CorVel(CRVL) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents CorVel Corporation's unaudited consolidated financial statements, including balance sheets, income statements, equity, and cash flows, with notes on key highlights and accounting standard adoptions Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheets | Metric | December 31, 2018 (Unaudited) | March 31, 2018 | | :----------------------------- | :---------------------------- | :------------- | | Assets | | | | Cash and cash equivalents | $96,483,000 | $55,771,000 | | Total current assets | $210,022,000 | $163,317,000 | | TOTAL ASSETS | $313,745,000 | $274,004,000 | | Liabilities & Equity | | | | Total current liabilities | $117,416,000 | $97,989,000 | | Total liabilities | $121,477,000 | $102,828,000 | | Total stockholders' equity | $192,268,000 | $171,176,000 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $313,745,000 | $274,004,000 | - Total assets increased by $39.7 million (14.5%) from March 31, 2018, to December 31, 2018, driven primarily by a $40.7 million increase in cash and cash equivalents[5] - Total stockholders' equity increased by $21.1 million (12.3%) from March 31, 2018, to December 31, 2018[5] Consolidated Income Statements (Three months ended December 31, 2018 and 2017) This section details the company's financial performance over three months, highlighting revenues, costs, and net income Consolidated Income Statements (Three months ended December 31, 2018 and 2017) | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Change ($) | Change (%) | | :--------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | REVENUES | $146,082,000 | $140,734,000 | $5,348,000 | 3.8% | | Cost of revenues | $116,728,000 | $115,165,000 | $1,563,000 | 1.4% | | Gross profit | $29,354,000 | $25,569,000 | $3,785,000 | 14.8% | | General and administrative expenses | $15,803,000 | $15,496,000 | $307,000 | 2.0% | | Income before income tax provision | $13,551,000 | $10,073,000 | $3,478,000 | 34.5% | | Income tax provision | $3,253,000 | $504,000 | $2,749,000 | 545.4% | | NET INCOME | $10,298,000 | $9,569,000 | $729,000 | 7.6% | | Basic EPS | $0.55 | $0.51 | $0.04 | 7.8% | | Diluted EPS | $0.54 | $0.50 | $0.04 | 8.0% | - Income tax provision increased significantly by 545.4% due to the downward revaluation of deferred income tax liabilities resulting from the Tax Cuts and Jobs Act in the prior year[94][106] Consolidated Income Statements (Nine months ended December 31, 2018 and 2017) This section presents the company's cumulative financial performance over nine months, detailing revenue, expenses, and net income trends Consolidated Income Statements (Nine months ended December 31, 2018 and 2017) | Metric | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | Change ($) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | REVENUES | $444,656,000 | $414,777,000 | $29,879,000 | 7.2% | | Cost of revenues | $352,459,000 | $334,675,000 | $17,784,000 | 5.3% | | Gross profit | $92,197,000 | $80,102,000 | $12,095,000 | 15.1% | | General and administrative expenses | $46,834,000 | $43,794,000 | $3,040,000 | 6.9% | | Income before income tax provision | $45,363,000 | $36,308,000 | $9,055,000 | 24.9% | | Income tax provision | $10,498,000 | $9,571,000 | $927,000 | 9.7% | | NET INCOME | $34,865,000 | $26,737,000 | $8,128,000 | 30.4% | | Basic EPS | $1.85 | $1.42 | $0.43 | 30.3% | | Diluted EPS | $1.83 | $1.41 | $0.42 | 29.8% | - Revenue growth was primarily driven by a 16.2% increase in patient management services, particularly from claims management customers[110] - Network solutions services revenue decreased by 4.5% due to a 24.4% decrease in pharmacy services bills reviewed[110] Consolidated Stockholders' Equity (Three and nine months ended December 31, 2018 and 2017) This section outlines changes in the company's equity over the three and nine-month periods, reflecting net income, stock transactions, and compensation Consolidated Stockholders' Equity (Three and nine months ended December 31, 2018 and 2017) | Metric | Dec 31, 2018 (9 Months) | Dec 31, 2017 (9 Months) | | :--------------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity (End of Period) | $192,268,000 | $160,180,000 | | Net Income | $34,865,000 | $26,737,000 | | Purchase of treasury stock | $(22,591,000) | $(11,187,000) | | Stock issued under stock option plan, net of shares repurchased | $5,456,000 | $2,404,000 | | Stock-based compensation expense | $3,110,000 | $2,382,000 | - Total stockholders' equity increased to $192.3 million as of December 31, 2018, from $171.2 million as of March 31, 2018, primarily due to net income and stock option exercises, partially offset by treasury stock repurchases[5][12] Consolidated Statements of Cash Flows (Nine months ended December 31, 2018 and 2017) This section details the company's cash inflows and outflows from operating, investing, and financing activities over nine months Consolidated Statements of Cash Flows (Nine months ended December 31, 2018 and 2017) | Cash Flow Activity | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | Change ($) | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by operating activities | $67,903,000 | $49,878,000 | $18,025,000 | | Net cash (used in) investing