FINANCIAL REPORT

FINANCIAL REPORT

FINANCIAL REPORT

OUR GOAL AS A NONPROFIT ORGANIZATION IS TO PROVIDE THE GREATEST VALUE TO THE GREATEST NUMBER OF MEMBERS.

OUR GOAL AS A NON PROFIT ORGANIZATION IS TO PROVIDE THE GREATEST VALUE TO THE GREATEST NUMBER OF MEMBERS.

A Strong Year for the CAP

A Strong Year for the CAP

A Strong Year for the CAP

To ensure the CAP can meet the needs of its members for years to come, we set and actively monitor annual financial goals. I am pleased to report that 2019 was another strong year for the CAP.

Total operating revenues for the year ended December 31, 2019, were $231.4 million—0.6% better than the Board-approved 2019 target and a 6.1% increase over fiscal year 2018.

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 6.5% over 2018. These programs benefit pathologists, clinicians, and patients and—at 92.8% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, with 19.9% of Laboratory Quality Solutions revenues coming from outside of the United States.

All other revenue grew by 2.1% in 2019.

01financials_dt_gomez2x

Richard R. Gomez, MD, FCAP, Secretary-Treasurer

* 2019 investment earnings reflect a change in accounting for alternative investments, which are now adjusted to their current estimated market value on a quarterly basis.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $2.5 million and $3.1 million, respectively.

To ensure the CAP can meet the needs of its members for years to come, we set and actively monitor annual financial goals. I am pleased to report that 2019 was another strong year for the CAP.

Total operating revenues for the year ended December 31, 2019, were $231.4 million—0.6% better than the Board-approved 2019 target and a 6.1% increase over fiscal year 2018.

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 6.5% over 2018. These programs benefit pathologists, clinicians, and patients and—at 92.8% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, with 19.9% of Laboratory Quality Solutions revenues coming from outside of the United States.

All other revenue grew by 2.1% in 2019.

01financials_t_gomez3x

Richard R. Gomez, MD, FCAP, Secretary-Treasurer

* 2019 investment earnings reflect a change in accounting for alternative investments, which are now adjusted to their current estimated market value on a quarterly basis.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $2.5 million and $3.1 million, respectively.

2015-2019
CAP OPERATING REVENUE

2019_op_rev_graph

In addition to operating revenue, investment earnings were $20.0 million in 2019, reflecting the CAP portfolio’s increase in market value. Like many organizations, the CAP invests a portion of its portfolio in alternative investments to diversify risk and sustain needed returns. Pursuant to new accounting rules effective January 1, 2019, we now adjust alternative investments to their estimated market value on a quarterly basis.

The CAP continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $228.4 million, an increase of 2.8% from 2018 and 2.4% better than 2019 budget.

Cost of personnel and benefits (net of capitalized amounts)—our largest expense category—was $91.9 million, or 40.2% of total expenses in 2019. This expense was 4.4% below budget, partially due to timing of hiring and better than anticipated insurance costs. The Compensation Committee continuously monitors CAP personnel and benefits cost against external benchmarks, ensuring our ability to attract and retain the right talent in a sustainable way.

*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.

In addition to building internal capabilities, the CAP also selectively engages outside services to obtain more cost-effective solutions for ongoing operations and for unique expertise on projects or infrequent needs. In 2019, the cost of outside services (net of capitalized amounts) was $24.4 million, or 10.7% of total expenses.

Cost of materials and onsite inspections—our second largest expense category—was $73.0 million, or 31.9% of total expenses. This category includes payments to outside vendors for test kits, the cost of shipping those kits to more than 22,700 laboratory sites in over 100 countries, and worldwide inspector travel costs. This expense grew by 5.4% compared to 2018, commensurate with growth in revenue from Laboratory Quality Solutions.

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. In 2019, we automated shipping documentation, which should reduce foreign processing fees charged by our packagers.

Depreciation and amortization expense was $12.5 million, or 5.5% of total expenses in 2019. This non-cash expense is largely related to significant past investments to update our information systems. As we transition to cloud technologies, we expect to spend less on software and hardware purchases (with a corresponding reduction to depreciation and amortization) and more on software rental and maintenance expense. The Board of Governors continues to monitor our progress against the five-year strategic technology plan approved in 2018 to help the CAP operate more efficiently and effectively while also responding to member and customer feedback.

With both revenue and expenses better than budget, and investment earnings of $20.0 million, 2019 net income (excess revenue over expenses after investments and adjustments) was $23.0 million. The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx) to ensure we break even in the long term. In 2019 the CAP again exceeded this target—achieving EBIDA less CapEx of $8.7 million and positioning itself well for future investments.

