CorVel(CRVL) - 2024 Q4 - Annual Report

Part I Business CorVel Corporation provides medical cost containment and managed care services for workers' compensation, auto liability, and group health insurance markets, utilizing technology to manage healthcare costs and episodes of care for diverse customers - CorVel provides technology-driven cost management solutions for workers' compensation, group health, and auto insurance sectors, partnering with employers, TPAs, insurance companies, and government agencies[23] - The company's services are offered in bundled solutions (like claims management) or on a standalone basis, addressing the complex and state-variable nature of workers' compensation[12][14] - In fiscal 2024, the company repurchased 215,313 shares of its common stock for $45.7 million. As of March 31, 2024, 966,821 shares remained authorized for repurchase under the existing program[16] - No single customer represented more than 10% of revenues in fiscal 2024, 2023, or 2022, indicating a diversified client portfolio[67] Network Solutions Services This service line reduces medical service prices through offerings like AI-driven bill review, a national PPO network, pharmacy services, and Medicare compliance solutions - CorVel's PPO network comprised over 1.2 million providers nationwide as of March 31, 2024. The company focuses on network development to provide comprehensive and customized solutions[29][47] - The bill review service utilizes an artificial intelligence engine with over 100 million rules to automate and enhance the review process, offering a paperless solution that surpasses manual methods[46] - CERiS, an enhanced review program, performs clinical reviews and comparative analysis of itemized bills against national standards to produce incremental savings[31] - The company offers a full-feature pharmacy program and a national directed care network for specialty services like medical imaging and physical therapy[34][35] Patient Management Services This segment integrates claims and case management, virtual care, and rehabilitation programs to reduce costs and disability duration from injury onset - Patient management services integrate claims management, case management, and other services to control costs by advocating for medical management at the onset of an injury[56] - The company offers a 24/7 nurse triage hotline and a telehealth platform, connecting injured workers with registered nurses and doctors for virtual appointments, which helps in providing quick and accurate care intervention[59] - Utilization management programs review proposed care for appropriateness, frequency, and duration, using experienced nurses and proprietary medical protocols to avoid unnecessary treatments[220] - Comprehensive vocational rehabilitation and disability management programs are available to assist injured workers in returning to work[80][81] Systems and Technology CorVel's technology infrastructure, including a tier III data center and the AI-driven CareMC® portal, streamlines service delivery, claims management, and client data access - The company operates a primary tier III-rated data center in Portland, Oregon, and a backup redundancy center in Lone Mountain, Nevada, ensuring high uptime and data replication in near-real time[61][64] - The CareMC® online portal provides customers with direct access to services, allowing for electronic injury reporting, bill review, claims management, and automated provider reimbursement[85] - CareMC uses artificial intelligence to provide situation alerts and event triggers, helping users prioritize claims and make quicker, more effective decisions through its 'Edge' feature[65] Human Capital CorVel employs 4,870 US-based individuals, with 75% working remotely and a diverse workforce, supported by development programs like CorVel University - As of March 31, 2024, CorVel had 4,870 employees, with 75% working from home permanently[72][95] - The company reports a diverse workforce, with over 79% of employees and 72% of managers identifying as women[93] - CorVel focuses on employee development, launching 'CorVel University' in fiscal 2024, a national training initiative to equip candidates with skills to become claims specialists[225] Risk Factors The company faces significant risks including intense competition, potential revenue declines, cybersecurity threats, regulatory changes, and challenges in attracting and retaining key personnel Risks Related to Our Business and Industry Key business risks include revenue declines from market conditions, intense competition, declining workers' compensation claims, and challenges in personnel retention and benefit costs - The company faces considerable price competition in a flat-to-declining workers' compensation market, which could cause revenue to decline and fail to meet investor expectations[100] - Competition is a major risk, coming from national managed care providers, TPAs, insurance carriers performing services in-house, and smaller local vendors. Many competitors have greater financial and marketing resources[88][107] - The business is dependent on key management personnel, particularly Chairman V. Gordon Clemons and CEO Michael Combs. The loss of their services could materially harm the company[115] Risks Related to Cybersecurity and Our Information Systems Heavy reliance on IT exposes CorVel to cybersecurity attacks and system disruptions, risking data breaches, reputational harm, litigation, and financial loss - A cybersecurity attack could result in the loss or unauthorized disclosure of sensitive customer or company information, potentially leading to litigation, regulatory penalties, and reputational damage[116] - The frequency and sophistication of cyber-attacks are increasing, and despite security investments, there is no assurance that the company's measures will be effective in preventing all breaches[137] - A significant disruption to business systems could prevent access to critical data, cause customers to