CorVel(CRVL) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements CorVel Corporation's unaudited consolidated financial statements for Q2 2023 show increased revenues and net income Consolidated Balance Sheets Total assets increased to $417.6 million by June 30, 2023, driven by cash, with liabilities and equity also rising Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 (in thousands) | March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $267,950 | $243,770 | | Total Assets | $417,573 | $393,923 | | Total Current Liabilities | $187,731 | $167,887 | | Total Liabilities | $210,593 | $191,747 | | Total Stockholders' Equity | $206,980 | $202,176 | Consolidated Income Statements Q2 2023 revenues rose 7.9% to $190.3 million, with net income up 18.7% to $19.8 million and diluted EPS at $1.14 Quarterly Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | | :--- | :--- | :--- | | Revenues | $190,253 | $176,307 | | Gross Profit | $41,878 | $39,869 | | Income Before Tax | $25,428 | $21,198 | | Net Income | $19,805 | $16,691 | | Diluted EPS | $1.14 | $0.94 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $207.0 million by June 30, 2023, driven by net income and offset by treasury stock repurchases - Key changes in stockholders' equity for the three months ended June 30, 2023, include net income of $19.8 million, stock-based compensation of $1.3 million, and treasury stock purchases of $17.8 million[171] Consolidated Statements of Cash Flows Operating activities generated $36.6 million in cash, leading to a net $15.3 million increase in cash and equivalents for Q2 2023 Quarterly Cash Flow Summary (in thousands) | Activity | Q2 2023 (in thousands) | Q2 2022 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $36,626 | $30,021 | | Net Cash used in Investing Activities | $(5,049) | $(8,380) | | Net Cash used in Financing Activities | $(16,313) | $(24,837) | | Net Increase/(Decrease) in Cash | $15,264 | $(3,196) | Notes to Consolidated Financial Statements Notes detail accounting policies, revenue recognition for patient management and network solutions, and other financial disclosures - The company generates revenue through two service lines: patient management and network solutions, and operates in a single reportable segment called managed care[10] Revenue by Service Line (in thousands) | Service Line | Q2 2023 (in thousands) | Q2 2022 (in thousands) | | :--- | :--- | :--- | | Patient management services | $127,838 | $114,810 | | Network solutions services | $62,415 | $61,497 | | Total services | $190,253 | $176,307 | - As of June 30, 2023, the company had $27.7 million in remaining performance obligations, primarily related to deferred revenues for claims and non-claims services, with 96% expected to be recognized as revenue within one year[155] - Share-based compensation expense was $1.31 million for the three months ended June 30, 2023, compared to $1.38 million for the same period in 2022[18] - During the quarter, the company repurchased 87,992 shares of its common stock for $17.8 million at an average price of $201.06 per share[184] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 financial results, noting revenue growth, slight margin decrease, reduced G&A, and strong liquidity Results of Operations Q2 2023 revenues rose 7.9% to $190.3 million, driven by patient management, with net income up 18.7% to $19.8 million Q2 2023 vs Q2 2022 Performance Comparison (in thousands) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change ($) (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $190,253 | $176,307 | $13,946 | 7.9% | | Cost of Revenues | $148,375 | $136,438 | $11,937 | 8.7% | | Gross Profit | $41,878 | $39,869 | $2,009 | 5.0% | | General & Administrative | $16,450 | $18,671 | $(2,221) | (11.9%) | | Net Income | $19,805 | $16,691 | $3,114 | 18.7% | - The increase in revenue was primarily driven by an 11.3% increase in patient management services, attributed to higher revenue from TPA and related services, with total new claims increasing by 9%[254] - The decrease in general and administrative expense was primarily due to a one-time insurance recovery settlement from a 2011 lawsuit, with expectations for this expense to return to 10% to 12% of revenues in future quarters[224][232] Liquidity and Capital Resources The company maintains strong liquidity with increased working capital and cash, and operating cash flow sufficient for future needs - Working capital increased to $80.2 million as of June 30, 2023, from $75.9 million as of March 31, 2023[258] - Net cash provided by operating activities increased by $6.6 million YoY, primarily due to higher net income and timing of accrued payroll[261] - Net cash used in financing activities decreased by $8.5 million YoY, mainly due to reduced spending on share repurchases[262] - The company believes its cash and cash equivalents, along with cash from operations, will be sufficient to satisfy cash requirements for the next 12 months and beyond[235] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk is primarily limited to interest rate fluctuations on cash, with no debt or derivative instruments - The company's market risk is primarily limited to interest rate risk on its portfolio of cash and cash equivalents[65] - As of June 30, 2023, the company had no debt outstanding and did not use any derivative financial instruments[65] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[243] - No