Leading care
with better results.
Annual
Report
& Form 10K
2024
Taking care of
business and people.
The right support,
right away
With a focus on prompt,
personalized support, we offer
tailored solutions that expedite
claims resolution and ensure
optimal outcomes.
Proven results for
over 30 years
The commitment to our mission
enables our partners to deliver
comprehensive care to their
employees, simultaneously
lowering expenses and enhancing
the overall experience.
Impactful
innovation
We raise the bar for care and
lower the cost of risk by leveraging
state-of-the-art technology to
build innovative solutions.
Letter to shareholders
Fiscal year 2024 brought exciting changes and
momentum in important areas. At the beginning of
the year, Generative AI (GAI) technology became
available, and less than six months later, CorVel
introduced GAI-powered functionality to the industry.
While investment in technology to drive differentiated
results is not new at CorVel, 2024 was a year in which
the market acknowledged those efforts more.
CorVel's expanding reputation for delivering improved
outcomes allowed us to present our services and
win an increased number of high-profile accounts.
The market for property and casualty (P&C) and
commercial health services was active during the year.
In the P&C sector, we have observed that companies
working with their current vendor for several years, and
in some cases decades, are now exploring the market.
Additionally, it is particularly satisfying to have
companies we partnered with previously returning
to CorVel to benefit from our strengthened service
offerings. Our roadmap for enhancements in the P&C
market is robust; we are excited to offer a GAI-powered
software as a service (SaaS) platform to the
managed care market.
Large payers seek innovative solutions in the
commercial health market to achieve cost-of-care
savings and increased ROI from payment integrity
vendors. The CERIS team is working to meet the
evolving market requirements by launching new
reviews and enhancing system automation and
augmentation to increase efficiencies. In addition,
the CERIS team is working to broaden partner
relationships and, correspondingly, their reach
into the commercial health market.
We’re committed to the core tenets on which the
company was founded: Investment in technology
and our team, fiscal conservancy, and focus on
making a meaningful difference for our partners by
delivering positive financial and operational results.
We’re pleased with the momentum and enhanced
differentiation achieved in FY2024.
As always, I am filled with immense pride and
gratitude for the CorVel team. Each day, our 4,800+
members across the country demonstrate their
dedication and commitment to our clients to deliver
best-in-class outcomes. Through their diligence and
the tenacity of our management team CorVel remains
a place where associates can learn, grow, and advance.
I am honored to serve as CorVel’s President and CEO.
I am also grateful for our partners' invaluable support;
their active collaboration has been instrumental in
enhancing CorVel’s suite of offerings. To our
shareholders, thank you for your trust; we look
forward to another exciting year.
Michael G. Combs
|
President & CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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, Texas
76109
(Address of principal executive offices)
(Zip Code)
(817) 390-1416
(Registrant’s telephone number, including area code)
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
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
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
☐
Small 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
As of Septembe 29, 2023, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately
$1,771,296,000 based on the closing price per share of $196.65 for the registrant’s common stock as reported on the Nasdaq Global Select Market on such date multiplied
by 9,007,351 shares (total outstanding shares of 17,119,483 less 8,112,132 shares held by affiliates) of the registrant’s common stock which were outstanding on such
date. For the purposes of the foregoing calculation only, all of registrant’s directors, executive officers and persons known to the registrant to hold ten percent or greater
of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of registrant’s Common Stock outstanding as of May 21, 2024 was 17,121,778.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10 through 14 of Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated herein by reference to
portions of the registrant’s Definitive Proxy Statement for the registrant’s 2024 annual meeting of stockholders, which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended March 31, 2024. Except with respect to the information specifically incorporated by reference
in this Annual Report on Form 10-K, the registrant’s definitive proxy statement is not deemed to be filed as a part of this Form 10-K.
i
CORVEL CORPORATION
2024 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1.
Business
3
Item 1A.
Risk Factors
12
Item 1B.
Unresolved Staff Comments
20
Item 1C.
Cybersecurity
20
Item 2.
Properties
21
Item 3.
Legal Proceedings
21
Item 4.
Mine Safety Disclosures
21
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
22
Item 6.
Reserved
23
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 8.
Financial Statements and Supplementary Data
24
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
24
Item 9A.
Controls and Procedures
24
Item 9B.
Other Information
25
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
25
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
26
Item 11.
Executive Compensation
26
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
26
Item 13.
Certain Relationships and Related Transactions, and Director Independence
26
Item 14.
Principal Accountant Fees and Services
26
PART IV
Item 15.
Exhibit and Financial Statement Schedules
27
Item 16.
Form 10-K Summary
30
Signatures
31
2
In this Annual Report on Form 10-K (this “annual report”), the terms “CorVel,” “Company,” “we,” “us,” and “our” refer to CorVel
Corporation and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report and information incorporated by reference herein contain forward-looking statements within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), including, but not limited to, the statements about our plans, strategies and prospects in Part I, Item 1, “Business,” Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this annual report.
Words such as “expects,” “anticipates,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “potential,” “continue,”
“strive,” “ongoing,” “may,” “will,” “would,” “could,” and “should,” as well as variations of these words or similar expressions are
intended to identify forward-looking statements. These forward-looking statements are based on management’s current expectations,
estimates and projections about our industry, management’s beliefs, and certain assumptions made by management, and we can give no
assurance that we will achieve our plans, intentions or expectations. Certain important factors could cause actual results to differ
materially from the forward-looking statements we make in this annual report. Representative examples of these factors include (without
limitation):
•
General industry and economic conditions, including a decreasing number of national claims due to 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;
•
Our ability to attract and retain key personnel;
•
The impact of possible cybersecurity incidents on its business;
•
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; and
•
The availability of financing in the amounts, at the times, and on the terms necessary to support the Company's future
business.
Part I, Item 1A of this annual report, “Risk Factors,” discusses these and other important risk factors that may affect our business,
results of operations and financial condition. The factors listed above and the factors described in Part I, Item 1A of this annual report,
as well as similar discussions in our other filings with the Securities and Exchange Commission ("SEC") are not necessarily all of the
important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects on our future results. Investors should consider these
factors before deciding to make or maintain an investment in our securities. The forward-looking statements included in this annual
report are based on information available to us as of the date of this annual report. We expressly disclaim any intent or obligation to
update any forward-looking statements to reflect subsequent events or circumstances.
3
PART I
Item 1. Business.
INTRODUCTION
CorVel applies certain technology, including artificial intelligence, machine learning and natural language processing, to enhance
the management of episodes of care and the related health-care costs. We partner with employers, TPAs, insurance companies and
government agencies to assist our customers in managing the increasing medical costs of workers' compensation, group health and auto
insurance, and in monitoring the quality of care provided to claimants. Our diverse suite of solutions combines our integrated
technologies with a human touch. CorVel's customized services, delivered locally, are backed by a national team to support its clients,
as well as their customers and patients.
The Company's services include claims management, bill review, preferred provider networks, utilization management, case
management, pharmacy services, directed care and Medicare services. CorVel offers its services as a bundled solution (i.e. claims
management), on a standalone basis, or as add-ons to existing customers. Customers that do not purchase a bundled solution generally
use another provider, an in-house solution, or choose not to utilize such a service to manage their workers’ compensation, health, auto
or other liability costs. The price of the bundled services is generally the same as if the products were purchased on an individual basis.
Bundled products are generally delivered in the same accounting period.
CorVel was incorporated in Delaware in 1987, and its principal executive offices are located at 5128 Apache Plume Road, Suite
400, Fort Worth, Texas 76109. The Company's telephone number is (817) 390-1416. The Company maintains a nationwide presence
across a network of branches, and our Fort Worth, Texas location provides a centrally located hub for the Company. The location
provides a sizable property footprint and a concentrated number of employees. Additionally, our Dallas-Fort Worth metropolitan area
offices perform both worker’s compensation and group health services. We believe the location of our headquarters puts us in the best
position for future growth across our business in these areas of service.
INDUSTRY OVERVIEW
CorVel provides services to employers and payors in the risk management and insurance services arenas, including workers'
compensation, general liability, auto liability, and hospital bill auditing and payment integrity. Workers’ compensation is a federally
mandated, state-legislated insurance program that requires employers to fund medical expenses, lost wages, and other costs resulting
from work-related injuries and illnesses. Workers’ compensation benefits and arrangements vary extensively on a state-by-state basis
and are often highly complex. State statutes and court decisions control many aspects of the compensation process, including claims
handling, impairment or disability evaluation, dispute settlement, benefit amount guidelines, and cost-control strategies.
In addition to the compensation process, cost containment and claims management continue to be significant employer concerns
and many look to managed care vendors and TPAs for cost savings solutions. Cost drivers in workers’ compensation include
implementing effective return-to-work and transitional duty programs, coordinating medical care, medical cost management,
recognizing fraud and abuse, and improving communications with injured workers. Further, failing to recognize a complex claim at the
onset of an injury, often results in a lengthier claims process and a delayed return to work, which drives costs. We offer holistic savings
solutions to cost containment using an integrated claims model, which controls costs by advocating medical management at the onset
of injury to decrease administrative costs and to reduce the duration of a claimant's disability.
FISCAL 2024 DEVELOPMENTS — Stock Repurchase Program
During the fiscal year ended March 31, 2024 ("fiscal 2024"), the Company spent $45.7 million to repurchase 215,313 shares of
its common stock under a plan approved by the Company’s Board of Directors. Since the commencement of this program in fiscal 1997
through fiscal 2024, the Company has repurchased 38,033,179 shares of its common stock, at a cost of approximately $794 million, and
had 966,821 shares of common stock authorized for repurchase remaining under its share repurchase program as of March 31, 2024.
These repurchases were funded primarily from the Company’s operating cash flows.
BUSINESS — SERVICES
The Company's network solutions and patient management services reduce claim costs by advocating medical management at the
onset of an injury. These solutions offer personalized treatment programs that use precise protocols to advocate timely, quality care for
injured workers.
4
Network Solutions Services
CorVel offers a complete medical savings solution for all in-network and out-of-network medical bills. The Company's services
include professional nurse review, true line item review, expert fee negotiations, specialty networks, preferred provider organization
("PPO") management, medical bill repricing, automated adjudication, and electronic reimbursement. Each feature focuses on increasing
process efficiencies and maximizing savings opportunities for our customers.
Bill Review
Many states have adopted fee schedules, which regulate the maximum allowable fees payable under workers’ compensation for
procedures performed by a variety of health treatment providers. CorVel’s proprietary bill review and claims management technology
provides customers with cost savings by decreasing the turnaround time for bill review results through automated, customized
algorithms. CorVel’s artificial intelligence engine includes over 100 million individual rules, which offers a comprehensive, paperless
solution that surpasses the capabilities of traditional, manual bill review processes.
Our online portal, CareMC, offers a paperless and cost-effective solution for payors to review and approve bills online and access
savings reports. Further, CorVel’s solutions are fully customizable and can be tailored to meet unique payor requirements.
Bill review services include:
•
Coding review and re-bundling;
•
Reasonable and customary review;
•
Fee schedule analysis;
•
Out-of-network bill review;
•
Pharmacy review;
•
PPO management; and
•
Repricing.
PPO Management
PPOs are groups of hospitals, physicians and other healthcare providers that offer services at pre-negotiated rates to employee
groups. The Company believes that PPO networks afford employers an additional means of managing healthcare costs by reducing the
per-unit price of medical services provided to employees. CorVel offers a proprietary national PPO network and added leased network
agreements to offer our customers extensive coverage and optimal network performance. As of March 31, 2024, the Company's PPO
network was comprised of over 1.2 million providers nationwide, which are searchable based on quality, types of services, and location
by the public through the Company's mobile application.
CorVel has a long-term strategy of network development, providing comprehensive networks to our customers and customization
of networks to meet the specific needs of our customers. The Company believes that the strength of its national PPO network, combined
with local PPO developers’ commitment and community involvement, enables CorVel to grow its PPO network's size, quality, depth of
discount, and commitment to service.
The Company has a team of national, regional and local personnel supporting CorVel's PPO network. This team of developers is
responsible for local recruitment, contract negotiations, credentialing and re-credentialing of providers, and working with customers to
develop customer-specific provider networks. Each bill review operation has provider relations support staff to address provider
grievances and other billing issues.
The Company selects its providers based on their quality, range of services, price and location. The Company evaluates and
credentials each provider before inviting them to join its network, and re-credentials them every three years. Through this extensive
evaluation process, we are able to provide significant hospital, physician and ancillary medical savings, while maintaining high quality
care. Provider network services include a national network for all medical coverages, board-certified physicians, provider credentialing,
patient channeling, online PPO look-up, printable directories and driving directions, and medical care organizations ("MCOs").
5
CERiS®
CERiS, CorVel’s enhanced review program, performs a clinical review and comparative analysis of itemized billing statements
against national and customer payment standards. CERiS is a national provider of cost management solutions to employers, TPAs,
insurance companies and government agencies. The Company’s comprehensive forensic solution reviews charge utilization,
appropriateness of charges, and billing behavior, to verify proper payment of claims. CERiS offers clarity to those who pay facility
claims and are unsure if the billing is correct. CERiS produces incremental savings both prior to and after payment, lowers provider
friction, increases efficiencies with client and facility relationships, and easily scales to a payor’s enterprise needs.
Professional Review
CorVel’s professional review service audits and validates facility bill accuracy. This solution also includes review of in-network
facility bills. If a bill is identified for professional review, the bill image and its associated medical reports are routed within the system
to an experienced medical nurse for review and auditing. The Company’s experienced nurse auditors have clinical backgrounds in all
areas of medicine, medical billing and coding to ensure an accurate, consistent and thorough review.
Provider Reimbursement
CorVel’s bill review service automatically issues provider reimbursements, and allows its customers to track dollars spent and
bills reviewed, and set reserves through charts available online.
SymbeoSM
We complement our comprehensive solutions by offering our Symbeo technologies, which include scanning, optical character
recognition, and document management services. We have added scanning operations to most of the Company’s larger offices around
the country, designating them “Capture Centers,” and sell scanning and document management services through all offices. Our scanning
service includes a web interface, which provides immediate access to documents and data. Secure document review, approval,
transaction workflow and archival storage are available at subscription-based pricing.
Additionally, Symbeo automates the accounts payable process, configuring coding and approvals to customer specific workflows.
Pharmacy Services
CorVel provides patients with a full-feature pharmacy program that offers formulary management, discounted prescriptions, drug
interaction monitoring, utilization management and eligibility confirmation. Our network of nationally recognized pharmacies offers
claimants savings on the retail price of prescriptions associated with a workers’ compensation claim. The Company’s pharmacy services
program includes preferred access to a national pharmacy network, streamlined processing for pharmacies at point of sale, first fill and
next fill programs, out-of-network management, medication review services and clinical modeling.
Directed Care Services
CorVel offers a national directed care network that provides access to specialty medical services, which may be required to support
an injured worker’s medical treatment plan. CorVel has contracted with medical imaging, physical therapy, diagnostics and ancillary
service networks to offer convenient access, timely appointments and preferred rates for these services. The Company manages the
entire coordination of care from appointment scheduling through reimbursement, working to achieve timely recovery and increased
savings. The Company has directed care networks for CTs and MRIs, diagnostic imaging, physical and occupational therapy,
independent medical evaluations, durable medical equipment and transportation and translation.
Medicare Solutions
The Company offers solutions to help manage the requirements mandated by the Centers for Medicare and Medicaid Services
(“CMS”). Services include Medicare set asides and agent reporting services to help employers comply with new CMS reporting
legislation. As an assigned agent, CorVel can provide services for responsible reporting entities (known as RREs), such as insurers and
employers. As an experienced information-processing provider, CorVel is able to electronically submit files to the CMS in compliance
with timelines and reporting requirements.
6
Clearinghouse Services
CorVel’s proprietary medical review software and claims management technology interfaces with multiple clearinghouses to
provide for medical review, conversion of electronic forms to appropriate payment formats, seamless submission of bills for payments
and rules engines used to help ensure jurisdictional compliance.
Patient Management Services
CorVel offers a unique approach to patient management through the TPA services it offers. Patient management services include
claims management and all services sold to claims management customers, as well as case management, its 24/7 virtual care platform
with nurse triage, utilization management, vocational rehabilitation, and disability, liability claims, and auto claims management. This
integrated service model controls claims costs by advocating medical management at the onset of a claimant's injury to decrease
administrative costs and to shorten the duration of the claimant's disability. This automated solution offers a personalized treatment
program for each injured worker, using precise treatment protocols to meet the changing needs of patients on an ongoing basis. The
Company offers these services on a stand-alone basis or as an integrated component of its medical cost containment services.
Claims Management
The Company serves customers in the self-insured and commercially-insured markets. Incidents and injuries are reported through
a variety of intake methods including a 24/7 nurse triage call center, website, mobile applications, toll-free call centers and traditional
methods of paper and fax reporting. Reported incidents and injuries are immediately processed by CorVel’s proprietary rules engine,
which provides alerts and recommendations throughout the life of a claim. This technology instantly assigns the claimant an expert
claims professional, while simultaneously determining if a claim requires immediate attention for triage.
The Company serves customers through alternative loss-funding methods and provides them with a complete range of services,
including claims administration, case management, and medical bill review. In addition to the field investigation and evaluation of
claims, the Company may also provide initial loss reporting services for claims, loss mitigation services, vocational rehabilitation,
administration of trust funds established to pay claims, and risk management information services.
Features of claims management services include automated first notice of loss, three-point contact within 24 hours, prompt claims
investigations, detailed diary notes for each step of the claim, graphical dashboards and claim history scorecards, and litigation
management and expert testimony.
Case Management
CorVel’s case management and utilization review services address all aspects of disability management and recovery, including
utilization review (pre-certification, concurrent review and discharge planning), early intervention, telephonic, field and catastrophic
case management, as well as vocational rehabilitation.
The medical management components of CorVel’s program focus on medical intervention, management and appropriateness. In
these cases, the Company’s case managers confer with the attending physician, other providers, the patient and the patient’s family to
identify the appropriate rehabilitative treatment and most cost-effective healthcare alternatives. The program is designed to offer the
injured party prompt access to appropriate medical providers who will provide quality cost-effective medical care. Case managers may
coordinate the services or care required and arrange for special pricing of the services.
