01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings, now Labcorp Holdings Inc., reported 2019 revenues of $11,554.8 milliona, up 2.0% from $11,333.4 million in 2018, driven by acquisitions (2.3%) and organic growth (1.6%), partially offset by business dispositions (1.4%) and negative currency translation (0.5%).
Net earnings attributable to the company fell to $823.8 millionb from $883.7 million, and diluted EPS was $8.35 versus $8.61. The decline reflected lower reimbursement from the Protecting Access to Medicare Act (PAMA), which reduced revenue by approximately $107.0 million in 2019 and is expected to reduce it by a further $90.0 million in 2020, along with higher personnel and cybersecurity costs at the LabCorp Diagnostics (LCD) segment. The two segments diverged sharply.
LCD revenue declined 0.4% to $7,000.1 millionc and its operating margin fell to 15.5% from 16.6%. Covance Drug Development (CDD) revenue rose 6.1% to $4,578.1 million and its operating margin improved to 9.0% from 7.0%, helped by acquisitions including Envigo's nonclinical contract research services business for $601.0 million. Operating cash flow increased to $1,444.7 million from $1,305.4 million, and capital expenditures were $400.2 million.
The filing also discloses the July 2018 ransomware incident and the May 2019 AMCA data security incident, which has generated multiple lawsuits and regulatory inquiries. The company repurchased $450.0 milliond of stock in 2019, leaving $900.0 million of authorization, and it has not historically paid dividends. Total debt at year-end was approximately $6.2 billion in scheduled payments, and the company reported a 3.1 to 1.0 ratio of total debt to pro forma EBITDA.
02—Key points
Key Highlights
- Revenue rose 2.0% to $11,554.8 million, with acquisitions contributing 2.3% and organic growth 1.6%, after a 0.9% negative PAMA impact.
- Net earnings attributable to the company declined to $823.8 million from $883.7 million; diluted EPS was $8.35 versus $8.61.
- LCD revenue fell 0.4% to $7,000.1 million and operating margin dropped to 15.5% from 16.6%, reflecting PAMA reimbursement cuts, personnel costs and cybersecurity expenses.
- CDD revenue grew 6.1% to $4,578.1 million and operating income rose 35.5% to $411.5 million, with operating margin improving to 9.0% from 7.0%.
- PAMA reduced CLFS reimbursement by about $107.0 million in 2019, with a further reduction of about $90.0 million expected in 2020.
- Operating cash flow was $1,444.7 million, and the company repurchased $450.0 million of shares with $900.0 million of authorization remaining.
- The AMCA security incident has led to 23 putative class actions consolidated into multidistrict litigation, along with government inquiries.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Labcorp Holdings kept $0.07.
- Revenue$11.55B100.0%
- Cost of revenue−$8.30B71.9%
- Gross profit$3.25B28.1%
- Operating costs−$1.92B16.6%
- Operating income$1.33B11.5%
- Interest, other & tax−$506.4M4.4%
- Net income$823.8M7.1%
Where FY2019 revenue went
$11.55B- Cost of revenue: $8.30B, 72% of revenue
- SG&A: $1.62B, 14% of revenue
- Net income: $823.8M, 7.1% of revenue
- Other operating costs: $297.8M, 2.6% of revenue
- Interest, other & tax: $506.4M, 4.4% of revenue
Kept 7.1% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $11.55B$11.33B | +2.0% |
| Cost of Revenue | $8.30B$8.16B | +1.8% |
| Gross Profit | $3.25B$3.18B | +2.4% |
| SG&A Expenses | $1.62B$1.57B | +3.4% |
| Operating Income | $1.33B$1.33B | +0.3% |
| Interest Expense | $240.70M$244.20M | −1.4% |
| Net Income | $823.80M$883.70M | −6.8% |
| EPS (Basic) | $8.42$8.71 | −3.3% |
| EPS (Diluted) | $8.35$8.61 | −3.0% |
| Shares Outstanding (Basic) | 97.90M101.40M | −3.5% |
| Shares Outstanding (Diluted) | 98.60M102.60M | −3.9% |
05—Questions
Frequently Asked Questions
How did Laboratory Corporation of America Holdings perform financially in 2019?
Revenue increased 2.0% to $11,554.8 million, while net earnings attributable to the company decreased to $823.8 million from $883.7 million. Diluted EPS was $8.35 compared with $8.61 in 2018. Gross profit rose to $3,252.5 million and operating income was $1,330.2 million, roughly flat versus $1,325.7 million a year earlier.
Why did LCD profitability decline while CDD improved?
LCD operating income fell 6.9% to $1,086.0 million, with margin down 110 basis points, due to lower PAMA reimbursement, higher personnel costs, business dispositions and cybersecurity expenses. CDD operating income rose 35.5% to $411.5 million, driven by organic demand, LaunchPad savings, acquisitions and currency translation.
What is the outlook for Medicare reimbursement pressure?
The filing states PAMA is expected to reduce CLFS reimbursement by an additional approximately $90.0 million in 2020, unless implementation is further delayed or changed. The Laboratory Access for Beneficiaries Act delayed the next data reporting period for CDLTs by one year, to the first quarter of 2021.
Does the company pay dividends, and how is it returning capital?
The company has not historically paid dividends and does not presently anticipate paying them in the foreseeable future. It repurchased $450.0 million of common stock in 2019 and had $900.0 million of repurchase authorization remaining at year-end.
What data security risks does the company disclose?
The company disclosed a July 2018 ransomware incident that temporarily affected LCD test processing, and the May 2019 AMCA incident involving patient information held by an external collection agency. The company has incurred costs, faces pending and threatened litigation, and is responding to government and regulatory inquiries.
06—Continue