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 ("ACOs") and Federally Qualified Health Centers ("FQHCs")), hospitals, and patients and consumers. Our other customers include health plans, employers, new and emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories. We offer broad access to clinical testing through a 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. During 2025, we processed approximately 244 million test requisitions through our extensive laboratory network.
Clinical testing is an essential element in the delivery of healthcare services. Clinical testing is used for predisposition, screening, monitoring, diagnosis, prognosis and treatment choices of diseases and other medical conditions. We primarily compete with three types of clinical testing providers: commercial clinical laboratories, hospital-affiliated laboratories and physician-office laboratories. In addition, we compete with many smaller regional and local commercial clinical laboratories, specialized advanced laboratories and providers of consumer-initiated testing.
The clinical testing industry is subject to seasonal fluctuations in operating results and cash flows. Typically, testing volume declines during vacation and major holiday periods, reducing net revenues and operating cash flows below annual averages. Testing volume is also subject to declines due to severe weather or other events (such as public health emergencies and health pandemics), which can deter patients from having testing performed and which can vary in duration and severity from year to year. Additionally, orders for clinical testing generated from customers, including physicians, hospitals, and consumers, can be affected by factors such as changes in the economy and regulatory environment, which affect the number of unemployed and uninsured, and design changes in healthcare plans, which affect utilization as well as patient responsibility for healthcare costs.
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.
2025 Highlights
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Year Ended December 31,
(dollars in millions, except per share data)
Net revenues
DIS revenues
Revenue per requisition change
Requisition volume change
Organic requisition volume change
DS revenues
Operating income
Net income attributable to Quest Diagnostics
Diluted earnings per share
Net cash provided by operating activities
Capital expenditures
For further discussion of the year-over-year changes for the year ended December 31, 2025 compared to the year ended December 31, 2024, see "Results of Operations" below.
Acquisitions
Acquisition of select testing assets of Spectra Laboratories
During February 2025, we entered into a definitive agreement to acquire select clinical testing assets and select dialysis-related water testing assets of Fresenius Medical Care's wholly-owned Spectra Laboratories, a leading provider of renal-specific laboratory testing services in the United States. During August 2025, the acquisition of the select clinical testing assets closed and during November 2025 the acquisition of the select dialysis-related water testing assets closed. We paid $84 million of aggregate cash consideration for the businesses. The acquired businesses are included in our DIS business.
For further details, see Note 6 to the audited consolidated financial statements.
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 an 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, and enhancing the digital experience.
For the year ended December 31, 2025, we incurred $53 million of pre-tax charges in connection with restructuring and integration activities, including $28 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.
For further details of the Invigorate program and associated costs, see Note 5 to the audited consolidated financial statements.
Outlook and Trends
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The healthcare system in the United States continues to evolve and industry and regulatory change is likely to be extensive. Because diagnostic information services is an essential healthcare service, we believe that the industry will continue to grow over the long term. There are a number of key trends that we expect will continue to have a significant impact on the growth and the nature of the diagnostic information services business in the United States and on our business. These trends present both opportunities and risks.
Healthcare market participants, including health plans and governments, are focusing on controlling costs, including potentially by reducing reimbursement for healthcare services, changing reimbursement for healthcare services (including but not limited to a shift from fee-for-service to capitation), changing medical coverage policies ( e.g ., healthcare benefits design), denying coverage for services, requiring preauthorization of laboratory testing, requiring co-pays, introducing laboratory spend management utilities and payment and patient care innovations such as ACOs and patient-centered medical homes. In recent years, there has been an ongoing trend of rising patient responsibility which has resulted in an increase in our reserves for patient price concessions. As health plans and government programs require greater levels of patient cost-sharing, our patient price concessions may continue to be negatively impacted and adversely impact our results of operations. There could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan, generally regardless of the number or cost of services provided by us. In 2025 and 2024, we derived approximately 8% and 5%, respectively, of our consolidated net revenues from capitated payment arrangements and in 2025 and 2024, we derived approximately 15% and 11%, respectively, of our testing volume from capitated payment arrangements.
The political environment impacting healthcare regulation in the United States continues to be uncertain. The services that we offer and our result of operations could be adversely affected by legislative, enforcement, regulatory and public policy changes at the federal or state level, many of which we cannot anticipate at this time.
Historically, the Medicare Clinical Laboratory Fee Schedule ("CLFS") and the Medicare Physician Fee Schedule established under Part B of the Medicare program have been subject to change, including each year. Pursuant to The Protecting
Access to Medicare Act of 2014 ("PAMA"), reimbursement rates for many clinical laboratory tests provided under Medicare were reduced during 2018 - 2020. Starting in 2020, Congress has repeatedly acted to delay PAMA implementation by delaying the next round of data reporting (2020-2026) and Medicare cuts (2021-2026). Congress introduced legislation in 2025, the Results Act, which would reform PAMA and create a true market-based CLFS.
The diagnostic information services industry remains fragmented, is highly competitive and is subject to new competition. Consolidation in the healthcare industry has continued at a rapid pace, including among our customer base. Certain of our customers are seeking to diversify their service offerings and to partner with other providers to offer value-based care alternatives. Consolidation is increasing pricing transparency, and may encourage internalization of clinical testing.
On-going inflationary pressures have resulted in increases in the cost of our operations, including the costs of testing equipment, supplies and other goods and services we purchase from manufacturers, suppliers and others. Inflationary pressures, along with the competition for labor, have also resulted in a rise of our labor costs, which include the costs of compensation, benefits and recruiting and training new hires. Our Invigorate program is designed to, among other things, partially offset these impacts.
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, 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, expired at the end of 2025 and such expiration 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 2025. 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 expected to have a material impact on our consolidated revenues for 2026. In addition, we currently estimate that for 2026 through 2028 the OBBBA and the 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.
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While the impacts outlined above represent our current estimates, we continue to assess the impact of the OBBBA and the expiration of the enhanced PTCs on our outlook for 2026 through 2028.
The OBBBA 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 leads to lower cash tax payments. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others in the future. The tax provisions of the legislation did not have a material impact on our statement of operations. Our consolidated deferred income tax liabilities as of December 31, 2025 and 2024 were $354 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 information on our key trends, which present both opportunities and risks, see " Item 1. Business: The Clinical Testing Industry ."
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions and select accounting policies that affect our reported financial results and the disclosure of contingent assets and liabilities.
Our revenues are primarily comprised of a high volume of relatively low-dollar transactions, and about one-half of our total costs and expenses consist of employee compensation and benefits. Due to the nature of our business, several of our accounting policies involve significant estimates and judgments:
• revenues and accounts receivable associated with DIS;
• reserves for general and professional liability claims;
• reserves for other legal proceedings; and
• accounting for and recoverability of goodwill.
Revenues and accounts receivable associated with DIS
The process for estimating revenues and the ultimate collection of receivables associated with our DIS business involves significant assumptions and judgments. We recognize revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. We estimate the amount of consideration we expect to be entitled to receive from payer customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials), and patient price concessions, as discussed below. The portfolios determined using the portfolio approach consist of the following payer customers:
• Healthcare Insurers/Health Plans
• Government Payers
• Client Payers
• Patients
We have a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions. Historical collection and payer reimbursement experience (along with the period of time that the receivables have been outstanding) is an integral part of the estimation process related to revenues and receivables. Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
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We regularly assess the state of our billing operations in order to identify issues which may impact the collectability of receivables or revenue estimates. We believe that the collectability of our receivables is directly linked to the quality of our billing processes, most notably those related to obtaining the correct information in order to bill effectively for the services we provide. As such, we strive to implement “best practices” and endeavor to increase the use of electronic ordering to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information. We believe that our collection and revenue estimation processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material adjustments to reserve estimates. However, changes to our estimate of the impact of contractual allowances (including payer denials) and patient price concessions could have a material impact on our results of operations and financial condition in the period that the estimates are adjusted.
The following table shows the approximate percentage of our total requisition volume and net revenues associated with our DIS business during 2025 applicable to each payer customer group:
Total
Consolidated
Volume
Net Revenues
Healthcare insurers
Government payers
Client payers
Patients *
Total DIS
*Patients revenue includes coinsurance and deductible responsibilities; but volume associated with such revenue is reported under Healthcare insurers.
The following table shows net accounts receivable as of December 31, 2025 applicable to each payer customer group:
Consolidated
Net Accounts
Receivable
Healthcare insurers
Government payers
Client payers
Patients (including coinsurance and deductible responsibilities)
Total DIS
Healthcare insurers/ Health plans
Reimbursements from healthcare insurers are based on fee-for-service schedules and on capitated payment rates. Under fee-for-service arrangements, healthcare insurers are billed at our list price. Net revenues recognized consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration we expect to receive from such payers, which considers historical denial and collection experience and the terms of our contractual arrangements.
Substantially all of the accounts receivable due from healthcare insurers represent amounts billed under fee-for-service arrangements. Collection of our net revenues from healthcare insurers is normally a function of providing complete and correct billing information to the healthcare insurers within the various filing deadlines and generally occurs within 30 to 60 days of billing. Provided we have billed healthcare insurers accurately with complete information prior to the established filing deadline, there has historically been little to no credit risk. If there has been a delay in billing, we determine if the amounts in question will likely go past the filing deadline, and if so, we will reserve accordingly for the billing.
Under capitated arrangements with healthcare insurers, we recognize revenue based on a predetermined monthly reimbursement rate for each member of an insurer's health plan regardless of the number or cost of services provided by us. Under capitated payment arrangements, the healthcare insurers typically reimburse us in the same month services are performed, essentially giving rise to no outstanding accounts receivable at the end of a reporting period. If any capitated
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payments are not received on a timely basis, we determine the cause and make a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and, if so, would reserve accordingly.
Government payers
Reimbursements from domestic government payers are based on fee-for-service schedules set by governmental authorities, including traditional Medicare and Medicaid. Reimbursements from government payers in Canada are based on a combination of fee-for-service schedules, with a cap on maximum billings, and capitated arrangements. Net revenues recognized for fee-for-service arrangements principally consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration we expect to receive from such payers, which considers historical denial and collection experience.
Collection of our net revenues from government payers is normally a function of providing the complete and correct billing information within the various filing deadlines. Collection generally occurs within 30 days of billing. Provided we have billed government payers accurately with complete information prior to the established filing deadline, there has historically been little to no credit risk. If there has been a delay in billing, we determine if the amounts in question will likely go past the filing deadline, and, if so, we will reserve for the billing accordingly.
Client payers
Client payers include physicians, hospitals, employers, new and emerging retail healthcare providers, pharmaceutical companies and other commercial clinical laboratories and institutions for which services are performed on a wholesale basis, and are billed based on a negotiated fee schedule. Credit risk and ability to pay are more of a consideration for these payers than healthcare insurers and government payers. Collection of consideration we expect to receive generally occurs within 60 to 90 days of billing.
We principally estimate the allowance for credit losses for client payers based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period of time that the receivables have been outstanding. To the extent that any individual client payers are identified that have deteriorated in credit quality, we establish allowances based on the individual risk characteristics of such customers.
Patients
Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Insured patients (includes coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Net revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with our policies and implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive from patients, which considers historical collection experience (along with the period of time that the receivables have been outstanding) and other factors including current market conditions. Patient billings are generally fully reserved for when the related service reaches 210 days outstanding. Balances are automatically written off when they are sent to collection agencies. Allowances are further adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection experience, which is regularly monitored. Collection of consideration we expect to receive generally occurs within 30 to 60 days of billing.
Reserves for general and professional liability claims
As a general matter, providers of diagnostic information services may be subject to lawsuits alleging negligence or other similar claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on our client base and reputation. We maintain various liability insurance coverages for claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. Our insurance coverage limits our maximum exposure on individual claims; however, we are essentially self-insured for a significant portion of these claims. While the basis for claims reserves is actuarially determined losses based upon our historical and projected experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of involves a high degree of judgment. Although we believe that our present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that we may incur liabilities in excess of our recorded reserves or insurance coverage. Changes in the facts and circumstances associated with could have a material impact on our results of operations (principally costs of services), cash flows and financial condition in the period that reserve
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estimates are adjusted or paid. See Note 18 to the audited consolidated financial statements for a discussion of our reserves for general and professional liability claims.
Reserves for other legal proceedings
Our businesses are subject to or impacted by extensive and frequently changing laws and regulations, including inspections and audits by governmental agencies, in the United States (at both the federal and state levels) and the other jurisdictions in which we conduct business. Although we believe that we are in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency would not reach a different conclusion. Any noncompliance by us with applicable laws and regulations could have a material adverse effect on our results of operations. In addition, these laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including our pricing and/or billing practices. In addition, certain federal and state statutes, including the qui tam provisions of federal and state false claims acts, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers alleging inappropriate billing practices. We are aware of certain pending lawsuits including class action lawsuits, and have received related to billing practices. See Note 18 to the audited consolidated financial statements for a discussion of the various legal proceedings that we are involved in.
The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves a high degree of judgment. Management has established reserves for legal proceedings in accordance with generally accepted accounting principles in the United States. Changes in facts and circumstances related to such proceedings could lead to significant adjustments to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid.
Accounting for and recoverability of goodwill
We do not amortize goodwill, but evaluate the recoverability and measure the potential impairment of our goodwill annually, or more frequently, in the case of other events that indicate a potential impairment. We identified the following reporting units for goodwill impairment testing in 2025:
• DIS business;
• Risk assessment services business, which is part of our DS businesses
The DIS reporting unit components have been aggregated into a single reporting unit because they have similar economic characteristics, including similarities in financial performance, nature of products or services, nature of production processes and types of customers.
On a quarterly basis, we perform a review of our business to determine if events or changes in circumstances have occurred which could have a material adverse effect on our fair value and our goodwill. If such events or changes in circumstances were deemed to have occurred, we would perform an impairment test of goodwill and record any noted impairment loss.