A telephonic case manager focuses on assisting the claimant's early return to work, medical improvement and determining the
appropriate duration of disability. Further, the telephonic case manager facilitates treatment, negotiates with medical providers on behalf
of the injured worker and directs the worker's care until certain case closure criteria is met. Utilization review of provider treatment
remains ongoing until discharge from treatment.
A field case manager ("FCM") is assigned to claims requiring an onsite referral. Cases are referred to the most appropriate FCM
based on geographic location and injury type. Specialized case management services include catastrophic management, life care
planning, and vocational rehabilitation services.
7
Virtual Care Platform
Injured workers can contact our 24/7 nurse triage hotline to speak with a registered nurse who specializes in occupational injuries.
An assessment is immediately made to recommend self-care, or refer the worker to seek further medical care from our network of
preferred providers. CorVel is able to provide quick and accurate care intervention, often preventing a minor injury from becoming an
expensive claim. Our virtual platform allows employer access to online case information, comprehensive incident gathering, and
healthcare advocacy for injured workers. Additionally, after being screened by a triage nurse, the service now offers Telehealth, which
connects injured workers with doctors for virtual appointments via their computers and smart mobile devices. Telehealth, which is
approved in nearly all states, is integrated into CorVel’s healthcare model as an option for qualified injuries, primarily musculoskeletal.
Telehealth preserves the integrity of the patient-physician relationship with confidential, HIPAA compliant transactions, while also
channeling injured workers to network providers for physical therapy or prescriptions when needed.
Utilization Management
CorVel's utilization management programs review proposed care to determine appropriateness, frequency, duration and setting.
These programs utilize experienced registered nurses, proprietary medical treatment protocols and systems technology to avoid
unnecessary treatments and associated costs. Utilization management processes include injury review, diagnosis and treatment planning,
contacting and negotiating provider treatment requirements, certifying appropriateness of treatment parameters, and responding to
provider requests for additional treatment. Utilization management services include prospective review, retrospective review, concurrent
review, professional nurse review, second opinion, peer review, precertifications and independent medical evaluation.
Vocational Rehabilitation
CorVel’s vocational rehabilitation program is designed for injured workers needing assistance returning to work or retaining
employment. This comprehensive suite of services helps employees who are unable to perform their work functions and who face the
possibility of joining the open labor market to seek re-employment. These services are available unbundled on an integrated basis as
dictated by the requirement of each case and customer preference, or by individual statutory requirements. Vocational rehabilitation
services include: ergonomic assessments, rehabilitation plans, transferable skills analysis, labor market services, job seeking skills,
resumé development, job analysis and development, job placement, career counseling and expert testimony.
Disability Management
CorVel’s disability management programs offer a continuum of services for short and long-term disability coverages that advocate
an employee’s early return to work. Disability management services include: absence reporting, disability evaluations, national preferred
provider organizations, independent medical examinations, utilization review, medical case management, return-to-work coordination
and integrated reporting.
Liability Claims Management
CorVel also offers liability claims management services that can be sold on a stand-alone basis or as part of patient management.
Liability claims management services include claims management, adjusting services, litigation management, claims subrogation, and
investigations regarding auto liability, general liability, product liability, personal injury, professional liability, property damage,
accidents and weather-related damage.
Auto Claims Management
Injury claims are one of the largest components of auto indemnity costs. Effective management of these claims and their associated
costs, combined with an optimal healthcare management program, offers a unique method of cost savings for CorVel's customers. The
Company’s auto claims services include national preferred provider organizations, medical bill review, first or third party bill review,
first notice of loss, demand packet reviews and reporting and analytics.
SYSTEMS AND TECHNOLOGY
Infrastructure and Data Center
The Company utilizes a tier III-rated data center as its primary processing site. Redundancy is provided at many levels in power,
cooling, and computing resources, with the goal of ensuring maximum uptime and system availability for the Company’s production
systems. The Company has embraced server virtualization and consolidation techniques to push the fault-tolerance of systems even
further. These technologies bring increased availability, speed-to-production and scalability.
8
Adoption of Imaging Technologies and Paperless Workflow
Utilizing scanning and automated data capture processes allows the Company to process incoming paper and electronic claims
documents, including medical bills, with less manual handling, which has improved the Company’s workflow processes and resulted in
cost savings to us and our customers. Through the Company’s online portal, CareMC, customers can review bills as soon as they are
processed and approve a bill for payment, streamlining their workflows and expediting the payment process.
Redundancy Center
The Company’s national data center is located near Portland, Oregon. The redundancy center, which is located in Lone Mountain,
Nevada, is the Company’s backup processing site in the event that the Portland data center suffers catastrophic loss. Currently, the
Company’s data is continually replicated to Lone Mountain in near-real time, so that in the event the Portland data center is offline, the
redundancy center can be activated with current information quickly. The Lone Mountain data center also hosts duplicates of the
Company’s websites. The systems are maintained and exercised on a continuous basis as they host demonstration and pilot environments
that mirror production, with the goal of ensuring their ongoing readiness.
CareMC®
The Company's CareMC (www.caremc.com) platform offers customers direct and immediate access to the Company’s primary
service lines. CareMC allows for electronic communication and reporting between providers, payors, employers and patients. The
website allows customers to report an incident/injury, request service, schedule an appointment, review bills, manage claims, access
their treatment calendar, contest medical bills, and access automated provider reimbursement.
In addition, through CareMC, customers can:
•
Manage files throughout the life of the claim;
•
Receive and relay case notes from case managers; and
•
Integrate information from multiple claims management sources into one database.
CareMC facilitates healthcare transaction processing. Using artificial intelligence technology, the website provides situation alerts
and event triggers, to facilitate prompt and effective decisions. CareMC users can quickly see where event outliers are occurring within
the claims management process. If costs exceed pre-determined thresholds or activities fall outside expected timelines, the customer can
be quickly notified. The latest feature within CareMC, the Edge, modernizes claims processing and adapts to the way people work. This
module facilitates quicker decision making by prioritizing information that is easily actionable. Seamlessly integrated within the
platform, the Edge browses codified data and prioritizes claims, alerting adjusters to those claims needing attention and actions that need
to be taken. The Edge displays live, claims information on one screen to help guide users toward their next action.
Claims Processing
We continue to develop our claims system capabilities, which reflects the Company’s preference for owning and maintaining our
own software assets. Integration projects, some already completed, are underway to present more of this claims-centric information
available through the CareMC online portal. The Company’s goal is to continue to modernize user interfaces, give more rapid feedback
and put real-time information in the hands of our customers.
CUSTOMERS AND MARKETING
CorVel serves a diverse group of customers, which include insurers, TPAs, self-administered employers, government agencies,
municipalities, state funds, and numerous other stakeholders in the health care industry. CorVel provides workers’ compensation
services to virtually any size employer and in any state or region of the United States. No single customer represented more than 10%
of revenues in fiscal 2024, or in the fiscal years ended March 31, 2023 and 2022. One customer accounted for 10% or more of accounts
receivable as of March 31, 2024 and 2023. Many claims management decisions in workers’ compensation are the responsibility of the
local claims office of national or regional insurers. The Company’s national branch office network enables the Company to market and
offer its services at both a local and national account level, though the Company placed increasing emphasis on national account
marketing. The sales and marketing activities are conducted primarily by account executives located in key geographic areas.
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COMPETITION AND MARKET CONDITIONS
The healthcare cost containment industry is competitive and is subject to economic pressures for cost savings and legislative
reforms. CorVel’s primary competitors in the workers’ compensation market include TPAs, MCOs, large insurance carriers and
numerous independent companies. Many of the Company’s competitors are significantly larger and have greater financial and marketing
resources than the Company. Moreover, the Company’s customers may establish the in-house capability of performing the kinds of
services offered by the Company. If the Company is unable to compete effectively, it will be difficult to add and retain customers, and
the Company’s business, financial condition and results of operations will be materially and adversely affected.
There has been unprecedented acceleration in mobile and other technology in the past few years. This capability provides
immediate access and begins to present business opportunities that were previously predicated on a less connected environment. The
Company continues to leverage the latest technological innovation to connect all parties involved in the workers' compensation, risk
management, and insurance processes in ways that were unimaginable in the past. The Company remains focused on executing its
strategy to offer industry-leading claims management and cost containment solutions to the market.
GOVERNMENT REGULATIONS
General
Managed healthcare programs for workers’ compensation are subject to various laws and regulations. Both the nature and degree
of applicable government regulation vary greatly depending upon the specific activities involved. Generally, parties that actually provide
or arrange for the provision of healthcare services, such as the Company, assume financial risk related to the provision of those services
or undertake direct responsibility for making payment or payment decisions for those services. These parties are subject to a number of
complex regulatory requirements that govern many aspects of their conduct and operations.
In contrast, the management and information services provided by the Company to its customers typically have not been the
subject of regulation by the federal government or the states. Since the managed healthcare field is a rapidly expanding and changing
industry and the cost of healthcare continues to increase, it is possible that state and federal regulatory frameworks will expand to have
a greater impact on the conduct and operation of the Company’s business.
Under the current workers’ compensation system, employer insurance or self-funded coverage is governed by individual laws in
each of the 50 states and by certain federal laws. The management and information services that make up the Company’s managed care
program serve markets that have developed largely in response to needs of insurers, employers and large TPAs, and generally have not
been mandated by legislation or other government action. On the other hand, the vocational rehabilitation case management marketplace
within the workers’ compensation system has been dependent upon the laws and regulations within those states that require the
availability of specified rehabilitation services for injured workers. Similarly, the Company’s fee schedule auditing services address
market needs created by certain states’ enactment of maximum permissible fee schedules for workers’ compensation services. Changes
in individual state regulation of workers’ compensation may create a greater or lesser demand for some or all of the Company’s services
or require the Company to develop new or modified services to meet the needs of and compete effectively in the marketplace.
We are required to be licensed or receive regulatory approval in nearly every state and foreign jurisdiction in which we do business.
In addition, most jurisdictions require individuals who engage in claim adjusting and certain other insurance service activities to be
personally licensed. These licensing laws and regulations vary from jurisdiction to jurisdiction. In most jurisdictions, licensing laws and
regulations generally grant broad discretion to supervisory authorities to adopt and amend regulations and to supervise regulated
activities.
Medical Cost Containment Legislation
Historically, governmental strategies to contain medical costs in the workers’ compensation field have been generally limited to
legislation on a state-by-state basis. For example, many states have implemented fee schedules that list maximum reimbursement levels
for healthcare procedures. In certain states that have not authorized the use of a fee schedule, the Company adjusts bills to the usual and
customary levels authorized by the payor. Opportunities for the Company’s services could increase if more states legislate additional
cost containment strategies. Conversely, the Company would be materially and adversely affected if states elect to reduce the extent of
medical cost containment strategies available to insurance carriers and other payors, or adopt other strategies for cost containment that
would not support a demand for the Company’s services.
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HUMAN CAPITAL
As of March 31, 2024, CorVel had 4,870 employees, including nurses, claims adjusters, and other employees. Our entire
workforce is concentrated in the United States. No employees are represented by any collective bargaining unit. Management believes
the Company’s relationship with its employees to be good.
The COVID-19 pandemic had a significant impact on our human capital management, with most of our office locations are
operating at reduced capacity. Currently, 75% of our employees are permanent work from home.
Human capital is a key component to our success. CorVel was recently awarded, for the fourth year in a row, certification as a
"Great Place to Work Company" based on independent surveys of its employees. Our culture and organizational purpose is embodied
by our ACE-IT values of Accountability, Commitment, Excellence, Integrity, and Teamwork. These values define our desired culture,
and influence organizational behavior, decision-making and our people priorities. Our mission is to provide an enduring culture where
we are empowered to seek our full potential, working together to change the industry, making a real difference to those we serve. Our
vision is to make a real difference with our partners by creating a new standard of excellence in service and outcomes.
Diversity, Equity and Inclusion
Diversity, equity and inclusion are core to the Company’s values and instrumental in delivering stronger business growth. The
more diverse our backgrounds and experiences, the more we can achieve together working side by side. We are committed to recruiting
the most qualified people for the job regardless of gender, ethnicity or other protected traits, and to complying fully with all domestic,
foreign and local laws relating to discrimination in the workplace. Additionally, we believe in providing opportunities for career
progression for our people and, as such, we strive to fill our open positions with internal talent whenever possible. Our Company’s
greatest strength and resource is the talent of our employees.
To ensure that our leaders and employees model fairness and inclusivity in their behaviors, diversity, equity and inclusion training
is completed by our leaders and mandated for all employees. We are proud of having a diverse workforce and remain committed to
increasing the empowerment of women and minorities across our operations.
As of March 31, 2024, over a third of our employees identify as racially or ethnically diverse. Additionally, over 79% of our
employees identify as women. Over 72% of the Company’s managers identify as women.
Employee Wellness
At CorVel, we provide a variety of comprehensive benefit programs that are designed to support the physical, mental and financial
well-being of our people. Examples of such programs include: formal wellness programs with fitness challenges and incentives for
prioritizing physical exercise; employee assistance programs; group healthcare and telemedicine programs; company-sponsored
retirement savings plans; tuition assistance; and programs that support work-life balance such as remote work arrangements and paid-
time off.
Employee Development
Employee development continued to be of strategic importance in fiscal 2024. We require our adjusters and nurse case managers
to undergo specific training related to their responsibilities as part of their onboarding process. During fiscal 2024, we announced CorVel
University, which is a national training initiative to equip candidates with the necessary skills to become claims specialists. Internal and
external candidates can go through the 4-week training program that enables a graduate to be integrated into claims operations and
developed into claims specialists with local mentors. Additionally, we have a leadership development program that was designed
internally and is a combination of six focused workshops facilitated by different members of our executive team, and a curated reading
list. During the program, the participants work individually and in group sessions to learn and improve leadership skills from proven
resources and have the opportunity to roundtable situations to provide optimal resolutions for their teams.
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AVAILABLE INFORMATION
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements
and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as well as other filings
made with the SEC, are available free of charge through our website (http://www.corvel.com, under the Investor section) as soon as
reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC.
The inclusion of our website address and the address of any of our portals, such as www.caremc.com, in this annual report does
not include or incorporate by reference into this annual report any information contained on, or accessible through, such websites.
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Item 1A. Risk Factors.
Past financial performance is not necessarily a reliable indicator of future performance, and investors in our common stock
should not use historical performance to anticipate results or future period trends. Investing in our common stock involves a high degree
of risk. Investors should consider carefully the following risk factors, as well as the other information in this annual report and our
other filings with the SEC, including our consolidated financial statements and the related notes, before deciding whether to invest or
maintain an investment in shares of our common stock. If any of the following risks actually occurs, our business, financial condition,
and results of operations would suffer. In this case, the trading price of our common stock would likely decline. The risks described
below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial
may also impair our business operations.
Risks Related to Our Business and Industry
Our sequential revenue may not increase and may decline. As a result, we may fail to meet or exceed the expectations of investors
or analysts which could cause our common stock price to decline.
Our sequential revenue growth may not increase and may decline in the future as a result of a variety of factors, many of which
are outside of our control. If changes in our sequential revenue fall below the expectations of investors or analysts, the price of our
common stock could decline substantially. Fluctuations or declines in sequential revenue growth may be due to a number of factors,
including, but not limited to, those listed below and identified throughout this “Risk Factors” section: the decline in manufacturing
employment, the decline in workers’ compensation claims, the decline in healthcare expenditures, the considerable price competition in
a flat-to-declining workers’ compensation market, litigation, the increase in competition, and the changes and the potential changes in
state workers’ compensation and automobile-managed care laws which can reduce demand for our services. These factors create an
environment where revenue and margin growth is more difficult to attain and where revenue growth is less certain than historically
experienced. Additionally, our technology and preferred provider network face competition from companies that have more resources
available to them than we do. Also, some customers may handle their managed care services in-house and may reduce the amount of
services which are outsourced to managed care companies such as us. These factors could cause the market price of our common stock
to fluctuate substantially. There can be no assurance that our growth rate in the future, if any, will be at or near historical levels.
Natural and other disasters may adversely affect our business.
We may be vulnerable to damage from severe weather conditions or natural disasters, including hurricanes, fires, floods,
earthquakes, power loss, communications failures, and similar events, including the effects of pandemics, war or acts of terrorism. If a
disaster were to occur, our ability to operate our business could be seriously or completely impaired or destroyed. The insurance we
maintain may not be adequate to cover our losses resulting from disasters or other business interruptions. If there is a resurgence in the
COVID-19 pandemic, or if any other pandemic arises, it could materially adversely impact our business operations, financial position
and results of operations in unpredictable ways that depend on highly-uncertain future developments, such as determining the
effectiveness of current or future government actions to address the public health or economic impacts of the pandemic. Any of these
risks might have a materially adverse effect on our business operations and our financial position or results of operations.
If we fail to grow our business internally or through strategic acquisitions we may be unable to execute our business plan, maintain
high levels of service, or adequately address competitive challenges.
Our strategy is to continue internal growth and, as strategic opportunities arise in the workers’ compensation managed care
industry, to consider acquisitions of, or relationships with, other companies in related lines of business. As a result, we are subject to
certain growth-related risks, including the risk that we will be unable to retain personnel or acquire other resources necessary to service
such growth adequately. Expenses arising from our efforts to increase our market penetration may have a negative impact on operating
results. In addition, there can be no assurance that any suitable opportunities for strategic acquisitions or relationships will arise or, if
they do arise, that the transactions contemplated could be completed. If such a transaction does occur, there can be no assurance that we
will be able to integrate effectively any acquired business. In addition, any such transaction would be subject to various risks associated
with the acquisition of businesses, including, but not limited to, the following:
•
an acquisition may (i) negatively impact our results of operations because it may require incurring large one-time charges,
substantial debt or liabilities; (ii) require the amortization or write down of amounts related to deferred compensation,
goodwill and other intangible assets; or (iii) cause adverse tax consequences, substantial depreciation or deferred
compensation charges;
•
we may encounter difficulties in assimilating and integrating the business, technologies, products, services, personnel, or
operations of companies that are acquired, particularly if key personnel of the acquired company decide not to work for us;
•
an acquisition may disrupt ongoing business, divert resources, increase expenses, and distract management;
13
•
the acquired businesses, products, services, or technologies may not generate sufficient revenue to offset acquisition costs;
•
we may have to issue equity or debt securities to complete an acquisition, which would dilute the position of stockholders
and could adversely affect the market price of our common stock; and
•
the acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience.
