01—Abstract
Summary
Summary of the 10-K filed February 28, 2023. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (Labcorp) reported 2022 revenues of $14,876.8 milliona, down from $16,120.9 million in 2021, a decrease of 7.7% driven by a 10.0% decline in COVID-19 Testing that was partially offset by a 2.5% increase in the organic Base Business.
Diluted earnings per share fell to $13.97b from $24.39, and operating income dropped to $1,773.9 million from $3,259.5 million. The company cited a $260.0 million goodwill impairment in its early development reporting unit within the DD segment, triggered by a supplier's loss of critical testing supplies in December 2022. Operating cash flow was $1,955.9 million, compared with $3,109.6 million in 2021.
The company is pursuing a planned tax-free spin-off of its Clinical Development and Commercialization Services business, which will be named Fortrea, with completion targeted for mid-2023. Labcorp expects COVID-19 Testing demand in 2023 not to match 2022 levels. Management also returned capital during 2022, paying $195.2 millionc in dividends and repurchasing $1,100.0 million of stock, and on February 7, 2023 the board authorized a new $1,000.0 million repurchase plan.
Acquisitions totaled $1,164.0 milliond in cash during 2022. Key risks for investors include the Ravgen patent verdict of $272 million (with post-trial motions seeking enhanced damages of up to $817 million), the AMCA data-security incident litigation, ongoing PAMA reimbursement uncertainty, and $5,450.0 million of senior notes outstanding at December 31, 2022.
02—Key points
Key Highlights
- Revenues declined 7.7% to $14,876.8 million, with COVID-19 Testing down 10.0% on an organic basis while the organic Base Business grew 2.5%.
- Diluted EPS was $13.97 versus $24.39 in 2021; operating income fell to $1,773.9 million from $3,259.5 million.
- A $260.0 million goodwill impairment in the DD segment's early development reporting unit was recorded after a supplier of critical testing supplies stopped providing them in December 2022.
- Dx segment operating margin was 22.0% versus 30.9% in 2021; DD segment operating margin was 14.0% versus 15.2%.
- Planned spin-off of the CDCS business (to be named Fortrea) is targeted for completion in mid-2023.
- Capital returns in 2022 included $1,100.0 million in share repurchases and $195.2 million in dividends; a new $1,000.0 million repurchase authorization was adopted February 7, 2023.
- Ravgen jury verdict awarded $272 million in damages for willful patent infringement; the company strongly disagrees and will appeal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Labcorp Holdings kept $0.11.
- Revenue$11.86B100.0%
- Cost of revenue−$8.15B68.7%
- Gross profit$3.71B31.3%
- Operating costs−$2.27B19.2%
- Operating income$1.44B12.1%
- Interest, other & tax−$157.5M1.3%
- Net income$1.28B10.8%
Where FY2022 revenue went
$11.86B- Cost of revenue: $8.15B, 69% of revenue
- SG&A: $1.76B, 15% of revenue
- Net income: $1.28B, 11% of revenue
- Other operating costs: $509.3M, 4.3% of revenue
- Interest, other & tax: $157.5M, 1.3% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 28, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $11.86B$13.14B | −9.7% |
| Cost of Revenue | $8.15B$8.14B | +0.1% |
| Gross Profit | $3.71B$4.99B | −25.7% |
| SG&A Expenses | $1.76B$1.69B | +4.3% |
| Operating Income | $1.44B$3.05B | −52.9% |
| Interest Expense | $179.80M$211.80M | −15.1% |
| Net Income | $1.28B$2.38B | −46.2% |
| EPS (Basic) | $14.05$24.60 | −42.9% |
| EPS (Diluted) | $13.97$24.39 | −42.7% |
| Shares Outstanding (Basic) | 91.10M96.70M | −5.8% |
| Shares Outstanding (Diluted) | 91.60M97.50M | −6.1% |
05—Questions
Frequently Asked Questions
Why did revenue and earnings decline so sharply in 2022?
The filing attributes the decline primarily to lower COVID-19 Testing, which fell 10.0% on an organic basis. Because COVID-19 testing carried higher margins, its reduction also pressured cost of revenues, which rose to 70.5% of revenues from 65.1%, and reduced operating income to $1,773.9 million from $3,259.5 million.
What is the planned spin-off and when will it happen?
The company plans to spin off its Clinical Development and Commercialization Services business, which will be named Fortrea, as a tax-free transaction to shareholders. The company is targeting completion in mid-2023, subject to Board approval, tax-free assurances, and required SEC filings, and the filing notes there are no assurances on timing or completion.
What are the main legal and financial risks disclosed?
Key items include the Ravgen patent verdict of $272 million with post-trial motions seeking enhanced damages of up to $817 million, the AMCA data-security incident litigation, and the Texas Medicaid qui tam lawsuit. The company also had $5,450.0 million of senior notes outstanding at December 31, 2022, and a $1.0 billion revolving credit facility.
How much cash did the company return to shareholders and what is the remaining buyback capacity?
In 2022 the company paid $195.2 million in dividends and repurchased $1,100.0 million of common stock. At year-end, $531.5 million remained under the existing authorization; on February 7, 2023, the board added $1,000.0 million, bringing total available authorization to $1,531.5 million. The repurchase authorization has no expiration date.
06—Continue