activities | $(10,308,000) | $(16,336,000) | $6,028,000 | | Net cash (used in) financing activities | $(16,883,000) | $(8,560,000) | $(8,323,000) | | Increase in cash and cash equivalents | $40,712,000 | $24,982,000 | $15,730,000 | | Cash and cash equivalents at end of period | $96,483,000 | $53,593,000 | $42,890,000 | - Net cash from operating activities increased by $18.0 million, primarily due to higher net income and improved accounts receivable collections (DSO improved from 42 to 39 days)[120] - Net cash used in financing activities increased by $8.3 million, mainly due to increased share repurchases ($22.6 million in 2018 vs $11.2 million in 2017), partially offset by higher stock option exercises[123] Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1 — Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements - The company adopted ASC 606 (Revenue from Contracts with Customers), ASU 2016-01 (Financial Instruments), and ASU 2016-15 (Statement of Cash Flows) on April 1, 2018, with no material impact on consolidated financial statements[22][23][24] - ASU No. 2016-02, 'Leases', effective April 1, 2019, is expected to result in lease-related assets and liabilities on the balance sheet, with the company currently evaluating its full impact[21] - Subsequent to December 31, 2018, the company repurchased 70,019 shares of common stock for $4,398,000 at an average of $62.81 per share[19] Note 2 – Revenue Recognition This note details the company's policies and methods for recognizing revenue from its various service lines - The company adopted ASC 606 using the modified retrospective method, with no material impact on income statements or balance sheets for the three and nine months ended December 31, 2018[27][28] - Revenue is recognized when control of promised services is transferred to customers, with performance obligations satisfied over time for patient management services and at a point in time for network solutions services[29][31][34] Revenue by Service Line | Service Line | Three Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2018 | | :---------------------- | :------------------------------ | :----------------------------- | | Patient management services | $92,130,000 | $271,966,000 | | Network solutions services | $53,952,000 | $172,690,000 | | Total services | $146,082,000 | $444,656,000 | - As of December 31, 2018, remaining performance obligations totaled $39.3 million, with approximately 79% expected to be recognized as revenue within one year[46] Note 3 — Stock-Based Compensation and Stock Options This note describes the accounting for stock-based compensation and the activity related to stock options Stock-Based Compensation Expense (Three Months) | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | | :---------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Total stock-based compensation expense (before tax) | $1,023,000 | $852,000 | | Amount charged against net income | $777,000 | $809,000 | | Effect on diluted earnings per share | $(0.04) | $(0.04) | | Weighted-average grant-date fair value of options granted | $20.44 | $21.55 | Stock-Based Compensation Expense (Nine Months) | Metric | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :---------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense (before tax) | $3,110,000 | $2,382,000 | | Amount charged against net income | $2,364,000 | $1,754,000 | | Effect on diluted earnings per share | $(0.12) | $(0.09) | - Performance-based stock options compensation expense was $360,000 for the three months and $1,201,000 for the nine months ended December 31, 2018[62] Note 4 — Treasury Stock This note details the company's treasury stock activities, including share repurchases - The company repurchased 186,574 shares for $11.3 million (average $60.51/share) during the three months ended December 31, 2018, and 386,552 shares for $22.6 million (average $58.44/share) during the nine months ended December 31, 2018[63] - As of December 31, 2018, 35,267,631 shares had been repurchased since the program's inception in 1996, representing 65% of outstanding common stock had there been no repurchases, at an average price of $12.86 per share[63] Note 5 — Weighted Average Shares and Net Income Per Share This note provides details on the calculation of basic and diluted earnings per share, including weighted average shares outstanding Weighted Average Shares (Three Months) | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | | :---------------------------------- | :------------------------------ | :------------------------------ | | Basic weighted average common shares outstanding | 18,758,000 | 18,849,000 | | Diluted weighted average common and common equivalent shares | 18,984,000 | 19,121,000 | Weighted Average Shares (Nine Months) | Metric | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Basic weighted average common shares outstanding | 18,852,000 | 18,806,000 | | Diluted weighted average common and common equivalent shares | 19,058,000 | 19,029,000 | Note 6 — Shareholder Rights Plan This note describes the company's Shareholder Rights Plan, designed to protect shareholders in potential takeover scenarios - The Shareholder Rights Plan, extended to February 10, 2022, aims to ensure fair