There can be no assurance that we will be able to identify or consummate any future acquisitions or other strategic relationships
on favorable terms, or at all, or that any future acquisition or other strategic relationship will not have an adverse impact on our business
or results of operations. If suitable opportunities arise, we may finance such transactions, as well as internal growth, through debt or
equity financing. There can be no assurance, however, that such debt or equity financing would be available to us on acceptable terms
when, and if, suitable strategic opportunities arise.
If we are unable to increase our market share among national and regional insurance carriers and large, self-funded employers,
our results may be adversely affected.
Our business strategy and future success depend in part on our ability to capture market share with our cost containment services
as national and regional insurance carriers and large, self-funded employers look for ways to achieve cost savings. There can be no
assurance that we will successfully market our services to these insurance carriers and employers or that they will not resort to other
means to achieve cost savings. Additionally, our ability to capture additional market share may be adversely affected by the decision of
potential customers to perform services internally instead of outsourcing the provision of such services to us. Furthermore, we may not
be able to demonstrate sufficient cost savings to potential or current customers to induce them not to provide comparable services
internally or to accelerate efforts to provide such services internally.
If competition increases, our growth and profits may decline.
The markets for our network services and patient management services are fragmented and competitive. Our competitors include
national managed care providers, preferred provider networks, smaller independent providers, and insurance companies. Companies
that offer one or more workers’ compensation managed care services on a national basis are our primary competitors. We also compete
with many smaller vendors who generally provide unbundled services on a local level, particularly companies with an established
relationship with a local insurance company adjuster. In addition, several large workers’ compensation insurance carriers offer managed
care services for their customers, either by performance of the services in-house or by outsourcing to organizations like ours. If these
carriers increase their performance of these services in-house, our business may be adversely affected. In addition, consolidation in the
industry may result in carriers performing more of such services in-house.
If the referrals for our patient management services decline, our business, financial condition and results of operations would be
materially adversely affected.
In some years, we have experienced a general decline in the revenue and operating performance of patient management services.
We believe that the performance decline has been due to the following factors: the decrease of the number of workplace injuries that
have become longer-term disability cases; increased regional and local competition from providers of managed care services; a possible
reduction by insurers on the types of services provided by our patient management business; the closure of offices and continuing
consolidation of our patient management operations; and employee turnover, including management personnel, in our patient
management business. In the past, these factors have all contributed to the lowering of our long-term outlook for our patient management
services. If some or all of these conditions continue, we believe that revenues from our patient management services could decrease.
Declines in workers’ compensation claims may materially harm our results of operations.
Historically, the labor market has become less labor intensive and more service oriented, there are declining work-related injuries.
Additionally, employers are being more proactive to prevent injuries. If declines in workers’ compensation costs occur in many states
and persist over the long-term, it would have a material adverse impact on our business, financial condition and results of operations.
We provide an outsource service to payors of workers’ compensation benefits, automobile insurance claims, and group health
insurance benefits. These payors include insurance companies, TPAs, municipalities, state funds, and self-insured, self-administered
employers. If these payors reduce the amount of work they outsource, our results of operations would be materially adversely affected.
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Healthcare providers are becoming increasingly resistant to the application of certain healthcare cost containment techniques; this
may cause revenue from our cost containment operations to decrease.
Healthcare providers have become more active in their efforts to minimize the use of certain cost containment techniques and are
engaging in litigation to avoid application of certain cost containment practices. Recent litigation between healthcare providers and
insurers has challenged certain insurers’ claims adjudication and reimbursement decisions. These cases may affect the use by insurers
of certain cost containment services that we provide and may result in a decrease in revenue from our cost containment business.
Our failure to compete successfully could make it difficult for us to add and retain customers and could reduce or impede the growth
of our business.
We face competition from PPOs, TPAs, and other managed healthcare companies. We believe that as managed care techniques
continue to gain acceptance in the workers’ compensation marketplace, our competitors will increasingly consist of nationally-focused
workers’ compensation managed care service companies, insurance companies, HMOs and other significant providers of managed care
products. Legislative reform in some states has been considered, but not enacted, to permit employers to designate health plans such as
HMOs and PPOs to cover workers’ compensation claimants. Because many health plans have the ability to manage medical costs for
workers’ compensation claimants, such legislation may intensify competition in the markets served by us. Many of our current and
potential competitors are significantly larger and have greater financial and marketing resources than we do, and there can be no
assurance that we will continue to maintain our existing customers, maintain our past level of operating performance, or be successful
with any new products or in any new geographical markets we may enter.
If the utilization by healthcare payors of early intervention services continues to increase, the revenue from our later-stage network
and healthcare management services could be negatively affected.
The performance of early intervention services, including injury occupational healthcare, first notice of loss, and telephonic case
management services, often result in a decrease in the average length of, and the total costs associated with, a healthcare claim. By
successfully intervening at an early stage in a claim, the need for additional cost containment services for that claim often can be reduced
or even eliminated. As healthcare payors continue to increase their utilization of early intervention services, the revenue from our later
stage network and healthcare management services will decrease.
We face competition for staffing, which may increase our labor costs and reduce profitability.
We compete with other healthcare providers in recruiting qualified management and staff personnel for the day-to-day operations
of our business, including nurses and other case management professionals. In some markets, the scarcity of nurses and other medical
support personnel has become a significant operating issue to healthcare providers. This shortage may require us to enhance wages to
recruit and retain qualified nurses and other healthcare professionals. Our failure to recruit and retain qualified management, nurses, and
other healthcare professionals, or to control labor costs could have a material adverse effect on profitability.
We are subject to inflation risks which could increase our wages, benefits, and other costs which may result in decreased profitability.
We are impacted by inflationary increases in wages, benefits and other costs. Wage and benefit inflation, whether driven by
competition for talent or ordinary course pay increases and other inflationary pressure, may increase our cost of providing services and
reduce our profitability. If we are not able to pass increased wage and other costs resulting from inflation onto our clients or charge
premium prices when justified by market demand, our profitability may decline.
Sustained increases in the cost of our employee benefits could materially reduce our profitability.
The cost of our current employees’ medical and other benefits substantially affects our profitability. In the past, we have
occasionally experienced significant increases in these costs as a result of macro-economic factors beyond our control, including
increases in healthcare costs. There can be no assurance that we will succeed in limiting future cost increases, and continued upward
pressure in these costs could materially reduce our profitability.
The introduction of software products incorporating new technologies and the emergence of new industry standards could render
our existing software products less competitive, obsolete, or unmarketable.
There can be no assurance that we will be successful in developing and marketing new software products that respond to
technological changes or evolving industry standards. If we are unable, for technological or other reasons, to develop and introduce new
software products cost-effectively, in a timely manner and in response to changing market conditions or customer requirements, our
business, results of operations, and financial condition may be adversely affected.
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Developing or implementing new or updated software products and services may take longer and cost more than expected. We
rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our software products and
services. The cost of developing new healthcare information services and technology solutions is inherently difficult to estimate. Our
development and implementation of proposed software products and services may take longer than originally expected, require more
testing than originally anticipated and require the acquisition of additional personnel and other resources. If we are unable to develop
new or updated software products and services cost-effectively on a timely basis and implement them without significant disruptions to
the existing systems and processes of our customers, we may lose potential sales and harm our relationships with current or potential
customers.
We may not be able to develop or acquire necessary IT resources to support and grow our business, and disruptive technologies
could impact the volume and pricing of our products, which could materially adversely affect our business, results of operations,
and financial condition.
We have made substantial investments in software and related technologies that are critical to the core operations of our business.
These IT resources will require future maintenance and enhancements, potentially at substantial costs. Additionally, these IT resources
may become obsolete in the future and require replacement, potentially at substantial costs. We may not be able to develop, acquire
replacement resources or identify new technology resources necessary to support and grow our business.
In addition, we could face changes in our markets due to disruptive technologies that could impact the volume and pricing of our
products, or introduce changes to the claims management processes which could negatively impact our volume of case referrals. Our
failure to address these risks, or to do so in a timely manner, or at a cost considered reasonable by us, could materially adversely affect
our business, results of operations, and financial condition.
If we are unable to apply technology and data analytics effectively in driving value for our clients through technology-based solutions
or maintain internal efficiencies and effective internal controls through the application of technology and related tools, our operating
results, client relationships, growth and compliance programs could be adversely affected.
Our future success depends, in part, on our ability to anticipate and respond effectively to the threat and opportunity presented by
digital disruption, “big data” and data analytics, and other developments in technology. These may include new applications or
insurance-related services based on artificial intelligence, machine learning, robotics, blockchain, the metaverse or new approaches to
data mining that impact the nature of how we generate revenue. We may be exposed to competitive risks related to the adoption and
application of new technologies by established market participants or new entrants such as technology companies, start-up companies
and others. These new entrants are focused on using technology and innovation, including artificial intelligence and blockchain, in an
attempt to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive
changes in the industries in which we operate. We must also develop and implement technology solutions and technical expertise among
our employees that anticipate and keep pace with rapid and continuing changes in technology, industry standards, client preferences and
internal control standards. We may not be successful in anticipating or responding to these developments on a timely and cost-effective
basis and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise, make use of data
analytics, and develop new technologies in our business requires us to incur significant expenses. Investments in technology systems
and data analytics capabilities may not deliver the benefits or perform as expected, or may be replaced or become obsolete more quickly
than expected, which could result in operational difficulties or additional costs. If we cannot offer new technologies or data analytics
solutions as quickly as our competitors, or if our competitors develop more cost-effective technologies, data analytics solutions or other
product offerings, we could experience a material adverse effect on our operating results, client relationships, growth and compliance
programs.
In some cases, we depend on key third-party vendors and partners to provide technology and other support for our strategic
initiatives. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives
could be adversely affected.
The failure to attract and retain qualified or key personnel may prevent us from effectively developing, marketing, selling,
integrating, and supporting our services.
We are dependent, to a substantial extent, upon the continuing efforts and abilities of certain key management personnel. In
addition, we face competition for experienced employees with professional expertise in the workers’ compensation managed care area.
The loss of key personnel, especially V. Gordon Clemons, our Chairman, and Michael Combs, our Chief Executive Officer and
President, or the inability to attract qualified employees, could have a material adverse effect on our business, financial condition, and
results of operations.
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If we lose several customers in a short period, our results may be materially adversely affected.
Our results may decline if we lose several customers during a short period. Most of our customer contracts permit either party to
terminate without cause. If several customers terminate, or do not renew or extend their contracts with us, our results could be materially
and adversely affected. Many organizations in the insurance industry have consolidated and this could result in the loss of one or more
of our customers through a merger or acquisition. Additionally, we could lose customers due to competitive pricing pressures or other
reasons.
We are subject to risks associated with acquisitions of intangible assets.
Our acquisition of other businesses may result in significant increases in our intangible assets and goodwill. We regularly evaluate
whether events and circumstances have occurred indicating that any portion of our intangible assets and goodwill may not be
recoverable. When factors indicate that intangible assets and goodwill should be evaluated for possible impairment, we may be required
to reduce the carrying value of these assets. We cannot currently estimate the timing and amount of any such charges.
Risks Related to Cybersecurity and Our Information Systems
A cybersecurity attack or other disruption to our information technology systems could result in the loss, theft, misuse, unauthorized
disclosure, or unauthorized access of customer or sensitive company information or could disrupt our operations, which could
damage our relationships with customers or employees, expose us to litigation or regulatory proceedings, or harm our reputation,
any of which could materially adversely affect our business, financial condition or results of operations.
We rely on information technology to support our business activities. Our business involves the storage and transmission of a
significant amount of personal, confidential, or sensitive information, including the personal information of our customers and
employees, and our company’s financial, operational and strategic information. As with many businesses, we are subject to numerous
data privacy and security risks, which may prevent us from maintaining the privacy of this information, result in the disruption of our
business and online systems, and require us to expend significant resources attempting to secure and protect such information and
respond to incidents, any of which could materially adversely affect our business, financial condition or results of operations. The loss,
theft, misuse, unauthorized disclosure, or unauthorized access of such information could lead to significant reputational or competitive
harm, result in litigation or regulatory proceedings, or cause us to incur substantial liabilities, fines, penalties or expenses.
Cybersecurity breaches of any of the systems on which we rely may result from circumvention of security systems, denial-of-
service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error,
malfeasance, social engineering, physical breaches or other actions. According to media reports, the frequency, intensity, and
sophistication of cyber-attacks, ransomware attacks, and other data security incidents generally has significantly increased around the
globe in recent years. As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and
incidents, including cybersecurity breaches such as computer viruses, unauthorized parties gaining access to our information technology
systems and similar incidents. Cybersecurity breaches could cause us, and in some cases, materially, to experience reputational harm,
loss of customers, loss and/or delay of revenue, loss of proprietary data, loss of licenses, regulatory actions and scrutiny, sanctions or
other statutory penalties, litigation, liability for failure to safeguard customers’ information, financial losses or a drop in our stock price.
We have invested in and continue to expend significant resources on information technology and data security tools, measures, processes,
initiatives, policies and employee training designed to protect our information technology systems, as well as the personal, confidential
or sensitive information stored on or transmitted through those systems, and to ensure an effective response to any cyber-attack or data
security incident. These expenditures could have an adverse impact on our financial condition and results of operations, and divert
management’s attention from pursuing our strategic objectives. In addition, the cost and operational consequences of implementing,
maintaining and enhancing further system protective measures could increase significantly as cybersecurity threats increase, and there
can be no assurance that the security measures we employ will effectively prevent cybersecurity breaches or otherwise prevent
unauthorized persons from obtaining access to our systems and information.
As these threats evolve, cybersecurity incidents could be more difficult to detect, defend against, and remediate. Cyber-attacks or
data incidents could remain undetected for some period, which could potentially result in significant harm to our systems, as well as
unauthorized access to the information stored on and transmitted by our systems. Further, despite our security efforts and training, our
employees may purposefully or inadvertently cause security breaches that could harm our systems or result in the unauthorized
disclosure of or access to information. Any measures we do take to prevent security breaches, whether caused by employees or third
parties, could have the potential to harm relationships with our customers or restrict our ability to meet our customers' expectations.
If a cyber-attack or other data incident results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of personal,
confidential, or sensitive information belonging to our customers or employees, it could put us at a competitive disadvantage, result in
the deterioration of our customers’ confidence in our services, cause our customers to reconsider their relationship with our company or
impose more onerous contractual provisions, cause us to lose our regulatory licenses, and subject us to potential litigation, liability, fines
and penalties. For example, we could be subject to regulatory or other actions pursuant to privacy laws. This could result in costly
investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect our
reputation, as well as our results of operations and financial condition.
17
A cyber-attack or other data security incident could result in the significant and protracted disruption of our business such that:
•
critical business systems become inoperable or require a significant amount of time or cost to restore;
•
key personnel are unable to perform their duties or communicate with employees, customers or other third-parties;
•
it results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of customer or company information;
•
we are prevented from accessing information necessary to conduct our business;
•
we are required to make unanticipated investments in equipment, technology or security measures;
•
customers cannot access our websites and online systems; or
•
we become subject to other unanticipated liabilities, costs, or claims.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations, and result
in harm to our reputation. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects
of the losses and costs associated with cyber-attacks and data incidents, such insurance coverage may be insufficient to cover all losses
and would not, in any event, remedy damage to our reputation. In addition, we may face difficulties in recovering any losses from our
provider and any losses we recover may be lower than we initially expect.
A breach of security may cause our customers to curtail or stop using our services.
We rely largely on our own security systems, confidentiality procedures, and employee nondisclosure agreements to maintain the
privacy and security of our and our customers’ proprietary information. Accidental or willful security breaches or other unauthorized
access by third parties to our information systems, the existence of computer viruses in our data or software, and misappropriation of
our proprietary information could expose us to a risk of information loss, litigation, and other possible liabilities which may have a
material adverse effect on our business, financial condition, and results of operations. If security measures are breached because of third-
party action, employee error, malfeasance, or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a
third party obtains unauthorized access to any customer data, our relationships with our customers and our reputation will be damaged,
our business may suffer, and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures.
An interruption in our ability to access critical data may cause customers to cancel their service and/or may reduce our ability to
effectively compete.
Certain aspects of our business are dependent upon our ability to store, retrieve, process, and manage data and to maintain and
upgrade our data processing capabilities. Interruption of data processing capabilities for any extended length of time, loss of stored data,
programming errors or other system failures could cause customers to cancel their service and could have a material adverse effect on
our business, financial condition, and results of operations.
In addition, we expect that a considerable amount of our future growth will depend on our ability to process and manage claims
data more efficiently and to provide more meaningful healthcare information to customers and payors of healthcare. There can be no
assurance that our current data processing capabilities will be adequate for our future growth, that we will be able to efficiently upgrade
our systems to meet future demands, or that we will be able to develop, license or otherwise acquire software to address these market
demands as well or as timely as our competitors.
If we are unable to leverage our information systems to enhance our outcome-driven service model, our results may be adversely
affected.
To leverage our knowledge of workplace injuries, treatment protocols, outcomes data, and complex regulatory provisions related
to the workers’ compensation market, we must continue to implement and enhance information systems that can analyze our data related
to the workers’ compensation industry. We frequently upgrade existing operating systems and are updating other information systems
that we rely upon in providing our services and financial reporting. We have detailed implementation schedules for these projects that
require extensive involvement from our operational, technological, and financial personnel. Delays or other problems we might
encounter in implementing these projects could adversely affect our ability to deliver streamlined patient care and outcome reporting to
our customers.
18
Risks Related to Potential Litigation
Exposure to possible litigation and legal liability may adversely affect our business, financial condition, and results of operations.
We, through our utilization management services, make recommendations concerning the appropriateness of providers’ medical
treatment plans for patients throughout the country, and as a result, could be exposed to claims for adverse medical consequences. We
do not grant or deny claims for payment of benefits and we do not believe that we engage in the practice of medicine or the delivery of
medical services. There can be no assurance, however, that we will not be subject to claims or litigation related to the authorization or
denial of claims for payment of benefits or allegations that we engage in the practice of medicine or the delivery of medical services.
