01—Abstract
Summary
Summary of the 10-K filed February 25, 2021. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (Labcorp) reported a strong 2020 as COVID-19 testing drove results.
Revenues rose to $13,978.5 milliona from $11,554.8 million, operating income increased to $2,445.4 million from $1,330.2 million, and diluted earnings per share were $15.88 versus $8.35 in 2019. Net earnings attributable to the company were $1,556.1 million. The Labcorp Diagnostics (Dx) segment generated $9,253.4 million of revenue and $2,634.9 million of operating income, while the Labcorp Drug Development (DD) segment generated $4,877.7 million of revenue but only $37.3 million of operating income after $450.5 million of goodwill and other asset impairments tied to the pandemic.
The company stated that COVID-19 Testing contributed 24.1% to organic growth, offset by a 5.1% decline in its Base Business. Management expects COVID-19 testing demand to fall as vaccines roll out and does not expect it to match 2020 levels, while expecting other diagnostic testing and drug development activity to grow in 2021. Cash flow from operations was $2,135.3 millionb, and the company ended the year with $1,320.8 million in cash and cash equivalents.
Total Senior Notes principal was approximately $5,450.0 millionc, and the company held $800.0 million of remaining share repurchase authorization. Key risks highlighted in the filing include payer reimbursement changes under PAMA, which reduced CLFS revenue by approximately $72.0 million in 2020, the possibility of FDA regulation of laboratory-developed tests, cybersecurity and third-party breaches (including the AMCA incident), COVID-19 volatility, and dependence on the biopharmaceutical industry for DD revenues. The company stated it has not historically paid dividends and does not presently anticipate paying them.
02—Key points
Key Highlights
- Revenues of $13,978.5 million, up from $11,554.8 million in 2019, with diluted EPS of $15.88 versus $8.35.
- Dx segment revenue of $9,253.4 million and operating income of $2,634.9 million (28.5% operating margin), driven by COVID-19 Testing.
- DD segment operating income fell to $37.3 million from $411.5 million, reflecting $450.5 million of goodwill and other asset impairments tied to the pandemic.
- Performed over 31 million PCR tests and nearly 4 million antibody tests in 2020; testing capacity reached 275,000 PCR tests per day by the end of 2020.
- Operating cash flow of $2,135.3 million, up from $1,444.7 million; year-end cash of $1,320.8 million.
- Repurchased $100.0 million of stock in early 2020, with $800.0 million of authorization remaining; no dividends historically paid.
- PAMA reduced CLFS reimbursement by approximately $72.0 million in 2020, with PAMA cuts for 2021 suspended under the CARES Act.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Labcorp Holdings kept $0.11.
- Revenue$13.98B100.0%
- Cost of revenue−$9.03B64.6%
- Gross profit$4.95B35.4%
- Operating costs−$2.51B17.9%
- Operating income$2.45B17.5%
- Interest, other & tax−$889.3M6.4%
- Net income$1.56B11.1%
Where FY2020 revenue went
$13.98B- Cost of revenue: $9.03B, 65% of revenue
- SG&A: $1.73B, 12% of revenue
- Net income: $1.56B, 11% of revenue
- Other operating costs: $778.1M, 5.6% of revenue
- Interest, other & tax: $889.3M, 6.4% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 25, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $13.98B$11.55B | +21.0% |
| Cost of Revenue | $9.03B$8.30B | +8.7% |
| Gross Profit | $4.95B$3.25B | +52.3% |
| SG&A Expenses | $1.73B$1.62B | +6.5% |
| Operating Income | $2.45B$1.33B | +83.8% |
| Interest Expense | $207.40M$240.70M | −13.8% |
| Net Income | $1.56B$823.80M | +88.9% |
| EPS (Basic) | $15.99$8.42 | +89.9% |
| EPS (Diluted) | $15.88$8.35 | +90.2% |
| Shares Outstanding (Basic) | 97.30M97.90M | −0.6% |
| Shares Outstanding (Diluted) | 98.00M98.60M | −0.6% |
05—Questions
Frequently Asked Questions
What drove the increase in revenue in 2020?
Revenues grew 21.0% to $13,978.5 million. The filing attributes this to organic growth of 19.0%, acquisitions of 1.8%, and favorable foreign currency translation of 0.4%, partly offset by a 0.2% disposition. Within organic growth, COVID-19 Testing contributed 24.1%, while the Base Business declined 5.1%.
Will COVID-19 testing continue to support results in 2021?
The company expects the rollout of COVID-19 vaccines to lead to a gradual decline in demand for COVID-19 Testing, which is not predicted to match 2020 levels. It expects other diagnostic testing to continue expanding and both COVID-19 and non-COVID-19 drug development activity to grow in 2021.
Why did DD operating income decline so sharply?
DD operating income fell to $37.3 million from $411.5 million, primarily due to the negative impact of COVID-19, specifically goodwill and other asset impairment of $450.5 million, and higher personnel costs, partially offset by organic demand, acquisitions, and LaunchPad savings.
What are the main regulatory risks for the company?
Key regulatory risks include changes to payer regulations and reimbursement under PAMA, potential FDA regulation of laboratory-developed tests, penalties under anti-fraud and abuse laws, CLIA license compliance, and privacy and security requirements such as HIPAA and GDPR.
What is the company's debt and capital allocation position?
Senior Notes totaled approximately $5,450.0 million in aggregate principal at December 31, 2020, with a $1.0 billion revolving credit facility and a $375.0 million 2019 term loan. The company redeemed $412.2 million of Senior Notes in 2020, spent $267.6 million on acquisitions, and expects 2021 capital expenditures of approximately 4.0% of revenues.
06—Continue