The annual impairment test for goodwill includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value; the qualitative analysis may be performed prior to, or as an alternative to, performing a quantitative goodwill impairment test. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, we assess relevant events and circumstances, such as: (a) macroeconomic conditions; (b) industry and market considerations; (c) cost factors; (d) overall financial performance; (e) other relevant entity-specific events; (f) events affecting a reporting unit; and (g) a sustained decrease in share price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we are required to perform the quantitative goodwill impairment test. Otherwise, no further analysis is required. Additionally, our policy is to update the fair value calculation of our reporting units and perform the quantitative goodwill impairment test on a periodic basis.
The quantitative impairment test involves the comparison of the fair value of the reporting unit to its carrying value. If the carrying value is greater than our estimate of fair value, an impairment loss will be recognized in the amount of the excess. We calculate the fair value of each reporting unit using either (i) a discounted cash flows analysis that converts future cash flow amounts into a single discounted present value amount or (ii) a market approach. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. The discounted cash flows analysis
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includes several unobservable inputs related to our own assumptions. The assumptions and estimates used in the discounted cash flows model are based upon the best available information in the circumstances and include a forecast of expected future cash flows, long-term growth rates, discount rates that are commensurate with economic risks, assumed income tax rates and estimates of capital expenditures and working capital. The fair values of the reporting units could be different if, for example, forecasted revenue growth rates, economic conditions, government regulations or actions by payers to control utilization of or reimbursement for healthcare services, turn out to be different than our assumptions or estimates. Changes in the assumed discount rates due to changes in interest rates could also affect the estimated fair values of the reporting units. We use a discount rate that considers a weighted average cost of capital plus an appropriate risk premium based upon the reporting unit being valued. Our analysis also considers publicly available information regarding our market capitalization, as well as (i) the financial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (ii) comparable sales prices, if available. We believe our estimation methods are reasonable and reflect common valuation practices.
We perform our annual impairment test during the fourth quarter of the fiscal year. For the year ended December 31, 2025, we performed a qualitative assessment for our DIS and risk assessment services reporting units. Based on the totality of the information available for each reporting unit, we concluded that it was more likely than not that the estimated fair values were greater than the carrying values of the reporting values, and as such, no further analysis was required. As a sensitivity, in conjunction with the most recent quantitative test performed for the year ended December 31, 2023, if the estimated fair values of each of our reporting units decreased by 10%, we would have concluded that our goodwill was not impaired. However, DS revenues for the year ended December 31, 2025 decreased by 3.3% compared to the prior year primarily due to lower revenues associated with our risk assessment services offered to insurers. Therefore, we will continue to closely monitor the risk assessment services reporting unit for potential impairment going forward.
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Results of Operations
For a comparison of results of operations for the year ended December 31, 2024 compared to December 31, 2023, along with the results of operations for the year ended December 31, 2023, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Result of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024. See "Available Information."
Basis of Presentation
Our DIS business currently represents our one reportable business segment. The DIS business for the years ended December 31, 2025 and 2024 accounted for greater than 95% of our consolidated net revenues. Our other operating segments consist of our DS businesses. For further details regarding our business segment information, see Note 19 to the audited consolidated financial statements.
Results of Operations
The following table sets forth certain results of operations data for the periods presented:
$ Change
% Change
(dollars in millions, except per share data)
Net revenues:
DIS business
DS businesses
Total net revenues
Operating costs and expenses and other operating income:
Cost of services
Selling, general and administrative
Amortization of intangible assets
Other operating (income) expense, net
Total operating costs and expenses, net
Operating income
Other income (expense):
Interest expense, net
Other income, net
Total non-operating expense, net
Income tax expense
Effective income tax rate
Equity in earnings of equity method investees, net of taxes
Net income attributable to Quest Diagnostics
Diluted earnings per share attributable to Quest Diagnostics’ common stockholders
NM - Not Meaningful
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The following table sets forth certain results of operations data as a percentage of net revenues for the periods presented:
Net revenues:
DIS business
DS businesses
Total net revenues
Operating costs and expenses and other operating income:
Cost of services
Selling, general and administrative
Amortization of intangible assets
Other operating (income) expense, net
Total operating costs and expenses, net
Operating income
Operating Results
Results for the year ended December 31, 2025 were affected by certain items that on a net basis decreased diluted earnings per share by $1.10 as follows:
• pre-tax amortization expense of $154 million (recorded in amortization of intangible assets) or $1.01 per diluted share;
• pre-tax charges of $53 million ($12 million recorded in cost of services, $40 million recorded in selling, general and administrative expenses and $1 million in other operating (income) expense, net), or $0.39 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business; and
• pre-tax charges of $52 million, or $0.34 per diluted share, ($29 million recorded in other operating (income) expense, net for an impairment charge on certain long-lived assets related to the exit of a business; and $7 million and $15 million recorded in selling, general and administrative expenses and other operating (income) expense, net, respectively, for charges to earnings related to legal matters); partially offset by
• pre-tax gains of $54 million ($46 million recorded in other operating (income) 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 an $8 million non-recurring gain related to a lease;
• a pre-tax gain of $10 million (recorded in other operating (income) expense, net), or $0.09 per diluted share, associated with the decrease in the fair value of the contingent consideration accrual associated with previous acquisitions;
• pre-tax gains of $4 million (principally recorded in other income, net), or $0.03 per diluted share, representing net gains associated with changes in the carrying value of our strategic investments, and
• $18 million of excess tax benefits associated with stock-based compensation arrangements (recorded in income tax expense), or $0.16 per diluted share.
Results for the year ended December 31, 2024 were affected by certain items that on a net basis decreased diluted earnings per share by $1.24 as follows:
• pre-tax amortization expense of $127 million (recorded in amortization of intangible assets), or $0.84 per diluted share;
• pre-tax net charges of $62 million ($27 million recorded in cost of services and $37 million recorded in selling, general and administrative expenses, partially offset by a $2 million gain recorded in other operating (income) expense, net), or $0.42 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;
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• pre-tax charges of $15 million (recorded in equity in earnings of equity method investees, net of taxes), or $0.10 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments ; and
• pre-tax charges of $6 million ($2 million recorded in cost of services, $2 million recorded in selling, general and administrative expenses and $2 million recorded in other operating (income) expense, net), or $0.04 per diluted share, including an increase in the fair value of the contingent consideration accrual associated with previous acquisitions; partially offset by
• pre-tax gains of $12 million (recorded in other income, net), or $0.08 per diluted share, principally representing a non-recurring gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition, and
• $9 million of excess tax benefits associated with stock-based compensation arrangements (recorded in income tax expense), or $0.08 per diluted share.
Net Revenues
Net revenues for the year ended December 31, 2025 increased by 11.8% compared to the prior year. For the year ended December 31, 2025, organic growth was 5.3% compared to the prior year.
DIS revenues for the year ended December 31, 2025 increased by 12.2% compared to the prior year. For the year ended December 31, 2025:
• The increase in DIS revenues compared to the prior year was driven by both organic growth and the impact of recent acquisitions. For the year ended December 31, 2025, recent acquisitions contributed approximately 6.7% to DIS revenues.
• DIS volume increased by 12.3% compared to the prior year primarily driven by the impact of recent acquisitions, which contributed approximately 8.9% to DIS volume, with organic volume up by 3.4%.
• Revenue per requisition increased by 0.1% compared to the prior year as an increase in the number of tests per requisition and favorable test mix were offset by the impact of the acquisition of LifeLabs, which has a lower revenue per requisition. On an organic basis, revenue per requisition increased 2.4% during the period.
DS revenues for the year ended December 31, 2025 decreased by 3.3% compared to the prior year primarily 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.
Cost of services increased by $742 million for the year ended December 31, 2025 compared to the prior year. 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 consists 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.
SG&A increased by $197 million for the year ended December 31, 2025 compared to the prior year. 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.
Amortization of Intangible Assets
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For the year ended December 31, 2025, amortization expense was $27 million higher than the prior year as a result of recent acquisitions.
Other Operating (Income) Expense, Net
Other operating (income) expense, net includes miscellaneous income and expense items and other charges related to operating activities.
For the year ended December 31, 2025, other operating (income) expense, net includes a $46 million gain from a payroll tax credit under the CARES Act associated with the retention of employees and $10 million of gains associated with the decrease in the fair value of the contingent consideration accrual associated with previous acquisitions.
Additionally, during the year ended December 31, 2025, we recorded an impairment charge of $29 million on certain long-lived assets related to the exit of a business and $15 million of charges to earnings related to legal matters.
Interest Expense, Net
Interest expense, net increased by $63 million for the year ended December 31, 2025, compared to the prior year, primarily due to the issuance in 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 year ended December 31, 2025, other income, net included $19 million of gains associated with investments in our deferred compensation plans and $7 million of gains associated with changes in the carrying value of our strategic investments.
For the year ended December 31, 2024, other income, net included $18 million of gains associated with investments in our deferred compensation plans and 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 years ended December 31, 2025 and 2024 was $314 million and $273 million, respectively. The increase in income tax expense compared to the prior year was driven by an increase in income before income taxes and equity in earnings of equity method investees.
The effective income tax rate for the years ended December 31, 2025 and 2024 was 23.8% and 23.2%, respectively. The effective income tax rates benefited from $18 million and $9 million of excess tax benefits associated with stock-based compensation arrangements for the years ended December 31, 2025 and 2024, respectively.
Equity in Earnings of Equity Method Investees, Net of Taxes
For the year ended December 31, 2025, there was a $23 million increase in equity in earnings of equity method investees, net of taxes, compared to the prior year primarily due to the year ended December 31, 2025 including an $8 million non-recurring gain related to a lease and the year ended December 31, 2024 including $15 million of net losses associated with changes in the carrying value of our strategic investments.
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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 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. For further details regarding our significant accounting policies on interest rate risk and foreign currency, see Note 2 to the audited consolidated financial statements.
As of December 31, 2025 and 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 December 31, 2025 and 2024, the estimated fair value was more than (less than) the carrying value of the debt by $59 million and $(112) million, respectively. A hypothetical 10% increase in interest rates (representing 44 basis points as of December 31, 2025 and 35 basis points as of December 31, 2024) would potentially reduce the estimated fair value of our debt by approximately $135 million and $184 million as of December 31, 2025 and 2024, respectively.
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 December 31, 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 December 31, 2025, there were no borrowings outstanding under either our $600 million secured receivables credit facility or our $750 million senior unsecured revolving credit facility.
The notional amount of fixed-to-variable interest rate swaps outstanding as of December 31, 2025 and 2024 was $1.8 billion and $700 million, respectively. The aggregate fair value of the fixed-to-variable interest rate swaps was $14 million and $(34) million, in an asset (liability) position, as of December 31, 2025 and 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 37 basis points change in the weighted average yield) would potentially change the fair value of our fixed-to-variable interest rate swaps by $43 million.
For further details regarding our outstanding debt and our financial instruments and hedging activities, see Notes 13 and 15, respectively, to the audited consolidated financial statements.
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 prepaid expenses and other current assets 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.
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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 $47 million as of December 31, 2025. In conjunction with the preparation of our audited consolidated financial statements for the year ended December 31, 2025, 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
$ Change
(dollars in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Net change in cash and cash equivalents and restricted cash
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly-liquid short-term investments. Cash and cash equivalents as of December 31, 2025 and 2024 totaled $420 million and $549 million, respectively.
As of December 31, 2025, approximately 20% of our $420 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 year ended December 31, 2025 was $1.9 billion and increased $552 million compared to the prior year primarily as a result of increased operating income, changes in working capital, decreased income tax payments primarily due to the OBBBA (see above for further discussion) and the payroll tax credit under the CARES Act.
Days sales outstanding ("DSO"), a measure of billing and collection efficiency, was 48 days as of both December 31, 2025 and 2024.
Cash Flows from Investing Activities
Net cash used in investing activities for the years ended December 31, 2025 and 2024 was $631 million and $2.5 billion, respectively. The $1.9 billion decrease in net cash used in investing activities for the year ended December 31, 2025, compared to the prior year period, was primarily 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 year ended December 31, 2025 was $(1.4) billion, compared to $1.1 billion for the year ended December 31, 2024. The year ended December 31, 2025 included the repayment in full of the outstanding indebtedness under our $600 million of 3.50% senior notes at maturity and $450 million of share repurchases of our common stock. The year ended December 31, 2024 included the issuance of $1.85 billion of senior notes during August 2024, partially offset by the repayment in full of the outstanding indebtedness under our $300 million of 4.25% senior notes at maturity and $151 million of share repurchases of our common stock.
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During the year ended December 31, 2025, we borrowed $410 million under our secured receivables credit facility, which was repaid prior to December 31, 2025. During the year ended December 31, 2025, there were no borrowings or repayments under our senior unsecured revolving credit facility.
During the year ended December 31, 2024, there were no borrowings or repayments under our secured receivables credit facility or our senior unsecured revolving credit facility.
For details regarding our debt and related transactions, see Note 13 to the audited consolidated financial statements.
Dividend Program
During each of the four 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. In February 2026, we announced that our Board of Directors authorized a 7.5% increase in our quarterly cash dividend from $0.80 to $0.86 per share, or $3.44 per share annually, commencing with the dividend payable in April 2026.
Share Repurchases
As of December 31, 2025, $0.4 billion remained available under our share repurchase authorization. In February 2026, our Board of Directors authorized us to repurchase an additional $1 billion of our common stock. The share repurchase authorization has no set expiration or termination date.
For the year ended December 31, 2025, we repurchased 2.5 million shares of our common stock for $452 million.
For the year ended December 31, 2024, we repurchased 0.9 million shares of our common stock for $150 million.
For further details regarding our share repurchases, see Note 16 to the audited consolidated financial statements.
Contractual Obligations and Commitments
A description of the terms of our indebtedness and related debt service requirements is contained in Note 13 to the audited consolidated financial statements.
A discussion of our lease obligations is contained in Note 14 to the audited consolidated financial statements.
