FINANCIAL REPORT

FINANCIAL REPORT

FINANCIAL REPORT

THE CAP DELIVERED STRONG FINANCIAL PERFORMANCE.

Pictured above: CAP headquarters in Northfield, Illinois

THE CAP DELIVERED STRONG FINANCIAL PERFORMANCE.

Pictured above: CAP headquarters in Northfield, Illinois

CAP Remains Financially Strong

CAP Remains Financially Strong

CAP Remains Financially Strong

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. To do this, we need to maintain a strong financial position and invest our excess earnings into the right portfolio of member benefits.

Our total operating revenues for the year ended December 31, 2018, were $218.0 million—a 5.0% growth over fiscal year 2017. Revenues were slightly below the Board-approved target due to a one-time accounting adjustment (see Revenue Category Table note).

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 4.9% over 2017. These programs benefit pathologists, clinicians, and patients and—at 92.6% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, which contributed 17.0% of proficiency testing revenues. Laboratories choose the CAP as their accreditation and proficiency testing provider thanks to our unique peer inspection model, the breadth and quality of our programs, and tools such as the performance analytics dashboard, which make it easier for large systems to advance quality. The enduring success of these programs is a testament to the dedication of our volunteers—both members and other laboratory professionals.

financial-gomez-richard

Secretary-Treasurer
Richard R. Gomez, MD, FCAP

* Includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019 to properly correlate customer payments with the timing of services.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $1.9 million and $3.3 million, respectively.

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. To do this, we need to maintain a strong financial position and invest our excess earnings into the right portfolio of member benefits.

Our total operating revenues for the year ended December 31, 2018, were $218.0 million—a 5.0% growth over fiscal year 2017. Revenues were slightly below the Board-approved target due to a one-time accounting adjustment (see Revenue Category Table note).

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 4.9% over 2017. These programs benefit pathologists, clinicians, and patients and—at 92.6% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, which contributed 17.0% of proficiency testing revenues. Laboratories choose the CAP as their accreditation and proficiency testing provider thanks to our unique peer inspection model, the breadth and quality of our programs, and tools such as the performance analytics dashboard, which make it easier for large systems to advance quality. The enduring success of these programs is a testament to the dedication of our volunteers—both members and other laboratory professionals.

financial-gomez-richard

Secretary-Treasurer
Richard R. Gomez, MD, FCAP

* Includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019 to properly correlate customer payments with the timing of services.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $1.9 million and $3.3 million, respectively.

2014-2018
CAP OPERATING REVENUE

financials-2018-operating-revenue-graph

* 2018 Laboratory Quality Solutions revenue includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019.

In 2018, we also saw notable growth in other revenue, largely due to increased exhibitor participation in our annual meeting.

We continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $222.2 million, $6.3 million below budget.

As with many organizations, cost of personnel and benefits is our largest expense category—accounting for 41.2% of total expenses in 2018 (net of capitalized amounts). The Compensation Committee continuously monitors this cost against external benchmarks, ensuring our ability to attract and retain the right talent in a sustainable way. In addition to building internal capabilities, the CAP also selectively engages outside services for specific short-term expertise on projects and for more cost-effective solutions for ongoing operations. In 2018, outside services (net of capitalized amounts) were 10.4% of total expenses.

Cost of materials and on-site inspections is our second largest expense category, comprising 31.1% of total expenses. This category includes payments to outside vendors for test kits, cost of shipping those kits to more than 22,000 laboratory sites in over 100 countries, and worldwide inspector travel costs.

This expense grew by 2.4% over 2017, as cost increases from suppliers, international shipping, and inspection travel expenses were partially offset by benefits of a new global logistics partner. We continue to seek the most efficient ways to deliver our growing programs in an increasingly complex global environment, mitigating costs and accelerating delivery times, especially to our international customers.

Depreciation and amortization accounted for 6.0% of total expenses in 2018. This non-cash expense is related to significant past investments to update our information systems. The Board of Governors continues to monitor member and customer feedback and invest in the areas of highest priority. It is now easier than ever to enter proficiency testing results online and update your organization’s profile. Additional investments are forthcoming based on a five-year strategic technology plan approved by the Board in 2018.

*Beginning deferred revenue balance was increased by $14.1 million (with a corresponding reduction to net assets) for a one-time accounting adjustment to properly correlate customer payments with the timing of accreditation services.

