CorVel Corporation (NASDAQ:CRVL) Q4 2020 Earnings Conference Call February 2, 2021 11:30 AM ET Company Participants Michael Combs – President and Chief Executive Officer Brandon O’Brien – Chief Financial Officer Conference Call Participants Operator Thank you for standing by. Welcome to the CorVel Corporation Quarterly Earnings Release Webcast. During the course of this webcast, CorVel Corporation may make projections or other forward-looking statements regarding future events or the future financial perfor ...

PART I - FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) CorVel Corporation's unaudited consolidated financial statements as of September 30, 2020, show year-over-year declines in revenues and net income, primarily due to the COVID-19 pandemic [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$441.6 million** by September 30, 2020, driven by cash, while liabilities and stockholders' equity also rose Consolidated Balance Sheet Summary (in thousands of USD) | Account | Sep 30, 2020 (Unaudited) | Mar 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$441,580** | **$416,260** | | Cash and cash equivalents | $106,082 | $83,223 | | Accounts receivable, net | $73,095 | $65,767 | | **Total Liabilities** | **$239,180** | **$226,549** | | Accrued liabilities | $135,768 | $117,326 | | Long-term lease liabilities | $82,898 | $85,096 | | **Total Stockholders' Equity** | **$202,400** | **$189,711** | [Consolidated Income Statements](index=4&type=section&id=Consolidated%20Income%20Statements) Revenues decreased **7.4%** to **$136.0 million** for the quarter and **10.6%** to **$265.6 million** for the six months, with net income also declining Three Months Ended September 30 (in thousands of USD, except per share data) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $136,028 | $146,970 | -7.4% | | Gross Profit | $30,503 | $32,843 | -7.1% | | Net Income | $11,865 | $12,871 | -7.8% | | Diluted EPS | $0.65 | $0.69 | -5.8% | Six Months Ended September 30 (in thousands of USD, except per share data) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $265,628 | $297,109 | -10.6% | | Gross Profit | $57,012 | $65,977 | -13.6% | | Net Income | $20,167 | $26,278 | -23.3% | | Diluted EPS | $1.11 | $1.40 | -20.7% | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to **$39.5 million**, while reduced investing and financing activities led to a **$22.9 million** increase in cash and cash equivalents Cash Flow Summary - Six Months Ended September 30 (in thousands of USD) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,507 | $46,439 | | Net cash used in investing activities | ($6,937) | ($17,542) | | Net cash used in financing activities | ($9,711) | ($22,690) | | **Increase in cash and cash equivalents** | **$22,859** | **$6,207** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue by service line showing declines, stock-based compensation, share repurchases, and significant lease liabilities - The company adopted new accounting standards for credit losses (ASC 326) and goodwill impairment (ASC 350) as of April 1, 2020, with **no material impact** on the consolidated financial statements[24](index=24&type=chunk)[26](index=26&type=chunk) Revenue by Service Line - Six Months Ended Sep 30 (in thousands of USD) | Service Line | 2020 | 2019 | | :--- | :--- | :--- | | Patient management services | $175,471 | $195,202 | | Network solutions services | $90,157 | $101,907 | | **Total services** | **$265,628** | **$297,109** | - The company repurchased **184,963 shares** for **$14.4 million** in the six months ended September 30, 2020, as part of its ongoing stock repurchase program[59](index=59&type=chunk) - As of September 30, 2020, the company had total lease liabilities of **$95.8 million** related to its operating leases, with a weighted average remaining lease term of **8.07 years**[78](index=78&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A attributes financial decline to COVID-19, detailing cost-saving measures like headcount reduction and share repurchase suspension, which improved liquidity [COVID-19 Pandemic Impact](index=19&type=section&id=COVID-19%20Pandemic%20Impact) The COVID-19 pandemic significantly impacted revenues, prompting a **10% headcount reduction**, spending cuts, and a temporary suspension of share repurchases - The company expects the ongoing global economic slowdown from the pandemic to have a **material adverse effect** on its business, results of operations, financial condition, and cash flows in future quarters[91](index=91&type=chunk)[93](index=93&type=chunk) - Mitigation efforts included a **10% headcount reduction**, reduced discretionary spending (capital expenditures, travel, recruiting), and a temporary suspension of share repurchases[92](index=92&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Quarterly revenues fell **7.4%** to **$136.0 million** and six-month revenues declined **10.6%** to **$265.6 million**, driven by decreased new claims and cost-cutting Q2 FY2021 vs Q2 FY2020 Performance (Three Months Ended Sep 30, in millions of USD, except per share data) | Metric | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $136.0 million | $147.0 million | -7.4% | | Net Income | $11.9 million | $12.9 million | -7.8% | | Diluted EPS | $0.65 | $0.69 | -5.8% | - The decrease in quarterly revenue was attributed to the economic impact of COVID-19, with the number of new claims decreasing by **10.2%**[106](index=106&type=chunk) - For the six months ended September 30, 2020, revenues decreased **10.6%** and the number of new claims decreased by **16.4%** compared to the prior year period[116](index=116&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity strengthened with cash and cash equivalents increasing by **$22.9 million** to **$106.1 million**, supported by reduced capital expenditures and halted share repurchases - Working capital increased by **$17.9 million** to **$93.2 million** as of September 30, 2020, from **$75.3 million** at March 31, 2020[120](index=120&type=chunk) - Net cash from operating activities decreased by **$6.9 million** for the six-month period, primarily due to a **$6.1 million** decrease in net income[126](index=126&type=chunk) - Cash used in investing activities decreased by **$10.6 million** due to reduced capital expenditures, and cash used in financing decreased by **$13.0 million** due to lower share repurchases[127](index=127&type=chunk)[128](index=128&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As of September 30, 2020, CorVel reported no market risk exposure, holding no market-sensitive instruments, derivatives, or outstanding debt - The Company held **no market risk sensitive instruments** for trading purposes and had **no debt outstanding** as of September 30, 2020[138](index=138&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2020, the company's disclosure controls and procedures were **effective**[140](index=140&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended September 30, 2020, that have **materially affected**, or are reasonably likely to materially affect, internal controls[141](index=141&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course litigation, but management expects no material impact on financial position or results of operations - Management does not expect ongoing litigation, which arises in the ordinary course of business, to result in any payments that would be **material** to the company's financial position[143](index=143&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include the COVID-19 pandemic's adverse effects, cybersecurity threats, intense competition, declining workers' compensation claims, and regulatory and technology obsolescence issues - The COVID-19 pandemic is a primary risk, with potential impacts including **reduced customer demand**, disruption of services, and **adverse effects on revenue** due to widespread unemployment and business closures[146](index=146&type=chunk)[147](index=147&type=chunk) - The company faces significant risk from cybersecurity attacks, which could result in the **unauthorized disclosure of sensitive information**, leading to reputational harm, litigation, and regulatory proceedings[157](index=157&type=chunk)[158](index=158&type=chunk) - Competition is a major risk, as the market is **fragmented** and includes national providers, smaller local vendors, and large insurance carriers that may perform managed care services in-house[156](index=156&type=chunk) - A long-term decline in workers' compensation claims, driven by a shift to a more service-oriented labor market and proactive injury prevention by employers, could have a **material adverse impact** on the business[169](index=169&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **150,325** common shares for approximately **$12.0 million** in open-market transactions during the quarter ended September 30, 2020 Share Repurchases for the Quarter Ended September 30, 2020 (in USD) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2020 | 57,863 | $76.00 | | August 2020 | 51,736 | $80.92 | | September 2020 | 40,726 | $84.81 | | **Total** | **150,325** | **$80.08** | [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists Form 10-Q exhibits, including corporate documents, incentive plans, CEO/CFO certifications, and Inline XBRL documents - The report includes CEO and CFO certifications under Sections **302 and 906** of the Sarbanes-Oxley Act of 2002[205](index=205&type=chunk)[206](index=206&type=chunk)