A discussion of our noncancellable commitments to purchase products or services is contained in Note 18 to the audited consolidated financial statements.
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 audited consolidated financial statements for the year ended December 31, 2025, 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 $550 million during 2026 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.
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We have $500 million of 3.45% senior notes due June 2026.
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. We are partnering with Epic, a third-party licensor, to assist in the implementation of Project Nova. 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. Total project-related cash expenditures are estimated to be approximately $250 million to $310 million with approximately 60% consisting of capital expenditures and; the remainder consisting of operating expenses (primarily related to system conversion costs, compensation costs associated with team members dedicated to the project, and program management and training costs) to be incurred over the life of the project with the final phases expected to be completed in the 2031 to 2032 timeframe. We expect to fund the Project Nova-related expenditures with cash from operations. For 2026, total project-related cash expenditures are estimated to be approximately $60 million. Annual financial benefits are projected to increase over time as major elements of the project are completed, generating an appropriate return on investment.
As of December 31, 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 under these credit facilities as of December 31, 2025. In support of our risk management program, $78 million in letters of credit under the secured receivables credit facility were outstanding as of December 31, 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 December 31, 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.
Impact of New Accounting Standards
The adoption of new accounting standards (if any) is discussed in Note 2 to the audited consolidated financial statements.
The impacts of recent accounting pronouncements not yet effective (if any) on our audited consolidated financial statements are discussed in Note 2 to the audited consolidated financial statements.
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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company, including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2025 based on criteria for effective internal control over financial reporting described in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company's internal control over financial reporting as of December 31, 2025 is effective.
The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, audited the Company's internal control over financial reporting as of December 31, 2025 and issued their audit report on the Company's internal control over financial reporting included herein.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Quest Diagnostics Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Quest Diagnostics Incorporated and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Diagnostic Information Services (DIS) Business Accounts Receivable - Contractual Allowances
As described in Note 3 to the consolidated financial statements, management estimates the amount of consideration the Company expects to be entitled to receive from payer customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials) and patient price concessions. The Company's consolidated accounts receivable, net of allowance for credit losses, balance as of December 31, 2025 was $1,408 million, of which a significant portion related to the DIS business. Net revenues recognized from healthcare insurers and government payers consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and, additionally for healthcare insurers, the terms of the Company’s contractual arrangements. The process for estimating revenues and the ultimate collection of accounts receivable associated with the DIS business involves significant judgment and estimation.
The principal considerations for our determination that performing procedures relating to the valuation of DIS business accounts receivable - contractual allowances is a critical audit matter are (i) the significant judgment by management when developing the estimate of contractual allowances, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to the estimate of contractual allowances.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of DIS business accounts receivable, which included controls over management’s methodology and data used to estimate contractual allowances. These procedures also included, among others, testing management's process for developing the estimate of contractual allowances, including (i) evaluating the appropriateness of the methodology; (ii) testing, on a sample basis, the completeness and accuracy of the historical contractual allowance and collection data used in developing the estimate of contractual allowances; and (iii) evaluating the reasonableness of management’s assumptions used to estimate contractual allowances by comparing actual cash collected to the prior year estimate of net accounts receivable.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 26, 2026
We have served as the Company’s auditor since 1995.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2025 AND 2024
(in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for credit losses of $ 25 and $ 29 as of December 31, 2025 and 2024, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Investments in equity method investees
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Current portion of long-term debt
Current portion of long-term operating lease liabilities
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Other liabilities
Commitments and contingencies
Redeemable noncontrolling interest
Stockholders’ equity:
Quest Diagnostics stockholders’ equity:
Common stock, par value $ 0.01 per share; 600 shares authorized as of both December 31, 2025 and 2024; 162 shares issued as of both December 31, 2025 and 2024
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 52 shares and 51 shares as of December 31, 2025 and 2024, respectively
Total Quest Diagnostics stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023
(in millions, except per share data)
Net revenues
Operating costs and expenses and other operating income:
Cost of services
Selling, general and administrative
Amortization of intangible assets
Other operating (income) expense, net
Total operating costs and expenses, net
Operating income
Other income (expense):
Interest expense, net
Other income, net
Total non-operating expense, net
Income before income taxes and equity in earnings of equity method investees
Income tax expense
Equity in earnings of equity method investees, net of taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Quest Diagnostics
Earnings per share attributable to Quest Diagnostics’ common stockholders:
Basic
Diluted
The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023
(in millions)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Net deferred (losses) gains on cash flow hedges, net of taxes
Other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Quest Diagnostics
The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for credit losses
Deferred income tax provision (benefit)
Stock-based compensation expense
Other, net
Changes in operating assets and liabilities:
Accounts receivable
Accounts payable and accrued expenses
Income taxes payable
Other assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities:
Business acquisitions, net of cash acquired
Capital expenditures
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments of debt
Purchases of treasury stock
Exercise of stock options
Employee payroll tax withholdings on stock issued under stock-based compensation plans
Dividends paid
Distributions to noncontrolling interest partners
Other financing activities, net
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of year
Cash and cash equivalents and restricted cash, end of year
The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023
(in millions)
Quest Diagnostics Stockholders’ Equity
Shares of
Common
Stock Out-
standing
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock, at
Cost
Non-
controlling
Interests
Total Stock-holders’
Equity
Balance, December 31, 2022
Net income
Other comprehensive income, net of tax
Dividends declared
Distributions to noncontrolling interest partners
Issuance of common stock under benefit plans
Stock-based compensation expense
Exercise of stock options
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans
Purchases of treasury stock
Balance, December 31, 2023
Net income
Other comprehensive loss, net of tax
Dividends declared
Distributions to noncontrolling interest partners
Issuance of common stock under benefit plans
Stock-based compensation expense
Exercise of stock options
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans
Acquisition of additional ownership interest in subsidiary
Purchases of treasury stock
Balance, December 31, 2024
Net income
Other comprehensive income, net of tax
Dividends declared
Distributions to noncontrolling interest partners
Issuance of common stock under benefit plans
Stock-based compensation expense
Exercise of stock options
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans
Purchases of treasury stock
Balance, December 31, 2025
The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Background
Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") work across the healthcare ecosystem to create a healthier world, one life at a time. The Company's diagnostic information services ("DIS") business provides diagnostic insights from the results of its 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, the 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, the diagnostic insights can inspire actions that transform lives and create a healthier world. The Company provides services to a broad range of customers within its primary customer channels - physicians (including those associated with accountable care organizations ("ACOs") and Federally Qualified Health Centers ("FQHCs")), hospitals, and patients and consumers. Other customers include health plans, employers, new and emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories. The Company offers broad access to clinical testing through a network of laboratories, patient service centers, phlebotomists in physician offices, and connectivity resources, including call centers and mobile phlebotomists, nurses and other health and wellness professionals. The Company's 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 the Company's tests and test results, and help them utilize Quest Diagnostics' services to outcomes and . The Company's Diagnostic Solutions ("DS") group, which represents the balance of the Company's consolidated net revenues, includes the Company's risk assessment services business, which offers solutions for insurers, and the Company's healthcare information technology businesses, which offer solutions for healthcare providers and payers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all entities controlled by the Company through its direct or indirect ownership of a majority voting interest. Additionally, the consolidated financial statements include the accounts of variable interest entities (“VIEs”) in which the Company has a variable interest and for which the Company is the “primary beneficiary” as it has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. All significant intercompany accounts and transactions are eliminated in consolidation.
Income attributable to the minority interest in the Company's majority owned and controlled consolidated subsidiaries is recorded as net income attributable to noncontrolling interests in the consolidated statements of operations and the noncontrolling interest is reflected as a separate component of consolidated stockholders' equity in the consolidated balance sheet.
Equity Method Investments
Investments in entities which the Company does not control, but in which it has a substantial ownership interest (generally between 20 % and 49 %) and can exercise significant influence, are accounted for using the equity method of accounting. These investments are classified as investments in equity method investees in the consolidated balance sheet. The Company records its pro rata share of the earnings, adjusted for accretion of basis difference, of these investments in equity in earnings of equity method investees, net of taxes in the consolidated statements of operations. The Company reviews its investments in equity method investees for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
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liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods sold or services rendered primarily upon completion of the testing process (when results are reported) or when services have been rendered (see Note 3). Net revenues from Medicare and Medicaid programs were approximately 11 % of the Company's consolidated net revenues for each of the years ended December 31, 2025, 2024 and 2023. Net revenues from government programs in Canada were approximately 5 % and 2 % of the Company's consolidated net revenues for the years ended December 31, 2025 and 2024, respectively.
Taxes on Income
The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Current and deferred income taxes are measured based on the tax laws that are enacted as of the balance sheet date of the relevant reporting period. Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Tax benefits from uncertain tax positions are recognized only if the tax position is more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the position.
Earnings Per Share
The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan (“ELTIP”) and its Amended and Restated Non-Employee Director Long-Term Incentive Plan (“DLTIP”), as well as the dilutive effect of accelerated share repurchase agreements ("ASRs"), if applicable. Earnings allocable to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.
Stock-Based Compensation
The Company measures stock-based compensation for equity awards at fair value on the date of grant and records stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards. As such, the Company recognizes stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions of the individual grants. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in earnings in the period of the change. The terms of the Company's performance share units allow the recipients of such awards to earn a variable number of shares based on the achievement of the performance goals, which are based on the financial performance of the Company and the total shareholder return of the Company relative to an index of peer companies ("relative TSR"), specified in the awards. For performance share units with a goal based on the financial performance of the Company, stock-based compensation expense is recognized based on management's best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned. The cumulative effect on current and prior periods of a change in the estimated number of performance share units expected to be earned for these awards is recognized as compensation cost in earnings in the period of the change. For performance share units with a market-based relative TSR goal, stock-based compensation expense is recognized based on the estimated fair value of the award regardless of the actual number of shares earned. For further details regarding stock-based compensation, see Note 17.
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Fair Value Measurements
The Company determines fair value measurements used in its consolidated financial statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs, as determined by either the principal market or the most advantageous market.
Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
Foreign Currency
The Company predominately uses the U.S. dollar as its functional currency. The functional currency of the Company's foreign operating subsidiaries generally is the applicable local currency. Assets and liabilities denominated in non-U.S. dollars are translated into U.S. dollars at exchange rates as of the end of the reporting period. Income and expense items are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity. Gains and losses from foreign currency transactions, which are denominated in a currency other than the functional currency, are included within other operating (income) expense, net in the consolidated statements of operations. Foreign currency transaction gains and losses have historically not been material. The Company may be exposed to market risk for changes in foreign exchange rates primarily under certain intercompany receivables and payables. From time to time, the Company uses foreign exchange forward contracts to mitigate the exposure of the eventual net cash inflows or outflows resulting from these intercompany transactions. The Company's foreign exchange exposure is not material to the Company's consolidated financial condition. The Company does not hedge its net investment in non-U.S. subsidiaries because it views those investments as long-term in nature.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with original maturities, at the time acquired by the Company, of three months or less.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash, cash equivalents, short-term investments, accounts receivable and derivative financial instruments. The Company's policy is to place its cash, cash equivalents and short-term investments in highly-rated financial instruments and institutions. Concentration of credit risk with respect to accounts receivable is mitigated by the diversity of the Company's payers and their dispersion across many different geographic regions, and credit risk is concentrated among certain payers who are large buyers of the Company's services. To reduce risk, the Company routinely assesses the financial strength of these payers and, consequently, believes that its accounts receivable credit risk exposure, with respect to these payers, is limited. While the Company has receivables due from federal, state and foreign governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal, state and foreign governments, and payment is primarily dependent on submitting appropriate documentation timely. As of December 31, 2025 and 2024, receivables due from government payers under the Medicare and Medicaid programs represented approximately 7 % and 6 %, respectively, of the Company's consolidated net accounts receivable. As of both December 31, 2025 and 2024, receivables due from Canadian government payers represented approximately 1 % of the Company's consolidated net accounts receivable. The portion of the Company's accounts receivable due from patients comprises the largest portion of credit risk. As of both December 31, 2025 and 2024, receivables due from patients represented approximately 20 % of the Company's consolidated net accounts receivable. The Company applies assumptions and judgments including historical collection experience (including the period of time that
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the receivables have been outstanding) for assessing collectability and determining net revenues and accounts receivable from patients.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are reported net of allowances for credit losses.
When estimating its allowance for credit losses, the Company pools its trade receivables based on the following customer types: healthcare insurers, government payers, client payers and patients, which are described in Note 3. The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period of time that the receivables have been outstanding. To the extent that any individual payers are identified that have deteriorated in credit quality, the Company removes the customers from their respective pools and establishes allowances based on the individual risk characteristics of such customers.
Inventories
Inventories, which consist principally of finished goods testing supplies and reagents, are valued at the lower of cost (principally first in, first out method) or net realizable value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and expensed as incurred for preliminary project activities and post-implementation activities. Capitalized costs include external direct costs of materials and services consumed in developing or obtaining internal-use software, payroll and payroll-related costs for employees who are directly associated with the internal-use software project, and interest costs incurred, when material, while developing internal-use software. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs for maintenance and training are expensed as incurred. The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the expected useful lives of the assets. Depreciation and amortization are principally provided on the straight-line method over expected useful asset lives as of December 31, 2025 as follows:
• buildings and improvements, ranging up to thirty-one and a half years;
• laboratory equipment and furniture and fixtures, ranging from five to twelve years ;
• leasehold improvements, the lesser of the useful life of the improvement or the remaining life of the building or lease, as applicable; and
• computer software developed or obtained for internal use, principally five to ten years .
Goodwill
Goodwill represents the excess of the fair value of the acquiree (including the fair value of non-controlling interests) over the recognized bases of the net identifiable assets acquired and includes the future economic benefits from other assets that could not be individually identified and separately recognized. Goodwill is not amortized, but instead is periodically reviewed for impairment and an impairment charge is recorded in the periods in which the recorded carrying value of goodwill exceeds its fair value.
