
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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 ~~September 30, 2022~~March 31, 2023

☐ 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


Delaware			16-1387862
(State of Incorporation)			(I.R.S. Employer Identification Number)
500 Plaza Drive
Secaucus,	NJ	07094
(973)	520-2700

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	DGX	New York Stock Exchange

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.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ~~October~~April 14, ~~2022,~~2023, there were outstanding ~~113,887,466~~112,009,197 shares of the registrant’s common stock, $.01 par value.

Table of Contents

PART I - FINANCIAL INFORMATION


		Page
Item 1. Financial Statements (unaudited)

	Index to unaudited consolidated financial statements filed as part of this report:

	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	2

	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3

	Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	4

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	6

	Notes to Consolidated Financial Statements (unaudited)	87

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2421

Item 3. Quantitative and Qualitative Disclosures About Market Risk

	See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”	3631

Item 4. Controls and Procedures

	Controls and Procedures	3631

Table of Contents

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(unaudited)

(in millions, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net revenues	Net revenues	$	2,486	$	2,774	$	7,550	$	8,044	Net revenues	$	2,331	$	2,611

Operating costs and expenses and other operating income:	Operating costs and expenses and other operating income:									Operating costs and expenses and other operating income:
Cost of services	Cost of services	1,618		1,670		4,875		4,861		Cost of services	1,560		1,646
Selling, general and administrative	Selling, general and administrative	464		427		1,311		1,263		Selling, general and administrative	439		425
Amortization of intangible assets	Amortization of intangible assets	27		25		81		77		Amortization of intangible assets	26		27

Other operating income, net		(15)		—		(10)		(2)
Other operating expense, net										Other operating expense, net	1		—
Total operating costs and expenses, net	Total operating costs and expenses, net	2,094		2,122		6,257		6,199		Total operating costs and expenses, net	2,026		2,098

Operating income	Operating income	392		652		1,293		1,845		Operating income	305		513

Other income (expense):	Other income (expense):									Other income (expense):
Interest expense, net	Interest expense, net	(33)		(38)		(106)		(114)		Interest expense, net	(35)		(37)
Other (expense) income, net		(8)		40		(61)		366
Total non-operating (expense) income, net		(41)		2		(167)		252
Other income (expense), net										Other income (expense), net	7		(24)
Total non-operating expense, net										Total non-operating expense, net	(28)		(61)

Income before income taxes and equity in earnings of equity method investees	Income before income taxes and equity in earnings of equity method investees	351		654		1,126		2,097		Income before income taxes and equity in earnings of equity method investees	277		452
Income tax expense	Income tax expense	(81)		(153)		(268)		(483)		Income tax expense	(65)		(110)
Equity in earnings of equity method investees, net of taxes	Equity in earnings of equity method investees, net of taxes	6		26		41		53		Equity in earnings of equity method investees, net of taxes	5		31

Net income	Net income	276		527		899		1,667		Net income	217		373
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	20		22		54		62		Less: Net income attributable to noncontrolling interests	15		18
Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$	256	$	505	$	845	$	1,605	Net income attributable to Quest Diagnostics	$	202	$	355

Earnings per share attributable to Quest Diagnostics’ common stockholders:	Earnings per share attributable to Quest Diagnostics’ common stockholders:									Earnings per share attributable to Quest Diagnostics’ common stockholders:

Basic	Basic	$	2.20	$	4.11	$	7.17	$	12.63	Basic	$	1.80	$	2.97

Diluted	Diluted	$	2.17	$	4.02	$	7.05	$	12.41	Diluted	$	1.78	$	2.92

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	116		123		117		127		Basic	112		119

Diluted	Diluted	118		125		119		129		Diluted	113		121

The accompanying notes are an integral part of these statements.

Table of Contents

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(unaudited)

(in millions)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net income	Net income	$	276	$	527	$	899	$	1,667	Net income	$	217	$	373

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustment	Foreign currency translation adjustment	(8)		(4)		(17)		14		Foreign currency translation adjustment	3		(2)
Net change in available-for-sale debt securities, net of taxes		—		—		—		(7)
Net deferred gain on cash flow hedges, net of taxes		—		1		—		1

Other comprehensive (loss) income		(8)		(3)		(17)		8

Other comprehensive income (loss)										Other comprehensive income (loss)	3		(2)

Comprehensive income	Comprehensive income	268		524		882		1,675		Comprehensive income	220		371
Less: Comprehensive income attributable to noncontrolling interests	Less: Comprehensive income attributable to noncontrolling interests	20		22		54		62		Less: Comprehensive income attributable to noncontrolling interests	15		18
Comprehensive income attributable to Quest Diagnostics	Comprehensive income attributable to Quest Diagnostics	$	248	$	502	$	828	$	1,613	Comprehensive income attributable to Quest Diagnostics	$	205	$	353

The accompanying notes are an integral part of these statements.

Table of Contents

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2022~~MARCH 31, 2023 AND DECEMBER 31, ~~2021~~2022

(unaudited)

(in millions, except per share data)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	700	$	872	Cash and cash equivalents	$	175	$	315
Accounts receivable, net of allowance for credit losses of $29 and $31 as of September 30, 2022 and December 31, 2021, respectively		1,280		1,438
Accounts receivable, net of allowance for credit losses of $30 as of both March 31, 2023 and December 31, 2022						Accounts receivable, net of allowance for credit losses of $30 as of both March 31, 2023 and December 31, 2022	1,254		1,195
Inventories	Inventories	183		208		Inventories	190		192
Prepaid expenses and other current assets	Prepaid expenses and other current assets	171		223		Prepaid expenses and other current assets	195		196

Total current assets	Total current assets	2,334		2,741		Total current assets	1,814		1,898
Property, plant and equipment, net	Property, plant and equipment, net	1,707		1,707		Property, plant and equipment, net	1,795		1,766
Operating lease right-of-use assets	Operating lease right-of-use assets	607		597		Operating lease right-of-use assets	589		585
Goodwill	Goodwill	7,190		7,095		Goodwill	7,241		7,220
Intangible assets, net	Intangible assets, net	1,115		1,167		Intangible assets, net	1,077		1,092
Investments in equity method investees	Investments in equity method investees	138		141		Investments in equity method investees	128		132
Other assets	Other assets	132		163		Other assets	150		144

Total assets	Total assets	$	13,223	$	13,611	Total assets	$	12,794	$	12,837

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	1,447	$	1,600	Accounts payable and accrued expenses	$	1,198	$	1,396
Current portion of long-term debt	Current portion of long-term debt	2		2		Current portion of long-term debt	2		2
Current portion of long-term operating lease liabilities	Current portion of long-term operating lease liabilities	153		151		Current portion of long-term operating lease liabilities	155		153

Total current liabilities	Total current liabilities	1,602		1,753		Total current liabilities	1,355		1,551
Long-term debt	Long-term debt	3,980		4,010		Long-term debt	3,975		3,978
Long-term operating lease liabilities	Long-term operating lease liabilities	505		494		Long-term operating lease liabilities	490		489
Other liabilities	Other liabilities	787		792		Other liabilities	809		812

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Redeemable noncontrolling interest	Redeemable noncontrolling interest	77		79		Redeemable noncontrolling interest	77		77
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Quest Diagnostics stockholders’ equity:	Quest Diagnostics stockholders’ equity:					Quest Diagnostics stockholders’ equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2022 and December 31, 2021; 162 shares issued as of both September 30, 2022 and December 31, 2021		2		2
Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2023 and December 31, 2022; 162 shares issued as of both March 31, 2023 and December 31, 2022						Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2023 and December 31, 2022; 162 shares issued as of both March 31, 2023 and December 31, 2022	2		2
Additional paid-in capital	Additional paid-in capital	2,272		2,260		Additional paid-in capital	2,266		2,295
Retained earnings	Retained earnings	8,263		7,649		Retained earnings	8,412		8,290
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(31)		(14)		Accumulated other comprehensive loss	(18)		(21)
Treasury stock, at cost; 48 and 43 shares as of September 30, 2022 and December 31, 2021, respectively		(4,271)		(3,453)
Treasury stock, at cost; 50 and 51 shares as of March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost; 50 and 51 shares as of March 31, 2023 and December 31, 2022, respectively	(4,612)		(4,673)
Total Quest Diagnostics stockholders’ equity	Total Quest Diagnostics stockholders’ equity	6,235		6,444		Total Quest Diagnostics stockholders’ equity	6,050		5,893
Noncontrolling interests	Noncontrolling interests	37		39		Noncontrolling interests	38		37
Total stockholders’ equity	Total stockholders’ equity	6,272		6,483		Total stockholders’ equity	6,088		5,930
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	13,223	$	13,611	Total liabilities and stockholders’ equity	$	12,794	$	12,837

The accompanying notes are an integral part of these statements.

Table of Contents

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(unaudited)

(in millions)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	899	$	1,667	Net income	$	217	$	373
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	321		302		Depreciation and amortization	107		106
Provision for credit losses		1		3
Deferred income tax provision (benefit)		45		(87)
Credit for credit losses						Credit for credit losses	(1)		—
Deferred income tax benefit						Deferred income tax benefit	(4)		(43)
Stock-based compensation expense	Stock-based compensation expense	55		60		Stock-based compensation expense	24		18

Gain on disposition of joint venture		—		(314)

Other, net	Other, net	37		(48)		Other, net	3		4
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	162		45		Accounts receivable	(58)		72
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(169)		36		Accounts payable and accrued expenses	(211)		(165)
Income taxes payable	Income taxes payable	(1)		49		Income taxes payable	11		95

Other assets and liabilities, net	Other assets and liabilities, net	34		39		Other assets and liabilities, net	6		20
Net cash provided by operating activities	Net cash provided by operating activities	1,384		1,752		Net cash provided by operating activities	94		480

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(106)		(251)		Business acquisitions, net of cash acquired	(31)		(105)

Capital expenditures	Capital expenditures	(257)		(259)		Capital expenditures	(127)		(63)

Proceeds from disposition of joint venture		—		755
(Increase) decrease in investments and other assets		(6)		3
Net cash (used in) provided by investing activities		(369)		248

Increase in investments and other assets						Increase in investments and other assets	—		(1)
Net cash used in investing activities						Net cash used in investing activities	(158)		(169)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from borrowings						Proceeds from borrowings	140		—
Repayments of debt	Repayments of debt	(1)		(2)		Repayments of debt	(140)		(1)
Purchases of treasury stock	Purchases of treasury stock	(947)		(1,910)		Purchases of treasury stock	—		(373)
Exercise of stock options	Exercise of stock options	96		108		Exercise of stock options	25		10
Employee payroll tax withholdings on stock issued under stock-based compensation plans	Employee payroll tax withholdings on stock issued under stock-based compensation plans	(28)		(22)		Employee payroll tax withholdings on stock issued under stock-based compensation plans	(28)		(27)
Dividends paid	Dividends paid	(230)		(232)		Dividends paid	(74)		(74)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners	(58)		(75)		Distributions to noncontrolling interest partners	(14)		(20)

Other financing activities, net	Other financing activities, net	(19)		(38)		Other financing activities, net	15		14
Net cash used in financing activities	Net cash used in financing activities	(1,187)		(2,171)		Net cash used in financing activities	(76)		(471)

Net change in cash and cash equivalents and restricted cash	Net change in cash and cash equivalents and restricted cash	(172)		(171)		Net change in cash and cash equivalents and restricted cash	(140)		(160)

Cash and cash equivalents and restricted cash, beginning of period	Cash and cash equivalents and restricted cash, beginning of period	872		1,158		Cash and cash equivalents and restricted cash, beginning of period	315		872
Cash and cash equivalents and restricted cash, end of period	Cash and cash equivalents and restricted cash, end of period	$	700	$	987	Cash and cash equivalents and restricted cash, end of period	$	175	$	712

The accompanying notes are an integral part of these statements.