In addition, there can be no assurance that we will not be subject to other litigation that may adversely affect our business, financial
condition or results of operations, including but not limited to being joined in litigation brought against our customers in the managed
care industry. We maintain professional liability insurance and such other coverages as we believe are reasonable in light of our
experience to date. If such insurance is insufficient or unavailable in the future at reasonable cost to protect us from liability, our business,
financial condition, or results of operations could be adversely affected.
If lawsuits against us are successful, we may incur significant liabilities.
We provide to insurers and other payors of healthcare costs managed care programs that utilize preferred provider organizations
and computerized bill review programs. Healthcare providers have brought, against us and our customers, individual and class action
lawsuits challenging such programs. If such lawsuits are successful, we may incur significant liabilities.
We make recommendations about the appropriateness of providers’ proposed medical treatment plans for patients throughout the
country. As a result, we could be subject to claims arising from any adverse medical consequences. Although plaintiffs have not, to date,
subjected us to any claims or litigation relating to the granting or denial of claims for payment of benefits or allegations that we engage
in the practice of medicine or the delivery of medical services, we cannot assure you that plaintiffs will not make such claims in future
litigation. We also cannot assure you that our insurance will provide sufficient coverage or that insurance companies will make insurance
available at a reasonable cost to protect us from significant future liability.
The increased costs of professional and general liability insurance may have an adverse effect on our profitability.
The cost of commercial professional and general liability insurance coverage has risen significantly for us in the past several years,
and this trend may continue. In addition, if we were to suffer a material loss, our costs may increase over and above the general increases
in the industry. If the costs associated with insuring our business continue to increase, it may adversely affect our business. We believe
our current level of insurance coverage is adequate for a company of our size engaged in our business. Additionally, we may have
difficulty getting carriers to pay under coverage in certain circumstances.
Risks Related to Our Regulatory Environment
Changes in government regulations could increase our costs of operations and/or reduce the demand for our services.
Many states, including a number of those in which we transact business, have licensing and other regulatory requirements
applicable to our business. Approximately half of the states have enacted laws that require licensing of businesses which provide medical
review services such as ours. Some of these laws apply to medical review of care covered by workers’ compensation. These laws
typically establish minimum standards for qualifications of personnel, confidentiality, internal quality control, and dispute resolution
procedures. These regulatory programs may result in increased costs of operation for us, which may have an adverse impact upon our
ability to compete with other available alternatives for healthcare cost control. In addition, new laws regulating the operation of managed
care provider networks have been adopted by a number of states. These laws may apply to managed care provider networks we have
contracts with or to provider networks which we may organize. To the extent we are governed by these regulations, we may be subject
to additional licensing requirements, financial and operational oversight and procedural standards for beneficiaries and providers.
Regulation in the healthcare and workers’ compensation fields is constantly evolving. We are unable to predict what additional
government initiatives, if any, affecting our business may be promulgated in the future. Our business may be adversely affected by
failure to comply with existing laws and regulations, failure to obtain necessary licenses and government approvals, or failure to adapt
to new or modified regulatory requirements. Proposals for healthcare legislative reforms are regularly considered at the federal and state
levels. To the extent that such proposals affect workers’ compensation, such proposals may adversely affect our business, financial
condition, and results of operations.
In addition, changes in workers’ compensation, automobile insurance, and group healthcare laws or regulations may reduce
demand for our services, which would require us to develop new or modified services to meet the demands of the marketplace, or reduce
the fees that we may charge for our services.
19
Increasing regulatory focus on privacy issues and expanding privacy laws could impact our business models and expose us to
increased liability.
U.S. privacy and data security laws apply to our various businesses. Governments, privacy advocates and class action attorneys
are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. Globally, new laws, such as
the General Data Protection Regulation in Europe, the California Consumer Privacy Act in California, and industry self-regulatory codes
have been enacted and more are being considered that may affect our ability to respond to customer requests under the laws, and to
implement our business models effectively. These requirements, among others, may force us to bear the burden of more onerous
obligations in our contracts. Any perception of our practices, products or services as a violation of individual privacy rights may subject
us to public criticism, class action lawsuits, reputational harm, or investigations or claims by regulators, industry groups or other third
parties, all of which could disrupt our business and expose us to increased liability. Additionally, we store information on behalf of our
customers and if our customers fail to comply with contractual obligations or applicable laws, it could result in litigation or reputational
harm to us.
Increased regulatory scrutiny on use of “big data” techniques, machine learning, and artificial intelligence could impact our
business and expose us to increased liability.
There has also been increased regulatory scrutiny of the use of “big data” techniques, machine learning, and artificial intelligence.
It is likely that we will be subject to new regulations that could materially adversely affect our operations or ability to write business
profitably in one or more jurisdictions. For example, the National Association of Insurance Commissioners (NAIC) has adopted guiding
principles on artificial intelligence, to inform and articulate general expectations for businesses, professionals and stakeholders across
the insurance industry as they implement artificial intelligence tools to facilitate operations. While not effective until adopted by a
specific state, we expect these guidelines to be adopted by at least some states. In addition, regulators have recently requested information
from insurers on their use of algorithms, artificial intelligence and machine learning. We cannot predict what, if any, regulatory actions
may be taken with regard to “big data,” but any limitations could have a material impact on our business, business processes, financial
condition, and results of operations.
The costs of compliance with sustainability or other environmental, social responsibility or governance laws, regulations, or policies,
including investor and client-driven policies and standards, could adversely affect our business.
As a non–manufacturing service business, we have to date been less impacted from laws and regulations related to sustainability
concerns or other environmental, social responsibility or governance ("ESG") laws, regulations, or policies. However, we could incur
ESG-related costs indirectly through our customers or shareholders. Increasingly our customers and shareholders expect that we meet
environmental, social responsibility, sustainability or other business policies or standards, which may be more restrictive than current
laws and regulations, before they commence, or continue, doing business with us. Our compliance with these policies and related
requirements could be costly, and our failure to comply could adversely affect our business relationships or reputation.
Risks Related to Ownership of Our Common Stock
The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for
our stockholders.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading
volume in our common stock may fluctuate and cause significant price variations to occur. The stock market has in the past experienced
price and volume fluctuations that have particularly affected companies in the healthcare and managed care markets resulting in changes
in the market price of the stock of many companies, which may not have been directly related to the operating performance of those
companies. There can be no assurance that the market price of our common stock will not fluctuate or decline significantly in the future.
We cannot assure our stockholders that our stock repurchase program will enhance long-term stockholder value and stock
repurchases, if any, could increase the volatility of the price of our common stock and will diminish our cash reserves.
In 1996, our Board of Directors authorized a stock repurchase program and, since then, has periodically increased the number of
shares authorized for repurchase under the repurchase program. The most recent increase occurred in November 2022 and brought the
number of shares authorized for repurchase over the life of the program to 39,000,000 shares. There is no expiration date for the
repurchase program. The timing and actual number of shares repurchased, if any, depend on a variety of factors including the timing of
open trading windows, price, corporate and regulatory requirements, and other market conditions. The program may be suspended or
discontinued at any time without prior notice. Repurchases pursuant to our stock repurchase program could affect our stock price and
increase its volatility. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the
absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, repurchases under our stock
repurchase program will diminish our cash reserves, which could strain our liquidity, could impact our ability to pursue possible future
strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. There can be no assurance that
any further stock repurchases will enhance stockholder value because the market price of our common stock may decline below the
levels at which we repurchased shares of stock. Although our stock repurchase program is intended to enhance long-term stockholder
value, short-term stock price fluctuations could reduce the program’s effectiveness.
20
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
Our information security and cybersecurity program is based on a cybersecurity framework that is designed to protect against
operational risks related to cybersecurity.
Cybersecurity Risk Management and Strategy
We recognize the importance of developing, implementing, and maintaining cybersecurity measures to safeguard our information
systems and protect the confidentiality, integrity, and availability of company information, and data entrusted to us by our customers.
We have implemented a cybersecurity program to assess, identify, and manage risks from cybersecurity threats that could adversely and
materially affect the confidentiality, integrity, and availability of our information and information systems. We maintain administrative,
technical, and physical controls designed to protect the security and privacy of confidential, personal, and proprietary information. We
conduct regular assessments, measuring our exposure to cyber threats. These assessments form the basis for our cyber risk program.
Threats and risks are identified from threat intelligence sources that include our vendors, industry, and government organizations. Our
Chief Information Security Officer (“CISO”) is responsible for overseeing and implementing our cybersecurity program and enforcing
our cybersecurity policy. We employ internal dedicated security personnel and also have contracted services delivered from a full-
service Managed Security Service Provider. Our Chief Technology Officer (“CTO) oversees the day-to-day security operation, and our
Chief Information Officer (“CIO”) oversees our secure development activities.
Our CISO leads our enterprise information security, privacy, and cybersecurity program, which is designed to (i) ensure the
security, confidentiality, integrity and availability of our information and information systems; (ii) protect against any anticipated threats
or hazards to the security, confidentiality, integrity or availability of such information and information systems; and (iii) protect against
unauthorized access to or use of such information or information systems that could result in substantial harm or inconvenience to us,
our partners or our customers. We have implemented an industry adopted cybersecurity framework, which is continuously improving.
We continuously test and assess our cybersecurity posture, including third-party risk assessments performed by reputable assessors,
consultants, and auditors. Additionally, we perform an annual evaluation of our cybersecurity program.
The Board of Directors and the Audit Committee maintain oversight of the cybersecurity program to ensure risks to the Company
are managed appropriately. Our cybersecurity program leverages people, processes, and technology to identify and respond to
cybersecurity threats. We have a Cybersecurity Incident Response Plan which contains processes and procedures related to security
incident handling.
We also have vendor assessment processes to oversee, identify, and reduce the potential impact of a security incident at a third-
party vendor, service provider or customer or otherwise implicating the third-party technology and systems we use. Our agreements
with third parties may include various compliance requirements, data protection terms, audit or monitoring rights, and notification
requirements in the event the third party experiences its own cybersecurity event.
We perform ongoing cybersecurity awareness training for our employees that reinforces our information security policies,
standards and practices. In addition, employees receive periodic newsletters emphasizing awareness of new cybersecurity threats (e.g.,
phishing attempts, smishing, pretexting, and deep fakes). This training is mandatory for all employees and is supplemented with periodic
social engineering tests.
We engage consultants to review our cybersecurity program to help identify areas for continued focus, improvement and
compliance. Our processes also address cybersecurity risks associated with third-party service providers, including those with access to
our non-public or restricted data, including client data.
In the last three fiscal years, we have not experienced any material cybersecurity incidents or costs.
Cybersecurity Governance
As stated above, the Board of Directors and the Audit Committee maintain oversight of the cybersecurity program to ensure risks
to the Company are managed appropriately. Our CISO, who reports to the Chief Executive Officer (“CEO”), is responsible for providing
annual updates to the Board of Directors and to executive leadership. In addition, our CISO partners closely with our CIO and CTO
and their respective organizations to execute defined functions within our cybersecurity program. Our CISO, CIO, and CTO each report
directly to the Chief Executive Officer (“CEO”) who, as appropriate, will escalate any cybersecurity issues to the Board. Our CISO and
CIO both attend regular meetings with the executive officer team, including our CEO, Chief Financial Officer and other senior executive
officers, and report on cybersecurity matters as appropriate.
21
Our cybersecurity and IT leaders have extensive relevant work experience in various roles which includes developing
cybersecurity strategy, implementing effective information and cybersecurity programs, and implementing cybersecurity and privacy
solutions. Such leaders in our organization hold industry recognized certifications such as Certified Information Systems Security
Professional (CISSP), Certified Information Security Manager (CISM) and Global Information Assurance Certification (GIAC).
Item 2. Properties.
The Company's principal executive office is located in Fort Worth, Texas. The Company entered into a lease for approximately
25,000 square feet for its headquarters, which expires in April 2028. The Company leases 66 branch offices in 41 states, which range in
size from 200 square feet up to 59,000 square feet. The lease terms for the branch offices range from monthly to five years and expire
at various dates through 2029. In addition to its leased properties, the Company owns a 32,000 square foot building located in Milwaukie,
Oregon. The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available as
required to scale its business.
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.
Item 3. Legal Proceedings.
From time to time the Company is involved in legal proceedings arising in the ordinary course of business. Management believes
that resolution of these matters will not result in any payment that, in the aggregate, would be material to its financial position or results
of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol CRVL.
Holders. As of May 21, 2024, there were approximately 693 holders of record of the Company’s common stock according to the
information provided by the Company’s transfer agent.
Dividends. The Company has never paid any cash dividends on its common stock and has no current plans to do so in the
foreseeable future. The Company intends to retain future earnings, if any, for use in the Company’s business and for purchases of stock
under its stock repurchase program. The payment of any future dividends on its common stock will be determined by the Board of
Directors in light of conditions then existing, including the Company’s earnings, financial condition and requirements, restrictions in
financing agreements, business conditions and other factors.
Recent Sales of Unregistered Equity Securities. None.
Issuer Purchases of Equity Securities. The following table summarizes purchases of the Company’s common stock made by or
on behalf of the Company or on behalf of any affiliated purchaser in the quarter ended March 31, 2024.
Period
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Program
Maximum Number of
Shares that may still
be Purchased Under
the Program
January 1 to January 31, 2024
13,373
$
235.28
13,373
991,277
February 1 to February 29, 2024
12,206
245.54
12,206
979,071
March 1 to March 31, 2024
12,250
244.67
12,250
966,821
Total
37,829
$
241.63
37,829
966,821
In 1996, the Company’s Board of Directors authorized a stock repurchase program initially for up to 100,000 shares of the
Company’s common stock. The Company’s Board of Directors has periodically increased the number of shares of common stock
authorized for repurchase under the program. In November 2022, the Company’s Board of Directors increased the number of shares of
common stock authorized to be repurchased over the life of the program by 1,000,000 shares of common stock to 39,000,000 shares of
common stock. As of March 31, 2024, the Company has repurchased 38,033,179 shares of its common stock over the life of the
program. There is no expiration date for the program.
23
STOCK PERFORMANCE GRAPH
The graph and the table depicted below show a comparison of cumulative total stockholder return on our Common Stock against
the cumulative total return of the Nasdaq Composite and the Nasdaq Healthcare Services Index over a five year period beginning on
March 31, 2019. The graph assumes that $100 was invested in the Company’s Common Stock, the Nasdaq Composite, and the Nasdaq
Healthcare Services Index on March 31, 2019, and in each index, and that all dividends were reinvested. No cash dividends have been
paid or declared on the Common Stock. Stockholder returns over the indicated period should not be considered indicative of future
stockholder returns.
2019
2020
2021
2022
2023
2024
CorVel Corporation
100.00
83.55
157.25
258.19
291.66
403.07
U.S. Nasdaq Composite
100.00
99.62
171.38
183.98
158.12
211.91
U.S. Nasdaq Healthcare Services
100.00
95.15
141.66
118.07
110.15
120.53
Notwithstanding anything to the contrary set forth in any of our previous filings made under the Securities Act or the Exchange
Act that might incorporate future filings made by us under those statutes, neither the preceding Stock Performance Graph, nor the
information relating to it, is “soliciting material” or is “filed” or is to be incorporated by reference into any such prior filings, nor shall
such graph or information be incorporated by reference into any future filings made by us under those statutes.
Item 6. [Reserved.]
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations financial condition appears in a separate
section of this annual report immediately following the "Signatures" section, and is incorporated herein by this reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices
and rates. Our market risk exposure is primarily the result of fluctuations in interest rates. We do not hold or issue financial instruments
for trading purposes.
Our invested assets are primarily held as cash and cash equivalents, which are subject to various market risk exposures such as
interest rate risk. The fair value of our portfolio of cash and cash equivalents as of March 31, 2024 approximated its carrying value due
to its short-term duration. We estimated market risk as the potential decrease in fair value resulting from a hypothetical one-percentage
point increase in interest rates for the instruments contained in the cash and cash equivalents investment portfolio. The resulting fair
values were not materially different from their carrying values at March 31, 2024.
Item 8. Financial Statements and Supplementary Data.
The Company’s consolidated financial statements, as listed under Item 15(a)(1), appear in a separate section of this annual report,
and are incorporated herein by this reference. The financial statement schedule is included below under Item 15(a)(2). The Company’s
selected quarterly financial data appears in Note 14 to the Company’s consolidated financial statements in a separate section of this
annual report, and is incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31,
2024, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized, and reported, within the time periods specified
in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal
accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining a system of internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records
that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements in accordance with accounting principles generally accepted in the United States
of America; providing reasonable assurance that our receipts and expenditures are made in accordance with authorizations of our
management and directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could
have a material effect on our financial statements would be prevented or detected on a timely basis.
Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control—Integrated
Framework. Based on this assessment, our management, including our principal exectuive officer and principal financial officer,
concluded that our internal control over financial reporting was effective as of March 31, 2024 to provide reasonable assurance regarding
the reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with accounting
principles generally accepted in the United States of America.
25
Our independent registered public accounting firm, Haskell & White LLP, has audited our consolidated financial statements
included in this annual report and has issued an attestation report on the effectiveness of our internal control over financial reporting as
of March 31, 2024 as stated in their report that is included in Part II, Item 8 herein.
Changes to Internal Control over Financial Reporting
During the quarter ended March 31, 2024, there were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
26
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this Item will be included under the captions "Election of Directors — Nominee Information", "Section
16(a) Beneficial Ownership Reporting Compliance," "Executive Officers," "Corporate Governance—Standing Committees and
Attendance at Board and Committee Meetings," and "Corporate Governance — Corporate Governance Guidelines, Committee Charters
and Code of Business Conduct" of the Registrant's Proxy Statement for its 2024 Annual Meeting of Shareholders (the "Proxy Statement")
to be filed within 120 days after March 31, 2024, and is incorporated herein by reference.
The Board of Directors has adopted a code of ethics and business conduct that applies to all of the Company’s employees, officers
and directors. The full text of the Company’s code of ethics and business conduct is posted on the Company’s website at
www.corvel.com. The Company intends to disclose future amendments to certain provisions of the Company’s code of ethics and
business conduct, or waivers of such provisions, applicable to the Company’s directors and executive officers, at the same location on
the Company’s website identified above. The inclusion of the Company’s website address in this annual report does not include or
incorporate by reference the information on the Company’s website into this annual report.
Item 11. Executive Compensation.
