Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

Change

2023

2022

(dollars in millions, except per share data)

Reported:

Net revenues

$       2,295

$       2,486

(7.7) %

$     6,964

$     7,550

(7.8) %

Base business revenues (a)

$       2,269

$       2,170

4.6 %

$     6,778

$     6,280

7.9 %

COVID-19 testing revenues

$            26

$          316

(92.0) %

$         186

$     1,270

(85.4) %

Diagnostic Information Services revenues

$       2,228

$       2,419

(7.9) %

$     6,755

$     7,344

(8.0) %

Revenue per requisition

(7.2) %

(6.6) %

Requisition volume

(0.5) %

(1.4) %

  Organic requisition volume

(1.0) %

(1.7) %

Operating income (b)

$          342

$          392

(13.0) %

$         995

$     1,293

(23.1) %

Operating income as a percentage of net revenues (b)

14.9 %

15.8 %

(0.9) %

14.3 %

17.1 %

(2.8) %

Net income attributable to Quest Diagnostics (b)

$          225

$          256

(12.2) %

$         662

$         845

(21.7) %

Diluted EPS (b)

$         1.96

$         2.17

(9.7) %

$        5.79

$        7.05

(17.9) %

Cash provided by operations

$          207

$          502

(58.8) %

$         745

$     1,384

(46.2) %

Capital expenditures

$          105

$          118

(10.1) %

$         336

$         257

31.1 %

Adjusted (b):

Operating income

$          380

$          423

(10.1) %

$     1,119

$     1,412

(20.7) %

Operating income as a percentage of net revenues

16.6 %

17.0 %

(0.4) %

16.1 %

18.7 %

(2.6) %

Net income attributable to Quest Diagnostics

$          254

$          279

(8.8) %

$         749

$         952

(21.3) %

Diluted EPS

$         2.22

$         2.36

(5.9) %

$        6.56

$        7.94

(17.4) %

(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

$9.19 billion

$9.24 billion

$9.12 billion

$9.22 billion

Net revenues decrease

(7.0) %

(6.5) %

(7.7) %

(6.7) %

Base business revenues (a)

$8.99 billion

$9.04 billion

$8.92 billion

$9.02 billion

Base business revenues increase

6.7 %

7.3 %

5.8 %

7.0 %

COVID-19 testing revenues

Approximately $200 million

Approximately $200 million

COVID-19 testing revenues decrease

(86.2) %

(86.2) %

Reported diluted EPS

$7.61

$7.71

$7.52

$7.92

Adjusted diluted EPS

$8.65

$8.75

$8.50

$8.90

Cash provided by operations

Approximately $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 and Nine Months Ended September 30, 2023 and 2022

(in millions, except per share data)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

Net revenues

$    2,295

$    2,486

$    6,964

$    7,550

Operating costs and expenses and other operating income:

Cost of services

1,541

1,618

4,647

4,875

Selling, general and administrative

380

464

1,235

1,311

Amortization of intangible assets

27

27

81

81

Other operating expense (income), net

5

(15)

6

(10)

Total operating costs and expenses, net

1,953

2,094

5,969

6,257

Operating income

342

392

995

1,293

Other income (expense):

Interest expense, net

(40)

(33)

(112)

(106)

Other (expense) income, net

(3)

(8)

10

(61)

Total non-operating expense, net

(43)

(41)

(102)

(167)

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

299

351

893

1,126

Income tax expense

(68)

(81)

(208)

(268)

Equity in earnings of equity method investees, net of taxes

6

6

18

41

Net income

237

276

703

899

Less: Net income attributable to noncontrolling interests

12

20

41

54

Net income attributable to Quest Diagnostics

$       225

$       256

$       662

$       845

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$      1.99

$      2.20

$      5.87

$      7.17

Diluted

$      1.96

$      2.17

$      5.79

$      7.05

Weighted average common shares outstanding:

Basic

112

116

112

117

Diluted

114

118

114

119

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

September 30, 2023 and December 31, 2022

(in millions, except per share data)

(unaudited)

September 30, 
2023

December 31,
2022

Assets

Current assets:

Cash and cash equivalents

$                 143

$                315

Accounts receivable, net

1,281

1,195

Inventories

184

192

Prepaid expenses and other current assets

207

196

Total current assets

1,815

1,898

Property, plant and equipment, net

1,830

1,766

Operating lease right-of-use assets

607

585

Goodwill

7,732

7,220

Intangible assets, net

1,219

1,092

Investments in equity method investees

130

132

Other assets

149

144

Total assets

$            13,482

$           12,837

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$              1,157

$             1,396

Current portion of long-term debt

304

2

Current portion of long-term operating lease liabilities

157

153

Total current liabilities

1,618

1,551

Long-term debt

3,946

3,978

Long-term operating lease liabilities

505

489

Other liabilities

874

812

Redeemable noncontrolling interest

76

77

Stockholders' equity:

Quest Diagnostics stockholders' equity:

Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2023
and December 31, 2022; 162 shares issued as of both September 30, 2023 and December 31, 2022

2

2

Additional paid-in capital

2,302

2,295

Retained earnings

8,711

8,290

Accumulated other comprehensive loss

(20)

(21)

Treasury stock, at cost; 50 and 51 shares as of September 30, 2023 and December 31, 2022, respectively

(4,570)

(4,673)

Total Quest Diagnostics stockholders' equity

6,425

5,893

Noncontrolling interests

38

37

Total stockholders' equity

6,463

5,930

Total liabilities and stockholders' equity

$            13,482

$           12,837

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and 2022

(in millions)

(unaudited)

Nine Months Ended
September 30,

2023

2022

Cash flows from operating activities:

Net income

$              703

$              899

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

Depreciation and amortization

330

321

Provision for credit losses

—

1

Deferred income tax (benefit) provision

(39)

45

Stock-based compensation expense

58

55

Other, net

12

37

Changes in operating assets and liabilities:

Accounts receivable

(86)

162

Accounts payable and accrued expenses

(231)

(169)

Income taxes payable

—

(1)

Other assets and liabilities, net

(2)

34

Net cash provided by operating activities

745

1,384

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(611)

(106)

Capital expenditures

(336)

(257)

Increase in investments and other assets

—

(6)

Net cash used in investing activities

(947)

(369)

Cash flows from financing activities:

Proceeds from borrowings

1,703

—

Repayments of debt

(1,426)

(1)

Purchases of treasury stock

—

(947)

Exercise of stock options

60

96

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

(28)

(28)

Dividends paid

(234)

(230)

Distributions to noncontrolling interest partners

(41)

(58)

Other financing activities, net

(4)

(19)

Net cash provided by (used in) financing activities

30

(1,187)

Net change in cash and cash equivalents and restricted cash

(172)

(172)

Cash and cash equivalents and restricted cash, beginning of period

315

872

Cash and cash equivalents and restricted cash, end of period

$              143

$              700

Cash paid during the period for:

Interest

$                97

$              110

Income taxes

$              233

$              187

Notes to Financial Tables

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$           225

$           256

$           662

$           845

Less: earnings allocated to participating securities

2

2

4

4

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

$           223

$           254

$           658

$           841

Weighted average common shares outstanding - basic

112

116

112

117

Effect of dilutive securities:

Stock options and performance share units

2

2

2

2

Weighted average common shares outstanding - diluted

114

118

114

119

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$          1.99

$          2.20

$          5.87

$          7.17

Diluted

$          1.96

$          2.17

$          5.79

$          7.05

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

(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

$                 342

14.9 %

$                  (68)

$                     6

$                 225

$                1.96

Restructuring and integration charges (a)

6

0.3

(1)

—

5

0.05

Other (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 (d)

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 (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

Three Months Ended September 30, 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

$                 392

15.8 %

$                  (81)

$                     6

$                 256

$                2.17

Restructuring and integration charges (a)

13

0.5

(4)

—

9

0.08

Other (b)

(9)

(0.4)

2

—

(7)

(0.06)

Gains and losses on investments (c)

—

—

—

—

2

0.01

Amortization expense

27

1.1

(7)

—

20

0.17

ETB

—

—

(1)

—

(1)

(0.01)

As adjusted

$                 423

17.0 %

$                  (91)

$                     6

$                 279

$                2.36

Nine Months Ended September 30, 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

$              1,293

17.1 %

$                (268)

$                   41

$                 845

$                7.05

Restructuring and integration charges (a)

37

0.5

(10)

—

27

0.23

Other (b)

1

—

(1)

—

—

—

Gains and losses on investments (c)

—

—

(9)

9

30

0.24

Amortization expense

81

1.1

(21)

—

60

0.50

ETB

—

—

(10)

—

(10)

(0.08)

As adjusted

$              1,412

18.7 %

$                (319)

$                   50

$                 952

$                7.94

(a)

For both the three and nine months ended September 30, 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.  For both the three and nine months ended September 30, 2022, the pre-tax impact represents costs primarily associated with workforce reductions, systems conversions 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,

2023

2022

2023

2022

(dollars in millions)

Cost of services

$               2

$               6

$             12

$             13

Selling, general and administrative

4

7

20

24

Operating income

$               6

$             13

$             32

$             37

(b)

For the three months ended September 30, 2023, the pre-tax impact primarily represents a $5 million loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  For the nine months ended September 30, 2023, the pre-tax impact primarily represents the impairment of a corporate facility that is currently held for sale and a $5 million loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  For the three months ended September 30, 2022, the pre-tax impact primarily represents a $10 million gain from a payroll tax credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") associated with the retention of employees and a $7 million gain associated with the decrease in the fair value of the contingent consideration accrual associated with previous acquisitions, partially offset by $5 million of costs associated with donations, contributions and other financial support through Quest for Health Equity.  For the nine months ended September 30, 2022, the pre-tax impact primarily represents $9 million of costs associated with donations, contributions and other financial support through Quest for Health Equity, offset by the gain from the payroll tax credit under the CARES Act associated with the retention of employees.  The following table summaries the pre-tax impact of these other items on our consolidated statements of operations:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

(dollars in millions)

Cost of services

$             —

$               2

$             —

$               2

Selling, general and administrative

1

5

7

9

Other operating expense (income), net

4

(16)

4

(10)

Operating income

$               5

$             (9)

$             11

$               1

(c)

For all periods presented, 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
September 30,

Nine Months Ended
September 30,

2023

2022

2023

2022

(dollars in millions)

Other (expense) income, net

$             —

$               2

$             —

$             30

Equity in earnings of equity method investees, net of taxes

$             —

$             —

$               3

$               9

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.

3)  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

$                                   7.61

$                                   7.71

Restructuring and integration charges (a)

0.32

0.32

Amortization expense (b)

0.71

0.71

Other (c)

0.08

0.08

Gains and losses on investments (d)

0.02

0.02

ETB

(0.09)

(0.09)

Adjusted diluted EPS

$                                   8.65

$                                   8.75

(a)

Represents estimated pre-tax charges of $49 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 $108 million.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(c)

Primarily represents the impairment of a corporate facility that is currently held for sale and a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  Income tax benefits were primarily calculated using a combined statutory income tax rate of 25.5%.

(d)

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%.