Street Calls of the Week
Quest Diagnostics reported its earnings for the third quarter of 2025, surpassing both earnings per share (EPS) and revenue forecasts. The company achieved an adjusted EPS of $2.60, exceeding the forecasted $2.50, with revenues reaching $2.82 billion, above the expected $2.73 billion. Following the announcement, the stock rose 2.94% in pre-market trading, reflecting investor confidence in the company’s performance and outlook. According to InvestingPro data, Quest maintains a strong financial health score of 3.03 (rated as GREAT), with the stock delivering an impressive 27.99% return year-to-date.
Key Takeaways
- Quest Diagnostics exceeded EPS and revenue forecasts for Q3 2025.
- The company’s stock increased by 2.94% in pre-market trading.
- Strong growth in consumer health channels contributed to performance.
- Strategic partnerships and innovations in diagnostics were highlighted.
- The company provided a positive outlook for the remainder of 2025.
Company Performance
Quest Diagnostics demonstrated robust performance in the third quarter, driven by strong demand in consumer health channels and innovations in diagnostic testing. The company reported a 13.1% year-over-year increase in consolidated revenues, reflecting its successful expansion and strategic initiatives in key diagnostic areas such as cardiometabolic and oncology.
Financial Highlights
- Revenue: $2.82 billion, up 13.1% year-over-year.
- Adjusted EPS: $2.60, a 13% increase from the previous year.
- Reported operating income: $386 million, representing 13.7% of revenues.
- Adjusted operating income: $458 million, 16.3% of revenues.
- Year-to-date cash from operations: $1.42 billion, a 63.1% increase year-over-year.
Earnings vs. Forecast
Quest Diagnostics outperformed expectations with an EPS of $2.60, surpassing the forecasted $2.50 by 4%. Revenue also exceeded predictions, coming in at $2.82 billion against the anticipated $2.73 billion, marking a surprise of 3.3%. This performance reflects the company’s strong operational execution and strategic growth initiatives.
Market Reaction
The stock of Quest Diagnostics rose 2.94% in pre-market trading, reaching $196.01. This increase reflects investor optimism following the company’s better-than-expected earnings report. The stock’s movement is notable as it approaches its 52-week high of $197.53, indicating positive market sentiment.
Outlook & Guidance
Quest Diagnostics provided a favorable outlook for the remainder of 2025, projecting revenues between $10.96 billion and $11.0 billion and adjusted EPS in the range of $9.76 to $9.84. The company anticipates continued organic revenue growth of 4.5% to 5% and expects cash from operations to reach $1.8 billion. With a beta of 0.56, the stock generally trades with low volatility, and the company has maintained dividend payments for 22 consecutive years, currently yielding 1.69%. Potential challenges include changes in PAMA reimbursement and healthcare exchange subsidy expirations. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value at current levels.
Executive Commentary
CEO Jim Davis emphasized the company’s strategic positioning, stating, "We are positioning Quest Diagnostics as the preferred lab engine inside top wellness brands." He highlighted the importance of innovation, adding, "We are highly focused on delivering innovations that can identify risk of cancer and other diseases in early preventable stages."
Risks and Challenges
- Potential changes in PAMA reimbursement could impact revenue.
- Expiration of healthcare exchange subsidies poses a financial risk.
- Competitive pressures in the diagnostic testing market.
- Economic uncertainties affecting consumer health spending.
- Regulatory changes impacting healthcare operations.
Q&A
During the earnings call, analysts inquired about the continued strong utilization trends and the momentum in the consumer health channel. The company addressed ongoing research for the Haystack MRD test and potential PAMA legislative reforms, indicating a proactive approach to emerging challenges and opportunities.
Full transcript - Quest Diagnostics orporated (DGX) Q3 2025:
Sam, CFO, Quest Diagnostics: Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth, are compound annual growth rates. Now here is Jim Davis.
Jim Davis, CEO/President, Quest Diagnostics: Thanks, Shawn, and good morning, everyone. Our third quarter performance underscores strong demand for our clinical solutions, our diligent execution to meet customer needs, and our commitment to advancing our strategy. We delivered robust top and bottom line growth, extended our presence in key markets, forged new collaborations with leaders across health care, and expanded our broad portfolio of diagnostic innovations to advance better health. Revenues grew 13.1%, including 6.8% organic growth driven by broad-based adoption of our clinical innovations and contributions from acquisitions and growth in our consumer channel. As we position Quest Diagnostics as the preferred lab engine inside top wellness brands, we also announced an agreement with Corewell Health to form a Lab Services joint venture serving the state of Michigan. In addition, we will deploy our comprehensive COLAB Solutions across Corewell’s nearly two dozen hospitals, supporting quality, innovation, access, and productivity.
Given our strong performance year to date, we are again raising our full year.
Jim Davis, CEO/President, Quest Diagnostics: 2025 guidance, I’d like to take a.
Jim Davis, CEO/President, Quest Diagnostics: Moment to comment on efforts to reform PAMA. In September, Congressional leaders introduced bipartisan legislation called the RESULTS Act. RESULTS is a smart, pragmatic and fair reform that seeks to correct the flaws of the original PAMA implementation. It would deliver foundational payment reforms for clinical labs by dramatically improving the accuracy of data used to set reimbursement under the Clinical Lab Fee Schedule. If Congress does not reform or delay PAMA this year, American labs will be forced to absorb significant payment cuts next year, threatening the ability of American seniors to access critical lab testing. We are working in partnership with our trade association ACLA and with Congress to secure meaningful PAMA relief before the new year. Before turning to our third quarter results, I’ll share some highlights on how our strategy is enabling growth.
