10-Q

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of the registrant's Common Stock, $0.0001 par value per share, as of January 30, 2023, was 17,158,985.

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 customers.

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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.

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 and 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 when the Company concludes that it 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, 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, 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 three and nine months ended December 31, 2022 and 2021:


	Three Months Ended		Three Months Ended
	December 31, 2022		December 31, 2021
Patient management services	$	118,918,000	$	107,711,000
Network solutions services		60,468,000		56,797,000
Total services	$	179,386,000	$	164,508,000


	Nine Months Ended		Nine Months Ended
	December 31, 2022		December 31, 2021
Patient management services	$	353,197,000	$	312,829,000
Network solutions services		179,922,000		162,042,000
Total services	$	533,119,000	$	474,871,000

Arrangements with Multiple Performance Obligations

For many of the Company’s services, the Company typically has one

Page 9

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.


	December 31, 2022			March 31, 2022
Billed receivables	$	56,957,000		$	57,841,000
Allowance for doubtful accounts		(3,043,000	)		(2,562,000	)
Unbilled receivables		28,877,000			27,307,000
Accounts receivable, net	$	82,791,000		$	82,586,000

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. Such deferred revenue is included within accrued liabilities on the accompanying consolidated balance sheets.

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 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 nine months ended December 31, 2022:


	Nine Months Ended
	December 31, 2022
Beginning balance at April 1, 2022	$	25,796,000
Additions		33,686,000
Revenue recognized from beginning of period		(20,193,000	)
Revenue recognized from additions		(12,949,000	)
Ending balance at December 31, 2022	$	26,340,000

Remaining Performance Obligations

As of December 31, 2022, the Company had $26.3 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.

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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 as unbilled receivables 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.

Note 3 — Stock-Based Compensation and Stock Options

Under the Company’s Restated Omnibus Incentive Plan (formerly the Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at December 31, 2022, 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 the date of grant, respectively. All options granted in the nine months ended December 31, 2022 and 2021 were granted with an exercise price equal to the fair value of the Company’s common stock on the grant date and are non-statutory stock options.

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 estimating 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 following assumptions were used to estimate the fair value of options granted during the three months ended December 31, 2022 and 2021 using the Black-Scholes option-pricing model:


	Three Months Ended
	December 31, 2022	December 31, 2021
Risk-free interest rate	4.36%	1.27%
Expected volatility	36%	36%
Expected dividend yield	0.00%	0.00%
Expected weighted average life of option in years	4.3 years	4.4 years

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For the three months ended December 31, 2022 and 2021, the Company recorded share-based compensation expense of $1,698,000 and $1,183,000, respectively. For the nine months ended December 31, 2022 and 2021, the Company recorded share-based compensation expense of $4,027,000 and $3,884,000, respectively. The table below shows the amounts recognized in the unaudited consolidated financial statements for stock compensation expense for time-based options and performance-based options during the three and nine months ended December 31, 2022 and 2021, respectively.


	Three Months Ended
	December 31, 2022			December 31, 2021
Cost of revenues	$	670,000		$	487,000
General and administrative		1,028,000			696,000
Total cost of stock-based compensation included in income before income tax provision		1,698,000			1,183,000
Amount of income tax benefit recognized		(410,000	)		(256,000	)
Amount charged against net income	$	1,288,000		$	927,000
Effect on basic earnings per share	$	(0.07	)	$	(0.05	)
Effect on diluted earnings per share	$	(0.07	)	$	(0.05	)


	Nine Months Ended
	December 31, 2022			December 31, 2021
Cost of revenues	$	1,879,000		$	1,539,000
General and administrative		2,148,000			2,345,000
Total cost of stock-based compensation included in income before income tax provision		4,027,000			3,884,000
Amount of income tax benefit recognized		(895,000	)		(765,000	)
Amount charged against net income	$	3,132,000		$	3,119,000
Effect on basic earnings per share	$	(0.18	)	$	(0.17	)
Effect on diluted earnings per share	$	(0.18	)	$	(0.17	)

The following table summarizes information for all stock options for the three and nine months ended December 31, 2022 and 2021:


	Three Months Ended December 31, 2022					Three Months Ended December 31, 2021
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding, beginning		706,728		$	96.14		778,982		$	72.17
Options granted		69,200			155.99		50,200			197.16
Options exercised		(18,210	)		67.63		(25,917	)		62.78
Options cancelled/forfeited		(1,256	)		126.62		(6,407	)		81.62
Options outstanding, ending		756,462		$	102.25		796,858		$	80.27


	Nine Months Ended December 31, 2022					Nine Months Ended December 31, 2021
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding, beginning		723,876		$	84.55		937,158		$	64.28
Options granted		149,400			155.69		110,450			163.54
Options exercised		(101,896	)		51.17		(212,588	)		53.27
Options cancelled/forfeited		(14,918	)		128.65		(38,162	)		78.87
Options outstanding, ending		756,462		$	102.25		796,858		$	80.27

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The following table summarizes the status of stock options outstanding and exercisable at December 31, 2022:


Range of Exercise Price	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 $70.24		204,302		2.09	$	52.49		187,542	$	52.17
$70.25 to $87.69		248,327		2.92		83.32		111,749		82.64
$87.70 to $155.99		209,534		4.30		138.56		30,938		108.20
$156.00 to $197.16		94,299		4.85		179.20		7,330		174.40
Total		756,462		3.32	$	102.25		337,559	$	70.05

The following table summarizes the status of all outstanding options at December 31, 2022, and changes during the three months then ended:


	Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of December 31, 2022
Options outstanding at October 1, 2022		706,728		$	96.14
Granted		69,200			155.99
Exercised		(18,210	)		67.63
Cancelled – forfeited		(1,225	)		121.76
Cancelled – expired		(31	)		121.96
Ending outstanding		756,462		$	102.25		3.32	$	36,912,256
Ending vested and expected to vest		662,773		$	99.55		3.34	$	33,500,567
Ending exercisable at December 31, 2022		337,559		$	70.05		2.54	$	25,647,949

The weighted-average grant-date fair value of options granted during the three months ended December 31, 2022 and 2021, was $55.15 and $60.55, respectively.

Included in the above-noted stock option grants and stock compensation expense are performance-based stock options that 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. The Company recognized $749,000 and $481,000 of stock compensation expense for the three months ended December 31, 2022 and 2021, respectively, for performance-based stock options. The Company recognized $1,404,000 and $1,702,000 of stock compensation expense for the nine months ended December 31, 2022 and 2021, respectively, for performance-based stock options.

Note 5 — Weighted Average Shares and Net Income Per Share

Basic weighted average common shares outstanding decreased to 17,245,000 for the quarter ended December 31, 2022 from 17,785,000 for the quarter ended December 31, 2021. Diluted weighted average common and common equivalent shares outstanding decreased to 17,487,000 for the quarter ended December 31, 2022 from 18,211,000 for the quarter ended December 31, 2021. Basic weighted average common and common equivalent shares decreased to 17,379,000 for the nine months ended December 31, 2022 from 17,841,000 for the nine months ended December 31, 2021. Diluted weighted average common and common equivalent shares decreased to 17,647,000 for the nine months ended December 31, 2022 from 18,221,000 for the nine months ended December 31, 2021.

Net income per common and common equivalent share was computed by dividing net income by the weighted average number of common and common share equivalents outstanding during the period. The following table sets forth the calculations of the basic and diluted weighted average common shares for the three and nine months ended December 31, 2022 and 2021:


	Three Months Ended December 31,
	2022		2021
Net Income	$	16,849,000	$	13,858,000
Basic:
Weighted average common shares outstanding		17,245,000		17,785,000
Net Income per share	$	0.98	$	0.78
Diluted:
Weighted average common shares outstanding		17,245,000		17,785,000
Treasury stock impact of stock options		242,000		426,000
Total common and common equivalent shares		17,487,000		18,211,000
Net Income per share	$	0.96	$	0.76


	Nine Months Ended December 31,
	2022		2021
Net Income	$	48,196,000	$	46,773,000
Basic:
Weighted average common shares outstanding		17,379,000		17,841,000
Net Income per share	$	2.77	$	2.62
Diluted:
Weighted average common shares outstanding		17,379,000		17,841,000
Treasury stock impact of stock options		268,000		380,000
Total common and common equivalent shares		17,647,000		18,221,000
Net Income per share	$	2.73	$	2.57

