CorVel - Q4 2024

Executive Summary

• Quarter ended Dec 31, 2024 (Fiscal Q3 2025): Revenue grew 13% YoY to $228M and diluted EPS rose 39% YoY to $0.46; gross margin expanded to 23.2% from 20.8% YoY, reflecting mix and efficiency gains, especially in Network Solutions.
• Segment momentum: Patient Management revenue was $146M (+11% YoY) on new TPA implementations; Network Solutions was $82M (+16% YoY) with wholesale gross profit up 33% YoY on gen-AI/process automation efficiencies balanced with lower price points.
• Capital and cash: $163M cash and no debt; continued buybacks ($9.6M in the quarter); 3-for-1 stock split became effective Dec 24, 2024, increasing share accessibility.
• Street comps: S&P Global consensus estimates were not retrievable at time of analysis; no formal guidance was issued, so we anchor on sequential and YoY trajectory and management commentary (consensus not shown due to data access limits).

What Went Well and What Went Wrong

• What Went Well
  • Revenue, EPS, and gross margin outperformed YoY: “Revenues for the quarter were $228 million… EPS…$0.46… gross profit increased 25% to $52.9 million, at 23.2% gross margin”.
  • Network Solutions margin lift from technology: “Gross profit in the wholesale business was up 33%… stemming from the successful implementation of gen AI and other process automation tools… balancing improved margins with lower price points”.
  • Execution in Patient Management/TPA: “Patient management… was $146 million… grew primarily from new customer implementations”.
• What Went Wrong
  • Sequential EPS roughly flat on split-adjusted basis (Q2 FY25 ≈$0.45 vs Q3 FY25 $0.46) despite strong YoY, implying limited sequential operating leverage this quarter.
  • Persistent medical cost inflation requires ongoing efficiency—management flagged NCCI survey indicating 2.5–3.5% workers’ comp medical inflation, a continuing industry headwind.
  • No formal guidance; limited external visibility for near-term modeling, keeping investors reliant on run-rate trends and commentary.

Transcript

Operator (participant)

Thank you for standing by. Welcome to the CorVel Corporation Quarterly Earnings Release Webcast. During the course of this webcast, CorVel Corporation may make projections or other forward-looking statements regarding future events or the future financial performances of the company. CorVel wishes to caution you that these statements are only predictions and that actual events or results may differ materially. CorVel refers you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's last Form 10-K and 10-Q filings for the most recent fiscal year and quarter. These documents may contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. I would now like to turn it over to Michael Combs, Chief Executive Officer and President.

Michael Combs (CEO and President)

Thank you for joining us to review CorVel's March quarter and the fiscal year 2024 results. On the call with me today is Brandon O'Brien, CorVel's Chief Financial Officer. Today, I will review business performance, the current environment, market trends, and progress on new product and service offerings. Brandon will then provide an overview of our March quarter and the fiscal year financial results. The March quarter revenues were $207 million, 12% over the $185 million in revenue for the March 2023 quarter. The earnings per share for the quarter ended March 31, 2024, were $1.12, an increase of 8% over the same quarter of the prior year's EPS of $1.04.

Revenues for fiscal year 2024 were $795 million, up 11% from $719 million for the prior fiscal year. Earnings per share were $4.40, an increase of 17% compared to the $3.77 for the fiscal year ended March 31, 2023. During the quarter, we experienced a few one-time events that impacted the financials. CorVel is self-insured for our medical program, and the March quarter expenses were elevated when compared to the same quarter of the prior year. The increase is attributed to a relatively small number of substantial claims. Additionally, the March quarter results were impacted by increased staffing to support several new large partner programs being onboarded. The financial results will balance and benefit from the new programs as they go live.

One-time events notwithstanding, we are pleased with the revenue increase in fiscal year 2024, as well as the new bookings achieved. We credit these results to the work the team is doing in the areas of operational excellence and sales management, which has elevated our reputation in the industry. With our reputation for strong results in conjunction with the broad service offerings, CorVel is enjoying an enhanced market position. We are presenting to and winning larger marquee accounts, a few of which, as alluded to earlier, will be live in the June and September quarters. While gaining new accounts is always exciting, at CorVel, we deeply value our relationships with existing partners. For fiscal year 2024, customer retention, as measured by gross revenue retention, was 94%, while net revenue retention was 108%.

These numbers reflect the depth of engagement with our teams as well as the outcomes we achieve for our partners. Some years are more exciting than others. The traction achieved in key areas in fiscal year 2024 give us a clearer picture of what's possible. With technological advances, including our work with generative AI, we had a year that produced compelling enhancements, meaningful results, and has us looking forward to even more impactful changes in the coming months and quarters. I'll be providing additional texture in this area later in the call. In the P&C sector, companies working with our current vendor for several years, and in some cases, decades, are now exploring the market.

