Business context and reporting period
Labcorp Holdings’ Form 10-K reports the fiscal year ended December 31, 2021; it is an annual filing, not a standalone fourth-quarter report. The company operates Labcorp Diagnostics (Dx) and Labcorp Drug Development (DD), serving customers in more than 100 countries. Dx generated 64% of 2021 revenue and DD 36%.
Financial performance and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $16,120.9 million | $13,978.5 million | +15.3% |
| Gross profit | $5,624.3 million | $4,952.8 million | — |
| Operating income | $3,259.5 million | $2,445.4 million | +33.3% |
| Net earnings attributable to Labcorp | $2,377.3 million | $1,556.1 million | — |
| Diluted EPS | $24.39 | $15.88 | — |
| Operating cash flow | $3,109.6 million | $2,135.3 million | — |
| Cash and cash equivalents at year-end | $1,472.7 million | $1,320.8 million | — |
Cost of revenues was 65.1% of revenue, compared with 64.6% in 2020 (gross margins of approximately 34.9% and 35.4%, respectively). Dx revenue rose 12.0% to $10,363.6 million and operating income rose 13.4% to $2,988.5 million; its operating margin was 28.8%, versus 28.5%. DD revenue rose 19.8% to $5,845.5 million and operating income was $547.7 million, versus $37.3 million; segment margin was 9.4%, versus 0.8%.
Net cash used in investing activities was $884.6 million, including $496.9 million for acquisitions and $460.4 million of capital expenditures. Net cash used in financing activities was $2,065.8 million, including $1,668.5 million of share repurchases. Long-term debt, net of issuance costs, was $5,416.5 million; the company also reported $1.5 million of current debt. It had no borrowings outstanding under its $1.0 billion revolving facility and reported covenant compliance. Management said operating cash flow and facility availability were sufficient for anticipated liquidity needs.
Material changes versus the prior comparable period
- Revenue growth was driven by 13.8% organic growth, including 14.0% growth in Base Business, partly offset by a 0.2% decline in COVID-19 Testing; acquisitions and currency also contributed.
- Base Business recovery more than offset lower COVID-19 testing. Dx organic revenue rose 10.9%; DD organic Base Business revenue rose 19.2%, partly offset by reduced COVID-19 testing in DD central laboratories.
- Operating income increased 33.3%. DD’s sharp year-over-year improvement chiefly reflects $450.5 million of DD goodwill and other asset impairment charges in 2020; no such impairment was recorded in 2021. The company recorded $462.1 million of total goodwill and other asset impairments in 2020.
- Operating cash flow increased by $974.3 million, which management attributed primarily to higher earnings and favorable working capital. Accounts receivable fell year over year, while unbilled services increased.
- The effective tax rate decreased to 23.9% from 29.8%, primarily due to non-deductible 2020 impairment charges, tax-audit finalization, and the geographic mix of earnings.
Outlook, management commentary, risks and unusual items
- Management expected COVID-19 to continue affecting the business in 2022 and potentially beyond, but anticipated COVID-19 testing demand to decline significantly from 2021 levels, with possible surges by time and geography.
- The company targeted $350 million in savings from a new LaunchPad improvement initiative over 2022–2024 and forecast 2022 capital expenditures of approximately 4% of revenue. The filing text provided here does not state a specific 2022 revenue or EPS guidance value.
- Capital-return plans announced in December 2021 included a quarterly dividend beginning in Q2 2022, targeting a 15%–20% payout of adjusted earnings, and a $2.5 billion share-repurchase authorization. The $1.0 billion accelerated repurchase was expected to settle by the end of April 2022.
- Major risks include payer reimbursement and utilization pressure, including future PAMA-related cuts; uncertainty in COVID-19 testing volumes; patient collections and days-sales-outstanding risk; labor and supply constraints; acquisition integration; cyber and data-security incidents; and extensive regulatory, litigation, and compliance exposure.
- Notable contingencies include pending litigation and regulatory inquiries related to the 2019 AMCA collection-agency data incident, as well as False Claims Act and state Medicaid-related matters. The company said it could not estimate reasonably probable losses for certain proceedings; it did not believe currently available information indicated a material adverse effect on financial condition, though outcomes could affect results or cash flows in a particular period.
- Subsequent events: Labcorp completed its $450 million PGDx acquisition in February 2022, with up to $125 million in additional performance-based payments. It also agreed to a strategic relationship with Ascension, including a $400 million purchase of selected outreach laboratory assets.
- The company disclosed an immaterial prior-period deferred-tax-liability error correction: liabilities decreased and retained earnings increased by $76.9 million, with no impact on earnings or cash flows for the periods presented. The 2021 financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether Base Business growth can offset the anticipated decline in COVID-19 testing, and the resulting effect on revenue, margins, and cash flow.
- The timing and realized value of the $350 million LaunchPad savings target, alongside planned capital expenditures and investment needs.
- Debt maturities, leverage and covenant headroom, and the capacity to fund acquisitions, share repurchases, and the planned dividend.
- Progress on PAMA reimbursement changes and other payer pricing, coverage, and utilization policies.
- Developments in AMCA-related litigation and other legal matters, plus the costs and integration outcomes of PGDx and the Ascension arrangement.
- Execution of the dividend and remaining repurchase authorization, including final settlement of the accelerated share-repurchase agreement.