CORVEL CORP [CRVL] Filings

10-Q 1 crvl-20230930.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to x

Commission file number 0-19291

CORVEL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware

33-0282651

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)


5128 Apache Plume Road, Suite 400
Fort Worth, TX		76109
(Address of principal executive offices)		(Zip Code)

(817) 390-1416
Registrant’s telephone number, including area code

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.0001 Per Share

CRVL

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of the registrant's Common Stock, $0.0001 par value per share, as of October 31, 2023, was 17,105,857.

CORVEL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets – September 30, 2023 (unaudited) and March 31, 2023	3
	Consolidated Income Statements (unaudited) – Three months ended September 30, 2023 and 2022	4
	Consolidated Income Statements (unaudited) – Six months ended September 30, 2023 and 2022	5
	Consolidated Statements of Stockholders’ Equity (unaudited) – Three and six months ended September 30, 2023 and 2022	6
	Consolidated Statements of Cash Flows (unaudited) – Six months ended September 30, 2023 and 2022	7
	Notes to Consolidated Financial Statements (unaudited) – September 30, 2023	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

	Signatures	37

Page 2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CORVEL CORPORATION

Consolidated Balance Sheets


	September 30, 2023			March 31, 2023
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	91,749,000		$	71,329,000
Customer deposits		90,127,000			80,022,000
Accounts receivable, net		86,937,000			81,034,000
Prepaid taxes and expenses		13,062,000			11,385,000
Total current assets		281,875,000			243,770,000
Property and equipment, net		84,939,000			82,770,000
Goodwill		36,814,000			36,814,000
Other intangibles, net		1,033,000			1,244,000
Right-of-use asset, net		27,174,000			27,721,000
Deferred tax asset, net		877,000			224,000
Other assets		1,405,000			1,380,000
TOTAL ASSETS	$	434,117,000		$	393,923,000
Liabilities and Stockholders' Equity
Current Liabilities
Accounts and taxes payable	$	15,356,000		$	15,309,000
Accrued liabilities		171,143,000			152,578,000
Total current liabilities		186,499,000			167,887,000
Long-term lease liabilities		25,049,000			23,860,000
Total liabilities		211,548,000			191,747,000
Commitments and contingencies
Stockholders' Equity
Common stock, $.0001 par value: 120,000,000 shares authorized at September 30, 2023 and March 31, 2023; 55,070,842 shares issued (17,119,483 shares outstanding, net of Treasury shares) and 54,987,366 shares issued (17,169,500 shares outstanding, net of Treasury shares) at September 30, 2023 and March 31, 2023, respectively		3,000			3,000
Paid-in capital		226,595,000			218,700,000
Treasury stock (37,951,359 shares at September 30, 2023 and 37,817,866 shares at March 31, 2023)		(775,400,000	)		(748,195,000	)
Retained earnings		771,371,000			731,668,000
Total stockholders' equity		222,569,000			202,176,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	434,117,000		$	393,923,000

See accompanying notes to unaudited consolidated financial statements.

Page 3

CORVEL CORPORATION

Consolidated Income Statements – (Unaudited)


	Three Months Ended September 30,
	2023		2022
REVENUES	$	195,522,000	$	177,426,000
Cost of revenues		151,270,000		141,332,000
Gross profit		44,252,000		36,094,000
General and administrative expenses		19,538,000		17,549,000
Income before income tax provision		24,714,000		18,545,000
Income tax provision		4,816,000		3,889,000
NET INCOME	$	19,898,000	$	14,656,000
Net income per common and common equivalent share
Basic	$	1.16	$	0.84
Diluted	$	1.15	$	0.83
Weighted average common and common equivalent shares
Basic		17,123,000		17,386,000
Diluted		17,346,000		17,650,000

See accompanying notes to unaudited consolidated financial statements.

Page 4

CORVEL CORPORATION

Consolidated Income Statements – (Unaudited)


	Six Months Ended September 30,
	2023		2022
REVENUES	$	385,775,000	$	353,733,000
Cost of revenues		299,644,000		277,770,000
Gross profit		86,131,000		75,963,000
General and administrative expenses		35,989,000		36,219,000
Income before income tax provision		50,142,000		39,744,000
Income tax provision		10,439,000		8,397,000
NET INCOME	$	39,703,000	$	31,347,000
Net income per common and common equivalent share
Basic	$	2.32	$	1.80
Diluted	$	2.29	$	1.77
Weighted average common and common equivalent shares
Basic		17,133,000		17,446,000
Diluted		17,365,000		17,726,000

See accompanying notes to unaudited consolidated financial statements.