Table of Contents

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(unaudited)

(in millions)

For the Three Months Ended September 30, 2022 Quest Diagnostics Stockholders’ Equity
Shares of
Common Stock
Outstanding Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Compre-
hensive Loss Treasury
Stock, at
Cost Non-
controlling
Interests Total
Stock-
holders’
Equity Redeemable Non-controlling Interest
Balance, June 30, 2022 117 $ 2 $ 2,250 $ 8,083 $ (23) $ (3,901) $ 39 $ 6,450 $ 77
Net income 256 19 275 1
Other comprehensive loss, net of taxes (8) (8)
Dividends declared (76) (76)
Distributions to noncontrolling interest partners (21) (21) (1)
Issuance of common stock under benefit plans 2 5 7
Stock-based compensation expense 18 18
Exercise of stock options 2 26 28
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans (1) (1)
Purchases of treasury stock (3) (400) (400)
Balance, September 30, 2022 114 $ 2 $ 2,272 $ 8,263 $ (31) $ (4,271) $ 37 $ 6,272 $ 77
For the Nine Months Ended September 30, 2022 Quest Diagnostics Stockholders’ Equity
Shares of
Common Stock
Outstanding Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Compre-
hensive Loss Treasury
Stock, at
Cost Non-
controlling
Interests Total
Stock-
holders’
Equity Redeemable Non-controlling Interest
Balance, December 31, 2021 119 $ 2 $ 2,260 $ 7,649 $ (14) $ (3,453) $ 39 $ 6,483 $ 79
Net income 845 49 894 5
Other comprehensive loss, net of taxes (17) (17)
Dividends declared (231) (231)
Distributions to noncontrolling interest partners (51) (51) (7)
Issuance of common stock under benefit plans 1 (38) 59 21
Stock-based compensation expense 55 55
Exercise of stock options 1 5 91 96
Shares to cover employee payroll tax withholdings on stock
issued under stock-based compensation plans
(10) (18) (28)
Purchases of treasury stock (7) (950) (950)
Balance, September 30, 2022 114 $ 2 $ 2,272 $ 8,263 $ (31) $ (4,271) $ 37 $ 6,272 $ 77

~~The accompanying notes are an integral part of these statements.~~

~~Table of Contents~~

~~QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021~~

~~(unaudited)~~

~~(in millions)~~

















For the Three Months Ended March 31, 2023		Quest Diagnostics Stockholders’ Equity
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2022	111	$	2	$	2,295	$	8,290	$	(21)	$	(4,673)	$	37	$	5,930	$	77
Net income						202						14		216		1
Other comprehensive income, net of taxes								3						3
Dividends declared						(80)								(80)
Distributions to noncontrolling interest partners												(13)		(13)		(1)
Issuance of common stock under benefit plans	1			(42)						48				6
Stock-based compensation expense				24										24
Exercise of stock options				(1)						31				30
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(10)						(18)				(28)


Balance, March 31, 2023	112	$	2	$	2,266	$	8,412	$	(18)	$	(4,612)	$	38	$	6,088	$	77


For the Three Months Ended September 30, 2021			Quest Diagnostics Stockholders’ Equity
For the Three Months Ended March 31, 2022																			For the Three Months Ended March 31, 2022		Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest			Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, June 30, 2021		122	$	2	$	2,555	$	10,246	$	(10)	$	(6,894)	$	41	$	5,940	$	78
Balance, December 31, 2021																			Balance, December 31, 2021	119	$	2	$	2,260	$	7,649	$	(14)	$	(3,453)	$	39	$	6,483	$	79
Net income	Net income						505						19		524		3		Net income						355						16		371		2
Other comprehensive loss, net of taxes	Other comprehensive loss, net of taxes								(3)						(3)				Other comprehensive loss, net of taxes								(2)						(2)
Dividends declared	Dividends declared						(76)								(76)				Dividends declared						(78)								(78)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners												(20)		(20)		(2)		Distributions to noncontrolling interest partners												(17)		(17)		(3)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans				2						4				6				Issuance of common stock under benefit plans	1			(41)						48				7
Stock-based compensation expense	Stock-based compensation expense				21										21				Stock-based compensation expense				18										18
Exercise of stock options	Exercise of stock options	1			7						33				40				Exercise of stock options				(1)						11				10
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans																			Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(10)						(17)				(27)
Purchases of treasury stock																			Purchases of treasury stock	(3)									(350)				(350)

Balance, March 31, 2022																			Balance, March 31, 2022	117	$	2	$	2,226	$	7,926	$	(16)	$	(3,761)	$	38	$	6,415	$	78

Retirement of treasury stock					(649)		(3,342)				3,991				—
Balance, September 30, 2021		123	$	2	$	1,936	$	7,333	$	(13)	$	(2,866)	$	40	$	6,432	$	79

For the Nine Months Ended September 30, 2021			Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2020		133	$	2	$	2,841	$	9,303	$	(21)	$	(5,366)	$	50	$	6,809	$	82
Net income							1,605						53		1,658		9
Other comprehensive income, net of taxes									8						8
Dividends declared							(233)								(233)
Distributions to noncontrolling interest partners													(63)		(63)		(12)
Issuance of common stock under benefit plans					(25)						42				17
Stock-based compensation expense					60										60
Exercise of stock options		2			19						89				108
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans					(10)						(12)				(22)
Purchases of treasury stock		(12)			(300)						(1,610)				(1,910)
Retirement of treasury stock					(649)		(3,342)				3,991				—
Balance, September 30, 2021		123	$	2	$	1,936	$	7,333	$	(13)	$	(2,866)	$	40	$	6,432	$	79

The accompanying notes are an integral part of these statements.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in millions, unless otherwise indicated)

1. DESCRIPTION OF BUSINESS

Background

Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") empower people to take action to improve health outcomes. The Company uses its extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. The Company's diagnostic information services business ("DIS") provides information and insights based on an industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The Company provides services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers, consumers, and accountable care organizations ("ACOs"). The Company offers the broadest access in the United States to diagnostic information services through its nationwide network of laboratories, patient service centers and phlebotomists in physician offices and the Company's connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. The Company is the world's leading provider of diagnostic information services. The Company provides interpretive consultation with one of the largest medical and scientific staffs in the industry. The Company's Diagnostic Solutions businesses ("DS") are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s ~~2021~~2022 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, ~~2021~~2022 but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”).

The accounting policies of the Company are the same as those set forth in Note 2 to the audited consolidated financial statements contained in the Company’s ~~2021~~2022 Annual Report on Form 10-K.

The Company's testing volume and revenues have been materially impacted by the COVID-19 pandemic, including periods of significant demand for COVID-19 testing. As a result, operating results for the three and nine months ended September 30, 2022 may not be indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings Per Share

The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially

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~~(unaudited)~~

~~(in millions, unless otherwise indicated)~~

dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and outstanding stock options granted under its Amended and Restated Non-Employee Director Long-Term Incentive Plan, as well as the dilutive effect of accelerated share repurchase agreements, if applicable. Earnings allocable

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(unaudited)

(in millions, unless otherwise indicated)

to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.

New Accounting Standards to be Adopted

In March 2020, the Financial Accounting Standards Board issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The pronouncement iswas effective immediately and, due to an accounting update which the Financial Accounting Standards Board issued in December 2022, can be applied to contract modifications through December 31, ~~2022.~~2024. To the extent that, prior to December 31, ~~2022,~~2024, the Company enters into any contract modifications for which the optional expedients are applied, the adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

3. EARNINGS PER SHARE

The computation of basic and diluted earnings per common share was as follows (in millions, except per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Amounts attributable to Quest Diagnostics’ common stockholders:	Amounts attributable to Quest Diagnostics’ common stockholders:									Amounts attributable to Quest Diagnostics’ common stockholders:

Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$	256	$	505	$	845	$	1,605	Net income attributable to Quest Diagnostics	$	202	$	355
Less: Earnings allocated to participating securities	Less: Earnings allocated to participating securities	2		2		4		6		Less: Earnings allocated to participating securities	1		1
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$	254	$	503	$	841	$	1,599	Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$	201	$	354

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic	116		123		117		127		Weighted average common shares outstanding – basic	112		119
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Stock options and performance share units	Stock options and performance share units	2		2		2		2		Stock options and performance share units	1		2
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted	118		125		119		129		Weighted average common shares outstanding – diluted	113		121

Earnings per share attributable to Quest Diagnostics’ common stockholders:	Earnings per share attributable to Quest Diagnostics’ common stockholders:									Earnings per share attributable to Quest Diagnostics’ common stockholders:
Basic	Basic	$	2.20	$	4.11	$	7.17	$	12.63	Basic	$	1.80	$	2.97

Diluted	Diluted	$	2.17	$	4.02	$	7.05	$	12.41	Diluted	$	1.78	$	2.92

~~The following securities~~During both the three months ended March 31, 2023 and 2022, less than 1 million stock options and performance share units were not included in the calculation of diluted earnings per share due to their antidilutive ~~effect:~~effect.

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Stock options and performance share units 1 — — —

4. RESTRUCTURING ACTIVITIES

Invigorate Program

The Company is committed to a program called Invigorate which is designed to reduce its cost structure and improve performance. Invigorate consists of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, the Company identified key themes to change how it operates including reducing denials and patient price concessions; further digitizing the business; standardization; automation and artificial intelligence; optimization and selecting and retaining talent. The Invigorate program is intended to offset reimbursement pressures and labor and benefit cost increases; free up additional resources to invest in innovation and other growth initiatives; and enable the Company to improve service quality and operating profitability.

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(unaudited)

(in millions, unless otherwise indicated)

Restructuring Charges

The Company's pre-tax restructuring charges for the three months ended March 31, 2023 and 2022 were $15 million and $2 million, respectively, entirely related to employee separation costs associated with various workforce reduction initiatives as the Company continued to restructure its organization. Of the total restructuring charges incurred during the three months ended March 31, 2023, $9 million, and $6 million were recorded in cost of services and selling, general and administrative expenses, respectively. Of the total restructuring charges incurred during the three months ended March 31, 2022, $1 million and $1 million were recorded in cost of services and selling, general and administrative expenses, respectively.

~~The sum of basic and diluted earnings per share attributable to Quest Diagnostics' common stockholders~~Charges for ~~the first three quarters of 2021 did not equal the total for the nine months ended September 30, 2021 due to both quarterly fluctuations~~all periods presented were primarily recorded in the Company's ~~earnings~~DIS business.

The restructuring liability as of March 31, 2023 and December 31, 2022, which is included in ~~the weighted average common shares outstanding throughout the period as a result of the impact of share repurchases (see Note 9 for further details regarding the Company's share repurchases).~~ accounts payable and accrued expenses, was $38 million and $44 million, respectively.