Note 8 — 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 15 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 generally 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. During the quarter ended June 30, 2022, the Company reassessed the assumption of the renewal term and determined that, as a consequence of 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 balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The components of lease expense are as follows:


	Three Months Ended		Three Months Ended
	December 31, 2022		December 31, 2021
Operating lease expense	$	3,090,000	$	3,580,000
Finance lease expense		23,000		24,000
Short-term lease expense		5,000		3,000
Variable lease expense		213,000		136,000
Total lease expenses	$	3,331,000	$	3,743,000

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	Nine Months Ended		Nine Months Ended
	December 31, 2022		December 31, 2021
Operating lease expense	$	9,381,000	$	10,519,000
Finance lease expense		70,000		74,000
Short-term lease expense		12,000		10,000
Variable lease expense		577,000		403,000
Total lease expenses	$	10,040,000	$	11,006,000

The following table presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets related to its operating leases:


	December 31, 2022			March 31, 2022
Right-of-use asset, net	$	29,936,000		$	35,020,000
Short-term lease liability	$	10,687,000		$	13,348,000
Long-term lease liability		25,773,000			29,792,000
Total lease liabilities	$	36,460,000		$	43,140,000
Weighted average remaining operating lease term	4.15 years			4.32 years
Weighted average remaining finance lease term	2.5 years			3.25 years
Weighted average discount rate		2.8	%		2.6	%

Supplemental cash flow information related to operating leases for the nine months ended December 31, 2022 and 2021 was as follows:


	Nine Months Ended		Nine Months Ended
	December 31, 2022		December 31, 2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	10,984,000	$	11,204,000
Operating lease liabilities arising from obtaining ROU assets	$	56,105,000	$	60,420,000
Finance lease liabilities arising from obtaining ROU assets	$	358,000	$	358,000
Reductions to ROU assets resulting from reductions to operating lease liabilities	$	2,217,000	$	6,446,000

As of December 31, 2022, maturities of operating lease liabilities for each of the next five years and thereafter are as follows:



2023	$	3,412,000
2024		10,529,000
2025		8,415,000
2026		6,120,000
2027		4,380,000
Thereafter		6,049,000
Total lease payments		38,905,000
Less interest		(2,445,000	)
Total lease liabilities	$	36,460,000

As of December 31, 2022, the Company has approximately $5.5 million of additional operating lease commitments that have not yet commenced. These additional leases commence in 2023 and have lease terms between 2 years and 5 years.

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report 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, including the impact of COVID-19, 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) the impact of global pandemics, such as COVID-19; 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; our ability to renew or maintain contracts with our customers on favorable terms or at all; our ability to expand certain areas of our business; growth in our sale of third-party administrator ("TPA") services; shifts in customer demands; increases in operating expenses including employee wages, benefits, and medical inflation; our ability 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 our business; possible litigation and legal liability in the course of operations and our 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; the impact of recently issued accounting standards on our consolidated financial statements; the availability of financing in the amounts, at the times, and on the terms necessary to support our future business; and the other risks identified in Part II, Item 1A of this report.

CorVel Corporation 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. In November 2022, the Bureau of Labor Statistics reported that the occupational injury count for 2021 was 2.24 million compared to 2.11 million in 2020, and 2.69 million in 2019. While there was an increase in the injury count for 2021 compared to 2020, the count has not returned to pre-pandemic levels.

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 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. 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 provides 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, the Company's 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.

The Company’s management is structured geographically with regional vice presidents who are responsible for all services provided by the Company within 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.

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.

While we are not directly impacted by seasonal shifts, 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.

The Company’s revenues increased to $179.4 million in the quarter ended December 31, 2022 from $164.5 million in the quarter ended December 31, 2021, an increase of $14.9 million, or 9.0%. This increase resulted primarily from both patient management and network solutions activity with existing customers and, to a lesser extent, an increase in new customers.

Cost of revenues increased to $139.0 million in the quarter ended December 31, 2022 from $129.3 million in the quarter ended December 31, 2021, an increase of $9.7 million, or 7.5%. This increase was primarily due to the increase of 9.0% in revenue mentioned above. Additionally, there was an increase in salaries of 9.8% resulting from increased average headcount of 9.3% in field operations and growth in average annual salary increases due to wage inflation.