We continued to fund programs that meet our members’ top needs. As the only 501(c)(6) membership organization representing pathologists, the CAP spent $8.6 million in direct expenses to advocate on behalf of pathologists in Washington, DC, and beyond. We also invested $7.1 million into high-quality practical learning that evolved with your needs. We led development of evidence-based guidelines, helped members build critical skills, funded the Pathologists Quality Registry, and expanded the reach of structured data solutions.

The CAP balance sheet remains strong, with $277.0 million in total assets as of December 31, 2019, including reserves of $89.1 million. Assets net of liabilities were $73.0 million.

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. As the professional home for pathologists, the CAP remains financially strong and well positioned to support the future of pathology and laboratory medicine worldwide.

To ensure the CAP can meet the needs of its members for years to come, we set and actively monitor annual financial goals. I am pleased to report that 2019 was another strong year for the CAP.

Total operating revenues for the year ended December 31, 2019, were $231.4 million—0.6% better than the Board-approved 2019 target and a 6.1% increase over fiscal year 2018.

Revenue from Laboratory Quality Solutions, which includes proficiency testing and laboratory accreditation, grew 6.5% over 2018. These programs benefit pathologists, clinicians, and patients and—at 92.8% of total revenues—remained the primary source of funding for other CAP member benefits. We continue to experience strong growth in strategic international markets, with 19.9% of Laboratory Quality Solutions revenues coming from outside of the United States.

All other revenue grew by 2.1% in 2019.

In addition to operating revenue, investment earnings were $20.0 million in 2019, reflecting the CAP portfolio’s increase in market value. Like many organizations, the CAP invests a portion of its portfolio in alternative investments to diversify risk and sustain needed returns. Pursuant to new accounting rules effective January 1, 2019, we now adjust alternative investments to their estimated market value on a quarterly basis.

* 2019 investment earnings reflect a change in accounting for alternative investments, which are now adjusted to their current estimated market value on a quarterly basis.

*Amounts for personnel and benefits and outside services have been reduced by the capitalized expenses of $2.5 million and $3.1 million, respectively.

2015-2019
CAP OPERATING REVENUE

2019_op_rev_graph

The CAP continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $228.4 million, an increase of 2.8% from 2018 and 2.4% better than 2019 budget.

Cost of personnel and benefits (net of capitalized amounts)—our largest expense category—was $91.9 million, or 40.2% of total expenses in 2019. This expense was 4.4% below budget, partially due to timing of hiring and better than anticipated insurance costs. The Compensation Committee continuously monitors CAP personnel and benefits 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 to obtain more cost-effective solutions for ongoing operations and for unique expertise on projects or infrequent needs. In 2019, the cost of outside services (net of capitalized amounts) was $24.4 million, or 10.7% of total expenses.

Cost of materials and onsite inspections—our second largest expense category—was $73.0 million, or 31.9% of total expenses. This category includes payments to outside vendors for test kits, the cost of shipping those kits to more than 22,700 laboratory sites in over 100 countries, and worldwide inspector travel costs. This expense grew by 5.4% compared to 2018, commensurate with growth in revenue from Laboratory Quality Solutions.

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. In 2019, we automated shipping documentation, which should reduce foreign processing fees charged by our packagers.

Depreciation and amortization expense was $12.5 million, or 5.5% of total expenses in 2019. This non-cash expense is largely related to significant past investments to update our information systems. As we transition to cloud technologies, we expect to spend less on software and hardware purchases (with a corresponding reduction to depreciation and amortization) and more on software rental and maintenance expense. The Board of Governors continues to monitor our progress against the five-year strategic technology plan approved in 2018 to help the CAP operate more efficiently and effectively while also responding to member and customer feedback.

*Investment balance reflects a change in accounting for alternative investments, which are now adjusted to their current estimated market value on a quarterly basis.

With both revenue and expenses better than budget, and investment earnings of $20.0 million, 2019 net income (excess revenue over expenses after investments and adjustments) was $23.0 million. The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx) to ensure we break even in the long term. In 2019 the CAP again exceeded this target—achieving EBIDA less CapEx of $8.7 million and positioning itself well for future investments.

We continued to fund programs that meet our members’ top needs. As the only 501(c)(6) membership organization representing pathologists, the CAP spent $8.6 million in direct expenses to advocate on behalf of pathologists in Washington, DC, and beyond. We also invested $7.1 million into high-quality practical learning that evolved with your needs. We led development of evidence-based guidelines, helped members build critical skills, funded the Pathologists Quality Registry, and expanded the reach of structured data solutions.

The CAP balance sheet remains strong, with $277.0 million in total assets as of December 31, 2019, including reserves of $89.1 million. Assets net of liabilities were $73.0 million.

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. As the professional home for pathologists, the CAP remains financially strong and well positioned to support the future of pathology and laboratory medicine worldwide.

