CORVEL CORP [CRVL] Filings

10-Q 1 crvl-20240630.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 June 30, 2024


☐	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 July 29, 2024, was 17,131,193.

CORVEL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets – June 30, 2024 (unaudited) and March 31, 2024	3
	Consolidated Income Statements (unaudited) – Three months ended June 30, 2024 and 2023	4
	Consolidated Statements of Stockholders’ Equity (unaudited) – Three months ended June 30, 2024 and 2023	5
	Consolidated Statements of Cash Flows (unaudited) – Three months ended June 30, 2024 and 2023	6
	Notes to Consolidated Financial Statements (unaudited) – June 30, 2024	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

	Signatures	34

Page 2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CORVEL CORPORATION

Consolidated Balance Sheets


	June 30, 2024			March 31, 2024
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	131,908,000		$	105,563,000
Customer deposits		94,022,000			88,142,000
Accounts receivable, net		97,749,000			97,108,000
Prepaid taxes and expenses		9,579,000			11,418,000
Total current assets		333,258,000			302,231,000
Property and equipment, net		86,865,000			85,892,000
Goodwill		36,814,000			36,814,000
Other intangibles, net		716,000			821,000
Right-of-use asset, net		23,241,000			24,058,000
Deferred tax asset, net		3,813,000			3,545,000
Other assets		1,465,000			1,318,000
TOTAL ASSETS	$	486,172,000		$	454,679,000
Liabilities and Stockholders' Equity
Current Liabilities
Accounts and taxes payable	$	18,681,000		$	16,631,000
Accrued liabilities		181,904,000			167,868,000
Total current liabilities		200,585,000			184,499,000
Long-term lease liabilities		21,714,000			22,533,000
Total liabilities		222,299,000			207,032,000
Commitments and contingencies
Stockholders' Equity
Common stock, $.0001 par value: 120,000,000 shares authorized at June 30, 2024 and March 31, 2024; 55,194,878 shares issued (17,123,561 shares outstanding, net of Treasury shares) and 55,162,075 shares issued (17,128,896 shares outstanding, net of Treasury shares) at June 30, 2024 and March 31, 2024, respectively		3,000			3,000
Paid-in capital		237,804,000			233,629,000
Treasury stock (38,071,317 shares at June 30, 2024 and 38,033,179 shares at March 31, 2024)		(803,431,000	)		(793,905,000	)
Retained earnings		829,497,000			807,920,000
Total stockholders' equity		263,873,000			247,647,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	486,172,000		$	454,679,000

See accompanying notes to unaudited consolidated financial statements.

Page 3

CORVEL CORPORATION

Consolidated Income Statements – (Unaudited)


	Three Months Ended June 30,
	2024		2023
REVENUES	$	211,722,000	$	190,253,000
Cost of revenues		163,567,000		148,375,000
Gross profit		48,155,000		41,878,000
General and administrative expenses		20,120,000		16,450,000
Income before income tax provision		28,035,000		25,428,000
Income tax provision		6,458,000		5,623,000
NET INCOME	$	21,577,000	$	19,805,000
Net income per common and common equivalent share
Basic	$	1.26	$	1.16
Diluted	$	1.25	$	1.14
Weighted average common and common equivalent shares
Basic		17,122,000		17,144,000
Diluted		17,313,000		17,385,000

See accompanying notes to unaudited consolidated financial statements.

Page 4

CORVEL CORPORATION

Consolidated Statements of Stockholders’ Equity – (Unaudited)


	Three Months Ended June 30, 2024
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – March 31, 2024		55,162,075	$	3,000	$	233,629,000		(38,033,179	)	$	(793,905,000	)	$	807,920,000	$	247,647,000
Stock issued under stock option plan, net of shares repurchased		32,803		—		3,105,000		—			—			—		3,105,000
Stock-based compensation expense		—		—		1,070,000		—			—			—		1,070,000
Purchase of treasury stock		—		—		—		(38,138	)		(9,526,000	)		—		(9,526,000	)
Net income		—		—		—		—			—			21,577,000		21,577,000
Balance – June 30, 2024		55,194,878	$	3,000	$	237,804,000		(38,071,317	)	$	(803,431,000	)	$	829,497,000	$	263,873,000


	Three Months Ended June 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 stock option plan, net of shares repurchased		32,407		—		1,474,000		—			—			—		1,474,000
Stock-based compensation expense		—		—		1,312,000		—			—			—		1,312,000
Purchase of treasury stock		—		—		—		(87,992	)		(17,787,000	)		—		(17,787,000	)
Net income		—		—		—		—			—			19,805,000		19,805,000
Balance – June 30, 2023		55,019,773	$	3,000	$	221,486,000		(37,905,858	)	$	(765,982,000	)	$	751,473,000	$	206,980,000

See accompanying notes to unaudited consolidated financial statements.

