<PAGE> 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 June 30, 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
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(Exact name of registrant as specified in its charter)
Delaware 33-0282651
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2010 Main Street, Suite 1020
Irvine, CA 92614
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(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 June 30, 2000 was 7,651,000 shares.
<PAGE> 2
CORVEL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 (audited) and
June 30, 2000 (unaudited)- Page 3 of 12
Consolidated Statements of Income -- Three months ended
June 30, 1999 and 2000 (both unaudited) - Page 4 of 12
Consolidated Statements of Cash Flows -- Three months ended
June 30, 1999 and 2000 (both unaudited) - Page 5 of 12
Notes to Consolidated Financial Statements (unaudited) --
June 30, 2000 - Page 6 and 7 of 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Pages 8 through 12 of 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Page 12 of 12
Item 2. Changes in Securities - Page 12 of 12
Item 3. Defaults upon Senior Securities - Page 12 of 12
Item 4. Submission of Matters to a Vote of Security Holders - Pages 12 of 12
Item 5. Other Information - Page 12 of 12
Item 6. Exhibits and Reports on Form 8-K - page 12 of 12
Page 2 of 12
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND JUNE 30, 2000
<TABLE>
<CAPTION>
March 31, 2000 June 30, 2000
-------------- -------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,643,000 $ 7,540,000
Accounts receivable, net 35,874,000 35,680,000
Prepaid taxes and expenses 1,931,000 1,224,000
Deferred income taxes 3,833,000 3,750,000
------------ ------------
Total current assets 47,281,000 48,194,000
------------ ------------
Property and Equipment, Net 16,631,000 17,590,000
Other Assets 7,275,000 6,876,000
------------ ------------
TOTAL ASSETS $ 71,187,000 $ 72,660,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,310,000 $ 5,998,000
Accrued liabilities 7,575,000 8,223,000
------------ ------------
Total current liabilities 12,885,000 14,221,000
------------ ------------
Deferred income taxes 3,009,000 2,987,000
Stockholders' Equity
Common stock 1,000 1,000
Paid-in-capital 35,995,000 36,508,000
Treasury Stock, (2,333,340 shares at March 31,
2000 and 2,466,740 shares at June 30, 2000) (39,956,000) (43,537,000)
Retained earnings 59,253,000 62,480,000
------------ ------------
Total stockholders' equity 55,293,000 55,452,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,787,000 $ 72,660,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 12
<PAGE> 4
CORVEL CORPORATION
INCOME STATEMENT - UNAUDITED
FISCAL YEAR ENDING FISCAL MARCH 31, 2001
FIRST QUARTER ENDING JUNE 30, 2000
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES $45,705,000 $50,557,000
Cost of Revenues 37,454,000 41,229,000
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Gross profit 8,251,000 9,328,000
General and administrative expenses 3,611,000 4,123,000
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Income before income taxes 4,640,000 5,205,000
Income tax provision 1,763,000 1,978,000
----------- -----------
NET INCOME $ 2,877,000 $ 3,227,000
=========== ===========
Net income per common and common equivalent share
Basic $ .35 $ .42
=========== ===========
Diluted $ .35 $ .41
=========== ===========
Weighted average common and common equivalent shares
Basic 8,128,000 7,691,000
Diluted 8,227,000 7,871,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 12
<PAGE> 5
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
THREE MONTHS ENDED JUNE 30, 1999, AND 2000
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 2,877,000 $ 3,227,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,373,000 1,641,000
Changes in operating assets and liabilities
Accounts receivable (2,772,000) 194,000
Prepaid taxes and expenses (12,000) 707,000
Accounts payable (1,411,000) 688,000
Accrued liabilities 182,000 648,000
Deferred income taxes and income taxes payable 1,943,000 (105,000)
Other assets (457,000) (183,000)
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Net cash provided by operating activities 1,723,000 6,817,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (1,696,000) (1,852,000)
----------- -----------
Net cash used in investing activities (1,696,000) (1,852,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock (900,000) (3,581,000)
Sale of common and exercise of stock options
and related tax benefits 343,000 513,000
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Net cash provided by financing activities (557,000) (3,068,000)
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INCREASE (DECREASE) IN CASH: (530,000) 1,897,000
Cash and cash equivalents at beginning 9,052,000 5,643,000
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Cash and cash equivalents at end $ 8,522,000 $ 7,540,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 12
<PAGE> 6
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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 Annual Report 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.