treatment for shareholders in takeover events and encourages negotiation with the Board[69][70] - Rights become exercisable at $118 per share if a person or group acquires 15% or more of common stock without Board approval[71] Note 7 — Other Intangible Assets This note provides details on the company's intangible assets, including their cost, accumulated amortization, and net value Other Intangible Assets | Item | Life | Cost | Accumulated Amortization at Dec 31, 2018 | Cost, Net of Accumulated Amortization at Dec 31, 2018 | | :---------------------- | :------- | :--------- | :--------------------------------------- | :---------------------------------------------------- | | Covenants Not to Compete | 5 Years | $775,000 | $775,000 | $0 | | Customer Relationships | 18-20 Years | $7,922,000 | $4,888,000 | $3,034,000 | | TPA Licenses | 15 Years | $204,000 | $155,000 | $49,000 | | Total | | $8,901,000 | $5,818,000 | $3,083,000 | - Total other intangible assets, net, decreased from $3,415,000 at March 31, 2018, to $3,083,000 at December 31, 2018[73][76] Note 8 — Line of Credit This note describes the company's revolving credit facility and its compliance with loan covenants - The company renewed its $10 million revolving credit facility in September 2018, expiring September 2019[77] - As of December 31, 2018, there were no outstanding revolving loans, but $4.5 million in letters of credit were issued separately[77] - The company is in compliance with all loan covenants, including maintaining a current assets to liabilities ratio of at least 1.25:1, a current debt to tangible net worth ratio not greater than 1.25:1, and positive net income[77] Note 9 — Contingencies and Legal Proceedings This note addresses potential financial impacts from ongoing legal matters and contingencies - Management believes that the resolution of ongoing litigation in the ordinary course of business will not have a material impact on the company's consolidated financial position or results of operations[78] Note 10 — Accounts and Taxes Payable and Accrued Liabilities This note provides a breakdown of the company's accounts payable, income taxes payable, and various accrued liabilities Accounts and Taxes Payable and Accrued Liabilities | Liability Category | December 31, 2018 | March 31, 2018 | | :----------------------------------- | :---------------- | :--------------- | | Accounts payable | $9,893,000 | $11,787,000 | | Income taxes payable and uncertain tax positions | $5,370,000 | $1,666,000 | | Total accounts and taxes payable | $15,263,000 | $13,453,000 | | Payroll, payroll taxes and employee benefits | $24,350,000 | $15,100,000 | | Customer deposits | $42,638,000 | $35,496,000 | | Deferred revenue | $16,049,000 | $15,316,000 | | Total accrued liabilities | $102,153,000 | $84,536,000 | - Total accrued liabilities increased by $17.6 million from March 31, 2018, to December 31, 2018, primarily due to increases in payroll, payroll taxes, employee benefits, and customer deposits[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for the three and nine months ended December 31, 2018. It details revenue drivers, cost changes, and the impact of accounting standards and tax reforms. The company's liquidity remains strong, primarily funded by operations, with sufficient resources to meet expected cash requirements for the next twelve months Overview This overview introduces CorVel Corporation's business, services, and the market trends affecting its operations - CorVel Corporation is a nationwide provider of medical cost containment and managed care services for workers' compensation, mobile insurance, and group health insurance claims[83] - The company's services aim to manage medical costs and monitor care quality for insurance companies, TPAs, governmental entities, and self-administered employers[83] - A long-term trend of decreasing occupational injury and illness incidence rates in the U.S. could lead to fewer medical dollars to be reviewed[83] Patient Management Services This section describes the range of patient management services offered by the company, focusing on claims and care coordination - Patient management services include claims management, case management, 24/7 nurse triage, utilization management, vocational rehabilitation, and life care planning[84] - These services monitor medical necessity and appropriateness of healthcare for claimants and expedite return to work, offered stand-alone or integrated[84] Network Solutions Services This section details the company's network solutions services, aimed at reducing medical service prices and managing provider networks - Network solutions services aim to reduce medical service prices for workers' compensation, auto, and group health claims[85] - Services include automated medical fee auditing, preferred provider management, retrospective utilization review, facility claim review, pharmacy services, and directed care network (CareIQ) for imaging, physical therapy, and durable medical equipment[85] Organizational Structure This section outlines the company's management structure, emphasizing its geographical and service-line organization - Management is structured geographically with regional vice presidents overseeing all services