We are focused on delivering solutions that meet the evolving needs of our core clinical customers, physicians and hospitals, as well as customers in the higher growth areas of consumer life sciences and data analytics. We enable growth across our customer channels through faster growing advanced diagnostics in five key clinical areas, which are advanced cardiometabolic, autoimmune, brain health, oncology and women’s and reproductive health. In addition, acquisitions are a key growth driver and our strategy emphasizes purchases of accretive hospital outreach and independent labs. Finally, we are focused on driving operational improvements across the business with the deployment of automation, AI and other advanced technologies for improved quality, productivity and customer and employee experiences. Here are some updates on the progress we have made in these areas during the third quarter.
In the physician channel, we delivered approximately 17% revenue growth and with organic revenue growth in the high single digits, we experienced broad-based demand across our clinical solutions supported by focused commercial execution and expanded health plan access in several states including Colorado, Georgia, Nevada and Virginia. In addition, we continue to expand business and enterprise accounts including functional medicine providers who utilize comprehensive laboratory testing to improve health and wellness. During the quarter, we completed our acquisition of select clinical testing assets from Fresenius Medical Care, which will enable us to offer lab testing used in dialysis delivery to independent dialysis clinics in the U.S. More significantly, under a separate enterprise agreement, we also began to roll out clinical lab testing to Fresenius Medical Care’s dialysis centers, which serve about 200,000 dialysis patients annually in the U.S. We expect to finish scaling these services in early 2026.
We look forward to processing these tests during periods of the day when we have open capacity, enabling us to further optimize the productivity of our labs. In the hospital channel, revenues grew low single digits with COLAB Solutions driving our growth in the quarter. We offer hospitals many flexible options for accessing our leading science, innovation, and scale. These include reference testing, our COLAB Solutions, outreach, acquisitions, and other business relationships, all of which provide meaningful improvements in quality, patient access, and cost efficiencies. During the quarter, Quest Diagnostics and Corewell Health, a top health system, announced plans to establish a laboratory services joint venture in Michigan with an advanced, state-of-the-art lab serving the entire state. In our largest implementation of COLAB Solutions to date, Corewell Health will utilize our comprehensive offering including reference testing, lab analytics, supply chain management, and blood management.
Once we fully scale across Corewell’s 21 hospital labs next year, we expect annual revenues from COLAB Solutions to be approximately $1 billion. Turning to our consumer channel, we are excited by increasing momentum we saw in the third quarter as we strengthened Quest Diagnostics as the preferred lab engine of consumer health companies. We are delivering our extensive menu and technology inside top consumer health and wellness brands. For example, our collaborations with Whoop, the Human Performance Company, and Oura Health, maker of the world’s leading smart ring, enable seamless access to our lab testing services and results in their mobile apps. In the quarter, we also saw strong double-digit growth from our questhealth.com consumer-initiated test platform in advanced diagnostics. We delivered double-digit revenue growth across several clinical areas of our portfolio. This includes advanced cardiometabolic and endocrine as well as autoimmune disease testing with our Analyzer.
Autoimmune Solution Analyzer experienced strong growth as primary care physicians increasingly utilize this solution to direct high risk patients to specialty care in brain health. Demand for our Quest AD-Detect blood tests for Alzheimer’s disease accelerated and more than doubled in the third quarter. New guidelines introduced in July recognize the value of blood-based biomarker testing in assessing Alzheimer’s disease pathology in patients with cognitive impairment. At the same time, we continue to publish evidence on our AD-Detect test, including a study published this month that found two of our innovative panels provide confirmatory accuracy for aiding Alzheimer’s diagnosis in oncology. During the quarter, we received FDA Breakthrough Device designation for our Haystack MRD test. This milestone reinforces the high caliber of our cancer monitoring innovation and opens avenues for developing companion diagnostics.
We also commenced separate trials with Mass General, Brigham, and Rutgers Cancer Institute to further research Haystack MRD’s clinical utility as a guide in making post-operative therapy decisions. We are also pleased that HPH, a major lab provider in Hamburg, recently introduced an in-house MRD test in Germany based on a license to our Haystack MRD technology. We are highly focused on delivering innovations that can identify risk of cancer and other diseases in early preventable stages. During the quarter, we announced collaborations that leverage Quest’s national scale in phlebotomy and connectivity to broaden access to cancer screening liquid biopsy tests, including Guardant’s Health Shield test for colorectal cancer. Turning to operational excellence, we continue to target 3% annual cost savings and productivity improvements. Through our Invigorate program, we are deploying innovative automation and AI technologies, including digitizing processes to improve quality, productivity, and customer and employee experiences.
During the quarter, we announced Epic Systems as our technology partner for Project Nova, our multi-year order-to-cash transformation. By deploying a suite of Epic Systems solutions, including Beaker, MyChart, and Care Everywhere, we will deliver deeper, more connected insights with easier, faster, and more efficient experiences. Combining these leading technologies with our breadth and scale will help all patients and providers, regardless of their EHR provider, get the information they need to make critical care decisions. We are in the early planning stages of this work and look forward to sharing more about the implementation on future calls. Our growth and productivity gains in the quarter demonstrate that we are executing our strategy and serving our customers and patients with both energy and purpose. Sam will provide more details on our performance and 2025 guidance. Sam, thanks Jim.
