Quest Diagnostics 10-Q 2024-06-30

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-12215

Quest Diagnostics Incorporated

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 15, 2024, there were outstanding 111,317,208 shares of the registrant’s common stock, $.01 par value.

PART I - FINANCIAL INFORMATION

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(unaudited)

(in millions, except per share data)

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Our Company

Diagnostic Information Services

Quest Diagnostics works across the healthcare ecosystem to create a healthier world, one life at a time. Our diagnostic information services ("DIS") business provides diagnostic insights from the results of our laboratory testing to empower people, physicians, and organizations to take action to improve health outcomes. Derived from one of the world's largest databases of de-identifiable clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. In the right hands and with the right context, our diagnostic insights can inspire actions that transform lives and create a healthier world. We provide services to a broad range of customers within our primary customer channels - physicians (including those associated with accountable care organizations and Federally Qualified Health Centers), hospitals, and patients and consumers. Our other customers include health plans, employers, emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories. We offer broad access to clinical testing through a nationwide network of laboratories, patient service centers, phlebotomists in physician offices, and our connectivity resources, including call centers and mobile phlebotomists, nurses and other health and wellness professionals. Our large in-house staff of medical and scientific experts, including medical directors, scientific directors, genetic counselors and board-certified geneticists, provide medical and scientific consultation to healthcare providers and patients regarding our tests and test results, and help them best utilize our services to improve outcomes and enhance satisfaction. Our DIS business makes up greater than 95% of our consolidated net revenues.

We assess our revenue performance for our DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition. Each test requisition accompanies patient specimens, indicating the test(s) to be performed and the party to be billed for the test(s). Revenue per requisition is impacted by various factors, including, among other items, the impact of fee schedule changes (i.e., unit price), test mix, payer mix, business mix and the number of tests per requisition. Management uses number of requisitions and revenue per requisition data to assist with assessing the growth and performance of the business, including understanding trends affecting number of requisitions, pricing and test mix. Therefore, we believe that information related to changes in these metrics from period to period are useful information for investors as it allows them to assess the performance of the business.

Diagnostic Solutions

Our Diagnostic Solutions ("DS") group, which represents the balance of our consolidated net revenues, includes our risk assessment services business, which offers solutions for insurers, and our healthcare information technology businesses, which offer solutions for healthcare providers and payers.

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Second Quarter Highlights

For further discussion of the year-over-year changes for the three months ended June 30, 2024 compared to the three months ended June 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.

For further details, see Note 5 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.

For the six months ended June 30, 2024, we incurred $27 million of pre-tax charges in connection with restructuring and integration activities, including $14 million of employee separation costs, with the remainder primarily consisting of 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**.**

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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:

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

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Operating Results

Results for the three months ended June 30, 2024 were affected by certain items that on a net basis decreased diluted earnings per share by $0.32 as follows:

• pre-tax amortization expense of $29 million recorded in amortization of intangible assets, or $0.19 per diluted share;

• pre-tax charges of $10 million ($1 million recorded in cost of services and $9 million recorded in selling, general and administrative expenses), or $0.06 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;

• pre-tax charges of $9 million recorded in equity in earnings of equity method investees, net of taxes, or $0.05 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; and

• pre-tax charges of $4 million ($1 million recorded in selling, general and administrative expenses and $3 million recorded in other operating expense, net), or $0.03 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; partially offset by

• excess tax benefits associated with stock-based compensation arrangements of $1 million recorded in income tax expense, or $0.01 per diluted share.

Results for the six months ended June 30, 2024 were affected by certain items that on a net basis decreased diluted earnings per share by $0.64 as follows:

• pre-tax amortization expense of $58 million recorded in amortization of intangible assets, or $0.39 per diluted share;

• pre-tax charges of $27 million ($14 million recorded in cost of services and $13 million recorded in selling, general and administrative expenses), or $0.17 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;

• pre-tax charges of $7 million ($1 million recorded in selling, general and administrative expenses and $6 million recorded in other operating expense, net), or $0.06 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions; and

• pre-tax charges of $9 million recorded in equity in earnings of equity method investees, net of taxes, or $0.05 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; partially offset by

• excess tax benefits associated with stock-based compensation arrangements of $3 million recorded in income tax expense, or $0.03 per diluted share.