Page 5

CORVEL CORPORATION

Consolidated Statements of Cash Flows – (Unaudited)


	Three Months Ended June 30,
	2024			2023
Cash Flows from Operating Activities
NET INCOME	$	21,577,000		$	19,805,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,726,000			6,364,000
Loss on write down or disposal of property, capitalized software or investment		79,000			13,000
Stock-based compensation expense		1,070,000			1,312,000
Provision for expected credit losses		1,325,000			436,000
Deferred income tax		(268,000	)		(328,000	)
Changes in operating assets and liabilities
Accounts receivable		(1,966,000	)		(3,578,000	)
Customer deposits		(5,880,000	)		(4,733,000	)
Prepaid taxes and expenses		1,838,000			(1,041,000	)
Other assets		(146,000	)		655,000
Accounts and taxes payable		2,050,000			2,383,000
Accrued liabilities		14,036,000			14,734,000
Operating leases, net		(2,000	)		604,000
Net cash provided by operating activities		40,439,000			36,626,000
Cash Flows from Investing Activities
Purchase of property and equipment		(7,673,000	)		(5,049,000	)
Net cash used in investing activities		(7,673,000	)		(5,049,000	)
Cash Flows from Financing Activities
Purchase of treasury stock		(9,526,000	)		(17,787,000	)
Proceeds from exercise of common stock options		3,105,000			1,474,000
Net cash used in financing activities		(6,421,000	)		(16,313,000	)
Increase in cash and cash equivalents		26,345,000			15,264,000
Cash and cash equivalents at beginning of period		105,563,000			71,329,000
Cash and cash equivalents at end of period	$	131,908,000		$	86,593,000
Supplemental Cash Flow Information:
Income taxes paid	$	403,000		$	333,000
Purchase of software license under finance agreement	$	—		$	2,728,000

See accompanying notes to unaudited consolidated financial statements.

Page 6

CORVEL CORPORATION

Notes to Consolidated Financial Statements

June 30, 2024

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, 2024. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the March 31, 2024 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 months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2025. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2024 included in the Company's Annual Report on Form 10-K filed with the SEC on May 24, 2024.

Recent Accounting Pronouncements: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, a new accounting standard to enhance the transparency and decision usefulness of income tax disclosures. The new standard is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires more detailed information about a reportable segment’s expenses. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with retrospective application required. The Company is currently evaluating the impact of this guidance on its consolidated 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 customer.

Page 7

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, generally based on performance metrics set forth in the underlying contracts. Each period, the Company bases its revenue 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 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 and its pricing, 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, it 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 months ended June 30, 2024 and 2023:


	Three Months Ended		Three Months Ended
	June 30, 2024		June 30, 2023
Patient management services	$	139,172,000	$	127,838,000
Network solutions services		72,550,000		62,415,000
Total services	$	211,722,000	$	190,253,000

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.

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

Page 8

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.


	June 30, 2024			March 31, 2024
Billed receivables	$	60,303,000		$	58,936,000
Allowance for expected credit losses		(5,363,000	)		(4,245,000	)
Unbilled receivables		42,809,000			42,417,000
Accounts receivable, net	$	97,749,000		$	97,108,000

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.

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 straight-lined and 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 three months ended June 30, 2024:


	Three Months Ended
	June 30, 2024
Beginning balance at April 1, 2024	$	29,961,000
Additions		13,774,000
Revenue recognized from beginning of period		(4,214,000	)
Revenue recognized from additions		(9,304,000	)
Ending balance at June 30, 2024	$	30,217,000

Remaining Performance Obligations

As of June 30, 2024, the Company had $30.2 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 98% of its remaining performance obligations as revenues within one year and expects to recognize the remaining balance as revenues thereafter. See the discussion below regarding the practical expedients elected for the disclosure of remaining performance obligations.