4.5. BUSINESS ACQUISITIONS

On During February ~~1, 2022,~~2023, the Company ~~acquired Pack Health, LLC ("Pack Health"),~~announced that it had entered into a ~~patient engagement company that helps individuals adopt healthier behaviors~~definitive agreement to improve outcomes, in an all cash transaction for $123 million, net of $4 million cash acquired, which consisted of cash consideration of $105 million and contingent consideration initially estimated at $18 million. The contingent consideration arrangement is dependent upon the achievement of certain revenue benchmarks. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, theacquire select assets acquired and liabilities assumed consist of $96 million of goodwill (of which $78 million is tax-deductible), $30 million of intangible assets, $5 million of operating lease right-of-use assets, $5 million of operating lease liabilities and $(3) million of working capital. The intangible assets consist primarily of customer-related assets which are being amortized over a useful life of 15 years. For further details regarding the fair value of the ~~contingent consideration, see Note 6.~~

~~The acquisition was accounted for under the acquisition method~~laboratory services business of ~~accounting. As such, the assets acquired~~New York-Presbyterian, which serves providers and ~~liabilities assumed were recorded based on their estimated fair values~~patients in New York, as ~~of the closing date. Supplemental pro forma combined financial information has not been presented~~well as the ~~impact of the acquisition is not material to the Company's consolidated financial statements.~~Tri-State Area and beyond. The goodwill recorded primarily includes the expected synergies resulting from combining the operations of the acquired entity with those of the Company and the value associated with an assembled workforce and other intangible assets that do not qualifytransaction closed during April 2023. See Note 15 for ~~separate recognition. All of the goodwill acquired in connection with the acquisition has been allocated to the Company's DIS business. For~~ further ~~details regarding business segment information, see Note 12.~~

On December 13, 2021, the Company completed the acquisition of assets of Labtech Diagnostics, LLC ("Labtech"), an independent clinical diagnostic laboratory provider serving physicians and patients primarily in South Carolina, North Carolina, Florida and Georgia, and recorded the assets acquired and liabilities assumed based on a preliminary purchase price allocation. During the nine months ended September 30, 2022, the Company revised its purchase price allocation and recorded an $8 million increase to goodwill, a $3 million increase to customer-related intangible assets, a $1 million decrease to inventories and a $10 million increase to the estimated contingent consideration accrual. These adjustments did not have a material impact on the Company's consolidated results of operations. For further details regarding the fair value of the contingent consideration, see Note 6.discussion.

For details regarding the Company's ~~2021~~2022 acquisitions, see Note 56 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K.

~~5. DISPOSITION~~

~~On April 1, 2021, the Company sold its 40% ownership interest in Q~~2 ~~Solutions~~® ~~("Q~~2 Solutions"), its clinical trials central laboratory services joint venture, to IQVIA Holdings, Inc., its joint venture partner, for $760 million in an all-cash transaction. Prior to the transaction, the Company accounted for its minority interest as an equity method investment. As a result of the transaction, during the nine months ended September 30, 2021, the Company recorded a $314 million pre-tax gain in other (expense) income, net in the consolidated statement of operations based on the difference between the net sales proceeds and the carrying value of the investment, including $20 million of cumulative translation losses which were previously recorded in accumulated other comprehensive loss. During the nine months ended September 30, 2021, the Company also recorded $55 million of income tax expense related to the gain, consisting of $127 million of current income tax expense, partially offset by $72 million of deferred income tax benefit.

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~~(unaudited)~~

~~(in millions, unless otherwise indicated)~~

6. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:


				Basis of Fair Value Measurements									Basis of Fair Value Measurements

				Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs					Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2022		Total		Level 1		Level 2		Level 3
March 31, 2023										March 31, 2023	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:

Deferred compensation trading securities	Deferred compensation trading securities	$	63	$	63	$	—	$	—	Deferred compensation trading securities	$	70	$	70	$	—	$	—
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	43		—		43		—		Cash surrender value of life insurance policies	49		—		49		—
Equity investments		14		14		—		—

Available-for-sale debt securities										Available-for-sale debt securities	2		—		—		2

Total	Total	$	120	$	77	$	43	$	—	Total	$	121	$	70	$	49	$	2

Liabilities:	Liabilities:									Liabilities:
Deferred compensation liabilities	Deferred compensation liabilities	$	113	$	—	$	113	$	—	Deferred compensation liabilities	$	126	$	—	$	126	$	—

Contingent consideration	Contingent consideration	17		—		—		17		Contingent consideration	5		—		—		5

Total	Total	$	130	$	—	$	113	$	17	Total	$	131	$	—	$	126	$	5

Redeemable noncontrolling interest	Redeemable noncontrolling interest	$	77	$	—	$	—	$	77	Redeemable noncontrolling interest	$	77	$	—	$	—	$	77

Basis of Fair Value Measurements
December 31, 2021 Total Level 1 Level 2 Level 3
Assets:
Deferred compensation trading securities $ 77 $ 77 $ — $ —
Cash surrender value of life insurance policies 57 — 57 —
Equity investments 44 44 — —
Available-for-sale debt securities 1 — — 1
Total $ 179 $ 121 $ 57 $ 1
Liabilities:
Deferred compensation liabilities $ 143 $ — $ 143 $ —
Contingent consideration 5 — — 5
Total $ 148 $ — $ 143 $ 5
Redeemable noncontrolling interest $ 79 $ — $ — $ 79

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(unaudited)

(in millions, unless otherwise indicated)


			Basis of Fair Value Measurements
December 31, 2022	Total		Level 1		Level 2		Level 3
Assets:
Deferred compensation trading securities	$	68	$	68	$	—	$	—
Cash surrender value of life insurance policies	46		—		46		—

Available-for-sale debt securities	2		—		—		2



Total	$	116	$	68	$	46	$	2

Liabilities:
Deferred compensation liabilities	$	120	$	—	$	120	$	—

Contingent consideration	23		—		—		23



Total	$	143	$	—	$	120	$	23

Redeemable noncontrolling interest	$	77	$	—	$	—	$	77

A detailed description regarding the Company's fair value measurements is contained in Note 78 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K.

The Company offers certain employees the opportunity to participate in a non-qualified supplemental deferred compensation plan. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. The trading securities are classified within Level

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~~(unaudited)~~

~~(in millions, unless otherwise indicated)~~

1 of the fair value hierarchy because the changes in the fair value of these securities are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held, exclusive of any transaction costs. A corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the trading securities.

The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments. Deferrals under the plan currently may only be made by participants who made deferrals under the plan in 2017.

The Company's 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 prepaid expenses and other current assets in the Company's consolidated balance sheet. Such equity investments are classified within Level 1 of the fair value hierarchy because the changes in the fair values of the securities are measured using quoted prices in active markets based on the market price per share multiplied by the number of shares held, exclusive of any transaction costs.

~~The Company's~~ available-for-sale debt securities are measured at fair value using discounted cash flows. These fair value measurements are classified within Level 3 of the fair value hierarchy as the fair value is based on significant inputs that are not observable. Significant inputs include cash flows projections and a discount rate.

In connection with ~~the~~previous acquisitions, ~~of Pack Health and Labtech,~~ the Company ~~has~~had contingent consideration obligations ~~with a potential maximum aggregate payment of $40 million, that are to be paid~~ based on the achievement of certain testing volume orand revenue benchmarks. Contingent consideration accruals are measured at fair value using either an option-pricing method or a Monte Carlo method and are classified within Level 3 of the fair value hierarchy as the fair value is determined based on significant inputs that are not observable. Significant inputs include management’s estimate of volume or revenue and other market inputs, including comparable company revenue volatility (7.5%) and a discount rate (ranging from 2.5% to 3.0%).

~~For further details regarding the Company's acquisitions, see~~benchmarks during 2022. See Note 58 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form ~~10-K and Note 4.~~10-K.

The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):

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(unaudited)

(in millions, unless otherwise indicated)

Contingent Consideration

Balance, December 31, ~~2021~~2022

523

~~Purchases, additions and issuances~~

Settlements

~~(15)~~(18)

~~Total fair value adjustments included in earnings - realized/unrealized~~

~~(1)~~

Balance, ~~September 30, 2022~~March 31, 2023

175

The $1 million net gain included in earnings associated with the change in the fair value of contingent consideration for the nine months ended September 30, 2022 is reported in other operating income, net.

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~~(unaudited)~~

~~(in millions, unless otherwise indicated)~~

In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of ~~September 30, 2022,~~March 31, 2023, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long term growth rates, and a discount rate commensurate with economic risk.

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair value of the Company’s debt was estimated at ~~$3.6~~$3.8 billion and ~~$4.4~~$3.7 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.

7. ~~GOODWILL AND INTANGIBLE ASSETS~~DEBT

The Company is party to a $750 million senior unsecured revolving credit facility (the “Credit Facility” or "Senior Unsecured Revolving Credit Facility") which matures in November 2026. Under the Credit Facility, the Company can issue letters of credit totaling $150 million (see Note 11). Issued letters of credit reduce the available borrowing capacity under the Credit Facility. Interest on the Credit Facility is based on certain published rates plus an applicable margin based on changes in ~~goodwill for~~ the ~~nine months ended September 30, 2022 and for~~Company's public debt ratings. The Credit Facility was amended during March 2023. Subsequent to such amendment, at the ~~year ended December 31, 2021 were as follows:~~

September 30, 2022 December 31, 2021
Balance, beginning of period $ 7,095 $ 6,873
Goodwill acquired during the period 97 228
Adjustments to goodwill (2) (6)
Balance, end of period $ 7,190 $ 7,095

~~Principally all~~option of the ~~Company’s goodwill as~~Company, it may elect to lock into Term Secured Overnight Financing Rate (“Term SOFR”)-based interest rate contracts for periods up to six months. For interest on any U.S. Dollar-denominated outstanding amounts not covered under Term SOFR-based interest rate contracts, the Company can opt for an alternate base rate, which is calculated by reference to the prime rate, the federal funds rate or an adjusted Term SOFR rate. The Company also has the option to borrow in other currencies. As of ~~September 30, 2022~~March 31, 2023, the Company's borrowing rate for Term SOFR-based loans under the Credit Facility was adjusted Term SOFR plus 1.00%. The Credit Facility contains various covenants, including the maintenance of a financial leverage ratio, which could impact the Company's ability to, among other things, incur additional indebtedness. As of both March 31, 2023 and December 31, ~~2021 was associated with its DIS business.~~

~~For~~2022, there were no outstanding borrowings under the nine months ended September 30, 2022, goodwill acquired was principally associated with the acquisition of Pack Health, and adjustments to goodwill primarily related to foreign currency translation, largely offset by an adjustment of the purchase price allocation for Labtech (see Note 4). For the year ended December 31, 2021, goodwill acquired was principally associated with the acquisitions of the assets of the outreach laboratory services business of Mercy Health and the assets of Labtech (see Note 5 to the audited consolidated financial statements in the Company's 2021 Annual Report on Form 10-K), and adjustments to goodwill related to foreign currency translation.

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~~(unaudited)~~

~~(in millions, unless otherwise indicated)~~

~~Intangible assets as of September 30, 2022 and December 31, 2021 consisted of the following:~~

Weighted
Average
Amortization
Period
(in years) September 30, 2022 December 31, 2021
Cost Accumulated
Amortization Net Cost Accumulated
Amortization Net
Amortizing intangible assets:
Customer-related 17 $ 1,608 $ (796) $ 812 $ 1,581 $ (726) $ 855
Non-compete agreements 9 3 (3) — 3 (2) 1
Technology 15 137 (80) 57 141 (74) 67
Other 6 114 (104) 10 109 (101) 8
Total 17 1,862 (983) 879 1,834 (903) 931
Intangible assets not subject to amortization:
Trade names 235 — 235 235 — 235
Other 1 — 1 1 — 1
Total intangible assets $ 2,098 $ (983) $ 1,115 $ 2,070 $ (903) $ 1,167

~~The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2022 is as follows:~~

Year Ending December 31,
Remainder of 2022 $ 27
2023 105
2024 102
2025 100
2026 95
2027 84
Thereafter 366
Total $ 879
Senior Unsecured Revolving Credit Facility.

8. FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments, from time to time, to manage its exposure to market risks for changes in interest rates and foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, interest rate lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral.

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(unaudited)

(in millions, unless otherwise indicated)

Interest Rate Risk

The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and, from time to time, variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has historically entered into interest rate swap agreements.

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~~(in millions, unless otherwise indicated)~~

Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense, net.

Interest Rate Derivatives – Cash Flow Hedges

From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.

