CorVel Corporation (NASDAQ: CRVL) — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended September 30, 2020 (CorVel fiscal 2021 second quarter), with six-month results for the period ended September 30, 2020. It is not a 2019 Q2 filing. Amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
CorVel provides managed-care and medical cost-containment services, primarily for workers’ compensation, automobile claims, and group health plans. Its two service lines are patient management and network solutions; the company reports one managed-care operating segment. The financial statements are unaudited.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2020 | Year-over-year change | Six months ended Sep. 30, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $136.0 | Down 7.4% | $265.6 | Down 10.6% |
| Gross profit / margin | $30.5 / 22.4% | $32.8 / 22.3% prior year | $57.0 / 21.5% | $66.0 / 22.2% prior year |
| General and administrative expense | $15.6 | Down 6.2% | $31.1 | Down 3.7% |
| Income before tax | $14.9 | Down 8.0% | $25.9 | Down 23.1% |
| Net income | $11.9 | Down 7.8% | $20.2 | Down 23.3% |
| Diluted EPS | $0.65 | Down 5.8% | $1.11 | Down 20.7% |
Quarterly revenue was $90.3 million from patient management (down 5.7%) and $45.8 million from network solutions (down 10.7%). For the six-month period, those service lines generated $175.5 million (down 10.1%) and $90.2 million (down 11.5%), respectively.
Six-month operating cash flow was $39.5 million, versus $46.4 million a year earlier. Capital expenditures were $6.9 million, compared with $17.5 million. Cash and cash equivalents rose to $106.1 million at September 30 from $83.2 million at March 31, 2020; working capital was $93.2 million. CorVel reported no debt outstanding. Operating and finance lease liabilities totaled $95.8 million, including $82.9 million long-term.
Total assets were $441.6 million and stockholders’ equity was $202.4 million at September 30, 2020. Net accounts receivable was $73.1 million, including a $6.2 million allowance for doubtful accounts.
Material changes versus the prior comparable period
- Management attributed lower revenue primarily to COVID-19-related economic disruption, reduced customer activity, and fewer claims. New claims declined 10.2% year over year in the quarter and 16.4% over the six-month period.
- Quarterly cost of revenue fell 7.5%, broadly in line with revenue, while field-operations headcount was 9% lower. Six-month gross margin declined 0.7 percentage points to 21.5%.
- CorVel reduced discretionary spending and planned capital expenditures, and implemented a 10% workforce reduction that began in the March 2020 quarter and continued through the June quarter. Management said the pandemic’s impact in the September quarter was less significant than in June.
- Share repurchases were suspended from March 21 through June 14, 2020, then resumed. The company repurchased 184,963 shares for $14.4 million during the six months, compared with $28.3 million in the prior-year period.
Outlook, risks, contingencies, and unusual items
CorVel provided no quantified earnings or revenue guidance. Management expects COVID-19 and its effects on economic conditions to continue adversely affecting revenue and results in future periods, but said the duration and financial impact cannot be reasonably estimated. Management believes cash and internally generated funds are adequate for expected requirements for at least 12 months, while cautioning that pandemic-related assumptions may change.
Key risks include the pandemic and recession, declining claims and customer exposure units, customer contract terminations or reduced outsourcing, competition and pricing pressure, labor and benefit costs, cybersecurity and privacy incidents, regulatory changes, and litigation. Ordinary-course litigation was not expected by management to result in a material payment. The company disclosed $125.8 million of contractual obligations, mainly leases and software licenses, and approximately $7.9 million of additional operating lease commitments not yet commenced.
CorVel adopted the expected-credit-loss standard and a simplified goodwill impairment standard on April 1, 2020; neither adoption had a material impact. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the applicable period: this filing covers the quarter ended September 30, 2020, not 2019 Q2.
- Track whether claims volumes, customer activity, and both service lines recover from pandemic-related declines, and whether margin pressure persists.
- Monitor receivable quality: net receivables rose to $73.1 million and the allowance increased to $6.2 million from $5.1 million at March 31, 2020.
- Review cash generation alongside capital spending, lease commitments, and resumed buybacks; management may reduce or stop repurchases if earnings or cash flows weaken.
- Assess COVID-19 developments and customer financial health, as management said future effects on earnings and cash flows remain uncertain.