material changes were made to the company's internal control over financial reporting during the three months ended June 30, 2023[58] PART II – OTHER INFORMATION Item 1. Legal Proceedings Ongoing litigation in the ordinary course of business is not expected to materially impact the company's financial position or results - The company states that ongoing litigation from the ordinary course of business is not expected to have a material financial impact[267][185] Item 1A. Risk Factors This section details significant risks including competition, customer loss, cybersecurity, litigation, regulatory changes, and stock volatility Risks Related to Our Business and Industry The company faces intense competition, declining referrals, healthcare provider resistance, and inflationary cost pressures - The company faces a fragmented and competitive market, with rivals including national providers, smaller vendors, and insurance carriers that may insource managed care services[72] - A decline in referrals for patient management services, driven by factors like fewer long-term disability cases and increased competition, could materially harm revenues[73] - Inflationary risks could increase wages, benefits, and other costs, potentially reducing profitability if these costs cannot be passed on to clients[79] - The business is dependent on key management personnel, particularly the Chairman and CEO, and the loss of such personnel could have a material adverse effect[84] Risks Related to Cybersecurity and Our Information Systems The company faces increasing cybersecurity risks, where breaches could cause business disruption, reputational harm, and financial losses - The company is exposed to sophisticated and frequent cyber-attacks, which could result in reputational harm, loss of revenue, regulatory actions, and litigation if sensitive customer or company information is compromised[88][109] - A breach of security or system failure could cause customers to stop using the company's services and may have a material adverse effect on business operations and financial results[90][112] Risks Related to Potential Litigation The company faces litigation risks from its services and cost containment programs, potentially leading to significant liabilities - The company could be exposed to claims for adverse medical consequences arising from its recommendations concerning the appropriateness of medical treatment plans[115] - Healthcare providers have initiated individual and class action lawsuits against the company and its customers, challenging its cost containment programs, which could lead to significant liabilities if successful[117] Risks Related to Our Regulatory Environment Regulatory changes in healthcare, workers' compensation, and privacy laws could impact demand, increase costs, and create liabilities - The company is subject to state licensing and regulatory requirements which can increase costs of operation and impact its ability to compete[118] - Changes in government regulations in workers' compensation, automobile insurance, and group healthcare could reduce demand for the company's services or limit the fees it can charge[119][137] - Increasingly stringent privacy and data security laws, such as the GDPR and CCPA, could impact business models and expose the company to public criticism, lawsuits, and regulatory penalties[139] Risks Related to Ownership of Our Common Stock Common stock ownership involves risks of price volatility, and the share repurchase program could impact liquidity and strategic opportunities - The market price and trading volume of the company's common stock may be highly volatile, which could lead to substantial losses for stockholders[122][141] - The stock repurchase program could increase stock price volatility and reduce cash reserves, which might impact the company's ability to fund future strategic acquisitions[123] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 87,992 shares for $17.8 million in Q2 2023, with 1,094,142 shares remaining authorized for repurchase Common Stock Repurchases (Q2 2023) | Period | Total Shares Purchased (Count) | Average Price Paid (USD) | Shares Purchased as Part of Program (Count) | Max Shares Remaining for Purchase (Count) | | :--- | :--- | :--- | :--- | :--- | | April 2023 | 28,877 | $197.29 | 28,877 | 1,153,257 | | May 2023 | 31,850 | $207.10 | 31,850 | 1,121,407 | | June 2023 | 27,265 | $197.92 | 27,265 | 1,094,142 | | Total | 87,992 | $201.03 | 87,992 | 1,094,142 | - The Board of Directors authorized a stock repurchase program in 1996, which was most recently expanded in November 2022 to a total of 39,000,000 shares over the life of the program[123][143] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - There were no defaults upon senior securities during the period[126] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[144] Item 5. Other Information No other information to report for this period - There is no other information to report for this period[249] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, as well as various Inline XBRL files[128] Signatures The report was signed on August 3, 2023, by the Chief Executive Officer and Chief Financial Officer - The report was duly signed on August 3, 2023, by Michael G. Combs, Chief Executive Officer and President, and Brandon T. O'Brien, Chief Financial Officer[129][147]