Financial Data and Key Metrics Changes - Earnings per share for the quarter ended September 30, 2020 were $0.65, a decrease of 6% from $0.69 per share in the same quarter of the prior year [22] - Revenues for the period were $136 million, showing recovery from the lows seen during the first few months of the pandemic [22] - Quarterly gross profit increased to a five-year high of 22.4%, led by patient management profit and margins hitting all-time highs [22] Business Line Data and Key Metrics Changes - Revenue for patient management, including third-party administration (TPA) services, was $90 million, an increase of 6% [23] - Gross profit for patient management increased by 20% from the September quarter of 2019 [23] - Revenue for network solutions sold in the wholesale market was $46 million, a decrease of 11% from the same quarter of the prior year, with gross profit down 30% [24] Market Data and Key Metrics Changes - Net claim volume in the workers' compensation market is down around 15% due to the pandemic, with an increase in COVID-19 claims covered under workers' compensation [9] - At least 18 states have extended workers' compensation coverage to include COVID-19 as a work-related illness, with varying coverage across states [10][11] Company Strategy and Development Direction - The company is optimistic about future market opportunities, emphasizing the importance of adapting to new technology and digital strategies accelerated by the pandemic [7] - Strategic software initiatives are being prioritized, with a focus on enhancing analytics and machine learning capabilities [18] - The company is expanding its scope of services and forming long-term partnerships to improve healthcare payment operations [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, noting that the pandemic has created opportunities for those well-positioned to meet evolving market needs [7] - The company has seen a steady recovery pattern from the June quarter through the September quarter, with new sales being a strong bright spot [25] - There is an expectation for increased demand for virtual mental health visits and psychosocial treatment models due to the adverse impacts of the pandemic on mental health [13] Other Important Information - The company repurchased 150,325 shares for a total price of $12 million during the quarter, with a total of 36 million shares repurchased to date [26] - The quarter ending cash balance was a record-high $106 million, indicating strong cash flow [26] Q&A Session Summary - The Q&A session did not contain any recorded questions or answers, as the call concluded without further inquiries [27]

Financial Data and Key Metrics Changes - Earnings per share for the quarter ended June 30, 2020 were $0.46, with revenues of $129.6 million, reflecting a 14% decrease from the same quarter of the prior year [4][28] - The quarter ending cash balance was $94 million, which is up $11 million from the end of the last quarter [5][39] - Gross profit margins increased an average of 300 basis points per month during the quarter as volumes generally increased [31] Business Line Data and Key Metrics Changes - Revenue for patient management, including third-party administration and traditional case management, was $85 million, an annual increase of 14% [32] - Quarterly revenue for Telehealth services expanded nearly 300% above prior quarterly averages, indicating strong demand [33] - Revenue for Network Solutions in the wholesale market was $44 million, a decrease of 12% from the same quarter of the prior year [34] Market Data and Key Metrics Changes - The commercial health market is increasingly important to CorVel's overall results, with ongoing investment creating new growth opportunities [14] - The pandemic has led to increased demand for payment integrity solutions, with CorVel actively engaging with insurer partners to develop new services [12] Company Strategy and Development Direction - The company is focusing on technology investments to enhance virtual care functionality, which has seen a tenfold increase in demand due to COVID-19 [10][18] - CorVel's strategy includes integrating virtual care services with the intake process to improve outcomes and reduce care delays [18] - The company plans to expand its use of machine learning technology to enhance liability risk assessment [23][25] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of employee safety and liquidity management during the pandemic, which allowed for effective operational adjustments [6][29] - The company expressed confidence in its financial strength and ability to meet dynamic customer needs while continuing to deliver high-quality service [8][19] Other Important Information - CorVel restarted its stock repurchase program on June 15, 2020, after pausing it earlier in the pandemic [9][39] - The company did not apply for or receive any federal support payments during the pandemic [30] Q&A Session Summary - No specific questions or answers were documented in the provided content, indicating the end of the call without a detailed Q&A section.

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents Corvel Corporation's unaudited consolidated financial statements and management's discussion for the three months ended June 30, 2020 [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Corvel Corporation's unaudited consolidated financial statements for the three months ended June 30, 2020, detailing financial position, performance, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows an increase in total assets to $425.0 million as of June 30, 2020, from $416.3 million at March 31, 2020, driven by a rise in cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | March 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $94,111 | $83,223 | | Total current assets | $224,436 | $208,991 | | TOTAL ASSETS | $425,009 | $416,260 | | **Liabilities & Equity** | | | | Total current liabilities | $138,535 | $133,689 | | Total liabilities | $226,917 | $226,549 | | Total stockholders' equity | $198,092 | $189,711 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $425,009 | $416,260 | [Consolidated Income Statements](index=4&type=section&id=Consolidated%20Income%20Statements) For the three months ended June 30, 2020, revenues decreased by 13.7% year-over-year to $129.6 million, with net income dropping 38.1% to $8.3 million Consolidated Income Statement (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | REVENUES | $129,600 | $150,139 | | Gross profit | $26,509 | $33,134 | | Income before income tax provision | $10,924 | $17,382 | | NET INCOME | $8,302 | $13,407 | | Diluted EPS | $0.46 | $0.71 | [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased from $189.7 million to $198.1 million, primarily driven by net income, partially offset by treasury stock repurchases - Key changes in stockholders' equity for the three months ended June 30, 2020 include **$8.3 million in net income**, **$1.5 million from stock issued under option plans**, and **$2.4 million used for treasury stock purchases**[9](index=9&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to $15.4 million, while cash used in investing and financing activities also decreased, leading to an overall increase in cash and cash equivalents Consolidated Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,411 | $26,362 | | Net cash used in investing activities | ($3,607) | ($8,030) | | Net cash used in financing activities | ($916) | ($5,620) | | **Increase in cash and cash equivalents** | **$10,888** | **$12,712** | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial components, highlighting the COVID-19 impact, revenue recognition, stock-based compensation, and treasury stock repurchases - The company acknowledges that the COVID-19 pandemic has impacted its operations and financial results, but the full extent of the future impact remains highly uncertain and cannot be reasonably estimated at this time[19](index=19&type=chunk) - The company adopted new accounting standards for credit losses (ASC 326) and goodwill impairment (ASC 350) on April 1, 2020, with no material impact on the financial statements[21](index=21&type=chunk)[23](index=23&type=chunk) Revenue by Service Line (in thousands) | Service Line | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Patient management services | $85,221 | $99,491 | | Network solutions services | $44,379 | $50,648 | | **Total services** | **$129,600** | **$150,139** | - The company repurchased **34,638 shares for $2.4 million** during the quarter after temporarily suspending its buyback program from March 21 to June 14, 2020[53](index=53&type=chunk) - The company's revolving credit facility expired in September 2019 and was not renewed[61](index=61&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 13.7% year-over-year revenue decline to the COVID-19 pandemic, leading to reduced gross profit and net income, while