CorVel(CRVL) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements 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 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 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 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 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][26] 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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][93] - Mitigation efforts included a 10% headcount reduction, reduced discretionary spending (capital expenditures, travel, recruiting), and a temporary suspension of share repurchases[92] Results of Operations 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] - 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] Liquidity and Capital Resources 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] - 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] - 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][128] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] PART II - OTHER INFORMATION Legal Proceedings 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] Risk Factors 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][147] - 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][158] - 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] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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 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][206]