The information required by this Item will be included under the captions "Compensation Discussion and Analysis," "Summary
Compensation Table," "Employment and Change in Control Arrangements," "Corporate Governance—Director Compensation,"
"Report of the Compensation Committee of the Board of Directors on Executive Compensation," and "Compensation Committee
Interlocks and Insider Participation" of the Registrant's Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information in the sections titled “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” and “Equity Compensation Plan Information” appearing in the Company’s definitive proxy statement for the 2024
Annual Meeting is incorporated herein by reference.
Item 13. Certain Relationships and Related Party Transactions, and Director Independence.
The information in the sections titled “Certain Relationships and Related-Person Transactions,” “Proposal One: Election of
Directors,” “Information Regarding Director Nominees,” and “Corporate Governance, Board Composition and Board Committees”
appearing in the Company’s definitive proxy statement for the 2024 Annual Meeting is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information under the captions “Principal Accountant Fees and Services,” “Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Registered Public Accounting Firm” and “Proposal Two: Ratification of Appointment
of Independent Registered Public Accounting Firm” appearing in the Company’s definitive proxy statement for the 2024 Annual
Meeting is incorporated herein by reference.
27
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(a)(1) Financial Statements:
The Company’s financial statements appear in a separate section of this annual report, beginning on the pages referenced below:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 200)..............................................................................
42
Consolidated Balance Sheets as of March 31, 2024 and 2023.........................................................................................................
45
Consolidated Statements of Income for the Fiscal Years Ended March 31, 2024, 2023 and 2022 ................................................
46
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended March 31, 2024, 2023 and 2022 ...........................
47
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2024, 2023 and 2022...........................................
48
Notes to Consolidated Financial Statements ....................................................................................................................................
49
(a)(2) Financial Statement Schedule:
The Company’s consolidated financial statements, as listed under Item 15(a)(1), appear in a separate section of this annual report
and are incorporated herein by this reference. The Company’s financial statement schedule is as follows:
Schedule II — Valuation and Qualifying Accounts
Balance at
Beginning of Year
Additions
Charged to Cost
and Expenses
Deductions
Balance at
End of Year
Allowance for expected credit losses:
Fiscal Year Ended March 31, 2024:
$
2,823,000
$
1,828,000
$
(406,000) $
4,245,000
Fiscal Year Ended March 31, 2023:
2,562,000
1,216,000
(955,000)
2,823,000
Fiscal Year Ended March 31, 2022:
3,274,000
158,000
(870,000)
2,562,000
28
(a)(3) Exhibits:
EXHIBITS
Exhibit
No.
Title
Method of Filing
3.1
Fourth Amended and Restated Certificate of Incorporation of
CorVel Corporation.
Incorporated herein by reference to Exhibit 3.1 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2020 filed on August 6, 2020 (File No.
000-19291).
3.2
Second Amended and Restated Bylaws of CorVel
Corporation.
Incorporated herein by reference to Exhibit 3.2 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2020 filed on August 6, 2020 (File No.
000-19291).
4.1
Description of Securities
Filed herewith.
10.1*
Restated Omnibus Incentive Plan (Formerly The Restated
1988 Executive Stock Option Plan)
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on August 4,
2020 (File No. 000-19291).
10.2*
Forms of Notice of Grant of Stock Option, Stock Option
Agreement and Notice of Exercise Under the Restated
Omnibus Incentive Plan (Formerly The Restated 1988
Executive Stock Option)
Incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on August 8,
2018 (File No. 000-19291), Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2006 filed on November 9, 2006 (File
No. 000-19291), Exhibits 10.7, 10.8 and 10.9 to the
Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 filed on June 29, 1994 (File No. 000-
19291), Exhibits 99.2, 99.3, 99.4, 99.5, 99.6, 99.7 and 99.8 to
the Company’s Registration Statement on Form S-8 (File No.
333-94440) filed on July 10, 1995, and Exhibits 99.3 and 99.5
to the Company’s Registration Statement on Form S-8 (File
No. 333-58455) filed on July 2, 1998.
10.3*
Restated 1991 Employee Stock Purchase Plan, as amended
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on August 11,
2021 (File No. 000-19291).
10.4
Fidelity Master Plan for Savings and Investment, and
amendments (P) Paper filing
Incorporated herein by reference to Exhibits 10.16 and
10.16A to the Company’s Registration Statement on Form S-
1 Registration No. 33-40629 initially filed on May 16, 1991.
10.5*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Michael Combs, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
10.6*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Brandon O’Brien,
providing for performance vesting.
Incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
10.7*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Diane J. Blaha, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
10.8*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Michael Saverien,
providing for performance vesting.
Incorporated herein by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
29
10.9*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Maxim Shishin, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
10.10*†
Stock Option Agreement, dated November 5, 2019, by and
between CorVel Corporation and Jennifer Yoss, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8-K/A filed on
December 31, 2019 (File No. 000-19291).
10.11*†
Stock Option Agreement, dated November 5, 2020, by and
between CorVel Corporation and Michael Combs, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on November
12, 2020 (File No. 000-19291).
10.12*†
Stock Option Agreement, dated November 5, 2020, by and
between CorVel Corporation and Brandon O’Brien,
providing for performance vesting.
Incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on November
12, 2020 (File No. 000-19291).
10.13*†
Stock Option Agreement, dated November 5, 2020, by and
between CorVel Corporation and Diane J. Blaha, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on November
12, 2020 (File No. 000-19291).
10.14*†
Stock Option Agreement, dated November 5, 2020, by and
between CorVel Corporation and Maxim Shishin, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on November
12, 2020 (File No. 000-19291).
10.15*†
Stock Option Agreement, dated November 5, 2020, by and
between CorVel Corporation and Jennifer Yoss, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K filed on November
12, 2020 (File No. 000-19291).
10.16*†
Stock Option Agreement, dated December 8, 2021, by and
between CorVel Corporation and Michael Combs, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2021 filed on February 3, 2022
(File No. 000-19291).
10.17*†
Stock Option Agreement, dated December 8, 2021, by and
between CorVel Corporation and Brandon O’Brien,
providing for performance vesting.
Incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2021 filed on February 3, 2022
(File No. 000-19291).
10.18*†
Stock Option Agreement, dated December 8, 2021, by and
between CorVel Corporation and Diane J. Blaha, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2021 filed on February 3, 2022
(File No. 000-19291).
10.19*†
Stock Option Agreement, dated December 8, 2021, by and
between CorVel Corporation and Maxim Shishin, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2021 filed on February 3, 2022
(File No. 000-19291).
10.20*†
Stock Option Agreement, dated December 8, 2021, by and
between CorVel Corporation and Jennifer Yoss, providing
for performance vesting.
Incorporated herein by reference to Exhibit 10.5 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2021 filed on February 3, 2022
(File No. 000-19291).
19.1
Insider Trading Policy
Filed herewith.
21.1
Subsidiaries of the Company.
Filed herewith.
23.1
Consent of Independent Registered Public Accounting Firm,
Haskell & White LLP.
Filed herewith.
31.1
Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
31.2
Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
30
32.1
Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Furnished herewith.
32.2
Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Furnished herewith.
97.1
Executive Clawback Policy
Filed herewith.
101.INS
Inline XBRL Instance Document
Furnished herewith.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded
Linkbase Documents
Furnished herewith.
104
Cover Page Interactive Data File (formatted as Inline XBRL
and contained in Exhibit 101)
Furnished herewith.
* - Denotes management contract or compensatory plan or arrangement.
† - Certain confidential information contained in this exhibit has been omitted by means of redacting a portion of the text and replacing
it with empty brackets indicated by [ ], pursuant to Regulation S-K Item 601(b)(10)(iv) of the Securities Act of 1933, as
amended. Certain confidential information has been excluded from the exhibit because it (i) is not material and (ii) would likely cause
competitive harm to CorVel if publicly disclosed. An unredacted copy of the exhibit will be provided on a supplemental basis to the
SEC upon request.
(P) – Previously filed only in paper.
(b) Exhibits
The exhibits filed as part of this annual report are listed under Item 15(a)(3) of this annual report.
(c) Financial Statement Schedule
The Financial Statement Schedule required by Regulation S-X and Item 8 of Form 10-K is listed under Item 15(a)(2) of this annual
report.
Item 16. Form 10-K Summary.
None.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
CorVel Corporation
By:
/s/ Michael G. Combs
Michael G. Combs
Chief Executive Officer and President
(Principal Executive Officer)
Date: May 24, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ V. GORDON CLEMONS
Chairman of the Board
May 24, 2024
V. Gordon Clemons
/s/ MICHAEL G. COMBS
Chief Executive Officer and President
May 24, 2024
Michael G. Combs
(Principal Executive Officer)
/s/ BRANDON T. O’BRIEN
Chief Financial Officer
May 24, 2024
Brandon T. O’Brien
(Principal Financial Officer)
/s/ JENNIFER L. YOSS
Vice President, Accounting
May 24, 2024
Jennifer L. Yoss
(Principal Accounting Officer)
/s/ ALAN R. HOOPS
Director
May 24, 2024
Alan R. Hoops
/s/ STEVEN J. HAMERSLAG
Director
May 24, 2024
Steven J. Hamerslag
/s/ R. JUDD JESSUP
Director
May 24, 2024
R. Judd Jessup
/s/ JEAN H. MACINO
Director
May 24, 2024
Jean H. Macino
/s/ JEFFREY J. MICHAEL
Director
May 24, 2024
Jeffrey J. Michael
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations 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; competition from other managed care companies
and third party administrators; the ability to expand certain areas of the Company’s business; growth in the Company’s sale of TPA
services; shifts in customer demands; the ability of the Company to produce market-competitive software; changes in operating
expenses, including employee wages, benefits, and medical inflation; cost of capital and capital requirements; dependence on key
personnel; the impact of possible cybersecurity incidents; existing and possible litigation and legal liability in the course of operations
and the Company’s ability to resolve such litigation; 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 continued availability of financing in the amounts and at the terms necessary to support the
Company’s future business and the other risks identified in Part I, Item 1A of this annual report, “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.
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.
Organizational Structure
The Company’s management is structured geographically with regional vice presidents who are responsible for all services
provided by the Company in his or her particular region and 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.
33
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.
Number of Working Days
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 Fiscal 2024 Annual Results
The Company had revenues of $795 million in fiscal 2024, an increase of $77 million, or 11%, compared to $719 million for
fiscal 2023. This increase was due to an increase in revenues from both patient management and network solutions activity primarily
with existing customers.
During fiscal 2024, the Company’s gross profit increased to $172 million from $158 million in fiscal 2023, an increase of $13
million, or 9%. This increase was primarily due to the increase of 11% in revenue mentioned above. This was offset by an increase in
salaries of 10% resulting from increased average headcount of 8% in field operations.
During fiscal 2024, the Company’s general and administrative expenses increased to $76.6 million from $73.7 million in fiscal
2023, an increase of $2.9 million, or 4%. This increase was primarily due to an increase in corporate system development costs.
During fiscal 2024, the Company’s net income before tax increased to $95.1 million from $84.6 million in fiscal 2023, an increase
of $10.5 million, or 12.5%. The increase in revenues was offset by a slight decrease in gross profit margin.
During fiscal 2024, the Company’s income tax expense increased to $18.8 million from $18.2 million in fiscal 2023, an increase
of $0.7 million, or 3.6%. The increase was due to an increase in income before income taxes. The Company’s effective income tax rate
was 20% for fiscal year 2024 and 22% for fiscal year 2023.
Diluted weighted average shares were 17.3 million shares in fiscal 2024 and 17.6 million shares in fiscal 2023, with a decrease of
245,000 shares, or 1.4%. This decrease was primarily due to the repurchase of 215,313 shares of common stock in fiscal 2024. Since
commencing this program in the fall of 1996, the Company has repurchased 38,033,179 shares of its common stock through March 31,
2024, at a cost of $794 million. These repurchases were funded primarily from the Company’s operating cash flows.
Diluted earnings per share increased to $4.40 per share in fiscal 2024 from $3.77 per share in fiscal 2023, an increase of $0.63 per
share, or 16.7%. The increase in diluted earnings per share was primarily due to an increase in net income and a decrease in diluted
weighted average common and common equivalent shares.
34
Results of Operations
The Company derives its revenues from providing patient management and network solutions services to payors of workers’
compensation benefits, automobile insurance claims, and group health insurance benefits. 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. Network solutions services include fee schedule auditing, hospital bill auditing,
pharmacy, independent medical examinations, directed care services, diagnostic imaging review services and preferred provider referral
services. The percentages of total revenues attributable to patient management and network solutions services for the fiscal years ended
March 31, 2024, 2023 and 2022 are listed below.
2024
2023
2022
Patient management services
66.6%
66.6%
65.6%
Network solutions services
33.4%
33.4%
34.4%
100.0%
100.0%
100.0%
As noted in the table above, patient management services and network solutions services have grown at the same rate, from fiscal
2023 to fiscal 2024.
The following table shows the consolidated statements of income for the fiscal years ended March 31, 2024, 2023 and 2022 and
the dollar changes, as well as the percentage changes for each fiscal year. The following amounts are in thousands, except per share
data and percentages.
Fiscal 2024
Fiscal 2023
Fiscal 2022
Amount Change
from Fiscal 2023
to 2024
Amount Change
from Fiscal 2022
to 2023
Percent Change
from Fiscal 2023
to 2024
Percent Change
from Fiscal 2022
to 2023
Revenues
$
795,311
$
718,562
$
646,230
$
76,749
$
72,332
10.7%
11.2%
Cost of revenues
623,618
560,303
494,116
63,315
66,187
11.3
13.4
Gross profit
171,693
158,259
152,114
13,434
6,145
8.5
4.0
General and administrative
76,592
73,705
67,602
2,887
6,103
3.9
9.0
Income before income taxes
95,101
84,554
84,512
10,547
42
12.5
0.0
Income tax provision
18,849
18,189
18,102
660
87
3.6
0.5
Net income
$
76,252
$
66,365
$
66,410
$
9,887
$
(45)
14.9%
(0.1%)
Net income per share:
Basic
$
4.45
$
3.83
$
3.74
$
0.62
$
0.09
16.2%
2.4%
Diluted
$
4.40
$
3.77
$
3.66
$
0.63
$
0.11
16.7%
3.0%
Weighted average shares used in net
income per share:
Basic
17,122
17,328
17,753
(206)
(425)
(1.2%)
(2.4%)
Diluted
17,347
17,592
18,127
(245)
(535)
(1.4%)
(3.0%)
As previously identified in Part I, Item 1A of this annual report, “Risk Factors,” the Company’s ability to maintain or grow
revenues is subject to several risks including, but not limited to, changes in government regulations, exposure to litigation and the ability
to add or retain customers. Any of these, or a combination of all of them, could have a material and adverse effect on the Company’s
results of operations going forward.
The following table sets forth, for the periods indicated, the percentage of revenues represented by certain items reflected in the
Company’s consolidated statements of income. The Company’s past operating results are not necessarily indicative of future operating
results. The percentages for the fiscal years ended March 31, 2024, 2023 and 2022 are as follows:
Income Statement Percentages
2024
2023
2022
Revenues
100.0%
100.0%
100.0%
Cost of revenues
78.4%
78.0%
76.5%
Gross profit
21.6%
22.0%
23.5%
General and administrative
9.6%
10.3%
10.5%
Income before income taxes
12.0%
11.7%
13.0%
Income tax provision
2.4%
2.5%
2.8%
Net income
9.6%
9.2%
10.2%
Revenue
The Company derives its revenues from providing patient management and network solutions services to payors of workers’
compensation benefits, automobile insurance claims, and group health insurance benefits.
35
Change in Revenue
Fiscal 2024 Compared to Fiscal 2023
Revenues increased to $795 million in fiscal 2024 from $719 million in fiscal 2023, an increase of $77 million, or 11%. Patient
management services increased to $530 million from $479 million, an increase of 11%. This increase is primarily due to higher revenue
from the Company’s TPA and related services. Total new claims increased by 4% during fiscal 2024 compared to fiscal 2023. Network
solutions services revenues increased to $265 million from $240 million, an increase of 11%. This increase is primarily due to increases
in enhanced bill review programs services, which resulted in higher revenue per bill. Most of the increase in revenues resulted from an
increase in activity and services provided for existing customers.
Fiscal 2023 Compared to Fiscal 2022
Revenues increased to $719 million in fiscal 2023 from $646 million in fiscal 2022, an increase of $72 million, or 11%. Patient
management services increased to $479 million from $424 million, an increase of 13%. This increase is primarily due to higher revenue
from the Company’s TPA and related services. Total new claims increased by 5% during fiscal 2023 compared to fiscal 2022. Network
solutions services revenues increased to $240 million from $222 million, an increase of 8%. This increase is primarily due to increases
in enhanced bill review programs services, which resulted in higher revenue per bill. Most of the increase in revenues resulted from an
increase in activity and services provided for existing customers and, to a lesser extent, an increase in new customers.
Cost of Revenue
The Company’s cost of revenues consists of direct expenses, costs directly attributable to the generation of revenue, and indirect
costs which are incurred to support the operations in the field offices which 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) costs associated with
independent medical examinations (known as IME), prescription drugs, and MRI, physical therapy, and durable medical equipment
providers. Most of the Company’s revenues are generated in offices which provide both patient management services and network
solutions services. 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. During fiscal 2024 and 2023, approximately 34% and 35%, respectively,
of the costs incurred in the field were considered field indirect costs, which support both the patient management services and network
solutions services operations of the Company’s field operations.
Change in Cost of Revenue
Fiscal 2024 Compared to Fiscal 2023
The Company’s cost of revenues increased to $624 million in fiscal 2024 from $560 million in fiscal 2023, an increase of $63
million, or 11%. The increase in cost of revenues was primarily due to the increase in total revenues of 11%. Just over half the Company's
cost of revenue is labor cost. Additionally, there was an increase in salaries of 10% resulting from increased average headcount of 8%
in field operations and growth in average annual salary increases due to wage inflation. Headcount increased due to an increase in
business volume.
Fiscal 2023 Compared to Fiscal 2022
The Company’s cost of revenues increased to $560 million in fiscal 2023 from $494 million in fiscal 2022, an increase of $66
million, or 13%. The increase in cost of revenues was primarily due to the increase in total revenues of 11%. Just over half the Company's
cost of revenue is labor cost. There was an increase in salaries of 15% resulting from increased average headcount of 10% in field
operations and growth in average annual salary increases due to wage inflation. Headcount has increased due to an increase in new
business and business volume.