Sam, CFO, Quest Diagnostics: In the third quarter, consolidated revenues were $2.82 billion, up 13.1% versus the prior year. Consolidated organic revenues grew by 6.8%. Revenues for diagnostic information services were up 13.5% compared to the prior year, reflecting organic growth in our physician, hospital, and consumer channels as well as recent acquisitions. Total volume measured by the number of requisitions increased 12.5% versus the third quarter of 2024, with organic volume up 3.9%. Recall the impact of weather and the CrowdStrike global IT outage was a headwind on our volume in the third quarter last year. We estimate that our volume in the third quarter of 2025 experienced a benefit of approximately 50 basis points due to the impact from those disruptions in the same period last year.
Total revenue per requisition was up 0.8% versus the prior year as an increase in organic revenue per requisition was substantially offset by the impact of the LifeLabs acquisition, which carries a lower revenue per requisition on an organic basis. Revenue per requisition was up 3% in the quarter versus last year, driven primarily by an increase in the number of tests per requisition and test mix. Unit price reimbursement remained consistent with our expectations. Reported operating income in the third quarter was $386 million or 13.7% of revenues, compared to $330 million or 13.3% of revenues last year. On an adjusted basis, operating income was $458 million or 16.3% of revenues, compared to $385 million or 15.5% of revenues last year. The increase in adjusted operating income was due to recent acquisitions and organic revenue growth, partially offset by wage increases and higher than expected employee health care costs.
Reported EPS was $2.16 in the quarter compared to $1.99 a year ago. Adjusted EPS was $2.60 versus $2.30 the prior year. EPS in the third quarter was impacted by higher net interest expense versus the prior year. Foreign exchange rates had no meaningful impact on our results. Cash from operations was $1.42 billion year to date through the third quarter versus $870 million in the prior year. This year over year increase of 63.1% was driven by higher operating income, favorable working capital due to timing of receipts and disbursements, a one-time CARES Act tax credit, and the cash tax benefit related to recent tax legislation. Turning now to our updated full year 2025 guidance, revenues are expected to be between $10.96 billion and $11 billion reported. EPS is expected to be in a range of $8.58 to $8.66 and adjusted EPS in a range of $9.76 to $9.84.
Cash from operations is now expected to be approximately $1.8 billion and capital expenditures are expected to be approximately $500 million. Our 2025 guidance reflects the following considerations. Our updated revenue guidance assumes approximately 4.5% to 5% organic revenue growth in addition to contributions from acquisitions completed in 2024 and announced to date. It does not assume any contribution from prospective MA. We are making investments in 2025 related to Project Nova, which we expect will modernize our entire order to cash process. We expect these expenses to ramp in the fourth quarter. Operating margin is expected to expand versus the prior year. Our updated operating cash flow guidance reflects a cash tax benefit related to recent tax legislation as well as favorability in working capital. With that, I will now turn it back to Jim.
Jim Davis, CEO/President, Quest Diagnostics: Thanks, Sam.
Jim Davis, CEO/President, Quest Diagnostics: To summarize, our third quarter performance of robust top and bottom line growth underscores strong demand for our clinical solutions, our diligent execution to meet customer needs, and our commitment to advancing our strategy. We formed collaborations to support future growth, including with Corewell Health in Michigan, top consumer health brands, and Epic Systems for Project Nova. Given our strong performance year to date, we are raising our full year 2025 guidance. Finally, I want to thank our more than 55,000 colleagues for their hard work this quarter. They are the force that delivers on our purpose to create a healthier world one life at a time. Now, we’d be happy to take your questions. Operator.
Conference Operator: Thank you. We will now open it up to questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you please fall back in the queue to be placed in the queue. Please press Star one from your phone to withdraw your question. You may press Star two again. To ask a question, please press Star one. Our first question comes from Patrick Donnelly with Citi. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Hey, good morning guys. Thanks for taking the question, Jim. Maybe just on the backdrop, the utilization backdrop looks like it remains elevated. What are you guys seeing there? Expectations into year end, and just a quick follow up for Sam. Maybe on the PAMA side, latest expectations, what you’re hearing there and the potential offsets you would have as we head into 2026. Maybe just the probability of how you’re thinking about that. Thank you guys.
Jim Davis, CEO/President, Quest Diagnostics: Yeah. Hey, thanks Patrick. On the utilization, as we said in the script, our raw REC volume was up 3.9% and then organic rev per REC up 3%. Let me comment on each one of those. On the REC volume side first, as you know, we’re back in network with Elevance in some key states, Nevada, Colorado, and Virginia. We’re certainly picking up share and picking up momentum as we progress through the year. You’re just seeing a continuation of those volumes building in each of those states. In addition, Sentara is another health plan that we’re back in network with in the Virginia area as well, actually goes down the coast a bit. All of that has helped our 3.9% organic REC growth. In addition to that, we mentioned the strong mix on the call. Autoimmune testing way up. Advanced cardiometabolic testing way up.