Page 9

Costs to Obtain a Contract

The Company has an internal sales force compensation program where remuneration is based solely on the revenues recognized in the period and does not represent an incremental cost to the Company which provides a future benefit expected to be longer than one year and would meet the criteria to be capitalized and presented on the Company’s consolidated balance sheets.

Practical Expedients Elected

As a practical expedient, the Company does not adjust the consideration in a contract for the effects of a significant financing component. It expects, at contract inception, that the period between a customer’s payment of consideration and the transfer of promised services to the customer will be one year or less.

For patient management services that are billed on a time-and-expense incurred or per unit basis and for which revenue is recognized over time, the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

The Company does not disclose the value of remaining performance obligations for (i) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed, and (ii) contracts with variable consideration allocated entirely to a single performance obligation.

Note 3 — Stock-Based Compensation and Stock Options

Under the Company’s Restated Omnibus Incentive Plan (formerly the Restated 1988 Executive Stock Option Plan) (the “ Plan”) as in effect at June 30, 2024, options exercisable for up to 20,615,000 shares of the Company’s common stock (the "common stock") may be granted over the life of the Plan to key employees, non-employee directors, and consultants at exercise prices not less than the fair market value of the common stock on the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from the date of grant with the remaining 75% vesting ratably each month over the next 36 months. The options granted to employees and the Company’s Board of Directors (the "Board") expire at the end of five years and ten years from the date of grant, respectively.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data, among other factors, to estimate the expected volatility, the expected dividend yield and the expected option life. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. No options were granted during the three months ended June 30, 2023. The following assumptions were used to estimate the fair value of options granted during the three months ended June 30, 2024 using the Black-Scholes option-pricing model:


		Three Months Ended
		June 30, 2024
Risk-free interest rate		4.40%
Expected volatility		32%
Expected dividend yield		0.00%
Expected weighted average life of option in years		4.0 years

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For the three months ended June 30, 2024 and 2023, the Company recorded stock-based compensation expense of $1,070,000 and $1,312,000, respectively. The table below shows the amounts recognized in the unaudited consolidated financial statements for stock-based compensation expense for time-based options and performance-based options during the three months ended June 30, 2024 and 2023, respectively.


	Three Months Ended
	June 30, 2024			June 30, 2023
Cost of revenues	$	715,000		$	668,000
General and administrative		355,000			644,000
Total cost of stock-based compensation included in income before income tax provision		1,070,000			1,312,000
Amount of income tax benefit recognized		(246,000	)		(290,000	)
Amount charged against net income	$	824,000		$	1,022,000
Effect on basic earnings per share	$	(0.05	)	$	(0.06	)
Effect on diluted earnings per share	$	(0.05	)	$	(0.06	)

The following table summarizes information for all stock options for the three months ended June 30, 2024 and 2023:


	Three Months Ended June 30, 2024					Three Months Ended June 30, 2023
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding, beginning		489,727		$	129.39		651,857		$	108.10
Options granted		14,750			270.25		—			—
Options exercised		(32,945	)		95.37		(39,471	)		75.79
Options cancelled/forfeited		(2,365	)		165.39		(485	)		149.26
Options outstanding, ending		469,167		$	136.02		611,901		$	110.10

The following table summarizes the status of stock options outstanding and exercisable at June 30, 2024:


Range of Exercise Price	Number of Outstanding Options		Weighted Average Remaining Contractual Life		Outstanding Options – Weighted Average Exercise Price		Exercisable Options – Number of Exercisable Options		Exercisable Options – Weighted Average Exercise Price
$33.16 to $87.69		159,616		2.25	$	68.87		153,912	$	68.39
$87.70 to $155.99		152,606		3.03		142.01		65,992		132.74
$156.00 to $200.55		125,295		3.91		186.80		31,641		180.83
$200.56 to $270.25		31,650		4.99		244.79		—		—
Total		469,167		3.13	$	136.02		251,545	$	99.42

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The following table summarizes the status of all outstanding options at June 30, 2024, and changes during the three months then ended:


	Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of June 30, 2024
Options outstanding at April 1, 2024		489,727		$	129.39
Granted		14,750			270.25
Exercised		(32,945	)		95.37
Cancelled – forfeited		(2,365	)		165.39
Cancelled – expired		—			—
Ending outstanding		469,167		$	136.02		3.13	$	55,713,513
Ending vested and expected to vest		405,530		$	129.54		3.11	$	50,816,052
Ending exercisable at June 30, 2024		251,545		$	99.42		2.45	$	38,952,201

The weighted-average grant-date fair value of options granted during the three months ended June 30, 2024 was $80.83.