General and administrative expense increased to $18.1 million in the quarter ended December 31, 2022 from $17.5 million in the quarter ended December 31, 2021, an increase of $0.6 million, or 3.6%. This increase was primarily due to an increase in corporate system costs.

Income tax expense increased to $5.4 million in the quarter ended December 31, 2022 from $3.8 million in the quarter ended December 31, 2021. Income before income tax provision increased to $22.2 million in the quarter ended December 31, 2022 from $17.7 million in the quarter ended December 31, 2021, an increase of $4.5 million, or 25.6%. The effective tax rate was 24.2% for the quarter ended December 31, 2022 compared to 21.6% in the quarter ended December 31, 2021.

Diluted weighted average common and common equivalent shares decreased to 17.5 million shares for the quarter ended December 31, 2022 from 18.2 million shares for the quarter ended December 31, 2021, a decrease of 724,000 shares, or 4.0%, due to the weighted impact of shares repurchased partially offset by the weighted impact of options exercised.

Diluted earnings per share increased to $0.96 per share in the quarter ended December 31, 2022 from $0.76 per share in the quarter ended December 31, 2021, an increase of $0.20 per share, or 26.3%. The increase in diluted earnings per share was primarily due to an increase in net income, which was slightly offset by a decrease in weighted diluted shares.

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. The percentages of total revenues attributable to patient management and network solutions services for the quarters ended December 31, 2022 and 2021 are as follows:

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes, and the percentage of revenues represented by certain items reflected in the Company’s unaudited consolidated income statements for the three months ended December 31, 2022 and 2021. The Company’s past operating results are not necessarily indicative of future operating results.

Change in revenue to the quarter ended December 31, 2022 from the quarter ended December 31, 2021

Revenues increased to $179.4 million in the quarter ended December 31, 2022 from $164.5 million in the quarter ended December 31, 2021, an increase of $14.9 million, or 9.0%. Patient management services revenues increased to $118.9 million from $107.7 million, an increase of 10.4%. This increase is primarily due to higher revenue from the Company’s TPA and related services. Total new claims increased by 7% during the December 31, 2022 quarter compared to the December 31, 2021 quarter. Network solutions services revenues increased to $60.5 million from $56.8 million, an increase of 6.5%. This increase is primarily due to increases in enhanced bill review programs services, which resulted in a higher number of bills reviewed and higher revenue per bill. Most of the increase came from growth with existing customers and, to a lesser extent, growth with new customers.

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. Approximately 36% of the costs incurred in the field are considered field indirect costs, which support both the patient management services and network solutions operations of the Company’s field operations.

Change in cost of revenues to the quarter ended December 31, 2022 from the quarter ended December 31, 2021

Cost of revenues increased to $139.0 million in the quarter ended December 31, 2022 from $129.3 million in the quarter ended December 31, 2021, an increase of $9.7 million, or 7.5%. The increase in cost of revenues was primarily due to the increase in total revenues of 9.0%. Additionally, there was an increase in salaries of 9.8% resulting from increased average headcount of 9.3% in field operations and growth in average annual salary increases due to wage inflation. Headcount increased due to an increase in new business and volume of business.

For the quarter ended December 31, 2022, general and administrative expense consisted of approximately 50% 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 expense 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.

Change in general and administrative expense to the quarter ended December 31, 2022 from the quarter ended December 31, 2021

Change in income tax expense to the quarter ended December 31, 2022 from the quarter ended December 31, 2021

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes, and the percentage of revenues represented by certain items reflected in the Company’s consolidated income statements for the nine months ended December 31, 2022 and 2021. The Company’s past operating results are not necessarily indicative of future operating results.

Change in revenue to the nine months ended December 31, 2022 from the nine months ended December 31, 2021

Revenues increased to $533.1 million for the nine months ended December 31, 2022 from $474.9 million for the nine months ended December 31, 2021, an increase of $58.2 million, or 12.3%. Patient management services revenues increased to $353.2 million from $312.8 million, an increase of 12.9%. This increase is primarily due to higher revenue from the Company’s TPA and related services. Total new claims increased by 15% during the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021. Network solutions services revenues increased to $179.9 million from $162.0 million, an increase of 11.0%. This increase is primarily due to increases in enhanced bill review programs services, which resulted in a higher number of bills reviewed and higher revenue per bill. Most of the increase came from growth with existing customers and, to a lesser extent, growth with new customers.