and operating results in multiple states, supported by area and district managers[87] Business Enterprise Segments This section clarifies the company's operating segments and geographical revenue generation - The company operates in one reportable operating segment: managed care, with services delivered through local offices in each region[88] - All regions provide both patient management and network solutions services, with virtually all operating revenue generated within the United States[88] Seasonality This section discusses how seasonal factors, such as holidays and weather, impact the company's operational results - The company is affected by changes in working days, with generally fewer working days in the third fiscal quarter due to employee vacations, inclement weather, and holidays[90] Summary of Quarterly Results This section provides a brief overview of the company's financial performance for the most recent quarter - Revenues increased by 3.8% to $146.1 million for the quarter ended December 31, 2018, driven by an increase in patient management services[91] - Net income increased by 7.6% to $10.3 million, and diluted EPS increased by 8.0% to $0.54 per share for the quarter[7][96][99] - Income tax expense surged by 545.4% due to the revaluation of deferred income tax liabilities following the Tax Cuts and Jobs Act in the prior year[94][106] Results of Operations (Three Months) This section analyzes the company's financial performance for the three months ended December 31, 2018, compared to the prior year Results of Operations (Three Months) | Metric | Dec 31, 2018 | Dec 31, 2017 | Change ($) | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenue | $146,082,000 | $140,734,000 | $5,348,000 | 3.8% | | Cost of revenues | $116,728,000 | $115,165,000 | $1,563,000 | 1.4% | | Gross profit | $29,354,000 | $25,569,000 | $3,785,000 | 14.8% | | General and administrative | $15,803,000 | $15,496,000 | $307,000 | 2.0% | | Income before income tax provision | $13,551,000 | $10,073,000 | $3,478,000 | 34.5% | | Income tax provision | $3,253,000 | $504,000 | $2,749,000 | 545.4% | | Net income | $10,298,000 | $9,569,000 | $729,000 | 7.6% | | Diluted EPS | $0.54 | $0.50 | $0.04 | 8.0% | - Patient management services revenue increased by 16.1% to $92.1 million, becoming 63.1% of total revenue (up from 56.4%)[100] - Network solutions services revenue decreased by 12.1% to $54 million, primarily due to a 34.5% decrease in pharmacy services bills reviewed[100] - Cost of revenues increased by 1.4% due to a 3.8% increase in total revenues and a $3.3 million increase in salaries from higher field operations headcount[103] Results of Operations (Nine Months) This section analyzes the company's financial performance for the nine months ended December 31, 2018, compared to the prior year Results of Operations (Nine Months) | Metric | Dec 31, 2018 | Dec 31, 2017 | Change ($) | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenue | $444,656,000 | $414,777,000 | $29,879,000 | 7.2% | | Cost of revenues | $352,459,000 | $334,675,000 | $17,784,000 | 5.3% | | Gross profit | $92,197,000 | $80,102,000 | $12,095,000 | 15.1% | | General and administrative | $46,834,000 | $43,794,000 | $3,040,000 | 6.9% | | Income before income tax provision | $45,363,000 | $36,308,000 | $9,055,000 | 24.9% | | Income tax provision | $10,498,000 | $9,571,000 | $927,000 | 9.7% | | Net income | $34,865,000 | $26,737,000 | $8,128,000 | 30.4% | | Diluted EPS | $1.83 | $1.41 | $0.42 | 29.8% | - Revenue increased by 7.2% to $444.7 million, driven by a 16.2% increase in patient management services, while network solutions services decreased by 4.5%[110] - Cost of revenues increased by 5.3% due to revenue increases in lower-margin TPA services and a $14.4 million increase in salaries from higher field operations headcount[111] - General and administrative expense increased by 6.9% due to higher legal expenses and corporate systems costs[112] - The effective tax rate for the nine months ended December 31, 2018, was 23.1%, up from 18.7% in the prior year, influenced by the Tax Cuts and Jobs Act[114] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including working capital, cash flows, and funding sources - Working capital increased by $27.3 million to $92.6 million as of December 31, 2018, from $65.3 million as of March 31, 2018[115] - Cash and cash equivalents increased by $40.7 million to $96.5 million, primarily from net income and stock option exercises, partially offset by share repurchases and capital expenditures[115] - The company believes cash from operations, stock option exercises, and the $10 million revolving credit facility (renewed in September 2018) are sufficient to fund operations, share repurchases, and new services for at least the next twelve months[116][118][119] Operating Activities This section analyzes the cash generated or used by the company's primary business operations - Net cash provided by operating activities increased by $18.0 million to $67.9 million for the nine months ended December 31, 2018[120] - This increase was driven by higher net income and improved accounts receivable collections, with Days Sales Outstanding (DSO) improving from 42 to 39 days[120] Investing Activities