BASIC EARNINGS PER SHARE
Three months ended June 30,
----------------------------
1999 2000
---------- ----------
Weighted average common shares
outstanding 8,128,000 7,691,000
========== ==========
Net Income $2,877,000 $3,227,000
========== ==========
Earnings per common and common
equivalent share $ .35 $ .42
========== ==========
DILUTED EARNINGS PER SHARES
Three months ended June 30,
-----------------------------
1999 2000
---------- ----------
Weighted average common shares
outstanding 8,128,000 7,691,000
Net effect of dilutive common
stock options 99,000 180,000
---------- ----------
Total common and common
equivalent shares 8,227,000 7,871,000
========== ==========
Net Income $2,877,000 $3,227,000
========== ==========
Earnings per common and common
equivalent share $ .35 $ .41
========== ==========
Page 6 of 12
<PAGE> 7
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
C. Share Repurchase Program
In May, 2000, the Company announced that the Company's Board of Directors
had approved a 1,000,000 share expansion to its existing stock repurchase
plan. Including this expansion, the total number of shares authorized to
repurchase has now been increased to 3,400,000 shares. Since commencing this
program in the fall of 1996, the Company has repurchased approximately
2,467,000 common shares, equal to 24% of its outstanding stock at a cost of
approximately $44 million. These repurchases were funded from the Company's
operating earnings. These repurchases have reduced CorVel's current common
shares outstanding to approximately 7,650,000 shares.
Page 7 of 12
<PAGE> 8
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 June 30: 1999 2000
--------------------------- ----- -----
Revenues 100.0% 100.0%
Cost of services 81.9 81.5
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Gross profit 18.1 18.5
----- -----
General and administrative 7.9 8.2
----- -----
Income from operations 10.2 10.3
----- -----
Income tax provision 3.9 3.9
----- -----
NET INCOME 6.3% 6.4%
===== =====
Revenues for the three months ended June 30, 2000 increased by $4.9 million to
$50.6 million, an increase of 11% over the $45.7 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 an 8% increase in provider program revenues. The increase in patient
management revenues is primarily attributable to an increase in referrals. The
increase in provider program revenue is primarily attributable to the growth in
the Company's preferred provider network. The growth in the Company's revenue
was at or lower than experienced by the Company in previous years. This slower
growth rate in the current quarter was partially attributable to the reduction
in the growth rate of healthcare expenditures on a national level which helped
contribute to a reduction in the growth of the amount of claims processed by the
Company.
Cost of revenues for the three months ended June 30, 2000 decreased to 81.5%
from 81.9% for the three months ended June 30, 1999. The increase in the gross
profit margin from the first quarter of fiscal 2000 to the first quarter of
fiscal 2001 is primarily attributable to an increase in the gross profit margin
in the provider programs business caused by an increase in the Company's
preferred provider network.
General and administrative expenses as a percentage of revenues increased from
7.9% for the quarter ended June 30, 1999, to 8.2% for the quarter ended June
30, 2000. This increase is primarily attributable to the Company's investment in
the development of its e-commerce web site, CareMC. General and administrative
expenses were $3.6 million for the three months ended June 30, 1999 compared to
$4.1 million for the three months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and capital expenditures primarily from
cash flow from operations. During the quarter ended June 30, 2000, net working
capital decreased by $0.7 million, from $34.7 million at March 31, 2000 to $34.0
million at June 30, 2000. However, cash increased from $5.6 million at March 31,
2000 to $7.5 million at June 30, 2000, an increase of $1.9 million. This
increase in cash is primarily due to the seasonal timing of the federal and
state income tax payments along with net income, which was offset by the
repurchase by the Company of its common stock.
Page 8 of 12
<PAGE> 9
During the quarter ended June 30, 2000, the Company repurchased approximately
133,000 shares of it common stock for $3.6 million. Since the repurchase program
was enacted in the fall of 1996, the Company has repurchased approximately 2.5
million shares for $43.5 million. These repurchases were paid from cash
generated by the operations of the Company. The Company has historically
required substantial capital to fund the growth of its operations, particularly
working capital to fund the growth in accounts receivable and property. The
Company believes, however, that the cash balance at June 30, 2000 along with
anticipated internally generated funds and capacity to borrow will be sufficient
to meet the Company's expected cash requirements for at least the next twelve
months.
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, and the Quarterly Report on Form 10-Q for the quarter
ending June 30, 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.
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 ability to compete with other
available alternatives for health care 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
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.
Page 9 of 12
<PAGE> 10
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. 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
which might adversely affect the Company's business or results of operations.
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.
Page 10 of 12
<PAGE> 11
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.
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 limited 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
Page 11 of 12
<PAGE> 12
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock 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. Specifically, the quarter to quarter percentage growth
in operating results for the Company's most recently completed fiscal years was
lower than the growth rates historically experienced by the Company. The
Company's slower growth rate in those quarters was partially attributable to a
reduction in the growth rate of health care expenditures nationally,
contributing to a reduction in the growth of claims processed by the Company.
There can be no assurance that the Company's growth rate in the future, if any,
will be at or near historical levels.
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
August 10, 2000
Page 12 of 12
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
