Quest Diagnostics(DGX) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Quest Diagnostics Incorporated's unaudited consolidated financial statements for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Operations The company reported significant year-over-year growth in net revenues and profitability for both the second quarter and first six months of 2025 Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $2,761 | $2,397 | $5,413 | $4,763 | | Operating income | $438 | $355 | $784 | $655 | | Net income attributable to Quest Diagnostics | $282 | $229 | $502 | $423 | | Diluted EPS | $2.47 | $2.03 | $4.41 | $3.75 | Consolidated Balance Sheets Total assets slightly decreased to $15,969 million as of June 30, 2025, while total stockholders' equity increased to $7,265 million Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $319 | $549 | | Total current assets | $2,198 | $2,392 | | Total assets | $15,969 | $16,153 | | Current portion of long-term debt | $504 | $602 | | Long-term debt | $5,169 | $5,615 | | Total liabilities | $8,623 | $9,335 | | Total stockholders' equity | $7,265 | $6,813 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $858 million for the six months ended June 30, 2025, while cash and cash equivalents decreased by $230 million Consolidated Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $858 | $514 | | Net cash used in investing activities | $(239) | $(413) | | Net cash used in financing activities | $(854) | $(516) | | Net change in cash and cash equivalents | $(230) | $(415) | Notes to Consolidated Financial Statements These notes detail significant accounting policies, business acquisitions, restructuring activities, debt, legal contingencies, and segment reporting - The company's multi-year 'Invigorate' program targets 3% annual cost savings and productivity improvements to offset inflation[37] - The LifeLabs Inc. acquisition in August 2024 for approximately CAN $1.35 billion (USD $1 billion) saw a $9 million increase in deferred tax assets and a decrease in goodwill due to purchase price allocation revisions in H1 2025[44] - The company faces several legal proceedings, including class actions and state investigations, with reserves for legal matters totaling $6 million as of June 30, 2025[93][96][108] - The Diagnostic Information Services (DIS) business is the sole reportable segment, contributing over 97% of net revenues in both 2025 and 2024[114] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, liquidity, and capital resources, highlighting a 15.2% increase in Q2 2025 net revenues driven by acquisitions Second Quarter Highlights Q2 2025 saw strong growth with net revenues increasing to $2,761 million and diluted EPS rising to $2.47, driven by a 16.3% requisition volume growth Q2 2025 Financial Highlights (dollars in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net revenues | $2,761 | $2,397 | | DIS revenues | $2,699 | $2,333 | | Requisition volume change | 16.3% | 1.1% | | Organic requisition volume change | 2.1% | 0.7% | | Operating income | $438 | $355 | | Diluted earnings per share | $2.47 | $2.03 | Results of Operations Total net revenues grew 15.2% to $2,761 million in Q2 2025, with operating income rising 23.3% to $438 million due to revenue growth and a payroll tax credit Revenue Performance (YoY Change) | Revenue Segment | Q2 2025 vs Q2 2024 | YTD 2025 vs YTD 2024 | | :--- | :--- | :--- | | DIS business | +15.7% | +14.2% | | DS businesses | -3.1% | -5.5% | | Total net revenues | +15.2% | +13.7% | - In Q2 2025, DIS volume increased by 16.3%, with acquisitions contributing 14.2% and organic growth 2.1%, while organic revenue per requisition was up 3.3%[144][145] - Other operating income in Q2 and YTD 2025 included a $46 million CARES Act payroll tax credit and a $24 million asset impairment charge[156] Liquidity and Capital Resources The company maintains a strong financial position with $319 million in cash and $858 million in operating cash flow for H1 2025, having repaid $600 million in senior notes Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $858 | $514 | | Net cash used in investing activities | $(239) | $(413) | | Net cash used in financing activities | $(854) | $(516) | | Net change in cash | $(230) | $(415) | - The increase in net cash used in financing activities was primarily due to the repayment of $600 million of senior notes in 2025, compared to $300 million in 2024[179] - As of June 30, 2025, $0.9 billion remained available under the share repurchase authorization, with no shares repurchased in the first six months of 2025[183][184] Quantitative and Qualitative Disclosures About Market Risk The company manages its primary market risk from interest rate changes through a mix of fixed and variable-rate debt and derivative instruments - The company's primary market risk stems from interest rate changes, managed through derivative financial instruments without speculative intent[165] - As of June 30, 2025, the fair value of debt was estimated at $5.6 billion, with $1.8 billion in notional amount of fixed-to-variable interest rate swaps outstanding[166][168] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO affirmed the effectiveness of the company's disclosure controls and procedures as of the reporting period end[198] - No material changes to internal control over financial reporting occurred during Q2 2025[199] PART II - OTHER INFORMATION Legal Proceedings Information regarding the company's legal proceedings is detailed in Note 11 of the interim unaudited consolidated financial statements - Legal proceedings information is provided in Note 11 of the interim unaudited consolidated financial statements[201] Risk Factors No material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K have occurred - No material changes to risk factors have occurred since the 2024 Annual Report on Form 10-K[202] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its program in Q2 2025, but acquired 3,340 shares through employee stock-based compensation transactions Issuer Purchases of Equity Securities - Q2 2025 | Period | Total Shares Purchased (Share Repurchase Program) | Total Shares Purchased (Employee Transactions) | | :--- | :--- | :--- | | April 2025 | 0 | 0 | | May 2025 | 0 | 3,340 | | June 2025 | 0 | 0 | | Total Q2 2025 | 0 | 3,340 | - As of June 30, 2025, approximately $885.9 million remained available under the company's share repurchase authorization[205] Other Information Three Senior Vice Presidents adopted Rule 10b5-1 trading plans to sell common stock during the second quarter of 2025 - Three company officers adopted Rule 10b5-1 trading plans to sell common stock in May 2025[209] Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and amendments to credit agreements - Filed exhibits include CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and amendments to credit agreements (Exhibits 99.1, 99.2, 99.3)[213]