QUEST DIAGNOSTICS INC - Quarter Report: 2024 September (Form 10-Q)

Net income Less: Net income attributable to noncontrolling interests Net income attributable to Quest Diagnostics$ $ $ $ Earnings per share attributable to Quest Diagnostics’ common stockholders: Basic$ $ $ $ Diluted$ $ $ $ Weighted average common shares outstanding: Basic Diluted

The accompanying notes are an integral part of these statements.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(unaudited)

(in millions)


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Net income	$	$	$	$

Other comprehensive income (loss):
Foreign currency translation adjustment		()	()
Net deferred gain on cash flow hedges, net of taxes
Other, net
Changes in operating assets and liabilities:
Accounts receivable	()	()
Accounts payable and accrued expenses	()	()
Income taxes payable
Other assets and liabilities, net	()	()
Net cash provided by operating activities

Cash flows from investing activities:
Business acquisitions, net of cash acquired	()	()
Capital expenditures	()	()
Other investing activities, net
Net cash used in investing activities	()	()

Cash flows from financing activities:
Proceeds from borrowings
Repayments of debt	()	()
Exercise of stock options
Employee payroll tax withholdings on stock issued under stock-based compensation plans	()	()
Dividends paid	()	()
Distributions to noncontrolling interest partners	()	()
Other financing activities, net	()	()
Net cash provided by financing activities

Net change in cash and cash equivalents and restricted cash		()
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period	$	$

The accompanying notes are an integral part of these statements.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in millions, unless otherwise indicated)

The accounting policies of the Company are the same as those set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2023 Annual Report on Form 10-K.

Use of Estimates

Earnings Per Share

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

New Accounting Standards to be Adopted

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ Less: Earnings allocated to participating securities

Earnings available to Quest Diagnostics’ common stockholders – basic and diluted

$ $ $ $ Weighted average common shares outstanding – basic Effect of dilutive securities: Stock options and performance share units Weighted average common shares outstanding – diluted Earnings per share attributable to Quest Diagnostics’ common stockholders: Basic$ $ $ $ Diluted$ $ $ $

% annual cost savings and productivity improvements to partially offset pressures from the current inflationary environment, including labor and benefit cost increases and reimbursement pressures. The Company is leveraging automation and artificial intelligence to improve productivity and also improve quality across the entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent.

Restructuring and Impairment Charges

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ Asset impairment charges Total restructuring and impairment charges$ $ $ $

The restructuring and impairment charges incurred for both the three and nine months ended September 30, 2024 were associated with various workforce reduction initiatives as the Company continued to restructure its organization. Of the total restructuring and impairment charges incurred during the three months ended September 30, 2024, $ million and $ million were recorded in cost of services and selling, general and administrative expenses, respectively. Of the total restructuring and impairment charges incurred during the nine months ended September 30, 2024, $ million and $ million were recorded in cost of services and selling, general and administrative expenses, respectively.

The restructuring and impairment charges incurred for both the three and nine months ended September 30, 2023 were primarily associated with various workforce reduction initiatives as the Company continued to restructure its organization. Additionally, during the nine months ended September 30, 2023, the Company recorded an impairment charge for a corporate facility that was held for sale. All of the restructuring and impairment charges incurred during the three months ended September 30, 2023 were recorded in cost of services. Of the total restructuring and impairment charges incurred during the nine months ended September 30, 2023, $ million and $ million were recorded in cost of services and selling, general and administrative expenses, respectively.

Charges for all periods presented were primarily recorded in the Company's DIS business.

The restructuring liability as of September 30, 2024 and December 31, 2023, which is included in accounts payable and accrued expenses, was $ million and $ million, respectively.

billion (including contingent consideration initially estimated at $ million), net of cash acquired, including the acquisitions discussed below. Of such amount, $ million was prepaid during the twelve months ended December 31, 2023. In the Company's consolidated statement of cash flows for the nine months ended September 30, 2024, such $ million is included in business acquisitions, net of cash acquired, with a corresponding offset in other investing activities.

The acquisitions preliminarily resulted in goodwill of $ million, $ million of which is deductible for tax purposes. See the table below for a preliminary summary of the assets acquired and liabilities assumed, which may be revised as additional information becomes available during the measurement period.

Acquisition of select assets of Lenco Diagnostic Laboratories, Inc. ("Lenco")

On February 12, 2024, the Company acquired select assets of Lenco, an independent clinical diagnostic laboratory provider serving physicians in New York, in an all-cash transaction for $ million.