This section details the cash flows related to the acquisition and disposal of long-term assets - Net cash used in investing activities decreased by $6.0 million to $10.3 million for the nine months ended December 31, 2018[121] - Capital purchases were $10.3 million in 2018, down from $16.3 million in 2017[121] Financing Activities This section examines the cash flows related to debt, equity, and dividend transactions - Net cash used in financing activities increased by $8.3 million to $16.9 million for the nine months ended December 31, 2018[123] - This increase was primarily due to higher spending on share repurchases ($22.6 million in 2018 vs $11.2 million in 2017), partially offset by a $3.1 million increase in stock option exercises[123] Contractual Obligations This section outlines the company's future payment commitments under various contractual agreements Contractual Obligations | Obligation Type | Total | Within One Year | Between One and Three Years | Between Three and Five Years | More than Five Years | | :-------------------- | :------------ | :-------------- | :-------------------------- | :--------------------------- | :------------------- | | Operating leases | $70,449,000 | $14,028,000 | $25,120,000 | $17,371,000 | $13,930,000 | | Uncertain tax positions | $1,532,000 | $1,532,000 | $0 | $0 | $0 | | Total | $71,981,000 | $15,560,000 | $25,120,000 | $17,371,000 | $13,930,000 | Litigation This section addresses the potential financial impact of legal proceedings on the company - Management believes that resolution of litigation arising in the ordinary course of business will not result in any payment material to the company's financial position or results of operations[125] Inflation This section discusses the effects of inflation on the company's operations and financial results - The company experiences pricing pressures from competition and rising costs for labor, employee benefits, and facility leases, but generally does not believe these impacts are material to revenues or net income[126] Off-Balance Sheet Arrangements This section clarifies the company's involvement in off-balance sheet transactions and arrangements - The company is not a party to off-balance sheet arrangements as defined by SEC rules[127] - The company enters into customary indemnification contracts (e.g., for services, real estate leases, officers/directors) where specific or maximum dollar amounts are not explicitly stated, and no material liabilities have been recorded for these obligations[127][128] Critical Accounting Policies This section highlights the accounting policies that require significant management judgment and estimates - No changes in critical accounting policies have been made since the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, 2018[131] - Management's judgments and estimates in applying critical accounting policies could differ from actual results, but no reasonably likely events are currently known that would cause materially different amounts to be reported[131] Recent Accounting Standards Update This section discusses the impact of recently issued accounting standards on the company's financial reporting - ASU No. 2016-02, 'Leases', effective April 1, 2019, will require lessees to record a right-of-use asset and a lease liability for leases over 12 months, with the company currently evaluating its impact[132] Guidance Adopted This section details the accounting guidance that the company has recently implemented - The company adopted ASC 606 (Revenue from Contracts with Customers), ASU 2016-01 (Financial Instruments), and ASU 2016-15 (Statement of Cash Flows) on April 1, 2018, with no material impact on consolidated financial statements[133][134][135] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of December 31, 2018, CorVel Corporation held no market risk sensitive instruments for trading purposes and did not use derivative financial instruments to hedge market risk. The company had no outstanding debt, thus no market risk related to debt - The company held no market risk sensitive instruments for trading purposes as of December 31, 2018[136] - No derivative financial instruments were employed to hedge market risk[136] - The company had no debt outstanding, eliminating market risk related to debt[136] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2018. Following a CEO change in January 2019, control responsibilities were reassigned, but no material adverse changes to internal controls over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated as effective by management, CEO, and CFO as of December 31, 2018[138] - Michael G. Combs replaced V. Gordon Clemons as CEO on January 18, 2019, leading to reassignment of certain control responsibilities[139] - No material changes to internal controls over financial reporting occurred during the three months ended December 31, 2018[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation, but management does not anticipate that the resolution of these matters will have a material adverse effect on its financial position or operational results - The company is involved in litigation arising in the ordinary course of business[140] - Management believes that the resolution of these matters will