Results for the three months ended June 30, 2023 were affected by certain items that on a net basis decreased diluted earnings per share by $0.25 as follows:

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• pre-tax amortization expense of $28 million recorded in amortization of intangible assets, or $0.18 per diluted share;

• pre-tax charges of $7 million recorded in selling, general and administrative expenses, or $0.05 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business; and

• pre-tax charges of $6 million recorded in selling, general and administrative expenses, or $0.04 per diluted share, primarily representing the impairment of a corporate facility that was held for sale; partially offset by

• excess tax benefits associated with stock-based compensation arrangements of $2 million recorded in income tax expense, or $0.02 per diluted share.

Results for the six months ended June 30, 2023 were affected by certain items that on a net basis decreased diluted earnings per share by $0.51 as follows:

• pre-tax amortization expense of $54 million recorded in amortization of intangible assets, or $0.35 per diluted share;

• pre-tax charges of $26 million ($10 million recorded in cost of services and $16 million recorded in selling, general and administrative expenses), or $0.17 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;

• pre-tax charges of $6 million recorded in selling, general and administrative expenses, or $0.04 per diluted share, primarily representing the impairment of a corporate facility that was held for sale, and

• pre-tax charges of $3 million recorded in equity in earnings of equity method investees, net of taxes, or $0.02 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; partially offset by

• excess tax benefits associated with stock-based compensation arrangements of $7 million recorded in income tax expense, or $0.07 per diluted share.

Net Revenues

Net revenues for the three months ended June 30, 2024 increased by 2.5% compared to the prior year period.

DIS revenues for the three months ended June 30, 2024 increased by 2.8% compared to the prior year period.

For the three months ended June 30, 2024:

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• The increase in DIS revenues compared to the prior year period was driven primarily by growth in the base business (which excludes COVID-19 testing) and, to a lesser extent, the impact of recent acquisitions, partially offset by a decrease in COVID-19 testing. For the three months ended June 30, 2024, recent acquisitions contributed approximately 0.7% to DIS revenues.

• DIS volume increased by 1.1% compared to the prior year period driven primarily by growth in the base business and the impact of recent acquisitions, which contributed approximately 0.4% to DIS volume, partially offset by a decrease in COVID-19 testing.

• Revenue per requisition increased by 1.6% compared to the prior year period principally due to an increase in the number of tests per requisition and favorable test mix, partially offset by the impact of the decrease in COVID-19 testing and lower revenues associated with certain value-based arrangements.

• DIS revenues in the base business (including the impact of recent acquisitions) increased by 4.2% compared to the prior year period.

• Testing volume in the base business (including the impact of recent acquisitions) was up 1.7% compared to the prior year period.

• Revenue per requisition in the base business increased by 2.4% compared to the prior year period principally due to an increase in the number of tests per requisition and favorable test mix, partially offset by lower revenues associated with certain value-based arrangements.

DS revenues for the three months ended June 30, 2024 decreased by 8.8% compared to the prior year period due to lower revenues associated with both our risk assessment services offered to insurers and our healthcare information technology businesses.

Net revenues for the six months ended June 30, 2024 increased by 2.0% compared to the prior year period.

DIS revenues for the six months ended June 30, 2024 increased by 2.3% compared to the prior year period.

For the six months ended June 30, 2024:

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• The increase in DIS revenues compared to the prior year period was driven primarily by growth in the base business (which excludes COVID-19 testing) and, to a lesser extent, the impact of recent acquisitions, largely offset by a decrease in COVID-19 testing. For the six months ended June 30, 2024, recent acquisitions contributed approximately 0.8% to DIS revenues.

• DIS volume increased by 1.4% compared to the prior year period driven primarily by growth in the base business and the impact of recent acquisitions, which contributed approximately 0.5% to DIS volume, partially offset by a decrease in COVID-19 testing.

• Revenue per requisition increased by 0.9% compared to the prior year period principally due to an increase in the number of tests per requisition and favorable test mix, partially offset by the impact of the decrease in COVID-19 testing.

• DIS revenues in the base business (including the impact of recent acquisitions) increased by 5.1% compared to the prior year period.

• Testing volume in the base business (including the impact of recent acquisitions) was up 2.5% compared to the prior year period.

• Revenue per requisition in the base business increased by 2.5% compared to the prior year period principally due to an increase in the number of tests per requisition and favorable test mix.

DS revenues for the six months ended June 30, 2024 decreased by 6.9% compared to the prior year period due to lower revenues associated with both our risk assessment services offered to insurers and our healthcare information technology businesses.

Cost of Services

Cost of services consists principally of costs for obtaining, transporting and testing specimens as well as facility costs used for the delivery of our services.

For the three months ended June 30, 2024, cost of services increased by $47 million compared to the prior year period. The increase was primarily driven by wage increases, higher supplies expenses and, to a lesser extent, the impact of recent acquisitions, partially offset by cost savings and productivity improvements from our Invigorate program.

