What changed in this filing

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Item 9A. Controls and Procedures

2021-05-28 compared with 2020-06-10 · 272 added, 307 removed, 1012 unchanged (36% of the section changed)

12 unchanged sentences

Based on this assessment, our management concluded that our internal control over financial reporting was effective as of March 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Our independent registered public accounting firm, Haskell & White LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of March 31, 2020 as stated in their report that is included in Part II, Item 8 herein.

Our independent registered public accounting firm, Haskell & White LLP, has audited our consolidated financial statements included in this annual report and has issued an attestation report on the effectiveness of our internal control over financial reporting as of March 31, 2021 as stated in their report that is included in Part II, Item 8 herein.

Changes to Internal Control over Financial Reporting

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Fiscal Year Ended March 31, 2019:

(a)(3) E xhibits:

(a)(3) Exhibits:

Method of Filing

Amended and Restated Certificate of Incorporation of the Company

Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 10, 2011.

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 period ended June 30, 2006 filed on August 14, 2006.

Certificate of Designation Increasing the Number of Shares of Series A Junior Participating Preferred Stock

Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008.

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 on August 6, 2020 (File No.

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 period ended June 30, 2020 filed on August 6, 2020 (File No.

Second Amended and Restated Preferred Shares Rights Agreement, dated as of November 17, 2008, by and between CorVel Corporation and Computershare Trust Company, N.A., including the original Certificate of Designation, the Certificate of Designation Increasing the Number of Shares, the form of Right Certificate (as amended) and the Summary of Rights (as amended) attached thereto as Exhibits A-1, A-2, A-3, B and C, respectively

Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008.

Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008 (File No.

Description of Securities

1 unchanged sentence

Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan)

Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 8, 2018.

Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 4, 2020 (File No.

Forms of Notice of Grant of Stock Option, Stock Option Agreement and Notice of Exercise Under the Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option)

Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 8, 2018, Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 filed on November 9, 2006, Exhibits 10.7, 10.8 and 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994 filed on June 29, 1994, Exhibits 99.2, 99.3, 99.4, 99.5, 99.6, 99.7 and 99.8 to the Company’s Registration Statement on Form S-8 (File No.

Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 8, 2018 (File No.

000-19291), Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 filed on November 9, 2006 (File No.

000-19291), Exhibits 10.7, 10.8 and 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994 filed on June 29, 1994 (File No.

000-19291), Exhibits 99.2, 99.3, 99.4, 99.5, 99.6, 99.7 and 99.8 to the Company’s Registration Statement on Form S-8 (File No.

333-94440) filed on July 10, 1995, and Exhibits 99.3 and 99.5 to the Company’s Registration Statement on Form S-8 (File No.

1 unchanged sentence

Restated 1991 Employee Stock Purchase Plan, as amended

Incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 filed on November 5, 2015.

Incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 filed on November 5, 2015 (File No.

Fidelity Master Plan for Savings and Investment, and amendments (P) Paper filing

3 unchanged sentences

Second Amended and Restated Preferred Shares Rights Agreement, dated as of November 17, 2008, by and between CorVel Corporation and Computershare Trust Company, N.A., including the original Certificate of Designation, the Certificate of Designation Increasing the Number of Shares, the form of Rights Certificate (as amended) and the Summary of Rights (as amended) attached thereto as Exhibits A-1, A-2, A-3, B and C, respectively

Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008.

Stock option agreement dated November 10, 2015, between the Company and Richard J.

Schweppe, providing performance vesting.

Incorporated herein by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed on June 7, 2019.

Stock option agreement dated November 10, 2015, between the Company and Michael G.

Combs, providing performance vesting.

Incorporated herein by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed on June 7, 2019.

Stock option agreement dated November 10, 2015, between the Company and Diane J.

Blaha, providing performance vesting.

Incorporated herein by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed on June 7, 2019.

Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008 (File No.

Stock option agreement dated November 3, 2016 between the Company and Michael G.

Combs, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock option agreement dated November 3, 2016 between the Company and Diane J.