Acquisition of select assets of PathAI Diagnostics

On June 10, 2024, the Company acquired select assets of PathAI Diagnostics, a business that provides anatomic and digital pathology laboratory services, in an all-cash transaction for $ million.

Acquisition of LifeLabs

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

billion (approximately USD $ billion), net of cash acquired. LifeLabs provides laboratory diagnostic information and digital health connectivity systems in Canada. The acquisition price is subject to a customary net working capital adjustment. The Company funded the acquisition with a portion of the net proceeds from the issuance of senior notes (see Note 7 for further details).

Following the acquisition in August 2024, LifeLabs contributed $ million to the Company's consolidated net revenues for the period ending September 30, 2024.

The purchase price allocation in the table below is based upon a preliminary valuation and the Company's estimates and assumptions are subject to change within the measurement period as the valuation is finalized. Management is currently in the process of verifying data and finalizing information related to the valuation and recording of identifiable intangible assets, certain other assets and liabilities, and the corresponding effect on the amount of goodwill.

The fair value of the customer related intangible assets in the table below were determined using a multi-period excess earnings method, a form of the income approach, utilizing discount rates ranging from % to %. The fair value of the trade name intangible asset in the table below was determined using a relief from royalty method, utilizing a % discount rate.

Pro Forma Combined Financial Information

$ $ $ Pro forma net income attributable to Quest Diagnostics$ $ $ $ Pro forma earnings per share attributable to Quest Diagnostics' common stockholders:Basic$ $ $ $ Diluted$ $ $ $

Acquisition of select assets of the outreach laboratory services business of Allina Health ("Allina")

On September 16, 2024, the Company acquired select assets of the outreach laboratory services business of Allina, which serves providers and patients in Minnesota and Wisconsin, in an all-cash transaction for $ million.

Acquisition of the laboratory business of three physician groups in New York

On September 30, 2024, the Company acquired the laboratory business of three physician groups in New York in an all-cash transaction for $ million.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ $ Accounts receivable Other current assets Property, plant and equipment Finance lease assets (recorded in property, plant and equipment) Operating lease right-of-use assets Goodwill Intangible assets Other assets Total assets acquired Accounts payable and accrued expenses Current portion of long-term operating lease liabilities Finance lease liabilities (recorded in long-term debt) Long-term operating lease liabilities Other liabilities Total liabilities assumed Net assets acquired$ $ $ $ $

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ $

Trade name $ $ $ $ $

Except for the acquisition of LifeLabs (see above), supplemental pro forma combined financial information, and financial information subsequent to the acquisition close dates, has not been presented as the impact of the other acquisitions is not material to the Company's consolidated financial statements. Additionally, for such other acquisitions, it is impracticable to provide this financial information due to a variety of factors, including access to historical information and the operations of the acquirees being significantly integrated into the Company's cost structure shortly after the closing of the acquisitions.

During June 2024, the Company entered into a definitive agreement to acquire select assets of the outreach laboratory services business of OhioHealth, which serves providers and patients in Ohio. The transaction closed during October 2024. See Note 14 for further discussion.

During August 2024, the Company entered into a definitive agreement to acquire the outreach laboratory services business of University Hospitals, which serves providers and patients in Ohio. The transaction, which is expected to close in the fourth quarter of 2024, remains subject to customary closing conditions.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ Cash surrender value of life insurance policies Total$ $ $ $ Liabilities: Deferred compensation liabilities$ $ $ $ Contingent consideration Total$ $ $ $ Redeemable noncontrolling interest$ $ $— $

Basis of Fair Value Measurements

December 31, 2023

Total

Level 1

Level 2

Level 3

Assets:

Deferred compensation trading securities

Cash surrender value of life insurance policies

Available-for-sale debt securities

Total

Liabilities:

Deferred compensation liabilities

Contingent consideration

The $ million net loss included in earnings associated with the change in the fair value of contingent consideration for

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

million contingent consideration obligation as of September 30, 2024, $ million and $ million were included in other liabilities and accounts payable and accrued expenses, respectively, in the Company's consolidated balance sheet. Of the aggregate $ million contingent consideration obligation as of December 31, 2023, $ million and $ million were included in other liabilities and accounts payable and accrued expenses, respectively, in the Company's consolidated balance sheet.

In connection with the sale of an % noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of September 30, 2024, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long term growth rates, and a discount rate commensurate with economic risk.

