Quest Diagnostics Reports Second Quarter 2024 Financial Results; Raises Guidance for Full Year 2024

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

Change

2024

2023

Change

(dollars in millions, except per share data)

Reported:

Net revenues

$       2,397

$       2,338

2.5 %

$     4,763

$     4,669

2.0 %

Diagnostic Information Services revenues

$       2,333

$       2,268

2.8 %

$     4,631

$     4,527

2.3 %

Revenue per requisition

1.6 %

0.9 %

Requisition volume

1.1 %

1.4 %

  Organic requisition volume

0.7 %

0.9 %

Operating income (a)

$          355

$          348

1.9 %

$         655

$         653

0.2 %

Operating income as a percentage of net revenues (a)

14.8 %

14.9 %

(0.1) %

13.7 %

14.0 %

(0.3) %

Net income attributable to Quest Diagnostics (a)

$          229

$          235

(2.4) %

$         423

$         437

(3.1) %

Diluted EPS (a)

$         2.03

$         2.05

(1.0) %

$        3.75

$        3.83

(2.1) %

Cash provided by operations

$          360

$          444

(18.9) %

$         514

$         538

(4.4) %

Capital expenditures

$            92

$          104

(10.8) %

$         196

$         231

(14.9) %

Adjusted (a):

Operating income

$          398

$          389

2.1 %

$         747

$         739

1.0 %

Operating income as a percentage of net revenues

16.6 %

16.7 %

(0.1) %

15.7 %

15.8 %

(0.1) %

Net income attributable to Quest Diagnostics

$          266

$          263

1.4 %

$         496

$         495

0.2 %

Diluted EPS

$         2.35

$         2.30

2.2 %

$        4.39

$        4.34

1.2 %

(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

$9.50 billion

$9.58 billion

$9.40 billion

$9.48 billion

Net revenues increase

2.7 %

3.5 %

1.6 %

2.5 %

Reported diluted EPS

$7.57

$7.77

$7.57

$7.82

Adjusted diluted EPS

$8.80

$9.00

$8.72

$8.97

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 Six Months Ended June 30, 2024 and 2023

(in millions, except per share data)

(unaudited)

Three Months Ended

June 30,

Six Months Ended

June 30,

2024

2023

2024

2023

Net revenues

$    2,397

$    2,338

$  4,763

$    4,669

Operating costs and expenses and other operating income:

Cost of services

1,593

1,546

3,188

3,106

Selling, general and administrative

416

416

856

855

Amortization of intangible assets

29

28

58

54

Other operating expense, net

4

—

6

1

Total operating costs and expenses, net

2,042

1,990

4,108

4,016

Operating income

355

348

655

653

Other income (expense):

Interest expense, net

(44)

(37)

(87)

(72)

Other income, net

3

6

12

13

Total non-operating expense, net

(41)

(31)

(75)

(59)

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

314

317

580

594

Income tax expense

(74)

(75)

(140)

(140)

Equity in earnings of equity method investees, net of taxes

—

7

8

12

Net income

240

249

448

466

Less: Net income attributable to noncontrolling interests

11

14

25

29

Net income attributable to Quest Diagnostics

$       229

$       235

$     423

$       437

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$      2.05

$      2.08

$    3.79

$      3.88

Diluted

$      2.03

$      2.05

$    3.75

$      3.83

Weighted average common shares outstanding:

Basic

111

112

111

112

Diluted

112

114

112

114

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

June 30, 2024 and December 31, 2023

(in millions, except per share data)

(unaudited)

June 30,

2024

December 31,

2023

Assets

Current assets:

Cash and cash equivalents

$                 271

$                686

Accounts receivable, net

1,319

1,210

Inventories

182

190

Prepaid expenses and other current assets

245

286

Total current assets

2,017

2,372

Property, plant and equipment, net

1,832

1,816

Operating lease right-of-use assets

603

602

Goodwill

7,885

7,733

Intangible assets, net

1,202

1,166

Investments in equity method investees

126

135

Other assets

216

198

Total assets

$            13,881

$           14,022

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$              1,247

$             1,359

Current portion of long-term debt

606

303

Current portion of long-term operating lease liabilities

159

153

Total current liabilities

2,012

1,815

Long-term debt

3,816

4,410

Long-term operating lease liabilities

507

503

Other liabilities

811

876

Redeemable noncontrolling interest

79

76

Stockholders' equity:

Quest Diagnostics stockholders' equity:

Common stock, par value $0.01 per share; 600 shares authorized as of both June 30, 2024 and

December 31, 2023; 162 shares issued as of both June 30, 2024 and December 31, 2023

2

2

Additional paid-in capital

2,314

2,320

Retained earnings

9,080

8,825

Accumulated other comprehensive loss

(19)

(14)

Treasury stock, at cost; 51 shares as of both June 30, 2024 and December 31, 2023

(4,760)

(4,826)

Total Quest Diagnostics stockholders' equity

6,617

6,307

Noncontrolling interests

39

35

Total stockholders' equity

6,656

6,342

Total liabilities and stockholders' equity

$            13,881

$           14,022

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2024 and 2023

(in millions)

(unaudited)

Six Months Ended June 30,

2024

2023

Cash flows from operating activities:

Net income

$              448

$              466

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

Depreciation and amortization

233

219

Provision (credit) for credit losses

3

(1)