Our brain health volumes more than doubled in the quarter. All of that helping both test per REC plus test volume. The last thing I mention is our consumer business, the consumer health business, our own direct channel has been incredibly strong, growing 30 to 40% on a year-to-date basis. Our partnerships with companies like Function Health also helping our growth on the consumer side. In the quarter we announced partnerships, it didn’t really impact our volume in the quarter. Your comment about how do we think about things going into the fourth quarter, our partnerships with Whoop and Oura, we definitely expect that to contribute volume on the consumer health side. I would tell you the expectations for Q4 is that the utilization levels will continue as we’ve seen them in Q3.
Jim Davis, CEO/President, Quest Diagnostics: Yeah.
Sam, CFO, Quest Diagnostics: On PAMA. Good morning, Patrick. On PAMA, to kind of probabilize it here or put odds on it is difficult. I would tell you the RESULTS Act has been proposed. We still think it’s going to be not an easy one to pass. There is also a likelihood of a PAMA delay, which we think likely has more probability than the RESULTS Act actually passing. We remain optimistic about a PAMA delay, although it’s really hard to kind of put odds on it right now. In terms of the impact on the P&L, as we have indicated before, it’s a $100 million impact next year. If PAMA does come back, we will offset a portion of it. It will not be the majority of it. We will offset a portion of that $100 million.
Remember, we control the pace of some of the investments that we have next year, so we can control and pace some of these investments if PAMA does come back and we have to offset a portion of this hit. Operator, next question please.
Conference Operator: Thank you. Our next question comes from Michael Cherney with Jefferies. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Good morning and thank you for taking the question. Maybe if I can build a little bit more on the mix in the quarter and how you think about that relative to jump off point to next year relative to the LRP. As you look back versus what you outlined in March, are some of these aspects of wellness testing and specialty testing performing above expectations, in line with, and how are you thinking about framing those in terms of the contribution rate they can provide relative to where you laid out the LRP for overall organic volume, organic revenue growth back in March? Thank you.
Jim Davis, CEO/President, Quest Diagnostics: Yeah. Versus expectations we set in March, I’d say the consumer channels, both our direct and our relationships with other partners, are performing slightly above what we expected going into the year. Our own direct channel is performing very well. In addition to wellness testing that we get through that channel, there’s what I would call episodic testing. These are things like STDs, tick testing, allergy testing that people just want and want privacy for other reasons. They come to us directly. Our own direct channel is performing better than expected. You can all see, I’m sure, on social media and things like that, what companies like Function Health, Whoop, and Oura Health are doing. Certainly, that is aiding our progress on the indirect channel as part of consumer health.
It’s just huge momentum that is building across the country as individuals become CEOs of their own health, and with that, they turn to companies like Quest Diagnostics to get access to testing that otherwise they may not be able to get through their traditional health plans, or some of the tests that these consumers want may not be acceptable through the plans, they could get denied. That’s why they turn to consumer health channels. As we go into the fourth quarter, and we’re in the fourth quarter, as we go into the early part of next year, we expect these consumer channels to continue to gain momentum.
Sam, CFO, Quest Diagnostics: Michael, if I take it back to your comment, compared to March or to compare to March, largely the assumptions are still intact versus what we shared during our investor day in March. The mid single digit revenue growth, including the contribution of 1 to 2% from M&A, high single digit EPS growth, the margin expansion over the three years that we shared, all those I would say are pretty intact. There are some definitely positive things that we’re seeing around utilization, around the consumer business, around the wellness business, all the things that Jim shared. Also on the revenue side, the test-per-requisition and mix improvements that we’re seeing have a direct impact on contribution and operating margin. All of those are really positive, but not to change the long term outlook that we provided. Operator, next question, please.
Conference Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open. You may ask your question. Hi guys. Good morning. I have a question about sort of how you’re thinking about the 4Q margins. Obviously, I think, Sam, you highlighted the step up in the Project Nova expenses, which you guys have obviously called out before. Can you talk about some of the other pluses and takes? You have had very strong margin expansion over the last four quarters now. I just want to make sure I understand all of the puts and takes as we think about the fourth quarter and then, you know, the jump point into 2026. I understand that, you know, ex potential PAMA impacts. Thank you.
Sam, CFO, Quest Diagnostics: Sure, Elizabeth, and good morning. Yeah, happy to talk about it. Starting with Q3, because that’s the jump off point to your question. Starting with Q3, we saw strong margins in Q3, 16.3% operating margins, healthy expansion versus same period prior year. You know, a lot of that is driven by utilization and driven by mix as well, both in terms of the revenue per rec overall, but also the business mix, the test mix. Now, we did see an offset to the strength in operating margins in Q3 related to group health expenses, our employee medical expenses. Those came in higher than we expected in Q3 and were a significant, fairly significant headwind on margins in Q3. I would size it as roughly 40 to 50 basis points in terms of impact on operating margins.
You know, we do expect those to continue at this elevated level going into Q4. I won’t talk about 2026 yet. It’s too early. We need to look at all of our group health plans for 2026 before we can guide anything towards the impact of those in 2026. I can tell you in Q4, our expectation is they’ll continue somewhat elevated and have a negative impact on margins. In terms of Q4, the only other things I would call out is yes, we do expect a ramp in Project Nova investments in Q4. Those have, largely due to the timing of signing with Epic Systems, been pushed more into Q4. We expect more of those in Q4 than we initially expected. In terms of seasonality, I’d remind you of a couple of things that we traditionally see, nothing that’s different.