maintaining a strong liquidity position [Overview](index=16&type=section&id=Overview) CorVel provides medical cost containment and managed care services, operating as a single 'managed care' segment with geographically structured management - The company is a nationwide provider of medical cost containment and managed care services for insurance companies, TPAs, government entities, and self-administered employers[75](index=75&type=chunk) - CorVel operates in a single reportable segment, 'managed care', aggregating its geographically managed regions which all offer similar products and services[80](index=80&type=chunk)[82](index=82&type=chunk) [COVID-19 Pandemic](index=18&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic significantly impacted the business, leading to a 10% headcount reduction, cuts in discretionary spending, and temporary suspension of share repurchases - The company implemented a **10% headcount reduction** starting in the March 2020 quarter and continuing through the June 2020 quarter[86](index=86&type=chunk) - Discretionary spending was reduced, and the share repurchase program was temporarily suspended from March 21 through June 14, 2020[86](index=86&type=chunk) - The company is utilizing certain aspects of the CARES Act, such as the deferral of payroll tax deposits, but does not intend to apply for government loans[86](index=86&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Revenues for the quarter fell 13.7% to $129.6 million due to pandemic-driven declines in claim volumes, causing gross margin to contract from 22.1% to 20.5% Quarterly Performance vs. Prior Year (in thousands, except percentages) | Metric | Q1 FY2021 (ended June 30, 2020) | Q1 FY2020 (ended June 30, 2019) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $129,600 | $150,139 | (13.7%) | | Gross Profit | $26,509 | $33,134 | (20.0%) | | Gross Margin | 20.5% | 22.1% | -1.6 p.p. | | Net Income | $8,302 | $13,407 | (38.1%) | | Diluted EPS | $0.46 | $0.71 | (35.2%) | - The revenue decrease was attributed to the economic impact of the COVID-19 pandemic, which led to a **23% decrease in new claims under patient management** and a **35% decrease in new claims under network solutions**[97](index=97&type=chunk) - Cost of revenues decreased primarily due to a **10% reduction in field operations' headcount**, which was a response to the **13.7% decline in revenue**[100](index=100&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains strong with cash increasing to $94.1 million, supported by cost-cutting measures, despite a decrease in net cash from operations - Working capital increased by **$10.6 million to $85.9 million** as of June 30, 2020, primarily due to an increase in cash[104](index=104&type=chunk) - Cash increased due to actions taken in response to COVID-19, including reduced capital expenditures, workforce reductions, and deferral of certain compensation and payroll tax payments[104](index=104&type=chunk) - Net cash from operating activities decreased by **$11.0 million YoY**, primarily due to lower net income and an increase in Days Sales Outstanding (DSO) from **41 to 47 days**[110](index=110&type=chunk) - Net cash used in investing activities decreased by **$4.4 million YoY** due to a reduction in planned capital expenditures in response to the pandemic[111](index=111&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As of June 30, 2020, the company held no market risk sensitive instruments, did not use derivatives, and had no outstanding debt - The company holds no market risk sensitive instruments, does not use derivatives, and has no outstanding debt as of June 30, 2020[122](index=122&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective[124](index=124&type=chunk) - No material changes were made to the internal control over financial reporting during the three months ended June 30, 2020[125](index=125&type=chunk) [PART II - OTHER INFORMATION](index=24&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, and exhibits [Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course litigation, which management does not expect to materially impact financial position or results - Ongoing litigation is not expected to be material to the company's financial position or results[127](index=127&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include the adverse effects of the COVID-19 pandemic, intense competition, cybersecurity threats, and dependency on key personnel - The COVID-19 pandemic poses a significant risk, with potential adverse effects on revenue due to reduced economic activity, widespread unemployment, and disruptions to service delivery[130](index=130&type=chunk)[131](index=131&type=chunk) - Cybersecurity attacks are a major risk, potentially leading to the loss of sensitive information, business disruption, reputational harm, and significant financial liabilities[141](index=141&type=chunk)[142](index=142&type=chunk) - The company faces intense competition from national and local providers, as well as from insurance carriers that may choose to perform managed care services in-house[140](index=140&type=chunk) - A decline in the number of workers' compensation claims, driven by a less labor-intensive economy and proactive injury prevention, could materially harm results[152](index=152&type=chunk) - The business is dependent on key personnel, particularly Chairman V. Gordon Clemons and CEO Michael Combs, and the inability to retain them or other qualified employees could have a material adverse effect[176](index=176&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered equity sales but repurchased 34,638 shares for $2.4 million during the quarter, with 679,771 shares remaining authorized for repurchase Share Repurchases for Quarter Ended June 30, 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 to April 30, 2020 | — | $— | | May 1 to May 31, 2020 | — | $— | | June 1 to June 30, 2020 | 34,638 | $69.24 | | **Total** | **34,638** | **$69.24** | - The company's Board of Directors has authorized up to **37,000,000 shares** for repurchase over the life of the program, with no expiration date[184](index=184&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including corporate documents and CEO/CFO certifications under the Sarbanes-Oxley Act - Filed exhibits include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[187](index=187&type=chunk)[188](index=188&type=chunk)

Stock Repurchase and Financial Performance - In fiscal 2020, the company repurchased 822,353 shares of its common stock at a cost of $66 million, bringing total repurchases since 1996 to 36,285,591 shares for $532 million[18]. - The company has lifted the temporary suspension of its stock repurchase program and expects to resume it in the June 2020 quarter[18]. - The stock repurchase program has authorized the repurchase of up to 37,000,000 shares since its inception in 1996, with the most recent increase in February 2019[103]. - The company has a stock repurchase program authorized for up to 37 million shares, with 36,285,591 shares repurchased to date[148]. - The company has never paid cash dividends and intends to retain future earnings for business use and stock repurchase[146]. - Revenues for the fiscal year ended March 31, 2020, were $592.225 million, a slight decrease of 0.9% from $595.740 million in fiscal 2019[200]. - Gross profit for the fiscal year 2020 was $125.921 million, representing an increase of 0.9% compared to $124.809 million in fiscal 2019[200]. - Net income for fiscal 2020 was $47.377 million, up from $46.703 million in fiscal 2019, reflecting a growth of 1.4%[200]. - Basic net income per share increased to $2.59 in fiscal 2020 from $2.48 in fiscal 2019, marking a rise of 4.4%[200]. - Total assets as of March 31, 2020, were $416.260 million, an increase from $318.018 million in the previous year, indicating a growth of 30.9%[200]. - Cash and cash equivalents decreased to $83.223 million from $91.713 million in fiscal 2019, a decline of 9.1%[200]. - Working capital as of March 31, 2020, was $75.302 million, down from $98.574 million in fiscal 2019, a decrease of 23.5%[200]. - Return on beginning of year equity for fiscal 2020 was 24.3%, down from 27.3% in fiscal 2019[200]. - The company reported a total stockholders' equity of $189.711 million as of March 31, 2020, compared to $194.805 million in the previous year, a decrease of 2.2%[200]. - The income tax provision for fiscal 2020 was $13.334 million, slightly lower than $14.810 million in fiscal 2019, a decrease of 10.0%[200]. Services and Technology - The company offers a proprietary national PPO network comprising over 750,000 board-certified providers, enhancing healthcare cost management for employers[24]. - CorVel's artificial intelligence engine automates the bill review process with over 112 million individual rules, resulting in faster turnaround times and higher total savings[22]. - The company provides a full-feature pharmacy program that includes formulary management and discounted prescriptions, contributing to cost savings for workers' compensation claims[34]. - CorVel's claims management services utilize a proprietary rules engine to process reported incidents and injuries, ensuring