General and Administrative Expense
During fiscal years 2024, 2023 and 2022, approximately 51%, 49%, and 51%, respectively, of general and administrative costs
consisted 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. The Company includes all IT-related costs managed
by the corporate office in general and administrative whereas the field IT-related costs are included in the cost of revenues. The
remaining general and administrative costs consist of national marketing, national sales support, corporate legal, corporate insurance,
human resources, accounting, product management, new business development, and other general corporate expenses.
36
Change in General and Administrative Expense
Fiscal 2024 Compared to Fiscal 2023
General and administrative expenses increased to $76.6 million in fiscal 2024 from $73.7 million in fiscal 2023, an increase of
$2.9 million, or 4%. This increase was was primarily due to an increase in corporate system costs due to an increase spending in
developed software.
Fiscal 2023 Compared to Fiscal 2022
General and administrative expenses increased to $73.7 million in fiscal 2023 from $67.6 million in fiscal 2022, an increase of
$6.1 million, or 9%. This increase was primarily due to an increase in legal costs related to data privacy compliance. Additionally,
there was an increase in corporate system costs due to an increase spending in developed software.
Income Tax Provision
Fiscal 2024 Compared to Fiscal 2023
The Company’s income tax expense increased to $18.8 million for fiscal 2024 from $18.2 million for fiscal 2023, an increase of
$0.7 million. Income before income tax provision increased to $95.1 million in fiscal 2024 from $84.6 million in fiscal 2023, an increase
of $10.5 million. The Company’s effective income tax rate was 20% for fiscal 2024 and 22% for fiscal 2023. The effective tax rate is
less than the statutory tax rate primarily due to the impact of stock option exercises for both periods.
Fiscal 2023 Compared to Fiscal 2022
The Company’s income tax expense increased to $18.2 million for fiscal 2023 from $18.1 million for fiscal 2022, an increase of
$0.1 million. Income before income tax provision increased to $84.6 million in fiscal 2023 from $84.5 million in fiscal 2022, an increase
of $0.1 million. The Company’s effective income tax rate was 22% for fiscal 2023 and 21% for fiscal 2022. The effective tax rate is
less than the statutory tax rate primarily due to the impact of stock option exercises for both periods.
Net Income
Fiscal 2024 Compared to Fiscal 2023
The Company’s net income was $76.3 million in fiscal 2024 and $66.4 in fiscal 2023, an increase of $9.9 million, or 14.9%. The
increase in revenues was offset by a slight decrease in gross profit margin. The increase in cost of revenue is due to an increase in
headcount.
Fiscal 2023 Compared to Fiscal 2022
The Company’s net income was $66.4 million in fiscal 2023 and 2022. The increase in revenues was offset by a decrease in gross
profit margin. The increase in cost of revenue is due to an increase in labor rates and headcount.
Earnings per Share
Fiscal 2024 Compared to Fiscal 2023
The Company’s diluted earnings per share increased to $4.40 per share in fiscal 2024 from $3.77 per share in fiscal 2023, an
increase of $0.63 per share, or 16.7%. This was primarily due to an increase in net income.
Fiscal 2023 Compared to Fiscal 2022
The Company’s diluted earnings per share increased to $3.77 per share in fiscal 2023 from $3.66 per share in fiscal 2022, an
increase of $0.11 per share, or 3.0%. This was primarily due to a decrease in diluted weighted average shares.
Liquidity and Capital Resources
The Company manages its liquidity and financial position in the context of its overall business strategy. The Company continually
forecasts and manages its cash, investments, working capital balances and capital structure to meet the short- and long-term obligations
of its businesses while seeking to maintain liquidity and financial flexibility. Cash flows generated from operating activities are
principally from earnings before non-cash expenses. The risk of decreased operating cash flow from a decline in earnings is partially
37
mitigated by the diversity of the Company’s services, geographies and customers, and the Company has had virtually no interest-bearing
debt for the past 33 years.
The Company has historically funded its operations and capital expenditures primarily from cash flow from operations, and to a
lesser extent, stock option exercises. The Company’s net accounts receivables have ranged from 39 to 44 days of average sales for the
fiscal years ended March 31, 2024, 2023 and 2022. The Company expects days sales outstanding (known as DSO) to remain in the low
to mid 40-day range. The Company’s historical profit margins and historical ratio of investments in assets used in the business has
allowed the Company to generate sufficient cash flow to repurchase $794 million of its common stock during the past 28 fiscal years,
on inception-to-date net earnings of $808 million. The Company repurchases shares during periods of excess liquidity, which has
occurred in all 33 years that the Company has been public. Should the Company have lower income or cash flows, it could reduce or
eliminate repurchases under the stock repurchase program until earnings and cash flow improved. Working capital increased to $117.7
million at March 31, 2024 from $75.9 million at March 31, 2023. 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.
The Company is not a 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
liabilities have been recorded for these obligations on the Company’s balance sheets for any of the periods presented.
The Company believes that cash from operations and funds from exercises of stock options granted to employees are adequate to
fund 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 have lower income or cash flows, it could reduce or eliminate repurchases under the stock repurchase program until earnings
and cash flow have returned to comfortable levels. The Company regularly evaluates 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 when
needed, with terms favorable to the Company or at all.
As of March 31, 2024, the Company had $105.6 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 that the cash balance at March 31, 2024 along with anticipated internally-generated funds will be sufficient
to meet the Company’s expected cash requirements for at least the next twelve months and beyond.
Operating Cash Flows
Fiscal 2024 Compared to Fiscal 2023
Net cash provided by operating activities increased to $99.2 million in fiscal 2024 from $82.3 million in fiscal 2023, an increase
of $16.9 million. The increase in cash flow from operating activities was primarily due to an increase in net income of $9.9 million
during fiscal 2024.
Fiscal 2023 Compared to Fiscal 2022
Net cash provided by operating activities increased to $82.3 million in fiscal 2023 from $67.2 million in fiscal 2022, an increase
of $15.1 million. The increase in cash flow from operating activities was primarily due to the fact that during fiscal 2023, revenues
increased while accounts receivable remained flat due to strong collections. During fiscal 2022, accounts receivable increased which
caused a decrease in operating cash flow.
38
Investing Activities
Fiscal 2024 Compared to Fiscal 2023
Net cash flow used in investing activities increased to $29.2 million in fiscal 2024 from $26.3 million in fiscal 2023, an increase
of $2.9 million. This increase in investing activity was primarily due to an increase in software development efforts. The Company
expects future expenditures for property and equipment to increase if revenues increase.
Fiscal 2023 Compared to Fiscal 2022
Net cash flow used in investing activities decreased to $26.3 million in fiscal 2023 from $29.8 million in fiscal 2022, a decrease
of $3.5 million. The Company reduced its spending on furniture and leasehold improvements as the Company reduced its lease footprint.
Financing Activities
Fiscal 2024 Compared to Fiscal 2023
Net cash flow used in financing activities decreased to $35.8 million in fiscal 2024 from $82.1 million in fiscal 2023, a decrease
of $46.4 million. During fiscal 2024, the Company spent $45.7 million to repurchase 215,313 shares of its common stock (at an average
price of $212.29 per share). During fiscal 2023, the Company spent $93.7 million to repurchase 598,241 shares of its common stock
(at an average price of $159.14 per share).
If the Company continues to generate cash flow from operating activities, the Company may continue to repurchase shares of its
common stock on the open market, if authorized by the Company’s Board of Directors pursuant to the Company's stock repurchase
program, or seek to identify other businesses to acquire. 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 some of the cash on the balance sheet at
March 31, 2024 to repurchase additional shares of its common stock in the future.
Fiscal 2023 Compared to Fiscal 2022
Net cash flow used in financing activities increased to $82.1 million in fiscal 2023 from $79.6 million in fiscal 2022, an increase
of $2.5 million. During fiscal 2023, the Company spent $93.7 million to repurchase 598,241 shares of its common stock (at an average
price of $156.58 per share). During fiscal 2022, the Company spent $90 million to repurchase 566,073 shares of its common stock (at
an average price of $159.14 per share).
Litigation
The Company is involved in litigation arising in the ordinary course of business. Management believes that resolution of these
matters will not result in any payment that, in the aggregate, would be material to the consolidated financial position or results of
operations of the Company.
Inflation
The Company experiences pricing pressures in the form of competitive prices. The Company is also impacted by rising costs for
certain inflation-sensitive operating expenses such as labor, employee benefits, and facility leases. The Company does not believe these
impacts were material to its revenues or net income in fiscal 2024; however, the Company believes inflation could have a material
impact to pricing and operating expenses in future years due to the state of the economy and current inflation rates.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United
States of America (“GAAP”), which require management to make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. These accounting principles require us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and revenues and expenses, and the disclosure of contingent assets and liabilities
at the date of our consolidated financial statements.
We periodically evaluate our estimates and assumptions, including those relating to revenue recognition, leases, allowance for
uncollectible accounts, goodwill and long-lived assets, accrual for self-insured costs, accounting for income taxes, legal and other
contingencies, share-based compensation, and software development costs. We base our estimates on historical experience and various
assumptions that we believe to be reasonable based on specific circumstances. Such estimates and assumptions could change in the
39
future as more information becomes known, which could impact the amounts reported and disclosed herein. We believe the following
significant accounting estimates may involve a higher degree of judgment and complexity. The following is not intended to be a
comprehensive list of our accounting policies. See Note 1, “Summary of Significant Accounting Policies” in the notes to our consolidated
financial statements for other significant accounting policies.
Revenue Recognition: Revenue is recognized when control of the promised services is transferred to the Company’s customers
in an amount that reflects the consideration expected 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 billed accounts receivable are expected to be collected in 30 days in accordance with the underlying
payment terms. For many of the Company’s services, the Company typically has one performance obligation; however, it 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. 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 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 in the amount that the Company concludes is probable that a significant revenue reversal will not occur in future periods.
In transactions related to third-party service revenue, which includes pharmacy, directed care services and other services provided
by the Company’s integrated network solutions services, the Company is considered the principal, as it directs the third party, controls
the specified service, performs program utilization review, directs payment to the provider, accepts the financial risk of loss associated
with services rendered and combines the services provided into an integrated solution, as specified within the Company’s customer
contracts. The Company has the ability to influence contractual fees with customers and possesses the financial risk of loss in certain
contractual obligations. These factors indicate the Company is the principal and, as such, it is required to recognize revenue gross and
service partner vendor fees in the cost of revenue in the Company’s consolidated income statements.
Leases: The Company determines if an arrangement includes a lease at inception. Right-of-use assets represent the Company’s
right to use an underlying asset for the lease term; and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of the lease, renewal date of
the lease or significant remodeling of the lease space based on the present value of the remaining future minimum lease payments.
Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease
liabilities, as applicable.
Operating and financing lease liabilities and their corresponding right-of-use assets are initially recorded based on the present
value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily
determinable. As a result, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which
we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic
environment. The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it
is reasonably certain that we will exercise any such options. Lease expense for lease payments is recognized on a straight-line basis
over the lease term.
Allowance for Expected Credit Losses: The Company determines its allowance for uncollectible accounts by considering a
number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the
customers’ current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole.
The Company writes off accounts receivable when they become uncollectible.
The Company must make significant judgments and estimates in determining contractual and bad debt allowances in any
accounting period. One significant uncertainty inherent in the Company’s analysis is whether its past experience will be indicative of
future periods. Although the Company considers future projections when estimating contractual and bad debt allowances, the Company
ultimately makes its decisions based on the best information available to it at the time the decision is made. Adverse changes in general
economic conditions or trends in reimbursement amounts for the Company’s services could affect the Company’s contractual and bad
debt allowance estimates, collection of accounts receivable, cash flows, and results of operations. One customer accounted for 10% or
more of accounts receivable at March 31, 2024 and 2023.
Goodwill and Long-Lived Assets: Goodwill arising from business combinations represents the excess of the purchase price over
the estimated fair value of the net assets of the acquired business. Pursuant to ASC 350-10 through ASC 350-30, “Goodwill and Other
Intangible Assets,” goodwill is tested annually for impairment or more frequently if circumstances indicate the potential for impairment.
Also, management tests for impairment of its amortizable intangible assets and long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. The impairment test is conducted at the company
40
level. The measurement of fair value is based on an evaluation of market capitalization. Management considers industry growth rates
and trends and cost structure changes. Based on the Company’s tests and reviews, no impairment of its goodwill, intangible assets, or
other long-lived assets existed at March 31, 2024 or March 31, 2023. However, future events or changes in current circumstances could
affect the recoverability of the carrying value of goodwill and long-lived assets.
Accrual for Self-insurance Costs: The Company accrues for the group medical costs and workers’ compensation costs of its
employees based on claims filed and an estimate of claims incurred but not reported as of each balance sheet date. The Company
determines its estimated self-insurance reserves based upon historical trends along with outstanding claims information provided by its
claims paying agents. However, it is possible that recorded accruals may not be adequate to cover the future payment of claims.
Adjustments, if any, to estimated accruals resulting from ultimate claim payments will be reflected in earnings during the periods in
which such adjustments are determined. The Company’s self-insured liabilities contain uncertainties because management is required
to make assumptions and judgments to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the
balance sheet date.
The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions
used to calculate its self-insured liabilities. However, if actual results are not consistent with these estimates or assumptions, the
Company may be exposed to losses or gains that could be material.
Accounting for Income Taxes: The Company records a tax provision for the anticipated tax consequences of its reported results
of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases
of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the
currently-enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or
settled. The Company records a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is believed more
likely than not to be realized.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement.
Management believes it is more likely than not that forecasted income, including income that may be generated as a result of
certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover
the deferred tax assets. In the event that the Company determines all or part of the net deferred tax assets are not realizable in the future,
the Company will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is
made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the
application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations
could have a material impact on the Company’s financial condition and operating results. The significant assumptions and estimates
described above are important contributors to our ultimate effective tax rate in each year.
Legal and Other Contingencies: As discussed in Part I, Item 3 of this annual report, “Legal Proceedings” and in Note 10,
“Contingencies and Legal Proceedings” in the notes to our consolidated financial statements, the Company is subject to various legal
proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has
been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and
as to whether an exposure can be reasonably estimated. The outcomes of legal proceedings and claims brought against the Company
are subject to significant uncertainty.
Share-Based Compensation: The Company accounts for share-based compensation in accordance with the provisions of ASC
Topic 718 “Compensation – Stock Compensation”. Under ASC 718, share-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the
vesting period of the equity grant). For the fiscal year ended March 31, 2024, the Company recorded share-based compensation expense
of $4,982,000.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to
estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the
Company’s stock over the option’s expected term, the risk-free interest rate over the option’s term, and the Company’s expected annual
dividend yield. The Company issues performance-based stock options which vest only upon the Company’s achievement of certain
earnings per share targets 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 compensation expense to the extent that the
41
targets are determined to be probable of being achieved, which triggers the vesting of the performance options. The Company’s
management believes that this valuation technique and the approach utilized to develop the underlying assumptions are appropriate in
calculating the fair values of the Company’s stock options granted in fiscal 2024. Estimates of fair value are not intended to predict
actual future events or the value ultimately realized by persons who receive equity awards.
The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or
assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or
assumptions, we may be exposed to changes in stock-based compensation expense that could be material.
Software Development Costs: Development costs incurred in the research and development of new software products and
enhancements to existing software products for internal use are expensed as incurred until technological feasibility has been established.
After technological feasibility is established, any additional external software development costs are capitalized and amortized on a
straight-line basis over the estimated economic life of the related product, which is typically five years. The Company performs an
annual review of the estimated economic life and the recoverability of such capitalized software costs. If a determination is made that
capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining
capitalized amounts are written off. Although the Company believes that its approach to estimates and judgments as described herein
is reasonable, actual results could differ and the Company may be exposed to increases or decreases in revenue that could be material.
Recently Issued Accounting Standards
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.
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CorVel Corporation
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CorVel Corporation (the “Company”) as of March 31, 2024
and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the three-year
period ended March 31, 2024, and the related notes and financial statement schedule (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of March 31, 2024, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of March 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for
each of the years in the three-year period ended March 31, 2024, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures
that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or
on the accounts or disclosures to which they relate.
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)
Revenue Recognition - Refer to Note 2 to the Consolidated Financial Statements
Critical Audit Matter Description:
The Company recognizes revenue upon transfer of control of promised services or products to customers in an amount that reflects
the consideration the Company expects to receive in exchange for those services or products. Certain services and products involve
estimation of the related transaction price that, in turn, led to a high degree of auditor judgment, subjectivity and effort in performing
procedures and evaluating audit evidence related to management’s judgments. Revenues that are most significantly impacted by
management’s estimates and judgments include (i) bill review services that contain contractual provisions that allow the customer to
compensate the Company only for services that it utilizes and (ii) directed care services at period-end for which the Company has not
been billed by the related providers.
How the Critical Matter was Addressed in the Audit:
The primary procedures we performed to address this critical audit matter included the following, among others:
▪
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s
process to estimate the most likely amount of consideration to which the Company will be entitled in exchange for transferring
the promised services or products to a customer. We tested the effectiveness of certain controls over revenue recognition,
including management’s controls over the methodology used to determine estimated revenues.
▪
We tested the underlying data used by the Company to determine related bill review revenue estimates by examining customer
contracts and analyzing historical utilization analyses completed by the Company. We also examined subsequent period
invoicing and cash collection activities to evaluate the reasonableness of management’s estimates.
▪
We tested assumptions used in management’s calculations of period-end directed care revenues by analyzing historical time
lag patterns between the provision of service and provider invoicing. We also examined trends associated with the number of
period-end provider referrals and performed gross margin reasonableness analyses to evaluate management’s estimates.
▪
We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue
recognized in the consolidated financial statements.
/s/ HASKELL & WHITE LLP
We have served as the Company’s auditor since 2006.