For the six months ended June 30, 2024, cost of services increased by $82 million compared to the prior year period. The increase was primarily driven by higher supplies expenses, wage increases, higher benefit costs and the impact of recent acquisitions, partially offset by cost savings and productivity improvements from our Invigorate program.

Selling, General and Administrative Expenses ("SG&A")

SG&A consist principally of the costs associated with our sales and marketing efforts, billing operations, credit loss expense and general management and administrative support as well as administrative facility costs.

SG&A for the three months ended June 30, 2024 was consistent with the prior year period. The impact of recent acquisitions was offset by lower benefit costs.

SG&A for the six months ended June 30, 2024 was principally consistent with the prior year period. Increased depreciation expense and the impact of recent acquisitions was principally offset by lower marketing expenses and decreased benefit costs.

The changes in the value of our deferred compensation obligations is largely offset by changes in the value of the associated investments, which are recorded in other income, net. For further details regarding our deferred compensation plans, see Note 18 to the audited consolidated financial statements included in our 2023 Annual Report on Form 10-K.

Amortization Expense

For the three and six months ended June 30, 2024, amortization expense increased by $1 million and $4 million, respectively, compared to the prior year periods, as a result of recent acquisitions.

Other Operating Expense, Net

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Other operating expense, net includes miscellaneous income and expense items and other charges related to operating activities.

For both the three and six months ended June 30, 2024, other operating expense, net primarily represents a loss associated with the increase in the fair value of the contingent consideration accrual associated with previous acquisitions.

Interest Expense, Net

For the three and six months ended June 30, 2024, interest expense, net increased by $7 million and $15 million, respectively, compared to the prior year periods primarily due to the issuance, during November 2023, of $750 million aggregate principal amount of 6.40% senior notes due 2033, partially offset by the repayment at maturity of our $300 million aggregate principal amount of 4.25% senior notes on April 1, 2024, and lower borrowings under our secured receivables credit facility.

Other Income, Net

Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets.

For the three and six months ended June 30, 2024, other income, net included $3 million and $12 million, respectively, of gains associated with investments in our deferred compensation plans.

For the three and six months ended June 30, 2023, other income, net included $6 million and $13 million, respectively, of gains associated with investments in our deferred compensation plans.

Income Tax Expense

Income tax expense for the three months ended June 30, 2024 and 2023 was $74 million and $75 million, respectively.

The effective income tax rate for the three months ended June 30, 2024 and 2023 was 23.4% and 23.5%, respectively. The effective income tax rate benefited from $1 million and $2 million of excess tax benefits associated with stock-based compensation arrangements for the three months ended June 30, 2024 and 2023, respectively.

Income tax expense for the six months ended June 30, 2024 and 2023 was $140 million for both periods.

The effective income tax rate for the six months ended June 30, 2024 and 2023 was 24.2% and 23.5%, respectively. The effective income tax rate benefited from $3 million and $7 million of excess tax benefits associated with stock-based compensation arrangements for the six months ended June 30, 2024 and 2023, respectively.

Equity in Earnings of Equity Method Investees, Net of Taxes

Equity in earnings of equity method investees, net of taxes, decreased by $7 million for the three months ended June 30, 2024 compared to the prior year period primarily due to the three months ended June 30, 2024 including $9 million of net losses associated with changes in the carrying value of our strategic investments, partially offset by increased demand for testing services at our diagnostic information services joint venture.

Equity in earnings of equity method investees, net of taxes, decreased by $4 million for the six months ended June 30, 2024 compared to the prior year period primarily due to the six months ended June 30, 2024 including $9 million of net losses associated with changes in the carrying value of our strategic investments, partially offset by increased demand for testing services at our diagnostic information services joint venture.

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Quantitative and Qualitative Disclosures About Market Risk

We address our exposure to market risks, principally the risk of changes in interest rates, through a controlled program of risk management that includes the use of derivative financial instruments. We do not hold or issue derivative financial instruments for speculative purposes. We seek to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve this objective, we have historically entered into interest rate swap agreements. Interest rate swap agreements involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements are recognized as an adjustment to interest expense, net. We believe that our exposures to foreign exchange impacts and changes in commodity prices are not material to our consolidated results of operations, financial position or cash flows.

