1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For this transition period from ______to______
Commission file number O-19291
CORVEL CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0282651
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2010 Main Street, Suite 1020
Irvine, CA 92614
- --------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including code: (949) 851-1473
--------------
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 [X] NO [ ]
The number of shares outstanding of the registrant's Common Stock, $0.0001 Par
Value, as of December 31, 2000 was 7,535,000 shares.
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CORVEL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 2000 (audited) and December 31, 2000
(unaudited)- Page 3 of 14
Consolidated Statements of Income -- Three months ended December 31, 1999 and
2000 (both unaudited) - Page 4 of 14
Consolidated Statements of Income -- Nine months ended December 31, 1999 and
2000 (both unaudited) - Page 5 of 14
Consolidated Statements of Cash Flows -- Nine months ended December 31, 1999 and
2000 (both unaudited) - Page 6 of 14
Notes to Consolidated Financial Statements (unaudited) -- December 31, 2000 -
Page 7 of 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Pages 9 through 13 of 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Page 14 of 14
Item 2. Changes in Securities - Page 14 of 14
Item 3. Defaults upon Senior Securities - Page 14 of 14
Item 4. Submission of Matters to a Vote of Security Holders - Pages 14 of 14
Item 5. Other Information - Page 14 of 14
Item 6. Exhibits and Reports on Form 8-K - page 14 of 14
Page 2 of 14
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Part I - Financial Information
Item 1. Financial Statements
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 2000
March 31, 2000 December 31, 2000
-------------- -----------------
(audited) (unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 5,643,000 $ 8,938,000
Accounts receivable, net 35,874,000 34,528,000
Prepaid taxes and expenses 1,931,000 1,059,000
Deferred income taxes 3,833,000 3,750,000
------------ ------------
Total current assets 47,281,000 48,275,000
------------ ------------
Property and Equipment, Net 16,631,000 18,719,000
Other Assets 7,275,000 7,180,000
------------ ------------
TOTAL ASSETS $ 71,187,000 $ 74,174,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,310,000 $ 5,214,000
Accrued liabilities 7,575,000 8,953,000
------------ ------------
Total current liabilities 12,885,000 14,167,000
------------ ------------
Deferred income taxes 3,009,000 3,050,000
Stockholders' Equity
Common stock 1,000 1,000
Paid-in-capital 35,995,000 38,575,000
Treasury Stock, (2,333,340 shares at March 31,
2000 and 2,716,740 shares at December 31, 2000) (39,956,000) (50,699,000)
Retained earnings 59,253,000 69,080,000
------------ ------------
Total stockholders' equity 55,293,000 56,957,000
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 71,187,000 $ 74,174,000
============ ============
See accompanying notes to consolidated financial statements.
Page 3 of 14
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CORVEL CORPORATION
INCOME STATEMENT -- (UNAUDITED)
FISCAL YEAR ENDED FISCAL MARCH 31, 2001
THIRD QUARTER ENDED DECEMBER 31, 2000
Three months ended December 31,
------------------------------
1999 2000
----------- -----------
REVENUES $46,269,000 $52,241,000
Cost of Revenues 37,782,000 43,182,000
----------- -----------
Gross profit 8,487,000 9,059,000
General and administrative expenses 3,627,000 3,863,000
----------- -----------
Income before income taxes 4,860,000 5,196,000
Income tax provision 1,847,000 1,868,000
----------- -----------
NET INCOME $ 3,013,000 $ 3,328,000
=========== ===========
EARNINGS PER SHARE:
Basic $ .38 $ .44
=========== ===========
Diluted $ .37 $ .43
=========== ===========
WEIGHTED AVERAGE SHARES:
Basic 8,023,000 7,562,000
Diluted 8,142,000 7,742,000
See accompanying notes to consolidated financial statements.
Page 4 of 14
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CORVEL CORPORATION
INCOME STATEMENT -- (UNAUDITED)
FISCAL YEAR ENDED FISCAL MARCH 31, 2001
NINE MONTHS ENDED DECEMBER 31, 2000
Nine months ended December 31,
------------------------------
1999 2000
------------ ------------
REVENUES $137,839,000 $154,456,000
Cost of Revenues 112,695,000 126,722,000
------------ ------------
Gross profit 25,144,000 27,734,000
General and administrative expenses 10,853,000 12,055,000
------------ ------------
Income before income taxes 14,291,000 15,679,000
Income tax provision 5,431,000 5,852,000
------------ ------------
NET INCOME $ 8,860,000 $ 9,827,000
============ ============
EARNINGS PER SHARE:
Basic $ 1.10 $ 1.29
============ ============
Diluted $ 1.08 $ 1.26
============ ============
WEIGHTED AVERAGE SHARES:
Basic 8,090,000 7,629,000
Diluted 8,210,000 7,803,000
See accompanying notes to consolidated financial statements.
