Company Announcements

Three Months Ended September 30,

Nine Months Ended September 30,

2024

2023

Change

2024

2023

Change

(dollars in millions, except per share data)

Reported:

Net revenues

$      2,488

$      2,295

8.5 %

$     7,251

$     6,964

4.1 %

Diagnostic Information Services revenues

$      2,427

$      2,228

9.0 %

$     7,058

$     6,755

4.5 %

Revenue per requisition

3.3 %

1.7 %

Requisition volume

5.5 %

2.7 %

  Organic requisition volume

0.5 %

0.7 %

Operating income (a)

$         330

$         342

(3.3) %

$        985

$        995

(1.0) %

Operating income as a percentage of net revenues (a)

13.3 %

14.9 %

(1.6) %

13.6 %

14.3 %

(0.7) %

Net income attributable to Quest Diagnostics (a)

$         226

$         225

0.5 %

$        649

$        662

(1.9) %

Diluted EPS (a)

$        1.99

$        1.96

1.5 %

$       5.74

$       5.79

(0.9) %

Cash provided by operations

$         356

$         207

72.5 %

$        870

$        745

17.0 %

Capital expenditures

$         106

$         105

1.0 %

$        302

$        336

(10.4) %

Adjusted (a):

Operating income

$         385

$         380

1.3 %

$     1,132

$     1,119

1.1 %

Operating income as a percentage of net revenues

15.5 %

16.6 %

(1.1) %

15.6 %

16.1 %

(0.5) %

Net income attributable to Quest Diagnostics

$         262

$         254

3.1 %

$        758

$        749

1.2 %

Diluted EPS

$        2.30

$        2.22

3.6 %

$       6.70

$       6.56

2.1 %

(a)

For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage of net revenues, net income attributable to Quest Diagnostics, and diluted EPS, see note 2 of the financial tables attached below.

Updated Guidance

Prior Guidance

Low

High

Low

High

Net revenues

$9.80 billion

$9.85 billion

$9.50 billion

$9.58 billion

Net revenues increase

5.9 %

6.5 %

2.7 %

3.5 %

Reported diluted EPS

$7.60

$7.70

$7.57

$7.77

Adjusted diluted EPS

$8.85

$8.95

$8.80

$9.00

Cash provided by operations

Approximately $1.3 billion

Approximately $1.3 billion

Capital expenditures

  Approximately $420 million

Approximately $420 million

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2024 and 2023

(in millions, except per share data)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2024

2023

2024

2023

Net revenues

$    2,488

$    2,295

$  7,251

$    6,964

Operating costs and expenses and other operating income:

Cost of services

1,677

1,541

4,865

4,647

Selling, general and administrative

448

380

1,304

1,235

Amortization of intangible assets

32

27

90

81

Other operating expense, net

1

5

7

6

Total operating costs and expenses, net

2,158

1,953

6,266

5,969

Operating income

330

342

985

995

Other income (expense):

Interest expense, net

(49)

(40)

(136)

(112)

Other income (expense), net

15

(3)

27

10

Total non-operating expense, net

(34)

(43)

(109)

(102)

Income before income taxes and equity in earnings of equity method investees

296

299

876

893

Income tax expense

(65)

(68)

(205)

(208)

Equity in earnings of equity method investees, net of taxes

6

6

14

18

Net income

237

237

685

703

Less: Net income attributable to noncontrolling interests

11

12

36

41

Net income attributable to Quest Diagnostics

$       226

$       225

$     649

$       662

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$      2.01

$      1.99

$    5.80

$      5.87

Diluted

$      1.99

$      1.96

$    5.74

$      5.79

Weighted average common shares outstanding:

Basic

112

112

111

112

Diluted

113

114

112

114

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

September 30, 2024 and December 31, 2023

(in millions, except per share data)

(unaudited)

September 30,
2024

December 31,
2023

Assets

Current assets:

Cash and cash equivalents

$               764

$               686

Accounts receivable, net

1,376

1,210

Inventories

184

190

Prepaid expenses and other current assets

299

286

Total current assets

2,623

2,372

Property, plant and equipment, net

2,093

1,816

Operating lease right-of-use assets

661

602

Goodwill

8,605

7,733

Intangible assets, net

1,716

1,166

Investments in equity method investees

125

135

Other assets

272

198

Total assets

$          16,095

$          14,022

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$            1,313

$            1,359

Current portion of long-term debt

603

303

Current portion of long-term operating lease liabilities

176

153

Total current liabilities

2,092

1,815

Long-term debt

5,648

4,410

Long-term operating lease liabilities

543

503

Other liabilities

891

876

Redeemable noncontrolling interest

80

76

Stockholders' equity:

Quest Diagnostics stockholders' equity:

Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2024
and December 31, 2023; 162 shares issued as of both September 30, 2024 and December 31, 2023

2

2

Additional paid-in capital

2,332

2,320

Retained earnings

9,222

8,825

Accumulated other comprehensive loss

(15)

(14)

Treasury stock, at cost; 50 shares and 51 shares as of September 30, 2024 and December 31,
2023, respectively

(4,732)

(4,826)

Total Quest Diagnostics stockholders' equity

6,809

6,307

Noncontrolling interests

32

35

Total stockholders' equity

6,841

6,342

Total liabilities and stockholders' equity

$          16,095

$          14,022

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2024 and 2023

(in millions)

(unaudited)

Nine Months Ended September 30,

2024

2023

Cash flows from operating activities:

Net income

$             685

$             703

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

358

330

Provision for credit losses

4

—

Deferred income tax benefit

(21)

(39)

Stock-based compensation expense

61

58

Other, net

17

12

Changes in operating assets and liabilities:

Accounts receivable

(140)

(86)

Accounts payable and accrued expenses

(102)

(231)

Income taxes payable

31

—

Other assets and liabilities, net

(23)

(2)

Net cash provided by operating activities

870

745

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(1,781)

(611)

Capital expenditures

(302)

(336)

Other investing activities, net

37

—

Net cash used in investing activities

(2,046)

(947)

Cash flows from financing activities:

Proceeds from borrowings

1,846

1,703

Repayments of debt

(302)

(1,426)

Exercise of stock options

52

60

Employee payroll tax withholdings on stock issued under stock-based compensation plans

(24)

(28)

Dividends paid

(247)

(234)

Distributions to noncontrolling interest partners

(35)

(41)

Other financing activities, net

(36)

(4)

Net cash provided by financing activities

1,254

30

Net change in cash and cash equivalents and restricted cash

78

(172)

Cash and cash equivalents and restricted cash, beginning of period

686

315

Cash and cash equivalents and restricted cash, end of period

$             764

$             143

Cash paid during the period for:

Interest

$             167

$              97

Income taxes

$             179

$             233

1)

The computation of basic and diluted earnings per common share is as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2024

2023

2024

2023

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$          226

$          225

$          649

$          662

Less: earnings allocated to participating securities

1

2

3

4

Earnings available to Quest Diagnostics' common stockholders - basic and diluted

$          225

$          223

$          646

$          658

Weighted average common shares outstanding - basic

112

112

111

112

Effect of dilutive securities:

Stock options and performance share units

1

2

1

2

Weighted average common shares outstanding - diluted

113

114

112

114

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$         2.01

$         1.99

$         5.80

$         5.87

Diluted

$         1.99

$         1.96

$         5.74

$         5.79

2)

The following tables reconcile reported GAAP results to non-GAAP adjusted results:

Three Months Ended September 30, 2024

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of

net revenues

Income tax
expense (e)

Equity in
earnings of
equity method

investees, net of
taxes

Net income
attributable to
Quest

Diagnostics

Diluted EPS

As reported

$               330

13.3 %

$                (65)

$                   6

$                226

$               1.99

Restructuring and integration charges (a)

18

0.7

(3)

—

15

0.13

Other charges (b)

5

0.2

—

—

4

0.04

Gains and losses on investments (c)

—

—

—

2

2

0.02

Other gains (d)

—

—

2

—

(6)

(0.06)

Amortization expense

32

1.3

(8)

—

24

0.21

ETB

—

—

(3)

—

(3)

(0.03)

As adjusted

$               385

15.5 %

$                (77)

$                   8

$                262

$               2.30

Nine Months Ended September 30, 2024

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (e)

Equity in
earnings of
equity method

 investees, net of
taxes

Net income
attributable to
Quest
Diagnostics

Diluted EPS

As reported

$               985

13.6 %

$              (205)

$                 14

$                649

$               5.74

Restructuring and integration charges (a)

45

0.6

(10)

—

35

0.31

Other charges (b)

12

0.2

—

—

11

0.10

Gains and losses on investments (c)

—

—

(3)

11

8

0.07

Other gains (d)

—

—

2

—

(6)

(0.06)

Amortization expense

90

1.2

(23)

—

67

0.59

ETB

—

—

(6)

—

(6)