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of September 30, 2024 and December 31, 2023, the fair value of the Company’s debt was estimated at $ billion and $ billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.

% Senior Notes due April 2024$ $

% Senior Notes due March 2025

% Senior Notes due June 2026

% Senior Notes due December 2027

% Senior Notes due June 2029

% Senior Notes due December 2029

% Senior Notes due June 2030

% Senior Notes due June 2031

% Senior Notes due November 2033

% Senior Notes due December 2034

% Senior Notes due July 2037

% Senior Notes due January 2040

% Senior Notes due March 2045

Other Debt issuance costs()()Total long-term debt Less: Current portion of long-term debt Total long-term debt, net of current portion$ $

(a) As of both September 30, 2024 and December 31, 2023, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships.

During October 2024, the Company entered into various fixed-to-variable interest rate swap agreements to convert a portion of the Company's long-term debt into variable interest rate debt. See Note 14 for further details.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

per common share. During each of the four quarters of 2023, the Company's Board of Directors declared a quarterly cash dividend of $ per common share.

Share Repurchase Program

As of September 30, 2024, $ billion remained available under the Company’s share repurchase authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

For both the nine months ended September 30, 2024 and 2023, the Company repurchased shares of its common stock.

Shares Reissued from Treasury Stock

For the nine months ended September 30, 2024 and 2023, the Company reissued million shares and million shares, respectively, from treasury stock under its Employee Stock Purchase Plan and its stock-based compensation program. For details regarding the Company's stock ownership and compensation plans, see Note 18 to the audited consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

Redeemable Noncontrolling Interest

In connection with the sale of an % noncontrolling interest in a subsidiary to UMass on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. As of September 30, 2024 and December 31, 2023, the redeemable noncontrolling interest was presented at its fair value. For further details regarding the fair value of the redeemable noncontrolling interest, see Note 6.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

10.

$ $ $ Amortization expense Depreciation and amortization expense$ $ $ $ Interest expense$()$()$()$()Interest income Interest expense, net$()$()$()$()Interest paid$ $ $ $ Income taxes paid$ $ $ $ Accounts payable associated with capital expenditures$ $ $ $ Dividends payable$ $ $ $ Businesses acquired: Fair value of assets acquired$ $ $ $ Fair value of liabilities assumed Fair value of net assets acquired Merger consideration payable ()Cash paid for business acquisitions Less: Cash acquired Business acquisitions, net of cash acquired$ $ $ $ Leases:Leased assets obtained in exchange for new operating lease liabilities$ $ $ $

) million and $ million, respectively.

11.

million senior unsecured revolving credit facility. For further discussion regarding the facilities, see Note 14 to the audited consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

million in letters of credit under the secured receivables credit facility were outstanding as of September 30, 2024, providing collateral for current and future automobile liability and workers’ compensation loss payments.

Contingent Lease Obligations

The Company remains subject to contingent obligations under certain real estate leases for which no liability has been recorded. For further details, see Note 19 to the audited consolidated financial statements in the Company’s 2023 Annual Report on Form 10-K.

Certain Legal Matters

The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.

In 2020, putative class action lawsuits were filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In October 2020, the court consolidated the lawsuits under the caption In re: Quest Diagnostics ERISA Litigation and plaintiffs filed a consolidated amended complaint. In May 2021, the court denied the Company's motion to dismiss the complaint. After discovery was completed, the Company filed a motion for summary judgment, which was granted.

On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws. The bankruptcy proceeding has been dismissed.

Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases that were then still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint; the motion to dismiss was granted in part and denied in part. Plaintiffs filed an amended complaint, which the Company also moved to dismiss. The motion was granted in part and denied in part. Discovery is proceeding.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

million and $ million as of September 30, 2024 and December 31, 2023, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

million and $ million as of September 30, 2024 and December 31, 2023, respectively.

While the basis for claims reserves is actuarially determined losses based upon the Company's historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of claims involves a high degree of judgment. Although the Company believes that its present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that the Company may incur liabilities in excess of its recorded reserves or insurance coverage. Changes in the facts and circumstances associated with claims could have a material impact on the Company’s results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.

12.

% of net revenues in 2024 and 2023.

All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses offer solutions for insurers and offer solutions for healthcare providers and payers.