Interest Rate Derivatives – Fair Value Hedges

Historically, the Company has entered into various fixed-to-variable interest rate swap agreements in order to convert a portion of the Company's long-term debt into variable interest rate debt. All such fixed-to-variable interest rate swap agreements have been terminated and proceeds from the terminations have been reflected as basis adjustments to the hedged debt instruments and are being amortized as a reduction of interest expense, net over the remaining terms of such debt instruments.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:


		Hedge Accounting Basis Adjustment (a)					Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification	Balance Sheet Classification	September 30, 2022		December 31, 2021		Balance Sheet Classification		March 31, 2023		December 31, 2022
Long-term debt	Long-term debt	$	29	$	38	Long-term debt		$	23	$	26

(a) As of both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships.

A detailed description regarding the Company's use of derivative financial instruments is contained in Note 1516 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K.

9. STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

Stockholders' Equity

Changes in Accumulated Other Comprehensive Loss by Component

Comprehensive income (loss) includes:

•Foreign currency translation adjustments;

•Net deferred gains (losses) on cash flow hedges, which represent deferred gains (losses), net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 8); and

•Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities.

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(unaudited)

(in millions, unless otherwise indicated)

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the tax effects related to the deferred gains (losses) on cash flow hedges and net changes in available-for-sale debt securities were not material. Foreign currency translation adjustments related to indefinite investments in non-U.S. subsidiaries are not adjusted for income taxes.

Dividend Program

During the first quarter of 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.71 per common share. During each of the ~~first three~~four quarters of 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.66 per common share. ~~During each of the four quarters of 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.62 per common share.~~

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~~(in millions, unless otherwise indicated)~~

Share Repurchase Program

In February ~~2022,~~2023, the Company's Board of Directors increased the size of its share repurchase program by $1 billion. As of ~~September 30, 2022, $746 million~~March 31, 2023, $1.3 billion remained available under the Company’s share repurchase authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023, the Company repurchased no shares of its common stock.

For the three months ended March 31, 2022, the Company repurchased ~~7.1~~2.6 million shares of its common stock for ~~$950~~$350 million.

For the nine months ended September 30, 2021, the Company repurchased 12.5 million shares of its common stock for $1.6 billion, including 9.1 million shares repurchased under accelerated share repurchase agreements ("ASRs") as follows.

In April 2021, the Company entered into ASRs with several financial institutions to repurchase its common stock as part of its share repurchase program. Each of the ASRs was structured to permit the Company to purchase shares immediately with the final purchase price of those shares determined by the volume-weighted average price of the Company's common stock, less a fixed discount, during the repurchase period, which ended during the fourth quarter of 2021. For the nine months ended September 30, 2021, the Company paid $1.5 billion to the financial institutions and initially received 9.1 million shares of its common stock for a value of $1.2 billion, which represented 80% of the total value of shares to be repurchased under the ASRs based on the stock price at inception of the ASRs.

Shares Reissued from Treasury Stock

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company reissued ~~1.6~~0.7 million shares and ~~1.7~~0.5 million shares, respectively, from treasury stock under its Employee Stock Purchase Plan and its stock-based compensation program. For details regarding the Company's stock ownership and compensation plans, see Note 1718 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K.

~~Treasury Stock Retirement~~

During the three months ended September 30, 2021, the Company retired 55 million shares of treasury stock. In accordance with the Company's policy, the amount paid to repurchase the shares in excess of par value was allocated between retained earnings and additional paid-in capital based on a pro-rata allocation of additional paid-in capital at the time of the share retirement.

Redeemable Noncontrolling Interest

In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the redeemable noncontrolling interest was presented at its fair value. For further details regarding the fair value of the redeemable noncontrolling interest, see Note 6.

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10. SUPPLEMENTAL CASH FLOW AND OTHER DATA

Supplemental cash flow and other data for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Depreciation expense	Depreciation expense	$	81	$	76	$	240	$	225	Depreciation expense	$	81	$	79
Amortization expense	Amortization expense	27		25		81		77		Amortization expense	26		27
Depreciation and amortization expense	Depreciation and amortization expense	$	108	$	101	$	321	$	302	Depreciation and amortization expense	$	107	$	106

Interest expense	Interest expense	$	(37)	$	(38)	$	(112)	$	(114)	Interest expense	$	(37)	$	(37)
Interest income	Interest income	4		—		6		—		Interest income	2		—
Interest expense, net	Interest expense, net	$	(33)	$	(38)	$	(106)	$	(114)	Interest expense, net	$	(35)	$	(37)

Interest paid	Interest paid	$	32	$	33	$	110	$	111	Interest paid	$	32	$	32
Income taxes paid	Income taxes paid	$	5	$	187	$	187	$	522	Income taxes paid	$	33	$	23

Accounts payable associated with capital expenditures	Accounts payable associated with capital expenditures	$	30	$	24	$	30	$	24	Accounts payable associated with capital expenditures	$	22	$	22
Accounts payable associated with purchases of treasury stock		$	26	$	—	$	26	$	—

Dividends payable	Dividends payable	$	75	$	77	$	75	$	77	Dividends payable	$	80	$	78

Businesses acquired:	Businesses acquired:									Businesses acquired:
Fair value of assets acquired	Fair value of assets acquired	$	—	$	20	$	143	$	254	Fair value of assets acquired	$	31	$	142
Fair value of liabilities assumed	Fair value of liabilities assumed	—		—		15		3		Fair value of liabilities assumed	—		15
Fair value of net assets acquired	Fair value of net assets acquired	—		20		128		251		Fair value of net assets acquired	31		127
Merger consideration payable	Merger consideration payable	—		—		(18)		—		Merger consideration payable	—		(18)
Cash paid for business acquisitions	Cash paid for business acquisitions	—		20		110		251		Cash paid for business acquisitions	31		109
Less: Cash acquired	Less: Cash acquired	—		—		4		—		Less: Cash acquired	—		4
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	$	—	$	20	$	106	$	251	Business acquisitions, net of cash acquired	$	31	$	105

Leases:	Leases:									Leases:

Leased assets obtained in exchange for new operating lease liabilities	Leased assets obtained in exchange for new operating lease liabilities	$	49	$	46	$	133	$	115	Leased assets obtained in exchange for new operating lease liabilities	$	44	$	63

During the nine months ended September 30, 2022, the Company amended a real estate lease and, based on the updated terms, the classification of the lease changed from a finance lease to an operating lease. As a result, the Company recorded a $31 million operating lease right-of-use asset.

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~~(in millions, unless otherwise indicated)~~

11. COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company can issue letters of credit totaling $100 million under its ~~$600~~$525 million secured receivables credit facility and $150 million under its $750 million senior unsecured revolving credit facility. For further discussion regarding the Company's secured receivables credit facility and senior unsecured revolving credit facility, see Note 1314 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K and Note ~~15.~~7 above.

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In support of its risk management program, $70 million in letters of credit under the secured receivables credit facility were outstanding as of ~~September 30, 2022,~~March 31, 2023, providing collateral for current and future automobile liability and workers’ compensation loss payments.

Contingent Lease Obligations

The Company remains subject to contingent obligations under certain real estate leases for which no liability has been recorded. For further details, see Note 1819 to the audited consolidated financial statements in the Company’s ~~2021~~2022 Annual Report on Form 10-K.

Certain Legal Matters

The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.

401(k) Plan Lawsuit

In 2020, two putative class action lawsuits were filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In October 2020, the court consolidated the two lawsuits under the caption In re: Quest Diagnostics ERISA Litigation and plaintiffs filed a consolidated amended complaint. In May 2021, the court denied the Company's motion to dismiss the complaint. Discovery is proceeding.

AMCA Data Security Incident

On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws. The bankruptcy proceeding has been dismissed.

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~~(in millions, unless otherwise indicated)~~

Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases that were then still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint; the motion to dismiss was granted in part and denied in part. Plaintiffs filed an amended complaint, which the Company also moved to dismiss. The motion is pending. Plaintiffs also filed a motion to further amend the complaint. The Company opposed the motion. Discovery is proceeding.

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In addition, the Company has been notified that numerous state attorney general offices were investigating or otherwise seeking information and/or documents, and that certain U.S. senators were seeking information, from the Company related to the AMCA Data Security Incident.

ReproSource Fertility Diagnostics, Inc.

ReproSource Fertility Diagnostics, Inc. (“ReproSource”), a subsidiary of the Company, is subject to two putative class action lawsuits in the U.S. District Court for Massachusetts: Bickham v. ReproSource Fertility Diagnostics, Inc. and Gordon v. ReproSource Fertility Diagnostics, Inc. The class actions are related to a data security incident that occurred in August 2021 in which an unauthorized party may have accessed or acquired protected health information and personally identifiable information of ReproSource patients. The complaints generally allege that ReproSource, among other claims, failed to adequately safeguard customers’ private information. ~~ReproSource has~~The Company moved to dismiss both complaints. ~~In addition,~~A third putative class action pertaining to the same data security incident, Trouville v. ReproSource Fertility Diagnostics, Inc., was filed in California state court. The Company ~~had been notified~~removed the case to federal court and moved to dismiss and/or transfer it to U.S. District Court for Massachusetts.

Cole, et. al v. Quest Diagnostics Incorporated

The Company issubject to a putative class action entitled Cole, et al. v Quest Diagnostics Incorporated, which was filed in the U. S. District Court for the Eastern District of California, for allegedly conspiring with Facebook to track customers’ internet communications on Company web platforms without authorization, in violation of the California Invasion of Privacy Act and the California Confidentiality of Medical Information Act. The complaint alleged that the ~~Office~~Company’s actions were an invasion of ~~Civil Rights~~privacy and contributed to a loss of value in plaintiffs’ personally identifiable information.The Company moved to dismiss the case or, in the alternative, transfer venue to the U.S. ~~Department of Health and Human Services (“OCR”) and three state governmental authorities were investigating or otherwise seeking information and/or documents related~~District Court for New Jersey.Subsequently, plaintiffs filed an amended complaint. The Company filed a motion to dismiss the ~~incident. The OCR and one state investigation have been closed, and the other state investigations are inactive.~~amended complaint, which is pending.

Other Legal Matters

In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.

The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing or other practices based on the False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistleblowers" as to which the Company cannot determine the extent of any potential liability.

Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.

These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of September 30, 2022, the Company does not believe that material losses related to legal matters are probable.

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These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of March 31, 2023, the Company does not believe that material losses related to legal matters are probable.

Reserves for legal matters totaled $5$1 million and $4$2 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Reserves for General and Professional Liability Claims

As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims.

The Company is subject to a series of individual claims brought by persons in Ireland related to allegations stemming from pap smear screening services performed by the Company. In general, claimants have alleged that the results of certain pap smear screening tests performed by the Company and other providers, pursuant to a program coordinated by the Irish government, were incorrect for individuals who were later diagnosed with cervical cancer. The Irish government and an independent scoping inquiry commissioned by the Irish government found that the Company’s performance of its screening services for the Irish cervical cancer screening program were in accordance with both Ireland’s requirements and international standards. The Company has settled claims made by certain individuals, is a party in multiple lawsuits and may be served as a party in additional lawsuits. The Company does not believe that the resolution of existing or future claims will have a material adverse effect on its financial position or liquidity, but the ultimate outcomes of these claims are unpredictable and subject to significant uncertainties.

Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled ~~$162~~$168 million and ~~$159~~$169 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

While the basis for claims reserves is actuarially determined losses based upon the Company's historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of claims involves a high degree of judgment. Although the Company believes that its present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that the Company may incur liabilities in excess of its recorded reserves or insurance coverage. Changes in the facts and circumstances associated with claims could have a material impact on the Company’s results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.

12. BUSINESS SEGMENT INFORMATION

The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), assesses performance and allocates resources across the organization. The DIS business provides diagnostic information services to a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers, customers, and ACOs. The Company is the world's leading provider of diagnostic information services, which includes providing information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The DIS business accounted for greater than 95% of net revenues in ~~2022~~2023 and ~~2021.~~2022.