Irvine, California
May 24, 2024
45
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
2024
2023
ASSETS
Current Assets
Cash and cash equivalents
$
105,563,000
$
71,329,000
Customer deposits
88,142,000
80,022,000
Accounts receivable (less allowance for expected credit losses of $4,245,000 at March 31,
2024 and $2,823,000 at March 31, 2023)
97,108,000
81,034,000
Prepaid expenses and income taxes
11,418,000
11,385,000
Total current assets
302,231,000
243,770,000
Property and equipment, net
85,892,000
82,770,000
Goodwill
36,814,000
36,814,000
Other intangible assets, net
821,000
1,244,000
Right-of-use asset, net
24,058,000
27,721,000
Deferred tax asset, net
3,545,000
224,000
Other assets
1,318,000
1,380,000
Total assets
$
454,679,000
$
393,923,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts and income taxes payable
$
16,631,000
$
15,309,000
Accrued liabilities
167,868,000
152,578,000
Total current liabilities
184,499,000
167,887,000
Long-term lease liabilities
22,533,000
23,860,000
Total liabilities
207,032,000
191,747,000
Commitments and contingencies
Stockholders' Equity
Common stock, $.0001 par value: 120,000,000 shares authorized at March 31, 2024 and
2023; 55,162,075 shares issued (17,128,896 shares outstanding, net of treasury shares)
and 54,987,366 shares issued (17,169,500 shares outstanding, net of treasury shares) at
March 31, 2024 and March 31, 2023, respectively
3,000
3,000
Paid-in-capital
233,629,000
218,700,000
Treasury stock, at cost (38,033,179 and 37,817,866 shares at March 31, 2024 and 2023,
respectively)
(793,905,000)
(748,195,000)
Retained earnings
807,920,000
731,668,000
Total stockholders' equity
247,647,000
202,176,000
Total liabilities and stockholders' equity
$
454,679,000
$
393,923,000
See accompanying notes to consolidated financial statements.
46
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended March 31,
2024
2023
2022
Revenues
$
795,311,000
$
718,562,000
$
646,230,000
Cost of revenues
623,618,000
560,303,000
494,116,000
Gross profit
171,693,000
158,259,000
152,114,000
General and administrative
76,592,000
73,705,000
67,602,000
Income before income taxes
95,101,000
84,554,000
84,512,000
Income tax provision
18,849,000
18,189,000
18,102,000
Net income
$
76,252,000
$
66,365,000
$
66,410,000
Net income per share:
Basic
$
4.45
$
3.83
$
3.74
Diluted
$
4.40
$
3.77
$
3.66
Weighted average shares outstanding:
Basic
17,122,000
17,328,000
17,753,000
Diluted
17,347,000
17,592,000
18,127,000
See accompanying notes to consolidated financial statements.
47
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Fiscal Years Ended March 31, 2024, 2023 and 2022
Common
Shares
Stock
Amount
Paid-in-Capital
Treasury
Shares
Treasury
Stock
Retained
Earnings
Total
Stockholders'
Equity
Balance – March 31, 2021
54,529,642
$
3,000
$
185,941,000
(36,653,552)
$
(564,435,000)
$
598,893,000
$
220,402,000
Stock issued under employee stock
purchase plan
3,363
—
564,000
—
—
—
564,000
Stock issued under stock option
plan, net of shares repurchased
255,707
—
9,906,000
—
—
—
9,906,000
Stock-based compensation expense
—
—
5,198,000
—
—
—
5,198,000
Purchase of treasury stock
—
—
—
(566,073)
(90,085,000)
—
(90,085,000)
Net income
—
—
—
—
—
66,410,000
66,410,000
Balance – March 31, 2022
54,788,712
3,000
201,609,000
(37,219,625)
(654,520,000)
665,303,000
212,395,000
Stock issued under employee stock
purchase plan
4,457
—
676,000
—
—
—
676,000
Stock issued under stock option
plan, net of shares repurchased
194,197
—
10,856,000
—
—
—
10,856,000
Stock-based compensation expense
—
—
5,559,000
—
—
—
5,559,000
Purchase of treasury stock
—
—
—
(598,241)
(93,675,000)
—
(93,675,000)
Net income
—
—
—
—
—
66,365,000
66,365,000
Balance – March 31, 2023
54,987,366
3,000
218,700,000
(37,817,866)
(748,195,000)
731,668,000
202,176,000
Stock issued under employee stock
purchase plan
3,178
—
681,000
—
—
—
681,000
Stock issued under stock option plan,
net of shares repurchased
171,531
—
9,266,000
—
—
—
9,266,000
Stock-based compensation expense
—
—
4,982,000
—
—
—
4,982,000
Purchase of treasury stock
—
—
—
(215,313)
(45,710,000)
—
(45,710,000)
Net income
—
—
—
—
—
76,252,000
76,252,000
Balance – March 31, 2024
55,162,075
$
3,000
$
233,629,000
(38,033,179)
$
(793,905,000)
$
807,920,000
$
247,647,000
See accompanying notes to consolidated financial statements.
48
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended March 31,
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
76,252,000
$
66,365,000
$
66,410,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
26,252,000
25,121,000
23,916,000
Loss on write down or disposal of property, capitalized software or
investment
290,000
415,000
122,000
Stock compensation expense
4,982,000
5,559,000
5,198,000
Provision for expected credit losses
1,828,000
1,216,000
158,000
Deferred income taxes
(3,321,000)
(1,913,000)
2,302,000
Changes in operating assets and liabilities:
Accounts receivable
(17,902,000)
336,000
(18,022,000)
Customer deposits
(8,120,000)
(10,241,000)
(13,284,000)
Prepaid expenses and income taxes
(32,000)
3,738,000
(7,116,000)
Other assets
60,000
(919,000)
(135,000)
Accounts and income taxes payable
1,322,000
(4,395,000)
1,423,000
Accrued liabilities
15,290,000
(4,361,000)
8,052,000
Operating lease liabilities
2,336,000
1,367,000
(1,802,000)
Net cash provided by operating activities
99,237,000
82,288,000
67,222,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
(29,240,000)
(26,320,000)
(29,819,000)
Net cash used in investing activities
(29,240,000)
(26,320,000)
(29,819,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of employee stock purchase options
681,000
676,000
564,000
Exercise of common stock options
9,266,000
10,856,000
9,906,000
Purchase of treasury stock
(45,710,000)
(93,675,000)
(90,085,000)
Net cash used in financing activities
(35,763,000)
(82,143,000)
(79,615,000)
Net increase (decrease) in cash and cash equivalents
34,234,000
(26,175,000)
(42,212,000)
Cash and cash equivalents at beginning of year
71,329,000
97,504,000
139,716,000
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
105,563,000
$
71,329,000
$
97,504,000
Supplemental cash flow information
Income taxes paid
$
22,874,000
$
19,993,000
$
19,405,000
Accrual of software license purchase
$
—
$
5,273,000
$
—
See accompanying notes to consolidated financial statements.
49
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2024, 2023 and 2022
Note 1 — Summary of Significant Accounting Policies
Organization: CorVel Corporation (“CorVel” or “the Company”), incorporated in Delaware in 1987, 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.
Basis of Presentation: The consolidated financial statements include the accounts of CorVel and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated in consolidation. These changes had no impact on previously-
reported results of operations or shareholders’ equity.
The Company evaluated all subsequent events and transactions through the date of this filing.
Use of Estimates: The preparation of financial statements in compliance with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the accompanying consolidated financial statements. Actual results could differ from
those estimates. Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance
for expected credit losses, work in process, accrual for income taxes, share-based payments related to performance-based awards, loss
contingencies, estimated lives of claims for claims administration revenue recognition, estimates used in stock options valuations, and
accrual for self-insurance reserves.
Cash and Cash Equivalents: Cash and cash equivalents consist of short-term, interest-bearing highly-liquid investment-grade
securities with maturities of 90 days or less when purchased. The carrying amounts of the Company’s financial instruments approximate
their fair values at March 31, 2024 and 2023 due to the short-term nature of those instruments. Customer deposits represent cash that is
expected to be returned or applied towards payment within one year through the Company’s provider reimbursement services.
Fair Value of Financial Instruments: The Company applies ASC 820, “Fair Value Measurements and Disclosures,” which defines
fair value, establishes a framework for measuring fair value, and provides for disclosures about fair value measurements, with respect
to fair value measurements of (i) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s
consolidated financial statements on a recurring basis (at least annually) and (ii) all financial assets and liabilities. ASC 820 prioritizes
the inputs used in measuring fair value into the following hierarchy:
Level 1 Quoted market prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets in active markets or
quoted prices for identical assets in inactive markets); and
Level 3 Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset.
The carrying amount of the Company’s financial instruments (i.e. cash and cash equivalents, accounts receivable, accounts
payable, etc.) approximates their fair values at March 31, 2024 and 2023 due to the short-term nature of those instruments. The Company
has no financial instruments that are measured at fair value on a recurring basis.
Revenue Recognition: Revenue is recognized when control of the promised services is transferred to the Company’s customers in
an amount that reflects the consideration expected to be entitled to in exchange for those services. As the Company completes its
performance obligations which are identified in Note 2, it has an unconditional right to consideration as outlined in the Company’s
contracts. Generally, the Company’s billed accounts receivable are expected to be collected in 30 days in accordance with the underlying
payment terms. For many of the Company’s services, the Company typically has one performance obligation; however, it 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.
50
In transactions related to third-party service revenue, which includes pharmacy, directed care services and other services provided
by the Company’s integrated network solutions services, the Company is considered the principal, as it directs the third party, controls
the specified service, performs program utilization review, directs payment to the provider, accepts the financial risk of loss associated
with services rendered and combines the services provided into an integrated solution, as specified within the Company’s customer
contracts. The Company has the ability to influence contractual fees with customers and possesses the financial risk of loss in certain
contractual obligations. These factors indicate the Company is the principal and, as such, it is required to recognize revenue gross and
service partner vendor fees in the cost of revenue in the Company’s consolidated income statements.
Accounts Receivable: The majority of the Company’s accounts receivable are due from companies in the property and casualty
insurance industries, self-insured employers and governmental entities. Credit is extended based on evaluation of a customer’s financial
condition and, generally, collateral is not required. Accounts receivable are generally due within 30 days and are stated at amounts due
from customers net of an allowance for expected credit losses. Those accounts outstanding longer than the contractual payment terms
are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade
accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable against
the reserve when they become uncollectible. Accounts receivable includes $42,417,000 and $26,639,000 of unbilled receivables at
March 31, 2024 and 2023, respectively. Unbilled receivables represent the amounts expected to be collected for work performed which
has not yet been invoiced to the customer. Unbilled receivables are generally invoiced within one year.
Concentrations of Credit Risk: Substantially all of the Company’s customers are payors of workers’ compensation benefits and
property and casualty insurance, which include insurance companies, third party administrators, self-insured employers and government
entities. Credit losses consistently have been within management’s expectations. Virtually all of the Company’s cash is invested at
financial institutions in amounts which exceed the FDIC insurance levels. No customer accounted for 10% or more of revenue for fiscal
2024, 2023 or 2022. One customer accounted for 10% or more of accounts receivable at March 31, 2024 and 2023.
Property and Equipment: Additions to property and equipment are recorded at cost. The Company provides for depreciation on
property and equipment using the straight-line method by charges to operations in amounts that allocate the cost of depreciable assets
over their estimated lives as follows:
Asset Classification
Building
Building Improvements
Land Improvements
Estimated Useful Life
40 years
20 years
20 years
Leasehold Improvements
Shorter of 5 years or the life of lease
Furniture and Equipment
5 to 7 years
Computer Hardware
2 to 5 years
Computer Software
3 to 5 years
The Company accounts for internally-developed software costs in accordance with ASC 350-40, “Internal Use Software”.
Capitalized software development costs, intended for internal use, totaled $37,166,000 (net of $155,998,000 in accumulated
amortization) and $33,695,000 (net of $143,329,000 in accumulated amortization), as of March 31, 2024 and 2023, respectively. These
costs are included in computer software in property and equipment and are amortized over a period of five years.
Long-Lived Assets: The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the
depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected
utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are
deployed.
Leases: The Company determines if an arrangement includes a lease at inception. Right-of-use assets represent the Company’s
right to use an underlying asset for the lease term; and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of the lease, renewal date of
the lease or significant remodeling of the lease space based on the present value of the remaining future minimum lease payments.
Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease
liabilities, as applicable.
51
Operating and financing lease liabilities and their corresponding right-of-use assets are initially recorded based on the present
value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily
determinable. As a result, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which
we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic
environment. The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it
is reasonably certain that we will exercise any such options. Operating lease expense for lease payments is recognized on a straight-line
basis over the lease term.
Goodwill and Indefinite Lived Long-Lived Assets: The Company accounts for its business combinations in accordance with the
ASC 805-10 through ASC 805-50, “Business Combinations,” which (i) requires that the purchase method of accounting be applied to
all business combinations and (ii) addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with ASC
350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment
annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an intangible
asset exceeds its fair value, an impairment loss will be recognized. Based on the Company’s tests and reviews, no impairment of its
goodwill, intangible assets or other long-lived assets existed at March 31, 2024 and 2023. However, future events or changes in current
circumstances could affect the recoverability of the carrying value of goodwill and long-lived assets. Goodwill amounted to $36,814,000
(net of accumulated amortization of $2,069,000) at March 31, 2024 and at March 31, 2023.
Cost of Revenues: Cost of services consists primarily of the compensation and fringe benefits of field personnel, including
managers, medical bill analysts, field case managers, telephonic case managers, systems support, administrative support, account
managers and account executives, and related facility costs including rent, telephone and office supplies. Historically, the costs
associated with these additional personnel and facilities have been the most significant factor driving increases in the Company’s cost
of services.
Income Taxes: The Company provides for income taxes in accordance with provisions specified in ASC 740, “Accounting for
Income Taxes”. Accordingly, deferred income tax assets and liabilities are computed for differences between the financial statement
and tax bases of assets and liabilities. These differences will result in taxable or deductible amounts in the future, based on tax laws and
rates applicable to the periods in which the differences are expected to affect taxable income. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.
In making an assessment regarding the probability of realizing a benefit from these deductible differences, management considers the
Company’s current and past performance, the market environment in which the Company operates, tax-planning strategies and the
length of carry-forward periods for loss carry-forwards, if any. Valuation allowances are established when necessary to reduce deferred
tax assets to amounts that are more likely than not to be realized. Further, the Company accrues for income tax issues not yet resolved
with federal, state and local tax authorities, when it appears more likely than not that a tax liability has been incurred.
Share-Based Compensation: The Company accounts for share-based compensation in accordance with the provisions of ASC
Topic 718 “Compensation – Stock Compensation.” Under ASC 718, share-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period
of the equity grant). The Company issues performance-based stock options which vest only upon the Company’s achievement of certain
earnings per share targets 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 compensation expense to the extent that the
targets are determined to be probable of being achieved, which triggers the vesting of the performance options.
Accrual for Self-insurance Costs: The Company self-insures for the group medical costs and workers’ compensation costs of its
employees. Management believes that the self-insurance reserves are appropriate; however, actual claims costs may differ from the
original estimates requiring adjustments to the reserves. The Company determines its estimated self-insurance reserves based upon
historical trends along with outstanding claims information provided by its claims paying agents.
Earnings per Share: Earnings per common share-basic is based on the weighted average number of common shares outstanding
during the period. Earnings per common shares-diluted is based on the weighted average number of common shares and common share
equivalents outstanding during the period. In calculating earnings per share, earnings are the same for the basic and diluted calculations.
Weighted average shares outstanding is greater for diluted earnings per share due to the effect of stock options.
52
The difference between the basic weighted average shares and the diluted weighted average shares for each of the fiscal years
ended March 31, 2024, 2023 and 2022 is as follows:
Fiscal 2024
Fiscal 2023
Fiscal 2022
Basic weighted average shares
17,122,000
17,328,000
17,753,000
Treasury stock impact of stock options
225,000
264,000
374,000
Diluted weighted average shares
17,347,000
17,592,000
18,127,000
Recently Issued Accounting Standards
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.
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.
53
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 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 in the amount that the Company concludes 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 fiscal years ended March 31, 2024, 2023 and 2022:
2024
2023
2022
Patient management services
$
529,995,000
$
478,751,000
$
424,050,000
Network solutions services
265,316,000
239,811,000
222,180,000
Total services
$
795,311,000
$
718,562,000
$
646,230,000
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
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.
March 31, 2024
March 31, 2023
Billed receivables
$
58,936,000
$
57,218,000
Allowance for expected credit losses
(4,245,000)
(2,823,000)
Unbilled receivables
42,417,000
26,639,000
Accounts receivable, net
$
97,108,000
$
81,034,000
When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain
claims management agreements, it records deferred revenues on the Company’s consolidated balance sheets, which represents a contract
liability.
54
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 fiscal
year ended March 31, 2024:
March 31, 2024
Beginning balance at April 1, 2023
$
26,978,000
Additions
52,433,000
Revenue recognized from beginning of period
(17,685,000)
Revenue recognized from additions
(31,765,000)
Ending balance at March 31, 2024
$
29,961,000
Remaining Performance Obligations
As of March 31, 2024, the Company had $30.0 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 the remaining balance thereafter.
See the discussion below regarding the practical expedients elected for the disclosure of remaining performance obligations.
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.
55
Note 3 — Stock Options and Stock-Based Compensation
Under the Company’s Restated Omnibus Incentive Plan (formerly the Restated 1988 Executive Stock Option Plan) (“the Plan”)
as in effect at March 31, 2024, options exercisable for up to 20,615,000 shares of the Company’s 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 for the next 36 months. The options granted to employees
and the Company’s Board of Directors expire at the end of five years and ten years from date of grant, respectively. All options granted
in fiscal 2024 and 2023 were granted with an exercise price equal to the fair value of the Company’s common stock on the grant date.
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 estimate 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.
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following
weighted average assumptions were used for the fiscal years ended March 31, 2024, 2023 and 2022:
Fiscal 2024
Fiscal 2023
Fiscal 2022
Expected volatility
34%
36%
36%
Risk free interest rate
3.91% to 4.65%
2.73% to 4.36%
0.71% to 1.66%
Dividend yield
0.0%
0.0%
0.0%
Weighted average option life
4.0 to 4.1 years
4.2 to 4.3 years
4.3 to 4.4 years
For the fiscal years ended March 31, 2024, 2023 and 2022, the Company recorded share-based compensation expense of
$4,982,000, $5,559,000, and $5,198,000, respectively. The table below shows the amounts recognized in the financial statements for
the fiscal years ended March 31, 2024, 2023 and 2022.