Included in the above-noted stock option grants and stock-based compensation expense are performance-based stock options that vest only upon the Company’s achievement of certain earnings per share targets that are assessed on a calendar year basis, as determined by the Company’s Board of Directors. These options were valued in the same manner as the time-based options. However, the Company only recognizes stock-based compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of the performance options. The Company recognized $80,000 and $363,000 of stock-based compensation expense for the three months ended June 30, 2024 and 2023, respectively, for performance-based stock options.

Note 4 — Treasury Stock

The Board initially approved the commencement of a stock repurchase program in the fall of 1996. In November 2022, the Company’s Board of Directors approved a 1,000,000 share expansion to the Company’s existing stock repurchase program, increasing the total number of shares of the Company’s common stock approved for repurchase over the life of the program to 39,000,000 shares. The stock repurchase program does not obligate the Company to acquire any amount of common stock and may be suspended at any time at its discretion.

Since the commencement of the stock repurchase program, the Company has spent $803 million on the repurchase of 38,071,317 shares of its common stock, equal to 69% of the outstanding common stock had there been no repurchases. The average price of these repurchases was $21.10 per share. These repurchases were funded primarily by the net earnings of the Company, along with proceeds from the exercise of common stock options.

During the three months ended June 30, 2024, the Company repurchased 38,138 shares of the common stock for $9.5 million at an average price of $249.79 per share. The Company had 17,123,561 shares of common stock outstanding as of June 30, 2024, net of the 38,071,317 shares in treasury.

During the period subsequent to the quarter ended June 30, 2024, the Company repurchased 10,910 shares of the common stock for $3.0 million at an average price of $274.66 per share under the Company’s stock repurchase program.

Note 5 — Weighted Average Shares and Net Income Per Share

Basic weighted average common shares outstanding decreased to 17,122,000 for the quarter ended June 30, 2024 from 17,144,000 for the quarter ended June 30, 2023. Diluted weighted average common and common equivalent shares outstanding decreased to 17,313,000 for the quarter ended June 30, 2024 from 17,385,000 for the quarter ended June 30, 2023.

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Net income per common and common equivalent share was computed by dividing net income by the weighted average number of common and common share equivalents outstanding during the period. The following table sets forth the calculations of the basic and diluted weighted average common shares for the three months ended June 30, 2024 and 2023:


	Three Months Ended June 30,
	2024		2023
Net Income	$	21,577,000	$	19,805,000
Basic:
Weighted average common shares outstanding		17,122,000		17,144,000
Net Income per share	$	1.26	$	1.16
Diluted:
Weighted average common shares outstanding		17,122,000		17,144,000
Treasury stock impact of stock options		191,000		241,000
Total common and common equivalent shares		17,313,000		17,385,000
Net Income per share	$	1.25	$	1.14

Note 6 — Contingencies and Legal Proceedings

The Company is involved in litigation arising in the ordinary course of business. The Company believes that resolution of these matters will not result in any payment that, individually or in the aggregate, would be material to the consolidated financial position or results of operations of the Company.

Note 7 — Accounts and Income Taxes Payable and Accrued Liabilities

The following tables set forth accounts payable, income taxes payable, and accrued liabilities at June 30, 2024 and March 31, 2024:


	June 30, 2024		March 31, 2024
Accounts payable	$	12,369,000	$	16,410,000
Income taxes payable and uncertain tax positions		6,312,000		221,000
Total accounts and taxes payable	$	18,681,000	$	16,631,000


	June 30, 2024		March 31, 2024
Payroll, payroll taxes and employee benefits	$	36,693,000	$	26,291,000
Customer deposits		94,022,000		88,142,000
Accrued professional service fees		8,163,000		9,838,000
Self-insurance accruals		2,621,000		3,818,000
Deferred revenue		30,217,000		29,961,000
Operating lease liabilities		8,734,000		8,864,000
Other		1,454,000		954,000
Total accrued liabilities	$	181,904,000	$	167,868,000

Note 8 — Leases

The Company determines if an arrangement is or contains a lease at contract inception. The Company's current lease agreements have remaining lease terms of between 1 and 7 years. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of the unpaid lease payments as of the lease commencement date. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term, and (3) lease payments.