All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

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As of ~~September 30, 2022,~~March 31, 2023, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States.

The following table is a summary of segment information for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating

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earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s ~~2021~~2022 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net revenues:	Net revenues:									Net revenues:
DIS business	DIS business	$	2,419	$	2,703	$	7,344	$	7,820	DIS business	$	2,259	$	2,541
All other operating segments	All other operating segments	67		71		206		224		All other operating segments	72		70
Total net revenues	Total net revenues	$	2,486	$	2,774	$	7,550	$	8,044	Total net revenues	$	2,331	$	2,611

Operating earnings (loss):	Operating earnings (loss):									Operating earnings (loss):
DIS business	DIS business	$	441	$	713	$	1,445	$	2,026	DIS business	$	374	$	562
All other operating segments	All other operating segments	3		8		16		26		All other operating segments	8		7
General corporate activities	General corporate activities	(52)		(69)		(168)		(207)		General corporate activities	(77)		(56)
Total operating income	Total operating income	392		652		1,293		1,845		Total operating income	305		513
Non-operating (expense) income, net		(41)		2		(167)		252
Non-operating expense, net										Non-operating expense, net	(28)		(61)
Income before income taxes and equity in earnings of equity method investees	Income before income taxes and equity in earnings of equity method investees	351		654		1,126		2,097		Income before income taxes and equity in earnings of equity method investees	277		452
Income tax expense	Income tax expense	(81)		(153)		(268)		(483)		Income tax expense	(65)		(110)
Equity in earnings of equity method investees, net of taxes	Equity in earnings of equity method investees, net of taxes	6		26		41		53		Equity in earnings of equity method investees, net of taxes	5		31

Net income	Net income	276		527		899		1,667		Net income	217		373
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	20		22		54		62		Less: Net income attributable to noncontrolling interests	15		18
Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$	256	$	505	$	845	$	1,605	Net income attributable to Quest Diagnostics	$	202	$	355

~~Net~~The approximate percentage of net revenues by major service for the three months ended March 31, 2023 and 2022 were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

Routine clinical testing and other services	Routine clinical testing and other services	$	1,119	$	1,210	$	3,283	$	3,392	Routine clinical testing and other services	49	%	41	%
COVID-19 testing services	COVID-19 testing services	316		709		1,270		2,048		COVID-19 testing services	5		23
Gene-based and esoteric (including advanced diagnostics) testing services	Gene-based and esoteric (including advanced diagnostics) testing services	835		646		2,361		1,972		Gene-based and esoteric (including advanced diagnostics) testing services	37		28
Anatomic pathology testing services	Anatomic pathology testing services	149		138		430		408		Anatomic pathology testing services	6		5
All other	All other	67		71		206		224		All other	3		3
Total net revenues		$	2,486	$	2,774	$	7,550	$	8,044
Net revenues										Net revenues	100	%	100	%

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13. REVENUE RECOGNITION

DIS

Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when

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services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials), and patient price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.

For further details regarding revenue recognition in the Company's DIS business, see Note 3 to the audited consolidated financial statements in the Company's ~~2021~~2022 Annual Report on Form 10-K.

The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered.

Net Revenue and Net Accounts Receivable by Customer Type

The approximate percentage of net revenue by type of customer was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Healthcare insurers:	Healthcare insurers:										Healthcare insurers:
Fee-for-service	Fee-for-service	39	%	41	%	39	%	39	%		Fee-for-service	37	%	39	%
Capitated	Capitated	3		2		3		3			Capitated	3		2
Total healthcare insurers	Total healthcare insurers	42		43		42		42			Total healthcare insurers	40		41
Government payers	Government payers	11		10		11		10			Government payers	12		11
Client payers	Client payers	33		31		33		33			Client payers	33		32
Patients (including coinsurance and deductible responsibilities)	Patients (including coinsurance and deductible responsibilities)	11		13		11		12			Patients (including coinsurance and deductible responsibilities)	12		13
Total DIS	Total DIS	97		97		97		97			Total DIS	97		97
DS	DS	3		3		3		3			DS	3		3
Net revenues	Net revenues	100	%	100	%	100	%	100	%		Net revenues	100	%	100	%

The approximate percentage of net accounts receivable by type of customer was as follows:

September 30, 2022 December 31, 2021
Healthcare Insurers 28 % 32 %
Government Payers 6 6
Client Payers 43 38
Patients (including coinsurance and deductible responsibilities) 19 21
Total DIS 96 97
DS 4 3
Net accounts receivable 100 % 100 %

~~14. TAXES ON INCOME~~

For the nine months ended September 30, 2022 and 2021, the effective income tax rate was 23.8% and 23.1%, respectively. For the nine months ended September 30, 2021, the effective income tax rate benefited from a lower effective income tax rate, 17.6%, on the gain on the sale of the Company's 40% ownership interest in Q2 ~~Solutions (see Note 5). In~~

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~~addition,~~


	March 31, 2023		December 31, 2022

Healthcare Insurers	29	%	28	%
Government Payers	7		6
Client Payers	43		44
Patients (including coinsurance and deductible responsibilities)	17		18
Total DIS	96		96
DS	4		4
Net accounts receivable	100	%	100	%

14. TAXES ON INCOME

For the three months ended March 31, 2023 and 2022, the effective income tax rate was 23.6% and 24.4%, respectively. The effective income tax rates benefited from ~~$10 million and $15~~$5 million of excess tax benefits associated with stock-based compensation arrangements for both the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, respectively.~~2022.

15. SUBSEQUENT EVENTS

~~During October 2022,~~On April 17, 2023, the Company ~~amended its $600 million secured receivables credit facility~~completed the previously announced acquisition of select assets of the laboratory services business of New York-Presbyterian, which serves providers and patients in ~~order~~New York, as well as the Tri-State Area and beyond, in an all-cash transaction for $275 million. The acquisition will be accounted for as a business combination. The Company is in the process of completing the preliminary purchase price allocation of the assets acquired and liabilities assumed.

During April 2023, the Company announced that it had entered into a definitive agreement to ~~extend~~acquire Haystack Oncology, Inc., an early-stage oncology company focused on minimal residual disease testing to aid in the ~~maturity dates for each underlying commitment by one year while decreasing the aggregate borrowing capacity under the secured receivables credit facility to $525 million.~~early, accurate detection of residual or recurring cancer and better inform therapy decisions. Under the ~~amended secured receivables credit facility,~~terms of the agreement, the Company ~~can borrow against a $425~~would pay approximately $300 million ~~loan commitment, half~~in cash at closing, net of cash acquired. Additionally, it would pay up to $150 million of additional consideration, which ~~matures in October~~is contingent upon achieving future performance milestones and which is not expected to be paid during 2023. The transaction is expected to close during the second quarter of 2023 and ~~half~~remains subject to customary closing conditions.

The Company expects to fund the cash at closing for the acquisitions noted above through a combination of which matures in October 2024. Additionally, the Company can issue up to $100 million of letters of credit through October 2024. Borrowings under the secured receivables credit facility are collateralized by certain domestic receivables. Prior to the amendment, interestcash on hand and borrowings under the ~~secured receivables~~Company's existing credit facility was based on either commercial paper rates for highly-rated issuers or LIBOR, plus a spread. Subsequent to the amendment, interest on borrowings under the facility will be based on either commercial paper rates for highly-rated issuers or the Term Secured Overnight Financing Rate, plus a spread of 0.725% to 0.80%.facilities.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Company

Diagnostic Information Services

Quest Diagnostics empowers people to take action to improve health outcomes. We use our extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. Our diagnostic information services business ("DIS") provides information and insights based on an industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We provide services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers, consumers, and accountable care organizations ("ACOs"). We offer the broadest access in the United States to diagnostic information services through our nationwide network of laboratories, patient service centers and phlebotomists in physician offices and our connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. We are the world's leading provider of diagnostic information services. We provide interpretive consultation with one of the largest medical and scientific staffs in the industry. Our DIS business makes up greater than 95% of our consolidated net revenues.

We assess our revenue performance for the DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition. Each 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, 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

In our Diagnostic Solutions ("DS") businesses, which represent the balance of our consolidated net revenues, we offer a variety of solutions for life insurers and healthcare organizations and clinicians. We are the leading provider of risk assessment services for the life insurance industry. In addition, we offer healthcare organizations and clinicians robust information technology solutions.

~~Third~~

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First Quarter Highlights


		Three Months Ended September 30,		Three Months Ended March 31,
		2022	2021			2023	2022
		(dollars in millions, except per share data)		(dollars in millions, except per share data)

Net revenues	Net revenues	$2,486	$2,774		Net revenues	$2,331	$2,611
Base business revenues (a)	Base business revenues (a)	$2,170	$2,065		Base business revenues (a)	$2,212	$2,012
COVID-19 testing revenues	COVID-19 testing revenues	$316	$709		COVID-19 testing revenues	$119	$599

DIS revenues	DIS revenues	$2,419	$2,703		DIS revenues	$2,259	$2,541
Revenue per requisition change	Revenue per requisition change	(5.1)%	(5.4)%		Revenue per requisition change	(7.7)%	(5.2)%
Requisition volume change	Requisition volume change	(6.2)%	5.3%		Requisition volume change	(3.8)%	1.3%
Organic requisition volume change	Organic requisition volume change	(6.4)%	3.2%		Organic requisition volume change	(3.9)%	—%
DS revenues	DS revenues	$67	$71		DS revenues	$72	$70
Operating income					Operating income	$305	$513
Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$256	$505		Net income attributable to Quest Diagnostics	$202	$355
Diluted earnings per share	Diluted earnings per share	$2.17	$4.02		Diluted earnings per share	$1.78	$2.92
Net cash provided by operating activities	Net cash provided by operating activities	$502	$561		Net cash provided by operating activities	$94	$480
Capital expenditures					Capital expenditures	$127	$63

(a) Excludes COVID-19 testing.

~~Table of Contents~~

The impacts that the COVID-19 pandemic had on our DIS revenues, including requisition volume and revenue per requisition are discussed further below under ~~"Impact of COVID-19" and~~ "Results of Operations".

For further discussion of the year-over-year changes for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, see "Results of Operations" below.

~~Impact of COVID - 19~~

As a novel strain of coronavirus (COVID-19) continues to impact the economy of the United States and other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. We have made substantial investments to expand and maintain the amount of COVID-19 testing available to the country. We have been effectively managing challenges in the global supply chain; and, at this point, we have sufficient supplies to conduct our business.

Due to the COVID-19 pandemic, we have experienced significant volatility, including periods of material decline compared to prior year periods in testing volume in our base business (which excludes COVID-19 testing) and periods of significant demand for COVID-19 testing services, with demand generally fluctuating in line with changes in the prevalence of the virus and related variants. Additionally, compared to historical levels, our revenue per requisition has been positively impacted by COVID-19 molecular testing.

~~Acquisition of Pack Health, LLC ("Pack Health")~~

On February 1, 2022, we completed the acquisition of Pack Health, a patient engagement company that helps individuals adopt healthier behaviors to improve outcomes, in an all cash transaction for $123 million, net of $4 million cash acquired, which consisted of cash consideration of $105 million and contingent consideration initially estimated at $18 million. The contingent consideration arrangement is dependent upon the achievement of certain revenue benchmarks. The acquired business is included in our DIS business.

~~For further details, see Notes 4 and 6 to the interim unaudited consolidated financial statements.~~

Invigorate Program

We are engaged in a multi-year program called Invigorate, which is designed to reduce our cost structure and improve our performance. We currently aim annually to achieve savings and productivity improvements of approximately 3% of our costs, which we believe will help offset pressures from the current inflationary environment.