immediate attention and expert claims professional assignment[40]. - CorVel's Symbeo technologies include scanning and document management services, expanding office automation capabilities across the company[32]. - CorVel's case management services focus on early intervention and rehabilitation, aiming to reduce the duration of disability and promote timely recovery[43]. - The company offers Medicare solutions to help employers comply with CMS requirements, including Medicare Set Asides and Agent Reporting Services[37]. - CorVel's Virtual Care Platform allows injured workers to connect with registered nurses for immediate assessment and care recommendations, potentially preventing minor injuries from escalating into costly claims[48]. - The company offers Utilization Management programs that utilize experienced registered nurses and proprietary protocols to avoid unnecessary treatments and associated costs[49]. - CorVel's Vocational Rehabilitation program assists injured workers in returning to work, providing services such as ergonomic assessments and job placement[50]. - Life Care Planning services project long-term care needs and costs for catastrophic injuries, aiding in timely claim resolutions[51]. - CareMC, CorVel's application platform, facilitates electronic communication and reporting, allowing users to manage claims and receive alerts for outlier events[59][61]. - CorVel Corporation provides medical cost containment and managed care services to address escalating medical costs in workers' compensation, automobile insurance, and group health insurance[205]. - The company offers network solutions services aimed at reducing medical service costs, including automated medical fee auditing and preferred provider management[206]. - Patient management services include claims management, case management, and 24/7 nurse triage, designed to expedite return to work for injured employees[207]. Market and Competitive Environment - The healthcare cost containment industry is competitive, with CorVel facing significant competition from larger companies with greater resources[65]. - There is a risk of declining sequential revenue growth, influenced by factors such as reduced manufacturing employment and competition in the workers' compensation market[84]. - The company faces challenges in maintaining market share among national and regional insurance carriers, which may impact future revenue[93]. - Increased competition from national managed care providers and insurance companies could adversely affect the company's growth and profits[94]. - The ongoing impacts of the pandemic may lead to prolonged economic slowdowns, affecting demand for the company's services and overall financial performance[89]. - Increased competition from managed care providers and legislative reforms may hinder the company's ability to retain customers and grow[112]. Operational Risks and Challenges - The company has experienced adverse effects on operations and financial results due to the COVID-19 pandemic, leading to significant volatility and economic disruption[82]. - Cybersecurity threats pose significant risks, including potential loss of sensitive information and operational disruptions, which could harm the company's reputation and financial condition[95]. - The company is subject to risks associated with strategic acquisitions, including integration challenges and potential negative impacts on operating results[90]. - The company is dependent on key management personnel, and the loss of key individuals could materially affect its business and financial condition[131]. - Customer contracts allow for termination without cause, and losing several customers in a short period could adversely impact results[132]. - The effectiveness of the company's information systems is crucial for enhancing its service model, and delays in system upgrades could negatively affect operations[134]. - The company has implemented remote working arrangements to mitigate COVID-19 risks, which may not fully address operational challenges[89]. - The company is sensitive to regional weather conditions, which can temporarily affect operations and results[137]. Regulatory and Economic Factors - CorVel's services are subject to various state and federal regulations, which may impact the demand for its services depending on legislative changes[67]. - Changes in government regulations may increase operational costs and reduce demand for services, impacting competitiveness[125]. - The reduction in workers' compensation claims due to a less labor-intensive economy may materially harm the company's results of operations[106]. - Rising costs of professional and general liability insurance could adversely affect profitability, with significant increases noted in recent years[123]. - Sustained increases in employee benefits costs may materially reduce profitability, influenced by macro-economic factors[124]. - Future performance may be impacted by risks such as global pandemics, cybersecurity incidents, and changes in regulatory environments[204]. Financial Reporting and Accounting - The consolidated balance sheets and statements of income for the fiscal years ended March 31, 2020, 2019, and 2018 are detailed on pages 48 to 51 of the annual report[178]. - The company's financial statements are incorporated by reference from the Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[178]. - The report of the independent registered public accounting firm is included on page 44 of the annual report[178]. - The consolidated statements of stockholders' equity for the fiscal years ended March 31, 2020, 2019, and 2018 are presented on page 50[178]. - The consolidated statements of cash flows for the fiscal years ended March 31, 2020, 2019, and 2018 are available on page 51[178]. - The financial statement schedule includes valuation and qualifying accounts, with specific details on the allowance for doubtful accounts[179]. - The allowance for doubtful accounts as of March 31, 2020, was $5,133,000, down from $5,508,000 in 2019, reflecting a decrease of approximately 6.8%[179]. - Additions charged to cost expenses for doubtful accounts in the fiscal year ended March 31, 2020, were $1,606,000, compared to $1,875,000 in 2019, indicating a decrease of about 14.3%[179]. - Deductions for doubtful accounts in the fiscal year ended March 31, 2020, were $(1,981,000), compared to $(918,000) in 2019, showing an increase in deductions of approximately 116.5%[179]. - The company has incorporated various exhibits related to stock option agreements and incentive plans in its filings[182]. - The company disclaims any obligation to update forward-looking statements based on future events or new information[204].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------|-------|----------- ...

Financial Data and Key Metrics Changes - Revenues for the December quarter were $148 million, with earnings per share at $0.50, a decrease of 7% from $0.54 in the same quarter of the prior year [5][20] - Net income for the quarter was $9.4 million, and gross profit increased by 9% compared to the December quarter of 2018 [20] - Operating cash flow was strong at $20 million, and the cash balance at the end of the quarter was $90 million [24] Business Line Data and Key Metrics Changes - Revenue for patient management services, including third-party administration, was $98 million, reflecting an annual increase of 7% [20] - Revenue for network solutions sold in the wholesale market was $50 million, a decrease of 8% from the same quarter of the prior year [22] - A temporary capacity decrease in patient management services was noted due to a change in subcontractors, affecting the total output of utilization management services [21] Market Data and Key Metrics Changes - The company is expanding its position in larger health markets such as Medicare, Medicaid, and private pay healthcare, with the CERiS division showing rapid growth [13] - The managed care industry is experiencing a shift towards full-service vendors to mitigate vulnerabilities in patient information [11] Company Strategy and Development Direction - The company is focused on digital transformation in healthcare, leveraging advances in computing power and artificial intelligence [7][8] - Strategic software enhancements have been released, emphasizing a data-centric approach to improve operational efficiency and decision-making [15][16] - The company is well-positioned for potential acquisitions, particularly in light of anticipated economic slowdowns [14] Management's Comments on Operating Environment and Future Outlook - Management highlighted the ongoing rapid advancements in computing power and the importance of integrating healthcare data across services [8][9] - The company expects to achieve supply and demand equilibrium in patient management services during the current quarter [21] - Investments in security positioning are expected to enhance long-term growth potential and customer assurance [23] Other Important Information - The company repurchased 240,000 shares for a total price of $19.2 million during the quarter, having repurchased 67% of total shares outstanding to date [24] Q&A Session Summary - The Q&A session concluded without specific questions or answers being documented in the provided content [25]

