CORVEL CORP

Previous wording

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.”

Current wording

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; 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.”

Previous wording

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.

Current wording

The Company’s revenues increased to $224.4 million in the quarter ended September 30, 2024 from $195.5 million in the quarter ended September 30, 2023, an increase of $28.9 million, or 14.8%. This increase resulted from an increase in patient management and network solutions activity with new and existing customers.

Previous wording

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.

Current wording

Cost of revenues increased to $173.6 million in the quarter ended September 30, 2024 from $151.3 million in the quarter ended September 30, 2023, an increase of $22.4 million, or 14.8%. This increase was primarily due to the increase of 14.8% in revenue mentioned above.

Previous wording

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.

Current wording

Diluted weighted average common and common equivalent shares were 17.3 million shares for the quarters ended September 30, 2024 and 2023, a decrease of 5,000 shares.

Previous wording

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.

Current wording

Diluted earnings per share increased to $1.35 per share in the quarter ended September 30, 2024 from $1.15 per share in the quarter ended September 30, 2023, an increase of $0.20 per share, or 17.4%. The increase in diluted earnings per share was primarily due to an increase in net income.

Previous wording

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.

Current wording

Revenues increased to $224.4 million in the three months ended September 30, 2024 from $195.5 million in the three months ended September 30, 2023, an increase of $28.9 million, or 14.8%. Patient management services revenues increased to $147.2 million from $129.8 million, an increase of $17.4 million, or 13.4%. This increase is primarily due to higher revenue from the Company’s TPA and related services. Total new claims increased by 5% during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Network solutions services revenues increased to $77.2 million from $65.7 million, an increase of $11.5 million, or 17.5%. Most of the increase is primarily attributable to the growth with new customers and, to a lesser extent, growth with existing customers.

Previous wording

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.

Current wording

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 33% 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.

Previous wording

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.

Current wording

Cost of revenues increased to $173.6 million in the three months ended September 30, 2024 from $151.3 million in the three months ended September 30, 2023, an increase of $22.4 million, or 14.8%. The increase in cost of revenues was primarily due to the increase in total revenues of 14.8%. Additionally, there was an increase in salaries of 12.3% resulting from increased average headcount plus an increase in paid days equating to 8.6%. Headcount increased due to an increase in new and existing business volume.

Previous wording

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.

Current wording

For the three months ended September 30, 2024, general and administrative expense consisted of approximately 45% 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.

Previous wording

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.

Current wording

General and administrative expense increased to $22.1 million in the three months ended September 30, 2024 from $19.5 million in the three months ended September 30, 2023, an increase of $2.5 million, or 13.0%. The increase in general and administrative expense was primarily due to the increase in total revenues of 14.8%. General and administrative expense in the quarter ended September 30, 2024 equaled approximately 10% of revenues. The Company expects future quarters of general and administrative expense will remain to 9% to 11% of revenues.

Previous wording

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.

Current wording

Income tax provision increased to $5.3 million in the three months ended September 30, 2024 from $4.8 million in the three months ended September 30, 2023, an increase of $0.5 million, or 9.5%. Income before income tax provision increased to $28.7 million in the three months ended September 30, 2024 from $24.7 million in the same period in the prior year, an increase of $4.0 million, or 16%. The effective tax rate was 18.4% for the three months ended September 30, 2024 compared to 19.5% 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.

Previous wording

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.

Current wording

General and administrative expense increased to $42.2 million in the six months ended September 30, 2024 from $36.0 million in the six months ended September 30, 2023, an increase of $6.2 million, or 17.3%. The increase in general and administrative expense was primarily due to the increase in total revenues of 13.0%. General and administrative expense in the quarter ended September 30, 2024 equaled approximately 10.0% of revenues. Additionally, this increase was due to a one-time insurance recovery settlement from a lawsuit in 2011 that occurred during the quarter ended June 30, 2023 that decreased general and administrative expense in the prior year.

Previous wording

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.

Current wording

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 $150.5 million as of September 30, 2024 from $117.7 million as of March 31, 2024, an increase of $32.7 million. Cash increased to $138.3 million as of September 30, 2024 from $105.6 million as of March 31, 2024, an increase of $32.8 million. This is primarily due to the increase in net income, and to a lesser extent, a decrease in spending to repurchase shares of the Company's common stock under its stock repurchase program.

Previous wording

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.

Current wording

The Company is not currently party to off-balance sheet arrangements as defined by SEC rules. 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.