Blaha, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock option agreement dated November 3, 2016 between the Company Richard J.

Schweppe, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 2, 2017 by and between CorVel Corporation and Michael G.

Combs, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 2, 2017 by and between CorVel Corporation and Diane J.

Blaha, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 2, 2017 by and between CorVel Corporation and Michael D.

Saverien, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 2, 2017 by and between CorVel and Corporation and Maxim Shishin, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 1, 2018 by and between CorVel Corporation and Michael G.

Combs, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 1, 2018 by and between CorVel Corporation and Diane J.

Blaha, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Method of Filing

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Saverien, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 1, 2018 by and between CorVel and Corporation and Maxim Shishin, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 1, 2018 by and between CorVel and Corporation and Brandon O’Brien, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement dated November 1, 2018 by and between CorVel and Corporation and Jennifer Yoss, providing for performance vesting.

Refiled herewith.

Incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed on June 10, 2020 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Michael G.

Combs, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Brandon T.

O’Brien, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Diane J.

Blaha, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Michael D.

Saverien, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Maxim Shishin, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2019 by and between CorVel Corporation and Jennifer L.

Yoss, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019.

Incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K/A filed on December 31, 2019 (File No.

Stock Option Agreement granted November 5, 2020 by and between CorVel Corporation and Michael G.

Combs, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 12, 2020 (File No.

Stock Option Agreement granted November 5, 2020 by and between CorVel Corporation and Brandon T.

O’Brien, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 12, 2020 (File No.

Stock Option Agreement granted November 5, 2020 by and between CorVel Corporation and Diane J.

Blaha, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 12, 2020 (File No.

Stock Option Agreement granted November 5, 2020 by and between CorVel Corporation and Maxim Shishin, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 12, 2020 (File No.

Stock Option Agreement granted November 5, 2020 by and between CorVel Corporation and Jennifer L.

Yoss, providing for performance vesting.

Incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 12, 2020 (File No.

Method of Filing

Subsidiaries of the Company.

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Furnished herewith.

Method of Filing

Certification of the Chief Financial Officer Pursuant to 18 U.S.C.

1 unchanged sentence

Furnished herewith.

The following materials from CorVel Corporation's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Balance Sheets as of March 31, 2020 and March 31, 2019;

(ii) Consolidated Statements of Income for the fiscal years ended March 31, 2020, 2019 and 2018;

(iii) Consolidated Statements of Stockholders' Equity for the fiscal years ended March 31, 2020, 2019 and 2018;

(iv) Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2020, 2019 and 2018;

and (v) Notes to Consolidated Financial Statements

Inline XBRL Instance Document

Furnished herewith.

Inline XBRL Taxonomy Extension Schema Document

Furnished herewith.

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Furnished herewith.

Inline XBRL Taxonomy Extension Definition Linkbase Document

Furnished herewith.

Inline XBRL Taxonomy Extension Label Linkbase Document

Furnished herewith.

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Furnished herewith.

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

Furnished herewith.

* - Denotes management contract or compensatory plan or arrangement.

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Chief Executive Officer and President

June 10, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Chairman of the Board

June 10, 2020

Gordon Clemons

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Chief Executive Officer and President

June 10, 2020

(Principal Executive Officer)

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Chief Financial Officer

June 10, 2020

(Principal Financial Officer)

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Vice President, Accounting

June 10, 2020

(Principal Accounting Officer)

June 10, 2020

/s/ Steven J.

June 10, 2020

/s/ J effrey J.

June 10, 2020

SELECTED CONSOLIDATED FINANCIAL DATA

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Representative examples of these factors include (without limitation) the impact of global pandemics, such as COVID-19;

the impact of possible cybersecurity incidents;

changes in interpretations or applications of the Tax Cuts and Jobs Act through regulations and guidance that may be issued by the U.S.

