CorVel Corporation — Form 10-Q Summary
Period clarification: The filing is for the quarter ended December 31, 2019—CorVel’s fiscal third quarter of fiscal 2020—not 2018 Q3 as stated in the request metadata. Comparisons are with the quarter and nine-month periods ended December 31, 2018. Figures below are in U.S. dollars.
Business context
CorVel provides managed-care and medical cost-containment services, principally for workers’ compensation, auto claims, and group health. Its two service lines are patient management and network solutions; it reports one operating segment.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2019 | Prior-year quarter | Nine months ended Dec. 31, 2019 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $148.1 million | $146.1 million | $445.2 million | $444.7 million |
| Gross profit / margin | $29.3 million / 19.8% | $29.4 million / 20.1% | $95.2 million / 21.4% | $92.2 million / 20.7% |
| Income before tax | $12.3 million | $13.6 million | $45.9 million | $45.4 million |
| Net income | $9.4 million | $10.3 million | $35.6 million | $34.9 million |
| Diluted EPS | $0.50 | $0.54 | $1.91 | $1.83 |
- Quarterly revenue rose 1.4%, while net income fell 9.2% and diluted EPS fell 7.4%. For the nine-month period, revenue was nearly flat (+0.1%), net income increased 2.2%, and diluted EPS increased 4.4%.
- Quarterly patient management revenue increased 6.7% to $98.3 million; network solutions revenue declined 7.8% to $49.8 million. For the nine months, those service lines increased 7.9% to $293.5 million and declined 12.2% to $151.7 million, respectively.
- Nine-month operating cash flow was $66.3 million, versus $67.9 million. Capital expenditures were $27.7 million, versus $10.3 million; operating cash flow less capital expenditures was approximately $38.6 million. Cash declined $2.1 million from March 31, 2019 to $89.6 million.
- At December 31, 2019, current assets were $210.6 million and current liabilities $135.7 million; reported working capital was $74.8 million. The company had no debt outstanding. Its revolving credit facility expired in September 2019 and was not renewed.
- Operating lease liabilities totaled $100.8 million, including $13.3 million current and $87.6 million long-term. The balance sheet also recorded a $93.5 million right-of-use asset.
Changes, outlook, and risks
- Management attributed quarterly revenue growth to higher patient management and TPA-related services, partly offset by fewer pharmacy bills reviewed and lower network solutions revenue. Pharmacy bill reviews declined 11.1% in the quarter and 7.7% over nine months.
- Quarterly cost of revenue rose 1.8%, partly reflecting higher field headcount and salaries. General and administrative expense rose 7.6% in the quarter and 5.2% for nine months, primarily due to legal costs and, for the nine-month period, corporate systems costs.
- Repurchases totaled $47.5 million for the nine months, versus $22.6 million a year earlier. The company repurchased 240,026 shares for $19.2 million during the quarter; 947,859 shares remained authorized for repurchase at quarter-end. A further 71,102 shares were repurchased after quarter-end for $6.6 million.
- Capital spending increased mainly because construction on a purchased Portland-area building was completed and the building entered service during the quarter. Management said cash and expected internally generated funds should be sufficient for expected requirements for at least 12 months, including operations, investment, and repurchases. No specific earnings or revenue guidance was provided.
- Adoption of lease accounting (ASC 842) on April 1, 2019 added recognized lease assets and liabilities; management reported no material impact on retained earnings or the income statement. The company was evaluating the expected-credit-loss standard and income-tax simplification standard; it expected the goodwill-impairment update to have no material impact.
- Management said ordinary-course litigation was not expected to result in material payments. Key disclosed risks include competition and customer insourcing, declining workers’ compensation claims, customer concentration or contract termination, staffing and wage pressures, regulation, legal liability, cybersecurity and system interruption, and tax-law interpretation. The filing also notes that the third fiscal quarter generally has fewer working days.
Important facts for investors to verify
- Confirm the reporting period: this is the December 31, 2019 Form 10-Q, despite the “2018 Q3” request metadata.
- Monitor the contrasting service-line trends, particularly patient management growth versus network solutions and pharmacy-review declines.
- Assess whether margins and earnings recover after the quarterly decline, given rising G&A and field staffing costs.
- Review the pace of share repurchases, capital expenditures, cash generation, and liquidity after the credit facility was not renewed.
- Track lease commitments, including approximately $4.6 million of leases not yet commenced, and future accounting-standard adoption impacts.