Page 5 of 14
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CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 1999, AND 2000
Nine months ended December 31,
------------------------------
1999 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 8,660,000 $ 9,827,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,258,000 5,108,000
Changes in operating assets and liabilities
Accounts receivable (327,000) 1,346,000
Prepaid taxes and expenses (162,000) 955,000
Accounts payable (838,000) (96,000)
Accrued liabilities 664,000 1,378,000
Deferred income taxes payable (128,000) 41,000
Other assets (605,000) (149,000)
------------ ------------
Net cash provided by operating activities 11,772,000 18,410,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (4,342,000) (6,952,000)
------------ ------------
Net cash used in investing activities (4,342,000) (6,952,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock (9,051,000) (10,743,000)
Sale of common and exercise of stock
options and related tax benefits 1,631,000 2,580,000
------------ ------------
Net cash used in financing activities (7,420,000) (8,163,000)
------------ ------------
INCREASE (DECREASE) IN CASH: (40,000) 3,295,000
Cash and cash equivalents at beginning 9,052,000 5,643,000
------------ ------------
Cash and cash equivalents at end $ 9,012,000 $ 8,938,000
============ ============
See accompanying notes to consolidated financial statements.
Page 6 of 14
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CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 (UNAUDITED)
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended December 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ended March 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended March 31,
2000 included in the Company's registration statement on Form 10-K.
B. Earnings per Share
Earnings per common and common equivalent shares were computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the quarter. For
calculation of the common and common equivalent shares, see below.
Three months ended December 31,
-------------------------------
1999 2000
---------- ----------
Weighted shares for basic earnings per share
computation 8,023,000 7,562,000
Net effect of dilutive common stock options 119,000 180,000
---------- ----------
Weighted shares for diluted earnings per share 8,142,000 7,742,000
========== ==========
NET INCOME $3,013,000 $3,328,000
========== ==========
BASIC EARNINGS PER SHARE $ .38 $ .44
========== ==========
DILUTED EARNINGS PER SHARE $ .37 $ .43
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Page 7 of 14
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CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 (UNAUDITED)
B. Earnings per Share (continued)
Nine months ended December 31,
------------------------------
1999 2000
---------- ----------
Weighted shares for basic earnings per share 8,090,000 7,629,000
Net effect of dilutive common stock options 129,000 174,000
---------- ----------
Weighted shares for diluted earnings per
share 8,210,000 7,803,000
========== ==========
NET INCOME $8,860,000 $9,827,000
========== ==========
BASIC EARNINGS PER SHARE $ 1.10 $ 1.29
========== ==========
DILUTED EARNINGS PER SHARE $ 1.08 $ 1.26
========== ==========
Page 8 of 14
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The following table contains certain financial data as a percentage of revenues:
Three months ended Dec. 31: 1999 2000
- --------------------------- ------ ------
Revenues 100.0% 100.0%
Cost of services 81.7 82.6
------ ------
Gross profit 18.3 17.4
------ ------
General and administrative 7.8 7.4
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Income from operations 10.5 10.0
------ ------
Income tax provision 4.0 3.6
------ ------
NET INCOME 6.5% 6.4%
====== ======
Nine months ended Dec. 31: 1999 2000
- --------------------------- ------ ------
Revenues 100.0% 100.0%
Cost of services 81.8 82.0
------ ------
Gross profit 18.2 18.0
------ ------
General and administrative 7.9 7.8
------ ------
Income from operations 10.3 10.2
------ ------
Income tax provision 3.9 3.8
------ ------
NET INCOME 6.4% 6.4%
====== ======
Revenues for the three months ended December 31, 2000 increased by $6.0 million
to $52.2 million, an increase of 13% over the $46.3 million revenue for the
comparable period in the prior fiscal year. The increase in revenues is
primarily attributable to a 10% increase in patient management revenue along
with a 12% increase in provider revenues, primarily bill review and PPO. Case
management revenue grew to $30.5 million from $27.7 million in the prior year,
an increase of $2.8 million. The increase in patient management is primarily due
to an increase in referrals from the Company's customers. Provider program
revenues increase from $18.5 million for the three months ended December 31,
1999 to $21.7 million for the three months ended December 31, 2000 primarily due
to an increase in the number of bills reviewed and growth in the Company's PPO
network.