Department of Treasury;

general industry and economic conditions, including a decreasing number of national claims due to a decreasing number of injured workers;

cost of capital and capital requirements;

existing and possible litigation and legal liability in the course of operations and the Company’s ability to resolve such litigation;

competition from other managed care companies;

competition from other managed care companies and third party administrators;

the ability to expand certain areas of the Company’s business;

growth in the Company’s sale of TPA services;

shifts in customer demands;

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changes in operating expenses including employee wages, benefits, and medical inflation;

governmental and public policy changes, including but not limited to legislative and administrative law and rule implementation or change;

cost of capital and capital requirements;

dependence on key personnel;

the continued availability of financing in the amounts and at the terms necessary to support the Company’s future business;

the impact of possible cybersecurity incidents;

existing and possible litigation and legal liability in the course of operations and the Company’s ability to resolve such litigation;

governmental and public policy changes, including but not limited to legislative and administrative law and rule implementation or change;

the impact of recently issued accounting standards on the Company’s consolidated financial statements;

growth in the Company’s sale of TPA services and the other risks identified in Part I, Item 1A of this annual report, “Risk Factors”.

the continued availability of financing in the amounts and at the terms necessary to support the Company’s future business and the other risks identified in Part I, Item 1A of this annual report, “Risk Factors”.

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.

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Patient management services include the processing of claims for self-insured payors with respect to property and casualty insurance.

Organizati onal Structure

Organizational Structure

The Company’s management is structured geographically with regional vice presidents who are responsible for all services provided by the Company in his or her particular region and responsible for the operating results of the Company in multiple states.

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The Company had revenues of $553 million for the fiscal year ended March 31, 2021, a decrease of $40 million, or 7%, compared to $592 million for the fiscal year ended March 31, 2020.

This decrease was primarily due to a 9.7% decrease in network solutions, driven by a decrease in pharmacy bills.

This was partially offset by a 5.1% increase in patient management services, driven by an increase in TPA services.

During fiscal 2020, the Company’s gross profit increased to $126 million from $125 million in fiscal 2019, an increase of $1 million, or 1%.

The increase in gross profit was primarily due to an increase in margins in higher margin enhanced bill review program services.

During fiscal 2020, the Company’s general and administrative expenses increased to $65.2 million from $63.3 million in fiscal 2019, an increase of $1.9 million, or 3.0%.

This increase was primarily due to an increase in legal and marketing costs.

This decrease was due to a decline in revenues in patient management and network solutions services, primarily due to lower bill volume and the economic impact of the COVID-19 pandemic in the United States during fiscal 2021.

During fiscal 2021, the Company’s gross profit decreased to $124 million from $126 million in fiscal 2020, a decrease of $2 million, or 2%.

This decrease was primarily due to the decrease of 7% in revenue mentioned above, in connection with which there was a decrease in salaries resulting from decreased headcount of 3.8% in field operations.

During fiscal 2021, the Company’s general and administrative expenses decreased to $64.4 million from $65.2 million in fiscal 2020, a decrease of $0.8 million, or 1.2%.

This decrease was primarily due to a decrease in legal expenses.

During fiscal 2021, the Company’s net income before tax decreased to $59.2 million from $60.7 million in fiscal 2020, a decrease of $1.5 million, or 2.5%.

The decrease was primarily due to a decrease in revenues, as well as an increase in general and administrative expenses.

The decrease was primarily due to a decrease in revenues.

During fiscal 2021, the Company’s income tax expense decreased to $12.8 million from $13.3 million in fiscal 2020, a decrease of $0.5 million, or 3.9%.

The Company’s effective income tax rate was 22% for fiscal year 2020 and 24% for fiscal year 2019.

The decrease was due to a decrease in income before income taxes.

The Company’s effective income tax rate was 22% for fiscal years 2021 and 2020.

Diluted weighted average shares were 18.2 million shares in fiscal 2021 and 18.6 million shares in fiscal 2020, with a decrease of 436,000 shares, or 2.3%.

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These repurchases were funded primarily from the Company’s operating cash flows.

Diluted earnings per share in creased to $2.55 in fiscal 2020 from $2.46 in fiscal 2019 , an increase of $0.09 per share, or 3.7% .

The increase in diluted earnings per share was primarily due to an increase in net income and a decrease in diluted weighted average shares.