One is that, if you look pre-COVID seasonality Q3 to Q4, usually the operating margin trend is to be about 50 to 100 basis points lower in Q4 versus Q3. I think the seasonality trends are pretty similar in general to what we used to see pre-COVID.
Jim Davis, CEO/President, Quest Diagnostics: Just to summarize, on a year to date basis where our OM rate is up 60 basis points, it really does point to our productivity efforts. Our Invigorate program continues to pay dividends for us. There’s no let up. There’s never an end goal. The goal always moves forward. We expect those productivity efforts to continue in the back half of the year and into next year.
Sam, CFO, Quest Diagnostics: Operator, next question please.
Conference Operator: Thank you. Our next question comes from Kevin Caliendo with UBS. Your line is open. You may ask your question.
Jim Davis, CEO/President, Quest Diagnostics: Thank you.
Sam, CFO, Quest Diagnostics: Good morning everybody. Sam, I know you just said you don’t want to talk about 2026, but I have to ask a little bit. Just thinking about now that we sort of understand the jump off point, we understand your LRP. PAMA aside, what other sort of headwinds and tailwinds should we be contemplating? I know there was some other investment spend that was planned. Corewell might be incremental. Is there anything sort of fundamentally or company specific we should be thinking about when thinking about 2026 relative to the LRP?
Jim Davis, CEO/President, Quest Diagnostics: Yeah, Kevin, let me start and then I’ll turn it over to Sam here. I think we’ve talked volume and utilization trends, the test-per-requisition growth, the rep-per-rec increases that come with that. We feel good about that continuing to next year. Our commitment to advanced diagnostics, the autoimmune testing, brain health as I talked about, doubled in the quarter. All of those point to again increased volume and utilization trends we talked about earlier, and we mentioned in the script we’ve just begun to take on the testing from Fresenius. There were two parts to that. One is Fresenius is the testing that comes from over 200,000 dialysis patients across the 3,100 plus dialysis centers. We’re in the very early innings of integrating that work into Quest Diagnostics. Plus, Fresenius provided laboratory testing for other third-party dialysis centers.
That’s the piece of the business that we bought, and we certainly expect to expand on that as we go into next year. Corewell Health, the COLAB Solutions portion of that just gets going here in the fourth quarter. That will expand as we go across all 21 hospitals as we move into 2026, and then again the strong consumer health channel now.
Jim Davis, CEO/President, Quest Diagnostics: Headwinds.
Jim Davis, CEO/President, Quest Diagnostics: You know, we’ve talked about PAMA.
Jim Davis, CEO/President, Quest Diagnostics: Yes, there’s the expiration of the healthcare exchange subsidy.
Jim Davis, CEO/President, Quest Diagnostics: Exchange, the subsidies for the healthcare exchange. Still don’t know how that’s going to come out. Obviously, that’s one of the big concerns during the shutdown here.
Jim Davis, CEO/President, Quest Diagnostics: I, you know, other headwinds.
Jim Davis, CEO/President, Quest Diagnostics: Look, hospital reimbursement remains a challenging environment. Pricing on the hospital side remains challenging. As Sam indicated, yes, there’ll be a ramp up of Project Nova investments as we move through next year.
Sam, CFO, Quest Diagnostics: Good morning, Kevin. From an impact on margins perspective, if I take some of Jim’s comments and just give you some color around margins, not to give a percentage right now or any numbers, the utilization, the healthy environment is going to continue to drive margin expansion. A similar thing with the revenue per requisition, the test mix, and also the test per rec is going to drive improvements in margin. I think you’re going to see the Invigorate program continue to drive the 3% productivity and cost reduction next year as well. That’s a tailwind as well. PAMA is obviously an uncertain one, so I’ll set it off to the side for now as a potential headwind. The ramping Project Nova investments are going to generate more expenses next year, but that’s in line with what we shared back in March when we first announced this program.
There’s nothing new there in terms of additional cost, and also generally in terms of all the investments that we have next year, including Nova. Depending on PAMA, we have the ability to ramp those and basically time those and pace those accordingly to offset the impact of any negative pricing effect from PAMA. Operator, next question, please.
Conference Operator: Thank you. Our next question comes from Jack Mann with Nephron Research. Your line is open. Please ask your question.
Sam, CFO, Quest Diagnostics: Thank you. Good morning, guys. I wanted to talk about cash flow. It’s been really strong conversion so far this year, and you increase the guide here to $1.8 billion, up $250 million. Maybe for Sam, just are there any one timers you would call out this year besides kind of the CARES Act payment? I’m just trying to think about the puts and takes on this line into 2026 and understanding what the right baseline might be to work off of.
Jim Davis, CEO/President, Quest Diagnostics: Thanks.
Sam, CFO, Quest Diagnostics: Yeah, thanks Jack. Cash flow has been strong. I mean we took up operating cash flow as you indicated to $1.8 billion as our guide, an increase of $250 million. I think we’re seeing some increases and some positives related to the strength of the business, also the timing of receipts as well and collections. There are one timers in that that you should not expect to necessarily continue. You called out the CARES Act payment of $46 million. That is a one timer that we don’t expect to repeat next year. There are one time benefits related to the recent tax legislation. The one big beautiful bill act that help us in 2025 that don’t necessarily produce the same magnitude of benefit in 2026.
