Quest Diagnostics(DGX) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Q1 2025 and 2024, highlighting year-over-year growth in revenue, net income, and operating cash flow Consolidated Financial Statements Highlights For Q1 2025, Quest Diagnostics reported net revenues of $2.652 billion, up from $2.366 billion in Q1 2024, with net income increasing to $220 million and operating cash flow growing significantly | Financial Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net Revenues | $2,652 | $2,366 | | Operating Income | $346 | $300 | | Net Income Attributable to Quest Diagnostics | $220 | $194 | | Diluted EPS | $1.94 | $1.72 | | Balance Sheet Item | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $2,075 | $2,392 | | Total Assets | $15,797 | $16,153 | | Total Current Liabilities | $1,441 | $2,169 | | Total Liabilities | $8,835 | $9,340 | | Total Stockholders' Equity | $6,962 | $6,813 | | Cash Flow Activity | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $314 | $154 | | Net Cash Used in Investing Activities | ($115) | ($213) | | Net Cash Used in Financing Activities | ($561) | ($153) | | Net Change in Cash | ($361) | ($212) | Notes to Consolidated Financial Statements The notes provide detailed disclosures on key accounting areas, including the sole reportable segment, restructuring charges, recent acquisitions, debt repayment, and ongoing legal proceedings - The Diagnostic Information Services (DIS) business is the only reportable segment and accounted for over 95% of net revenues in both Q1 2025 and Q1 2024[99][106] - The company incurred pre-tax restructuring charges of $11 million in Q1 2025, primarily for employee separation costs related to the 'Invigorate' program, which aims for 3% annual cost savings[31][32] - In August 2024, the company acquired LifeLabs for approximately $1 billion. In February 2025, it entered an agreement to acquire select assets of Spectra Laboratories, expected to close in the second half of 2025[36][38] - During Q1 2025, the company repaid in full its $600 million of 3.50% senior notes that matured on March 30, 2025[54] - The company is involved in several legal matters, including class action lawsuits concerning its 401(k) plan and the 2019 AMCA data security incident; reserves for legal matters were $4 million as of March 31, 2025[79][80][94] Management's Discussion and Analysis (MD&A) Management discusses Q1 2025 financial results, highlighting a 12.1% revenue increase driven by acquisitions, performance of key segments, cost-saving initiatives, and the company's strong liquidity position | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Revenues | $2,652M | $2,366M | | DIS Revenues | $2,589M | $2,298M | | Requisition Volume Change | 12.4% | 1.6% | | Organic Requisition Volume Change | (0.9)% | 1.0% | | Operating Income | $346M | $300M | | Diluted EPS | $1.94 | $1.72 | | Operating Cash Flow | $314M | $154M | - The "Invigorate" program, a multi-year initiative to drive savings and productivity, aims to deliver 3% annual cost savings to offset inflationary pressures[115] Results of Operations Net revenues for Q1 2025 rose 12.1% to $2.652 billion, primarily driven by acquisitions, with operating income increasing 15.4% to $346 million - DIS revenue growth was primarily driven by acquisitions; organic revenue per requisition increased 3.6%, but the dilutive impact of the LifeLabs acquisition resulted in a reported increase of only 0.3%[133] - Cost of services increased by $194 million, mainly due to recent acquisitions, wage increases, and higher supplies expense, partially offset by productivity improvements from the Invigorate program[126] - SG&A expenses increased by $36 million, primarily driven by the impact of recent acquisitions[128] - Interest expense increased by $24 million, mainly due to the issuance of $1.85 billion in senior notes in August 2024 to fund acquisitions[132] - The effective tax rate for Q1 2025 was 21.5%, down from 25.0% in Q1 2024, primarily due to higher excess tax benefits from stock-based compensation ($9 million vs. $2 million)[136] Liquidity and Capital Resources The company's liquidity strengthened in Q1 2025 with operating cash flow increasing by $160 million, while cash used in financing rose due to significant debt repayment - Net cash provided by operating activities increased by $160 million year-over-year, primarily due to the timing of payments and increased operating income[149] - Net cash used in financing activities increased by $408 million, mainly due to the repayment of $600 million in senior notes, partially funded by $215 million in borrowings from the secured receivables credit facility[152] - The company repurchased no shares of its common stock in Q1 2025; as of March 31, 2025, $0.9 billion remained available under the share repurchase authorization[156][157] - As of March 31, 2025, the company had $1.1 billion of available borrowing capacity under its credit facilities and was in compliance with all financial covenants[164][165] Market Risk Disclosures The company manages interest rate volatility, its primary market risk, through a mix of fixed and variable-rate debt and derivative instruments, with total debt fair value at $5.8 billion - The fair value of the company's debt was estimated at $5.8 billion as of March 31, 2025[139] - The company had $1.25 billion in notional value of fixed-to-variable interest rate swaps outstanding as of March 31, 2025[141] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during Q1 2025 - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[168] - There were no changes in internal control over financial reporting during Q1 2025 that materially affected, or are reasonably likely to materially affect, internal controls[169] PART II - OTHER INFORMATION Legal Proceedings and Risk Factors The company is involved in various legal proceedings as detailed in Note 11 to the financial statements, with no material changes to the risk factors disclosed in the 2024 Annual Report on Form 10-K - Information regarding legal proceedings is detailed in Note 11 of the financial statements[171] - There have been no material changes in the risk factors from the company's 2024 Annual Report on Form 10-K[172] Share Repurchases and Other Disclosures During Q1 2025, Quest Diagnostics did not repurchase any shares, leaving $0.9 billion under authorization, and one officer adopted a Rule 10b5-1 trading plan | Period | Total Shares Purchased (Program) | Average Price Paid | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | | Jan 2025 | 0 | N/A | $885,914 | | Feb 2025 | 0 | N/A | $885,914 | | Mar 2025 | 0 | N/A | $885,914 | - Mark Delaney, SVP, Chief Commercial Officer, adopted a Rule 10b5-1 plan to sell up to 1,699 shares of common stock, effective from February 7, 2025, to November 11, 2025[179]