Page 5

CORVEL CORPORATION

Consolidated Statements of Stockholders’ Equity – (Unaudited)


	Three Months Ended September 30, 2023
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – June 30, 2023		55,019,773	$	3,000	$	221,486,000		(37,905,858	)	$	(765,982,000	)	$	751,473,000	$	206,980,000
Stock issued under employee stock purchase plan		1,797		—		336,000		—			—			—		336,000
Stock issued under stock option plan, net of shares repurchased		49,272		—		3,472,000		—			—			—		3,472,000
Stock-based compensation expense		—		—		1,301,000		—			—			—		1,301,000
Purchase of treasury stock		—		—		—		(45,501	)		(9,418,000	)		—		(9,418,000	)
Net income		—		—		—		—			—			19,898,000		19,898,000
Balance – September 30, 2023		55,070,842	$	3,000	$	226,595,000		(37,951,359	)	$	(775,400,000	)	$	771,371,000	$	222,569,000

	Three Months Ended September 30, 2022
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – June 30, 2022		54,832,358	$	3,000	$	204,839,000		(37,394,507	)	$	(681,208,000	)	$	681,994,000	$	205,628,000
Stock issued under employee stock purchase plan		2,636		—		346,000		—			—			—		346,000
Stock issued under stock option plan, net of shares repurchased		38,208		—		1,851,000		—			—			—		1,851,000
Stock-based compensation expense		—		—		950,000		—			—			—		950,000
Purchase of treasury stock		—		—		—		(164,509	)		(25,598,000	)		—		(25,598,000	)
Net income		—		—		—		—			—			14,656,000		14,656,000
Balance – September 30, 2022		54,873,202	$	3,000	$	207,986,000		(37,559,016	)	$	(706,806,000	)	$	696,650,000	$	197,833,000


	Six Months Ended September 30, 2023
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – March 31, 2023		54,987,366	$	3,000	$	218,700,000		(37,817,866	)	$	(748,195,000	)	$	731,668,000	$	202,176,000
Stock issued under employee stock purchase plan		1,797		—		336,000		—			—			—		336,000
Stock issued under stock option plan, net of shares repurchased		81,679		—		4,946,000		—			—			—		4,946,000
Stock-based compensation expense		—		—		2,613,000		—			—			—		2,613,000
Purchase of treasury stock		—		—		—		(133,493	)		(27,205,000	)		—		(27,205,000	)
Net income		—		—		—		—			—			39,703,000		39,703,000
Balance – September 30, 2023		55,070,842	$	3,000	$	226,595,000		(37,951,359	)	$	(775,400,000	)	$	771,371,000	$	222,569,000

	Six Months Ended September 30, 2022
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – March 31, 2022		54,788,712	$	3,000	$	201,609,000		(37,219,625	)	$	(654,520,000	)	$	665,303,000	$	212,395,000
Stock issued under employee stock purchase plan		2,636		—		346,000		—			—			—		346,000
Stock issued under stock option plan, net of shares repurchased		81,854		—		3,702,000		—			—			—		3,702,000
Stock-based compensation expense		—		—		2,329,000		—			—			—		2,329,000
Purchase of treasury stock		—		—		—		(339,391	)		(52,286,000	)		—		(52,286,000	)
Net income		—		—		—		—			—			31,347,000		31,347,000
Balance – September 30, 2022		54,873,202	$	3,000	$	207,986,000		(37,559,016	)	$	(706,806,000	)	$	696,650,000	$	197,833,000

See accompanying notes to unaudited consolidated financial statements.

