CorVel(CRVL) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Corvel Corporation's unaudited consolidated financial statements and management's discussion for the three months ended June 30, 2020 Financial Statements 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 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 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 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] Consolidated Statements of Cash Flows 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 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] - 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][23] 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] - The company's revolving credit facility expired in September 2019 and was not renewed[61] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - CorVel operates in a single reportable segment, 'managed care', aggregating its geographically managed regions which all offer similar products and services[80][82] COVID-19 Pandemic 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] - Discretionary spending was reduced, and the share repurchase program was temporarily suspended from March 21 through June 14, 2020[86] - 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] Results of Operations 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] - 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] Liquidity and Capital Resources 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] - 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] - 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - No material changes were made to the internal control over financial reporting during the three months ended June 30, 2020[125] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings 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] Risk Factors 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][131] - Cybersecurity attacks are a major risk, potentially leading to the loss of sensitive information, business disruption, reputational harm, and significant financial liabilities[141][142] - 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] - 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] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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][188]