As of September 30, 2024, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States. See Note 5 for a discussion of the Company's acquisition of LifeLabs during August 2024.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

$ $ $ All other operating segments Total net revenues $ $ $ $ Operating earnings (loss): DIS business$ $ $ $ All other operating segments General corporate activities()()()()Total operating income Non-operating expense, net()()()()Income before income taxes and equity in earnings of equity method investees Income tax expense()()()()Equity in earnings of equity method investees, net of taxes

(dollars in millions, except per share data)

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For further discussion of the year-over-year changes for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, see "Results of Operations" below.

Acquisition of select assets of Lenco Diagnostic Laboratories, Inc. ("Lenco")

On February 12, 2024, we acquired select assets of Lenco, an independent clinical diagnostic laboratory provider serving physicians in New York, in an all-cash transaction for $111 million. The acquired business is included in our DIS business.

Acquisition of select assets of PathAI Diagnostics

On June 10, 2024, we acquired select assets of PathAI Diagnostics, a business that provides anatomic and digital pathology laboratory services, in an all-cash transaction for $100 million. The acquired business is included in our DIS business.

Acquisition of LifeLabs Inc. ("LifeLabs")

On August 23, 2024, we completed the acquisition of LifeLabs in an all-cash transaction for approximately CAN $1.35 billion (approximately USD $1 billion). LifeLabs provides laboratory diagnostic information and digital health connectivity systems in Canada. The acquired business is included in our DIS business.

Acquisition of select assets of the outreach laboratory services business of Allina Health ("Allina")

On September 16, 2024, we acquired select assets of the outreach laboratory services business of Allina, which serves providers and patients in Minnesota and Wisconsin, in an all-cash transaction for $230 million. The acquired business is included in our DIS business.

Acquisition of the laboratory business of three physician groups in New York

On September 30, 2024, we acquired the laboratory business of three physician groups in New York in an all-cash transaction for $300 million. The acquired business is included in our DIS business.

For further details, see Note 5 to the interim unaudited consolidated financial statements.

August 2024 Senior Notes Offering

In August 2024, we completed a $1.85 billion senior notes offering, consisting of $400 million aggregate principal amount of 4.60% senior notes due December 2027 (the "2027 Senior Notes"), $600 million aggregate principal amount of 4.625% senior notes due December 2029 (the "2029 Senior Notes") and $850 million aggregate principal amount of 5.00% senior notes due December 2034 (the "2034 Senior Notes," and together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). We used a portion of the net proceeds from the Senior Notes offering to fund the purchase price and related transaction costs of the acquisition of LifeLabs (see above for further details). We expect to use the balance of the net proceeds from the offering for general corporate purposes, which may include the redemption or repayment of indebtedness including our 3.50% senior notes due March 2025.

For further details regarding our debt, see Note 7 to the interim unaudited consolidated financial statements.

Invigorate Program

We are engaged in a multi-year program called Invigorate, which includes structured plans to drive savings and improve productivity across the value chain, including in such areas as patient services, logistics and laboratory operations, revenue services, information technology and procurement. The Invigorate program aims to deliver 3% annual cost savings and productivity improvements to partially offset pressures from the current inflationary environment, including labor and benefit cost increases and reimbursement pressures. We are leveraging automation and artificial intelligence to improve productivity and also improve quality across our entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent.

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For the nine months ended September 30, 2024, we incurred $45 million of pre-tax charges in connection with restructuring and integration activities, including $21 million of employee separation costs, with the remainder including integration costs. Most of the charges will result in cash expenditures. Additional restructuring and integration charges may be incurred in future periods, including as we identify additional opportunities to achieve further savings and productivity improvements.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2023 Annual Report on Form 10-K.

Impact of New Accounting Standards

The adoption of new accounting standards, if any, is discussed in Note 2 to the interim unaudited consolidated financial statements.

The impact of recent accounting pronouncements not yet effective on our consolidated financial statements, if any, is also discussed in Note 2 to the interim unaudited consolidated financial statements.

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Results of Operations

The following tables set forth certain results of operations data for the periods presented:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2024			2023			$ Change		% Change		2024			2023			$ Change		% Change
	(dollars in millions, except per share amounts)
Net revenues:
DIS business	$	2,427		$	2,228		$	199	9.0	%	$	7,058		$	6,755		$	303	4.5	%
DS businesses	61			67			(6)		(7.9)		193			209			(16)		(7.2)
Total net revenues	$	2,488		$	2,295		$	193	8.5	%	$	7,251		$	6,964		$	287	4.1	%

