Three Months Ended March 31,

Change

(dollars in millions, except per share data)

Reported:

Net revenues

$       2,331

$       2,611

(10.7) %

Base business revenues (a)

$       2,212

$       2,012

10.0 %

COVID-19 testing revenues

$          119

$          599

(80.2) %

Diagnostic Information Services revenues

$       2,259

$       2,541

(11.1) %

Revenue per requisition

(7.7) %

Requisition volume

(3.8) %

  Organic requisition volume

(3.9) %

Operating income (b)

$          305

$          513

(40.6) %

Operating income as a percentage of net revenues (b)

13.1 %

19.7 %

(6.6) %

Net income attributable to Quest Diagnostics (b)

$          202

$          355

(43.0) %

Diluted EPS (b)

$         1.78

$         2.92

(39.0) %

Cash provided by operations

$            94

$          480

(80.5) %

Capital expenditures

$          127

$            63

101.3 %

Adjusted (b):

Operating income

$          350

$          554

(36.8) %

Operating income as a percentage of net revenues

15.0 %

21.2 %

(6.2) %

Net income attributable to Quest Diagnostics

$          232

$          392

(40.7) %

Diluted EPS

$         2.04

$         3.22

(36.6) %

(a)

Excludes COVID-19 testing.

(b)

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

$8.93 billion

$9.08 billion

$8.83 billion

$9.03 billion

Net revenues decrease

(9.6) %

(8.1) %

(10.7) %

(8.6) %

Base business revenues (a)

$8.78 billion

$8.88 billion

$8.65 billion

$8.75 billion

Base business revenues increase

4.2 %

5.4 %

2.6 %

3.8 %

COVID-19 testing revenues

$150 million

$200 million

$175 million

$275 million

COVID-19 testing revenues decrease

(89.7) %

(86.2) %

(88.0) %

(81.1) %

Reported diluted EPS

$7.52

$8.02

$7.61

$8.21

Adjusted diluted EPS

$8.45

$8.95

$8.40

$9.00

Cash provided by operations

At least $1.3 billion

At least $1.3 billion

Capital expenditures

  Approximately $400 million

Approximately $400 million

(a) Excludes COVID-19 testing

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2023 and 2022
(in millions, except per share data)
(unaudited)

Three Months Ended
March 31,

2023

2022

Net revenues

$    2,331

$    2,611

Operating costs and expenses and other operating income:

Cost of services

1,560

1,646

Selling, general and administrative

439

425

Amortization of intangible assets

26

27

Other operating expense, net

1

—

Total operating costs and expenses, net

2,026

2,098

Operating income

305

513

Other income (expense):

Interest expense, net

(35)

(37)

Other income (expense), net

7

(24)

Total non-operating expense, net

(28)

(61)

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

277

452

Income tax expense

(65)

(110)

Equity in earnings of equity method investees, net of taxes

5

31

Net income

217

373

Less: Net income attributable to noncontrolling interests

15

18

Net income attributable to Quest Diagnostics

$       202

$       355

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$      1.80

$      2.97

Diluted

$      1.78

$      2.92

Weighted average common shares outstanding:

Basic

112

119

Diluted

113

121

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 2023 and December 31, 2022
(in millions, except per share data)
(unaudited)

March 31,
2023

December 31,
2022

Assets

Current assets:

Cash and cash equivalents

$                 175

$                315

Accounts receivable, net

1,254

1,195

Inventories

190

192

Prepaid expenses and other current assets

195

196

Total current assets

1,814

1,898

Property, plant and equipment, net

1,795

1,766

Operating lease right-of-use assets

589

585

Goodwill

7,241

7,220

Intangible assets, net

1,077

1,092

Investments in equity method investees

128

132

Other assets

150

144

Total assets

$            12,794

$           12,837

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$              1,198

$             1,396

Current portion of long-term debt

2

2

Current portion of long-term operating lease liabilities

155

153

Total current liabilities

1,355

1,551

Long-term debt

3,975

3,978

Long-term operating lease liabilities

490

489

Other liabilities

809

812

Redeemable noncontrolling interest

77

77

Stockholders' equity:

Quest Diagnostics stockholders' equity:

Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2023 and December 31, 2022; 162 shares issued as of both March 31, 2023 and December 31, 2022

2

2

Additional paid-in capital

2,266

2,295

Retained earnings

8,412

8,290

Accumulated other comprehensive loss

(18)

(21)

Treasury stock, at cost; 50 and 51 shares as of March 31, 2023 and December 31, 2022, respectively

(4,612)

(4,673)

Total Quest Diagnostics stockholders' equity

6,050

5,893

Noncontrolling interests

38

37

Total stockholders' equity

6,088

5,930

Total liabilities and stockholders' equity

$            12,794

$           12,837

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2023 and 2022
(in millions)
(unaudited)