With revenue slightly below target and expenses significantly below budget, 2018 net income (excess revenue over expenses after investments and adjustments) was negative $6.2 million— $1.1 million better than budget.

The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx). While yearly results may fluctuate, our long-term goal is to break even. The CAP again exceeded this target—achieving EBIDA less CapEx of $3.2 million in 2018 and positioning us well for future investments.

We continued to fund programs that meet our members’ top needs. In 2018, we invested $7.3 million into high-quality practical learning, delivered your way. We grew our investment in advocacy by 11.3%—to $8.7 million—to ensure the CAP continues to successfully advocate on behalf of pathologists as the only 501(c)(6) membership organization representing pathologists. We funded the Pathologists Quality Registry, led the development of evidence-based guidelines, and helped members build critical skills.

Our balance sheet remains strong, with total assets of $238.4 million, including reserves of $76.6 million. Like most investors, we saw some decline in our portfolio in 2018, but we were able to manage it to 2.8% of value through strong diversification.

Your CAP is financially sound and well positioned to foster excellence in the practice of pathology and laboratory medicine worldwide for years to come.

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. To do this, we need to maintain a strong financial position and invest our excess earnings into the right portfolio of member benefits.

Our total operating revenues for the year ended December 31, 2018, were $218.0 million—a 5.0% growth over fiscal year 2017. Revenues were slightly below the Board-approved target due to a one-time accounting adjustment (see Revenue Category Table note).

financial-gomez-richard

Secretary-Treasurer
Richard R. Gomez, MD, FCAP

In 2018, we also saw notable growth in other revenue, largely due to increased exhibitor participation in our annual meeting.

We continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $222.2 million, $6.3 million below budget.

As with many organizations, cost of personnel and benefits is our largest expense category—accounting for 41.2% of total expenses in 2018 (net of capitalized amounts). The Compensation Committee continuously monitors this cost against external benchmarks, ensuring our ability to attract and retain the right talent in a sustainable way. In addition to building internal capabilities, the CAP also selectively engages outside services for specific short-term expertise on projects and for more cost-effective solutions for ongoing operations. In 2018, outside services (net of capitalized amounts) were 10.4% of total expenses.

Cost of materials and on-site inspections is our second largest expense category, comprising 31.1% of total expenses. This category includes payments to outside vendors for test kits, cost of shipping those kits to more than 22,000 laboratory sites in over 100 countries, and worldwide inspector travel costs.

This expense grew by 2.4% over 2017, as cost increases from suppliers, international shipping, and inspection travel expenses were partially offset by benefits of a new global logistics partner. We continue to seek the most efficient ways to deliver our growing programs in an increasingly complex global environment, mitigating costs and accelerating delivery times, especially to our international customers.

Depreciation and amortization accounted for 6.0% of total expenses in 2018. This non-cash expense is related to significant past investments to update our information systems. The Board of Governors continues to monitor member and customer feedback and invest in the areas of highest priority. It is now easier than ever to enter proficiency testing results online and update your organization’s profile. Additional investments are forthcoming based on a five-year strategic technology plan approved by the Board in 2018.

2014-2018
CAP OPERATING REVENUE

financials-2018-operating-revenue-graph

* 2018 Laboratory Quality Solutions revenue includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019.

With revenue slightly below target and expenses significantly below budget, 2018 net income (excess revenue over expenses after investments and adjustments) was negative $6.2 million— $1.1 million better than budget. The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx). While yearly results may fluctuate, our long-term goal is to break even. The CAP again exceeded this target—achieving EBIDA less CapEx of $3.2 million in 2018 and positioning us well for future investments.

We continued to fund programs that meet our members’ top needs. In 2018, we invested $7.3 million into high-quality practical learning, delivered your way. We grew our investment in advocacy by 11.3%—to $8.7 million—to ensure the CAP continues to successfully advocate on behalf of pathologists as the only 501(c)(6) membership organization representing pathologists. We funded the Pathologists Quality Registry, led the development of evidence-based guidelines, and helped members build critical skills.

Our balance sheet remains strong, with total assets of $238.4 million, including reserves of $76.6 million. Like most investors, we saw some decline in our portfolio in 2018, but we were able to manage it to 2.8% of value through strong diversification.

Your CAP is financially sound and well positioned to foster excellence in the practice of pathology and laboratory medicine worldwide for years to come.

