Three Months Ended March 31,

Change

(dollars in millions, except per share data)

Reported:

Net revenues

$     2,611

$     2,720

(4.0)%

     Base business revenues (a)

$     2,012

$     1,892

6.3%

     COVID-19 testing revenues

$        599

$        828

(27.6)%

     Diagnostic information services revenues

$     2,541

$     2,643

(3.9)%

          Revenue per requisition

(5.2)%

          Requisition volume

1.3%

          Organic requisition volume

—%

Operating income (b)

$         513

$         660

(22.3)%

Operating income as a percentage of net revenues (b)

19.7%

24.3%

(4.6)%

Net income attributable to Quest Diagnostics (b)

$         355

$         469

(24.3)%

Diluted EPS (b)

$        2.92

$        3.46

(15.6)%

Cash provided by operations

$         480

$         731

(34.2)%

Capital expenditures

$           63

$           86

(26.7)%

Adjusted (b):

Operating income

$         554

$         708

(21.8)%

Operating income as a percentage of net revenues

21.2%

26.0%

(4.8)%

Net income attributable to Quest Diagnostics

$         392

$         508

(23.0)%

Diluted EPS

$        3.22

$        3.76

(14.4)%

(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

$9.2 billion

$9.5 billion

$9.0 billion

$9.5 billion

Net revenues decrease

(14.7)%

(11.9)%

(16.6)%

(11.9)%

     Base business revenues (a)

$8.35 billion

$8.50 billion

$8.3 billion

$8.5 billion

          Base business revenues increase

4.1%

6.0%

3.5%

6.0%

     COVID-19 testing revenues

$0.85 billion

$1.00 billion

$0.7 billion

$1.0 billion

          COVID-19 testing revenues decrease

(69.3)%

(63.9)%

(74.7)%

(63.9)%

Reported diluted EPS

$7.88

$8.38

$7.63

$8.33

Adjusted diluted EPS

$9.00

$9.50

$8.65

$9.35

Cash provided by operations

At least $1.6 billion

At least $1.6 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, 2022 and 2021

(in millions, except per share data)

(unaudited)

Three Months Ended
March 31,

2022

2021

Net revenues

$    2,611

$    2,720

Operating costs and expenses and other operating income:

Cost of services

1,646

1,626

Selling, general and administrative

425

407

Amortization of intangible assets

27

27

     Total operating costs and expenses, net

2,098

2,060

Operating income

513

660

Other income (expense):

Interest expense, net

(37)

(38)

Other (expense) income, net

(24)

4

     Total non-operating expense, net

(61)

(34)

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

452

626

Income tax expense

(110)

(153)

Equity in earnings of equity method investees, net of taxes

31

17

Net income

373

490

Less: Net income attributable to noncontrolling interests

18

21

Net income attributable to Quest Diagnostics

$       355

$       469

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$      2.97

$      3.52

Diluted

$      2.92

$      3.46

Weighted average common shares outstanding:

Basic

119

133

Diluted

121

135

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Balance Sheets

March 31, 2022 and December 31, 2021

(in millions, except per share data)

(unaudited)

March 31,
2022

December 31,
2021

Assets

Current assets:

Cash and cash equivalents

$                 712

$                872

Accounts receivable, net

1,371

1,438

Inventories

197

208

Prepaid expenses and other current assets

195

223

     Total current assets

2,475

2,741

Property, plant and equipment, net

1,668

1,707

Operating lease right-of-use assets

620

597

Goodwill

7,197

7,095

Intangible assets, net

1,172

1,167

Investments in equity method investees

155

141

Other assets

155

163

Total assets

$            13,442

$           13,611

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$              1,544

$             1,600

Current portion of long-term debt

2

2

Current portion of long-term operating lease liabilities

154

151

     Total current liabilities

1,700

1,753

Long-term debt

3,985

4,010

Long-term operating lease liabilities

522

494

Other liabilities

742

792

Redeemable noncontrolling interest

78

79

Stockholders' equity:

Quest Diagnostics stockholders' equity:

     Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2022 and
      December 31, 2021; 162 shares issued as of both March 31, 2022 and December 31, 2021

2

2

     Additional paid-in capital

2,226

2,260

     Retained earnings

7,926

7,649

     Accumulated other comprehensive loss

(16)

(14)

     Treasury stock, at cost; 45 and 43 shares as of March 31, 2022 and December 31, 2021,
     respectively

(3,761)

(3,453)

Total Quest Diagnostics stockholders' equity

6,377

6,444

Noncontrolling interests

38

39

     Total stockholders' equity

6,415

6,483

Total liabilities and stockholders' equity

$            13,442

$           13,611

Quest Diagnostics Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

(in millions)

(unaudited)