Three Months Ended
March 31,

2023

2022

Cash flows from operating activities:

Net income

$              217

$              373

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

Depreciation and amortization

107

106

Credit for credit losses

(1)

—

Deferred income tax benefit

(4)

(43)

Stock-based compensation expense

24

18

Other, net

3

4

Changes in operating assets and liabilities:

Accounts receivable

(58)

72

Accounts payable and accrued expenses

(211)

(165)

Income taxes payable

11

95

Other assets and liabilities, net

6

20

Net cash provided by operating activities

94

480

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(31)

(105)

Capital expenditures

(127)

(63)

Increase in investments and other assets

—

(1)

Net cash used in investing activities

(158)

(169)

Cash flows from financing activities:

Proceeds from borrowings

140

—

Repayments of debt

(140)

(1)

Purchases of treasury stock

—

(373)

Exercise of stock options

25

10

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

(28)

(27)

Dividends paid

(74)

(74)

Distributions to noncontrolling interest partners

(14)

(20)

Other financing activities, net

15

14

Net cash used in financing activities

(76)

(471)

Net change in cash and cash equivalents and restricted cash

(140)

(160)

Cash and cash equivalents and restricted cash, beginning of period

315

872

Cash and cash equivalents and restricted cash, end of period

$              175

$              712

Cash paid during the period for:

Interest

$                32

$                32

Income taxes

$                33

$                23

Notes to Financial Tables

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

Three Months Ended
March 31,

2023

2022

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$           202

$           355

Less: earnings allocated to participating securities

1

1

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

$           201

$           354

Weighted average common shares outstanding - basic

112

119

Effect of dilutive securities:

Stock options and performance share units

1

2

Weighted average common shares outstanding - diluted

113

121

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$          1.80

$          2.97

Diluted

$          1.78

$          2.92

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

Three Months Ended March 31, 2023

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (d)

Equity in
earnings of
equity method
investees, net
of taxes

Net income
attributable to
Quest Diagnostics

As reported

$                 305

13.1 %

$                  (65)

$                     5

$                 202

$                1.78

Restructuring and
integration charges (a)

19

0.8

(5)

—

14

0.12

Gains and losses on
investments (b)

—

—

(1)

3

2

0.02

Amortization expense

26

1.1

(7)

—

19

0.17

ETB

—

—

(5)

—

(5)

(0.05)

As adjusted

$                 350

15.0 %

$                  (83)

$                     8

$                 232

$                2.04

Three Months Ended March 31, 2022

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (d)

Equity in
earnings of
equity method
investees, net
of taxes

Net income
attributable to
Quest
Diagnostics

Diluted EPS

As reported

$                513

19.7 %

$               (110)

$                   31

$                 355

$                2.92

Restructuring and
integration charges (a)

12

0.4

(3)

—

9

0.07

Gains and losses on
investments (b)

—

—

(4)

—

12

0.10

Other (c)

2

0.1

(1)

—

1

0.01

Amortization expense

27

1.0

(7)

—

20

0.16

ETB

—

—

(5)

—

(5)

(0.04)

As adjusted

$                 554

21.2 %

$                (130)

$                   31

$                 392

$                3.22

(a) 

Three Months Ended
March 31,

2023

2022

(dollars in millions)

Cost of services

$            10

$              3

Selling, general and administrative

9

9

Operating income

$            19

$            12

(b) 

For both the three months ended March 31, 2023 and 2022, the pre-tax impact represents gains and losses associated with changes in the carrying value of our strategic investments.  The following table summarizes the pre-tax impact of gains and losses on investments on our consolidated statements of operations:

Three Months Ended
March 31,

2023

2022

(dollars in millions)

Other income (expense), net

$            —

$            16

Equity in earnings of equity method investees, net of taxes

$              3

$            —

(c) 

For the three months ended March 31, 2022, the pre-tax impact primarily represents the costs associated with donations, contributions and other financial support through Quest for Health Equity, recorded in selling, general and administrative expenses.                 

(d) 

For restructuring and integration charges, gains and losses on investments, other items and amortization expense, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2023 and 2022.

The outlook for adjusted diluted EPS represents management's estimates for the full year 2023 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2023. 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 2023 outlook for diluted EPS under GAAP to our outlook for adjusted diluted EPS:

Low

High

Diluted EPS

$          7.52

$          8.02

Restructuring and integration charges (a)

0.30

0.30

Amortization expense (b)

0.76

0.76

Gains and losses on investments (c)

0.02

0.02

ETB

(0.15)

(0.15)

Adjusted diluted EPS

$          8.45

$          8.95

(a) 

Represents estimated pre-tax charges of $47 million primarily associated with workforce reductions, systems conversions and integration costs incurred in connection with further restructuring and integrating our business.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(b) 

Represents estimated pre-tax amortization expenses of $117 million.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(c) 

Represents $3 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%.