Diluted earnings per share was $2.55 in fiscal 2021 and in fiscal 2020 .

This was primarily due to a decrease in net income and a decrease in diluted weighted average shares because of shares repurchased under the Company’ s stock repurchase program .

COVID-19 Pandemic

The economies of the United States and other countries around the world have rapidly contracted as a result of the COVID-19 pandemic.

The decreased level of economic activity is leading to, and is likely to continue to lead to, a decline in exposure units and rising unemployment.

While the full impact of the COVID-19 pandemic cannot be fully assessed at this time, the Company expects the ongoing global economic slowdown resulting from the COVID-19 pandemic could have a material adverse effect on its business, results of operations, financial condition, and cash flows in one or more future quarters.

As a result of the economic contraction from the COVID-19 pandemic, cases received in future quarters could be materially below the March 2020 quarter levels.

Additionally, the Company had an 8% reduction in work force that began in the March quarter and continued through the June quarter.

The decreased level of economic activity and uneven economic recovery is leading to, and is likely to continue to lead to, a decline and/or volatility in exposure units and prolonged and uneven unemployment.

While the full impact of the COVID-19 pandemic cannot be fully assessed at this time, the Company expects that the ongoing global economic slowdown and uneven recovery resulting from the COVID-19 pandemic could continue to have a material adverse effect on its business, results of operations, financial condition, and cash flows in one or more future quarters.

Through the March 2021 quarter, the COVID-19 pandemic continued to impact our business, even though the impact was not as significant as it was during the June and September 2020 quarters.

We implemented a 10% reduction in headcount that began late in the March 2020 quarter and continued through the June 2020 quarter.

We took actions intended to protect our employees and our customers that adversely affected our results.

We reduced discretionary spending, including but not limited to cutting spending in planned capital expenditures, travel, recruiting, consulting and temporary help expenses.

Additionally, we temporarily suspended share repurchases under our stock repurchase program, from March 21 through June 14, 2020.

We did not apply for governmental loans to support our operations, but we have taken advantage of certain aspects of the CARES Act such as the deferral of payroll tax deposits through December 31, 2020.

The majority of our workforce continues to work from home.

The Company began realizing sequential increases in revenues during the September and December 2020 quarters, and the March 2021 quarter.

Management expects this trend to continue in 2021, especially with the distribution of vaccines, but there can be no assurance that vaccines will be distributed timely or be effective, that there will not be additional surges in COVID-19 and new stay at home mandates, or that the economic recovery will continue.

The Company cannot provide any assurance that the assumptions used to estimate its liquidity requirements will remain accurate due to the unprecedented nature of the disruption to operations and the unpredictability of the COVID-19 global pandemic.

As a consequence, estimates of the duration of the pandemic and the severity of the impact on future earnings and cash flows could change and have a material impact on our results of operations and financial condition.

The ultimate duration and impact of the COVID-19 pandemic on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, repeat or cyclical outbreaks, and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Furthermore, the extent to which the Company’s mitigation efforts are successful, if at all, is not presently ascertainable.

However, the Company expects that its results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions, which include a global recession.

Results of Operations

1 unchanged sentence

Patient management services include claims management and all services sold to claims management customers, case management, 24/7 nurse triage, utilization management, vocational rehabilitation, and life care planning.

Network solutions services include fee schedule auditing, hospital bill auditing, independent medical examinations, directed care services, diagnostic imaging review services and preferred provider referral services.

Network solutions services include fee schedule auditing, hospital bill auditing, pharmacy, independent medical examinations, directed care services, diagnostic imaging review services and preferred provider referral services.

The percentages of total revenues attributable to patient management and network solutions services for the fiscal years ended March 31, 2021, 2020 and 2019 are listed below.

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Weighted average shares used in net income per share:

As previously identified in Part I, Item 1A of this annual report, “Risk Factors ,” the Company’s ability to maintain or grow revenues is subject to several risks including, but not limited to, the COVID-19 pandemic, prolonged unemployment, changes in government regulations, exposure to litigation and the ability t o add or retain customers.