(0.05)

As adjusted

$            1,132

15.6 %

$              (245)

$                 25

$                758

$               6.70

Three Months Ended September 30, 2023

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (e)

Equity in

 earnings of

equity method
 investees, net
of taxes

Net income
attributable to
Quest
Diagnostics

Diluted EPS

As reported

$               342

14.9 %

$                (68)

$                   6

$                225

$               1.96

Restructuring and integration charges (a)

6

0.3

(1)

—

5

0.05

Other charges (b)

5

0.2

—

—

5

0.04

Amortization expense

27

1.2

(6)

—

21

0.18

ETB

—

—

(2)

—

(2)

(0.01)

As adjusted

$               380

16.6 %

$                (77)

$                   6

$                254

$               2.22

Nine Months Ended September 30, 2023

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (e)

Equity in
earnings of
equity method
investees, net
of taxes

Net income
attributable to
Quest
Diagnostics

Diluted EPS

As reported

$               995

14.3 %

$              (208)

$                 18

$                662

$               5.79

Restructuring and integration charges (a)

32

0.5

(8)

—

24

0.22

Other charges (b)

11

0.1

(2)

—

9

0.08

Gains and losses on investments (c)

—

—

(1)

3

2

0.02

Amortization expense

81

1.2

(20)

—

61

0.53

ETB

—

—

(9)

—

(9)

(0.08)

As adjusted

$            1,119

16.1 %

$              (248)

$                 21

$                749

$               6.56

(a)

For both the three and nine months ended September 30, 2024 and 2023, the pre-tax impact represents costs primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business.  The following table summarizes the pre-tax impact of restructuring and integration charges on our consolidated statements of operations:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2024

2023

2024

2023

(dollars in millions)

Cost of services

$             5

$             2

$           19

$           12

Selling, general and administrative

15

4

28

20

Other operating expense, net

(2)

—

(2)

—

Operating income

$           18

$             6

$           45

$           32

(b)

For the periods presented other operating expense, net includes pre-tax losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  Additionally, for the nine months ended September 30, 2023, selling, general and administrative expenses includes the impairment of a corporate facility that was sold.  The following table summarizes the pre-tax impact of these other items on our consolidated statements of operations:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2024

2023

2024

2023

(dollars in millions)

Selling, general and administrative

$             1

$             1

$             2

$             7

Other operating expense, net

4

4

10

4

Operating income

$             5

$             5

$           12

$           11

(c)

For both the three and nine months ended September 30, 2024 and for the nine months ended September 30, 2023, the pre-tax impact represents gains and losses associated with changes in the carrying value of our strategic investments, recorded in equity in earnings of equity method investees, net of taxes.

(d)

For the three and nine months ended September 30, 2024, other income (expense), net includes a non-recurring $8 million pre-tax gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition.

(e)

For restructuring and integration charges, gains and losses on investments, other charges and gains, and amortization expense, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2024 and 2023.

3)

The outlook for adjusted diluted EPS represents management's estimates for the full year 2024 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2024. Additionally, the amount of ETB is dependent upon employee stock option exercises and our stock price, which are difficult to predict. The following table reconciles our 2024 outlook for diluted EPS under GAAP to our outlook for adjusted diluted EPS:

Low

High

Diluted EPS

$                                7.60

$                                7.70

Restructuring and integration charges (a)

0.34

0.34

Amortization expense (b)

0.85

0.85

Other charges (c)

0.12

0.12

Gains and losses on investments (d)

0.07

0.07

Other gains (e)

(0.06)

(0.06)

ETB

(0.07)

(0.07)

Adjusted diluted EPS

$                                8.85

$                                8.95

(a)

Represents estimated pre-tax charges of $50 million primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business.  Income tax benefits were primarily calculated using a combined statutory income tax rate of 25.5%.

(b)

Represents estimated pre-tax amortization expenses of $129 million.  Income tax benefits were primarily calculated using a combined statutory income tax rate of 25.5%.

(c)

Principally represents estimated pre-tax net losses of $13 million associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  No income tax benefits are recorded on the losses associated with the contingent consideration accrual.

(d)

Represents $11 million of pre-tax losses associated with changes in the carrying value of our strategic investments. Income tax impacts were calculated using a combined statutory income tax rate of 25.5%.

(e)

Includes a non-recurring $8 million pre-tax gain associated with a foreign exchange forward contract utilized in conjunction with an acquisition.  Income tax impacts on the gain were calculated using a combined statutory income tax rate of 25.5%.