One is related to the acceleration of bonus depreciation and the ability to take deductions on that, and you know, gives you a cash tax benefit. The other one is also related to R&D, accelerated R&D expenses or expensing R&D and being able to take a tax deduction on that as well, which helps you from a cash tax benefit too. Those in total I would call out between sort of just over $100 million, $100 to $130 million or so of benefits in addition to the $46 million of CARES Act.
Jim Davis, CEO/President, Quest Diagnostics: Yeah, Jack, the other thing I’d point to is the beauty of the consumer channel is it’s a direct cash business. You get payment at the time of order, and there’s no patient concessions or bad debt. To the extent we continue to grow that consumer channel, it certainly helps bring in the cash, the timeliness of the cash, and the certainty of the cash.
Sam, CFO, Quest Diagnostics: Operator, next question please.
Conference Operator: Thank you. Our next question comes from Luke Surgat with Barclays. Your line is open, you may ask your question.
Sam, CFO, Quest Diagnostics: Great, thanks. I just wanted to dig in a little bit on the consumer health momentum that you guys have in light of some of these new partnerships you have with Whoop and Oura. How to think about the partnership here and what kind of tests are what’s being marketed and what kind of tests you guys are going to be driving through there. Any type of benefit that you could see to help the requisition volume stay elevated within that business.
Jim Davis, CEO/President, Quest Diagnostics: Yeah, so I can talk about each of those. First of all, let’s start with Whoop. They have somewhere between, I don’t know, 1.5 million and 2 million Whoop users in the U.S. Whoop announced that there were roughly 350,000 people that had signed up for advanced labs. How quickly those people that signed up, how quickly they convert and actually get laboratory testing done, it’s very hard to tell at this point. The faucet is open, people have come forward. We are seeing demand from that. You’ve seen the pricing that Whoop announced in the marketplace: $199 for a limited panel of roughly 65 biomarkers. If you do that twice in the year, it’s a $350 charge. Oura, on the other hand, we’re still in the final stages of the technical integration with Oura. Oura is much bigger in terms of users.
They’ve got about 5.5 million globally, not 100% sure how many are in the U.S., but probably 60% to 65% are probably U.S. based. They’ve chosen a more limited panel, a $99 panel that has roughly 50 biomarkers on it. We don’t have an indication of a backlog yet or anything like that. Obviously, again, our own direct channel has put up growth numbers that are really impressive on a year-to-date basis, between 30% and 40%. Function Health continues to grow and we are the sole lab that does all the testing for Function Health. Put all of those pieces together and it really points to a segment that we’re getting terrific growth at.
Sam, CFO, Quest Diagnostics: Operator, next question, please.
Conference Operator: Thank you. Our next question comes from David Westenberg with Piper Sandler. Your line is open, you may ask your question.
Jim Davis, CEO/President, Quest Diagnostics: Hi, thank you for taking the question and congrats on a good quarter. Congrats on the consumer channel. We are seeing a lot of great growth in this channel. We’re also seeing some ads for some of the home delivery blood testing kits. Do you believe that could be a key part of consumer health? Are there any strategies to participate in that market? Thank you. Yeah, first of all, yes, there is.
Jim Davis, CEO/President, Quest Diagnostics: Strategies for us to participate. There are devices out there today for self-collect for both STDs as well as HPV. Today those collections have to take place actually in one of our patient service centers. In the future, we would expect consumers, patients to be able to do those collections in the home. We are working with a third-party provider on mobile blood collection kits that go well beyond finger prick and finger sticks. We do not actually think that is an optimal way to collect enough blood that can be used to run the test that we typically run here in Quest Diagnostics. In time, those self-collect devices will improve and as they do, we are going to participate in that game as well.
Sam, CFO, Quest Diagnostics: Operator, next question, please.
Conference Operator: Thank you. Next question comes from Erin Wright with Morgan Stanley. Your line is open. You may ask your question. Hey, thanks. In the 10-Q filing, you reiterated the expectation around the impact from one big beautiful bill and the expiration of ACA subsidies, I guess in that 50, 60 bps, how would you break the two of those out if we do get some sort of more favorable negotiation on the exchange subsidies? A completely separate question, can you speak a little bit about the partnership with Epic Systems a little bit more? Can you talk a little bit about the genesis of that relationship and the nature of it and when we will hear more on that front too? Thanks.
Sam, CFO, Quest Diagnostics: Yeah, thanks, Aaron, this is Sam. Good morning. On the impact in 2028 that you call out that we disclosed in our 10Q, the way I would think about it is the majority of that is really related to the health insurance exchanges and the potential expiration of those subsidies and not being renewed. That roughly, let’s call it 60 basis points, I would say about at least 40 to 45 basis points of that is coming from the exchanges and the rest driven by Medicaid. Medicaid ramps over time to get to a certain impact by 2034. The impact on 2027, 2028 is fairly minimal still. Jim, talk about the other.
Jim Davis, CEO/President, Quest Diagnostics: Yeah. On the Epic Systems implementation, the foundational element of this is the conversion and upgrading of all of our laboratory information systems to their LIS product, which is called Beaker. We’re going to start that process. Obviously, a lot of planning is taking place right now. Planning will continue into 2026. We plan on starting those implementations more in our esoteric sites and then rolling it out across the regions over the next several years. We will also standardize. Today we have the application called MyQuest, which allows patients to make appointments, view your test results, pay your bills, and that application will be upgraded to what most people know as MyChart.