Financial Data and Key Metrics Changes - Revenues for the September quarter were $147 million, with earnings per share at $0.69, an increase of 2% from $0.67 per share in the same quarter of the prior year [5][25] - The earnings per share increase was driven by a 4% increase in gross profit, a one percentage point decline in the tax rate, and a 2% reduction in shares outstanding [5][25] - Gross profit and net income increased despite lower revenue due to the higher margin CERiS business [25] Business Line Data and Key Metrics Changes - Revenue for patient management, including third-party administration (TPA) services, was $96 million, an annual increase of 4%, with gross profit increasing by 7% [27] - Revenue for Network Solutions sold in the wholesale market was $51 million, a decrease of 9% from the same quarter of the prior year, although gross profit in the wholesale business was up 2% [28][29] - CERiS has continued to gain traction, contributing to the gross profit margins of Network Solutions despite customer churn [29][30] Market Data and Key Metrics Changes - The market size continues to grow at a 5.5% rate annually, with significant growth in the self-insured marketplace driven by demand for greater transparency and payment accuracy [18] - The payment integrity marketplace has seen recent service and solution acquisitions, providing opportunities for CERiS to replace misaligned partnerships among remaining players [16] Company Strategy and Development Direction - The company is focused on digital transformation and integrated services in the workers' compensation claims management space, aiming to optimize recovery and return to work for injured workers [8][9] - The strategic positioning has sacrificed some short-term growth opportunities but is expected to lead to steadily improving results for customers and investors [9] - The company aims to replace traditional retrospective claim reviews with real-time prospective insights, enhancing the claims management process [22] Management's Comments on Operating Environment and Future Outlook - Management noted that the consolidation of large entities in the market is causing channel conflicts, with firms being bought and sold by private equity firms using high debt levels [11] - The company is excited about future product management and has a rich pipeline of new product releases planned for the next quarter and year [10] - Management emphasized the importance of integrated services and immediate support to improve outcomes for injured workers [12][15] Other Important Information - The company repurchased 224,466 shares for a total price of $19.2 million during the quarter, with a total of 35.8 million shares repurchased to date [31] - The quarter ending cash balance was $98 million, with days sales outstanding (DSO) at 44 days, an increase of four days from a year ago, expected to return to lower levels in the next quarter [31] Q&A Session Summary Question: What are the expectations for future growth in the market? - Management did not provide specific guidance but indicated that the company is well-positioned to capitalize on market trends and has a strong pipeline of new products [10][11]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, along with management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, statements of stockholders' equity, and cash flows, along with detailed notes on accounting policies, revenue recognition, and recent pronouncements [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20%28unaudited%29%20%E2%80%93%20September%2030%2C%202019%20and%20March%2031%2C%202019) This table provides a comparative overview of the company's financial position, detailing assets, liabilities, and stockholders' equity as of September 30, 2019, and March 31, 2019 | Metric | Sep 30, 2019 (Unaudited) | Mar 31, 2019 | Change (Absolute) | Change (%) | | :--------------------------- | :----------------------- | :--------------------- | :---------------- | :--------- | | **Assets** | | | | | | Cash and cash equivalents | $97,920,000 | $91,713,000 | $6,207,000 | 6.77% | | Total current assets | $219,086,000 | $215,493,000 | $3,593,000 | 1.67% | | Property and equipment, net | $72,294,000 | $61,980,000 | $10,314,000 | 16.64% | | Right-of-use asset, net | $94,379,000 | — | $94,379,000 | N/A | | TOTAL ASSETS | $426,769,000 | $318,018,000 | $108,751,000 | 34.20% | | **Liabilities** | | | | | | Accounts and taxes payable | $19,657,000 | $11,478,000 | $8,179,000 | 71.26% | | Accrued liabilities | $113,284,000 | $105,441,000 | $7,843,000 | 7.44% | | Total current liabilities | $132,941,000 | $116,919,000 | $16,022,000 | 13.70% | | Long-term operating lease liabilities | $87,324,000 | — | $87,324,000 | N/A | | Total liabilities | $225,953,000 | $123,213,000 | $102,740,000 | 83.38% | | **Stockholders' Equity** | | | | | | Total stockholders' equity | $200,816,000 | $194,805,000 | $6,011,000 | 3.09% | [Consolidated Income Statements (Three Months)](index=4&type=section&id=Consolidated%20Income%20Statements%20%28unaudited%29%20%E2%80%93%20Three%20months%20ended%20September%2030%2C%202019%20and%202018) This table presents the unaudited consolidated income statements for the three months ended September 30, 2019 and 2018, detailing revenues, costs, and net income | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------- | :--------- | | REVENUES | $146,970,000 | $148,176,000 | $(1,206,000) | (0.8%) |\n| Cost of revenues | $114,127,000 | $116,686,000 | $(2,559,000) | (2.2%) |\n| Gross profit | $32,843,000 | $31,490,000 | $1,353,000 | 4.3% |\n| General and administrative expenses | $16,593,000 | $15,094,000 | $1,499,000 | 9.9% |\n| Income before income tax provision | $16,250,000 | $16,396,000 | $(146,000) | (0.9%) |\n| Income tax provision | $3,379,000 | $3,607,000 | $(228,000) | (6.3%) |\n| NET INCOME | $12,871,000 | $12,789,000 | $82,000 | 0.6% |\n| Net income per common and common equivalent share (Diluted) | $0.69 | $0.67 | $0.02 | 3.0% | [Consolidated Income Statements (Six Months)](index=5&type=section&id=Consolidated%20Income%20Statements%20%28unaudited%29%20%E2%80%93%20Six%20months%20ended%20September%2030%2C%202019%20and%202018) This table presents the unaudited consolidated income statements for the six months ended September 30, 2019 and 2018, detailing revenues, costs, and net income | Metric | Six Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2018 | Change (Absolute) | Change (%) | | :----------------------------------- | :---------------------------- | :---------------------------- | :---------------- | :--------- |\n| REVENUES | $297,109,000 | $298,574,000 | $(1,465,000) | (0.5%) |\n| Cost of revenues | $231,132,000 | $235,731,000 | $(4,599,000) | (2.0%) |\n| Gross profit | $65,977,000 | $62,843,000 | $3,134,000 | 5.0% |\n| General and administrative expenses | $32,345,000 | $31,031,000 | $1,314,000 | 4.2% |\n| Income before income tax provision | $33,632,000 | $31,812,000 | $1,820,000 | 5.7% |\n| Income tax provision | $7,354,000 | $7,245,000 | $109,000 | 1.5% |\n| NET INCOME | $26,278,000 | $24,567,000 | $1,711,000 | 7.0% |\n| Net income per common and common equivalent share (Diluted) | $1.40 | $1.29 | $0.11 | 8.5% | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28unaudited%29%20%E2%80%93%20Three%20and%20six%20months%20ended%20September%2030%2C%202019%20and%202018) This table details changes in stockholders' equity for the three and six months ended September 30, 2019 and 2018, including stock issuance, compensation, and repurchases | Metric | Sep 30, 2019 (3 Months) | Sep 30, 2018 (3 Months) | Sep 30, 2019 (6 Months) | Sep 30, 2018 (6 Months) |\n| :----------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- |\n| Balance – Beginning of Period | $203,817,000 | $181,865,000 | $194,805,000 | $171,176,000 |\n| Stock issued (employee stock purchase plan) | $239,000 | $252,000 | $239,000 | $252,000 |\n| Stock issued (stock option plan) | $1,888,000 | $2,066,000 | $5,387,000 | $3,284,000 |\n| Stock-based compensation expense | $1,198,000 | $908,000 | $2,423,000 | $2,087,000 |\n| Purchase of treasury stock | $(19,197,000) | $(7,816,000) | $(28,316,000) | $(11,302,000) |\n| Net income | $12,871,000 | $12,789,000 | $26,278,000 | $24,567,000 |\n| Balance – End of Period | $200,816,000 | $190,064,000 | $200,816,000 | $190,064,000 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28unaudited%29%20%E2%80%93%20Six%20months%20ended%20September%2030%2C%202019%20and%202018) This table presents the unaudited consolidated cash flow statements for the six months ended September 30, 2019 and 2018, detailing cash flows from operating, investing, and financing activities | Metric | Six Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2018 | Change (Absolute) | Change (%) |\n| :-------------------------------------- | :---------------------------- | :---------------------------- | :---------------- | :--------- |\n| Net cash provided by operating activities | $46,439,000 | $48,600,000 | $(2,161,000) | (4.45%) |\n| Net cash (used in) investing activities | $(17,542,000) | $(6,473,000) | $(11,069,000) | 171.00% |\n| Net cash (used in) financing activities | $(22,690,000) | $(7,765,000) | $(14,925,000) | 192.21% |\n| Increase in cash and cash equivalents | $6,207,000 | $34,362,000 | $(28,155,000) | (81.94%) |\n| Cash and cash equivalents at end of period | $97,920,000 | $90,133,000 | $7,787,000 | 8.64% | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28unaudited%29%20%E2%80%93%20September%2030%2C%202019) This section provides detailed explanations of the company's significant accounting policies, revenue recognition, stock-based compensation, treasury stock, and recent accounting pronouncements [Note 1 — Summary of Significant Accounting Policies](index=8&type=section&id=Note%201%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies and the impact of recently adopted and upcoming accounting standards updates - The company is evaluating the impact of ASU 2016-13 (Measurement of Credit Losses on Financial Instruments) and ASU 2017-04 (Simplifying the Test for Goodwill Impairment), both effective for fiscal years beginning after December 15, 2019[22](index=22&type=chunk)[23](index=23&type=chunk) - The company adopted ASU No. 2016-02, "Leases" (ASC 842), as of April 1, 2019, which did not materially impact retained earnings or consolidated income statements and elected practical expedients for transition[24](index=24&type=chunk) [Note 2 – Revenue Recognition](index=9&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) This note details the company's revenue streams from patient management and network solutions services, including remaining performance obligations - Revenue is generated through patient management (workers' compensation claims, case management) and network solutions (medical bill review, third-party services like pharmacy)[28](index=28&type=chunk)[29](index=29&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk) | Service Line | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Six Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2018 |\n| :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- |\n| Patient management services | $95,715,000 | $91,945,000 | $195,202,000 | $179,836,000 |\n| Network solutions services | $51,255,000 | $56,231,000 | $101,907,000 | $118,738,000 |\n| Total services | $146,970,000 | $148,176,000 | $297,109,000 | $298,574,000 | - Remaining performance obligations as of September 30, 2019, totaled **$54.4 million**, with approximately **61%** expected to be recognized as revenue within one year[42](index=42&type=chunk) [Note 3 — Stock-Based Compensation and Stock Options](index=11&type=section&id=Note%203%20%E2%80%94%20Stock-Based%20Compensation%20and%20Stock%20Options) This note provides information on stock-based compensation expense, stock option activity, and the weighted-average grant-date fair value of options - Stock-based compensation expense for the three months ended September 30, 2019, was **$1,198,000** (vs. $908,000 in 2018), and for the six months, it was **$2,423,000** (vs. $2,087,000 in 2018)[49](index=49&type=chunk)[50](index=50&type=chunk) | Metric | Sep 30, 2019 (Shares) | Sep 30, 2018 (Shares) |\n| :------------------------------- | :-------------------- | :-------------------- |\n| Options outstanding, beginning | 1,058,411 | 1,064,439 |\n| Options granted | 97,475 | 116,600 |\n| Options exercised | (156,948) | (121,108) |\n| Options cancelled/forfeited | (8,874) | (6,624) |\n| Options outstanding, ending | 990,064 | 1,053,307 | - The weighted-average grant-date fair value of options granted was **$24.90** for the three months ended September 30, 2019, up from $20.75 in the prior year[54](index=54&type=chunk) [Note 4 — Treasury Stock](index=14&type=section&id=Note%204%20%E2%80%94%20Treasury%20Stock) This note details the company's stock repurchase program, including the number of shares purchased and the average price paid per share - Stock repurchase program expanded to **37,000,000 shares** in February 2019[56](index=56&type=chunk)[188](index=188&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid Per Share |\n| :-------------------------- | :------------------------------- | :--------------------------- |\n| July 1 to July 31, 2019 | 73,295 | $90.00 |\n| August 1 to August 31, 2019 | 77,254 | $85.39 |\n| September 1 to Sep 30, 2019 | 73,917 | $81.13 |\n| Total | 224,466 | $85.50 | [Note 5 — Weighted Average Shares and Net Income Per Share](index=14&type=section&id=Note%205%20%E2%80%94%20Weighted%20Average%20Shares%20and%20Net%20Income%20Per%20Share) This note presents the basic and diluted weighted average common shares outstanding and corresponding net income per share for the periods presented | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (Absolute) | Change (%) |\n| :----------------------------------- | :----------- | :----------- | :---------------- | :--------- |\n| Basic weighted average common shares | 18,452,000 | 18,877,000 | (425,000) | (2.3%) |\n| Diluted weighted average common shares | 18,771,000 | 19,089,000 | (318,000) | (1.7%) |\n| Basic Net Income per share | $0.70 | $0.68 | $0.02 | 2.9% |\n| Diluted Net Income per share | $0.69 | $0.67 | $0.02 | 3.0% | | Metric | Sep 30, 2019 | Sep 30, 2018 | Change (Absolute) | Change (%) |\n| :----------------------------------- | :----------- | :----------- | :---------------- | :--------- |\n| Basic weighted average common shares | 18,488,000 | 18,899,000 | (411,000) | (2.2%) |\n| Diluted weighted average common shares | 18,779,000 | 19,095,000 | (316,000) | (1.7%) |\n| Basic Net Income per share | $1.42 | $1.30 | $0.12 | 9.2% |\n| Diluted Net Income per share | $1.40 | $1.29 | $0.11 | 8.5% | [Note 6 — Shareholder Rights Plan](index=15&type=section&id=Note%206%20%E2%80%94%20Shareholder%20Rights%20Plan) This note describes the company's Shareholder Rights Plan, its expiration date, and the conditions under which rights become exercisable - Shareholder Rights Plan extended to expire on **February 10, 2022**[60](index=60&type=chunk) - Rights are exercisable at **$118 per share** upon certain takeover-related events, specifically if a person or group acquires **15% or more** of common stock without board approval[61](index=61&type=chunk)[62](index=62&type=chunk) [Note 7 — Line of Credit](index=15&type=section&id=Note%207%20%E2%80%94%20Line%20of%20Credit) This note provides information on the company's revolving credit facility, its expiration, and non-renewal status - The **$10 million** revolving credit facility expired in September 2019 and was not renewed[64](index=64&type=chunk)[112](index=112&type=chunk) [Note 8 — Contingencies and Legal Proceedings](index=15&type=section&id=Note%208%20%E2%80%94%20Contingencies%20and%20Legal%20Proceedings) This note discusses the company's involvement in litigation and management's assessment of its potential financial impact - Management does not expect current litigation to have a material adverse effect on financial position or results of operations[65](index=65&type=chunk)[119](index=119&type=chunk)[133](index=133&type=chunk) [Note 9 — Accounts and Taxes Payable and Accrued Liabilities](index=16&type=section&id=Note%209%20%E2%80%94%20Accounts%20and%20Taxes%20Payable%20and%20Accrued%20Liabilities) This note provides a detailed breakdown of accounts and taxes payable and accrued liabilities, showing changes between reporting periods | Metric | Sep 30, 2019 | Mar 31, 2019 | Change (Absolute) | Change (%) |\n| :--------------------------- | :----------- | :----------- | :---------------- | :--------- |\n| Accounts payable | $16,123,000 | $9,925,000 | $6,198,000 | 62.45% |\n| Income taxes payable | $3,534,000 | $1,553,000 | $1,981,000 | 127.56% |\n| Total accounts and taxes payable | $19,657,000 | $11,478,000 | $8,179,000 | 71.26% | | Metric | Sep 30, 2019 | Mar 31, 2019 | Change (Absolute) | Change (%) |\n| :------------------------------ | :----------- | :----------- | :---------------- | :--------- |\n| Payroll, payroll taxes, benefits | $28,452,000 | $23,647,000 | $4,805,000 | 20.32% |\n| Customer deposits | $42,122,000 | $45,268,000 | $(3,146,000) | (6.95%) |\n| Deferred revenue | $17,538,000 | $16,900,000 | $638,000 | 3.77% |\n| Operating lease liabilities | $13,214,000 | $5,708,000 | $7,506,000 | 131.49% |\n| Total accrued liabilities | $113,284,000 | $105,441,000 | $7,843,000 | 7.44% | [Note 10 – Leases](index=16&type=section&id=Note%2010%20%E2%80%93%20Leases) This note details the company's adoption of ASC 842, including the recognition of Right-of-Use assets, lease liabilities, and lease expense components - The company adopted ASC 842, recognizing a Right-of-Use (ROU) asset of **$94,379,000** and total lease liabilities of **$99,594,000** as of September 30, 2019[74](index=74&type=chunk) | Lease Expense Component | Amount |\n| :---------------------- | :------------ |\n| Operating lease expense | $8,509,000 |\n| Short-term lease expense | $51,000 |\n| Variable lease expense | $43,000 |\n| Total | $8,603,000 | - The weighted average remaining lease term is **8.62 years**, with a weighted average discount rate of **4.0%**[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, highlighting revenue trends, expense changes, and liquidity [Overview](index=18&type=section&id=Overview) This section provides an overview of CorVel's business as a nationwide provider of medical cost containment and managed care services - CorVel is a nationwide provider of medical cost containment and managed care services for workers' compensation, mobile insurance, and group health[78](index=78&type=chunk) - A long-term trend of decreasing occupational injury and illness incidence rates in the U.S. could lead to fewer medical claims for review[78](index=78&type=chunk) [Patient Management Services](index=18&type=section&id=Patient%20Management%20Services) This section describes the range of patient management services offered, focusing on claims, case, and utilization management to expedite return to work - Services include claims management, case management, 24/7 nurse triage, utilization management, vocational rehabilitation, and life care planning[79](index=79&type=chunk) - Services aim to monitor medical necessity and appropriateness of healthcare and expedite return to work[79](index=79&type=chunk) [Network Solutions Services](index=18&type=section&id=Network%20Solutions%20Services) This section details the company's network solutions, including medical fee auditing, preferred provider management, and pharmacy services - Services include automated medical fee auditing, preferred provider management, retrospective utilization review, facility claim review, professional review, pharmacy services, Medicare solutions, clearinghouse services, independent medical examinations, and inpatient medical bill review[80](index=80&type=chunk) - Includes revenue from directed care network (CareIQ) for imaging, physical therapy, and durable medical equipment[80](index=80&type=chunk) [Organizational Structure](index=19&type=section&id=Organizational%20Structure) This section outlines the company's geographically structured management, with regional, area, and district managers overseeing services and operating results - Management is geographically structured with regional, area, and district managers responsible for all services and operating results in their respective regions[82](index=82&type=chunk) [Business Enterprise Segments](index=19&type=section&id=Business%20Enterprise%20Segments) This section clarifies that the company operates in one reportable managed care segment, with all operating revenue generated within the United States - Operates in one reportable operating segment: managed care[83](index=83&type=chunk) - All operating revenue is generated within the United States[83](index=83&type=chunk) [Seasonality](index=19&type=section&id=Seasonality) This section explains how revenue generation is affected by fewer working days in the third fiscal quarter due due to vacations, weather, and holidays - Revenue generation is impacted by fewer working days in the third fiscal quarter due to vacations, weather, and holidays[85](index=85&type=chunk) [Summary of Quarterly Results](index=19&type=section&id=Summary%20of%20Quarterly%20Results) This section provides a brief overview of the company's quarterly financial performance, highlighting changes in revenues, net income, and diluted EPS - Revenues decreased by **0.8%** to **$147.0 million**, while net income increased by **0.6%** to **$12.871 million**[86](index=86&type=chunk)[89](index=89&type=chunk)[94](index=94&type=chunk) - Diluted EPS increased by **3.0%** to **$0.69 per share**, driven by increased net income and a **1.7%** decrease in weighted diluted shares[90](index=90&type=chunk)[91](index=91&type=chunk)[94](index=94&type=chunk) - General and administrative expenses increased by **9.9%** due to higher legal and corporate system costs[88](index=88&type=chunk)[100](index=100&type=chunk) [Results of Operations (Three Months)](index=20&type=section&id=Results%20of%20Operations%20for%20the%20three%20months%20ended%20September%2030%2C%202019%20and%202018) This section analyzes the company's financial performance for the three months ended September 30, 2019 and 2018, focusing on revenue, cost, and expense trends [Revenues](index=20&type=section&id=Revenues_3M) This section details the revenue performance for the three months, highlighting changes in patient management and network solutions services - Total revenues decreased by **0.8%** to **$147.0 million**[95](index=95&type=chunk) - Network solutions services revenues decreased by **8.9%** to **$51.3 million**, mainly due to a **20.5%** decrease in pharmacy services bills[95](index=95&type=chunk) - Patient management services revenues increased by **4.1%** to **$95.7 million**, now representing **65.7%** of total revenue (up from 62.1%)[93](index=93&type=chunk)[95](index=95&type=chunk) [Cost of Revenues](index=21&type=section&id=Cost%20of%20Revenues_3M) This section explains the changes in cost of revenues for the three months, attributing them to revenue decline and service mix shifts - Cost of revenues decreased by **2.2%** to **$114.1 million**[98](index=98&type=chunk) - Decrease attributed to overall revenue decline and a shift to higher-margin enhanced bill review services, offsetting lower-margin pharmacy services[98](index=98&type=chunk) [General and Administrative Expense](index=21&type=section&id=General%20and%20Administrative%20Expense_3M) This section analyzes the increase in general and administrative expenses for the three months, primarily due to higher legal and corporate system costs - General and administrative expense increased by **9.9%** to **$16.6 million**[100](index=100&type=chunk) - Increase primarily due to higher legal and corporate system costs, with corporate systems costs comprising about **52%** of G&A[99](index=99&type=chunk)[100](index=100&type=chunk) [Income Tax Provision](index=21&type=section&id=Income%20Tax%20Provision_3M) This section discusses the income tax expense and effective tax rate for the three months, noting a decrease in both - Income tax expense decreased by **6.3%** to **$3.4 million**[101](index=101&type=chunk) - Effective tax rate was **20.8%** for the quarter, down from **22.0%** in the prior year[101](index=101&type=chunk) [Results of Operations (Six Months)](index=22&type=section&id=Results%20of%20Operations%20for%20the%20six%20months%20ended%20September%2030%2C%202019%20and%202018) This section analyzes the company's financial performance for the six months ended September 30, 2019 and 2018, focusing on revenue, cost, and expense trends [Revenues](index=22&type=section&id=Revenues_6M) This section details the revenue performance for the six months, highlighting changes in patient management and network solutions services - Total revenues decreased by **0.5%** to **$297.1 million**[105](index=105&type=chunk) - Network solutions services revenues decreased by **14.2%** to **$101.9 million**[105](index=105&type=chunk) - Patient management services revenues increased by **8.5%** to **$195.2 million**, driven by claims management and enhanced bill review programs[105](index=105&type=chunk) [Cost of Revenues](index=22&type=section&id=Cost%20of%20Revenues_6M) This section explains the changes in cost of revenues for the six months, primarily due to overall revenue decline and reduced pharmacy service costs - Cost of revenues decreased by **2.0%** to **$231.1 million**[106](index=106&type=chunk) - Decrease primarily due to overall revenue decline and reduced pharmacy services costs[106](index=106&type=chunk) [General and Administrative Expense](index=22&type=section&id=General%20and%20Administrative%20Expense_6M) This section analyzes the increase in general and administrative expenses for the six months, primarily due to higher corporate systems costs - General and administrative expense increased by **4.2%** to **$32.3 million**[107](index=107&type=chunk) - Increase primarily due to higher corporate systems costs[107](index=107&type=chunk) [Income Tax Provision](index=23&type=section&id=Income%20Tax%20Provision_6M) This section discusses the income tax expense and effective tax rate for the six months, noting a slight increase in expense and a decrease in rate - Income tax expense increased by **1.5%** to **$7.4 million**[109](index=109&type=chunk) - Effective tax rate was **21.8%** for the six months, down from **22.8%** in the prior year[109](index=109&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flows from operating, investing, and financing activities, along with its contractual obligations and capital management [Operating Activities](index=23&type=section&id=Operating%20Activities) This section details the net cash provided by operating activities, explaining the decrease primarily due to changes in payroll processes - Net cash provided by operating activities decreased by **$2.2 million** to **$46.4 million**[114](index=114&type=chunk) - Decrease primarily due to a change in payroll processes, partially offset by increased net income[114](index=114&type=chunk) [Investing Activities](index=23&type=section&id=Investing%20Activities) This section explains the increase in net cash used in investing activities, primarily due to construction on a newly purchased building - Net cash used in investing activities increased by **$11.1 million** to **$17.5 million**[115](index=115&type=chunk) - Increase