CorVel(CRVL) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers CorVel Corporation's unaudited financial statements, management's discussion, market risk, and controls Item 1. Financial Statements Presents CorVel Corporation's unaudited consolidated financial statements and related notes for periods ending September 30, 2023 Consolidated Financial Statements (Unaudited) Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | Sep 30, 2023 (in thousands) | Mar 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $281,875 | $243,770 | | Total Assets | $434,117 | $393,923 | | Total Current Liabilities | $186,499 | $167,887 | | Total Liabilities | $211,548 | $191,747 | | Total Stockholders' Equity | $222,569 | $202,176 | Consolidated Income Statement Summary (Unaudited) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $195,522 | $177,426 | $385,775 | $353,733 | | Gross Profit | $44,252 | $36,094 | $86,131 | $75,963 | | Net Income | $19,898 | $14,656 | $39,703 | $31,347 | | Diluted EPS | $1.15 | $0.83 | $2.29 | $1.77 | Consolidated Statement of Cash Flows Summary (Unaudited) | Cash Flow Activity (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,619 | $39,755 | | Net cash used in investing activities | ($12,276) | ($13,396) | | Net cash used in financing activities | ($21,923) | ($48,238) | | Increase/(decrease) in cash | $20,420 | ($21,879) | Notes to Consolidated Financial Statements - The Company operates in a single reportable segment: managed care[39] Revenue by Service Line (in thousands) | Service Line | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Patient management services | $129,805 | $119,470 | $257,643 | $234,279 | | Network solutions services | $65,717 | $57,956 | $128,132 | $119,454 | | Total services | $195,522 | $177,426 | $385,775 | $353,733 | - During the six months ended September 30, 2023, the Company repurchased 133,493 shares of its common stock for $27.2 million at an average price of $203.80 per share[25] Accrued Liabilities (in thousands) | Liability Category | Sep 30, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | | Payroll, payroll taxes and employee benefits | $29,324 | $22,170 | | Customer deposits | $90,127 | $80,022 | | Deferred revenue | $29,171 | $26,978 | | Total accrued liabilities | $171,143 | $152,578 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results for periods ended September 30, 2023, detailing revenue, costs, profitability, liquidity, and cash flows Results of Operations for the three months ended September 30, 2023 and 2022 Q3 Financial Performance Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $195,522 | $177,426 | $18,096 | 10.2% | | Gross Profit | $44,252 | $36,094 | $8,158 | 22.6% | | Net Income | $19,898 | $14,656 | $5,242 | 35.8% | | Diluted EPS | $1.15 | $0.83 | $0.32 | 38.6% | - Q3 revenue increased by 10.2% YoY to $195.5 million, driven by an 8.7% increase in Patient Management services and a 13.4% increase in Network Solutions services. The growth is attributed to existing customers and, to a lesser extent, new customers[99] - Cost of revenues for Q3 increased by 7.0% YoY, primarily due to the 10.2% revenue growth and a 6.5% increase in salaries from an 8.6% rise in average headcount in field operations to support new and increased business volume[66][82] - General and administrative expenses for Q3 rose 11.3% YoY to $19.5 million, in line with the 10.2% revenue growth, maintaining its proportion at 10.0% of revenues[76][84] Results of Operations for the six months ended September 30, 2023 and 2022 Six-Month Financial Performance Summary (in thousands) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $385,775 | $353,733 | $32,042 | 9.1% | | Gross Profit | $86,131 | $75,963 | $10,168 | 13.4% | | Net Income | $39,703 | $31,347 | $8,356 | 26.7% | | Diluted EPS | $2.29 | $1.77 | $0.52 | 29.4% | - Six-month revenue grew 9.1% YoY to $385.8 million, with Patient Management services up 9.9% and Network Solutions services up 7.2%. The increase was primarily from growth with existing customers[105] - General and administrative expenses for the six-month period decreased by 0.6% YoY, primarily due to a one-time insurance recovery settlement from a 2011 lawsuit[106] Liquidity and Capital Resources - Working capital increased by $19.5 million to $95.4 million as of September 30, 2023, from March 31, 2023. Cash and cash equivalents increased by $20.4 million to $91.7 million in the same period[90] - Net cash from operating activities increased by $14.9 million to $54.6 million for the six months ended September 30, 2023, compared to the prior year, mainly due to higher net income[110] - Net cash used in financing activities decreased by $26.3 million to $21.9 million for the six-month period, primarily due to a reduction in share repurchases ($27.2 million in H1 2023 vs. $52.3 million in H1 2022)[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure is primarily limited to interest rate fluctuations on its cash and cash equivalents. As of September 30, 2023, the company held no market risk-sensitive instruments for trading, had no derivative financial instruments, and had no outstanding debt, thus minimizing its overall market