Quest Diagnostics Reports Fourth Quarter and Full Year 2023 Financial Results; Provides Guidance for Full Year 2024; Increases Quarterly Dividend 5.6% to $0.75 Per Share

Three Months Ended December 31,

Twelve Months Ended December 31,

2023

Change

2023

(dollars in millions, except per share data)

Reported:

Net revenues

$   2,288

$   2,333

(1.9) %

$   9,252

$   9,883

(6.4) %

Base business revenues (a)

$   2,251

$   2,149

4.7 %

$   9,029

$   8,429

7.1 %

COVID-19 testing revenues

$        37

$      184

(79.8) %

$      223

$   1,454

(84.7) %

Diagnostic information services revenues

$   2,221

$   2,265

(2.0) %

$   8,976

$   9,609

(6.6) %

Revenue per requisition

(3.5) %

(5.9) %

Requisition volume

1.9 %

(0.6) %

Organic requisition volume

1.4 %

(1.0) %

Operating income (b)

$      267

$      135

98.2 %

$   1,262

$   1,428

(11.6) %

Operating income as a percentage of net revenues (b)

11.7 %

5.8 %

5.9 %

13.6 %

14.5 %

(0.9) %

Net income attributable to Quest Diagnostics (b)

$      192

$      101

91.3 %

$      854

$      946

(9.7) %

Diluted EPS (b)

$     1.70

$     0.87

95.4 %

$     7.49

$     7.97

(6.0) %

Cash provided by operations

$      527

$      334

58.0 %

$   1,272

$   1,718

(25.9) %

Capital expenditures

$        72

$      147

(51.6) %

$      408

$      404

0.9 %

Adjusted (b):

Operating income

$      338

$      330

2.1 %

$   1,457

$   1,742

(16.3) %

Operating income as a percentage of net revenues

14.8 %

14.2 %

0.6 %

15.8 %

17.6 %

(1.8) %

Net income attributable to Quest Diagnostics

$      245

$      229

6.9 %

$      994

$   1,181

(15.9) %

Diluted EPS                     

$     2.15

$     1.98

8.6 %

$     8.71

$     9.95

(12.5) %

(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.

Low

High

Net revenues

$9.35 billion

$9.45 billion

Net revenues increase

1.1 %

2.1 %

Reported diluted EPS

$7.69

$7.99

Adjusted diluted EPS

$8.60

$8.90

Cash provided by operations

Approximately $1.3 billion

Capital expenditures

Approximately $420 million

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Operations

For the Three and Twelve Months Ended December 31, 2023 and 2022

(in millions, except per share data)

(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2023

2022

2023

2022

Net revenues

$   2,288

$   2,333

$   9,252

$   9,883

Operating costs and expenses and other operating income:

Cost of services

1,552

1,575

6,199

6,450

Selling, general and administrative

407

563

1,642

1,874

Amortization of intangible assets

27

39

108

120

Other operating expense, net

35

21

41

11

Total operating costs and expenses, net

2,021

2,198

7,990

8,455

Operating income

267

135

1,262

1,428

Other income (expense):

Interest expense, net

(40)

(32)

(152)

(138)

Other income (expense), net

10

6

20

(55)

Total non-operating expense, net

(30)

(26)

(132)

(193)

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

237

109

1,130

1,235

Income tax (expense) benefit

(40)

4

(248)

(264)

Equity in earnings of equity method investees, net of taxes

8

3

26

44

Net income

205

116

908

1,015

Less: Net income attributable to noncontrolling interests

13

15

54

69

Net income attributable to Quest Diagnostics

$       192

$       101

$       854

$       946

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$     1.72

$     0.89

$     7.59

$     8.10

Diluted

$      1.70

$      0.87

$      7.49

$      7.97

Weighted average common shares outstanding:

Basic

112

113

112

116

Diluted

113

115

113

118

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

December 31, 2023 and 2022

(in millions, except per share data)

(unaudited)

December 31, 2023

December 31, 2022

Assets

Current assets:

Cash and cash equivalents

$                 686

$                315

Accounts receivable, net

1,210

1,195

Inventories

190

192

Prepaid expenses and other current assets

286

196

Total current assets

2,372

1,898

Property, plant and equipment, net

1,816

1,766

Operating lease right-of-use assets

602

585

Goodwill

7,733

7,220

Intangible assets, net

1,166

1,092

Investment in equity method investees

135

132

Other assets

198

144

Total assets

$            14,022

$           12,837

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$              1,359

$             1,396

Current portion of long-term debt

303

2

Current portion of long-term operating lease liabilities

153

153

Total current liabilities

1,815

1,551

Long-term debt

4,410

3,978

Long-term operating lease liabilities

503

489

Other liabilities

876

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 December 31, 2023

and 2022; 162 shares issued as of both December 31, 2023 and 2022

2

2

Additional paid-in capital

2,320

2,295

Retained earnings

8,825

8,290

Accumulated other comprehensive loss

(14)

(21)

Treasury stock, at cost; 51 shares as of both December 31, 2023 and 2022

(4,826)

(4,673)

Total Quest Diagnostics stockholders' equity

6,307

5,893

Noncontrolling interests

35

37

Total stockholders' equity

6,342

5,930

Total liabilities and stockholders' equity

$            14,022

$           12,837

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Twelve Months Ended December 31, 2023 and 2022

(in millions)

(unaudited)

Twelve Months Ended December 31,

2023

2022

Cash flows from operating activities:

Net income

$           908

$        1,015

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

Depreciation and amortization

439

437

Provision for credit losses

1

3

Deferred income tax (benefit) provision

(49)

1

Stock-based compensation expense

77

77

Other, net

41

66

Changes in operating assets and liabilities:

Accounts receivable

(15)

246

Accounts payable and accrued expenses

(55)

(149)

Income taxes payable

(2)

(31)

Other assets and liabilities, net

(73)

53

Net cash provided by operating activities

1,272

1,718

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(611)

(144)

Capital expenditures

(408)

(404)

(Increase) decrease in investments and other assets, net

(42)

5

Net cash used in investing activities

(1,061)

(543)

Cash flows from financing activities:

Proceeds from borrowings

2,592

—

Repayments of debt

(1,844)

(2)

Purchases of treasury stock

(275)

(1,408)

Exercise of stock options

72

123

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

(28)

(28)

Dividends paid

(314)

(305)

Distributions to noncontrolling interest partners

(57)

(73)

Other financing activities, net

14

(39)

Net cash provided by (used in) financing activities

160

(1,732)

Net change in cash and cash equivalents and restricted cash

371

(557)

Cash and cash equivalents and restricted cash, beginning of period

315

872

Cash and cash equivalents and restricted cash, end of period

$           686

$           315

Cash paid during the period for:

Interest

$           134

$           156

Income taxes

$           317

$           283

Notes to Financial Tables

1)

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

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2023

2022

2023

2022

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$           192

$           101

$           854

$           946

Less: Earnings allocated to participating securities

—

—

4

4

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

$           192

$           101

$           850

$           942

Weighted average common shares outstanding - basic

112

113

112

116

Effect of dilutive securities:

Stock options and performance share units

1

2

1

2

Weighted average common shares outstanding - diluted

113

115

113

118

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$          1.72

$          0.89

$          7.59

$          8.10

Diluted

$          1.70

$          0.87

$          7.49

$          7.97

2)

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

Three Months Ended December 31, 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

$                 267

11.7 %

$                 (40)

$                     8

$                 192

$                1.70

Restructuring and integration charges (a)

11

0.5

(2)

—

9

0.07

Other (b)

33

1.4

(6)

—

27

0.23

Amortization expense

27

1.2

(8)

—

19

0.17

ETB

—

—

(2)

—

(2)

(0.02)

As adjusted

$                 338

14.8 %

$                 (58)

$                     8

$                 245

$                2.15

Twelve Months Ended December 31, 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

$             1,262

13.6 %

$               (248)

$                   26

$                 854

$                7.49

Restructuring and integration charges (a)

43

0.5

(10)

—

33

0.29

Other (b)

44

0.5

(8)

—

36

0.31

Gains and losses on investments (c)

—

—

(1)

3

2

0.02

Amortization expense

108

1.2

(28)

—

80

0.70

ETB

—

—

(11)

—

(11)

(0.10)

As adjusted

$             1,457

15.8 %

$               (306)