not result in any payment that, individually or in the aggregate, would be material to the consolidated financial position or results of operations[140] Item 1A. Risk Factors This section details significant risks including growth challenges, intense competition, revenue volatility, tax act impacts, operational vulnerabilities, and regulatory changes that could adversely affect the company - Failure to grow internally or through strategic acquisitions, or difficulties in integrating acquired businesses, could hinder business plan execution and service levels[144][145] - Increased competition from national managed care providers, PPOs, and insurance carriers, along with potential in-house service provision by customers, could reduce growth and profits[147] - Sequential revenue may decline due to factors like decreasing workers' compensation claims, price competition, and changes in state laws, leading to stock price volatility[149][152] - The stock repurchase program may not enhance long-term stockholder value, could increase stock price volatility, and diminishes cash reserves[153] - Declines in workers' compensation claims and increased resistance from healthcare providers to cost containment techniques could materially harm results[156][158] - Uncertainties regarding the Tax Cuts and Jobs Act, including future regulations and interpretations, could adversely affect financial condition[159] - Breaches of security, cybersecurity attacks, or interruptions in critical data access could lead to information loss, litigation, reputational harm, and loss of customers[162][168][186] - Exposure to litigation and legal liability, particularly concerning medical treatment recommendations and managed care programs, could result in significant liabilities[163][165] - Failure to attract and retain qualified or key personnel, including CEO Michael Combs and Chairman V. Gordon Clemons, could adversely affect business operations[180] - Changes in government regulations, including licensing requirements and healthcare reforms, could increase operational costs or reduce demand for services[174][175][176] - The introduction of new technologies or industry standards could render existing software products obsolete, and delays in developing new software could harm the business[178][179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, while the company continued its stock repurchase program, buying back 186,574 shares for $11.3 million during the quarter - No unregistered sales of equity securities occurred during the period[189] Stock Repurchase Program Activity | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | Maximum Number of Shares that may yet be Purchased Under the Program | | :-------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------- | :------------------------------------------------------------------- | | October 1 to October 31, 2018 | 81,308 | $56.56 | 81,308 | 837,635 | | November 1 to November 30, 2018 | 49,036 | $64.08 | 49,036 | 788,599 | | December 1 to December 31, 2018 | 56,230 | $63.11 | 56,230 | 732,369 | | Total | 186,574 | $60.51 | 186,574 | 732,369 | - The stock repurchase program, authorized for up to 36,000,000 shares, has no expiration date, with 35,267,631 shares repurchased over its life as of December 31, 2018[192] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period covered by this report - No defaults upon senior securities occurred[193] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the company[194] Item 5. Other Information Performance-based stock options were granted to key executives on November 1, 2018, vesting upon achieving specific EPS targets for calendar years 2019-2021 - Performance options were granted to key executives on November 1, 2018, including the CEO, CFO, and other senior management[195] - These options vest based on achieving specific earnings per share targets for calendar years 2019, 2020, and 2021[195] - The exercise price of the options equaled the closing price of the common stock on the grant date[195] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, executive compensation agreements, certifications, and XBRL-formatted financial statements - Exhibits include the Restated Certificate of Incorporation, Restated Bylaws, and Certification of Designation Increasing the Number of Shares of Series A Junior Participating Preferred Stock[199] - Performance option agreements dated November 1, 2018, for key executives (Michael G. Combs, Diane J. Blaha, Michael D. Saverien, Maxim Shishin, Brandon T. O'Brien, and Jennifer Yoss) are included[199] - Certifications from the CEO and CFO pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are provided[199] - XBRL-formatted financial statements (Consolidated Balance Sheets, Income Statements, Stockholders' Equity, and Cash Flows) for the reported periods are furnished[199] SIGNATURES The report is duly signed on behalf of CorVel Corporation by Michael G. Combs, Chief Executive Officer and President, and Brandon T. O'Brien, Chief Financial Officer, as of February 7, 2019 - The report was signed by Michael G. Combs, Chief Executive Officer and President, and Brandon T. O'Brien, Chief Financial Officer[202] - The signing date for the report was February 7, 2019[203]