01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (LabCorp) reported net revenues of $9.44 billiona for 2016, up 11.0% from $8.51 billion in 2015, driven mainly by the full-year inclusion of Covance and solid organic growth and acquisitions, partly offset by foreign currency translation.
Net earnings attributable to the company were $732.1 millionb, or $7.02 diluted earnings per share, compared with $437.6 million, or $4.35 per diluted share, in 2015. Operating income rose to $1.31 billion from $996.8 million, while restructuring and other special charges fell to $58.4 million from $113.9 million. The company operates two segments: LabCorp Diagnostics (LCD), which generated $6.59 billion (69.9% of net revenues), and Covance Drug Development (CDD), which generated $2.84 billion (30.1%).
LCD's net revenue grew 6.4%, with acquisitions adding 2.5% and revenue per requisition adding 2.7%. CDD's revenue rose 23.3%, reflecting a full year of Covance results versus roughly ten months in 2015. Operating cash flow increased to $1.18 billionc from $982.4 million, and capital expenditures were $278.9 million.
Balance sheet and capital allocation remain central to the investment case. Senior notes outstanding totaled about $5.2 billiond in principal and the term loan stood at $565.0 million at year-end 2016, with the company stating it is committed to maintaining an investment grade rating (Baa2/BBB).
The company resumed share repurchases in the fourth quarter of 2016, buying 0.3 million shares for $43.9 million, and $739.5 million of authorization remained. Management highlighted regulatory risk, including PAMA-driven Medicare fee schedule changes starting in 2018 and the uncertain effect of potential ACA changes under the new administration.
02—Key points
Key Highlights
- Net revenues of $9.44 billion in 2016, up 11.0% from $8.51 billion in 2015, mainly due to the full-year inclusion of Covance.
- Net earnings attributable to LabCorp of $732.1 million, or $7.02 diluted EPS, versus $437.6 million, or $4.35 diluted EPS, in 2015.
- Operating income of $1.31 billion, up from $996.8 million, with restructuring and special charges declining to $58.4 million from $113.9 million.
- Two segments: LCD contributed 69.9% and CDD 30.1% of 2016 net revenues; CDD revenue grew 23.3% with a full year of Covance.
- Operating cash flow of $1.18 billion, up from $982.4 million; capital expenditures of $278.9 million.
- Long-term obligations declined to $5.85 billion from $6.36 billion, with the term loan reduced to $565.0 million and $454.7 million of senior notes repaid in 2016.
- Share repurchases resumed in Q4 2016 ($43.9 million); $739.5 million of authorization remained at year-end. No dividends have been paid historically.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Labcorp Holdings kept $0.08.
- Revenue$9.44B100.0%
- Cost of revenue−$6.58B69.8%
- Gross profit$2.85B30.2%
- Operating costs−$1.58B16.8%
- Operating income$1.27B13.5%
- Interest, other & tax−$558.8M5.9%
- Net income$711.8M7.5%
Where FY2016 revenue went
$9.44B- Cost of revenue: $6.70B, 71% of revenue
- SG&A: $1.35B, 14% of revenue
- Net income: $711.8M, 7.5% of revenue
- Other operating costs: $122.2M, 1.3% of revenue
- Interest, other & tax: $558.8M, 5.9% of revenue
Kept 7.5% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $9.44B$8.68B | +8.7% |
| Cost of Revenue | $6.70B$5.78B | +16.0% |
| Gross Profit | $2.85B$2.90B | −1.7% |
| SG&A Expenses | $1.35B$1.63B | −17.4% |
| Operating Income | $1.27B$996.80M | +27.5% |
| Interest Expense | $219.10M$274.90M | −20.3% |
| Net Income | $711.80M$437.60M | +62.7% |
| EPS (Basic) | $6.94$4.43 | +56.7% |
| EPS (Diluted) | $6.82$4.35 | +56.8% |
| Shares Outstanding (Basic) | 102.50M98.80M | +3.7% |
| Shares Outstanding (Diluted) | 104.30M100.60M | +3.7% |
05—Questions
Frequently Asked Questions
How did LabCorp perform financially in 2016?
Net revenues were $9.44 billion, up 11.0% from $8.51 billion in 2015, and net earnings attributable to the company were $732.1 million, or $7.02 per diluted share, compared with $437.6 million, or $4.35, in 2015. Operating income increased to $1.31 billion from $996.8 million.
What are the company's two business segments and how large are they?
LabCorp Diagnostics (LCD) is an independent clinical laboratory business with 2016 net revenue of $6.59 billion (69.9% of total). Covance Drug Development (CDD) provides drug development services with 2016 net revenue of $2.84 billion (30.1% of total).
How is the company managing its debt and capital?
The company stated it is committed to maintaining an investment grade credit rating (Baa2 from Moody's and BBB from S&P). It repaid $454.7 million of senior notes, $150.0 million of its term loan, and $53.7 million of zero-coupon subordinated notes in 2016, and expects 2017 capital expenditures of about 3.0% of net revenues.
What regulatory risks could affect reimbursement?
The filing cites PAMA, under which Medicare clinical lab fee schedule rates will be reset using private payer data starting in 2018, with test price reductions limited to 10.0% per year for 2018-2020 and 15.0% per year for 2021-2023. It also notes that changes to or repeal of the ACA and possible Medicare structural reforms under the new administration could affect reimbursement in unpredictable ways.
Does LabCorp pay dividends?
No. The company has not historically paid dividends on its common stock and does not presently anticipate paying dividends in the foreseeable future.
06—Continue