cancel services, and require unanticipated investments in technology and security[118][167] Risks Related to Our Regulatory Environment Operating in a highly regulated environment, the company faces risks from evolving state and federal laws, increased data privacy scrutiny, and new regulations on AI and big data - Changes in government regulations for workers' compensation, auto insurance, or group healthcare could increase costs, reduce demand for services, or alter the fees the company can charge[173][174] - The company is subject to licensing and regulatory requirements in nearly every state, which establish standards for personnel, confidentiality, and quality control, potentially increasing operational costs[91][151] - There is increasing regulatory focus on data privacy and the use of AI and 'big data,' which could lead to new regulations that materially affect operations and expose the company to increased liability[154][155] Cybersecurity CorVel's comprehensive cybersecurity program, led by the CISO and overseen by the Board, protects data and has reported no material incidents in the last three fiscal years - The cybersecurity program is led by the CISO and is designed to protect the confidentiality, integrity, and availability of information systems, based on an industry-adopted framework[162][180] - The Board of Directors and the Audit Committee provide oversight for the cybersecurity program. The CISO, CIO, and CTO report to the CEO, who escalates issues to the Board as needed[182][200] - The company has not experienced any material cybersecurity incidents or related costs in the last three fiscal years[181] Properties CorVel's facilities include a leased 25,000 sq ft Fort Worth headquarters, 66 leased branch offices, and one owned 32,000 sq ft building in Oregon - CorVel's headquarters is in Fort Worth, Texas. The company leases 66 branch offices in 41 states and owns one 32,000 square foot building in Milwaukie, Oregon[202] - Due to a shift towards permanent remote work, the company has reassessed its office space needs and no longer believes it is reasonably certain to exercise most of its lease renewal options[184] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CorVel's common stock trades on Nasdaq (CRVL); the company has never paid dividends, retaining earnings for business and its stock repurchase program, which bought back 37,829 shares for $9.1 million in Q4 FY2024 - The company's common stock trades on the Nasdaq Global Select Market (CRVL). CorVel has never paid cash dividends and has no current plans to do so[205][206] Issuer Purchases of Equity Securities (Q4 FY2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares that may still be Purchased Under the Program | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2024 | 13,373 | $235.28 | 991,277 | | Feb 1 - Feb 29, 2024 | 12,206 | $245.54 | 979,071 | | Mar 1 - Mar 31, 2024 | 12,250 | $244.67 | 966,821 | | Total Q4 FY2024 | 37,829 | $241.63 | 966,821 | - The stock repurchase program, authorized by the Board of Directors, has been periodically increased, with the total authorization reaching 39,000,000 shares. As of March 31, 2024, the company has repurchased 38,033,179 shares over the life of the program[207] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2024, CorVel achieved 11% revenue growth to $795.3 million, with net income up 14.9% to $76.3 million, strong operating cash flow of $99.2 million, and a healthy liquidity position Financial Highlights (in millions) | Metric | Fiscal 2024 | Fiscal 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $795.3M | $718.6M | 10.7% | | Gross Profit | $171.7M | $158.3M | 8.5% | | Net Income | $76.3M | $66.4M | 14.9% | | Diluted EPS | $4.40 | $3.77 | 16.7% | - The 11% revenue growth in fiscal 2024 was attributed to increased activity and services provided for existing customers in both the Patient Management (+11%) and Network Solutions (+11%) segments[476] - Cash flow from operations increased to $99.2 million in fiscal 2024 from $82.3 million in fiscal 2023, primarily due to a $9.9 million increase in net income[304] Results of Operations Fiscal 2024 revenue grew 11% to $795.3 million, driven by 11% growth in both Patient Management and Network Solutions, while cost of revenues increased 11% and the effective tax rate decreased to 20% Revenue by Service Line (in millions) | Service Line | FY2024 Revenue | FY2023 Revenue | % Change | | :--- | :--- | :--- | :--- | | Patient Management | $530M | $479M | 11% | | Network Solutions | $265M | $240M | 11% | | Total | $795M | $719M | 11% | - Cost of revenues increased by 11% in fiscal 2024, driven by a 10% increase in salaries resulting from an 8% growth in average headcount in field operations and wage inflation[477] - The effective income tax rate for fiscal 2024 was 20%, down from 22% in fiscal 2023, primarily due to the impact of stock option exercises[480] Liquidity and Capital Resources CorVel maintains strong liquidity with $105.6 million in cash and $117.7 million in working capital, funded by $99.2 million in operating cash flow, and has virtually no interest-bearing debt - As of March 31, 2024, the company had $105.6 million in cash and cash equivalents and has maintained virtually no interest-bearing debt for the past 33 years[302][303] Cash Flow Summary (in millions) | Cash Flow Activity (FY 2024) | Amount | | :--- | :--- | | Net cash provided by operating activities | $99.2 million | | Net cash used in investing activities | ($29.2 million) | | Net cash used in financing activities | ($35.8 million) | - During fiscal 2024, the company spent $45.7 million to repurchase 215,313 shares of its common stock, a decrease from the $93.7 million spent in fiscal 2023[306] Critical Accounting Estimates Critical accounting estimates involve significant judgment in revenue recognition, expected credit losses, leases, impairment testing, self-insured costs, income taxes, and share-based compensation - Revenue recognition for medical bill review