Three Months Ended March 31,

2022

2021

Cash flows from operating activities:

Net income

$              373

$              490

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

Depreciation and amortization

106

101

Provision for credit losses

—

2

Deferred income tax benefit

(43)

(17)

Stock-based compensation expense

18

18

Other, net

4

(2)

Changes in operating assets and liabilities:

     Accounts receivable

72

138

     Accounts payable and accrued expenses

(165)

(164)

     Income taxes payable

95

163

     Other assets and liabilities, net

20

2

Net cash provided by operating activities

480

731

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(105)

—

Capital expenditures

(63)

(86)

Increase in investments and other assets

(1)

(7)

Net cash used in investing activities

(169)

(93)

Cash flows from financing activities:

Repayments of debt

(1)

(1)

Purchases of treasury stock

(373)

(410)

Exercise of stock options

10

17

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

(27)

(21)

Dividends paid

(74)

(75)

Distributions to noncontrolling interest partners

(20)

(29)

Other financing activities, net

14

(47)

Net cash used in financing activities

(471)

(566)

Net change in cash and cash equivalents and restricted cash

(160)

72

Cash and cash equivalents and restricted cash, beginning of period

872

1,158

Cash and cash equivalents and restricted cash, end of period

$              712

$           1,230

Cash paid during the period for:

Interest

$                32

$                32

Income taxes

$                23

$                  7

Notes to Financial Tables

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

Three Months Ended March 31,

2022

2021

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Net income attributable to Quest Diagnostics

$           355

$           469

Less: earnings allocated to participating securities

1

1

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

$           354

$           468

Weighted average common shares outstanding - basic

119

133

Effect of dilutive securities:

     Stock options and performance share units

2

2

Weighted average common shares outstanding - diluted

121

135

Earnings per share attributable to Quest Diagnostics' common stockholders:

Basic

$          2.97

$          3.52

Diluted

$          2.92

$          3.46

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

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 (e)

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

Three Months Ended March 31, 2021

(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

$                 660

24.3%

$                (153)

$                   17

$                 469

$                3.46

Restructuring and
integration charges (a)

17

0.6

(4)

—

13

0.10

Gains and losses on
investments (b)

—

—

(3)

8

5

0.04

COVID-19 impact (d)

4

0.1

(1)

—

3

0.03

Amortization expense

27

1.0

(7)

2

22

0.16

ETB

—

—

(4)

—

(4)

(0.03)

As adjusted

$                 708

26.0%

$                (172)

$                   27

$                 508

$                3.76

 (a)

For both the three months ended March 31, 2022 and 2021, represents costs primarily associated with systems conversions and integration 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 March 31,

2021

(dollars in millions)

Cost of services

$              3

$              7

Selling, general and administrative

9

10

Operating income

$            12

$            17

(b) 

For the three months ended March 31, 2022, the pre-tax impact represents $16 million of net losses associated with changes in the carrying value of our strategic investments recorded in other (expense) income, net.  For the three months ended March 31, 2021, the pre-tax impact represents a non-cash impairment to the carrying value of an equity method investment, recorded in equity in earnings of equity method investees, net of taxes.

(c)

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

(d)

For the three months ended March 31, 2021, represents the impact of certain items resulting from the COVID-19 pandemic including incremental costs incurred to protect the health and safety of our employees and customers, recorded in cost of services.

(e)

For restructuring and integration charges, gains and losses on investments, other items, amortization expense and COVID-19 impacts, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2022 and 2021.

3)

For the three months ended March 31, 2022, we repurchased 2.6 million shares of our common stock for $350 million.  In February 2022, our Board of Directors increased the size of our share repurchase program by $1 billion.  As of March 31, 2022, $1.3 billion remained available under our share repurchase authorization.

4)

The outlook for adjusted diluted EPS represents management's estimates for the full year 2022 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2022.  Additionally, the amount of ETB is dependent upon employee stock option exercises and our stock price, and changes in the carrying value of our strategic investments are based on fluctuations in the investee's stock price, both of which are difficult to predict.  The following table reconciles our 2022 outlook for diluted EPS under GAAP to our outlook for adjusted diluted EPS:

Low

High

Diluted EPS

$          7.88

$          8.38

Restructuring and integration charges (a)

0.27

0.27

Amortization expense (b)

0.68

0.68

Costs associated with Quest for Health Equity (c)

0.22

0.22

Gains and losses on investments (d)

0.10

0.10

ETB

(0.15)

(0.15)

Adjusted diluted EPS

$          9.00

$          9.50

(a)

Represents estimated pre-tax charges of $45 million primarily associated with 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 $110 million.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(c)

Represents estimated pre-tax charges of $35 million associated with donations, contributions and other financial support through Quest for Health Equity.  Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.

(d)

Represents $16 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%.