Invigorate has consisted of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, we have identified key themes to change how we operate including reducing denials and patient price concessions; further digitizing our business; ~~standardization~~standardization; automation and ~~automation;~~artificial intelligence; optimization and ~~optimization initiatives in our lab network~~selecting and ~~patient service center network.~~retaining talent. We believe that our efforts to standardize our information technology systems, equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility, empowering and enhancing the customer experience, facilitating the delivery of actionable insights and bolstering our large data platform.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we incurred ~~$32~~$19 million of pre-tax charges ~~under~~in connection with our Invigorate program and other restructuring activities, including $15 million of employee separation costs, with the remainder primarily consisting of systems conversion and integration ~~costs, all~~costs. Most of ~~which resulted~~the charges will result in cash expenditures. Additional restructuring 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 ~~2021~~2022 Annual Report on Form 10-K.

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Impact of New Accounting Standards

~~Table of Contents~~

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:


		Three Months Ended September 30,										Nine Months Ended September 30,											Three Months Ended March 31,
		2022			2021			$ Change		% Change		2022			2021			$ Change		% Change			2023			2022			$ Change		% Change
		(dollars in millions, except per share amounts)																					(dollars in millions, except per share amounts)
Net revenues:	Net revenues:																					Net revenues:
DIS business	DIS business	$	2,419		$	2,703		$	(284)	(10.5)	%	$	7,344		$	7,820		$	(476)	(6.1)	%	DIS business	$	2,259		$	2,541		$	(282)	(11.1)	%
DS businesses	DS businesses	67			71			(4)		(5.9)		206			224			(18)		(7.9)		DS businesses	72			70			2		2.3
Total net revenues	Total net revenues	$	2,486		$	2,774		$	(288)	(10.4)	%	$	7,550		$	8,044		$	(494)	(6.1)	%	Total net revenues	$	2,331		$	2,611		$	(280)	(10.7)	%

Operating costs and expenses and other operating income:	Operating costs and expenses and other operating income:																					Operating costs and expenses and other operating income:
Cost of services	Cost of services	$	1,618		$	1,670		$	(52)	(3.1)	%	$	4,875		$	4,861		$	14	0.3	%	Cost of services	$	1,560		$	1,646		$	(86)	(5.2)	%
Selling, general and administrative	Selling, general and administrative	464			427			37		8.5		1,311			1,263			48		3.8		Selling, general and administrative	439			425			14		3.3
Amortization of intangible assets	Amortization of intangible assets	27			25			2		4.3		81			77			4		3.4		Amortization of intangible assets	26			27			(1)		(1.3)

Other operating income, net		(15)			—			(15)		NM		(10)			(2)			(8)		NM
Other operating expense, net																						Other operating expense, net	1			—			1		NM
Total operating costs and expenses, net	Total operating costs and expenses, net	$	2,094		$	2,122		$	(28)	(1.4)	%	$	6,257		$	6,199		$	58	0.9	%	Total operating costs and expenses, net	$	2,026		$	2,098		$	(72)	(3.4)	%

Operating income	Operating income	$	392		$	652		$	(260)	(39.7)	%	$	1,293		$	1,845		$	(552)	(29.9)	%	Operating income	$	305		$	513		$	(208)	(40.6)	%

Other income (expense):	Other income (expense):																					Other income (expense):
Interest expense, net	Interest expense, net	$	(33)		$	(38)		$	5	(12.5)	%	$	(106)		$	(114)		$	8	(6.3)	%	Interest expense, net	$	(35)		$	(37)		$	2	(7.5)	%
Other (expense) income, net		(8)			40			(48)		NM		(61)			366			(427)		NM
Total non-operating (expense) income, net		$	(41)		$	2		$	(43)	NM		$	(167)		$	252		$	(419)	NM
Other income (expense), net																						Other income (expense), net	7			(24)			31		NM
Total non-operating expense, net																						Total non-operating expense, net	$	(28)		$	(61)		$	33	NM

Income tax expense	Income tax expense	$	(81)		$	(153)		$	72	(47.3)	%	$	(268)		$	(483)		$	215	(44.6)	%	Income tax expense	$	(65)		$	(110)		$	45	(40.6)	%

Effective income tax rate	Effective income tax rate	23.0		%	23.4		%					23.8		%	23.1		%					Effective income tax rate	23.6		%	24.4		%

Equity in earnings of equity method investees, net of taxes	Equity in earnings of equity method investees, net of taxes	$	6		$	26		$	(20)	(80.2)	%	$	41		$	53		$	(12)	(24.5)	%	Equity in earnings of equity method investees, net of taxes	$	5		$	31		$	(26)	(82.3)	%

Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$	256		$	505		$	(249)	(49.3)	%	$	845		$	1,605		$	(760)	(47.4)	%	Net income attributable to Quest Diagnostics	$	202		$	355		$	(153)	(43.0)	%

Diluted earnings per common share attributable to Quest Diagnostics' common stockholders	Diluted earnings per common share attributable to Quest Diagnostics' common stockholders	$	2.17		$	4.02		$	(1.85)	(46.0)	%	$	7.05		$	12.41		$	(5.36)	(43.2)	%	Diluted earnings per common share attributable to Quest Diagnostics' common stockholders	$	1.78		$	2.92		$	(1.14)	(39.0)	%

NM - Not Meaningful	NM - Not Meaningful																					NM - Not Meaningful

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net revenues:	Net revenues:									Net revenues:
DIS business	DIS business	97.3	%	97.4	%	97.3	%	97.2	%	DIS business	96.9	%	97.3	%
DS businesses	DS businesses	2.7		2.6		2.7		2.8		DS businesses	3.1		2.7
Total net revenues	Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%	Total net revenues	100.0	%	100.0	%

Operating costs and expenses and other operating income:	Operating costs and expenses and other operating income:									Operating costs and expenses and other operating income:
Cost of services	Cost of services	65.1	%	60.2	%	64.6	%	60.4	%	Cost of services	67.0	%	63.0	%
Selling, general and administrative	Selling, general and administrative	18.7		15.4		17.4		15.7		Selling, general and administrative	18.8		16.3
Amortization of intangible assets	Amortization of intangible assets	1.1		0.9		1.1		1.0		Amortization of intangible assets	1.1		1.0

Other operating income, net		(0.7)		—		(0.2)		—

Total operating costs and expenses, net	Total operating costs and expenses, net	84.2	%	76.5	%	82.9	%	77.1	%	Total operating costs and expenses, net	86.9	%	80.3	%

Operating income	Operating income	15.8	%	23.5	%	17.1	%	22.9	%	Operating income	13.1	%	19.7	%

Operating Results

Results for the three months ended ~~September 30, 2022~~March 31, 2023 were affected by certain items that on a net basis decreased diluted earnings per share by ~~$0.19~~$0.26 as follows:

•pre-tax amortization expense of ~~$27~~$26 million recorded in amortization of intangible assets or $0.17 per diluted share;

•pre-tax charges of ~~$13~~$19 million ($610 million in cost of services and $7$9 million in selling, general and administrative expenses), or ~~$0.08~~$0.12 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; and

•pre-tax charges of $2$3 million in ~~other (expense) income,~~equity in earnings of equity method investees, net of tax, or ~~$0.01~~$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 $5 million, or $0.05 per diluted share, recorded in income tax expense.

For the three months ended March 31, 2023, diluted earnings per share benefited from the impact of share repurchases during 2022 on our weighted average shares outstanding as compared to the prior year period.

Results for the three months ended March 31, 2022 were affected by certain items that on a net basis decreased diluted earnings per share by $0.30 as follows:

•pre-tax ~~gain~~amortization expense of $9$27 million recorded in amortization of intangible assets or $0.16 per diluted share;

•pre-tax charges of $16 million in other income (expense), net, or $0.10 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments;

•pre-tax charges of $12 million ($23 million ~~of charges~~ in cost of services and $5$9 million ~~of charges~~ in selling, general and administrative ~~expenses offset by $16 million of gains in other operating income, net)~~expenses), or ~~$0.06~~$0.07 per diluted share, primarily ~~representing a $10 million gain from a payroll tax credit under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act")~~ associated with ~~the retention~~systems conversions and integration incurred in connection with further restructuring and integrating our business; and

•pre-tax charges of ~~employees~~$2 million in selling, general and ~~a $7 million gain associated with the decrease in the fair value of the contingent consideration accrual associated with previous acquisitions, partially offset by $5 million of~~administrative, or $0.01 per diluted share, primarily representing costs associated with donations, contributions and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities); ~~and~~

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

~~Results for the nine months ended September 30, 2022 were affected by certain items that on a net basis decreased diluted earnings per share by $0.89 as follows:~~

•~~pre-tax amortization expense of $81 million recorded in amortization of intangible assets or $0.50 per diluted share;~~

•pre-tax charges of $39 million ($30 million in other (expense) income, net and $9 million in equity in earnings of equity method investees, net of taxes), or $0.24 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments;

•pre-tax charges of $37 million ($13 million in cost of services and $24 million in selling, general and administrative expenses), or $0.23 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; and

~~Table of Contents~~

•net pre-tax charges of $1 million ($2 million of charges in cost of services, and $9 million of charges in selling, general and administrative expenses largely offset by $10 million of gains in other operating income, net), or $0.00 per diluted share, primarily representing $9 million of costs associated with donations, contributions and other financial support through Quest for Health Equity offset by a $10 million gain from a payroll tax credit under the CARES Act associated with the retention of employees; partially offset by

•excess tax benefits associated with stock-based compensation arrangements of ~~$10 million, or $0.08 per diluted share, recorded in income tax expense.~~

For the three and nine months ended September 30, 2022, diluted earnings per share benefited from the impact of share repurchases, including under accelerated share repurchase agreements ("ASRs") entered into in April 2021 to repurchase $1.5 billion of our common stock, on our weighted average shares outstanding as compared to the prior year periods.

~~Results for the three months ended September 30, 2021 were affected by certain items that on a net basis increased diluted earnings per share by $0.06 as follows:~~

•a net pre-tax gain of $45 million (a $42 million gain recorded in other (expense) income, net and a $3 million gain recorded in equity in earnings of equity method investees, net of taxes), or $0.26 per diluted share, primarily due to gains associated with changes in the carrying value of our strategic investments; and

•~~excess tax benefits associated with stock-based compensation arrangements of $6~~$5 million, or $0.04 per diluted share, recorded in income tax ~~expense; partially offset by~~

•~~pre-tax amortization expense of $25 million, or $0.15 per diluted share;~~

•pre-tax charges of $13 million ($7 million in cost of services and $6 million in selling, general and administrative expenses), or $0.08 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; and

•pre-tax charges of $4 million in selling, general and administrative expenses, or $0.01 per diluted share, primarily due to costs associated with donations, contributions and other financial support through Quest for Health Equity.

~~Results for the nine months ended September 30, 2021 were affected by certain items that on a net basis increased diluted earnings per share by $1.50 as follows:~~

•~~a pre-tax gain recorded in other (expense) income, net of $314 million, or $2.00 per diluted share, on the sale of our 40% ownership interest in Q~~2 ~~Solutions~~® ~~("Q~~2 Solutions"), our clinical trials central laboratory services joint venture, to IQVIA Holdings, Inc. ("IQVIA"), our joint venture partner (see Note 5 to the interim unaudited consolidated financial statements);

•a net pre-tax gain of $37 million (a $42 million gain recorded in other (expense) income, net, partially offset by $5 million of net charges recorded in equity in earnings of equity method investees), or $0.22 per diluted share, primarily due to gains associated with changes in the carrying value of our strategic investments, partially offset by a non-cash impairment charge to the carrying value of an equity method investment; and

•~~excess tax benefits associated with stock-based compensation arrangements of $15 million, or $0.11 per diluted share, recorded in income tax expense; partially offset by~~

•~~pre-tax amortization expense of $79 million ($77 million in amortization of intangible assets and $2 million in equity in earnings of equity method investees, net of taxes) or $0.46 per diluted share;~~

•pre-tax charges of $51 million ($26 million in cost of services and $25 million in selling, general and administrative expenses), or $0.30 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

•pre-tax charges of $9 million in selling, general and administrative expenses, or $0.04 per diluted share, primarily due to costs associated with donations, contributions and other financial support through Quest for Health Equity; and

•pre-tax charges of $4 million in cost of services, or $0.03 per diluted share, representing 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.expense.

