Labcorp(LH) - 2023 Q4 - Annual Report

Revenue Growth and Performance - Company's revenues from continuing operations increased by 2.5% to $12.2 billion in 2023, driven by acquisitions (1.7$9,415.1 in 2023, with organic Base Business contributing 10.7% growth, partially offset by a 10.5% decline in COVID-19 Testing[337] - BLS revenues increased by 2.9% to $2,774.2 in 2023, driven by organic Base Business growth (1.6$2,470.0, representing 30.0% of current BLS revenues[339] Cost and Expense Analysis - Cost of revenues increased by 7.9% to $8,796.7 in 2023, with cost of revenues as a percentage of revenues rising to 72.3$2,021.4 in 2023, primarily due to spin-off-related costs and higher personnel expenses[346] - General corporate expenses increased by 37.4% to 644.1 million in 2023, driven by spin-off transaction costs, personnel costs, and R&D expenses[366] - Interest expense increased by 11.0% to 199.6 million in 2023 compared to $179.8 million in 2022, primarily due to higher interest rates on variable rate debt and increased borrowings[354] - Equity method income, net decreased by 125.9$5.4 million in 2023 from $(1.4) million in 2022, driven by the sale of a joint venture interest and acquisition of another joint venture[356] - Other, net increased to$15.5 million in 2023 from $(32.2) million in 2022, primarily due to$46.1 million in transition services fees charged to Fortrea[358] - Income tax expense decreased to $188.5 million in 2023 from$233.9 million in 2022, with the effective tax rate rising to 33.1% due to goodwill impairment[360] Segment Performance - Dx segment operating income decreased by 21.4% to $1,591.3 million in 2023, with operating margin declining 510 basis points to 16.9$396.3 million in 2023, with operating margin slightly down by 10 basis points to 14.3%, due to demand growth and LaunchPad savings[365] Spin-off and Financial Transactions - Company completed the spin-off of Fortrea on June 30, 2023, with Fortrea distributing $1,600.0 in cash to the Company, which was used for share repurchases and debt repayment[330][333] - Fortrea issued$570.0 of 7.500% senior secured notes due 2030 and entered into three floating SOFR credit facilities totaling $1,520.0 prior to the spin-off[332] - The company amended its revolving credit facility to a five-year facility with a principal amount of up to$1,000.0 million, with an option to increase by an additional $500.0 million, subject to lender agreement[381] Share Repurchases and Dividends - The company repurchased 4.8 million shares of its Common Stock in 2023 at an average price of$206.85 per share, totaling $1,000.0 million, and accrued$9.0 million in excise tax related to the repurchase[384] - In 2022, the company repurchased 4.7 million shares of its Common Stock at an average price of $233.48 per share, totaling$1,100.0 million[385] - The company paid $254.0 million in Common Stock dividends for the year ended December 31, 2023, and announced a cash dividend of$0.72 per share for Q1 2024, totaling approximately $61.5 million[386] Cash Flow and Capital Expenditures - Net cash provided by operating activities decreased by$562.5 million to $1,202.3 million in 2023, primarily due to lower COVID-19 testing earnings and higher working capital[374] - Capital expenditures were$453.6 million in 2023, representing 3.7% of revenues, with expected 2024 expenditures at approximately 3.5% of revenues[376] - Net cash used in financing activities increased to $1,559.0 million in 2023, driven by$1,000.0 million in share repurchases and $300.0 million in senior note repayments[377] Goodwill and Asset Impairments - Company recorded$349.0 in goodwill and other asset impairments in 2023, primarily due to $333.6 of goodwill impairment for the Early Development reporting unit[348] - The company recorded a goodwill impairment of$333.6 million in the BLS segment due to lower demand in the ED reporting unit, which is expected to continue into early 2024[416] Foreign Exchange and Currency Risk - Approximately 12.9% of the company's revenues for 2023 were denominated in currencies other than the U.S. dollar, with significant exposure to the Canadian dollar, Swiss franc, euro, and British pound[424] - A hypothetical 10% change in average exchange rates would have impacted income before taxes by approximately $24.1 million in 2023[424] - The company had 9 open foreign exchange forward contracts with a notional value totaling approximately$305.8 million at the end of 2023[425] - The company is party to USD to Swiss Franc cross-currency swap agreements with a notional amount of $600.0 million, maturing in 2024 and 2025[426] - The company entered into fixed-to-variable interest rate swap agreements for the 2.70$500.0 million[429] - The company's financial statements are reported in USD, and fluctuations in exchange rates affect the translation of revenues and expenses denominated in foreign currencies[424] - The company's gross accumulated currency translation adjustments were $183.1 million at the end of 2023, compared to$(336.4) million at the end of 2022[424] Debt and Interest Rate Management - The company's debt is subject to variable interest rates, and it manages interest rate risk through a mix of fixed and variable rate debt, including interest rate swaps[427] Legal and Contingent Liabilities - The company's legal reserve is determined using historical loss rates and trends in settlements and defense costs, with reserves established for probable and estimable loss contingencies[422] Revenue Recognition - The company's Dx segment recognizes revenue when diagnostic testing is complete and results are reported, with revenues distributed among four payer portfolios: clients, patients, Medicare and Medicaid, and third-party payers[392] - The company's BLS segment recognizes revenue over time based on the extent of progress towards completion of performance obligations, with contracts typically taking the form of fixed-price or fee-for-service arrangements[400] Goodwill and Intangible Asset Assessment - The company assesses goodwill and indefinite-lived intangibles for impairment annually or when events indicate that the carrying amount may not be recoverable, with an option to perform a qualitative assessment before a quantitative test[410] Liquidity and Financial Position - The company believes it has sufficient liquidity to meet its short-term and long-term cash needs for the next 12 months, based on current and projected cash flows and availability under its revolving credit facility[390] - The company provided letters of credit aggregating approximately $91.3 million as of December 31, 2023, primarily for insurance programs[389] - The company's contractual value of the noncontrolling interest put in its Ontario subsidiary totaled$15.5 million at December 31, 2023[389]