In the Epic Systems world, that provides a lot of benefits, including patients will be able to see all of their information, regardless if it’s from Quest Diagnostics or a health system, on one MyChart site, if you will. It provides the integration of lab work with other medical records that they may be getting from their physicians, their health systems. We believe that really has tremendous benefits as well. As we’ve described in the past, it’s a five to seven year implementation timeline. As Sam has said, we’re going to pace that appropriately. It’s a lot of changes, both internally for our own employees, a lot of change for our customers, and we’re going to be very thoughtful and methodical as we embark on this change going forward.
Sam, CFO, Quest Diagnostics: Operator, next question, please.
Conference Operator: Thank you. Our next question comes from Andrew Brackman with William Blair. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Hi guys.
Jim Davis, CEO/President, Quest Diagnostics: Good morning. Thanks for taking the question.
Jim Davis, CEO/President, Quest Diagnostics: Jim, you highlighted some of the work.
Jim Davis, CEO/President, Quest Diagnostics: That you’re doing, expanding partnerships with some of the cancer screening players that are out there.
Sam, CFO, Quest Diagnostics: Can you maybe just sort of talk about those opportunities broadly, what they mean for Quest Diagnostics? More importantly, how do.
Jim Davis, CEO/President, Quest Diagnostics: You balance those types of distribution partnerships with potentially doing some of this testing yourselves in the future?
Sam, CFO, Quest Diagnostics: Thanks.
Jim Davis, CEO/President, Quest Diagnostics: The first decision we look at is do we have a test for that segment of the market? When it comes to some of these early stage cancer screening tests, the answer is it’s not an area where we’ve made significant investments. As we’ve discussed in the past, you can order the Grail test through Quest Diagnostics. It’s on our menu and we make it available to over 100,000 primary care physicians. It’s integrated from an IT standpoint. We announced with Garnet their new blood-based colon cancer test. Again, we don’t have a test in that segment. We were getting questions from our physicians and it’s on our menu. Physicians will be able to access that. There’s complete IT integration. We do the collections and the test gets sent to the Garnet lab to be done.
We have collection agreements with other players in the industry, but those two tests are actually on our menu and we enable physician offices to order through Quest Diagnostics.
Sam, CFO, Quest Diagnostics: Operator, next question, please.
Conference Operator: Thank you. Our next question comes from Michael Riskin with Bank of America. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Great, thanks.
Jim Davis, CEO/President, Quest Diagnostics: We kind of just touched on IT.
Sam, CFO, Quest Diagnostics: There on the advanced diagnostic side, and I’ll just follow up specific to Haystack. If you could just provide an update.
Jim Davis, CEO/President, Quest Diagnostics: On the integration and how that’s going.
Sam, CFO, Quest Diagnostics: Just reaffirm some of the comments you made in terms of how it’s going to flow into the model in 2026.
Jim Davis, CEO/President, Quest Diagnostics: Yeah, so look, I’ll talk about the integration. Sam can touch on some of the financial aspects. It’s totally integrated into the company. It’s part of the inner fabric of Quest Diagnostics we’ve created. The test is run at our Center of Excellence in Texas, at our Cancer Center of Excellence, and the volumes are building. We feel good about that. We mentioned on the call we continue to do new and innovative research. We mentioned Mass General Brigham in Boston, Rutgers Cancer Institute here in New Jersey, and numerous other cancer studies to continue to build evidence. From a reimbursement standpoint, we are getting paid by Medicare today and we expect this November that you’ll see final reimbursement decisions in the final clinical lab fee schedule that gets published just before Thanksgiving of this year. Continued progress, continued to build volume, and completely integrated into Quest Diagnostics.
Sam, CFO, Quest Diagnostics: Yeah, I’ll talk a little bit about the financials or at least in terms of what we expect the projections to be without giving a number because we’re still working through our annual planning now for 2026. Listen, Mike, we’re really excited about this test. It’s definitely one that I think has the potential to be a leading MRD test in the market. We have had some learnings around the actual commercial presence that we need to have, the number of reps that we need to put behind it, the EMR investment that we need to make in terms of the Epic EMR investment that we’re making this year. This year we’re expecting it to be relatively on pace in terms of dilution versus last year. We do expect in 2026 for it to be a tailwind in terms of less dilution in 2026 versus 2025.
Very pleased with the market response to this test. Operator, next question.
Conference Operator: Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Yeah. Good morning guys and thanks for taking my questions. Nice job on the quarter. As we roll forward, you know, like organic growth for next year. If I focus on the number of tests per requisition, can you refresh us how that grew year to date, how we should think about the durability of that growth going forward? Yeah. In terms of test per req, Pete, we have said that it’s definitely elevated versus what we were seeing pre-COVID. Okay, so without getting too specific and providing too many details and numbers, which we don’t necessarily share, but definitely it has continued to improve quarter after quarter since 2019.