Deferred income tax benefit

(36)

(16)

Stock-based compensation expense

42

40

Other, net

16

1

Changes in operating assets and liabilities:

Accounts receivable

(113)

(38)

Accounts payable and accrued expenses

(111)

(156)

Income taxes payable

20

5

Other assets and liabilities, net

12

18

Net cash provided by operating activities

514

538

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(248)

(609)

Capital expenditures

(196)

(231)

Other investing activities, net

31

—

Net cash used in investing activities

(413)

(840)

Cash flows from financing activities:

Proceeds from borrowings

—

1,147

Repayments of debt

(301)

(828)

Exercise of stock options

28

47

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

(23)

(28)

Dividends paid

(163)

(154)

Distributions to noncontrolling interest partners

(18)

(28)

Other financing activities, net

(39)

(43)

Net cash (used in) provided by financing activities

(516)

113

Net change in cash and cash equivalents and restricted cash

(415)

(189)

Cash and cash equivalents and restricted cash, beginning of period

686

315

Cash and cash equivalents and restricted cash, end of period

$              271

$              126

Cash paid during the period for:

Interest

$              105

$                80

Income taxes

$              118

$              134

1)

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2024

2023

2024

2023

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$           229

$           235

$           423

$           437

Less: earnings allocated to participating securities

1

1

2

2

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

$           228

$           234

$           421

$           435

Weighted average common shares outstanding - basic

111

112

111

112

Effect of dilutive securities:

Stock options and performance share units

1

2

1

2

Weighted average common shares outstanding - diluted

112

114

112

114

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$          2.05

$          2.08

$          3.79

$          3.88

Diluted

$          2.03

$          2.05

$          3.75

$          3.83

2)

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

Three Months Ended June 30, 2024

(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

$                 355

14.8 %

$                  (74)

$                   —

$                 229

$                2.03

Restructuring and integration charges (a)

10

0.4

(3)

—

7

0.06

Other (b)

4

0.2

—

—

4

0.03

Gains and losses on investments (c)

—

—

(3)

9

6

0.05

Amortization expense

29

1.2

(8)

—

21

0.19

ETB

—

—

(1)

—

(1)

(0.01)

As adjusted

$                 398

16.6 %

$                  (89)

$                     9

$                 266

$                2.35

Six Months Ended June 30, 2024

(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

$                 655

13.7 %

$                (140)

$                     8

$                 423

$                3.75

Restructuring and integration charges (a)

27

0.6

(7)

—

20

0.17

Other (b)

7

0.2

—

—

7

0.06

Gains and losses on investments (c)

—

—

(3)

9

6

0.05

Amortization expense

58

1.2

(15)

—

43

0.39

ETB

—

—

(3)

—

(3)

(0.03)

As adjusted

$                 747

15.7 %

$                (168)

$                   17

$                 496

$                4.39

Three Months Ended June 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

$                 348

14.9 %

$                  (75)

$                     7

$                 235

$                2.05

Restructuring and integration charges (a)

7

0.3

(2)

—

5

0.05

Other (b)

6

0.3

(2)

—

4

0.04

Amortization expense

28

1.2

(7)

—

21

0.18

ETB

—

—

(2)

—

(2)

(0.02)

As adjusted

$                 389

16.7 %

$                  (88)

$                     7

$                 263

$                2.30

Six Months Ended June 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

$                 653

14.0 %

$                (140)

$                   12

$                 437

$                3.83

Restructuring and integration charges (a)

26

0.5

(7)

—

19

0.17

Other (b)

6

0.1

(2)

—

4

0.04

Gains and losses on investments (c)

—

—

(1)

3

2

0.02

Amortization expense

54

1.2

(14)

—

40

0.35

ETB

—

—

(7)

—

(7)

(0.07)

As adjusted

$                 739

15.8 %

$                (171)

$                   15

$                 495

$                4.34

(a)

For both the three and six months ended June 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 June 30,

Six Months Ended June 30,

2024

2023

2024

2023

(dollars in millions)

Cost of services

$               1

$             —

$             14

$             10

Selling, general and administrative

9

7

13

16

Operating income

$             10

$               7

$             27

$             26

(b)

For the three and six months ended June 30, 2024, the pre-tax impact primarily represents a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.  For both the three and six months ended June 30, 2023, the pre-tax impact primarily represents the impairment of a corporate facility that was held for sale.  The following table summarizes the pre-tax impact of these other items on our consolidated statements of operations:

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

(dollars in millions)

Selling, general and administrative

$               1

$               6

$               1

$               6

Other operating expense, net

3

—

6

—

Operating income

$               4

$               6

$               7

$               6

(c)

For each of the three and six months ended June 30, 2024 and the six months ended June 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 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 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

$                                   7.57

$                                   7.77

Restructuring and integration charges (a)

0.30

0.30

Amortization expense (b)

0.81

0.81

Other (c)

0.11

0.11

Gains and losses on investments (d)

0.05

0.05

ETB

(0.04)

(0.04)

Adjusted diluted EPS

$                                   8.80

$                                   9.00

(a)

Represents estimated pre-tax charges of $45 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 $123 million.  Income tax benefits were primarily calculated using a combined statutory income tax rate of 25.5%.

(c)

Represents estimated pre-tax losses of $13 million primarily 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.

(d)

Represents $9 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%.