As of June 30, 2024 and December 31, 2023, the fair value of our debt was estimated at approximately $4.3 billion and $4.6 billion, respectively, principally using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. As of June 30, 2024 and December 31, 2023, the estimated fair value was less than the carrying value of the debt by $147 million and $127 million, respectively. A hypothetical 10% increase in interest rates (representing 51 basis points and 50 basis points as of June 30, 2024 and December 31, 2023, respectively) would potentially reduce the estimated fair value of our debt by approximately $136 million and $139 million, respectively, as of June 30, 2024 and December 31, 2023.

Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates. Interest on our secured receivables credit facility is based on either commercial paper rates for highly-rated issuers or the adjusted Term Secured Overnight Financing Rate ("Term SOFR"), plus a spread. Interest on our senior unsecured revolving credit facility is based on certain published rates plus an applicable margin based on changes in our public debt ratings. As such, our borrowing cost under this credit arrangement is subject to fluctuations in interest rates and changes in our public debt ratings. As of June 30, 2024, the borrowing rates under these debt instruments were: for our secured receivables credit facility, commercial paper rates for highly-rated issuers or the adjusted Term SOFR, plus a spread of 0.80%; and for our senior unsecured revolving credit facility, the adjusted Term SOFR, plus 1.00%. As of June 30, 2024, there were no borrowings outstanding under the secured receivables credit facility and there were no borrowings outstanding under the senior unsecured revolving credit facility.

Based on our net exposure to interest rate changes, a hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change our annual interest expense.

For further details regarding our outstanding debt, see Note 7 to the interim unaudited consolidated financial statements and Note 14 to the audited consolidated financial statements included in our 2023 Annual Report on Form 10-K. For details regarding our financial instruments and hedging activities, see Note 8 to the interim unaudited consolidated financial statements and Note 16 to the audited consolidated financial statements included in our 2023 Annual Report on Form 10-K.

Risk Associated with Investment Portfolio

Our investment portfolio primarily includes equity investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries. Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with readily determinable fair values are measured at fair value in our consolidated balance sheet with changes in fair value recorded in current earnings in our consolidated statement of operations. Equity investments that do not have readily determinable fair values (which consist of investments in preferred and common shares of private companies) are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

We regularly evaluate equity investments that do not have readily determinable fair values to determine if there are any indicators that the investments are impaired. The carrying value of our equity investments that do not have readily determinable fair values was $36 million as of June 30, 2024. In conjunction with the preparation of our June 30, 2024 financial statements, we considered whether the carrying values of our investments were impaired and concluded that no such impairment existed.

We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.

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Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly-liquid short-term investments with original maturities, at the time of acquisition, of three months or less. Cash and cash equivalents as of June 30, 2024 totaled $271 million, compared to $686 million as of December 31, 2023.

As of June 30, 2024, approximately 14% of our $271 million of consolidated cash and cash equivalents were held outside of the United States.

Cash Flows from Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2024 and 2023 was $514 million and $538 million, respectively. The $24 million decrease in net cash provided by operating activities for the six months ended June 30, 2024, compared to the prior year period, was primarily a result of the timing of cash collections, partially offset by the timing of cash payments.

Days sales outstanding, a measure of billing and collection efficiency, was 50 days as of June 30, 2024, 50 days as of of December 31, 2023 and 47 days as of June 30, 2023.

Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was $413 million and $840 million, respectively. This $427 million decrease in net cash used in investing activities for the six months ended June 30, 2024, compared to the prior year period, was primarily a result of decreased cash used for business acquisitions and, to a lesser extent, lower capital expenditures.

Cash Flows from Financing Activities

Net cash (used in) provided by financing activities for the six months ended June 30, 2024 and 2023 was $(516) million and $113 million, respectively. This $629 million change in net cash (used in) provided by financing activities for the six months ended June 30, 2024, compared to the prior year period, was primarily a result of the six months ended June 30, 2023 including $320 million of net borrowings under our secured receivables credit facility and the six months ended June 30, 2024 including the repayment in full of the outstanding indebtedness under our $300 million of 4.25% senior notes at maturity.

During the six months ended June 30, 2024, there were no borrowings or repayments under our secured receivables credit facility and our senior unsecured revolving credit facility.

During the six months ended June 30, 2023, we borrowed $1.0 billion under our secured receivables credit facility, $0.7 billion of which was repaid prior to June 30, 2023. Additionally, during the six months ended June 30, 2023, we borrowed $125 million under our senior unsecured revolving credit facility, which was repaid prior to June 30, 2023.

Dividend Program

During each of the first and second quarters of 2024, our Board of Directors declared a quarterly cash dividend of $0.75 per common share. During each of the four quarters of 2023, our Board of Directors declared a quarterly cash dividend of $0.71 per common share.