As previously identified in Part I, Item 1A of this annual report, “Risk Factors,” the Company’s ability to maintain or grow revenues is subject to several risks including, but not limited to, the COVID-19 pandemic, prolonged unemployment, changes in government regulations, exposure to litigation and the ability to add or retain customers.

Any of these, or a combination of all of them, could have a material and adverse effect on the Company’s results of operations going forward.

11 unchanged sentences

Revenues decreased to $553 million in fiscal 2021 from $592 million in fiscal 2020, a decrease of $40 million, or 7%.

The decrease in revenues was primarily due to a decrease in network solutions services, which decreased to $184 million from $205 million, a decrease of 10.5%.

Patient management services decreased to $369 million from $387 million, a decrease of 4.6%.

The decrease in revenues was primarily due to lower bill volume.

Due to the COVID-19 pandemic and economic shutdown, the Company saw a decrease in bill volume of 22% during fiscal 2021 compared to fiscal 2020, as well as a 2.5% decrease in workers compensation claims, which was partially offset by an increase in revenue per bill.

Fiscal 2020 Compared to Fiscal 2019

Revenues decreased to $592 million in fiscal 2020 from $596 million in fiscal 2019, a decrease of $4 million, or 1%.

The decrease in revenues was due to a decrease in network solutions services, which decreased to $205 million from $228 million, a decrease of 9.7%.

3 unchanged sentences

The increase in revenues from TPA services was due to a 13% increase in the number of customers, which contributed to a 3.3% increase in the total number of claims opened during the fiscal year.

Fiscal 2019 Compared to Fiscal 2018

Revenues increased to $596 million in fiscal 2019 from $558 million in fiscal 2018, an increase of $37 million, or 7%.

The increase in revenues was due to an increase in patient management services, which increased by 16.4%, from $316 million to $368 million.

The increase in patient management services was due to an increase in TPA services partially offset by a decrease in case management services to non-TPA customers.

The increase in revenues from TPA services was due to a 7% increase in the number of customers, which contributed to a 20% increase in the total number of claims opened during the fiscal year.

Network solutions services decreased to $228 million from $242 million, a decrease of 6%.

The decrease was due to a 9.2% decrease in the number of pharmacy services bills the Company reviewed during fiscal 2019.

Cost of Revenue

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The Company’s cost of revenues decreased to $429 million in fiscal 2021 from $466 million in fiscal 2020, a decrease of $37 million, or 8%.

The decrease in cost of revenues was primarily due to revenue decreasing in pharmacy services, therefore causing a decrease in prescription costs.

The decrease in cost of revenues was primarily due to the decrease in total revenues of 7%.

Additionally, the Company reduced headcount by 10% during the June 2020 quarter that was partially offset by hiring employees during the remainder of fiscal 2021 due to customer needs.

In fiscal 2021, headcount in field operations decreased by 3.8% compared to fiscal 2020.

Additionally, mileage, travel and meals expenses decreased by $6.6 million in fiscal 2021.

Fiscal 2020 Compared to Fiscal 2019

The Company’s cost of revenues increased to $471 million in fiscal 2019 from $451 million in fiscal 2018, an increase of $20 million, or 4%.

The increase in cost of revenues was primarily due to revenue increasing in lower margin TPA services.

Additionally, there was an increase of $16.1 million in salaries, to $229 million in fiscal 2019 from $213 million in fiscal 2018, due to an increase in headcount and field labor costs of 116 employees.

The Company’s cost of revenues decreased to $466 million in fiscal 2020 from $471 million in fiscal 2019, a decrease of $5 million, or 1%.

The decrease in cost of revenues was primarily due to revenue decreasing in pharmacy services, therefore causing a decrease in prescription costs.

General and Administrative Expense

4 unchanged sentences

Fiscal 2021 Compared to Fiscal 2020

General and administrative expense increased to $65.2 million in fiscal 2020 from $63.3 million in fiscal 2019, an increase of $1.9 million, or 3.0%.