Cost of Revenues

Change in cost of revenues to the nine months ended December 31, 2022 from the nine months ended December 31, 2021

Cost of revenues increased to $416.8 million in the nine months ended December 31, 2022 from $365.8 million in the nine months ended December 31, 2021, an increase of $51.0 million, or 13.9%. The increase in cost of revenues was primarily due to the increase in total revenues of 12.3%. Additionally, there was an increase in salaries of 16.2% resulting from increased average headcount of 12.8% in field operations and growth in average annual salary increases due to wage inflation. Headcount increased due to an increase in new business and volume of business.

General and Administrative Expense

Change in administrative expense to the nine months ended December 31, 2022 from the nine months ended December 31, 2021

General and administrative expense increased to $54.3 million in the nine months ended December 31, 2022 from $50.8 million in the nine months ended December 31, 2021, an increase of $3.5 million, or 7.0%. This increase was primarily due to an increase in corporate system costs, marketing, and legal expenses.

Change in income tax expense to the nine months ended December 31, 2022 from the nine months ended December 31, 2021

Income tax expense increased to $13.8 million for the nine months ended December 31, 2022 from $11.5 million for the nine months ended December 31, 2021, an increase of $2.3 million, or 19.9%. Income before income tax provision increased to $62.0 million in the nine months ended December 31, 2022 from $58.3 million in the nine months ended December 31, 2021, an increase of $3.7 million, or 6.4%. The income tax expense as a percentage of income before income taxes, also known as the effective tax rate, was 22.1% for the nine months ended December 31, 2022 and 19.8% for the nine months ended December 31, 2021. For the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021, the effective tax rate is less than the statutory tax rate primarily because of the impact of the stock option exercises, that however had a less significant impact in the current year compared to prior year.

The Company has historically funded its operations and capital expenditures primarily from cash flow from operations, and to a lesser extent, proceeds from stock option exercises. Working capital decreased to $70.3 million as of December 31, 2022 from $93.6 million as of March 31, 2022, a decrease of $23.3 million. Cash decreased to $78.0 million as of December 31, 2022 from $97.5 million as of March 31, 2022, a decrease of $19.5 million. This is primarily due to the increase in spending to repurchase shares of the Company’s common stock. The Company did not apply for governmental loans to support the Company’s operations, but has taken advantage of certain aspects of the CARES Act such as the deferral of payroll tax deposits. The Company deferred a total of $10.4 million in payroll tax deposits, half of which was paid during the December 31, 2021 quarter, and the other half of which was paid during the December 31, 2022 quarter.

The Company is not a party to off-balance sheet arrangements as defined by the rules of 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 material 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 December 31, 2022, the Company had $78.0 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 its cash and cash equivalents, along with cash generated by ongoing operations, will be sufficient to satisfy its cash requirements over the next 12 months and beyond.

Nine months ended December 31, 2022 compared to nine months ended December 31, 2021

Net cash provided by operating activities increased to $69.5 million in the nine months ended December 31, 2022 from $50.4 million in the nine months ended December 31, 2021, an increase of $19.1 million. The increase in cash flow from operating activities was primarily due to the fact that in the nine months ended December 31, 2022, there was a source of cash due to the timing of tax payments versus in the nine months ended December 31, 2021, there was a use of cash due to the timing of the tax payments, which caused a $7.5 million swing.

Investing Activities

Nine months ended December 31, 2022 compared to nine months ended December 31, 2021

Net cash flow used in investing activities increased to $19.2 million in the nine months ended December 31, 2022 from $18.4 million in the nine months ended December 31, 2021, an increase of $0.7 million, which were exclusively capital purchases. The Company increased its spending primarily on developed software and reduced its spending on furniture and leasehold improvements as the Company reduces its lease footprint.