Revenues for the nine months ended December 31, 2000 increased by $16.6 million
to $154.4 million, an increase of 12% over the $137.8 million revenue for the
comparable period in the prior fiscal year. The increase in revenues is
primarily attributable to a 12% increase in patient management revenue along
with a 13% increase in provider program revenues. Case management revenue grew
to $91.9 million from $82.3 million in the prior year, an increase of $9.6
million. The increase in patient management is primarily due to an increase in
the number of cases referred to the Company by their customers.
Page 9 of 14
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The Company's cost of revenues consists primarily of salaries, salary related
taxes and fringe benefits, rent, telephone, and costs related to the Company's
computer operations in the field. Cost of revenues for the three months ended
December 31, 2000 increased from 81.7% of revenues to 82.6% of revenue from the
three months ended December 31, 1999. Cost of revenues for the nine months ended
December 31, 2000 increased from 81.8% of revenues to 82.0% of revenue from the
nine months ended December 31, 1999. The increase in the cost of sales
percentage is primarily due to a greater increase in the cost of providing case
management than the increase in the Company's pricing for these services.
General and administrative expenses as a percentage of revenues decreased from
7.9% for the nine months ended December 31, 1999, to 7.8% for the nine months
ending December 31, 2000. The growth in the general and administrative expenses
of 11% for the nine months ended December 31, 2000 is consistent with the growth
in revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and capital expenditures primarily from
cash flow from operations. During the nine months ended December 31, 2000, net
working capital decreased by $0.3 million, from $34.4 million at March 31, 2000
to $34.1 million at December 31, 2000. As of December 31, 2000, the Company had
$8.9 million in cash, primarily in short-term highly-liquid investments with
maturities of 90 days or less. The Company has historically required substantial
capital to fund the growth of its operations, particularly working capital to
fund the growth in accounts receivable. The Company believes, however, that the
cash balance at December 31, 2000 along with anticipated internally generated
funds will be sufficient to meet the Company's expected cash requirements for at
least the next twelve months. As of December 31, 2000, the Company had no
interest bearing debt.
CAUTIONARY STATEMENT REGARDING RISK FACTORS
Certain statements contained in the Company's Annual Report on Form 10-K for the
year ended March 31, 2000, Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000, as well as the Company's Annual Report for the year ended
March 31, 2000, such as statements concerning the development of new services,
possible legislative changes, and other statements contained herein regarding
matters that are not historical facts, are forward-looking statements (as such
term is defined in the Securities Act of 1933, as amended). Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements.
Page 10 of 14
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Past financial performance is not necessarily a reliable indicator of future
performance, and investors should not use historical performance to anticipate
results or future period trends. Factors that could cause actual results to
differ materially include, but are not limited to, those discussed below. In
addition, reference is made to the Company's most recent annual report for the
fiscal year ending March 31, 2000.
POTENTIAL ADVERSE IMPACT OF GOVERNMENT REGULATION. Many states, including a
number of those in which the Company transacts business, have licensing and
other regulatory requirements applicable to the Company's business.
Approximately half of the states have enacted laws that require licensing of
businesses which provide medical review services. 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 the Company, which may
have an adverse impact upon the Company's networks having contracts with the
Company or to provider networks which the Company may organize. To the extent
the Company is governed by these regulations, it may be subject to additional
licensing requirements, financial oversight and procedural standards for
beneficiaries and providers. ability to compete with other available
alternatives for health care cost control.
Regulation in the health care and workers' compensation fields is constantly
evolving. The Company is unable to predict what additional government
regulations, if any, affecting its business may be promulgated in the future.
The Company's 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 health care 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 the Company's
business and results of operations. In addition, changes in workers'
compensation laws or regulations may impact demand for the Company's services,
require the Company to develop new or modified services to meet the demands of
the marketplace or modify the fees that the Company may charge for its services.
One of the proposals which has been considered is 24-hour health coverage, in
which the coverage of traditional employer-sponsored health plans is combined
with workers' compensation coverage to provide a single insurance plan for
work-related and non-work-related health problems. Incorporating workers'
compensation coverage into conventional health plans may adversely affect the
market for the Company's services.
POSSIBLE LITIGATION AND LEGAL LIABILITY. The Company, through its utilization
management services, makes recommendations concerning the appropriateness of
providers' medical treatment plans of patients throughout the country, and it
could share in potential liabilities for adverse medical consequences. The
Company does not grant or deny claims for payment of benefits and the Company
does not believe that it engages in the practice of medicine or the delivery of
medical services.