The increase in general and administrative expense was primarily due to an increase in legal expenses of $1.0 million, which was primarily due to resolving customer contract issues and to a much lesser extent the Company’s July 2019 security incident, and an increase in marketing expenses of $0.7 million.

General and administrative expense decreased to $64.4 million in fiscal 2021 from $65.2 million in fiscal 2020, a decrease of $0.8 million, or 1.2%.

The decrease in general and administrative expense was primarily due to a decrease in legal expenses.

Fiscal 2020 Compared to Fiscal 2019

General and administrative expense increased to $65.2 million in fiscal 2020 from $63.3 million in fiscal 2019, an increase of $1.9 million, or 3.0%.

The increase in general and administrative expense was primarily due to an increase in corporate systems costs of $1.9 million and an increase in legal expenses of $1.1 million.

This is consistent with the percentage of increase in revenues of 6.7%.

The increase in general and administrative expense was primarily due to an increase in legal expenses of $1.0

million, which was primarily due to resolving customer contract issues and to a much lesser extent the Company’s July 2019 security incident, and an increase in marketing expenses of $0.7 million.

Income Tax Provision

1 unchanged sentence

The Company’s income tax expense decreased to $12.8 million for fiscal 2021 from $13.3 million for fiscal 2020, a decrease of $0.5 million.

The Company’s effective income tax rate was 22% for fiscal years 2021 and 2020.

Income before income tax provision decreased to $59.2 million in fiscal 2021 from $60.7 million in fiscal 2020, a decrease of $1.5 million.

Fiscal 2020 Compared to Fiscal 2019

The Company’s income tax expense decreased to $13.3 million for fiscal 2020 from $14.8 million for fiscal 2019, a decrease of $1.5 million.

The Company’s effective income tax rate was 22% for fiscal year 2020 and 24% for fiscal year 2019.

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Fiscal 2021 Compared to Fiscal 2020

The Company’s income tax expense was $14.8 million for fiscal 2019 and $12.2 million for fiscal 2018, an increase of $2.6 million.

The income tax expense was calculated based on a 24% tax rate for fiscal year 2019 and 25% for fiscal year 2018.

Income before income tax provision increased to $61.5 million in fiscal 2019 from $47.9 million in fiscal 2018, an increase of $13.6 million.

The Company’s net income decreased to $46.4 million in fiscal 2021 from $47.4 million in fiscal 2020, a decrease of $1.0 million, or 2.2%.

This decrease was primarily due to a 7% decrease in revenues.

Fiscal 2020 Compared to Fiscal 2019

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This increase was primarily due to a 10% decrease in income tax provision.

Fiscal 2019 Compared to Fiscal 2018

The Company’s net income increased to $46.7 million in fiscal 2019 from $35.7 million in fiscal 2018, an increase of $11.0 million, or 30.8%.

This increase was primarily due to a 28.4% increase in income before income taxes.

Earnings per Share

Fiscal 2021 Compared to Fiscal 2020

The Company’s diluted earnings per share increased to $2.55 in fiscal 2020 from $2.46 in fiscal 2019, an increase of $0.09.

This increase was primarily due to an increase in net income and a decrease in diluted weighted average shares because of shares repurchased under the Company’s stock repurchase program.

The Company’s diluted earnings per share was $2.55 in fiscal 2021 and 2020.

This was primarily due to a decrease in net income and a decrease in diluted weighted average shares because of shares repurchased under the Company’s stock repurchase program.

Fiscal 2020 Compared to Fiscal 2019

The Company’s diluted earnings per share increased to $2.55 in fiscal 2020 from $2.46 in fiscal 2019, an increase of $0.09.

This increase was primarily due to an increase in income before income taxes.

This increase was primarily due to an increase in net income and a decrease in diluted weighted average shares because of shares repurchased under the Company’s stock repurchase program.

Liquidity and Capital Resources

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Should the Company have lower income or cash flows, it could reduce or eliminate repurchases under the stock repurchase program until earnings and cash flow improved.

Working capital decreased to $75.3 million at March 31, 2020 from $98.6 million at March 31, 2019.