Previous wording

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.

Current wording

As of September 30, 2024, the Company had $138.3 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.

Previous wording

The Company believes its cash and cash equivalents, cash generated from ongoing operations and funds received from exercises of employee stock options will be sufficient to satisfy its cash requirements for the next 12 months and beyond, including its existing obligations, repurchase shares of the common stock under the current stock repurchase program, introduce new services, and continue to develop the Company’s healthcare related services for at least the next twelve months. Should the Company experience lower income or cash flows, repurchases under the stock repurchase program may be reduced or eliminated until earnings and cash flow return to comfortable levels. The Company regularly evaluates its cash requirements for current operations, commitments, capital acquisitions, and other strategic transactions. The Company may elect to raise additional funds for these purposes, through debt or equity financings or otherwise, as appropriate. However, additional equity or debt financing may not be available, with terms favorable to the Company, or at all, when needed.

Current wording

The Company believes its cash and cash equivalents, cash generated from ongoing operations and funds received from exercises of employee stock options will be sufficient to satisfy its cash requirements for the next 12 months and beyond, including its existing obligations, repurchase shares of the Company's common stock under its current stock repurchase program, introduce new services, and continue to develop the Company’s healthcare related services for at least the next twelve months. Should the Company experience lower income or cash flows, repurchases under the stock repurchase program may be reduced or eliminated until earnings and cash flow return to comfortable levels. The Company regularly evaluates its cash requirements for current operations, commitments, capital acquisitions, and other strategic transactions. The Company may elect to raise additional funds for these purposes, through debt or equity financings or otherwise, as appropriate. However, additional equity or debt financing may not be available, with terms favorable to the Company, or at all, when needed.

Previous wording

Net cash provided by operating activities increased to $40.4 million in the three months ended June 30, 2024 from $36.6 million in the three months ended June 30, 2023, an increase of $3.8 million. The increase in cash flow from operating activities was primarily due to the increase in net income.

Current wording

Net cash provided by operating activities increased to $62.7 million in the six months ended September 30, 2024 from $54.6 million in the six months ended September 30, 2023, an increase of $8.1 million. The increase in cash flow from operating activities was primarily due to the increase in net income.

Previous wording

Net cash flow used in investing activities increased to $7.7 million in the three months ended June 30, 2024 from $5.0 million in the three months ended June 30, 2023, an increase of $2.6 million. The Company increased its spending primarily on developed software, offset by a reduction in its spending on furniture and leasehold improvements as the Company reduces its lease footprint.

Current wording

Net cash flow used in investing activities increased to $17.6 million in the six months ended September 30, 2024 from $12.3 million in the six months ended September 30, 2023, an increase of $5.3 million. The Company increased its spending primarily on developed software, offset by a reduction in its spending on furniture and leasehold improvements as the Company reduces its lease footprint.

Previous wording

Net cash flow used in financing activities decreased to $6.4 million for the three months ended June 30, 2024 from $16.3 million for the three months ended June 30, 2023, a decrease of $9.9 million. The decrease in net cash used in financing activities was primarily due to a decrease in spending on share repurchases to $9.5 million for the three months ended June 30, 2024. The Company spent $17.8 million on share repurchases for the three months ended June 30, 2023. This was slightly offset due to stock option exercises increasing to $3.1 million for the three months ended June 30, 2024 from $1.5 million for the three months ended June 30, 2023. The Company has historically used cash provided by operating activities and from the exercise of stock options to repurchase stock. The Company expects that it may use a portion of its cash balance to repurchase additional shares of its common stock under its stock repurchase program in the future; however, there can be no assurance that any further stock repurchases will be made.

Current wording

Net cash flow used in financing activities decreased to $12.4 million for the six months ended September 30, 2024 from $21.9 million for the six months ended September 30, 2023, a decrease of $9.5 million. The decrease in net cash used in financing activities was primarily due to a decrease in spending on share repurchases to $19.1 million for the six months ended September 30, 2024from $27.2 million for the six months ended September 30, 2023, offset by stock option exercises increasing to $6.4 million for the six months ended September 30, 2024 from $4.9 million for the six months ended September 30, 2023. The Company has historically used cash provided by operating activities and from the exercise of stock options to repurchase stock. The Company expects that it may use a portion of its cash balance to repurchase additional shares of its common stock under its stock repurchase program in the future; however, there can be no assurance that any further stock repurchases will be made.