01financials_m_gomez3x

Richard R. Gomez, MD, FCAP, Secretary-Treasurer

In addition to operating revenue, investment earnings were $20.0 million in 2019, reflecting the CAP portfolio’s increase in market value. Like many organizations, the CAP invests a portion of its portfolio in alternative investments to diversify risk and sustain needed returns. Pursuant to new accounting rules effective January 1, 2019, we now adjust alternative investments to their estimated market value on a quarterly basis.

The CAP continued to actively manage costs across all departments while investing in the right member benefits. Total operating expenses were $228.4 million, an increase of 2.8% from 2018 and 2.4% better than 2019 budget.

Cost of personnel and benefits (net of capitalized amounts)—our largest expense category—was $91.9 million, or 40.2% of total expenses in 2019. This expense was 4.4% below budget, partially due to timing of hiring and better than anticipated insurance costs. The Compensation Committee continuously monitors CAP personnel and benefits cost against external benchmarks, ensuring our ability to attract and retain the right talent in a sustainable way.

2015-2019
CAP OPERATING REVENUE

2019_op_rev_graph

In addition to building internal capabilities, the CAP also selectively engages outside services to obtain more cost-effective solutions for ongoing operations and for unique expertise on projects or infrequent needs. In 2019, the cost of outside services (net of capitalized amounts) was $24.4 million, or 10.7% of total expenses.

Cost of materials and onsite inspections—our second largest expense category—was $73.0 million, or 31.9% of total expenses. This category includes payments to outside vendors for test kits, the cost of shipping those kits to more than 22,700 laboratory sites in over 100 countries, and worldwide inspector travel costs. This expense grew by 5.4% compared to 2018, commensurate with growth in revenue from Laboratory Quality Solutions.

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. In 2019, we automated shipping documentation, which should reduce foreign processing fees charged by our packagers.

Depreciation and amortization expense was $12.5 million, or 5.5% of total expenses in 2019. This non-cash expense is largely related to significant past investments to update our information systems. As we transition to cloud technologies, we expect to spend less on software and hardware purchases (with a corresponding reduction to depreciation and amortization) and more on software rental and maintenance expense. The Board of Governors continues to monitor our progress against the five-year strategic technology plan approved in 2018 to help the CAP operate more efficiently and effectively while also responding to member and customer feedback.

* Investment balance reflects a change in accounting for alternative investments, which are now adjusted to their current estimated market value on a quarterly basis.

With both revenue and expenses better than budget, and investment earnings of $20.0 million, 2019 net income (excess revenue over expenses after investments and adjustments) was $23.0 million. The Board also monitors earnings before interest, depreciation, and amortization (EBIDA), minus capital expenditures (CapEx) to ensure we break even in the long term. In 2019 the CAP again exceeded this target—achieving EBIDA less CapEx of $8.7 million and positioning itself well for future investments.

We continued to fund programs that meet our members’ top needs. As the only 501(c)(6) membership organization representing pathologists, the CAP spent $8.6 million in direct expenses to advocate on behalf of pathologists in Washington, DC, and beyond. We also invested $7.1 million into high-quality practical learning that evolved with your needs. We led development of evidence-based guidelines, helped members build critical skills, funded the Pathologists Quality Registry, and expanded the reach of structured data solutions.

The CAP balance sheet remains strong, with $277.0 million in total assets as of December 31, 2019, including reserves of $89.1 million. Assets net of liabilities were $73.0 million.

The CAP’s goal—as a nonprofit organization—is to provide the greatest value to the greatest number of members. As the professional home for pathologists, the CAP remains financially strong and well positioned to support the future of pathology and laboratory medicine worldwide.

GROWING AND EVOLVING

GROWING AND EVOLVING

GROWING AND EVOLVING

$231.4M

operating revenue—6.1% growth over 2018

$228.4M

expenses—up 2.8% over 2018

$8.7M

EBIDA
minus capital expenditures

$214.8M

revenue from Laboratory Quality Solutions—6.5% growth over 2018

$8.6M

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

$23.0M

earnings net of noncash expenses

$7.1M

allocated toward advancing comprehensive learning programs for members

$3.9M

revenue from member dues

GROWING AND EVOLVING

GROWING AND EVOLVING

GROWING AND EVOLVING

$231.4M

operating revenue—6.1% growth over 2018

$228.4M

expenses—up 2.8% over 2018

$8.7M

EBIDA
minus capital expenditures

$214.8M

revenue from Laboratory Quality Solutions—6.5% growth over 2018

$8.6M

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

23.0M

earnings net of noncash expenses

$7.1M

allocated toward advancing comprehensive learning programs for members

$3.9M

revenue from member dues