10-QPeriod: Q3 FY2022

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 21, 2022For Securities:DGX

Summary

Quest Diagnostics Inc. reported a significant decrease in net revenues and net income for the nine months ended September 30, 2022, compared to the same period in 2021. This decline was primarily driven by a substantial reduction in COVID-19 testing revenues, which had previously boosted results. While the company's "base business" (excluding COVID-19 testing) showed revenue and volume growth, it was not enough to offset the drop in pandemic-related testing. Despite the top-line decline, the company demonstrated resilience in managing costs, with cost of services showing a slight increase year-over-year for the nine months despite higher compensation and benefits. Selling, general, and administrative expenses saw an increase, partly due to strategic growth initiatives and higher compensation. The company also continued its share repurchase program, although at a reduced pace compared to the prior year, and maintained its quarterly dividend. Looking ahead, Quest Diagnostics anticipates continued investment in IT, lab equipment, and advanced diagnostics to support future growth.

Financial Highlights

57 data points
Beta

Revenue

$2.49B

34.9% Gross Margin

Net Income

$256.00M

10.3% Net Margin

EPS (Diluted)

$2.17

Total Assets

$13.22B

Cash & Equivalents

$700.00M

Free Cash Flow

$384.00M

Financial Statements
Beta
Revenue$2.49B
Cost of Revenue$1.62B
Gross Profit$868.00M
SG&A Expenses$464.00M
Operating Expenses$2.09B
Operating Income$392.00M
Interest Expense$37.00M
Net Income$256.00M
EPS (Basic)$2.20
EPS (Diluted)$2.17
Shares Outstanding (Basic)116.00M
Shares Outstanding (Diluted)118.00M

Key Highlights

  • 1Total net revenues decreased by 10.4% to $2.49 billion for the third quarter and 6.1% to $7.55 billion for the first nine months of 2022, largely due to a significant drop in COVID-19 testing revenues.
  • 2Net income attributable to Quest Diagnostics plummeted by 49.3% to $256 million for the third quarter and 47.4% to $845 million for the first nine months of 2022.
  • 3Diluted earnings per share decreased to $2.17 for the third quarter and $7.05 for the first nine months of 2022, down from $4.02 and $12.41, respectively, in the prior year periods.
  • 4The "base business" (excluding COVID-19 testing) showed positive trends with revenue increasing by 5.4% in Q3 and 5.2% in the first nine months, and testing volume up 1.6% in Q3 and 3.1% in the first nine months.
  • 5Cost of services for the nine months increased only slightly by 0.3% to $4.88 billion, indicating effective cost management despite higher compensation costs.
  • 6The company repurchased $950 million of its common stock in the first nine months of 2022, a decrease from $1.6 billion in the prior year period, while maintaining its quarterly dividend of $0.66 per share.
  • 7Goodwill increased by $95 million to $7.19 billion, primarily driven by the acquisition of Pack Health and adjustments to the Labtech acquisition purchase price.

Frequently Asked Questions

The primary driver for the decrease in revenue and net income is the significant decline in COVID-19 testing volumes and associated revenues. This has impacted the company's top line, as the high demand seen in prior periods has normalized.

Quest Diagnostics' 'base business,' which excludes COVID-19 testing, is showing positive momentum. For the nine months ended September 30, 2022, revenues in the base business increased by 5.2% and testing volume grew by 3.1% compared to the prior year. Revenue per requisition in the base business also increased by 1.7%.

Quest Diagnostics is focused on cost management through its multi-year 'Invigorate' program, aimed at reducing its cost structure and improving performance through initiatives in areas like IT, procurement, and operational efficiency. For the nine months ended September 30, 2022, cost of services saw a minimal increase of 0.3%, demonstrating effective cost control despite higher compensation and benefits costs. The company also incurred $32 million in pre-tax charges related to this program, primarily for systems conversion and integration.

Quest Diagnostics continues to return capital to shareholders. For the first nine months of 2022, the company repurchased $950 million of its common stock, a decrease from the prior year's $1.6 billion. The Board of Directors increased the share repurchase program by an additional $1 billion in February 2022, with $746 million remaining available as of September 30, 2022. The company also maintained its quarterly cash dividend, declaring $0.66 per common share in each quarter of 2022.