* Beginning deferred revenue balance was increased by $14.1 million (with a corresponding reduction to net assets) for a one-time accounting adjustment to properly correlate customer payments with the timing of accreditation services.

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 4.9% over 2017. These programs benefit pathologists, clinicians, and patients and—at 92.6% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, which contributed 17.0% of proficiency testing revenues. Laboratories choose the CAP as their accreditation and proficiency testing provider thanks to our unique peer inspection model, the breadth and quality of our programs, and tools such as the performance analytics dashboard, which make it easier for large systems to advance quality. The enduring success of these programs is a testament to the dedication of our volunteers—both members and other laboratory professionals.

* Includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019 to properly correlate customer payments with the timing of services.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $1.9 million and $3.3 million, respectively.

2014-2018
CAP OPERATING REVENUE

financials-2018-operating-revenue-graph-mobile

* 2018 Laboratory Quality Solutions revenue includes a one-time adjustment of -$1.1 million to defer accreditation revenue to 2019.

In 2018, we also saw notable growth in other revenue, largely due to increased exhibitor participation in our annual meeting.

We continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $222.2 million, $6.3 million below budget.

As with many organizations, cost of personnel and benefits is our largest expense category—accounting for 41.2% of total expenses in 2018 (net of capitalized amounts). The Compensation Committee continuously monitors this cost against external benchmarks, ensuring our ability to attract and retain the right talent in a sustainable way. In addition to building internal capabilities, the CAP also selectively engages outside services for specific short-term expertise on projects and for more cost-effective solutions for ongoing operations. In 2018, outside services (net of capitalized amounts) were 10.4% of total expenses.

Cost of materials and on-site inspections is our second largest expense category, comprising 31.1% of total expenses. This category includes payments to outside vendors for test kits, cost of shipping those kits to more than 22,000 laboratory sites in over 100 countries, and worldwide inspector travel costs.

This expense grew by 2.4% over 2017, as cost increases from suppliers, international shipping, and inspection travel expenses were partially offset by benefits of a new global logistics partner. We continue to seek the most efficient ways to deliver our growing programs in an increasingly complex global environment, mitigating costs and accelerating delivery times, especially to our international customers.

Depreciation and amortization accounted for 6.0% of total expenses in 2018. This non-cash expense is related to significant past investments to update our information systems. The Board of Governors continues to monitor member and customer feedback and invest in the areas of highest priority. It is now easier than ever to enter proficiency testing results online and update your organization’s profile. Additional investments are forthcoming based on a five-year strategic technology plan approved by the Board in 2018.

*Beginning deferred revenue balance was increased by $14.1 million (with a corresponding reduction to net assets) for a one-time accounting adjustment to properly correlate customer payments with the timing of accreditation services.

With revenue slightly below target and expenses significantly below budget, 2018 net income (excess revenue over expenses after investments and adjustments) was negative $6.2 million— $1.1 million better than budget. The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx). While yearly results may fluctuate, our long-term goal is to break even. The CAP again exceeded this target—achieving EBIDA less CapEx of $3.2 million in 2018 and positioning us well for future investments.

We continued to fund programs that meet our members’ top needs. In 2018, we invested $7.3 million into high-quality practical learning, delivered your way. We grew our investment in advocacy by 11.3%—to $8.7 million—to ensure the CAP continues to successfully advocate on behalf of pathologists as the only 501(c)(6) membership organization representing pathologists. We funded the Pathologists Quality Registry, led the development of evidence-based guidelines, and helped members build critical skills.

Our balance sheet remains strong, with total assets of $238.4 million, including reserves of $76.6 million. Like most investors, we saw some decline in our portfolio in 2018, but we were able to manage it to 2.8% of value through strong diversification.

Your CAP is financially sound and well positioned to foster excellence in the practice of pathology and laboratory medicine worldwide for years to come.

GROWING AND EVOLVING

GROWING AND EVOLVING

GROWING AND EVOLVING

$218.0M

operating revenue—up 5.0% over 2017

$222.2M

expenses—up 4.6% over 2017

$3.2M

EBIDA
minus capital expenditures

$201.9M

revenue from Laboratory Quality Solutions—4.9% growth over 2017

$8.7M

spent in direct support of advocacy initiatives, to lobby on behalf of the interests of pathologist

-$6.2M

earnings net of noncash expenses

$7.3M

allocated toward advancing comprehensive learning programs for members

$3.7M

revenue from member dues