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There can be no assurance, however, that the Company will not be subject to
claims or litigation related to the grant or denial of claims for payment of
benefits or allegations that the Company engages in the practice of medicine or
the delivery of medical services. In addition, there can be no assurance that
the Company will not be subject to other litigation that may adversely affect
the Company's business or results of operations. The Company maintains
professional liability insurance and such other coverages as the Company
believes are reasonable in light of the Company's experience to date. There can
be no assurance, however, that such insurance will be sufficient or available in
the future at reasonable cost to protect the Company from liability.
COMPETITION. The Company faces competition from large insurers, health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"),
third party administrators and other managed health care companies. The Company
believes that, as managed care techniques continue to gain acceptance in the
workers' compensation marketplace, CorVel's 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 reforms in some states 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 market
served by the Company. Many of the Company's current and potential competitors
are significantly larger and have greater financial and marketing resources than
those of the Company, and there can be no assurance that the Company will
continue to maintain its existing performance or be successful with any new
products or in any new geographical markets it may enter.
CHANGES IN MARKET DYNAMICS. Legislative reforms in some states permit employers
to designate health plans such as HMOs and PPOs to cover workers' compensation
claimants. Because many health plans have the capacity to manage health care for
workers' compensation claimants, such legislation may intensify competition in
the market served by the Company. Within the past few years, several states have
experienced decreases in the number of workers' compensation claims and the
average cost per claim which have been reflected in workers' compensation
insurance premium rate reductions in those states. The Company believes that
declines in workers' compensation costs in these states are due principally to
intensified efforts by payors to manage and control claim costs, to improved
risk management by employers and to legislative reforms. If declines in workers'
compensation costs occur in many states and persist over the long-term, they may
have an adverse impact on the Company's business and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company is dependent to a substantial extent
upon the continuing efforts and abilities of certain key management personnel.
In addition, the Company faces competition for experienced employees with
professional expertise in the workers' compensation managed care area. The loss
of, or the inability to attract, qualified employees could have a material
adverse effect on the Company's business and results of operations.
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RISKS RELATED TO GROWTH STRATEGY. The Company's strategy is to continue its
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,
the Company is subject to certain growth-related risks, including the risk that
it will be unable to retain personnel or acquire other resources necessary to
service such growth adequately. Expenses arising from the Company's efforts to
increase its 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 thereby could be completed. If such a transaction
does occur, there can no assurance that the Company will be able to integrate
effectively any acquired business into the Company. In addition, any such
transaction would be subject to various risks associated with the acquisition of
businesses, including the financial impact of expenses associated with the
integration of businesses.
There can be no assurance that any future acquisition or other strategic
relationship will not have an adverse impact on the Company's business or
results of operations. If suitable opportunities arise, the Company anticipates
that it would finance such transactions, as well as its internal growth, through
working capital or, in certain instances, through debt or equity financing.
There can be no assurance, however, that such debt or equity financing would be
available to the Company on acceptable terms when, and if, suitable strategic
opportunities arise.
During the past fiscal year, the Company has made efforts to increase its
presence and revenue in the group health market with moderate success. Managed
care in this market is more mature than managed care in workers' compensation
and has numerous large competitors, primarily health maintenance organizations.
The Company has limited experience in the group health market. There is no
assurance that the Company will be successful in this market. The Company
expects that a considerable amount of its future growth will depend on its
ability to process and manage claims data more efficiently and to provide more
meaningful healthcare information to customers and payors of healthcare. There
is no assurance that the Company will be able to develop, license or otherwise
acquire software to address these market demands as well or as timely as its
competitors.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock following this offering may be highly volatile. Factors such as variations
in the Company's revenues, earnings and cash flow, general market trends in the
workers' compensation managed care market, and announcements of innovations by
the Company or its competitors could cause the market price of the Common Stock
to fluctuate substantially. In addition, the stock market has in the past
experienced price and volume fluctuations that have particularly affected
companies in the health care 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.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - The Company is involved in litigation arising in
the normal course of business. The Company believes that resolution of these
matters will not result in any payment that, in the aggregate, would be material
to the financial position or financial operations of the Company.
ITEM 2 - CHANGES IN SECURITIES - None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5 - OTHER INFORMATION - None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
CORVEL CORPORATION
By: V. Gordon Clemons
------------------------------------
V. Gordon Clemons, Chairman of the
Board, Chief Executive Officer,
and President
By: Richard J. Schweppe
-----------------------------------
Richard J. Schweppe,
Chief Financial Officer
February 14, 2001
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