Net Revenues

Net revenues for the three months ended ~~September 30, 2022~~March 31, 2023 decreased by ~~10.4% compared to the prior year period.~~

~~DIS revenues for the three months ended September 30, 2022 decreased by 10.5%~~10.7% compared to the prior year period.

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DIS revenues for the three months ended March 31, 2023 decreased by 11.1% compared to the prior year period.

For the three months ended ~~September 30, 2022:~~March 31, 2023:

•The decrease in revenue compared to the prior year period was driven by a decrease in COVID-19 testing, partially offset by growth in the base business (which excludes COVID-19 testing) and, to a lesser extent, the impact of recent acquisitions. For the three months ended ~~September 30, 2022,~~March 31, 2023, recent acquisitions contributed approximately ~~0.5%~~0.2% to DIS revenues.

•DIS volume decreased by ~~6.2%~~3.8% compared to the prior year period driven by a decrease in COVID-19 testing, partially offset by growth in the base business and the impact of recent acquisitions, which contributed approximately ~~0.2%~~0.1% to DIS volume.

•Revenue per requisition decreased by ~~5.1%~~7.7% compared to the prior year period driven ~~in large part~~ by the decrease in COVID-19 molecular ~~testing, and unit price pressure of approximately 0.5%, partially offset by favorable test mix.~~testing.

•Revenues in the base business (including the impact of recent acquisitions) increased by ~~5.4%~~10.3% compared to the prior year period.

•Testing volume in the base business (including the impact of recent acquisitions) was up ~~1.6%~~7.9% compared to the prior year period. We believe that our base testing volume was negatively impacted in the first quarter of 2022 by the surge in COVID-19 associated with the spread of the Omicron variant. We estimate that the recovery of our base testing volumes due to the easier compare accounted for approximately 4% of our total base testing volume growth during the first quarter of 2023.

•Revenue per requisition in the base business increased by ~~3.3%~~2.3% compared to the prior year period ~~primarily~~principally due to ~~favorable~~an increase in the number of tests per requisition and changes in test mix and payer mix.

DS revenues for the three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased by ~~5.9%~~2.3% compared to the prior year period primarily due to ~~lower~~higher revenues associated with our risk assessment services offered to the life insurance industry.

~~Net revenues for the nine months ended September 30, 2022 decreased by 6.1% compared to the prior year period.~~

~~DIS revenues for the nine months ended September 30, 2022 decreased by 6.1% compared to the prior year period.~~

~~For the nine months ended September 30, 2022:~~

•The decrease in revenue compared to the prior year period was driven by a decrease in COVID-19 testing, partially offset by growth in the base business and the impact of recent acquisitions. For the nine months ended September 30, 2022, recent acquisitions contributed approximately 0.9% to DIS revenues.

•DIS volume decreased by 2.2% compared to the prior year period driven by a decrease in COVID-19 testing, partially offset by growth in the base business and the impact of recent acquisitions, which contributed approximately 0.8% to DIS volume.

•Revenue per requisition decreased by 4.3% compared to the prior year period driven in large part by the decrease in COVID-19 molecular testing and unit price pressure of approximately 0.5%, partially offset by favorable test mix.

•~~Revenues in the base business (including the impact of recent acquisitions) increased by 5.2% compared to the prior year period.~~

•~~Testing volume in the base business (including the impact of recent acquisitions) was up 3.1% compared to the prior year period.~~

•~~Revenue per requisition in the base business increased by 1.7% compared to the prior year period primarily due to favorable test mix.~~

DS revenues for the nine months ended September 30, 2022 decreased by 7.9% compared to the prior year period primarily due to lower revenues associated with our risk assessment services offered to the life insurance industry.

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 ~~September 30, 2022,~~March 31, 2023, cost of services decreased by ~~$52~~$86 million compared to the prior year period. The decrease was primarily driven by lower ~~expense~~supplies and collection expenses associated with reduced COVID-19 testing volumes, ~~and $20 million of expense in the prior year period associated with a payment to eligible employees to help offset expenses they incurred as a result of COVID-19. These decreases were~~ partially offset by higher compensation and benefits costs (primarily related to wage increases).

~~Table of Contents~~

For the nine months ended September 30, 2022, cost of services increased by $14 million compared to the prior year period. The increase was primarily driven by higher compensation and benefits costs (primarily related to wage increases), and additional costs associated with our acquisitions. These increases were partially offset by lower supplies expense associated with reduced COVID-19 testing volumes.

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 increased by ~~$37~~$14 million for the three months ended ~~September 30, 2022,~~March 31, 2023 compared to the prior year period primarily due to ~~additional costs associated with investments in our strategic growth initiatives and~~ higher ~~compensation and benefits costs (including headcount and wage increases).~~

SG&A increased by $48 million for the nine months ended September 30, 2022, compared to the prior year period, primarily driven by additional costs associated with investments in our strategic growth initiatives and higher compensation and benefits costs (including headcount and wage increases), partially offset by $42 million of lower costs associated with changes in the value of our deferred compensation obligations.

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 (expense) ~~income,~~, net. For further details regarding our deferred compensation plans, see Note 1718 to the audited consolidated financial statements included in our ~~2021~~2022 Annual Report on Form 10-K.

Amortization Expense

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, amortization expense ~~increased by $2 million and $4 million, respectively, compared to~~was principally consistent with the prior year ~~periods as a result of recent acquisitions.~~

~~Other Operating Income, Net~~

period.

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

For both the three and nine months ended September 30, 2022, other operating income, net includes a $10 million gain from a payroll tax credit under the CARES Act associated with the retention of employees. The three months ended September 30, 2022 also includes a gain associated with the decrease in the fair value of the contingent consideration accrual associated with previous acquisitions.

Interest Expense, Net

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, interest expense, net decreased by $5$2 million ~~and $8 million, respectively,~~ compared to the prior year ~~periods~~period due to increased interest income resulting from the impact of rising interest rates on our cash and cash equivalents.

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Other Income (Expense) ~~Income,~~, Net

Other income (expense) ~~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 months ended ~~September 30, 2022,~~March 31, 2023, other income (expense) ~~income,~~, net included $6$7 million of ~~losses~~gains associated with investments in our deferred compensation plans.

For the three months ended ~~September 30, 2021,~~March 31, 2022, other income (expense) ~~income,~~, net included ~~$42 million of gains associated with changes in the carrying value of our strategic investments.~~

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~~For the nine months ended September 30, 2022, other (expense) income, net included $31 million of losses associated with investments in our deferred compensation plans and $30~~$16 million of losses associated with changes in the carrying value of our strategic ~~investments.~~

~~For the nine months ended September 30, 2021, other (expense) income, net primarily included a $314 million pre-tax gain on the sale of our 40% ownership interest in Q~~2 ~~Solutions, our clinical trials central laboratory services joint venture, to IQVIA, our joint venture partner (see Note 5 to the interim unaudited consolidated financial statements)~~investments and ~~$42~~$8 million of ~~gains~~losses associated with ~~changes~~investments in ~~the carrying value of~~ our ~~strategic investments.~~deferred compensation plans.

Income Tax Expense

Income tax expense for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$81~~$65 million and ~~$153~~$110 million, respectively. The decrease in income tax expense for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the prior year period was primarily driven by a decrease in income before income taxes and equity in earnings of equity method investees.

~~Income tax expense for the nine months ended September 30, 2022 and 2021 was $268 million and $483 million, respectively.~~ The decrease in income tax expense for the nine months ended September 30, 2022 compared to the prior year period was primarily driven by a decrease in income before income taxes and equity in earnings of equity method investees.

~~For the nine months ended September 30, 2022 and 2021, the~~ effective income tax ~~rate was 23.8%~~rates for the three months ended March 31, 2023 and ~~23.1%~~2022 were 23.6% and 24.4%, respectively. ~~For the nine months ended September 30, 2021, the~~The effective income tax rate benefited from ~~a lower effective income tax rate, 17.6%, on the gain on the sale of the Company's 40% ownership interest in Q~~2 ~~Solutions. In addition, the effective income tax rate benefited from $10 million and $15~~$5 million of excess tax benefits associated with stock-based compensation arrangements for both the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, respectively.~~2022.

Equity in Earnings of Equity Method Investees, Net of Taxes

Equity in earnings of equity method investees, net of taxes decreased for the three months ended ~~September 30, 2022~~March 31, 2023 by ~~$20~~$26 million compared to the prior year period primarily due to lower demand for COVID-19 testing services at our diagnostic information services joint venture.

Equity in earnings of equity method investees, net of taxes decreased for the nine months ended September 30, 2022 by $12 million compared to the prior year period primarily due to $14 million of lower equity earnings in the current year period associated with changes in the carrying value of strategic investments of an equity method investee and lower demand for COVID-19 testing services at our diagnostic information services joint venture, partially offset by a non-cash impairment to the carrying value of an equity method investment of $8 million in the prior year period.

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair value of our debt was estimated at approximately ~~$3.6~~$3.8 billion and ~~$4.4~~$3.7 billion, respectively, principally using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the estimated fair value ~~(was~~was less ~~than) exceeded~~than the carrying value of the debt by ~~$(354)~~$215 million and ~~$403~~$318 million, respectively. A hypothetical 10% increase in interest rates (representing 5249 basis points as of ~~September 30, 2022~~March 31, 2023 and 2351 basis points as of December 31, ~~2021)~~2022) would potentially reduce the estimated fair value of our debt by approximately ~~$124~~$114 million and ~~$89~~$120 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates. As of ~~September 30, 2022,~~March 31, 2023, interest on our secured receivables credit facility is based on either commercial paper rates for highly rated issuers, or ~~London Interbank Offered~~the Term Secured Overnight Financing Rate ("~~LIBOR"~~Term SOFR"), plus a spread. As of

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~~September 30, 2022,~~ March 31, 2023, 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 ~~September 30, 2022,~~March 31, 2023, the borrowing rates under these debt instruments were: for our secured receivables credit facility, commercial paper rates for highly-rated issuers or ~~LIBOR,~~adjusted Term SOFR, plus a spread of 0.725% to 0.80%; and for our senior unsecured revolving credit facility, ~~LIBOR~~adjusted Term SOFR, plus 1.00%. As of ~~September 30, 2022,~~March 31, 2023, there were no borrowings outstanding under either ~~our $600 million secured receivables credit facility or our $750 million senior unsecured revolving~~ credit facility. During October 2022, we amended the secured receivables credit facility and, subsequent to the amendment, borrowing rates are based on commercial paper rates for highly rated issuers, or the Term Secured Overnight Financing Rate ("Term SOFR"), plus a spread of 0.725% to 0.80%. In conjunction with the amendment we decreased the aggregate borrowing capacity to $525 million.

A hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change our annual interest expense.

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For further details regarding our outstanding debt, see Note 157 to the interim unaudited consolidated financial statements and Note 1314 to the audited consolidated financial statements included in our ~~2021~~2022 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 1516 to the audited consolidated financial statements included in our ~~2021~~2022 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 prepaid expenses and other current assets 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 $4 million as of ~~September 30, 2022.~~March 31, 2023. In conjunction with the preparation of our March 31, 2023 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. As of September 30, 2022, a 10% change in the fair values of our equity investments with readily determinable fair values would have impacted our consolidated income before income taxes and equity in earnings of equity method investees by $1 million. 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.