The causes driving the companies to test the market range from service erosion, perhaps related to changes in resource allocation, due to the increased cost of servicing debt and the disruption caused by mergers and acquisitions. Companies are looking for new offerings and more vibrant partnerships. We've also experienced companies returning to CorVel after brief departures to benefit from our strength and service offerings and consultative partnerships. The feedback we repeatedly hear is that our engagement, service, communication, results, and transparency are unmatched in the industry. In the commercial health market, large payers seek innovative solutions to achieve cost of care savings and increased ROI from their payment integrity vendors. The service team is working to meet the evolving market requirements by launching new payment integrity concepts and enhancing system automation and augmentation to increase efficiencies.

These come in the form of continually updated machine learning models to fine-tune our claim selection process and using generative AI to increase efficiencies, processing large medical documents. Additionally, service is expanding its partner relationships to broaden the reach in the market. CorVel has invested substantially in advanced technologies, most recently, generative AI. While the initial efforts were focused internally and brought substantive benefits across the enterprise, as well as a broad foundation from which additional generative AI functionality can be deployed in the future. In recent months, the team has been focused on extending the functionality to our managed care partners. As a result of these efforts, we are pleased to introduce a generative AI-powered software as a service, SaaS, platform to the managed care market. This data and service hub will automate tasks and leverage AI to increase efficiencies within our partners' business workflows.

This enhancement will deliver the capacity to seamlessly integrate with key CorVel capabilities with their RMIS systems, as well as with other analytics platforms, ancillary service providers, PPO vendors, and more. Using this new model will lessen our partners' IT constraints and lead to better overall program outcomes. While telehealth volumes settle into their post-pandemic levels and usage stabilizes, CorVel has expanded its offerings to include an enhanced telehealth reporting and billing automation framework to further optimize the process. Using a web service integration model, we are expediting the time from appointment request to documented visit, which aids medical decision-making and claims resolution. The time needed to share compliant billing and supporting documentation with stakeholders is less than half that of traditional workflows.

The American Hospital Association estimates a shortage of up to 124,000 physicians by 2033, and 200,000 additional nurses will be needed to meet rising demands. These shortages are expected to contribute to an increased reliance on telehealth as access to providers becomes constricted in certain areas. Whether we are dealing with a lack of available medical staff, transportation, or weather challenges, or the next major medical emergency, CorVel is ready to support our clients with newer and faster capabilities for telehealth services. Brandon will now provide an overview and additional texture on the financial results for the March quarter and the fiscal year. Brandon?

Brandon O'Brien (CFO)

Thank you, Michael, and good morning, everyone. Revenues for the March quarter were $207 million, up 12% from the same quarter of the prior year. Earnings per share for the quarter were $1.12, an increase of 8% from the $1.04 per share in the same quarter of the prior year. Revenues for the fiscal year ended March 31, 2024, were $795 million, up 11%. Earnings per share for the fiscal year ended March were $4.40, up 17% from the prior fiscal year's EPS results of $3.77. The revenue for patient management, including third-party administration, TPA services, and traditional case management for the March quarter, was $141 million, an annual increase of 12%. Gross profit increased by 4% from the March quarter of 2023.

Patient management revenue for the fiscal year ended March 31, 2024, was $530 million, an annual increase of 11%. Fiscal year gross profit increased 26%. CorVel's third-party administration, TPA business, remains a key growth catalyst within patient management. As we capitalize on this growth, we are also reimagining our approach to talent acquisition, traditionally focused on recruiting adjusters from within the industry. To support our expansion, we launched the CorVel University program, designed to attract and retain a new generation of claims adjusting professionals. This initiative has proven successful, garnering strong support from both our brokers and clients. In-house, well-trained adjusters, combined with CareMC's generative AI advancements, greatly unlock and enhance claims, productivity, and outcomes beyond the current state of capabilities. We are investing now to make this future a reality.

The revenue for network solutions sold in the wholesale market for the March quarter was $67 million, up 11% from the same quarter the prior year. Gross profit in the wholesale business was up 2% from the March quarter of 2023. Network solutions revenue for the fiscal year ended March 31, 2024, was $265 million, an annual increase of 11%. Fiscal year gross profit decreased 6%. CERIS, part of Network Solutions, is expanding its services and increasing scalability. This aims to better meet the needs of our key health insurance clients. In the short term, strategic pricing adjustments and continuous improvements in DRG and ASO offerings, along with other capital and expense investments, have moderated profit growth for the fiscal year. However, these steps are crucial for strengthening our partner relationships.

The strategy is designed to enable sustained profit growth with our top carrier partners. Our robust roadmap presents many opportunities to grow volume through both existing services and new market additions. I would now like to review a few additional financial items. During the quarter, the company repurchased 37,829 shares at a total cost of $9.1 million. From inception to date, the company has repurchased 38 million shares for a cost of $794 million. Through this program, the company has repurchased 69% of the total shares outstanding. The repurchasing of shares continues to be funded via the company's strong operating cash flow. Our DSO, as in days sales outstanding of receivables, was 43 days, up three days from a year ago. The quarter-ending cash balance was $106 million.

CorVel's strong and debt-free balance sheet generates improved earnings, in contrast to many others in the segment, facing increasing debt loads with associated interest rate cost headwinds. That concludes our remarks for today. Thank you for joining us. I'll now return the call to our operator.

Operator (participant)

This concludes today's webcast. You may disconnect your lines at this time.