Accounting Standard Codification ("ASC") 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor's estimated residual value or the amount of the lessor's deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow on a collateralized basis, it uses quoted interest rates obtained from financial institutions as an input to derive an appropriate incremental borrowing rate,

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adjusted for the amount of the lease payments, the lease term, and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

The Company’s lease agreements may include options to extend the lease following the initial term. At the time of adopting ASC 842, the Company determined that it was reasonably certain it would exercise the option to renew; accordingly, these options were considered in determining the initial lease term. The Company elected the practical expedient of hindsight in determining the option to renew. The Company has since reassessed the assumption of the renewal term and determined that due to the COVID-19 pandemic, the Company is now expecting more of its workforce to be working from home permanently. Therefore, expecting a reduction in overall square footage of office space needs, the Company no longer believes it is reasonably certain it will exercise most of its options to renew, and therefore, has removed the renewal term of several lease obligations. The subsequent re-measurement reduced the right-of-use asset and related lease liability on the consolidated balance sheet, but had an immaterial impact on the income statement.

For lease agreements entered into or reassessed after the adoption of ASC 842, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. Therefore, for those leases, the lease payments used to measure the lease liability include all of the fixed consideration in the contract.

Variable lease payments associated with the Company’s leases are recognized upon occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The components of lease expense are as follows:


	Three Months Ended		Three Months Ended
	June 30, 2024		June 30, 2023
Operating lease expense	$	2,237,000	$	2,763,000
Finance lease expense		21,000		22,000
Short-term lease expense		96,000		7,000
Variable lease expense		136,000		269,000
Total lease expenses	$	2,490,000	$	3,061,000

The following table presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets related to its operating leases:


	June 30, 2024			March 31, 2024
Right-of-use asset, net	$	23,241,000		$	24,058,000
Short-term lease liability	$	8,734,000		$	8,864,000
Long-term lease liability		21,714,000			22,533,000
Total lease liabilities	$	30,448,000		$	31,397,000
Weighted average remaining operating lease term	4.07 years			4.11 years
Weighted average remaining finance lease term	1 year			1.25 years
Weighted average discount rate		3.9	%		3.7	%

Supplemental cash flow information related to operating leases for the three months ended June 30, 2024 and 2023 was as follows:


	Three Months Ended		Three Months Ended
	June 30, 2024		June 30, 2023
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,369,000	$	2,758,000
Operating lease liabilities arising from obtaining ROU assets	$	50,207,000	$	53,496,000
Finance lease liabilities arising from obtaining ROU assets	$	358,000	$	358,000
Additions/(reductions) to ROU assets resulting from additions/(reductions) to operating lease liabilities	$	550,000	$	(324,000	)

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As of June 30, 2024, maturities of operating lease liabilities for each of the next five years and thereafter are as follows:



2025	$	7,377,000
2026		8,097,000
2027		6,446,000
2028		5,524,000
2029		3,405,000
Thereafter		2,407,000
Total lease payments		33,256,000
Less interest		(2,808,000	)
Total lease liabilities	$	30,448,000

As of June 30, 2024, the Company has approximately $6.9 million of additional operating lease commitments that have not yet commenced. These additional leases commence in the future and have lease terms between 4 years and 7 years.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report may include certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “potential,” “continue,” “strive,” “ongoing,” “may,” “will,” “would,” “could,” “should,” as well as variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance.

The Company disclaims any obligations to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation); general industry and economic conditions, including a decreasing number of national claims due to a decreasing number of injured workers; the impact of global pandemics; competition from other managed care companies and third party administrators; the Company's ability to renew or maintain contracts with its customers on favorable terms or at all; the ability to expand certain areas of the Company’s business; growth in the Company’s sale of third-party administrator (“TPA”) services; shifts in customer demands; increases in operating expenses, including employee wages, benefits and medical inflation; the ability of the Company to produce market-competitive software; cost of capital and capital requirements; the Company’s ability to attract and retain key personnel; the impact of possible cybersecurity incidents on the Company’s business; existing and possible litigation and legal liability in the course of operations and the Company’s ability to resolve such litigation; changes in regulations affecting the workers’ compensation, insurance and healthcare industries in general; governmental and public policy changes, including but not limited to legislative and administrative law and rule implementation or change; the impact of recently issued accounting standards on the Company’s consolidated financial statements; the availability of financing in the amounts, at the times, and on the terms necessary to support the Company’s future business; and the other risks identified in Part II, Item 1A of this report, under the heading “Risk Factors.”