In conjunction with the preparation of our September 30, 2022 financial statements, we considered whether the carrying values of our investments were impaired and concluded that no such impairment existed.

Liquidity and Capital Resources


		Nine Months Ended September 30,							Three Months Ended March 31,
		2022		2021		Change			2023		2022		Change
		(dollars in millions)							(dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,384	$	1,752	$	(368)	Net cash provided by operating activities	$	94	$	480	$	(386)
Net cash (used in) provided by investing activities		(369)		248		(617)
Net cash used in investing activities								Net cash used in investing activities	(158)		(169)		11
Net cash used in financing activities	Net cash used in financing activities	(1,187)		(2,171)		984		Net cash used in financing activities	(76)		(471)		395
Net change in cash and cash equivalents and restricted cash	Net change in cash and cash equivalents and restricted cash	$	(172)	$	(171)	$	(1)	Net change in cash and cash equivalents and restricted cash	$	(140)	$	(160)	$	20

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 ~~September 30, 2022~~March 31, 2023 totaled ~~$700~~$175 million, compared to ~~$872~~$315 million as of December 31, ~~2021.~~2022.

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As of ~~September 30, 2022,~~March 31, 2023, approximately 5%20% of our ~~$700~~$175 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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$1,384~~$94 million and ~~$1,752~~$480 million, respectively. The ~~$368~~$386 million decrease in net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to the prior year period, was primarily a result of:

•lower operating income in ~~2022~~2023 as compared to ~~2021;~~2022; and

•higher payments associated with an additional payroll cycle in ~~2022~~2023 as compared to ~~2021; partially offset by~~

•~~a $335 million decrease in income tax payments in 2022 as compared to 2021.~~2022.

Days sales outstanding, a measure of billing and collection efficiency, was 47 days as of ~~September 30, 2022, 48~~March 31, 2023, 47 days as of December 31, ~~2021~~2022 and 4749 days as of ~~September 30, 2021.~~March 31, 2022.

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Cash Flows from Investing Activities

Net cash ~~(used in) provided by~~used in investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$(369)~~$158 million and ~~$248~~$169 million, respectively. This ~~$617~~$11 million ~~change~~decrease in net cash ~~(used in) provided by~~used in investing activities for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to the prior year period, was primarily a result of ~~$755 million of net~~less cash ~~proceeds received in 2021 from the sale of our 40% ownership interest in Q~~2 ~~Solutions, partially~~used for business acquisitions, principally offset by ~~a $145 million decrease in net cash paid for business acquisitions.~~increased capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$1,187~~$76 million and ~~$2,171~~$471 million, respectively. This ~~$984~~$395 million decrease in net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to the prior year period, was primarily a result of a ~~$963~~$373 million decrease in repurchases of our common ~~stock.~~stock and, to a lesser extent, increased proceeds from stock option exercises.

During the three months ended March 31, 2023, we borrowed $140 million under our secured receivables credit facility, which was repaid prior to March 31, 2023,and there were no borrowings or repayments under our senior unsecured revolving credit facility.

During ~~both~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2022, ~~and 2021,~~ there were no borrowings or repayments under our secured receivables credit facility or senior unsecured revolving credit facility.

Dividend Program

During the first quarter of 2023, our Board of Directors declared a quarterly cash dividend of $0.71 per common share. During each of the ~~three~~four quarters of 2022, our Board of Directors declared a quarterly cash dividend of $0.66 per common share. ~~During each of the four quarters of 2021, our Board of Directors declared a quarterly cash dividend of $0.62 per common share.~~

Share Repurchase Program

In February ~~2022,~~2023, our Board of Directors increased the size of our share repurchase program by $1 billion. As of ~~September 30, 2022, $746 million~~March 31, 2023, $1.3 billion remained available under our share repurchase authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023, we repurchased no shares of our common stock.

For the three months ended March 31, 2022, we repurchased ~~7.1~~2.6 million shares of our common stock for ~~$950~~$350 million.

~~For the nine months ended September 30, 2021, we repurchased 12.5 million shares of our common stock for $1.6 billion, including 9.1 million shares repurchased under ASRs.~~

~~For further details regarding our share repurchases, see Note 9 to the interim unaudited consolidated financial statements.~~

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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 ~~September 30, 2022~~March 31, 2023 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 $400 million during ~~2022~~2023 for capital expenditures, to support and grow our existing operations, principally related to investments in ~~information technology,~~ laboratory equipment and facilities, including laboratory automations and ~~footprint optimization;~~information technology to support our diagnostic offerings.

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During April 2023, we completed the previously announced acquisition of select assets of the laboratory services business of New York-Presbyterian in an all-cash transaction for $275 million. Additionally, during April 2023, we announced that we had entered into a definitive agreement to acquire Haystack Oncology, Inc. Under the terms of the agreement, we would pay approximately $300 million in cash at closing (net of cash acquired), which is expected to occur during the second quarter of 2023. Additionally, we would pay up to $150 million of additional consideration, which is contingent upon achieving future performance milestones and inwhich is not expected to be paid during 2023. We expect to fund the cash at closing for the acquisitions noted above through a combination of cash on hand and borrowings under our ~~advanced diagnostics and consumer growth strategies.~~existing credit facilities. See Note 15 to the interim unaudited consolidated financial statements for further details.

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.3~~$1.2 billion of borrowing capacity available under our existing credit facilities, including ~~$530~~$455 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. There were no borrowings under these credit facilities as of ~~September 30, 2022.~~March 31, 2023. In support of our risk management program, $70 million in letters of credit under the secured receivables credit facility were outstanding as of September 30, 2022. During October 2022, we amended our secured receivables credit facility and decreased the aggregate borrowing capacity under the secured receivables credit facility to $525 million. The amended secured receivables credit facility includes a $425 million loan commitment, half of which matures in October 2023 and half of which matures in October 2024. Additionally, the amended secured receivables credit facility includes a $100 million letter of credit facility which matures in October 2024. The senior unsecured revolving credit facility matures in November 2026.March 31, 2023. For further details regarding our credit facilities, see Note 137 to the interim unaudited consolidated financial statements and Note 14 to the audited consolidated financial statements in our ~~2021~~2022 Annual Report on Form ~~10-K and Note 15 to the interim unaudited consolidated financial statements.~~10-K.

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 ~~September 30, 2022,~~March 31, 2023, we were in compliance with all such applicable financial covenants.

We have assessed the impact of the cessation of LIBOR and have identified and evaluated financial instruments and other contracts that refer to LIBOR. Our underlying exposure to LIBOR includes our senior unsecured revolving credit facility (see discussion above) under which we had no outstanding borrowings as of September 30, 2022. During October 2022, we amended our secured receivables credit facility and, subsequent to the amendment, borrowing rates are based on commercial paper rates for highly rated issuers, or the Term SOFR, plus a spread of 0.725% to 0.80%. We expect to be able to transition all LIBOR based instruments and contracts to an alternative reference rate on or before the cessation of LIBOR and we do not believe that the cessation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on us.

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 growth opportunities 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” 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, ~~impacts of the COVID-19 pandemic and measures taken in response,~~ 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 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

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 ~~third~~first quarter of ~~2022,~~2023, 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

Item 1. Legal Proceedings

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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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 ~~third~~first quarter of ~~2022.~~2023.


ISSUER PURCHASES OF EQUITY SECURITIES	ISSUER PURCHASES OF EQUITY SECURITIES							ISSUER PURCHASES OF EQUITY SECURITIES
Period	Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)		Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
July 1, 2022 – July 31, 2022
January 1, 2023 – January 31, 2023								January 1, 2023 – January 31, 2023
Share Repurchase Program (A)	Share Repurchase Program (A)	223,663	$	134.13	223,663	$	1,115,906	Share Repurchase Program (A)	—	$	—	—	$	1,310,909
Employee Transactions (B)	Employee Transactions (B)	—	$	—	N/A	N/A		Employee Transactions (B)	886	$	145.90	N/A	N/A
August 1, 2022 – August 31, 2022
February 1, 2023 - February 28, 2023								February 1, 2023 - February 28, 2023
Share Repurchase Program (A)	Share Repurchase Program (A)	1,235,212	$	134.98	1,235,212	$	949,174	Share Repurchase Program (A)	—	$	—	—	$	1,310,909
Employee Transactions (B)	Employee Transactions (B)	1,321	$	139.95	N/A	N/A		Employee Transactions (B)	47,978	$	147.80	N/A	N/A
September 1, 2022 – September 30, 2022
March 1, 2023 – March 31, 2023								March 1, 2023 – March 31, 2023
Share Repurchase Program (A)	Share Repurchase Program (A)	1,625,739	$	125.03	1,625,739	$	745,908	Share Repurchase Program (A)	—	$	—	—	$	1,310,909
Employee Transactions (B)	Employee Transactions (B)	—	$	—	N/A	N/A		Employee Transactions (B)	138,048	$	145.93	N/A	N/A
Total	Total							Total
Share Repurchase Program (A)	Share Repurchase Program (A)	3,084,614	$	129.68	3,084,614	$	745,908	Share Repurchase Program (A)	—	$	—	—	$	1,310,909
Employee Transactions (B)	Employee Transactions (B)	1,321	$	139.95	N/A	N/A		Employee Transactions (B)	186,912	$	146.41	N/A	N/A

(A)In February ~~2022,~~2023, our Board of Directors increased the size of our share repurchase program by $1 billion. Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized ~~$12~~$13 billion of share repurchases of our common stock through ~~September 30, 2022.~~March 31, 2023. 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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Item 6.Exhibits

Exhibits:


~~3.1~~			~~Restated Certificate of Incorporation~~

~~10.1~~			~~Amended and Restated Quest Diagnostics Incorporated Executive Officer Severance Plan as amended July 25, 2022~~

22			Subsidiary Guarantors of Securities

31.1			Rule 13a-14(a) Certification of Chief Executive Officer

31.2			Rule 13a-14(a) Certification of Chief Financial Officer

32.1			Section 1350 Certification of Chief Executive Officer

32.2			Section 1350 Certification of Chief Financial Officer

99.1			Amendment No. 1, dated as of March 31, 2023, relating to the Third Amended and Restated Credit Agreement, dated as of November 23, 2021, among Quest Diagnostics Incorporated, as Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and other agents party thereto and which includes, as Exhibit A, the Third Amended and Restated Credit Agreement

101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH			Inline XBRL Taxonomy Extension Schema Document - ~~dgx-20220930.xsd~~dgx-20230331.xsd

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document - ~~dgx-20220930_cal.xml~~dgx-20230331_cal.xml

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document - ~~dgx-20220930_def.xml~~dgx-20230331_def.xml

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document - ~~dgx-20220930_lab.xml~~dgx-20230331_lab.xml

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document - ~~dgx-20220930_pre.xml~~dgx-20230331_pre.xml

104			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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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.

~~October 21, 2022~~April 28, 2023

Quest Diagnostics Incorporated


By			/s/ ~~Stephen H. Rusckowski~~James E. Davis
			~~Stephen H. Rusckowski~~James E. Davis
			Chairman, Chief Executive Officer
			and President


By			/s/ Sam A. Samad
			Sam A. Samad
			Executive Vice President and
			Chief Financial Officer

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	September 30, 2022		December 31, 2021
Balance, beginning of period	$	7,095	$	6,873
Goodwill acquired during the period	97		228
Adjustments to goodwill	(2)		(6)



Balance, end of period	$	7,190	$	7,095


Year Ending December 31,
Remainder of 2022	$	27
2023	105
2024	102
2025	100
2026	95
2027	84
Thereafter	366
Total	$	879