primarily due to construction on a building purchased in the greater Portland metropolitan area[115](index=115&type=chunk) [Financing Activities](index=23&type=section&id=Financing%20Activities) This section details the increase in net cash used in financing activities, driven by higher share repurchases - Net cash used in financing activities increased by **$14.9 million** to **$22.7 million**[116](index=116&type=chunk) - Increase driven by higher share repurchases (**$28.3 million** vs. $11.3 million), partially offset by increased stock option exercises[116](index=116&type=chunk) [Contractual Obligations](index=24&type=section&id=Contractual%20Obligations) This table outlines the company's future payment obligations under operating leases and software licenses | Type | Total | Within One Year | Between One and Three Years | Between Three and Five Years | More than Five Years |\n| :------------------ | :------------ | :-------------- | :-------------------------- | :--------------------------- | :------------------- |\n| Operating leases | $95,097,000 | $7,044,000 | $28,752,000 | $27,950,000 | $31,351,000 |\n| Software licenses | $3,790,000 | $1,895,000 | $1,895,000 | — | — |\n| Total | $98,887,000 | $8,939,000 | $30,647,000 | $27,950,000 | $31,351,000 | [Litigation](index=24&type=section&id=Litigation_MD%26A) This section reiterates management's belief that current litigation will not materially impact the company's financial position or results - Management believes current litigation will not materially impact financial position or results[119](index=119&type=chunk) [Inflation](index=24&type=section&id=Inflation) This section addresses the impact of inflation, competitive pricing pressures, and rising costs on the company's operations - Company faces competitive pricing pressures and rising costs for labor, benefits, and leases, but these are not considered material to revenues or net income[120](index=120&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of off-balance sheet arrangements and discusses customary indemnification obligations - No off-balance sheet arrangements as defined by SEC rules[121](index=121&type=chunk) - Customary indemnification obligations exist for service contracts, real estate leases, and officer/director agreements, but no material liabilities have been recorded[121](index=121&type=chunk)[122](index=122&type=chunk) [Critical Accounting Policies](index=24&type=section&id=Critical%20Accounting%20Policies) This section states that critical accounting policies remain consistent with previous filings - Critical accounting policies remain unchanged from the March 31, 2019, Form 10-K[124](index=124&type=chunk) [Recent Accounting Standards Update](index=25&type=section&id=Recent%20Accounting%20Standards%20Update) This section discusses the company's evaluation of the impact of recently issued accounting standards updates - Evaluating impact of ASU 2016-13 (Credit Losses) and ASU 2017-04 (Goodwill Impairment), effective for fiscal years beginning after December 15, 2019[126](index=126&type=chunk)[127](index=127&type=chunk) [Guidance Adopted](index=25&type=section&id=Guidance%20Adopted_MD%26A) This section details the adoption of ASU No. 2016-02, "Leases" (ASC 842), and its non-material impact on financial statements - Adopted ASU No. 2016-02, "Leases" (ASC 842), on April 1, 2019, with no material impact on retained earnings or income statements[128](index=128&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As of September 30, 2019, the company held no market risk sensitive instruments for trading, did not use derivative financial instruments for hedging, and had no outstanding debt, thus no market risk related to debt - No market risk sensitive instruments for trading or derivative financial instruments for hedging[129](index=129&type=chunk) - No outstanding debt as of September 30, 2019, eliminating debt-related market risk[129](index=129&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=25&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures - Disclosure controls and procedures were effective as of September 30, 2019[130](index=130&type=chunk) [Changes in Internal Control over Financial Reporting](index=25&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in internal control over financial reporting during the quarter - No material changes in internal control over financial reporting during the quarter[131](index=131&type=chunk) [PART II - OTHER INFORMATION](index=26&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part includes legal proceedings, risk factors, information on equity securities, defaults, mine safety, other disclosures, exhibits, and signatures [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in litigation arising in the ordinary course of business, but management believes these matters will not result in any payment that would be material to the consolidated financial position or results of operations - Management believes ordinary course litigation will not materially impact financial position or results[133](index=133&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section updates and supersedes previous risk factor disclosures, emphasizing that past performance is not indicative of future results, and outlines key operational, competitive, and financial risks - Inability to increase market share among national/regional insurance carriers and self-funded employers could adversely affect results[138](index=138&type=chunk) - Increased competition from national managed care providers, PPOs, and insurance companies could lead to declining growth and profits[139](index=139&type=chunk) - Sequential revenue may decline due to factors like decreasing manufacturing employment, fewer workers' compensation claims, price competition, and changes in state laws[140](index=140&type=chunk) - Cybersecurity attacks or IT disruptions could lead to loss/theft of sensitive information, operational disruption, reputational harm, litigation, and regulatory proceedings[143](index=143&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Stock price volatility and the stock repurchase program could diminish cash reserves and may not enhance long-term stockholder value[151](index=151&type=chunk)[152](index=152&type=chunk) - Declines in patient management service referrals and overall workers' compensation claims could materially harm results[153](index=153&type=chunk)[154](index=154&type=chunk) - Healthcare providers' resistance to cost containment techniques and potential litigation could decrease revenue from cost containment operations[156](index=156&type=chunk)[161](index=161&type=chunk)[164](index=164&type=chunk) - Changes in tax laws (e.g., Tax Cuts and Jobs Act interpretations) could adversely affect results and financial condition[158](index=158&type=chunk) - Failure to attract and retain qualified or key personnel, especially V. Gordon Clemons (Chairman) and Michael Combs (CEO/President), could materially adversely affect the business[178](index=178&type=chunk) - Interruption in critical data access or inability to leverage information systems could cause customer cancellations and reduce competitiveness[167](index=167&type=chunk)[182](index=182&type=chunk) - Dependence on Internet infrastructure, sensitivity to regional weather conditions, and natural disasters pose operational risks[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities, and the company continued its stock repurchase program, repurchasing 224,466 shares for $19.2 million during the quarter ended September 30, 2019, at an average price of $85.50 per share - No unregistered sales of equity securities during the period[187](index=187&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares that may yet be Purchased Under the Program |\n| :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- |\n| July 1 to July 31, 2019 | 73,295 | $90.00 | 1,339,056 |\n| August 1 to August 31, 2019 | 77,254 | $85.39 | 1,261,802 |\n| September 1 to Sep 30, 2019 | 73,917 | $81.13 | 1,187,885 |\n| Total | 224,466 | $85.50 | 1,187,885 | [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable to the company - Not applicable[189](index=189&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) No other information was reported - No other information[189](index=189&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate organizational documents, certifications from the CEO and CFO, and XBRL-formatted financial statements - Includes Amended and Restated Certificate of Incorporation, Bylaws, and Certification of Designation[191](index=191&type=chunk)[192](index=192&type=chunk) - Contains Section 302 and Section 906 certifications from the CEO and CFO[192](index=192&type=chunk)[193](index=193&type=chunk) - Financial statements are provided in XBRL format[194](index=194&type=chunk) [Signatures](index=36&type=section&id=Signatures) The report is signed by Michael G. Combs, Chief Executive Officer and President, and Brandon T. O'Brien, Chief Financial Officer, on November 7, 2019 - Report signed by Michael G. Combs (CEO and President) and Brandon T. O'Brien (CFO) on November 7, 2019[198](index=198&type=chunk)[199](index=199&type=chunk)