This is primarily due to an increase in cash used to repurchase shares of the Company’s common stock and due to an increase in operating lease liabilities due to the adoption of ASC 842 during the fiscal year.

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 stock repurchase program, introduce new services, and continue to develop healthcare-related businesses for at least the next twelve months.

The Company regularly evaluates cash requirements for current operations, commitments, and for capital acquisitions and other strategic transactions.

The Company may elect to raise additional funds for these purposes, through equity or debt financings or otherwise, as appropriate.

However, additional equity or debt financing may not be available when needed, on terms favorable to the Company or at all.

Working capital increased to $106.5 million at March 31, 2021 from $75.3 million at March 31, 2020.

This is primarily due to steps the Company took in response

to the COVID-19 pandemic, which included reducing its planned capital expenditures and reducing its work force.

Additionally, the Company temporarily suspended share repurchases under its stock repurchase program, from March 21 through June 14, 2020.

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 will be paid back by the end of calendar year 2021 and the other half will be paid back by the end of calendar year 2022 .

The Company believes that, after the steps it took in response to the COVID-19 pandemic described above, 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 may reduce or eliminate repurchases under the stock repurchase program until earnings and cash flow have returned to comfortable levels.

The Company regularly evaluates cash requirements for current operations, commitments, capital acquisitions, and other strategic transactions.

The Company may elect to raise additional funds for these purposes, through debt or equity financings or otherwise, as appropriate.

However, additional equity or debt financing may not be available when needed, with terms favorable to the Company or at all.

As of March 31, 2021, the Company had $139.7 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’s revolving credit facility expired in September 2019, and the Company chose not to renew its line of credit agreement with a financial institution.

The Company believes that the cash balance at March 31, 2021 along with anticipated internally-generated funds will be sufficient to meet the Company’s expected cash requirements for at least the next twelve months.

In response to the COVID -19 pandemic , the Company has taken a numbe r of steps to enhance its liquidi ty including red ucing its p lanned capital expenditures, temporarily suspending share repurchases under its stock repurchase program, reducing its work force , reducing compensation of highly compensated employees, and deferring the payment of certain compen sation for certain employees .

The Company does not intend to apply for governmental loans to support the Company’s operations , but is continuing to evaluate the CARES Act and is taking advantage of certain aspects of the CARES Act such as the deferral of p ayroll tax deposits .

The ultimate duration and impact of the COVID-19 pandemic on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, the distribution and effectiveness of vaccines, repeat or cyclical outbreaks, and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Furthermore, the extent to which the Company’s mitigation efforts are successful, if at all, is not presently ascertainable.

Operating Cash Flows

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Net cash provided by operating activities increased to $94.4 million in fiscal 2021 from $80.8 million in fiscal 2020, an increase of $13.6 million.

The improvement in cash from operating activities was primarily due to a decrease in accounts receivables, offset by a change in accrued liabilities.

The improvement in cash from operating activities was primarily due to the payroll taxes deferral provided by the CARES Act partially offset by a decrease in net income.

Fiscal 2020 Compared to Fiscal 2019

Net cash provided by operating activities increased to $80.8 million in fiscal 2020 from $78.6 million in fiscal 2019, an increase of $2.2 million.

The improvement in cash from operating activities was primarily due to an $11 million increase in net income, along with an increase in accrued liabilities, primarily in accrued wages, professional services and coupled with the favorable cash impact from an increase in deferred revenue.

The improvement in cash from operating activities was primarily due to a decrease in accounts receivables, offset by a change in accrued liabilities.

Investing Activities

Fiscal 2021 Compared to Fiscal 2020

Net cash flow used in investing activities decreased to $17.2 million in fiscal 2021 from $32.4 million in fiscal 2020, a decrease of $15.1 million.

This decrease was due to the Company reducing its planned capital expenditures due to the COVID-19 pandemic.

The Company expects to see its office space, and the associated capital expenditures, decrease over time due to more employees switching to working from home.