On a quarterly basis, the Company performs a review of its business to determine if events or changes in circumstances have occurred which could have a material adverse effect on the fair value of the Company and its goodwill. If such events or changes in circumstances were deemed to have occurred, the Company would perform an impairment test of goodwill as of the end of the quarter and record any noted impairment loss.
The goodwill test is performed at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The annual impairment test includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value; the qualitative test may be performed prior
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to, or as an alternative to, performing a quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company is required to perform the quantitative goodwill impairment test. Otherwise, no further analysis is required. Additionally, the Company's policy is to update the fair value calculation of its reporting units and perform the quantitative goodwill impairment test on a periodic basis.
The quantitative impairment test involves the comparison of the fair value of the reporting unit to its carrying value. The Company calculates the fair value of each reporting unit using either (i) a discounted cash flows analysis that converts future cash flow amounts into a single discounted present value amount or (ii) a market approach. The Company assesses the valuation methodology based upon the relevance and availability of the data at the time that the valuation is performed. The Company compares the estimate of fair value for the reporting unit to the carrying value of the reporting unit. If the carrying value is greater than the estimate of fair value, an impairment loss will be recognized in the amount of the excess.
The Company performs its annual impairment test during the fourth quarter of the fiscal year. For the years ended December 31, 2025 and 2024, the Company performed a qualitative impairment test and, based on the totality of information available for the reporting units, the Company concluded that it was more likely than no t that the estimated fair values of the reporting units were greater than the carrying values of the reporting units and, as such, no further analysis was required.
Intangible Assets
Intangible assets are recognized at fair value, as an asset apart from goodwill if the asset (i) arises from contractual or other legal rights, or (ii) is separable. Intangible assets, principally representing the cost of customer-related intangible assets, non-competition agreements, acquired technology-related intangible assets and trade name intangible assets, are capitalized and amortized on the straight-line method over their expected useful lives, which generally range from five to twenty-five years . Intangible assets with indefinite useful lives, consisting principally of acquired trade names, are not amortized, but instead are periodically reviewed for impairment.
The Company reviews indefinite-lived intangible assets periodically for impairment and an impairment charge is recorded in the periods in which the recorded carrying value of an indefinite-lived intangible asset is more than its estimated fair value. The indefinite-lived intangible asset impairment test is performed at least annually, or more frequently in the case of other events that indicate a potential impairment.
Based upon the Company’s most recent annual impairment tests completed during the fourth quarter of the years ended December 31, 2025 and 2024, the Company concluded that indefinite-lived intangible assets were not impaired.
The Company reviews the recoverability of its long-lived assets (including amortizable intangible assets), other than goodwill and indefinite-lived intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. Evaluation of possible impairment is based on the Company's ability to recover the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated fair value and carrying amount of the asset.
Investments
The Company's investments (except for those accounted for under the equity method of accounting) include:
• Equity investments with readily determinable fair values, including investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries; as well as participant-directed investments of deferred employee compensation and related Company matching contributions held in trusts pursuant to the Company's supplemental deferred compensation plans (see Note 17). These investments are measured at fair value with both realized and unrealized gains and losses recorded in current earnings within other income, net in the consolidated statements of operations. For the years ended December 31, 2025, 2024 and 2023, gains/(losses) from all equity investments with readily determinable fair values totaled $ 19 million, $ 18 million, and $ 20 million, respectively. See Note 7 for a discussion of the fair value of such investments.
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• Equity investments that do not have readily determinable fair values consist of investments in preferred and common shares of privately held companies. These investments are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes. The Company regularly evaluates these equity investments to determine if there are any indicators that the investment is impaired; no impairment charges were recognized related to these investments for the years ended December 31, 2025, 2024 and 2023. The carrying value of these investments was $ 47 million and $ 37 million as of December 31, 2025 and 2024, respectively. Such amounts were included in other assets in the consolidated balance sheet.
• Available-for-sale debt securities of privately-held companies. These investments are measured at fair value with unrealized gains and losses presented in other comprehensive income (loss). No such investments existed as of December 31, 2025 and 2024.
Derivative Financial Instruments
The Company uses derivative financial instruments, from time to time, to manage its exposure to market risks for changes in interest rates and foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, interest rate lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit risk-related contingent features or requirements to post collateral.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and, from time to time, variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has 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 between the counterparties are recognized as an adjustment to interest expense, net.
The Company accounts for these derivatives as either an asset or liability measured at its fair value. The fair value is based upon model-derived valuations in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present and future market conditions. For a derivative instrument that has been formally designated as a fair value hedge, fair value gains or losses on the derivative instrument along with offsetting fair value gains or losses on the hedged item that are attributable to the risk being hedged are reported in other income, net in the consolidated statements of operations. For derivatives that have been formally designated as a cash flow hedge, the change in the fair value of the derivatives is recorded in accumulated other comprehensive loss. Upon maturity or early termination of an effective interest rate swap agreement designated as a cash flow hedge, unrealized gains or losses are deferred in stockholders' equity, as a component of accumulated other comprehensive , and are amortized as an adjustment to interest expense over the period during which the hedged forecasted transaction affects earnings, which is when the Company recognizes interest expense on the hedged cash flows. At inception and quarterly thereafter, the Company formally assesses whether the derivatives that are used in hedging transactions are highly in offsetting changes in the fair value or cash flows of the hedged item. After the initial quantitative assessment, this analysis is initially performed on a qualitative basis and, if it is determined that the hedging relationship was and continues to be highly , no further analysis is required. All components of each derivative financial instrument's or are included in the assessment of hedge effectiveness. If it is determined that a derivative to be a highly hedge, the Company hedge accounting and any deferred or related to a cash flow hedge shall continue to be reported in accumulated other comprehensive , unless it is probable that the forecasted transaction will not occur. If it is probable that the forecasted transaction will not occur by the originally specified time period, the Company hedge accounting and any deferred or reported in accumulated other comprehensive are classified into earnings immediately.
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Comprehensive Income (Loss)
Comprehensive income (loss) encompasses all changes in stockholders' equity (except those arising from transactions with stockholders) and includes:
• Foreign currency translation adjustments;
• Net deferred gains (losses) on cash flow hedges, which represent deferred gains (losses), net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Notes 15 and 16); and
• Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December 31, 2025, 2024 and 2023, advertising costs were $ 35 million, $ 28 million and $ 31 million, respectively.
New Accounting Standards
In December 2023, the Financial Accounting Standards Board ("FASB") issued a new accounting standard which requires companies to make additional income tax disclosures. The pronouncement was effective for annual filings for the year ended December 31, 2025. The adoption of this standard, which the Company adopted on a retrospective basis, did not have a material impact on the Company's results of operations, financial position or cash flows. See Note 8 for the additional disclosures.
In November 2024, the FASB issued a new accounting standard which will require companies to disaggregate certain income statement expenses. The pronouncement is effective for annual filings for the year ended December 31, 2027 and for interim periods within the year ended December 31, 2028. The Company does not expect the adoption of this standard to have a material impact on its results of operations, financial position or cash flows.
In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA 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 leads to lower cash tax payments. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others in the future. The tax provisions of the legislation did not have a material impact on the Company’s statement of operations. The Company's consolidated deferred income tax liabilities as of December 31, 2025 and 2024 were $ 354 million and $ 278 million, respectively. The increase was principally due to the domestic research cost expensing and bonus depreciation elements of the OBBBA.
In September 2025, the FASB issued a new accounting standard which impacts internal-use software accounting by removing all references to software development project stages such that the guidance is neutral to different software development methods. The pronouncement is effective for annual filings for the year ended December 31, 2028 and for interim periods within such year. The Company is currently evaluating the impact of the standard.
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3. REVENUE RECOGNITION
DIS
Net revenues in the Company’s DIS business accounted for greater than 95 % of the Company’s consolidated net revenues for the years ended December 31, 2025, 2024 and 2023 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligation and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from payer customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials), and patient price concessions, as discussed below. The portfolios determined using the portfolio approach consist of the following groups of payer customers: healthcare insurers, government payers, client payers and patients. Contracts in the DIS business do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.
The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience and other factors (including the period of time that the receivables have been outstanding), to estimate contractual allowances and implicit price concessions, recording adjustments in the current period as changes in estimates. Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.
The following are descriptions of the DIS business’ portfolios:
Healthcare Insurers/Health Plans
Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules and on capitated payment rates. Under fee-for-service arrangements, healthcare insurers are billed at the Company's list price. Net revenues recognized consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and the terms of the Company’s contractual arrangements.
Collection of the Company's net revenues from healthcare insurers is normally a function of providing complete and correct billing information to the healthcare insurers within the various filing deadlines and generally occurs within 30 to 60 days of billing. Provided the Company has billed healthcare insurers accurately with complete information prior to the established filing deadline, there has historically been little to no credit risk. If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and if so, it will reserve accordingly for the billing.
Under capitated arrangements with healthcare insurers, the Company recognizes revenue based on a predetermined monthly reimbursement rate for each member of an insurer's health plan regardless of the number or cost of services provided by the Company. Healthcare insurers typically reimburse the Company under capitated arrangements in the same month services are performed, essentially giving rise to no outstanding accounts receivable at the end of a reporting period. If any capitated payments are not received on a timely basis, the Company determines the cause and makes a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and, if so, would reserve accordingly.
Government Payers
Reimbursements from domestic government payers are based on fee-for-service schedules set by governmental authorities, including traditional Medicare and Medicaid. Reimbursements from government payers in Canada are based on a combination of fee-for-service schedules, with a cap on maximum billings, and capitated arrangements. Net revenues recognized for fee-for-service arrangements principally consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and other factors.
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Collection of the Company's net revenues from government payers is normally a function of providing the complete and correct billing information within the various filing deadlines and generally occurs within 30 days of billing. Provided the Company has billed government payers accurately with complete information prior to the established filing deadline, there has historically been little to no credit risk. If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and, if so, it will reserve for the billing accordingly.
Client Payers
Client payers include physicians, hospitals, employers, new and emerging retail healthcare providers, pharmaceutical companies and other commercial clinical laboratories and institutions for which services are performed on a wholesale basis, and are billed based on negotiated fee schedules. Credit risk and ability to pay are more of a consideration for these payers than healthcare insurers and government payers. Collection of consideration the Company expects to receive generally occurs within 60 to 90 days of billing.
The Company principally estimates the allowance for credit losses for client payers based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period of time that the receivables have been outstanding. To the extent that any individual client payers are identified that have deteriorated in credit quality, the Company establishes allowances based on the individual risk characteristics of such customers.
Patients
Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Insured patients (includes coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Net revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with the Company’s policies and implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience (including the period of time that the receivables have been outstanding) and other factors including current market conditions. Patient billings are generally fully reserved for when the related service reaches 210 days outstanding. Balances are automatically written off when they are sent to collection agencies. Allowances are further adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection experience, which is regularly monitored. Collection of consideration the Company expects to receive generally occurs within 30 to 60 days of billing.
The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered. Collection of consideration the Company expects to receive generally occurs within 30 to 60 days of billing.
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The approximate percentage of net revenues by type of payer customer was as follows:
Year Ended December 31,
Healthcare insurers:
Fee-for-service
Capitated
Total healthcare insurers
Government payers (principally fee-for-service)
Client payers
Patients (including coinsurance and deductible responsibilities)
Total DIS
Net revenues
For the years ended December 31, 2025, 2024 and 2023, substantially all of the Company’s services were provided within the United States.
The approximate percentage of net accounts receivable by type of payer customer as of December 31, 2025 and 2024 was as follows:
Healthcare insurers
Government payers
Client payers
Patients (including coinsurance and deductible responsibilities)
Total DIS
Net accounts receivable
The following table summarizes the activity for the Company's allowance for credit losses during the years ended December 31, 2025 and 2024, which principally relates to client payers:
Allowance for Credit Losses
Balance, December 31, 2023
Provision for credit losses
Write-offs of accounts receivable, net of recoveries
Balance, December 31, 2024
Provision for credit losses
Write-offs of accounts receivable, net of recoveries
Balance, December 31, 2025
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4. EARNINGS PER SHARE
The computation of basic and diluted earnings per common share for the years ended December 31, 2025, 2024 and 2023 is as follows (in millions, except per share data):
Amounts attributable to Quest Diagnostics’ common stockholders:
Net income attributable to Quest Diagnostics
Less: Earnings allocated to participating securities
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted
Weighted average common shares outstanding – basic
Effect of dilutive securities:
Stock options and performance share units
Weighted average common shares outstanding – diluted
Earnings per share attributable to Quest Diagnostics’ common stockholders:
Basic
Diluted
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5. RESTRUCTURING ACTIVITIES AND IMPAIRMENT CHARGES
Invigorate Program
The Company is 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 an inflationary environment, including labor and benefit cost increases and reimbursement pressures. The Company is leveraging automation and artificial intelligence to improve productivity and also improve quality across the entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, and enhancing the digital experience.
Restructuring and Impairment Charges
The following table provides a summary of the Company's pre-tax restructuring and impairment charges for the years ended December 31, 2025, 2024 and 2023:
Employee separation costs
Asset impairment charges
Total restructuring and impairment charges
The Company's pre-tax restructuring charges for the years ended December 31, 2025, 2024 and 2023 included $ 28 million, $ 28 million and $ 25 million, respectively, of employee separation costs associated with various workforce reduction initiatives as the Company continued to restructure its organization. Additionally, during the years ended December 31, 2025, 2024 and 2023, the Company recorded impairment charges on certain long-lived assets related to the exits of businesses in the amounts of $ 29 million, $ 0 million and $ 29 million, respectively. Of the total restructuring and impairment charges incurred during the year ended December 31, 2025, $ 13 million, $ 15 million and $ 29 million were recorded in cost of services, selling, general and administrative expenses and other operating (income) expense, net, respectively. Of the total restructuring and impairment charges incurred during the year ended December 31, 2024, $ 15 million and $ 13 million were recorded in cost of services and selling, general and administrative expenses, respectively. Of the total restructuring charges incurred during the year ended December 31, 2023, $ 13 million, $ 12 million and $ 29 million were recorded in cost of services, selling, general and administrative expenses and other operating (income) expense, net, respectively.