Overview

The Company is an independent nationwide provider of medical cost containment and managed care services designed to address the escalating medical costs of workers’ compensation benefits, automobile insurance claims, and group health insurance benefits. The Company’s services are provided to insurance companies, TPAs, governmental entities, and self-administered employers to assist them in managing the medical costs and monitoring the quality of care associated with healthcare claims. In November 2023, the Bureau of Labor Statistics reported that the occupational injury count for 2022 was 2.34 million compared to 2.24 million in 2021, 2.11 million in 2020, and 2.69 million in 2019. While there was an increase in the injury count for 2022 compared to 2021, the count has not returned to pre-pandemic levels. Although there were fewer claims to administrate in each of 2022, 2021 and 2020 as compared to 2019, the Company was able to offset this with an increase in market share.

Network Solutions Services

The Company’s network solutions services are designed to reduce the price paid by its customers for medical services rendered in workers’ compensation cases, automobile insurance policies, and group health insurance policies. The network solutions services offered by the Company include automated medical fee auditing, preferred provider management and reimbursement services, retrospective utilization review, facility claim review, professional review, pharmacy services, directed care services, Medicare solutions, clearinghouse services, independent medical examinations, and inpatient medical bill review. Network solutions services also includes revenue from the Company’s directed care network (known as CareIQ), including imaging, physical therapy, durable medical equipment, and translation and transportation.

Patient Management Services

In addition to its network solutions services, the Company offers a range of patient management services, which involve working one-on-one with injured employees and their various healthcare professionals, employers and insurance company adjusters. Patient management services include claims management and all services sold to claims management customers, case management, 24/7 nurse triage, utilization management, vocational rehabilitation, and life care planning. The services are designed to monitor the medical necessity and appropriateness of healthcare services provided to workers’ compensation and other healthcare claimants and to expedite return to work. The Company offers these services on a stand-alone basis, or as an integrated component of its medical cost containment services. Patient management services include the processing of claims for self-insured payors with respect to property and casualty insurance.

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Organizational Structure

The Company’s management is structured geographically with regional vice presidents who are responsible for all services provided by the Company within their particular region and are responsible for the operating results of the Company in multiple states. These regional vice presidents have area and district managers who are also responsible for all services provided by the Company in their given area and district.

Business Enterprise Segments

The Company operates in one reportable operating segment, managed care. The Company’s services are delivered to its customers through its local offices in each region and financial information for the Company’s operations follows this service delivery model. All regions provide the Company’s patient management and network solutions services to customers. Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 280-10, “Segment Reporting”, establishes standards for the way that public business enterprises report information about operating segments in annual and interim consolidated financial statements. The Company’s internal financial reporting is segmented geographically, as discussed above, and managed on a geographic rather than service line basis, with virtually all of the Company’s operating revenue generated within the United States.

Under FASB ASC 280-10, two or more operating segments may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas: (i) the nature of products and services; (ii) the nature of the production processes; (iii) the type or class of customer for their products and services; and (iv) the methods used to distribute their products or provide their services. The Company believes each of its regions meet these criteria as each provides similar services and products to similar customers using similar methods of production and distribution.

Because we believe we meet each of the criteria set forth above and each of our regions have similar economic characteristics, we aggregate our results of operations in one reportable operating segment, managed care.

Seasonality

While we are not directly impacted by seasonal shifts, we are affected by the change in working days in a given quarter. There are generally fewer working days for our employees to generate revenue in the third fiscal quarter due to employee vacations, inclement weather, and holidays.

Summary of Quarterly Results

The Company’s revenues increased to $211.7 million in the quarter ended June 30, 2024 from $190.3 million in the quarter ended June 30, 2023, an increase of $21.5 million, or 11.3%. This increase resulted from an increase in patient management and network solutions activity primarily with existing customers.

Cost of revenues increased to $163.6 million in the quarter ended June 30, 2024 from $148.4 million in the quarter ended June 30, 2023, an increase of $15.2 million, or 10.2%. This increase was primarily due to the increase of 11.3% in revenue mentioned above. Additionally, there was an increase in salaries of 11.5% resulting from increased average headcount of 8.7% in field operations.