Nine months ended December 31, 2022 compared to nine months ended December 31, 2021

Net cash flow used in financing activities increased to $69.8 million for the nine months ended December 31, 2022 from $56.1 million for the nine months ended December 31, 2021, an increase of $13.7 million. The increase in net cash used in financing activities was primarily due to an increase in spending on share repurchases to $75.1 million for the nine months ended December 31, 2022. The Company spent $65.3 million on share repurchases for the nine months ended December 31, 2021. Additionally, stock option exercises decreased to $4.9 million for the nine months ended December 31, 2022 from $8.9 million for the nine months ended December 31, 2021. 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 December 31, 2022 to repurchase additional shares of its common stock in the future.

From time to time, the Company is involved in litigation arising in the ordinary course of business. The Company believes that resolution of these matters will not result in any payment that, individually, or in the aggregate, would be material to the financial position or results of operations of the Company.

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 believes inflation could have a material impact to pricing and operating expenses in future periods due to the state of the economy and current inflation rates.

The SEC defines critical accounting policies as those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company’s significant accounting policies which have the greatest potential impact on its financial statements are more fully described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of its Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 27, 2022. No changes in critical accounting policies have been made since the filing of that Annual Report on Form 10-K. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America (“GAAP”), with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting an available alternative would not produce a materially different result. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

See Note 1 – Summary of Significant Accounting Policies to the accompanying unaudited consolidated financial statements contained elsewhere in this report for information about recently issued and adopted accounting pronouncements.

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 December 31, 2022 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 December 31, 2022.

As of December 31, 2022, the Company held no market risk sensitive instruments for trading purposes, and the Company did not employ any derivative financial instruments, other financial instruments, or derivative commodity instruments to hedge any market risk. The Company had no debt outstanding as of December 31, 2022, and therefore, had no market risk related to debt.

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 Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, 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.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we are involved in litigation arising in the ordinary course of business. The Company believes that resolution of these matters will not result in any payment that, individually or in the aggregate, would be material to our consolidated financial position or results of operations.

A restated description of the risk factors associated with our business is set forth below. This description includes any and all changes (whether or not material) to, and supersedes, the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 27, 2022.

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 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.

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.

Our results of operations have been adversely affected and could in the future be materially adversely affected by the COVID-19 coronavirus pandemic, or other pandemics or incidents of disease.

The global spread of the COVID-19 coronavirus has created significant volatility, uncertainty, unemployment and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

The closure of offices or restrictions inhibiting our employees’ ability to travel or interact with claimants and access claim sites, has disrupted, and could in the future disrupt, our ability to provide our services and solutions to our customers. The majority of our workforce continues to work from home, which in the long run could have material adverse impact on our level of service. This may result in, among other things, decreased demand for our services, terminations of customer contracts, delays in our ability to perform services, an altering of the mix of services requested by customers and claimants, and other losses of revenue. Customers may also slow down decision making, delay planned work or seek to terminate existing agreements. Any of these events could cause or contribute to the risks and uncertainties enumerated in this report and could materially adversely affect our business, financial condition, results of operations and/or stock price.

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. The rapid and widespread transmission of COVID-19 continues to impact us in significant ways. If there is a resurgence in the pandemic, 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:

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.

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.

Within the past few years, as 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.

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.

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.

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.

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.

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.

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.

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.

A cyber-attack or other data security incident could result in the significant and protracted disruption of our business such that:

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.

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.

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.

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.

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.

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 May 2021 and brought the number of shares authorized for repurchase over the life of the program to 38,000,000 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.

There were no sales of unregistered equity securities during the period covered by this report. The following table sets forth the repurchases of the Company’s common stock made by or on behalf of the Company in open-market transactions for the quarter ended December 31, 2022 pursuant to its publicly announced stock repurchase plan.