Charges for all periods presented were primarily recorded in the Company's DIS business.
The following table summarizes the activity of the restructuring liability during 2025 and 2024, which is included in accrued expenses in Note 12:
Employee Separation Costs
Balance, December 31, 2023
Income statement expense
Cash payments
Balance, December 31, 2024
Income statement expense
Cash payments
Balance, December 31, 2025
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6. BUSINESS ACQUISITIONS
2025 Acquisitions
During 2025, the Company completed acquisitions for an aggregate purchase price of $ 101 million, net of cash acquired, including the acquisition discussed below. The acquisitions resulted in goodwill of $ 80 million, all of which is deductible for tax purposes. The acquisitions also resulted in $ 20 million of customer-related intangible assets.
Acquisition of select assets of Spectra Laboratories
During February 2025, the Company entered into a definitive agreement to acquire select clinical testing assets and select dialysis-related water testing assets of Fresenius Medical Care's wholly-owned Spectra Laboratories, a leading provider of renal-specific laboratory testing services in the United States. During August 2025, the acquisition of the select clinical testing assets closed and during November 2025 the acquisition of the select dialysis-related water testing assets closed. The Company paid $ 84 million of aggregate cash consideration for the businesses. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired consist of $ 68 million of tax-deductible goodwill and $ 16 million of customer-related intangible assets. The intangible assets are being amortized over a useful life of 15 years.
Venture with Corewell Health
During August 2025, the Company and Corewell Health signed a definitive agreement to enter into a venture which will perform laboratory testing in the state of Michigan via a new laboratory facility. The parties completed the transaction during January 2026. See Note 20 for further discussion.
2024 Acquisitions
During 2024, the Company completed acquisitions for an aggregate purchase price of $ 2.2 billion (including contingent consideration initially estimated at $ 6 million), net of cash acquired, including the acquisitions discussed below. Of such amount, $ 30 million was prepaid during the year ended December 31, 2023. In the Company's consolidated statement of cash flows for the year ended December 31, 2024, such $ 30 million is included in business acquisitions, net of cash acquired, with a corresponding offset in other investing activities.
The acquisitions resulted in goodwill of $ 1.1 billion, $ 862 million of which is deductible for tax purposes. See the table below for a summary of the assets acquired and liabilities assumed.
Acquisition of select assets of Lenco Diagnostic Laboratories, Inc. ("Lenco")
On February 12, 2024, the Company acquired select assets of Lenco, an independent clinical diagnostic laboratory provider serving physicians in New York, in an all-cash transaction for $ 111 million.
Acquisition of select assets of PathAI Diagnostics
On June 10, 2024, the Company acquired select assets of PathAI Diagnostics, a business that provides anatomic and digital pathology laboratory services, in an all-cash transaction for $ 100 million.
Acquisition of all of the issued and outstanding common shares of LifeLabs Inc. and all of the partnership interests of BPC Lab Finance LP (collectively, "LifeLabs")
On August 23, 2024, the Company acquired LifeLabs in an all-cash transaction for approximately CAN $ 1.35 billion (approximately USD $ 1 billion), net of cash acquired. LifeLabs provides laboratory diagnostic information and digital health connectivity systems in Canada.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The fair values of the customer-related intangible assets and the trade name intangible assets in the table below were determined by management using a multi-period excess earnings method, a form of the income approach, and a relief from royalty method, respectively. Management’s estimates of fair value were principally determined based on projections of cash flows and include significant judgments and assumptions relating to customer attrition rates for the customer-related intangible assets and royalty rates for the trade name intangible assets. The projected cash flows were discounted to determine the present values of the assets at the date of the acquisition. The fair value of the customer-related intangible assets utilized discount rates ranging from 13.0 % to 14.0 % and the fair value of the trade name intangible assets utilized a 12.0 % discount rate.
Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information reflects the consolidated statement of operations of the Company as if the acquisition of LifeLabs had occurred as of January 1, 2023. The pro forma information includes adjustments primarily related to the amortization of acquired intangible assets, interest expense associated with debt of LifeLabs which was extinguished prior to the acquisition, interest expense associated with senior notes issued to fund the acquisition, the impact on depreciation expense of recording acquired property, plant and equipment at fair value, and transaction costs related to the LifeLabs acquisition. The pro forma combined financial information does not include the estimated annual synergies expected to be realized upon completion of the integration of LifeLabs and therefore is not indicative of the results of operations as they would have been had the transaction been effected on the assumed date (in millions, except per share data).
Year Ended December 31,
Pro forma net revenues
Pro forma net income attributable to Quest Diagnostics
Pro forma earnings per share attributable to Quest Diagnostics' common stockholders:
Basic
Diluted
Acquisition of select assets of the outreach laboratory services business of Allina Health ("Allina")
On September 16, 2024, the Company acquired select assets of the outreach laboratory services business of Allina, which serves providers and patients in Minnesota and Wisconsin, in an all-cash transaction for $ 230 million.
Acquisition of the laboratory business of three physician groups in New York
On September 30, 2024, the Company acquired the laboratory business of three physician groups in New York in an all-cash transaction for $ 300 million.
Acquisition of select assets of the outreach laboratory services business of OhioHealth
On October 13, 2024, the Company acquired select assets of the outreach laboratory services business of OhioHealth, which serves providers and patients in Ohio, in an all-cash transaction for $ 200 million.
Acquisition of the outreach laboratory services business of University Hospitals
On December 30, 2024, the Company acquired the outreach laboratory services business of University Hospitals, which serves providers and patients in Ohio, in an all-cash transaction for $ 183 million.
The following table provides a summary of the assets acquired and liabilities assumed during the year ended December 31, 2024.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
LifeLabs
Laboratory Business of Three Physician Groups in New York
Select Assets of the Outreach Laboratory Services Business of Allina Health
Select Assets of the Outreach Laboratory Services Business of OhioHealth
Outreach Laboratory Services Business of University Hospitals
Other Acquisitions (a)
Total
Cash and cash equivalents
Accounts receivable
Other current assets
Property, plant and equipment
Finance lease assets (recorded in property, plant and equipment)
Operating lease right-of-use assets
Goodwill
Intangible assets
Other assets
Total assets acquired
Accounts payable and accrued expenses
Current portion of long-term operating lease liabilities
Finance lease liabilities (recorded in long-term debt)
Long-term operating lease liabilities
Other liabilities
Total liabilities assumed
Net assets acquired
(a) Principally relates to the acquisitions of Lenco and PathAI Diagnostics.
The fair values of the acquired intangible assets during the year ended December 31, 2024 are as follows:
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(in millions unless otherwise indicated)
LifeLabs
Laboratory Business of Three Physician Groups in New York
Select Assets of the Outreach Laboratory Services Business of Allina Health
Select Assets of the Outreach Laboratory Services Business of OhioHealth
Outreach Laboratory Services Business of University Hospitals
Other Acquisitions (a)
Total
Weighted Average Useful Life (in years)
Customer-related
Trade names
Non-competition agreements
(a) Principally relates to the acquisitions of Lenco and PathAI Diagnostics.
2023 Acquisitions
During 2023, the Company completed acquisitions for an aggregate purchase price of $ 699 million (including contingent consideration initially estimated at $ 88 million), net of cash acquired, including the acquisitions discussed below. The acquisitions resulted in goodwill of $ 511 million, of which $ 244 million is deductible for tax purposes. The acquisitions also resulted in $ 145 million of technology-related intangible assets and $ 63 million of customer-related intangible assets.
Acquisition of select assets of the laboratory services business of New York-Presbyterian
On April 17, 2023, the Company completed the acquisition of select assets of the laboratory services business of New York-Presbyterian, which serves providers and patients in New York, as well as the tri-state area and beyond, in an all-cash transaction for $ 275 million. Based on the purchase price allocation, the assets acquired primarily consist of $ 222 million of tax-deductible goodwill and $ 53 million of customer-related intangible assets. The intangible assets are being amortized over a useful life of 15 years.
Acquisition of Haystack Oncology, Inc.
On June 20, 2023, the Company acquired Haystack Oncology, Inc. ("Haystack"), an early-stage oncology company focused on minimal residual disease testing to aid in the detection of residual or recurring cancer and better inform therapy decisions. The acquisition was an all-cash transaction for $ 392 million, net of $ 1 million of cash acquired, which consisted of cash consideration of $ 304 million and contingent consideration initially estimated at $ 88 million. Under the contingent consideration obligation, the seller can receive up to $ 100 million of additional consideration dependent upon the achievement of certain revenue benchmarks through 2028 and up to an additional $ 50 million of consideration dependent upon the Company receiving reimbursement coverage from the Centers for Medicare and Medicaid Services ("CMS"). Based on the purchase price allocation, the assets acquired and liabilities assumed consist of $ 267 million of goodwill ( no ne of which is tax-deductible), $ 145 million of technology-related intangible assets, $ 23 million of deferred income tax liabilities, $ 8 million of operating lease right-of-use assets and related operating lease liabilities, and $ 3 million of property, plant and equipment. The intangible assets are being amortized over a useful life of 15 years. For further details regarding the fair value of the Company's contingent consideration, see Note 7.
General Information
The acquisitions described above were accounted for under the acquisition method of accounting. As such, the assets acquired and liabilities assumed are recorded based on their estimated fair values as of the closing date. The goodwill recorded primarily includes the expected synergies resulting from combining the operations of the acquired entities with those of the Company and the value associated with an assembled workforce and other intangible assets that do not qualify for separate recognition. All of the goodwill acquired in connection with these acquisitions has been allocated to the Company's DIS business. For further details regarding business segment information, see Note 19.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
Except for the acquisition of LifeLabs (see above), supplemental pro forma combined financial information, and financial information subsequent to the acquisition close dates, has not been presented as the impact of the other acquisitions is not material to the Company's consolidated financial statements. Additionally, for such other acquisitions, it is impracticable to provide this financial information due to a variety of factors, including access to historical information and the operations of the acquirees being significantly integrated into the Company's cost structure shortly after the closing of the acquisitions.
7. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:
Basis of Fair Value Measurements
Total
Level 1
Level 2
Level 3
December 31, 2025
Assets:
Deferred compensation trading securities
Cash surrender value of life insurance policies
Equity investments
Fixed-to-variable interest rate swaps
Total
Liabilities:
Deferred compensation liabilities
Contingent consideration
Total
Redeemable noncontrolling interest
December 31, 2024
Assets:
Deferred compensation trading securities
Cash surrender value of life insurance policies
Total
Liabilities:
Deferred compensation liabilities
Contingent consideration
Fixed-to-variable interest rate swaps
Total
Redeemable noncontrolling interest
The Company offers certain employees the opportunity to participate in a non-qualified supplemental deferred compensation plan. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. The trading securities are classified within Level 1 of the fair value hierarchy because the changes in the fair value of these securities, which are recorded in other assets in the Company's consolidated balance sheet, are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held, exclusive of any transaction costs. A corresponding adjustment for changes in fair
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(in millions unless otherwise indicated)
value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the trading securities.
The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value, which is recorded in other assets in the Company's consolidated balance sheet, and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments. Through December 31, 2025, deferrals under the plan could only be made by participants who made deferrals under the plan in 2017. Effective January 1, 2026, the plan will no longer accept deferrals on compensation earned after December 31, 2025.
The Company's 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 prepaid expenses and other current assets in the Company's consolidated balance sheet. Such equity investments are classified within Level 1 of the fair value hierarchy because the changes in the fair values of the securities are measured using quoted prices in active markets based on the market price per share multiplied by the number of shares held, exclusive of any transaction costs.
The fair value measurements of the Company's fixed-to-variable interest rate swaps, classified within Level 2 of the fair value hierarchy, are model-derived valuations as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present and future market conditions.
In connection with the acquisition of Haystack (see Note 6 for further discussion), there is a contingent consideration obligation under which the seller can receive up to $ 100 million of additional consideration dependent upon the achievement of certain revenue benchmarks through 2028 and up to an additional $ 50 million of consideration dependent upon the Company receiving reimbursement coverage from CMS. The portion of the contingent consideration obligation which is dependent upon the achievement of certain revenue benchmarks was measured at fair value using a Monte Carlo method and is classified within Level 3 of the fair value hierarchy as the fair value is determined based on significant inputs that are not observable. Significant inputs include management’s estimate of revenue and other market inputs, including comparable company revenue volatility ( 25 %) and a discount rate ( 7.0 %). The portion of the contingent consideration obligation which is dependent upon the Company receiving reimbursement coverage from the CMS is also classified within Level 3 of the fair value hierarchy as the fair value is principally determined based on management's estimate, which is a significant input that is not observable. Additionally, the fair value of the entire contingent consideration obligation is also impacted by a market discount rate ( 5 %) which adjusts the estimated payments to present value. The fair value of the contingent consideration obligation is not overly sensitive to movements in the comparable company revenue or the discount rate used for the portion of the obligation that is dependent upon the of certain revenue benchmarks. For example, changing the comparable company revenue from 25 % to 35 % impacts the fair value by $ 5 million (assuming no other inputs are modified) and changing the discount rate from 7.0 % to 10.5 % impacts the fair value by $ 5 million (assuming no other inputs are modified).
The Company has additional contingent consideration obligations in connection with other acquisitions. The liabilities related to such obligations are included in the amounts below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):
Contingent Consideration
Balance, December 31, 2023
Purchases, additions and issuances
Settlements
Total fair value adjustments included in earnings - unrealized
Balance, December 31, 2024
Total fair value adjustments included in earnings - unrealized
Balance, December 31, 2025
The $( 10 ) million and $ 2 million of net (gains)/losses included in earnings associated with the changes in the fair value of the contingent consideration obligation for the years ended December 31, 2025 and 2024, respectively, are reported in other operating (income) expense, net. The net gain for the year ended December 31, 2025 was principally due to changes in the timing of estimated revenues for Haystack.