risk - The company's primary market risk is from interest rate fluctuations on its cash and cash equivalents. A hypothetical one-percentage point increase in interest rates would not have a material effect on the fair value of its investment portfolio[116] - As of September 30, 2023, the Company had no debt outstanding and did not use any derivative financial instruments, thereby having no market risk related to debt[116] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[117] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[140] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other required disclosures Item 1. Legal Proceedings The company is involved in legal proceedings arising in the ordinary course of business but believes that their resolution will not have a material impact on its consolidated financial position or results of operations - The Company is involved in litigation from time to time in the ordinary course of business, but management believes the resolution of these matters will not be material to the company's financial position or results[113][141] Item 1A. Risk Factors This section outlines the significant risks that could adversely affect the company's business, financial condition, and results of operations. Key risks include intense competition, potential declines in workers' compensation claims, reliance on technology and cybersecurity vulnerabilities, potential litigation, evolving government regulations, and stock price volatility Risks Related to Our Business and Industry - The company faces risks of fluctuating sequential revenue due to factors like declining manufacturing employment, price competition, and changes in workers' compensation laws, which could cause its stock price to decline if expectations are not met[120] - The market is fragmented and competitive, with rivals including national managed care providers, PPOs, and insurance companies that may have greater resources or perform services in-house[125] - Future success depends on effectively applying technology and data analytics. Failure to anticipate and respond to developments like AI, machine learning, and 'big data' could adversely affect operating results and client relationships[132] Risks Related to Cybersecurity and Our Information Systems - A cybersecurity attack could lead to the loss or unauthorized disclosure of sensitive customer or company information, potentially damaging customer relationships, exposing the company to litigation, and harming its reputation and financial results[157] - The frequency and sophistication of cyber-attacks are increasing. A breach could cause significant business disruption, loss of revenue, regulatory actions, and other financial losses, and insurance coverage may be insufficient[160][180] Risks Related to Potential Litigation - The company's utilization management services, which involve recommendations on medical treatment plans, could expose it to claims for adverse medical consequences or allegations of practicing medicine[163] - Healthcare providers have filed individual and class action lawsuits challenging cost containment programs used by the company and its customers. Successful lawsuits could result in significant liabilities[165] Risks Related to Our Regulatory Environment - The company is subject to evolving healthcare and workers' compensation regulations, and failure to comply with existing laws, obtain licenses, or adapt to new requirements could adversely affect business[190][203] - Increasing regulatory focus and expanding privacy laws (e.g., GDPR, CCPA) could impact business models and expose the company to public criticism, lawsuits, and liability for data handling practices[191] Risks Related to Ownership of Our Common Stock - The market price and trading volume of the company's common stock may be volatile, leading to potential substantial losses for stockholders[193][207] - The stock repurchase program, while intended to enhance long-term value, could increase stock price volatility, diminish cash reserves, and may not guarantee that the stock price won't decline below repurchase levels[194] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity for the third quarter of 2023. The company continued to execute its publicly announced stock repurchase plan, buying back shares in each month of the quarter Common Stock Repurchases (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 14,784 | $202.68 | | August 2023 | 15,703 | $218.00 | | September 2023 | 15,014 | $199.64 | | Total | 45,501 | $206.96 | - During the three months ended September 30, 2023, the Company repurchased 45,501 shares for $9.4 million. As of this date, 37,951,359 shares have been repurchased over the life of the program, which was expanded in November 2022 to a total of 39,000,000 shares[209] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[197] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[210] Item 5. Other Information The company reported no other information - None[198] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and XBRL-related documents - Exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and various Inline XBRL documents[212] Signatures