Fiscal 2024
Fiscal 2023
Fiscal 2022
Cost of revenue
$
2,797,000
$
2,566,000
$
2,063,000
General and administrative
2,185,000
2,993,000
3,135,000
Total cost of stock-based compensation
included in income before income taxes
4,982,000
5,559,000
5,198,000
Amount of income tax benefit recognized
(987,000)
(1,210,000)
(1,119,000)
Amount charged to net income
$
3,995,000
$
4,349,000
$
4,079,000
Effect on basic earnings per share
$
0.23
$
0.25
$
0.23
Effect on diluted earnings per share
$
0.23
$
0.25
$
0.23
The following table summarizes information for all stock options for the fiscal years March 31, 2024, 2023 and 2022:
Fiscal 2024
Fiscal 2023
Fiscal 2022
Options outstanding – beginning of fiscal year
651,857
723,876
937,158
Options granted
59,900
168,300
130,200
Options exercised
(201,293)
(209,301)
(298,570)
Options cancelled/forfeited
(20,737)
(31,018)
(44,912)
Options outstanding – end of fiscal year
489,727
651,857
723,876
During the fiscal year, weighted average exercise
price of:
Options granted
$
206.76
$
159.43
$
161.95
Options exercised
$
80.30
$
63.21
$
55.44
Options cancelled/forfeited
$
157.84
$
140.38
$
79.30
At the end of fiscal year:
Price range of outstanding options
$33.16-$235.34
$33.16-$197.16
$22.07-$197.16
Weighted average exercise price per share
$
129.39
$
108.10
$
84.55
Options available for future grants
618,809
657,972
805,097
Exercisable options
269,253
319,703
354,460
56
The following table summarizes the status of stock options outstanding and exercisable at March 31, 2024:
Range of
Exercise Prices
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 $87.49
133,743
2.55
$
62.80
127,559
$
62.15
$87.50 to $148.89
127,254
2.04
111.95
89,078
103.10
$148.90 to $189.02
137,885
4.23
161.24
37,873
160.12
$189.03 to $235.34
90,845
4.02
203.48
14,743
197.16
Total
489,727
3.16
$
129.39
269,253
$
96.87
The following table summarizes the status of all outstanding options at March 31, 2024, and changes during the fiscal year then
ended:
Number of
Options
Weighted
Average
Exercise
Price per
Share
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value
as of March 31,
2024
Options outstanding, March 31, 2023
651,857
$
108.10
Granted
59,900
206.76
Exercised
(201,293)
80.30
Cancelled – forfeited
(20,538)
158.25
Cancelled – expired
(199)
110.66
Options outstanding, March 31, 2024
489,727
$
129.39
3.16
$ 65,414,479
Options vested and expected to vest
430,808
$
122.90
3.10
$ 60,445,126
Ending exercisable
269,253
$
96.87
2.51
$ 44,719,800
The weighted average fair value of options granted during fiscal 2024, 2023 and 2022 was $75.49, $56.34, and $50.29,
respectively. The total intrinsic value of options exercised during fiscal years 2024, 2023 and 2022 was $29,230,000, $21,094,000, and
$27,615,000 respectively.
Included in the above-noted stock option grants and stock compensation expense are performance-based stock options which vest
only upon the Company’s achievement of certain earnings per share targets 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 compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of
the performance options. During the fiscal years ended March 31, 2024, 2023 and 2022, the Company recognized stock compensation
expense for performance-based options in the amount of $1,199,000, $1,961,000, and $2,280,000, respectively.
The Company received $9,266,000, $10,856,000, and $9,906,000 of cash receipts from the exercise of stock options during fiscal
2024, 2023 and 2022, respectively. As of March 31, 2024, $8,178,000 of total unrecognized compensation costs related to stock options
is expected to be recognized over a weighted average period of 3 years.
Note 4 — Property and Equipment
Property and equipment, net consisted of the following at March 31, 2024 and 2023:
2024
2023
Computer software
$
213,145,000
$
202,095,000
Office equipment and computers
66,608,000
68,253,000
Land, building and improvements
11,123,000
11,081,000
Leasehold improvements
18,010,000
18,295,000
308,886,000
299,724,000
Less: accumulated depreciation and amortization
(222,994,000)
(216,954,000)
$
85,892,000
$
82,770,000
57
Depreciation expense totaled $25,829,000, $24,696,000 and $23,481,000 for the fiscal years ended March 31, 2024, 2023 and
2022, respectively.
Note 5 — Accounts and Income Taxes Payable and Accrued Liabilities
Accounts and income taxes payable consisted of the following at March 31, 2024 and 2023:
2024
2023
Accounts payable
$
16,410,000
$
15,058,000
Income taxes payable
221,000
251,000
$
16,631,000
$
15,309,000
Accrued liabilities consisted of the following at March 31, 2024 and 2023:
2024
2023
Payroll, payroll taxes and employee benefits
$
26,291,000
$
22,170,000
Customer deposits
88,142,000
80,022,000
Accrued professional service fees
9,838,000
8,601,000
Self-insurance accruals
3,818,000
3,563,000
Deferred revenue
29,961,000
26,978,000
Operating lease liabilities
8,864,000
9,900,000
Other
954,000
1,344,000
$ 167,868,000
$ 152,578,000
Note 6 — Income Taxes
The income tax provision consisted of the following for the fiscal years ended March 31, 2024, 2023 and 2022:
2024
2023
2022
Current — Federal
$
17,463,000
$
14,745,000
$
11,977,000
Current — State
4,707,000
5,357,000
3,823,000
Subtotal
22,170,000
20,102,000
15,800,000
Deferred — Federal
(2,828,000)
(1,321,000)
1,784,000
Deferred — State
(493,000)
(592,000)
518,000
Subtotal
(3,321,000)
(1,913,000)
2,302,000
$
18,849,000
$
18,189,000
$
18,102,000
The following is a reconciliation of the income tax provision from the statutory federal income tax rate to the effective rate for the
fiscal years ended March 31, 2024, 2023 and 2022:
2024
2023
2022
Income taxes at federal statutory rate
$
19,971,000
$ 17,757,000
$ 17,748,000
State income taxes, net of federal benefit
3,369,000
3,890,000
3,658,000
Uncertain tax positions
(22,000)
(77,000)
(222,000)
Stock-based compensation and §162(m) limitation
(3,961,000)
(3,098,000)
(2,697,000)
Permanent items and tax credits
(480,000)
(384,000)
(465,000)
Adjustments to returns as filed
67,000
163,000
176,000
Valuation allowance
(95,000)
(62,000)
(96,000)
$
18,849,000
$ 18,189,000
$ 18,102,000
58
Deferred tax assets and liabilities at March 31, 2024 and 2023 are, as follows:
2024
2023
Deferred tax assets:
Accrued liabilities not currently deductible
$
7,181,000
$
6,885,000
Allowance for expected credit losses
1,076,000
736,000
Stock-based compensation
2,489,000
2,423,000
Deferred lease liability
7,917,000
8,740,000
Capitalized research and development expenditures
4,124,000
2,495,000
Other
497,000
536,000
Deferred tax assets
23,284,000
21,815,000
Deferred tax liabilities:
Excess of book over tax basis of fixed assets
(5,758,000)
(6,654,000)
Intangible assets
(4,922,000)
(5,057,000)
Right-of-use asset
(6,075,000)
(7,190,000)
Accrued revenue
(2,284,000)
(1,851,000)
Other
(464,000)
(508,000)
Total deferred tax liabilities
(19,503,000)
(21,260,000)
Valuation allowance
(236,000)
(331,000)
Deferred tax liabilities
(19,739,000)
(21,591,000)
Net deferred tax assets (liabilities)
$
3,545,000
$
224,000
Prepaid income taxes are $2,169,000 at March 31, 2024, and $1,816,000 at March 31, 2023.
A reconciliation of the financial statement recognition and measurement of uncertain tax positions during the current fiscal year
is as follows:
Balance as of March 31, 2023
$
153,000
Additions based on tax positions related to the current year
—
Additions for tax positions of prior years
48,000
Reductions for tax positions related to the current year
—
Reductions for tax positions of prior years
(56,000)
Balance as of March 31, 2024
$
145,000
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the fiscal years
ended March 31, 2024, 2023 and 2022, the Company recognized approximately $(14,000), $(13,000) and $(40,000) in interest and
penalties, respectively. As of March 31, 2024, 2023 and 2022, accrued interest and penalties related to uncertain tax positions were
$40,000, $54,000 and $67,000, respectively.
The tax fiscal years from 2018-2023 remain open to examination by the major taxing jurisdictions to which the Company is
subject.
Note 7 — Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (as amended, “ESPP”) which allows employees of the Company and
its subsidiaries to purchase shares of common stock on the last day of two six-month purchase periods (i.e. March 31 and September
30) at a purchase price which is 95% of the closing sale price of shares as quoted on NASDAQ on the last day of such purchase period.
Employees are allowed to contribute up to 20% of their gross pay. A maximum of 2,850,000 shares have been authorized for issuance
under the ESPP. As of March 31, 2024, 2,503,570 shares had been issued pursuant to the ESPP. Summarized ESPP information is as
follows:
2024
2023
2022
Employee contributions
$
681,000
$
676,000
$
564,000
Shares acquired
3,178
4,457
3,363
Average purchase price
$
214.19
$
151.63
$
167.71
59
Note 8 — Treasury Stock
During each of the three fiscal years ended March 31, 2024, the Company continued to repurchase shares of its common stock
under a program originally approved by the Company’s Board of Directors in 1996. Including a 1,000,000 share expansion authorized
in November 2022 by the Company’s Board of Directors, the total number of shares of common stock authorized to be repurchased
over the life of the program is 39,000,000 shares of common stock. Purchases may be made from time to time depending on market
conditions and other relevant factors. The share repurchases for the fiscal years ended March 31, 2024, 2023 and 2022 and cumulatively
since inception of the authorization, are as follows:
2024
2023
2022
Cumulative
Shares repurchased
215,313
598,241
566,073
38,033,179
Cost
$
45,710,000
$
93,675,000
$
90,085,000
$
793,905,000
Average price
$
212.29
$
156.58
$
159.14
$
20.87
During the period subsequent to March 31, 2024, through the date of filing this annual report, the Company repurchased 22,461
shares for $5.5 million, or an average of $246.83 per share. The repurchased shares were recorded as treasury stock, at cost, and are
available for general corporate purposes. The repurchases were primarily financed from cash generated from operations and from cash
proceeds from the exercise of stock options.
Note 9 – Leases
The Company determines if an arrangement is or contains a lease at contract inception. These lease agreements have remaining
lease terms of 1 to 5 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.
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 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, 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 consolidated balance sheet. The Company recognizes
lease expense for these leases on a straight-line basis over the lease term.
60
The components of lease expenses are as follows:
March 31, 2024
March 31, 2023
March 31, 2022
Operating lease expense
$
9,989,000
$
12,259,000
$ 13,768,000
Finance lease expense
86,000
92,000
98,000
Short-term lease expense
114,000
16,000
13,000
Variable lease expense
559,000
555,000
495,000
Total lease expenses
$
10,748,000
$
12,922,000
$ 14,374,000
The following table presents assets and liabilities recorded on the Company’s consolidated balance sheets related to its operating
leases:
March 31, 2024
March 31, 2023
Right-of-use asset, net
$
24,058,000
$
27,721,000
Short-term lease liability
$
8,864,000
$
9,900,000
Long-term lease liability
22,533,000
23,860,000
Total lease liabilities
$
31,397,000
$
33,760,000
Weighted average remaining lease term
4.11 years
4.07 years
Weighted average finance lease term
1.25 years
2.25 years
Weighted average discount rate
3.7%
2.8%
Supplemental cash flow information related to operating leases for fiscal years ended March 31, 2024 and 2023 were as follows:
March 31, 2024
March 31, 2023
Cash paid for amounts included in the measurement
of operating lease liabilities
$
8,692,000
$
14,348,000
Operating lease liabilities arising from obtaining ROU assets
$
53,617,000
$
55,269,000
Finance lease liabilities arising from obtaining ROU assets
$
358,000
$
358,000
Additions to ROU assets resulting from additions to
operating lease liabilities
$
6,247,000
$
4,912,000
As of March 31, 2024, maturities of operating and financing lease liabilities for each of the next five years and thereafter are as
follows:
2025
$
9,779,000
2026
7,825,000
2027
6,164,000
2028
5,256,000
2029
3,135,000
Thereafter
1,994,000
Total lease payments
34,153,000
Less interest
(2,756,000)
Total lease liabilities
$ 31,397,000
As of March 31, 2024, the Company has approximately $4.9 million of additional operating lease commitments that have not yet
commenced. These leases commence in 2025 and have lease terms between 4 years and 5 years.
Note 10 — Contingencies and Legal Proceedings
The Company is involved in litigation arising in the ordinary course of business. Management believes that resolution of these
matters will not result in any payment that, in the aggregate, would be material to the consolidated financial position or results of
operations of the Company.
61
Note 11 — Retirement Savings Plan
The Company maintains a retirement savings plan for its employees, which is a qualified plan under Section 401(k) of the Internal
Revenue Code. Full-time employees that meet certain requirements are eligible to participate in the plan. Employer contributions are
made annually, primarily at the discretion of the Company’s Board of Directors. Contributions of $1,505,000, $1,315,000 and
$1,088,000 were charged to operations for the fiscal years ended March 31, 2024, 2023 and 2022, respectively.
Note 12 — Segment Reporting
The Company derives the majority of its revenues from providing patient management and network solutions services to payors
of workers’ compensation benefits, automobile insurance claims and group health insurance benefits. Patient management services
include claims administration, utilization review, medical case management, and vocational rehabilitation. Network solutions services
include fee schedule auditing, hospital bill auditing, coordination of independent medical examinations, diagnostic imaging review
services and preferred provider referral services. The percentages of revenues attributable to patient management and network solutions
services for the fiscal years ended March 31, 2024, 2023 and 2022 are listed below.
2024
2023
2022
Patient management services
66.6%
66.6%
65.6%
Network solutions services
33.4%
33.4%
34.4%
100.0%
100.0%
100.0%
The Company’s management is structured geographically with regional vice presidents who are responsible for all services
provided by the Company in his or her particular region and 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.
Under 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 the Company’s regions meet these criteria as they provide similar managed care
services to similar customers using similar methods of production and distribution. All of the Company’s regions perform both patient
management and network solutions services.
Because the Company believes it meets each of the criteria set forth above and each of the Company’s regions has similar
economic characteristics, the Company aggregates its results of operations in one reportable operating segment.
Note 13 — Other Intangible Assets
Other intangible assets consisted of the following at March 31, 2024:
Item
Life
Cost
Fiscal 2024
Amortization
Expense
Accumulated
Amortization at
March 31, 2024
Cost, Net of
Accumulated
Amortization at
March 31, 2024
Covenant Not to Compete
5 years
$
775,000
$
—
$
775,000
$
—
Customer Relationships
18-20 years
7,922,000
421,000
7,101,000
821,000
Third Party Administrator Licenses
15 years
204,000
2,000
204,000
—
Total
$
8,901,000
$
423,000
$
8,080,000
$
821,000
Other intangible assets consisted of the following at March 31, 2023:
Item
Life
Cost
Fiscal 2023
Amortization
Expense
Accumulated
Amortization at
March 31, 2023
Cost, Net of
Accumulated
Amortization at
March 31, 2023
Covenant Not to Compete
5 years
$
775,000
$
—
$
775,000
$
—
Customer Relationships
18-20 years
7,922,000
421,000
6,678,000
1,244,000
Third Party Administrator Licenses
15 years
204,000
4,000
204,000
—
Total
$
8,901,000
$
425,000
$
7,657,000
$
1,244,000
62
Amortization expense is expected to be $384,000 in fiscal 2025, $175,000 in fiscal 2026, $174,000 in fiscal 2027, $42,000 in
fiscal 2028, $18,000 in fiscal 2029, and $28,000 thereafter.
Note 14 — Quarterly Results (Unaudited)
The following is a summary of unaudited quarterly results of operations for each of the quarters in the fiscal years ended March 31,
2024 and 2023:
Revenues
Gross Profit
Net Income
Net Income
per Basic
Common
Share
Net Income
per Diluted
Common
Share
Fiscal Year Ended March 31, 2024:
First Quarter
$
190,253,000
$
41,878,000
$
19,805,000
$
1.16
$
1.14
Second Quarter
195,522,000
44,252,000
19,898,000
1.16
1.15
Third Quarter
202,303,000
42,160,000
17,095,000
1.00
0.99
Fourth Quarter
207,233,000
43,403,000
19,454,000
1.13
1.12
Fiscal Year Ended March 31, 2023:
First Quarter
$
176,307,000
$
39,869,000
$
16,691,000
$
0.95
$
0.94
Second Quarter
177,426,000
36,094,000
14,656,000
0.84
0.83
Third Quarter
179,386,000
40,345,000
16,849,000
0.98
0.96
Fourth Quarter
185,443,000
41,951,000
18,169,000
1.06
1.04
Leading care
with better results.
Fiscal Year Revenue
vs. Net Income
Fiscal Year Revenue
Net Income
$800M
$400M
2000
2024
Earnings Per Share
$5.00
$3.75
$2.50
$1.25
$0
2000
2024
Return on Equity
40%
30%
20%
10%
0%
2000
2024
Q4 Weighted Average Shares
40
30
20
10
0
2000
2024
Annual Revenue Per Q4 Weighted Shares
$50
$40
$30
$20
$10
$0
2000
2024
Corporate Address
CorVel Corporation
5128 Apache Plume Rd. Suite 400
Fort Worth, Texas 76109
Phone: 888.7.corvel
Transfer Agent & Registrar
Computershare Investor Services
Canton, Massachusetts
Counsel
Stradling, Yocca Carlson & Rauth, P.C.
Newport Beach, California
Independent Auditors
Haskell & White LLP
Irvine, California
Stock Symbol
The common stock of CorVel Corporation
is traded on the NASDAQ Global Select
Market under the stock symbol CRVL.
Form 10K
CorVel Corporation Annual Report on
Form 10K filed with the Securities and
Exchange Commission may be obtained
without charge by contacting Investor
Relations.
Investor Relations
CorVel Corporation
1920 Main Street, Suite 900,
Irvine, California 92614
Phone: 888.7.corvel
www.corvel.com/company/investors/