In 1996, the Company’s Board of Directors authorized a stock repurchase program 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 authorized for repurchase under the repurchase 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. There is no expiration date for the repurchase program. The Company repurchased 491,493 shares of its common stock for $75.1 million at an average price of $152.76 per share during the nine months ended December 31, 2022. As of December 31, 2022, the Company had repurchased 37,711,118 shares of its common stock over the life of the program.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


5128 Apache Plume Road, Suite 400
Fort Worth, TX		76109
(Address of principal executive offices)		(Zip Code)


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets – December 31, 2022 (unaudited) and March 31, 2022	3
	Consolidated Income Statements (unaudited) – Three months ended December 31, 2022 and 2021	4
	Consolidated Income Statements (unaudited) – Nine months ended December 31, 2022 and 2021	5
	Consolidated Statements of Stockholders’ Equity (unaudited) – Three and nine months ended December 31, 2022 and 2021	6
	Consolidated Statements of Cash Flows (unaudited) – Nine months ended December 31, 2022 and 2021	7
	Notes to Consolidated Financial Statements (unaudited) – December 31, 2022	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

	Signatures	36


	December 31, 2022			March 31, 2022
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	78,031,000		$	97,504,000
Customer deposits		82,857,000			69,781,000
Accounts receivable, net		82,791,000			82,586,000
Prepaid taxes and expenses		13,064,000			15,123,000
Total current assets		256,743,000			264,994,000
Property and equipment, net		82,066,000			76,268,000
Goodwill		36,814,000			36,814,000
Other intangibles, net		1,350,000			1,669,000
Right-of-use asset, net		29,936,000			35,020,000
Other assets		778,000			481,000
TOTAL ASSETS	$	407,687,000		$	415,246,000
Liabilities and Stockholders' Equity
Current Liabilities
Accounts and taxes payable	$	16,616,000		$	14,431,000
Accrued liabilities		169,810,000			156,939,000
Total current liabilities		186,426,000			171,370,000
Deferred income taxes, net		683,000			1,689,000
Long-term lease liabilities		25,773,000			29,792,000
Total liabilities		212,882,000			202,851,000
Commitments and contingencies
Stockholders' Equity
Common stock, $.0001 par value: 120,000,000 shares authorized at December 31, 2022 and March 31, 2022; 54,891,298 shares issued (17,180,180 shares outstanding, net of Treasury shares) and 54,788,712 shares issued (17,569,087 shares outstanding, net of Treasury shares) at December 31, 2022 and March 31, 2022, respectively		3,000			3,000
Paid-in capital		210,904,000			201,609,000
Treasury stock (37,711,118 shares at December 31, 2022 and 37,219,625 shares at March 31, 2022)		(729,601,000	)		(654,520,000	)
Retained earnings		713,499,000			665,303,000
Total stockholders' equity		194,805,000			212,395,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	407,687,000		$	415,246,000


	Three Months Ended December 31, 2022
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – September 30, 2022		54,873,202	$	3,000	$	207,986,000		(37,559,016	)	$	(706,806,000	)	$	696,650,000	$	197,833,000
Stock issued under stock option plan, net of shares repurchased		18,096		—		1,220,000		—			—			—		1,220,000
Stock-based compensation expense		—		—		1,698,000		—			—			—		1,698,000
Purchase of treasury stock		—		—		—		(152,102	)		(22,795,000	)		—		(22,795,000	)
Net income		—		—		—		—			—			16,849,000		16,849,000
Balance – December 31, 2022		54,891,298	$	3,000	$	210,904,000		(37,711,118	)	$	(729,601,000	)	$	713,499,000	$	194,805,000


	Three Months Ended December 31, 2021
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
Balance – September 30, 2021		54,701,476	$	3,000	$	196,174,000		(36,937,900	)	$	(604,190,000	)	$	631,808,000	$	223,795,000
Stock issued under stock option plan, net of shares repurchased		25,917		—		1,627,000		—			—			—		1,627,000
Stock-based compensation expense		—		—		1,183,000		—			—			—		1,183,000
Purchase of treasury stock		—		—		—		(135,734	)		(25,536,000	)		—		(25,536,000	)
Net income		—		—		—		—			—			13,858,000		13,858,000
Balance – December 31, 2021		54,727,393	$	3,000	$	198,984,000		(37,073,634	)	$	(629,726,000	)	$	645,666,000	$	214,927,000


	Nine Months Ended December 31, 2022
	Common Shares		Stock Amount		Paid-in- Capital		Treasury Shares			Treasury Stock			Retained Earnings		Total Stockholders' Equity
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		2,636		—		346,000		—			—			—		346,000
Stock issued under stock option plan, net of shares repurchased		99,950		—		4,922,000		—			—			—		4,922,000
Stock-based compensation expense		—		—		4,027,000		—			—			—		4,027,000
Purchase of treasury stock		—		—		—		(491,493	)		(75,081,000	)		—		(75,081,000	)
Net income		—		—		—		—			—			48,196,000		48,196,000
Balance – December 31, 2022		54,891,298	$	3,000	$	210,904,000		(37,711,118	)	$	(729,601,000	)	$	713,499,000	$	194,805,000