Page 6

CORVEL CORPORATION

Consolidated Statements of Cash Flows – (Unaudited)


	Six Months Ended September 30,
	2023			2022
Cash Flows from Operating Activities
NET INCOME	$	39,703,000		$	31,347,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,825,000			12,645,000
Loss on write down or disposal of property, capitalized software or investment		221,000			—
Stock compensation expense		2,613,000			2,329,000
Provision for doubtful accounts		590,000			1,239,000
Deferred income tax		(653,000	)		(582,000	)
Changes in operating assets and liabilities
Accounts receivable		(6,493,000	)		(3,440,000	)
Customer deposits		(10,105,000	)		(5,989,000	)
Prepaid taxes and expenses		(1,677,000	)		2,922,000
Other assets		(26,000	)		(317,000	)
Accounts and taxes payable		(2,680,000	)		(2,676,000	)
Accrued liabilities		18,565,000			1,543,000
Operating lease liabilities		1,736,000			734,000
Net cash provided by operating activities		54,619,000			39,755,000
Cash Flows from Investing Activities
Purchase of property and equipment		(12,276,000	)		(13,396,000	)
Net cash used in investing activities		(12,276,000	)		(13,396,000	)
Cash Flows from Financing Activities
Purchase of treasury stock		(27,205,000	)		(52,286,000	)
Proceeds from exercise of common stock options		4,946,000			3,702,000
Proceeds from purchases under employee stock purchase plan		336,000			346,000
Net cash used in financing activities		(21,923,000	)		(48,238,000	)
Increase/(decrease) in cash and cash equivalents		20,420,000			(21,879,000	)
Cash and cash equivalents at beginning of period		71,329,000			97,504,000
Cash and cash equivalents at end of period	$	91,749,000		$	75,625,000
Supplemental Cash Flow Information:
Income taxes paid	$	13,913,000		$	10,968,000
Purchase of software license under finance agreement	$	2,728,000		$	5,273,000

See accompanying notes to unaudited consolidated financial statements.

Page 7

CORVEL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2023

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation: The unaudited consolidated financial statements include the accounts of CorVel Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements herein have been prepared by CorVel Corporation (“the Company”, “we”, “our”, “us”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The accompanying interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended March 31, 2023. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the March 31, 2023 audited consolidated financial statements have been omitted from these interim unaudited consolidated financial statements.

The Company evaluated all subsequent events and transactions through the date of filing this report.

Certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2023 included in the Company's Annual Report on Form 10-K filed with the SEC on May 26, 2023.

Recent Accounting Pronouncements: The Company has evaluated recent accounting pronouncements through the date the financial statements were issued and filed with the Securities and Exchange Commission and believes that there are none that will have a material impact on the Company’s financial statements.

Note 2 – Revenue Recognition

Revenue from Contracts with Customers

Revenue is recognized when control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. As the Company completes its performance obligations, which are identified below, it has an unconditional right to consideration as outlined in the Company’s contracts. Generally, the Company’s accounts receivable are expected to be collected in 30 days in accordance with the underlying payment terms.

The Company generates revenue through its patient management and network solutions service lines. The Company operates in one reportable operating segment, managed care.

Patient Management Service Line

The patient management service line provides services primarily related to workers’ compensation claims management and case management. This service line also includes additional services such as accident and health claims programs. Each claim referred by the customer is considered an additional optional purchase of claims management services under the agreement with the customer. The transaction price is readily available from the contract and is fixed for each service. Revenue is recognized over time as services are provided as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document, and report the claim and control of these services is transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type applied utilizing a portfolio approach based on time elapsed for these claims, generally between three and fifteen months. The Company believes this approach reasonably reflects the transfer of the claims management services to its customers.

Page 8

The Company’s obligation to manage claims and cases under the patient management service line can range from less than one year to multi-year contracts. They are generally one year under the terms of the contract; however, many of these contracts contain auto-renewal provisions and the Company’s customer relationships can span multiple years. Under certain claims management agreements, the Company receives consideration from a customer at contract inception prior to transferring services to the customer, however, the Company would begin performing services immediately. The period between a customer’s payment of consideration and the completion of the promised services is generally less than one year. There is no difference between the amount of promised consideration and the cash selling price of the promised services. The fee is billed upfront by the Company in order to provide customers with simplified and predictable ways of purchasing the Company’s services.

The patient management service line also offers the services of case managers who provide administration services by proactively managing medical treatment for claimants while facilitating an understanding of and participation in their rehabilitation process. Revenue for case management services is recognized over time as the performance obligations are satisfied through the effort expended to manage the medical treatment for claimants and control of these services is transferred to the customer. Case management services are generally billed based on time incurred, are considered variable consideration, and revenue is recognized at the amount in which the Company has the right to invoice for services performed. The Company believes this approach reasonably reflects the transfer of the case management service to the customer.