$                   29

$                 994

$                8.71

Three Months Ended December 31, 2022

(dollars in millions, except per share data)

Operating

income

Operating

income as a

percentage of net

revenues

Income tax

(expense)

benefit (e)

Equity in

earnings of

equity method

investees, net of

taxes

Net income

attributable

to Quest

Diagnostics

Diluted EPS

As reported

$                135

5.8 %

$                     4

$                     3

$                 101

$                0.87

Restructuring and integration charges (a)

51

2.2

(12)

—

39

0.34

Other (b)

21

0.9

(20)

—

1

0.01

Gains and losses on investments (c)

—

—

(2)

3

1

0.01

Quest for Health Equity costs (d)

84

3.6

(22)

62

0.53

Amortization expense

39

1.7

(10)

—

29

0.25

ETB

—

—

(4)

—

(4)

(0.03)

As adjusted

$                330

14.2 %

$                 (66)

$                     6

$                 229

$                1.98

Twelve Months Ended December 31, 2022

(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

$             1,428

14.5 %

$               (264)

$                   44

$                 946

$                7.97

Restructuring and integration charges (a)

88

0.9

(22)

—

66

0.56

Other (b)

13

0.1

(19)

—

(6)

(0.05)

Gains and losses on investments (c)

—

—

(11)

12

31

0.26

Quest for Health Equity costs (d)

93

0.9

(24)

—

69

0.59

Amortization expense

120

1.2

(31)

—

89

0.74

ETB

—

—

(14)

—

(14)

(0.12)

As adjusted

$             1,742

17.6 %

$               (385)

$                   56

$              1,181

$                9.95

(a)

For both the three and twelve months ended December 31, 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 twelve months ended December 31, 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

December 31,

Twelve Months Ended

December 31,

2023

2022

2023

2022

(dollars in millions)

Cost of services

$              4

$            19

$            16

$            32

Selling, general and administrative

7

32

27

56

Operating income

$            11

$            51

$            43

$            88

(b)

For both the three and twelve months ended December 31, 2023, the pre-tax impact primarily represents a $29 million impairment charge on certain long-lived assets related to the shutdown of a business and, to a lesser extent, losses associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  For the three months ended December 31, 2022, the pre-tax impact primarily represents a $14 million impairment charge on certain property, plant and equipment and a $6 million loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  For the twelve months ended December 31, 2022, the pre-tax impact primarily represents the $14 million impairment charge on certain property, plant and equipment and a $5 million loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions, partially offset by a $10 million gain from a payroll tax credit under the Coronavirus Aid, Relief, and Economic Security Act associated with the retention of employees.  Additionally, both the three and twelve months ended December 31, 2022 include an $18 million income tax benefit due to the adjustment to state deferred tax liabilities related to depreciation expense, recorded in income tax (expense) benefit.  The following table summarizes the pre-tax impact of these other items on our consolidated statement of operations:

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2023

2022

2023

2022

(dollars in millions)

Cost of services

$            —

$            —

$            —

$              2

Selling, general and administrative

(2)

—

5

—

Other operating expense, net

35

21

39

11

Operating income

$            33

$            21

$            44

$            13

(c)

For all periods presented, the pre-tax impact primarily 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 statement of operations:

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2023

2022

2023

2022

(dollars in millions)

Other income (expense), net

$            —

$            —

$            —

$            30

Equity in earnings of equity method investees, net of taxes

$            —

$              3

$              3

$            12

(d)

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

(e)

For restructuring and integration charges, gains and losses on investments, Quest for Health Equity costs, 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.  Additionally, both the three months and twelve months ended December 31, 2022 include an $18 million benefit due to an adjustment to state deferred tax liabilities related to depreciation expense.

3)

For the three and twelve months ended December 31, 2023, we repurchased 2.0 million shares of our common stock for $276 million.  As of December 31, 2023, $1.0 billion remained available under our share repurchase authorization.

4)

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, both of 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

$          7.69

$          7.99

Restructuring and integration charges (a)

0.17

0.17

Amortization expense (b)

0.84

0.84

ETB

(0.10)

(0.10)

Adjusted diluted EPS

$          8.60

$          8.90

(a)

Represents estimated pre-tax charges of $26 million primarily associated with workforce reductions 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 $128 million.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%