Of the aggregate $ 96 million contingent consideration obligation as of December 31, 2025, $ 45 million and $ 51 million were included in other liabilities and accounts payable and accrued expenses, respectively, in the Company's consolidated balance sheet. Of the aggregate $ 106 million contingent consideration obligation as of December 31, 2024, $ 101 million and $ 5 million were included in other liabilities and accounts payable and accrued expenses, respectively, in the Company's consolidated balance sheet.
During the year ended December 31, 2025, the Company recorded a $ 29 million impairment charge on certain long-lived assets related to the exit of a business. The fair value measurement was classified within Level 3 of the fair value hierarchy as it was based on significant inputs that are not observable.
In connection with the sale of an 18.9 % noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of December 31, 2025, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long-term growth rates, and a discount rate commensurate with economic risk.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of December 31, 2025 and 2024, the fair value of the Company’s debt was estimated at $ 5.7 billion and $ 6.1 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.
8. TAXES ON INCOME
The Company's pre-tax income before equity in earnings of equity method investees consisted of approximately $ 1.2 billion, $ 1.1 billion and $ 1.1 billion from U.S. operations and pre-tax income of $ 96 million, $ 28 million and $ 7 million from foreign operations for the years ended December 31, 2025, 2024 and 2023, respectively.
The components of income tax expense (benefit) for the years ended December 31, 2025, 2024 and 2023 were as follows:
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(in millions unless otherwise indicated)
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total
A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate for the years ended December 31, 2025, 2024 and 2023 was as follows (dollars in millions):
U.S. federal statutory tax rate
State and local income taxes, net of federal benefit (a)
Foreign tax effects
Effect of cross-border tax laws
Tax credits
Nontaxable or nondeductible expenses:
Excess tax benefits on stock-based compensation arrangements
Other, net
Changes in unrecognized tax benefits
Other, net:
Impact of noncontrolling interests
Other adjustments
Effective income tax rate
(a) State taxes in California, Florida, New York, Pennsylvania, Texas, and Virginia made up the majority (greater than 50%) of the tax effect in this category.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) as of December 31, 2025 and 2024 were as follows:
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(in millions unless otherwise indicated)
Non-current deferred tax assets (liabilities):
Accounts receivable reserves
Liabilities not currently deductible
Stock-based compensation
Basis differences in investments, joint ventures and subsidiaries
Tax attribute carryforwards, net of valuation allowances and unrecognized tax position liabilities
Operating lease right-of-use assets
Operating lease liabilities
Depreciation and amortization
Total non-current deferred tax liabilities, net
As of December 31, 2025 and 2024, non-current deferred tax liabilities of $ 354 million and $ 278 million, respectively, are included in other liabilities in the consolidated balance sheet. As of December 31, 2025 and 2024, non-current deferred tax assets of $ 10 million and $ 28 million, respectively, are included in other assets in the consolidated balance sheet.
As of December 31, 2025, the Company had estimated net operating loss carryforwards for federal and state income tax purposes of $ 4 million and $ 627 million, respectively, which expire at various dates through 2045. Estimated net operating loss carryforwards for foreign income tax purposes are $ 220 million as of December 31, 2025, some of which can be carried forward indefinitely, while others expire at various dates through 2044. As of December 31, 2025, the Company had capital loss carryforwards of $ 17 million, Federal Corporate Alternative Minimum Tax credits of $ 34 million and various state credits of $ 29 million, which expire at various dates through 2045. As of December 31, 2025 and 2024, deferred tax assets associated with tax attribute carryforwards of $ 126 million and $ 95 million, respectively, have each been reduced by valuation allowances of $ 46 million and $ 35 million, respectively.
Income taxes payable, including those classified as long-term in other liabilities in the consolidated balance sheet as of December 31, 2025 and 2024, were $ 120 million and $ 96 million, respectively. Prepaid income taxes were $ 32 million and $ 47 million as of December 31, 2025 and 2024, respectively, and were recorded in prepaid expenses and other current assets in the consolidated balance sheet.
Income taxes paid by jurisdiction for the years ended December 31, 2025, 2024 and 2023 were as follows:
Federal
State and local
New York City (a)
Foreign
Total income taxes paid by jurisdiction
(a) The amount of income taxes paid during the years ended December 31, 2025 and 2024 did not meet the 5% disaggregation threshold.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The total amount of unrecognized tax benefits as of and for the years ended December 31, 2025, 2024 and 2023 consisted of the following:
Balance, beginning of year
Additions:
For tax positions of current year
For tax positions of prior years
Reductions:
Changes in judgment
Expirations of statutes of limitations
Settlements
Other:
Foreign deferred tax assets reduction
Balance, end of year
The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain tax deductions associated with business combinations, certain tax credits and the deductibility of certain expenses and settlement payments.
The total amount of unrecognized tax benefits as of December 31, 2025, that, if recognized, would affect the effective income tax rate is $ 102 million.
Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated statements of operations. Accruals for penalties have historically been immaterial. Interest expense included in income tax expense in each of the years ended December 31, 2025, 2024 and 2023 was approximately $ 4 million, $ 7 million and $ 5 million, respectively. As of December 31, 2025 and 2024, the Company had approximately $ 28 million and $ 24 million, respectively, accrued, net of the benefit of a federal and state deduction, for the payment of interest on uncertain tax positions.
The recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently involves subjectivity. Changes in estimates may create volatility in the Company's effective tax rate in future periods and may be due to settlements with various tax authorities (either favorable or unfavorable), the expiration of the statute of limitations on certain tax positions and obtaining new information about particular tax positions that may cause management to change its estimates.
In the regular course of business, various federal, state, local and foreign tax authorities conduct examinations of the Company's income tax filings and the Company generally remains subject to examination until the statute of limitations expires for the respective jurisdiction. The Internal Revenue Service has either completed its examinations of the Company's consolidated federal income tax returns or the statute of limitations has expired up through and including the 2021 tax year. At this time, the Company does not believe that there will be any material additional payments beyond its recorded contingent liability reserves that may be required as a result of these tax audits. As of December 31, 2025, a summary of the tax years that remain subject to examination, awaiting approval, are under appeal, or are otherwise unresolved for the Company's major jurisdictions are:
United States - federal 2022 - 2024
United States - various states 2015 - 2024
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
9. SUPPLEMENTAL CASH FLOW AND OTHER DATA
Supplemental cash flow and other data for the years ended December 31, 2025, 2024 and 2023 was as follows:
Depreciation expense
Amortization expense
Depreciation and amortization expense
Interest expense
Interest income
Interest expense, net
Interest paid
Income taxes paid
Accounts payable associated with capital expenditures
Accounts payable associated with purchases of treasury stock
Dividend payable
Dividends received from equity method investees
Businesses acquired:
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Merger consideration payable
Cash paid for business acquisitions
Less: Cash acquired
Business acquisitions, net of cash acquired
Leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Leased assets obtained in exchange for new operating lease liabilities
During the years ended December 31, 2025, 2024 and 2023, other financing activities, net in the Company's consolidated statement of cash flows included changes in bank overdrafts, which are generally settled in cash in the short term, of $ 41 million, $ 33 million and $ 36 million, respectively.
During the year ended December 31, 2025, the Company received $ 46 million from a payroll tax credit under the Coronavirus Aid, Relief, and Economic Security Act associated with the retention of employees. Such amount is recorded in other operating (income) expense, net in the Company's consolidated statement of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2025 and 2024 consisted of the following:
Land
Buildings and improvements
Laboratory equipment and furniture and fixtures
Leasehold improvements
Computer software developed or obtained for internal use
Construction-in-progress
Less: Accumulated depreciation and amortization
Total
11. GOODWILL AND INTANGIBLE ASSETS
The changes in goodwill for the years ended December 31, 2025 and 2024 were as follows:
Balance, beginning of year
Goodwill acquired during the year
Adjustments to goodwill
Balance, end of year
Principally all of the Company’s goodwill as of December 31, 2025 and 2024 was associated with its DIS business.
For the year ended December 31, 2025, goodwill acquired was principally associated with the acquisition of select clinical testing assets and select dialysis-related water testing assets of Fresenius Medical Care's wholly-owned Spectra Laboratories (see Note 6). For the year ended December 31, 2025, adjustments to goodwill principally related to foreign currency translation, partially offset by the finalization of the purchase price allocation for a 2024 acquisition.
For the year ended December 31, 2024, goodwill acquired was principally associated with the acquisitions of LifeLabs, the laboratory business of three physician groups in New York, select assets of the outreach laboratory services business of Allina Health, select assets of the outreach laboratory services business of OhioHealth and the outreach laboratory services business of University Hospitals (see Note 6). For the year ended December 31, 2024, adjustments to goodwill related to foreign currency translation.
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(in millions unless otherwise indicated)
Intangible assets as of December 31, 2025 and 2024 consisted of the following:
Weighted
Average
Amortization
Period (in years)
Cost
Accumulated
Amortization
Net
Cost
Accumulated
Amortization
Net
Amortizing intangible assets:
Customer-related
Technology-related
Trade names
Non-competition agreements
Other
Total
Intangible assets not subject to amortization:
Trade names
Other
Total intangible assets
During the year ended December 31, 2025, the Company recorded a $ 29 million impairment charge on certain long-lived assets related to the exit of a business. Such charge principally related to customer-related intangible assets. See Note 5 for further discussion.
The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2025 is as follows:
Year Ending December 31,
Thereafter
Total
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12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2025 and 2024 consisted of the following:
Accrued wages and benefits (including incentive compensation)
Accrued expenses
Trade accounts payable
Overdrafts
Dividend payable
Contingent consideration payable
Accrued insurance
Accrued interest
Income taxes payable
Total
13. DEBT
Long-term debt (including finance lease obligations) as of December 31, 2025 and 2024 consisted of the following:
3.50 % Senior Notes due March 2025
3.45 % Senior Notes due June 2026
4.60 % Senior Notes due December 2027
4.20 % Senior Notes due June 2029
4.625 % Senior Notes due December 2029
2.95 % Senior Notes due June 2030
2.80 % Senior Notes due June 2031
6.40 % Senior Notes due November 2033
5.00 % Senior Notes due December 2034
6.95 % Senior Notes due July 2037
5.75 % Senior Notes due January 2040
4.70 % Senior Notes due March 2045
Other
Debt issuance costs
Total long-term debt
Less: Current portion of long-term debt
Total long-term debt, net of current portion
Secured Receivables Credit Facility
The Company is party to a $ 600 million secured receivables credit facility (the “Secured Receivables Credit Facility”), which it amended during November 2025 in order to extend the maturity to November 2027. The facility includes a $ 200 million uncommitted accordion which, if utilized, brings the total capacity under the facility to $ 800 million. The entire facility can be used for borrowings. Additionally, the Company can choose to utilize up to $ 150 million of such capacity to issue letters of credit (see Note 18). Issued letters of credit reduce the available borrowing capacity under the facility. Interest on borrowings under the 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 of 0.80 %. Borrowings under the Secured Receivables Credit Facility are collateralized by certain domestic receivables. The 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
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(in millions unless otherwise indicated)
secure the borrowings under the facility. As of both December 31, 2025 and 2024, there were no outstanding borrowings under the Secured Receivables Credit Facility.
Senior Unsecured Revolving Credit Facility
During April 2025, the Company amended the agreement for its $ 750 million senior unsecured revolving credit facility (the “Credit Facility” or "Senior Unsecured Revolving Credit Facility") to extend the maturity to April 2030, while maintaining the same borrowing capacity under the facility of $ 750 million. Under the Credit Facility, the Company can issue letters of credit totaling $ 150 million (see Note 18). Issued letters of credit reduce the available borrowing capacity under the Credit Facility. Additionally, the Credit Facility includes an additional $ 500 million uncommitted accordion which, if utilized, brings the total capacity under the facility to $ 1.3 billion. Interest on the Credit Facility is based on certain published rates plus an applicable margin based on changes in the Company's public debt ratings. At the option of the Company, it may elect to lock into Term SOFR-based interest rate contracts for periods up to six months. For interest on any U.S. Dollar-denominated outstanding amounts not covered under Term SOFR-based interest rate contracts, the Company can opt for an alternate base rate, which is calculated by reference to the prime rate, the federal funds rate or an adjusted Term SOFR rate. The Company also has the option to borrow in other currencies. As of December 31, 2025 , the Company's borrowing rate for Term SOFR-based loans under the Credit Facility was adjusted Term SOFR plus 1.00 %. The Credit Facility contains various covenants, including the maintenance of a financial leverage ratio, which could impact the Company's ability to, among other things, incur additional indebtedness. As of both December 31, 2025 and 2024, there were no outstanding borrowings u n der the Senior Unsecured Revolving Credit Facility.
Repayment of Senior Notes
During the year ended December 31, 2025, the Company repaid in full the outstanding indebtedness under the Company's $ 600 million of 3.50 % senior notes, which matured on March 30, 2025.
3.45 % Senior Notes due June 2026
The Company has $ 500 million of 3.45 % senior notes due June 2026. The senior notes are included in current portion of long-term debt in the Company's December 31, 2025 consolidated balance sheet. Such notes were included in long-term debt in the Company's December 31, 2024 consolidated balance sheet.
All of the senior notes are unsecured obligations of the Company and rank equally with the Company's other senior unsecured obligations. None of the Company's senior notes have a sinking fund requirement.