Network Solutions Service Line

The network solutions service line consists primarily of medical bill review and third-party services. Medical bill review services provide an analysis of medical charges for customers’ claims to identify opportunities for savings. Medical bill review services revenues are recognized at a point in time when control of the service is transferred to the customer. Revenue is recognized based upon the transfer of the results of the medical bill review service to the customer as this is the most accurate depiction of the transfer of the service to the customer. Medical bill review revenues are variable and generally based on performance metrics set forth in the underlying contracts. Each period, the Company bases its estimates on a contract-by-contract basis. The Company makes its best estimate of amounts the Company has earned and expects to be collected using historical averages and other factors to project such revenues. Variable consideration is recognized when the Company concludes that it is probable that a significant revenue reversal will not occur in future periods.

Third-party services revenue includes pharmacy, directed care services and other services, and includes amounts received from customers compensating the Company for certain third-party costs associated with providing its integrated network solutions services. The Company is considered the principal in these transactions as it directs the third party, controls the specified service, performs program utilization review, directs payment to the provider, accepts the financial risk of loss associated with services rendered, and combines the services provided into an integrated solution, as specified within the Company’s customer contracts. The Company has the ability to influence contractual fees with customers and possesses the financial risk of loss in certain contractual obligations. These factors indicate the Company is the principal and, as such, is required to recognize revenue gross and service partner vendor fees in the operating expense in the Company’s consolidated statements of income.

The following table presents revenues disaggregated by service line for the three and six months ended September 30, 2023 and 2022:


	Three Months Ended		Three Months Ended
	September 30, 2023		September 30, 2022
Patient management services	$	129,805,000	$	119,470,000
Network solutions services		65,717,000		57,956,000
Total services	$	195,522,000	$	177,426,000


	Six Months Ended		Six Months Ended
	September 30, 2023		September 30, 2022
Patient management services	$	257,643,000	$	234,279,000
Network solutions services		128,132,000		119,454,000
Total services	$	385,775,000	$	353,733,000

Arrangements with Multiple Performance Obligations

For many of the Company’s services, the Company typically has one performance obligation; however, the Company also provides the customer with an option to acquire additional services. The Company offers multiple services under its patient management and network solutions service lines. The Company typically provides a menu of offerings from which the customer may choose to purchase. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is generally consistent for each service irrespective of the other services or quantities requested by the customer.

Page 9

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivables, unbilled receivables, and contract liabilities (reported as deferred revenues) on the Company’s consolidated balance sheets. Unbilled receivables are due to the Company unconditionally for services already rendered except for physical invoicing and the passage of time. Invoicing requirements vary by customer contract, but substantially all unbilled revenues are billed within one year.


	September 30, 2023			March 31, 2023
Billed receivables	$	58,749,000		$	57,218,000
Unbilled receivables		31,408,000			26,639,000
Allowance for doubtful accounts		(3,220,000	)		(2,823,000	)
Accounts receivable, net	$	86,937,000		$	81,034,000

When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain claims management agreements, it records deferred revenues on the Company’s consolidated balance sheets, which represents a contract liability. Such deferred revenue is included within accrued liabilities on the accompanying consolidated balance sheets.

Certain services, such as claims management, are provided under fixed-fee service agreements and require the Company to manage claims over a contract period, typically for one year with the option for auto renewal, with the fixed fee renewing on the anniversary date of such contracts. The Company recognizes deferred revenues as revenues when it performs services and transfers control of the services to the customer and satisfies the performance obligation which it determines utilizing a portfolio approach. For all fixed fee service agreements, revenues are recognized over the expected service periods by type of claim.

The table below presents the deferred revenues balance and the significant activity affecting deferred revenues during the six months ended September 30, 2023:


	Six Months Ended
	September 30, 2023
Beginning balance at April 1, 2023	$	26,978,000
Additions		25,014,000
Revenue recognized from beginning of period		(12,787,000	)
Revenue recognized from additions		(10,034,000	)
Ending balance at September 30, 2023	$	29,171,000

Remaining Performance Obligations

As of September 30, 2023, the Company had $29.2 million of remaining performance obligations related to claims and non-claims services for which the price is fixed. Remaining performance obligations consist of deferred revenues. The Company expects to recognize approximately 96% of its remaining performance obligations as revenues within