provided by operating activities, driven by improved operating income, tax benefits, and collection efficiency - Net cash provided by operating activities increased by $551 million to $1.4 billion for the nine months ended September 30, 2025, driven by increased operating income, timing of non-income tax payments, decreased income tax payments due to OBBBA, and the CARES Act payroll tax credit[185] - Days sales outstanding (DSO) improved to 47 days as of September 30, 2025, from 48 days at December 31, 2024, and 49 days at September 30, 2024, indicating improved billing and collection efficiency[186] Cash Flows from Investing Activities This section explains the decrease in net cash used in investing activities, primarily due to reduced spending on business acquisitions - Net cash used in investing activities decreased by $1.6 billion to $440 million for the nine months ended September 30, 2025, primarily due to decreased cash used for business acquisitions, partially offset by higher capital expenditures[187] Cash Flows from Financing Activities This section outlines the shift from cash provided to cash used in financing activities, driven by debt repayments and share repurchases - Net cash used in financing activities was $(1.1) billion for the nine months ended September 30, 2025, compared to $1.3 billion provided in the prior year, due to the repayment of $600 million senior notes and $150 million in share repurchases in 2025, contrasting with $1.85 billion in senior note issuances in 2024[188] Dividend Program This section reports the quarterly cash dividend declared by the Board of Directors, noting an increase from the prior year - The Board of Directors declared a quarterly cash dividend of $0.80 per common share for the first three quarters of 2025, an increase from $0.75 per common share in 2024[190] Share Repurchase Program This section provides information on the remaining authorization under the company's share repurchase program - As of September 30, 2025, $0.7 billion remained available under the Company's share repurchase authorization, which has no set expiration date[191] Share Repurchases This section details the number of shares and total cost of common stock repurchased during the reporting period - For the nine months ended September 30, 2025, the Company repurchased 0.9 million shares of its common stock for $150 million[192] - No shares were repurchased in the same period of 2024[193] Contractual Obligations This section refers to the annual report for detailed information on the company's contractual obligations - Details regarding the Company's indebtedness, debt service requirements, lease obligations, and noncancellable commitments to purchase products or services are contained in the 2024 Annual Report on Form 10-K[194][195] Equity Method Investees This section describes the company's equity method investees and confirms the absence of material obligations or impairment - The Company's equity method investees, primarily a diagnostic information services joint venture and an investment fund, represent less than 5% of consolidated total assets and income before income taxes[196] - No material unconditional obligations or guarantees exist for these investees, and no impairment was identified as of September 30, 2025[197] Requirements and Capital Resources This section outlines the company's estimated capital expenditures and available borrowing capacity to support future operations and growth - The Company estimates $500 million in capital expenditures for 2025 to support and grow existing operations, including investments in laboratory equipment, facilities, automation, and IT[198] - A multi-year 'Project Nova' was committed in February 2025 to modernize 'Order-to-Cash' business processes and IT infrastructure[199] - As of September 30, 2025, the Company had $1.3 billion in available borrowing capacity under existing credit facilities ($522 million from secured receivables and $750 million from senior unsecured revolving credit facility), with no outstanding borrowings[201] - The Company believes its cash, operations, and borrowing capacity provide sufficient financial flexibility for future needs[203] Forward-Looking Statements This section cautions that certain statements in the document are forward-looking and subject to various risks and uncertainties that could cause actual results to differ materially - This section highlights that certain statements in the document are forward-looking and subject to risks and uncertainties, including economic conditions, government investigations, competition, billing complexities, regulatory changes, and acquisitions[204] - Actual results may differ materially from these statements[204] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the detailed discussion on market risk disclosures provided in Item 2, 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' covering the company's exposure to interest rate changes and its risk management strategies - The Company's quantitative and qualitative disclosures about market risk are incorporated by reference from Item 2, 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[205] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2025, with no material changes to internal control over financial reporting during the third quarter of 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2025[205] - No material changes in internal control over financial reporting occurred during the third quarter of 2025[206] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity security sales, other disclosures, and exhibits Item 1. Legal Proceedings This section refers to Note 11 of the interim unaudited consolidated financial statements for detailed information regarding the status of legal proceedings involving the Company - Information regarding the status of legal proceedings involving the Company is provided in Note 11 to the interim unaudited consolidated financial statements[208] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes in the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the third quarter of 2025 under its share repurchase program and employee transactions, along with the remaining authorization | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :-------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | | July 1, 2025 – July 31, 2025 | 220,867 | $169.78 | 220,867 | | August 1, 2025 - August 31, 2025 | 588,957 | $178.16 | 588,957 | | September 1, 2025 – September 30, 2025 | 42,070 | $179.82 | 42,070 | | Total (Share Repurchase Program) | 851,894 | $176.07 | 851,894 | - As of September 30, 2025, $0.7 billion remained available under the Company's share repurchase authorization, which has no set expiration or termination date[211] - The program has authorized $13 billion in share repurchases since its inception in May 2003[213] Item 5. Other Information This section provides information on Rule 10b5-1 trading arrangements adopted by the Company's directors and officers during the third quarter of 2025, including details on the individuals, type of arrangement, and covered securities | Name | Title | Type of Trading Arrangement | Security | Action | Date of Action | Duration of Trading Arrangement | Aggregate Number of Securities Covered | | :--------- | :-------------------------- | :-------------------------- | :------- | :------- | :--------------- | :------------------------------ | :------------------------------------- | | Jim Davis | Chairman, CEO, and President | Rule 10b5-1 plan to sell | Common Stock | Adoption | August 26, 2025 | August 26, 2025 to December 4, 2026 | Up to 95,093 | | Mark Delaney | SVP and Chief Commercial Officer | Rule 10b5-1 plan to sell | Common Stock | Adoption | August 18, 2025 | August 18, 2025 to May 11, 2026 | Up to 7,946 | - During the third quarter of 2025, Jim Davis (Chairman, CEO, and President) and Mark Delaney (SVP and Chief Commercial Officer) adopted Rule 10b5-1 trading arrangements to sell common stock[214][215] - These plans cover shares expected to vest from stock options, restricted stock units, and performance share awards, with actual shares sold being net of tax withholding obligations[215] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q report, including certifications, XBRL documents, and other supporting materials - The exhibits include Subsidiary Guarantors of Securities, Rule 13a-14(a) Certifications of the CEO and CFO, Section 1350 Certifications of the CEO and CFO, and various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents), along with the Cover Page Interactive Data File[219] Signatures This section contains the official signatures of the authorized representatives of Quest Diagnostics Incorporated, including the Chairman, Chief Executive Officer, and President, James E. Davis, and the Executive Vice President and Chief Financial Officer, Sam A. Samad, certifying the report on October 21, 2025 - The report was signed on October 21, 2025, by James E. Davis, Chairman, Chief Executive Officer, and President, and Sam A. Samad, Executive Vice President and Chief Financial Officer, on behalf of Quest Diagnostics Incorporated[220]