01—Abstract
Summary
Summary of the 10-K filed February 25, 2022. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (LH) reported 2021 revenues of $16,120.9 milliona, up 15.3% from $13,978.5 million in 2020, with operating income of $3,259.5 million versus $2,445.4 million and diluted earnings per share of $24.39 versus $15.88.
Growth was driven mainly by organic growth of 13.8%, with the Base Business (non-COVID-19 testing) contributing 14.0%, partly offset by a 0.2% decrease in COVID-19 Testing. The Diagnostics (Dx) segment generated $10,363.6 millionb in revenue and $2,988.5 million in operating income, while Drug Development (DD) generated $5,845.5 million in revenue and $547.7 million in operating income, compared with $37.3 million in 2020 that included goodwill and other asset impairments. Operating cash flow rose to $3,109.6 million from $2,135.3 million.
Following a strategic review of its structure and capital allocation, the company announced in December 2021 that it will initiate a quarterly dividend in the second quarter of 2022 with a target payout of 15% to 20% of adjusted earnings, and authorized a $2,500.0 millionc share repurchase program. Of that program, $1,000.0 million is being executed through an accelerated share repurchase expected to complete by the end of April 2022. The company repurchased $1,668.5 million of stock in 2021 and had $1,631.5 million of authorization remaining at year-end.
It also launched a LaunchPad initiative targeting $350.0 milliond of savings over three years and plans capital expenditures of approximately 4.0% of 2022 revenues. The filing also flags risks tied to COVID-19 testing demand, which management expects will not match 2021 levels, as well as payer reimbursement changes under PAMA, data privacy and anti-kickback compliance, and the AMCA security incident litigation. Subsequent events include an agreement with Ascension to manage its hospital-based laboratories in 10 states and acquire select outreach laboratory assets for $400.0 million, and the February 2022 closing of the Personal Genome Diagnostics acquisition for $450.0 million in cash plus up to $125.0 million in milestones.
02—Key points
Key Highlights
- Revenue rose 15.3% to $16,120.9 million in 2021, with organic growth of 13.8%, acquisitions contributing 0.7%, and favorable currency translation contributing 0.9%.
- Operating income increased to $3,259.5 million from $2,445.4 million, and diluted EPS rose to $24.39 from $15.88.
- Dx segment revenue grew 12.0% to $10,363.6 million with operating margin of 28.8%; DD segment revenue grew 19.8% to $5,845.5 million with operating margin of 9.4%.
- Operating cash flow was $3,109.6 million, up from $2,135.3 million, while capital expenditures were $460.4 million.
- The Board initiated a planned quarterly dividend starting in Q2 2022 (target 15% to 20% of adjusted earnings) and authorized a $2,500.0 million share repurchase program; $1,668.5 million was repurchased in 2021.
- Management expects COVID-19 testing demand in 2022 will not match 2021 levels, while the company has a $1,000.0 million revolving credit facility and $5,450.0 million of Senior Notes principal outstanding at year-end.
- Subsequent events include a strategic agreement with Ascension ($400.0 million outreach asset purchase) and the closing of the PGDx acquisition for $450.0 million in cash plus up to $125.0 million in milestones.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Labcorp Holdings kept $0.18.
- Revenue$13.14B100.0%
- Cost of revenue−$8.14B62.0%
- Gross profit$4.99B38.0%
- Operating costs−$1.94B14.8%
- Operating income$3.05B23.2%
- Interest, other & tax−$671.6M5.1%
- Net income$2.38B18.1%
Where FY2021 revenue went
$13.14B- Cost of revenue: $8.14B, 62% of revenue
- Net income: $2.38B, 18% of revenue
- SG&A: $1.69B, 13% of revenue
- Other operating costs: $253.5M, 1.9% of revenue
- Interest, other & tax: $671.6M, 5.1% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 25, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $13.14B$13.98B | −6.0% |
| Cost of Revenue | $8.14B$9.03B | −9.8% |
| Gross Profit | $4.99B$4.95B | +0.8% |
| SG&A Expenses | $1.69B$1.73B | −2.3% |
| Operating Income | $3.05B$2.45B | +24.7% |
| Interest Expense | $211.80M$207.40M | +2.1% |
| Net Income | $2.38B$1.56B | +52.8% |
| EPS (Basic) | $24.60$15.99 | +53.8% |
| EPS (Diluted) | $24.39$15.88 | +53.6% |
| Shares Outstanding (Basic) | 96.70M97.30M | −0.6% |
| Shares Outstanding (Diluted) | 97.50M98.00M | −0.5% |
05—Questions
Frequently Asked Questions
How did Labcorp's profitability change in 2021?
Operating income rose to $3,259.5 million from $2,445.4 million, and net earnings attributable to the company were $2,377.3 million versus $1,556.1 million. The 2020 results included $462.1 million of goodwill and other asset impairments, which were absent in 2021. Diluted EPS was $24.39 compared with $15.88.
What is the company's new capital return plan?
In December 2021 the company authorized a $2,500.0 million share repurchase program, of which $1,000.0 million is being repurchased under an accelerated share repurchase expected to complete by the end of April 2022. It also plans to initiate a quarterly dividend in the second quarter of 2022 with a target payout of 15% to 20% of adjusted earnings. At year-end, $1,631.5 million of repurchase authorization remained.
How much of the company's revenue is exposed to government reimbursement?
The filing states that approximately 10.1% of Dx revenue in 2021 was derived directly from traditional Medicare and Medicaid programs, with about 8.5% reimbursed under the Clinical Laboratory Fee Schedule and about 0.4% under the Physician Fee Schedule. Capitated MCO contracts accounted for approximately $332.3 million, or 3.2%, of Dx revenue.
What are the main risks flagged for COVID-19 testing revenue?
Management expects COVID-19 Testing demand in 2022 will not match 2021 levels, though it may vary over time and by geography. In 2021 the company performed approximately 30 million PCR tests and 4 million antibody tests. The filing also notes risks from changing government and payer policies, supply chain constraints, and potential reputational harm from perceived inadequate responses to the pandemic.
How is the company's debt position?
At December 31, 2021, Senior Notes totaled approximately $5,450.0 million in aggregate principal, and the company had a $1.0 billion revolving credit facility with no balance outstanding. The company stated it was in compliance with its covenants and expected to remain so for the next twelve months. In 2021 it issued $1,000.0 million of new Senior Notes and repaid $1,000.0 million of Senior Notes and $375.0 million of its 2019 Term Loan.
06—Continue