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Share Repurchase Program

As of June 30, 2024, $1.0 billion remained available under our share repurchase authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

For both the six months ended June 30, 2024 and 2023, we repurchased no shares of our common stock.

Equity Method Investees

Our equity method investees primarily consist of a diagnostic information services joint venture and an investment in a fund that purchases strategic holdings in private companies in the healthcare industry. Such investees are accounted for under the equity method of accounting. Our investment in equity method investees is less than 5% of our consolidated total assets. Our proportionate share of income before income taxes associated with our equity method investees is less than 5% of our consolidated income before income taxes and equity in earnings of equity method investees. We have no material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.

In conjunction with the preparation of our June 30, 2024 financial statements, we considered whether the carrying values of our equity method investments were impaired and concluded that no such impairment existed.

Requirements and Capital Resources

We estimate that we will invest approximately $420 million during 2024 for capital expenditures, to support and grow our existing operations, principally related to investments in laboratory equipment and facilities, including laboratory automations and information technology to support our diagnostic offerings.

We have $600 million of 3.50% senior notes due March 2025.

Additionally, we have entered into definitive agreements to acquire LifeLabs, select assets of the laboratory services business of Allina Health, and select assets of the laboratory services business of OhioHealth. The acquisitions are expected to close during the second half of 2024. For further details, see Notes 5 and 14 to the interim unaudited consolidated financial statements.

As of June 30, 2024, we had $1.2 billion of borrowing capacity available under our existing credit facilities, including $452 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. There were no borrowings outstanding under either the secured receivables credit facility or the senior unsecured revolving credit facility as of June 30, 2024. In support of our risk management program, $73 million in letters of credit under the secured receivables credit facility were outstanding as of June 30, 2024.

Our secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. Our senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. As of June 30, 2024, we were in compliance with all such applicable financial covenants.

We believe that our cash and cash equivalents and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities, including acquisitions, for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund additional growth opportunities, including acquisitions, and satisfy upcoming debt maturities.

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Forward-Looking Statements

Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan”, "aim", or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners, acquisitions and other factors discussed in our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Factors that May Affect Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.

See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

During the second quarter of 2024, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

See Note 11 to the interim unaudited consolidated financial statements for information regarding the status of legal proceedings involving the Company.

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Our business and operations could be adversely impacted by the FDA's approach to regulation.

The FDA has regulatory responsibility over, among other areas, instruments, software, test kits, reagents and other devices used by clinical laboratories to perform diagnostic testing in the United States. The FDA has publicly asserted authority over laboratory testing (LDTs) since the 1990s. A number of tests we develop internally are offered as LDTs. The FDA has claimed regulatory authority over all LDTs, but has stated that it has exercised enforcement discretion with regard to most LDTs performed by high complexity CLIA-certified laboratories.

As the FDA moves to regulate more clinical laboratory testing, its approach to regulation is expected to impact industry practices and participants, new competitors may enter the industry, and competition may come in new forms. On May 6, 2024, the FDA published a final rule to broaden the definition of medical devices to include diagnostic tests and to regulate the laboratories that develop them. The final rule initiates a four-year period for a five-staged process of compliance with medical device regulations, certain FDA quality system requirements and for any required LDT submissions. We continue to evaluate the final rule and are working to ensure compliance with its requirements. Legal challenges have been made to the final rule that may vacate, change, delay or uphold the final rule. The final rule could also impact a revitalization and passage of legislation that authorizes the FDA to regulate LDTs by amending the Food, Drug and Cosmetic Act. However, the final rule requires compliance until such court determination or passage of such legislation.

The final rule could have a significant impact on the clinical laboratory testing industry, while creating new avenues of opportunity and competition regarding clinical laboratory testing. New competitors may enter the industry, and competition may come in new forms. The final outcome and effects of the final rule on our business are still uncertain and difficult to predict.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the second quarter of 2024.

(A)Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $13 billion of share repurchases of our common stock through June 30, 2024. The share repurchase authorization has no set expiration or termination date.

(B)Includes: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of stock options (granted under the Company’s Amended and Restated Employee Long-Term Incentive Plan) who exercised options; and (2) shares withheld (under the terms of grants under the Amended and Restated Employee Long-Term Incentive Plan) to offset tax withholding obligations that occur upon the delivery of outstanding common shares underlying restricted stock units and performance share units.

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None.

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Exhibits:

• Certain information contained in this exhibit, marked by [***], has been omitted because it (i) is not material and (ii) is the type of information that we treat as private or confidential.

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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.

July 24, 2024

Quest Diagnostics Incorporated