services involves significant estimation, as revenues are variable and based on performance metrics. The company uses historical averages and other factors to project these revenues[520] - Goodwill and long-lived assets are tested for impairment annually or when triggering events occur. As of March 31, 2024, no impairment was identified[522][523] - The company self-insures for employee group medical and workers' compensation costs, requiring management to estimate reserves based on historical trends and claims data[495] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on cash and cash equivalents, with a hypothetical 1% rate increase estimated to have no material fair value impact - The company's main market risk is from interest rate fluctuations on its cash and cash equivalents[194] - A hypothetical 1% increase in interest rates was estimated to have no material impact on the fair value of the company's cash and cash equivalents portfolio at fiscal year-end 2024[212] Controls and Procedures As of March 31, 2024, management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective, a finding attested by the independent auditor - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[217] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2024, based on the COSO 2013 framework[198] - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2024 that materially affected, or are reasonably likely to materially affect, these controls[199] Part III Directors, Executive Officers, Compensation, and Corporate Governance Information for Items 10-14, including directors, executive compensation, and related party transactions, is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the forthcoming 2024 Proxy Statement[410][411][563] Part IV Exhibit and Financial Statement Schedules This section details financial statements, schedules, and exhibits filed with the 10-K, including Schedule II's allowance for expected credit losses over three fiscal years Allowance for Expected Credit Losses (in thousands) | Allowance for expected credit losses | Balance at Beginning of Year | Additions Charged to Cost and Expenses | Deductions | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | Fiscal Year Ended March 31, 2024 | $2,823,000 | $1,828,000 | ($406,000) | $4,245,000 | | Fiscal Year Ended March 31, 2023 | $2,562,000 | $1,216,000 | ($955,000) | $2,823,000 | | Fiscal Year Ended March 31, 2022 | $3,274,000 | $158,000 | ($870,000) | $2,562,000 | Financial Statements and Notes Consolidated Financial Statements Fiscal 2024 consolidated financial statements report total assets of $454.7 million, liabilities of $207.0 million, equity of $247.6 million, revenues of $795.3 million, and net income of $76.3 million Consolidated Statement of Income Highlights (in thousands) | (in thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues | $795,311 | $718,562 | $646,230 | | Gross Profit | $171,693 | $158,259 | $152,114 | | Net Income | $76,252 | $66,365 | $66,410 | | Diluted EPS | $4.40 | $3.77 | $3.66 | Consolidated Balance Sheet Highlights (in thousands) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $105,563 | $71,329 | | Total Assets | $454,679 | $393,923 | | Total Liabilities | $207,032 | $191,747 | | Total Stockholders' Equity | $247,647 | $202,176 | Consolidated Cash Flow Highlights (in thousands) | (in thousands) | Amount | | :--- | :--- | | Net cash provided by operating activities | $99,237 | | Net cash used in investing activities | $(29,240) | | Net cash used in financing activities | $(35,763) | Notes to Consolidated Financial Statements These notes detail accounting policies and financial data, including revenue recognition, stock-based compensation, leases, and quarterly results, with the company operating as a single managed care segment Note 2 – Revenue Recognition Revenue is recognized from Patient Management (over time) and Network Solutions (point in time), with FY2024 revenues of $530.0 million and $265.3 million respectively, and $30.0 million in deferred revenue Revenue by Service Line (in thousands) | Service Line | FY 2024 Revenue | FY 2023 Revenue | FY 2022 Revenue | | :--- | :--- | :--- | :--- | | Patient management services | $529,995,000 | $478,751,000 | $424,050,000 | | Network solutions services | $265,316,000 | $239,811,000 | $222,180,000 | | Total services | $795,311,000 | $718,562,000 | $646,230,000 | - Net accounts receivable increased to $97.1 million at March 31, 2024, from $81.0 million at March 31, 2023, with unbilled receivables growing from $26.6 million to $42.4 million[270] - As of March 31, 2024, the company had $30.0 million in remaining performance obligations (deferred revenue), of which 98% is expected to be recognized as revenue within one year[274] Note 3 — Stock Options and Stock-Based Compensation CorVel's Restated Omnibus Incentive Plan resulted in $5.0 million in share-based compensation expense in FY2024, with $8.2 million in unrecognized costs for 489,727 outstanding options Stock-Based Compensation Expense (in thousands) | Expense Category | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | :--- | | Share-based compensation expense | $4,982,000 | $5,559,000 | $5,198,000 | | Income tax benefit recognized | ($987,000) | ($1,210,000) | ($1,119,000) | | Amount charged to net income | $3,995,000 | $4,349,000 | $4,079,000 | - As of March 31, 2024, there was $8,178,000 of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 3 years[356] Note 14 — Quarterly Results (Unaudited) Fiscal 2024 unaudited quarterly results show sequential revenue growth from $190.3 million in Q1 to $207.2 million in Q4, with net income fluctuating between $17.1 million and $19.9 million Fiscal Year 2024 Quarterly Results (Unaudited, in thousands) | Quarter | Revenues | Gross Profit | Net Income | | :--- | :--- | :--- | :--- | | First Quarter | $190,253 | $41,878 | $19,805 | | Second Quarter | $195,522 | $44,252 | $19,898 | | Third Quarter | $202,303 | $42,160 | $17,095 | | Fourth Quarter | $207,233 | $43,403 | $19,454 |