The Company may redeem its outstanding senior notes prior to scheduled maturity, as a whole or in part, at a redemption price equal to the present value of the remaining scheduled payments of principal and interest, except for certain notes for which the Company also has an option to redeem such instruments at par value on or after dates specified in the indentures governing the notes ("the par value redemption option"). For notes with the par value redemption option, if such notes are redeemed prior to the specified dates, the redemption price calculations exclude any interest that would have been due after such dates.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
Maturities of Long-Term Debt
As of December 31, 2025, long-term debt matures as follows:
Year Ending December 31,
Thereafter
Total maturities of long-term debt
Unamortized discount
Debt issuance costs
Fair value basis adjustments attributable to hedged debt
Total long-term debt
Less: Current portion of long-term debt
Total long-term debt, net of current portion
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
14. LEASES
The Company determines if an arrangement is or contains a lease at contract inception. The Company leases office space, patient service centers, clinical laboratories, warehouses, logistic hubs and equipment primarily through operating leases, with a limited number of finance leases. A right-of-use asset , representing the underlying asset during the lease term, and a lease liability , representing the payment obligation arising from the lease, are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the right-of-use asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For the years ended December 31, 2025, 2024, and 2023, lease expense associated with short-term leases was not material.
The Company primarily uses its collateralized incremental borrowing rate in determining the present value of lease payments as the Company's leases generally do not provide an implicit rate. Such incremental borrowing rates, which take into account interest rates offered to companies that have similar credit ratings to the Company, are determined using a portfolio approach which groups the Company’s leases based on tenor.
The Company has lease agreements with (i) right-of-use asset payments and (ii) non-lease components (i.e., payments related to maintenance fees, utilities, etc.) which have been combined and accounted for as a single lease component.
The Company's leases have remaining terms of less than 1 year to 19 years, some of which include options to extend the leases for up to approximately 20 years. The Company's lease terms may include renewal options that are reasonably certain to be exercised and termination options that are reasonably certain not to be exercised. Certain leases also include options to purchase the leased property.
Certain of the Company's lease agreements include rental payments adjusted periodically for inflation or a market rate which are included in the lease liabilities.
The Company's assets and liabilities for its lease agreements as of December 31, 2025 and 2024 were as follows:
Leases
Balance Sheet Classification
Assets
Operating
Operating lease right-of-use assets
Finance
Property, plant and equipment, net (a)
Total lease assets
Liabilities
Current:
Operating
Current portion of long-term operating lease liabilities
Finance
Current portion of long-term debt
Non-current:
Operating
Long-term operating lease liabilities
Finance
Long-term debt
Total lease liabilities
(a) Finance lease assets as of December 31, 2025 and 2024 were recorded net of accumulated amortization of $ 4 million and $ 1 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
Components of lease cost for the years ended December 31, 2025, 2024 and 2023 were as follows:
Lease cost
Operating lease cost (a)
Finance lease cost:
Amortization of leased assets
Interest on lease liabilities
Net lease cost
(a) Includes short-term leases and variable lease costs (primarily usage-based maintenance fees and utilities related to real estate leases and certain equipment-related and vehicle-related costs) of $ 253 million, $ 204 million and $ 161 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The maturity of the Company's lease liabilities as of December 31, 2025 is as follows:
Maturity of lease liabilities
Operating leases
Finance leases
Total
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Lease term and discount rate as of December 31, 2025 and 2024 were as follows:
Lease term and discount rate
Weighted-average remaining lease term (years):
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
The Company's discount rates for its operating leases were primarily determined using the Company's incremental borrowing rate.
See Note 9 for cash flow information on cash paid for amounts included in the measurement of lease liabilities and leased assets obtained in exchange for new operating lease liabilities for the years ended December 31, 2025, 2024 and 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
15. FINANCIAL INSTRUMENTS
Interest Rate Derivatives – Cash Flow Hedges
From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.
Interest Rate Derivatives – Fair Value Hedges
As discussed in Note 2, the Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. Therefore, during the years ended December 31, 2025 and 2024, the Company entered into various fixed-to-variable interest rate swaps to convert a portion of the Company's long-term debt into variable interest rate debt.
A summary of the notional amounts of these interest rate swap agreements as of December 31, 2025 and December 31, 2024 was as follows:
Notional Amount
Debt Instrument
December 31, 2025
December 31, 2024
5.00 % Senior Notes due December 2034
2.80 % Senior Notes due June 2031
6.40 % Senior Notes due November 2033
Total notional amounts
The fixed-to-variable interest rate swap agreements in the table above have variable interest rates ranging from SOFR minus 1.36 % to SOFR plus 2.48 %.
As of December 31, 2025 and 2024, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:
Carrying Amount of Hedged Long-Term Debt
Hedge Accounting Basis Adjustment (a)
Carrying Amount of Hedged Long-Term Debt
Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification
December 31, 2025
December 31, 2025
December 31, 2024
December 31, 2024
Long-term debt
(a) The balance includes $ 1 million and $ 5 million of remaining unamortized hedging adjustments on discontinued relationships as of December 31, 2025 and 2024, respectively.
The following table presents the effect of fair value hedge accounting on the consolidated statement of operations for the years ended December 31, 2025 and 2024:
Interest Expense, Net
Interest Expense, Net
Total for line item in which the effects of fair value hedges are recorded
Gain (loss) on fair value hedging relationships:
Hedged items (Long-term debt)
Derivatives designated as hedging instruments
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
A summary of the fair values of derivative instruments in the consolidated balance sheets as of December 31, 2025 and 2024 was as follows:
Balance Sheet
Classification
Fair Value
Balance Sheet
Classification
Fair Value
Derivatives Designated as Hedging Instruments
Fixed-to-variable interest rate swap agreements
Other assets
Other liabilities
16. STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
Stockholders' Equity
Series Preferred Stock
Quest Diagnostics is authorized to issue up to 10 million shares of Series Preferred Stock, par value $ 1.00 per share. The Company's Board of Directors has the authority to issue such shares without stockholder approval and to determine the designations, preferences, rights and restrictions of such shares. No shares are currently outstanding.
Common Stock
Under the Company's Restated Certificate of Incorporation the number of authorized shares of common stock, par value $ 0.01 per share, is 600 million shares.
Changes in Accumulated Other Comprehensive Loss by Component
Comprehensive income (loss) includes:
• Foreign currency translation adjustments; and
• Net deferred gains (losses) on cash flow hedges, which represent deferred gains (losses), net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 15).
For the years ended December 31, 2025, 2024, and 2023, the tax effects related to the deferred gains (losses) on cash flow hedges were not material. Foreign currency translation adjustments related to indefinite investments in non-U.S. subsidiaries are not adjusted for income taxes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The changes in accumulated other comprehensive loss by component for 2025, 2024 and 2023 were as follows:
Foreign
Currency
Translation
Adjustments
Net Deferred Gains on Cash Flow Hedges, net of tax
Accumulated Other Comprehensive Loss
Balance, December 31, 2022
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Balance, December 31, 2023
Other comprehensive (loss) income before reclassifications
Net current period other comprehensive (loss) income
Balance, December 31, 2024
Other comprehensive income (loss) before reclassifications
Net current period other comprehensive income (loss)
Balance, December 31, 2025
For the years ended December 31, 2025, 2024 and 2023, the gross deferred gains (losses) on cash flow hedges were reclassified from accumulated other comprehensive loss to interest expense, net.
Dividend Program
During each of the four quarters of 2025, the Company's Board of Directors declared a quarterly cash dividend of $ 0.80 per common share. During each of the four quarters of 2024, the Company's Board of Directors declared a quarterly cash dividend of $ 0.75 per common share. During each of the four quarters of 2023, the Company's Board of Directors declared a quarterly cash dividend of $ 0.71 per common share. In February 2026, the Company announced that its Board of Directors authorized a 7.5 % increase in its quarterly cash dividend from $ 0.80 to $ 0.86 per share, or $ 3.44 per share annually, commencing with the dividend payable in April 2026.
Share Repurchase Program
As of December 31, 2025, $ 0.4 billion remained available under the Company's share repurchase authorization. In February 2026, the Company's Board of Directors authorized the Company to repurchase an additional $ 1 billion of the Company's common stock. The share repurchase authorization has no set expiration or termination date.
Share Repurchases
For the year ended December 31, 2025, the Company repurchased 2.5 million shares of its common stock for $ 452 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
For the year ended December 31, 2024, the Company repurchased 0.9 million shares of its common stock for $ 150 million.
For the year ended December 31, 2023, the Company repurchased 2.0 million shares of its common stock for $ 276 million.
Shares Reissued from Treasury Stock
For each of the years ended December 31, 2025, 2024 and 2023, the Company reissued 2 million, 1 million and 2 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan ("ESPP") and stock-based compensation program.
Redeemable Noncontrolling Interest
In connection with the sale of an 18.9 % noncontrolling interest in a subsidiary to UMass on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. The Company records changes in the fair value of the noncontrolling interest immediately as they occur.
The following table summarizes the activity for the Company's redeemable noncontrolling interest during the years ended December 31, 2025 and 2024:
Redeemable Noncontrolling Interest
Balance, December 31, 2023
Net income
Distributions to noncontrolling interest partners
Contributions from noncontrolling interest partners
Balance, December 31, 2024
Net income
Distributions to noncontrolling interest partners
Balance, December 31, 2025
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(in millions unless otherwise indicated)
17. STOCK OWNERSHIP AND COMPENSATION PLANS
Employee and Non-employee Directors Stock Ownership Programs
The ELTIP provides for three types of awards: (a) stock options, (b) stock appreciation rights and (c) stock awards. The ELTIP provides for the grant to eligible employees of either non-qualified or incentive stock options, or both, to purchase shares of Company common stock at an exercise price no less than the fair market value of the Company's common stock on the date of grant. Grants of stock appreciation rights allow eligible employees to receive a payment based on the appreciation of Company common stock in cash, shares of Company common stock or a combination thereof. The stock appreciation rights are granted at an exercise price no less than the fair market value of the Company's common stock on the date of grant. Stock options and stock appreciation rights granted under the ELTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant. No stock appreciation rights have been granted under the ELTIP. Under the ELTIP, awards are subject to forfeiture if employment terminates prior to the end of the vesting period prescribed by the Board of Directors. For all award types, the vesting period is generally over three years from the date of grant. For performance share units, the actual amount of shares earned is based on the achievement of the performance goals specified in the awards. The performance goals for awards granted in 2023, 2024 and 2025 were based on the financial performance of the Company, as well as relative TSR. The maximum number of shares of Company common stock in respect of which awards may be granted under the ELTIP is approximately 87 million shares.
The DLTIP provides for the grant to non-employee directors of non-qualified stock options to purchase shares of Company common stock at an exercise price no less than the fair market value of the Company's common stock on the date of grant. The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors. Stock options granted under the DLTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant. For all award types, the vesting period is generally over three years from the date of grant, regardless of whether the award recipient remains a director of the Company. The maximum number of shares that may be issued under the DLTIP is 2.4 million shares. For the years ended December 31, 2025, 2024 and 2023, grants under the DLTIP totaled 11 thousand shares, 13 thousand shares and 12 thousand shares, respectively.
The Company's practice is to issue shares related to its ESPP and stock-based compensation program solely from common stock held in treasury. See Note 16 for further information regarding the Company's share repurchase program.
The fair value of each stock option award granted was estimated on the date of grant using a Black-Scholes option-valuation model. The expected volatility under the Black-Scholes option-valuation model was based on historical volatilities of the Company's common stock. The dividend yield was based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected holding period of the related award. The expected holding period was estimated using the historical stock option exercise behavior of employees. The Black-Scholes option-valuation model also incorporates the average market price of the Company's common stock at the date of grant.
The weighted average assumptions used in valuing stock options granted in the periods presented were:
Fair value at grant date
Expected volatility
Dividend yield
Risk-free interest rate
Expected holding period, in years
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The following summarizes the activity related to stock option awards for 2025:
Shares
Weighted
Average Exercise Price
Weighted Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
Options outstanding, beginning of year
Options granted
Options exercised
Options outstanding, end of year
Exercisable, end of year
Vested and expected to vest, end of year
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing common stock price on the last trading day of 2025 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2025. This amount changes based on the fair market value of the Company's common stock. Total intrinsic value of options exercised in 2025, 2024 and 2023 was $ 61 million, $ 43 million and $ 42 million, respectively.
As of December 31, 2025, there was $ 5 million of unrecognized stock-based compensation cost related to nonvested stock options which is expected to be recognized over a weighted average period of 1.6 years.
The fair value of restricted stock awards and restricted stock units is the average market price of the Company's common stock at the date of grant. For performance share units with a goal based on the financial performance of the Company, the fair value is based on the average market price of the Company's common stock at the date of grant, adjusted for the present value of dividends expected to be paid on the Company's common stock during the vesting period. For performance share units with a market-based relative TSR goal, the fair value is estimated on the date of grant using a Monte Carlo valuation model. The expected volatility under the Monte Carlo valuation model is based on the historical volatility of the common stock of the Company and the common stock of the companies in the peer index. The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the performance period of the related award.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The weighted average assumptions used in valuing performance share units with a market-based relative TSR goal in the periods presented were:
Fair value at grant date
Expected volatility
Dividend yield
Risk-free interest rate
The following summarizes the activity related to stock awards, including restricted stock units and performance share units, for 2025, 2024 and 2023:
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Shares outstanding, beginning of year
Shares granted
Shares vested
Shares outstanding, end of year
As of December 31, 2025, there was $ 37 million of unrecognized stock-based compensation cost related to nonvested stock awards, which is expected to be recognized over a weighted average period of 1.6 years. Total fair value of shares vested was $ 114 million, $ 62 million and $ 74 million for the years ended December 31, 2025, 2024 and 2023, respectively. For performance share units with a goal based on financial performance of the Company, the amount of unrecognized stock-based compensation cost is subject to change based on changes, if any, to management's best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned at the end of the performance periods.
