01—Abstract
Summary
Summary of the 10-K filed February 26, 2024. Cited figures are marked; the original filing is the authoritative source.
Laboratory Corporation of America Holdings (Labcorp) reported 2023 revenues from continuing operations of $12,161.6 milliona, up 2.5% from $11,863.9 million in 2022, with organic revenue growth of 0.6% and acquisitions, net of divestitures, contributing 1.7%.
Diluted earnings per share from continuing operations were $4.33b, down from $10.94 in 2022, and operating income fell to $725.6 million from $1,436.5 million. The decline was driven by lower COVID-19 Testing revenue, goodwill and other asset impairments of $349.0 million (including $333.6 million for the Early Development reporting unit in BLS), higher personnel costs, and $644.1 million in general corporate and unallocated expenses, which included spin-off transaction costs. Cash flows from continuing operating activities were $1,202.3 million, compared with $1,764.8 million in 2022.
The defining event of the year was the June 30, 2023 spin-off of Fortrea Holdings Inc., the former clinical development and commercialization services business. Fortrea's results are presented as discontinued operations. Fortrea paid the Company approximately $1,600.0 millionc, which the Company used to repurchase approximately $1,000.0 million of common stock through accelerated share repurchases and to repay $300.0 million of debt maturing in 2023, with the remainder to be returned to shareholders through future repurchases and/or dividends.
The Company paid $254.0 milliond in common stock dividends in 2023 and declared a $0.72 per share first-quarter 2024 dividend, and it reported $530.4 million of remaining repurchase authorization at year end. The Company's principal risks include macroeconomic conditions, reimbursement changes (including the Protecting Access to Medicare Act (PAMA) fee schedule rules and the phase-in of further rate reductions), competition, regulatory developments such as FDA oversight of laboratory-developed tests, cybersecurity incidents (including the AMCA Incident), and litigation, notably the Ravgen patent judgment of $100.0 million in enhanced damages and a $272.0 million jury award. At December 31, 2023, the Company had $4.2 billion of senior notes outstanding in aggregate principal, of which $1.0 billion was payable within 12 months, and it stated it expects to refinance that amount.
02—Key points
Key Highlights
- Revenue of $12,161.6 million in 2023, up 2.5% from $11,863.9 million in 2022; Dx revenue was $9,415.1 million and BLS revenue was $2,774.2 million.
- Operating income fell to $725.6 million from $1,436.5 million, reflecting goodwill and other asset impairments of $349.0 million and corporate expenses of $644.1 million.
- Diluted EPS from continuing operations was $4.33, versus $10.94 in 2022; net earnings attributable to the Company were $418.0 million.
- The Fortrea Holdings Inc. spin-off, completed June 30, 2023, generated approximately $1,600.0 million in cash to the Company, which funded about $1,000.0 million of share repurchases and a $300.0 million debt paydown.
- The Company invested $671.5 million in acquisitions during 2023 and repurchased 4.8 million shares for $1,000.0 million, with $530.4 million of authorization remaining.
- Total senior note principal was about $4.2 billion at year end, with $1.0 billion due within 12 months; the Company stated it expects to refinance this amount.
- Dx segment operating margin declined to 16.9% from 22.0%, primarily due to lower COVID-19 Testing and higher personnel costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Labcorp Holdings kept $0.03.
- Revenue$12.16B100.0%
- Cost of revenue−$8.80B72.3%
- Gross profit$3.36B27.7%
- Operating costs−$2.64B21.7%
- Operating income$725.6M6.0%
- Interest, other & tax−$307.6M2.5%
- Net income$418.0M3.4%
Where FY2023 revenue went
$12.16B- Cost of revenue: $8.80B, 72% of revenue
- SG&A: $2.02B, 17% of revenue
- Net income: $418.0M, 3.4% of revenue
- Other operating costs: $617.9M, 5.1% of revenue
- Interest, other & tax: $307.6M, 2.5% of revenue
Kept 3.4% as net incomeNet income $418.0M · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 26, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $12.16B$11.86B | +2.5% |
| Cost of Revenue | $8.80B$8.15B | +7.9% |
| Gross Profit | $3.36B$3.71B | −9.3% |
| SG&A Expenses | $2.02B$1.76B | +14.7% |
| Operating Income | $725.60M$1.44B | −49.5% |
| Interest Expense | $199.60M$179.80M | +11.0% |
| Net Income | $418.00M$1.28B | −67.3% |
| EPS (Basic) | $4.80$14.05 | −65.8% |
| EPS (Diluted) | $4.77$13.97 | −65.9% |
| Shares Outstanding (Basic) | 87.10M91.10M | −4.4% |
| Shares Outstanding (Diluted) | 87.60M91.60M | −4.4% |
05—Questions
Frequently Asked Questions
Why did operating income decline so sharply in 2023?
Operating income fell to $725.6 million from $1,436.5 million. The filing attributes the decline to lower COVID-19 Testing revenue, goodwill and other asset impairments of $349.0 million (including $333.6 million for the Early Development reporting unit), higher personnel costs, and general corporate and unallocated expenses that rose to $644.1 million, largely due to spin-off transaction costs.
What did the Fortrea spin-off mean for Labcorp's financial position?
On June 30, 2023, Labcorp distributed 100% of Fortrea common stock to its shareholders. Fortrea issued $570.0 million of 7.500% senior secured notes and entered into $1,520.0 million of credit facilities, using the proceeds to pay Labcorp approximately $1,600.0 million. Labcorp used those funds for about $1,000.0 million of share repurchases and a $300.0 million debt repayment, with the remainder to be returned to shareholders. Fortrea's results are reported as discontinued operations, and the spin-off is expected to be tax-free for U.S. federal income tax purposes.
How is the company's capital being returned to shareholders?
In 2023 the Company paid $254.0 million in common stock dividends and repurchased 4.8 million shares for $1,000.0 million at an average price of $206.85. It declared a $0.72 per share dividend for the first quarter of 2024, totaling about $61.5 million, and had $530.4 million of repurchase authorization remaining at year end.
What are the main risks to future reimbursement and revenue?
The filing highlights risks from changes to the Protecting Access to Medicare Act (PAMA) clinical laboratory fee schedule, which the Company says could reduce payments by about $100.0 million in 2025 from all affected payers if not further delayed or changed. It also cites increasing payer utilization management, price competition, consolidation among customers, and the expected reduction in COVID-19 Testing revenue. Potential FDA regulation of laboratory-developed tests is identified as a further risk.
What legal and cybersecurity exposures does the filing disclose?
The Company disclosed the Ravgen patent litigation, in which a jury awarded $272.0 million and a judge later awarded $100.0 million in enhanced damages; the Company strongly disagrees and is appealing. It also described the AMCA Incident, a 2019 security incident at an external collection agency, which has led to pending and threatened class action litigation and government inquiries. The Company states that its cybersecurity risks, including those affecting third parties, could have a material adverse effect.
06—Continue