	Nine Months Ended December 31, 2021
	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		1,534		—		271,000		—			—			—		271,000
Stock issued under stock option plan, net of shares repurchased		196,217		—		8,888,000		—			—			—		8,888,000
Stock-based compensation expense		—		—		3,884,000		—			—			—		3,884,000
Purchase of treasury stock		—		—		—		(420,082	)		(65,291,000	)		—		(65,291,000	)
Net income		—		—		—		—			—			46,773,000		46,773,000
Balance – December 31, 2021		54,727,393	$	3,000	$	198,984,000		(37,073,634	)	$	(629,726,000	)	$	645,666,000	$	214,927,000


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


	December 31, 2022		March 31, 2022
Accounts payable	$	14,702,000	$	14,080,000
Income taxes payable and uncertain tax positions		1,914,000		351,000
Total accounts and taxes payable	$	16,616,000	$	14,431,000


	December 31, 2022		March 31, 2022
Payroll, payroll taxes and employee benefits	$	36,477,000	$	36,066,000
Customer deposits		82,857,000		69,781,000
Accrued professional service fees		8,596,000		8,073,000
Self-insurance accruals		3,032,000		2,798,000
Deferred revenue		26,340,000		25,796,000
Operating lease liabilities		10,687,000		13,348,000
Other		1,821,000		1,077,000
Total accrued liabilities	$	169,810,000	$	156,939,000


	Three Months Ended			Three Months Ended						Percentage
	December 31, 2022			December 31, 2021			Change			Change
Revenue	$	179,386,000		$	164,508,000		$	14,878,000			9.0	%
Cost of revenues		139,041,000			129,320,000			9,721,000			7.5	%
Gross profit		40,345,000			35,188,000			5,157,000			14.7	%
Gross profit as percentage of revenue		22.5	%		21.4	%
General and administrative		18,128,000			17,506,000			622,000			3.6	%
General and administrative as percentage of revenue		10.1	%		10.6	%
Income before income tax provision		22,217,000			17,682,000			4,535,000			25.6	%
Income before income tax provision as percentage of revenue		12.4	%		10.7	%
Income tax provision		5,368,000			3,824,000			1,544,000			40.4	%
Net income	$	16,849,000		$	13,858,000		$	2,991,000			21.6	%
Weighted Average Shares
Basic		17,245,000			17,785,000			(540,000	)		(3.0	%)
Diluted		17,487,000			18,211,000			(724,000	)		(4.0	%)
Earnings Per Share
Basic	$	0.98		$	0.78		$	0.20			25.6	%
Diluted	$	0.96		$	0.76		$	0.20			26.3	%


					Total Number of
					Shares Purchased		Maximum Number
					as Part of Publicly		of Shares that may
	Total Number of		Average Price Paid		Announced		yet be Purchased
Period	Shares Purchased		Per Share		Program		Under the Program
October 1 to October 31, 2022		55,904	$	150.21		55,904		385,080
November 1 to November 30, 2022		53,084	$	152.52		53,084		1,331,996
December 1 to December 31, 2022		43,114	$	146.06		43,114		1,288,882
Total		152,102	$	149.84		152,102		1,288,882


3.1		Fourth Amended and Restated Certificate of Incorporation of the Company. 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 with the SEC on August 6, 2020 (File No. 000-19291).

3.2		Second Amended and Restated Bylaws of the Company. Incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly report period ended June 30, 2020 filed with the SEC on August 6, 2020 (File No. 000-19291).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) Promulgated under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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).

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*		The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing.


	CORVEL CORPORATION

Dated: February 2, 2023	By:	/s/ Michael G. Combs
	Michael G. Combs, Chief Executive Officer and President

Dated: February 2, 2023	By:	/s/ Brandon T. O’Brien
	Brandon T. O’Brien,
	Chief Financial Officer (Principal Financial Officer)