Operating costs and expenses and other operating income:
Cost of services	$	1,677		$	1,541		$	136	8.9	%	$	4,865		$	4,647		$	218	4.7	%
Selling, general and administrative	448			380			68		17.8		1,304			1,235			69		5.5
Amortization of intangible assets	32			27			5		15.9		90			81			9		11.1

Other operating expense, net	1			5			(4)		NM		7			6			1		NM
Total operating costs and expenses, net	$	2,158		$	1,953		$	205	10.5	%	$	6,266		$	5,969		$	297	5.0	%

Operating income	$	330		$	342		$	(12)	(3.3)	%	$	985		$	995		$	(10)	(1.0)	%

Other income (expense):
Interest expense, net	$	(49)		$	(40)		$	(9)	21.2	%	$	(136)		$	(112)		$	(24)	21.3	%
Other income (expense), net	15			(3)			18		NM		27			10			17		NM
Total non-operating expense, net	$	(34)		$	(43)		$	9	NM		$	(109)		$	(102)		$	(7)	NM

Income tax expense	$	(65)		$	(68)		$	3	(4.4)	%	$	(205)		$	(208)		$	3	(1.3)	%

Effective income tax rate	21.9		%	22.8		%					23.4		%	23.3		%

Equity in earnings of equity method investees, net of taxes	$	6		$	6		$	—	(14.8)	%	$	14		$	18		$	(4)	(22.6)	%





Net income attributable to Quest Diagnostics	$	226		$	225		$	1	0.5	%	$	649		$	662		$	(13)	(1.9)	%



Diluted earnings per common share attributable to Quest Diagnostics' common stockholders	$	1.99		$	1.96		$	0.03	1.5	%	$	5.74		$	5.79		$	(0.05)	(0.9)	%

NM - Not Meaningful

The following table sets forth certain results of operations data as a percentage of net revenues for the periods presented:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net revenues:
DIS business	97.5	%	97.1	%	97.3	%	97.0	%
DS businesses	2.5		2.9		2.7		3.0
Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%

Operating costs and expenses and other operating income:
Cost of services	67.3	%	67.2	%	67.1	%	66.7	%
Selling, general and administrative	18.0		16.6		18.0		17.7
Amortization of intangible assets	1.3		1.2		1.2		1.2
Other operating expense, net	0.1		0.1		0.1		0.1
Total operating costs and expenses, net	86.7	%	85.1	%	86.4	%	85.7	%

Operating income	13.3	%	14.9	%	13.6	%	14.3	%

3.1

Restated Certificate of Incorporation

3.2

Amended and Restated By-Laws of Quest Diagnostics Incorporated, as amended August 14, 2024 (filed as Exhibit 3.1 to the Company’s current report on Form 8-K (Date of Report: August 14, 2024) and incorporated herein by reference) (Commission File Number 001-12215)

4.1

Twenty-Third Supplemental Indenture, dated as of August 19, 2024, between the Company and the Bank of New York (filed as Exhibit 4.2 to the Company’s current report on Form 8-K (Date of Report: August 14, 2024) and incorporated herein by reference) (Commission File Number 001-12215)

4.2

Form of 4.600% Senior Note due 2027 (filed as Exhibit 4.3 to the Company’s current report on Form 8-K (Date of Report: August 14, 2024) and incorporated herein by reference) (Commission File Number 001-12215)

4.3

Form of 4.625% Senior Note due 2029 (filed as Exhibit 4.4 to the Company’s current report on Form 8-K (Date of Report: August 14, 2024) and incorporated herein by reference) (Commission File Number 001-12215)

4.4

Form of 5.000% Senior Note due 2034 (filed as Exhibit 4.5 to the Company’s current report on Form 8-K (Date of Report: August 14, 2024) and incorporated herein by reference) (Commission File Number 001-12215)

Subsidiary Guarantors of Securities

31.1

Rule 13a-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a) Certification of Chief Financial Officer

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Financial Officer

101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH

Inline XBRL Taxonomy Extension Schema Document - dgx-20240930.xsd

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document - dgx-20240930_cal.xml

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document - dgx-20240930_def.xml

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document - dgx-20240930_lab.xml

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document - dgx-20240930_pre.xml

104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

October 23, 2024

Quest Diagnostics Incorporated


By			/s/ James E. Davis
			James E. Davis
			Chairman, Chief Executive Officer
			and President


By			/s/ Sam A. Samad
			Sam A. Samad
			Executive Vice President and
			Chief Financial Officer

QUEST DIAGNOSTICS INC - Quarter Report: 2024 September (Form 10-Q)

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