For the years ended December 31, 2025, 2024 and 2023, stock-based compensation expense totaled $ 88 million, $ 88 million and $ 77 million, respectively. Income tax benefits recognized in the consolidated statements of operations related to stock-based compensation expense totaled $ 33 million, $ 24 million and $ 24 million for the years ended December 31, 2025, 2024 and 2023, respectively, which includes excess tax benefits associated with stock-based compensation arrangements of $ 18 million, $ 9 million and $ 11 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Employee Stock Purchase Plan
Under the Company's ESPP, substantially all employees can elect to have up to 10 % of their annual wages withheld to purchase Quest Diagnostics common stock. The purchase price of the stock is 95 % of the market price of the Company's common stock on the last business day of each calendar month. Under the ESPP, the maximum number of shares of Quest Diagnostics common stock which may be purchased by eligible employees is 9 million. Approximately 161 thousand shares, 191 thousand shares and 208 thousand shares of common stock were purchased by eligible employees in 2025, 2024 and 2023, respectively.
Defined Contribution Plans
The Company maintains qualified defined contribution plans covering substantially all of its employees. The maximum Company matching contribution is 5 % of eligible employee compensation. The Company's expense for contributions to its defined contribution plans aggregated $ 104 million, $ 99 million and $ 96 million for 2025, 2024 and 2023, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
Supplemental Deferred Compensation Plans
The Company has a supplemental deferred compensation plan that is an unfunded, non-qualified plan that provides for certain management and highly compensated employees to defer up to 50 % of their salary in excess of their defined contribution plan limits and for certain eligible employees, up to 85 % of their variable incentive compensation. The maximum Company matching contribution is 5 % of eligible employee compensation. The compensation deferred under this plan, together with Company matching amounts, are credited with earnings or losses measured by the mirrored rate of return on investments elected by plan participants. Each plan participant is fully vested in all deferred compensation, Company match and earnings credited to their account. The amounts accrued under the Company's deferred compensation plans were $ 78 million and $ 72 million as of December 31, 2025 and 2024, respectively. Although the Company is currently contributing all participant deferrals and matching amounts to a trust, the funds in this trust, totaling $ 78 million and $ 72 million as of December 31, 2025 and 2024, respectively, are general assets of the Company and are subject to any claims of the Company's creditors.
The Company also offers certain employees the opportunity to participate in a non-qualified deferred compensation program. The Company matches employee contributions equal to 25 %, up to a maximum of five thousand dollars per plan year. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. Each participant is fully vested in their deferred compensation and vests in Company matching contributions over a period of four years at 25 % per year. Through December 31, 2025, deferrals under the plan could only be made by participants who made deferrals under the plan in 2017. Effective January 1, 2026, the plan will no longer accept deferrals on compensation earned after December 31, 2025. The amounts accrued under this plan were $ 72 million and $ 68 million as of December 31, 2025 and 2024, respectively. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. The cash surrender value of such life insurance policies was $ 72 million and $ 64 million as of December 31, 2025 and 2024, respectively.
For each of the years ended December 31, 2025, 2024 and 2023, the Company's expense for matching contributions to these plans was not material.
18. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Contractual Obligations
The Company can issue letters of credit under its Secured Receivables Credit Facility and Senior Unsecured Revolving Credit Facility (see Note 13). In support of its risk management program, to ensure the Company’s performance or payment to third parties, $ 78 million in letters of credit under the Secured Receivables Credit Facility were outstanding as of December 31, 2025. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.
The Company has certain noncancelable commitments, primarily under take-or-pay arrangements, to purchase products or services from various suppliers, mainly for consulting and other service agreements, and standing orders to purchase reagents and other laboratory supplies. As of December 31, 2025, the approximate total future purchase commitments are $ 514 million, of which $ 217 million are expected to be incurred in 2026, $ 256 million are expected to be incurred in 2027 through 2028 and the balance thereafter. During the years ended December 31, 2025, 2024 and 2023, $ 252 million, $ 263 million and $ 222 million, respectively, were purchased under noncancelable commitments.
Billing and Collection Agreement
In September 2016, the Company entered into a ten-year agreement with a third party to outsource its billing and related operations for the majority of the Company’s revenues. Services under the agreement commenced during the fourth quarter of 2016. The agreement includes an annual fee, which is subject to adjustment based on certain changes in the Company's requisition volume and the achievement of various performance metrics.
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(in millions unless otherwise indicated)
Contingent Lease Obligations
The Company remains subject to contingent obligations under certain real estate leases, including real estate leases that were entered into by certain predecessor companies of a subsidiary prior to the Company's acquisition of the subsidiary. While over the course of many years, the title to certain properties and interest in the subject leases have been transferred to third parties and the subject leases have been amended several times by such third parties, the lessors have not formally released the subsidiary predecessor companies from their original obligations under the leases and therefore remain contingently liable in the event of default. The remaining terms of the lease obligations and the Company's corresponding indemnifications range up to 22 years. The lease payments under certain leases are subject to market value adjustments and contingent rental payments and therefore, the total contingent obligations under the leases cannot be precisely determined but are likely to total several hundred million dollars. A claim against the Company would be made only upon the current lessee's default and, in certain cases, after a series of claims and corresponding defaults by third parties that precede the Company in the order of liability. The Company also has certain indemnification rights from other parties to recover losses in the event of on the lease obligations. The Company believes that the likelihood of its performance under these contingent obligations is remote and no liability has been recorded for any potential payments under the contingent lease obligations.
Certain Legal Matters
The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and .
In 2020, two putative class action lawsuits were filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In October 2020, the court consolidated the two lawsuits under the caption In re: Quest Diagnostics ERISA Litigation and plaintiffs filed a consolidated amended complaint. In May 2021, the court denied the Company's motion to dismiss the . After discovery was completed, the Company filed a motion for summary judgment, which was granted. The matter is on appeal.
On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws. The bankruptcy proceeding has been dismissed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases that were then still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint; the motion to dismiss was granted in part and denied in part. Plaintiffs filed an amended , which the Company also moved to . The motion was granted in part and in part. Discovery and class certification proceedings are ongoing.
In addition, a group of state attorney general offices are investigating the Company in connection with the AMCA Data Security Incident. The Company is cooperating with the investigation.
The Company is subject to a putative class action entitled Cole, et al. v Quest Diagnostics Incorporated , which was filed in the U. S. District Court for the Eastern District of California, for allegedly conspiring with Facebook to track customers’ internet communications on Company web platforms without authorization, in violation of the California Invasion of Privacy Act ("CIPA") and the California Confidentiality of Medical Information Act ("CMIA") . The complaint alleged that the Company’s actions were an invasion of privacy and contributed to a loss of value in plaintiffs’ personally identifiable information. The Company moved to dismiss the case or, in the alternative, transfer venue to the U.S. District Court for New Jersey. Subsequently, plaintiffs filed an amended complaint, which the Company also moved to dismiss. The Company's motion to transfer the case was granted. The Company refiled its motion to with the New Jersey District Court. The motion to was granted without as to the CMIA claim and as to the CIPA claim. Thereafter, the Company filed a motion for reconsideration as to the CIPA claim, which was granted. The district court's decision was affirmed on appeal.
As previously disclosed, in August 2011, the Company had received a subpoena from the U.S. Attorney for the Northern District of Georgia seeking various business records, including records related to the Company's compliance program, certain marketing materials, certain product offerings, and certain test ordering and other policies. The Company cooperated with the request. In 2021, a third amended complaint in a qui tam action filed in the U.S. District Court for the Northern District of Georgia was unsealed, which is related to the matter underlying the August 2011 subpoena. Both the U.S. Department of Justice and the State of Georgia declined to intervene in the action. The Company moved to dismiss the complaint and the complaint was dismissed without prejudice in August 2022. The relator subsequently filed a fourth amended complaint, which the Company has moved to dismiss. On August 23, 2024, the district court the with . On appeal, the Eleventh Circuit affirmed the district court's . The relator filed a petition for certiorari with the U.S. Supreme Court, which is pending.
The Company also received subpoenas from the U.S. Attorney for the District of New Jersey (the “NJ USAO”). The subpoenas seek various records relating to the Company’s relationship with the New York Giants and adherence to certain company policies and federal laws. The Company settled the matter with the NJ USAO and agreed to enter into a Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services. The Company has also received several subpoenas from the New York Attorney General’s Office, and is in the process of responding to them.
The Company has also received subpoenas from the New York Attorney General’s Office that seek information about, among other things, the ordering and billing of certain test panels to Medicaid programs in New York. The Company is cooperating with the investigation.
The Company also received a Civil Investigative Demand from the Texas Attorney General’s Office requesting documents related to its billing to Texas Medicaid. The Company is cooperating with this request.
Other Legal Matters
In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing or other practices based on the False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistleblowers" as to which the Company cannot determine the extent of any potential liability.
Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.
These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of December 31, 2025, the Company does not believe that material losses related to legal matters are probable.
Reserves for legal matters totaled $ 20 million and $ 4 million as of December 31, 2025 and December 31, 2024, respectively.
Reserves for General and Professional Liability Claims
As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims.
The Company is subject to a series of individual claims brought by persons in Ireland related to allegations stemming from pap smear screening services performed by the Company. In general, claimants have alleged that the results of certain pap smear screening tests performed by the Company and other providers, pursuant to a program coordinated by the Irish government, were incorrect for individuals who were later diagnosed with cervical cancer. The Irish government and an independent scoping inquiry commissioned by the Irish government found that the Company’s performance of its screening services for the Irish cervical cancer screening program were in accordance with both Ireland’s requirements and international standards. The Company has settled claims made by certain individuals, is a party in multiple lawsuits and may be served as a party in additional lawsuits. The Company does not believe that the resolution of existing or future claims will have a material adverse effect on its financial position or liquidity, but the ultimate outcomes of these claims are and subject to significant uncertainties.
Reserves for general and professional liabilities claims matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled $ 178 million and $ 169 million as of December 31, 2025 and December 31, 2024, respectively.
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(in millions unless otherwise indicated)
While the basis for claims reserves is actuarially determined losses based upon the Company's historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of claims involves a high degree of judgment. Although the Company believes that its present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that the Company may incur liabilities in excess of its recorded reserves or insurance coverage. Changes in the facts and circumstances associated with claims could have a material impact on the Company’s results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.
19. BUSINESS SEGMENT INFORMATION
The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's CODM, assesses performance and allocates resources across the organization. The CODM uses the reported measure of segment profit (or loss) in assessing segment performance versus budget and when deciding how to allocate resources to segments. The DIS business provides diagnostic information services to a broad range of customers within its primary customer channels - physicians, hospitals, and patients and consumers. The DIS business accounted for greater than 95 % of net revenues in 2025, 2024 and 2023.
All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses offer solutions for insurers and offer solutions for healthcare providers and payers.
As of December 31, 2025, substantially all of the Company’s services were provided within the United States and substantially all of the Company’s assets were located within the United States.
The following table is a summary of segment information for the years ended December 31, 2025, 2024 and 2023. Segment asset information is not presented since it is not received by the CODM at the operating segment level. The CODM regularly reviews certain consolidated expenses, including employee compensation costs. "Other segment items" principally consist of costs for obtaining, transporting and testing specimens, facility costs used for the delivery of the Company's services, costs associated with the Company's sales and marketing efforts, and costs related to billing operations. Operating income (loss) of each segment represents net revenues less directly identifiable expenses. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangibles assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2.
DIS
Total
Net revenues
DS revenues
Total net revenues
Less: Other segment items
Segment operating income
DS operating income
General corporate activities
Total operating income
Non-operating expense, net
Income before income taxes and equity in earnings of equity method investees
Income tax expense
Equity in earnings of equity method investees, net of taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Quest Diagnostics
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(in millions unless otherwise indicated)
DIS
Total
Net revenues
DS revenues
Total net revenues
Less: Other segment items
Segment operating income
DS operating income
General corporate activities
Total operating income
Non-operating expense, net
Income before income taxes and equity in earnings of equity method investees
Income tax expense
Equity in earnings of equity method investees, net of taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Quest Diagnostics
DIS
Total
Net revenues
DS revenues
Total net revenues
Less: Other segment items
Segment operating income
DS operating income
General corporate activities
Total operating income
Non-operating expense, net
Income before income taxes and equity in earnings of equity method investees
Income tax expense
Equity in earnings of equity method investees, net of taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Quest Diagnostics
Depreciation and amortization expense for the years ended December 31, 2025, 2024 and 2023 were as follows:
DIS business
All other operating segments
General corporate
Total depreciation and amortization
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(in millions unless otherwise indicated)
Capital expenditures for the years ended December 31, 2025, 2024 and 2023 were as follows:
DIS business
All other operating segments
General corporate
Total capital expenditures
The approximate percentage of net revenues by major service for the years ended December 31, 2025, 2024 and 2023 was as follows:
Routine clinical testing and other services
COVID-19 testing services
Gene-based and esoteric (including advanced diagnostics) testing services
Anatomic pathology testing services
All other
Net revenues
The approximate percentage of net revenues by customer channel for the years ended December 31, 2025, 2024 and 2023 was as follows:
Physician lab services
Hospital lab services
Other DIS
Total DIS revenues
DS revenues
Total net revenues
Physician lab services includes net revenues for physicians including those associated with ACOs and FQHCs.
20. SUBSEQUENT EVENTS
Venture with Corewell Health
During August 2025, the Company and Corewell Health signed a definitive agreement to enter into a venture which will perform laboratory testing in the state of Michigan via a new laboratory facility. The parties completed the transaction during January 2026. Under the terms of the venture, Quest and Corewell Health will continue to serve providers and patients in Michigan from their existing patient service centers (which will be run by the venture) and their existing laboratories until a new laboratory is operational during 2027.
Equity ownership of the venture is shared 51 % by Quest and 49 % by Corewell Health and Quest will consolidate the business in its consolidated financial statements. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed principally consist of $ 179 million of goodwill, of which $ 22 million is deductible for tax purposes, $ 124 million of customer-related intangible assets, $ 19 million of operating lease assets, $ 19 million of operating lease liabilities, and $ 12 million of deferred income tax liabilities. The intangible assets are being amortized over a useful life of 15 years.