General and administrative expense increased to $20.1 million in the quarter ended June 30, 2024 from $16.5 million in the quarter ended June 30, 2023, an increase of $3.7 million, or 22.3%. The increase in general and administrative expense was primarily due to the increase in total revenues of 11.3%, maintaining 10.0% of revenues. Additionally, general and administrative expense would have decreased excluding the one-time insurance recovery settlement from a lawsuit in 2011 that occurred during the quarter ended June 30, 2023. The Company expects future quarters of general and administrative expense will remain to 9% to 11% of revenues.

Income tax provision increased to $6.5 million in the quarter ended June 30, 2024 from $5.6 million in the quarter ended June 30, 2023, an increase of $0.8 million, or 14.8%. Income before income tax provision increased to $28.0 million in the quarter ended June 30, 2024 from $25.4 million in the quarter ended June 30, 2023, an increase of $2.6 million, or 10.3%. The effective tax rate was 23.0% for the quarter ended June 30, 2024 compared to 22.0% in the quarter ended June 30, 2023.

Diluted weighted average common and common equivalent shares decreased to 17.3 million shares for the quarter ended June 30, 2024 from 17.4 million shares for the quarter ended June 30, 2023, a decrease of 72,000 shares, or 0.4%, due to the weighted impact of shares repurchased partially offset by the weighted impact of options exercised.

Diluted earnings per share increased to $1.25 per share in the quarter ended June 30, 2024 from $1.14 per share in the quarter ended June 30, 2023, an increase of $0.11 per share, or 9.6%. The increase in diluted earnings per share was primarily due to an increase in net income.

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Results of Operations for the three months ended June 30, 2024 and 2023

The Company generates revenues from providing patient management and network solutions services to payors of workers’ compensation benefits, automobile insurance claims, and group health insurance benefits. The percentage of total revenue attributable to patient management and network solutions services for the three months ended June 30, 2024 and 2023 are as follows:


	June 30, 2024			June 30, 2023
Patient management services		65.7	%		67.2	%
Network solutions services		34.3	%		32.8	%

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes, and the percentage of revenues represented by certain items reflected in the Company’s unaudited consolidated income statements for the three months ended June 30, 2024 and 2023. The Company’s past operating results are not necessarily indicative of future operating results.


	Three Months Ended			Three Months Ended						Percentage
	June 30, 2024			June 30, 2023			Change			Change
Revenue	$	211,722,000		$	190,253,000		$	21,469,000			11.3	%
Cost of revenues		163,567,000			148,375,000			15,192,000			10.2	%
Gross profit		48,155,000			41,878,000			6,277,000			15.0	%
Gross profit as percentage of revenue		22.7	%		22.0	%
General and administrative expenses		20,120,000			16,450,000			3,670,000			22.3	%
General and administrative as percentage of revenue		9.5	%		8.6	%
Income before income tax provision		28,035,000			25,428,000			2,607,000			10.3	%
Income before income tax provision as percentage of revenue		13.2	%		13.4	%
Income tax provision		6,458,000			5,623,000			835,000			14.8	%
Net income	$	21,577,000		$	19,805,000		$	1,772,000			8.9	%
Weighted average common and common equivalent shares
Basic		17,122,000			17,144,000			(22,000	)		(0.1	%)
Diluted		17,313,000			17,385,000			(72,000	)		(0.4	%)
Net income per common and common equivalent shares
Basic	$	1.26		$	1.16		$	0.10			8.6	%
Diluted	$	1.25		$	1.14		$	0.11			9.6	%

Revenues

Change in revenue for the three months ended June 30, 2024 from the three months ended June 30, 2023

Revenues increased to $211.7 million in the three months ended June 30, 2024 from $190.3 million in the three months ended June 30, 2023, an increase of $21.5 million, or 11.3%. Patient management services revenues increased to $139.2 million from $127.8 million, an increase of $11.4 million, or 8.9%. This increase is primarily due to higher revenue from the Company’s TPA and related services. Network solutions services revenues increased to $72.6 million from $62.4 million, an increase of $10.2 million, or 16.2%. Most of the increase is primarily attributable to the growth with existing customers and, to a lesser extent, growth with new customers.