Right now we are north of, you know, I would say 4.2 in terms of tests per req, and prior to 2019 in the pre-COVID timeframe we were somewhere between three and a half and four, maybe on the high end of that. This constant evolution of test per req, we’re seeing improved test per req and also improved mix, you know, on the test per req. It’s a number of things. I mean, it’s clinical guidelines that physicians over time have been gradually adhering to. It’s our clinical franchise strategy. It’s, you know, the availability of a broader test menu that we have. It’s the default to more screening tests like advanced, like AD-Detect for instance, which, you know, is a blood-based Alzheimer’s dementia screening test that we didn’t, wasn’t available before that’s now producing lift.
On top of that, there’s also the wellness portion of our business that’s driving also an improvement in terms of test per req. All of these things that I mentioned are helping with, you know, test per req and also on top of that, revenue per requisition. If you take that into 2026, you know, do I expect continued improvement in terms of revenue per requisition and test per req? Potentially, but it’s going to get to a point where it slows down. We’re not going to continue to see the same pace of improvement that we’ve seen traditionally. I think the direction is positive for next year, but I think at some point we’re going to see a slowing down of that improvement. Operator, next question please.
Conference Operator: Thank you. Our next question comes from Tycho Peterson with Jefferies. Your line is open, you may ask your question.
Jim Davis, CEO/President, Quest Diagnostics: Hey, thanks. I wanted to probe a little more on the oncology initiatives. I appreciate the color you provided, but I know evidence generation, you’re working with some of the academic medical centers for Haystack, I think on head and neck, breast, lung, I guess. How do we think about additional indications being introduced for Haystack and then any thoughts on just guideline inclusion for NCCN, and then separately on Guardant, I think Shield is going to cross $100 million or so in revenues next year. At what point could that partnership start to get more meaningful? Is that just for colorectal or is it an option for multi-cancer with Guardant as well?
Jim Davis, CEO/President, Quest Diagnostics: Yeah, let me just take the last question first. First, on guardin, right now it is just colorectal. That’s what we’ve agreed to do. That’s what we put up on our test menu, and we expect growth out of that next year. With respect to evidence generation on the Haystack MRD test, first indications are obviously colon, and we’re going after that hard. I think hopefully we’ll see favorable reimbursement in the fee schedule that comes out in November for that indication. As you mentioned, head and neck are important, and we’re doing that research, doing those studies with Mass General. We’ve got several funded studies on breast and lung as well. We have over 25 studies ongoing right this moment. The studies get completed, we do the publications. We expect to continue to get broader and broader based coverage on multiple cancer indications with this test.
You know, look, we’re really, really pleased with the uptake of this test by some of the more academic sites that really value precision. They value the sensitivity of the test. They value the specificity of the test. We’re seeing nice uptake from thought leaders in the industry that value these characteristics.
Sam, CFO, Quest Diagnostics: Operator, next question, please.
Conference Operator: Thank you. Our final question comes from Eric Caldwell with Baird. Your line is open. You may ask your question.
Sam, CFO, Quest Diagnostics: Thanks very much. A lot of moving pieces on the margin profile in 3Q and 4Q. You called out the employee health benefits as one of the short-term headwinds. I’m curious about Project Nova and other investments around that. You mentioned some slippage from 3Q to 4Q, an increase in 4Q. Is it possible to size if there’s some way to frame these investments relative to last year or relative to original expectations? I’m just trying to get a sense on what the order of magnitude of the impact in 4Q is and then how that might play out in 2026 in terms of a year-over-year investment compared to. Yeah, thanks Eric, and good morning. I’ll give you a portion of what you asked for, but I won’t give you everything that you asked for in terms of the numbers.
We started the year we said we had investment spend this year of roughly $30 million. We said there was about $10 million related to the LDT regs and there was about $20 million related to Project Nova investments. The QARA, the quality and regulatory, and we didn’t. The LDT regs obviously didn’t go through, but we still had to make some investments to really improve that organization and our reporting capabilities. I would say roughly of that $10 million that we had earmarked, we spent most of that. The $20 million for Nova, we have not spent a big portion of it. Some of it went into Q4 and we’re going to spend a portion in Q4 and that was largely due to timing. There’s not going to be a bleed over effect into 2026.
If you’re trying to read into that, I wouldn’t consider it as something that’s going to impact 2026 negatively. It was really more of a timing thing within 2025. We just didn’t spend it earlier and it just went into Q4. That’s how I’d look at it in terms of just Nova spend overall as we have called out. Over the next three years or sorry, over the next six or seven years through the implementation, we’re expecting about a $310 million investment, somewhere between $250 million and $310 million investment in Nova. That’s going to be a combination of OpEx and CapEx. A portion of that is going to impact 2026. It’s consistent with our expectations when we shared that range back in investor day.
Nothing has changed and as I said earlier, depending on PAMA, depending on the headwinds of the business, the macro environment potential, any challenges that we see, we control the pace of those investments and we will flex and pace accordingly. I just want to make sure that’s clear. Operator, any more questions at this time?
Conference Operator: I’m showing no further questions.
Jim Davis, CEO/President, Quest Diagnostics: Okay, thank you again for joining in and again strong performance for Quest Diagnostics. We again thank our 55,000 employees who made this happen in the quarter and will continue to make it happen. Have a great day. Thank you.
Conference Operator: Thank you for participating in the Quest Diagnostics third quarter 2025 conference call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at 866-388-5361 for domestic callers or 203-369-0416 for international callers. Telephone replays will be available from approximately 10:30 A.M. Eastern Time on October 21, 2025 until midnight Eastern Time November 4, 2025. Goodbye.
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