01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (now Labcorp Holdings Inc.) reported 2018 net revenues of $11.33 billiona, up from $10.31 billion in 2017, a 9.9% increase driven by acquisitions (7.6%) and organic growth (2.7%).
Operating income rose to $1.33 billionb from $1.31 billion, while net earnings attributable to the Company fell to $883.7 million from $1,227.1 million, which included a provisional net benefit of $519.0 million from the Tax Cuts and Jobs Act in 2017. The company reports two segments: LabCorp Diagnostics (LCD), which contributed 62% of 2018 revenues but saw operating income decline 10.3% to $1.17 billion amid PAMA reimbursement cuts, and Covance Drug Development (CDD), which contributed 38% of revenues and grew 25.0% to $4.31 billion with operating income up 109.5% to $303.6 million. The filing highlights continued pressure from the Protecting Access to Medicare Act (PAMA), which reduced net reimbursement by approximately $70.0 million in 2018 and is expected to reduce it by a further $115.0 million in 2019 absent changes.
Management is pursuing value-based care, drug development streamlining, and consumer initiatives such as LabCorp at Walgreens and Pixel by LabCorp. The company also disclosed a July 2018 ransomware attack that cost $12.6 millionc in expenditures and $9.8 million in estimated lost revenue, and it carries $6.0 billion of long-term debt.
Share repurchases totaled $700.0 milliond in 2018, and the board authorized a new $1.25 billion repurchase plan on February 6, 2019. The company has not historically paid dividends.
02—Key points
Key Highlights
- Net revenues of $11,333.4 million in 2018, up 9.9% from $10,308.0 million in 2017, with acquisitions contributing 7.6% and organic growth 2.7%.
- Net earnings attributable to LabCorp fell to $883.7 million in 2018 from $1,227.1 million in 2017, which benefited from a $519.0 million provisional TCJA net benefit.
- LCD revenues rose 2.5% to $7,030.8 million, but LCD operating income fell 10.3% to $1,166.7 million, with operating margin down to 16.6% from 19.0%.
- CDD revenues increased 25.0% to $4,313.1 million, and CDD operating income rose 109.5% to $303.6 million, with operating margin of 7.0%.
- PAMA reduced CLFS reimbursement by approximately $70.0 million in 2018 and is expected to reduce it by approximately $115.0 million more in 2019 unless delayed or changed.
- Share repurchases of $700.0 million in 2018, and a new $1.25 billion repurchase authorization approved February 6, 2019; the company has not historically paid dividends.
- July 2018 ransomware attack incurred $12.6 million in consulting fees and overtime plus estimated lost revenue of $9.8 million; the company reports no theft or misuse of patient data.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Labcorp Holdings kept $0.08.
- Revenue$11.33B100.0%
- Cost of revenue−$8.16B72.0%
- Gross profit$3.18B28.0%
- Operating costs−$1.85B16.3%
- Operating income$1.33B11.7%
- Interest, other & tax−$442.0M3.9%
- Net income$883.7M7.8%
Where FY2018 revenue went
$11.33B- Cost of revenue: $8.16B, 72% of revenue
- SG&A: $1.57B, 14% of revenue
- Net income: $883.7M, 7.8% of revenue
- Other operating costs: $279.8M, 2.5% of revenue
- Interest, other & tax: $442.0M, 3.9% of revenue
Kept 7.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $11.33B$10.31B | +9.9% |
| Cost of Revenue | $8.16B$7.22B | +13.0% |
| Gross Profit | $3.18B$3.09B | +2.7% |
| SG&A Expenses | $1.57B$1.50B | +4.8% |
| Operating Income | $1.33B$1.31B | +1.6% |
| Interest Expense | $244.20M$235.10M | +3.9% |
| Net Income | $883.70M$1.23B | −28.0% |
| EPS (Basic) | $8.71$11.99 | −27.4% |
| EPS (Diluted) | $8.61$11.81 | −27.1% |
| Shares Outstanding (Basic) | 101.40M102.40M | −1.0% |
| Shares Outstanding (Diluted) | 102.60M103.90M | −1.3% |
05—Questions
Frequently Asked Questions
What drove the decline in net earnings in 2018?
Net earnings attributable to Laboratory Corporation of America Holdings were $883.7 million in 2018 versus $1,227.1 million in 2017. The 2017 figure included a provisional net benefit of $519.0 million from the Tax Cuts and Jobs Act, while 2018 had an effective tax rate of 30.3%. Operating income rose modestly to $1,325.7 million from $1,305.2 million.
How is PAMA affecting the company's laboratory business?
PAMA, which went into effect January 1, 2018, resulted in a net reduction in reimbursement revenue of approximately $70.0 million in 2018 from payers affected by the Clinical Lab Fee Schedule. Unless implementation is delayed or changed, an additional reduction of approximately $115.0 million is expected for 2019. The company cited PAMA as the main reason for the decline in LCD operating margin.
Which segment is driving growth?
Covance Drug Development (CDD) grew revenues 25.0% to $4,313.1 million, with acquisitions including Chiltern contributing 17.5% growth. LabCorp Diagnostics (LCD) grew revenues 2.5% to $7,030.8 million, but its operating income declined 10.3%. LCD still accounted for 62% of 2018 revenues.
What capital allocation actions did the company take?
In 2018 the company purchased 4.2 million shares for $700.0 million and repaid $400.0 million of Senior Notes and $295.0 million of term loans. On February 6, 2019, the board replaced the prior repurchase plan with a new authorization of up to $1.25 billion with no expiration date. Capital expenditures were $379.8 million in 2018 and are expected to be about 4.0% of revenues in 2019.
06—Continue