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Cost of Revenues

The Company’s cost of revenues consists of direct expenses, which are expenses directly attributable to the generation of revenue, and indirect costs, which are costs incurred to support the operations in the field offices that generate the revenue. Direct expenses primarily include (i) case manager and bill review analysts’ salaries, along with related payroll taxes and fringe benefits, and (ii) expenses associated with independent medical examinations, prescription drugs, MRIs, physical therapy, and durable medical equipment providers. Most of the Company’s revenue is generated in offices that provide both patient management services and network solutions services. The remaining revenue is generated in the field. Approximately 34% of the costs incurred in the field are considered field indirect costs. The largest of the field indirect costs are (i) manager salaries and bonuses, (ii) account executive base pay and commissions, (iii) salaries of administrative and clerical support, field systems personnel and PPO network developers, along with related payroll taxes and fringe benefits, and (iv) office rent.

Change in cost of revenues for the three months ended June 30, 2024 from the three months ended June 30, 2023

Cost of revenues increased to $163.6 million in the three months ended June 30, 2024 from $148.4 million in the three months ended June 30, 2023, an increase of $15.2 million, or 10.2%. The increase in cost of revenues was primarily due to the increase in total revenues of 11.3%. Additionally, there was an increase in salaries of 11.5% resulting from increased average headcount of 8.7% in field operations. Headcount increased due to an increase in business volume and, to a lesser extent, new business.

General and Administrative Expense

For the three months ended June 30, 2024, general and administrative expense consisted of approximately 48% of corporate systems costs, which include the corporate systems support, implementation and training, rules engine development, national IT strategy and planning, depreciation of hardware costs in the Company’s corporate offices and backup data center, the Company’s nationwide area network, and other systems related costs. All IT-related costs managed by the corporate office are recorded under general and administrative expense whereas the field IT-related costs are included in the cost of revenues. The remaining general and administrative expense consists of national marketing, national sales support, corporate legal, corporate insurance, human resources, accounting, product management, new business development, and other general corporate expenses.

Change in general and administrative expense for the three months ended June 30, 2024 from the three months ended June 30, 2023

General and administrative expense increased to $20.1 million in the three months ended June 30, 2024 from $16.5 million in the three months ended June 30, 2023, an increase of $3.7 million, or 22.3%. The increase in general and administrative expense was primarily due to the increase in total revenues of 11.3%, maintaining 10.0% of revenues. Additionally, general and administrative expense would have decreased excluding the one-time insurance recovery settlement from a lawsuit in 2011 that occurred during the quarter ended June 30, 2023. The Company expects future quarters of general and administrative expense will remain to 9% to 11% of revenues.

Income Tax Provision

Change in income tax provision for the three months ended June 30, 2024 from the three months ended June 30, 2023

Income tax provision increased to $6.5 million in the three months ended June 30, 2024 from $5.6 million in the three months ended June 30, 2023, an increase of $0.8 million, or 14.8%. Income before income tax provision increased to $28.0 million in the three months ended June 30, 2024 from $25.4 million in the same period in the prior year, an increase of $2.6 million, or 10.3%. The effective tax rate was 23.0% for the three months ended June 30, 2024 compared to 22.0% in the same period in the prior year. The effective tax rate is less than the statutory tax rate primarily due to the impact of stock option exercises.

Liquidity and Capital Resources

The Company has historically funded its operations and capital expenditures primarily from cash flow from operations, and to a lesser extent, proceeds from stock option exercises. Working capital increased to $132.7 million as of June 30, 2024 from $117.7 million as of March 31, 2024, an increase of $14.9 million. Cash increased to $131.9 million as of June 30, 2024 from $105.6 million as of March 31, 2024, an increase of $26.3 million. This is primarily due to the increase in net income, and to a lesser extent, a decrease in spending to repurchase shares of our common stock under our stock repurchase program.

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The Company is not currently party to off-balance sheet arrangements as defined by the SEC. However, from time to time the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. The contracts primarily relate to: (i) certain contracts to perform services, under which the Company may provide customary indemnification for the purchases of such services, (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises, and (iii) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of certain actions taken by such persons, acting in their respective capacities within the Company. The terms of such customary obligations vary by contract and in most instances a specific or maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, no material liabilities have been recorded for these obligations on the Company’s balance sheets for any of the periods presented.

As of June 30, 2024, the Company had $131.9 million in cash and cash equivalents, invested primarily in short-term, interest-bearing, highly liquid investment grade securities with maturities of 90 days or less.

The Company believes its cash and cash equivalents, cash