Fiscal 2020 Compared to Fiscal 2019

Net cash flow used in investing activities increased to $32.4 million in fiscal 2020 from $15.3 million in fiscal 2019, an increase of $17.1 million.

The increase in capital purchases is primarily due to construction improvements of the building the Company purchased in the greater Portland metropolitan area during fiscal 2018, which was placed into service during fiscal 2020.

Fiscal 2019 Compared to Fiscal 2018

Net cash flow used in investing activities decreased to $15.3 million in fiscal 2019 from $27.7 million in fiscal 2018, a decrease of $12.4 million.

The decrease in net cash flow used in investing activities was due to the Company not having large non-recurring purchases of a building and servers in fiscal 2019.

Financing Activities

Fiscal 2021 Compared to Fiscal 2020

Net cash flow used in financing activities increased to $57.0 million in fiscal 2020 from $27.4 million in fiscal 2019, an increase of $29.5 million.

Net cash flow used in financing activities decreased to $20.6 million in fiscal 2021 from $57.0 million in fiscal 2020, a decrease of $36.3 million.

During fiscal 2021, the Company spent $33 million to repurchase 367,961 shares of its common stock (at an average price of $88.79 per share).

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The Company is involved in litigation arising in the ordinary course of business.

Management believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial position or results of operations of the Company.

Management believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the consolidated financial position or results of operations of the Company.

The Company experiences pricing pressures in the form of competitive prices.

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The Company adopted ASC 606 using the modified retrospective method for those contracts which were not substantially completed as of the transition date, which was April 1, 2018.

The reported results for the fiscal years ended March 31, 2020 and March 31, 2019 reflect the application of the guidance of ASC 606.

Revenue is recognized when control of the promised se rvices is transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange for those services.

As the Company completes its performance obligations which are identified below, it has an unconditiona l right to consideration as outlined in the Company’s contracts.

The reported results for the fiscal years ended March 31, 2021, 2020, and 2019 reflect the application of the guidance of ASC 606.

Revenue is recognized when control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange for those services.

As the Company completes its performance obligations which are identified below, it has an unconditional right to consideration as outlined in the Company’s contracts.

Generally, the Company’s accounts receivable are expected to be collected in 30 days in accordance with the underlying payment terms.

For many of the Company’s services, the Company typicall y has one performance obligation;

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

however, it also provides the customer with an option to acquire additional services.

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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 ser vices or quantities requested by the customer.

Pricing is generally consistent for each service irrespective of the other services or quantities requested by the customer.

In transactions related to third-party service revenue, which includes pharmacy, directed care services and other services provided by the Company’s integrated network solutions services, the Company is considered the principal, as it directs the third party, controls the specified service, performs program utilization review, directs payment to the provider, accepts the financial risk of loss associated with services rendered and combines the services provided into an integrated solution, as specified within the Company’s customer contracts.

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The Company adopted ASC 842 using the modified retrospective method and utilizing the effective date as the date of initial application.

The reported results for the fiscal year ended March 31, 2020 reflect the application of the guidance of ASC 842 while the reported results for the fiscal year ended March 31, 2019 and 2018 were prepared under the guidance of ASC 840.

The reported results for the fiscal years ended March 31, 2021 and 2020 reflect the application of the guidance of ASC 842 while the reported results for the fiscal year ended March 31, 2019 were prepared under the guidance of ASC 840.

The Company determines if an arrangement includes a lease at inception.

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Adverse changes in general economic conditions or trends in reimbursement amounts for the Company’s services could affect the Company’s contractual and bad debt allowance estimates, collection of accounts receivable, cash flows, and results of operations.

No one customer accounted for 10% or more of accounts receivable at March 31, 2020 and 2019.

One customer accounted for 10% or more of accounts receivable at March 31, 2021.

No customer accounted for 10% or more of accounts receivable at March 31, 2020.

Goodwill and Long-Lived Assets :

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The Company determines its estimated self-insurance reserves based upon historical trends along with outstanding claims information provided by its claims paying agents.

However, it is possible that recorded accruals may not be adequate to cover the future p ayment of claims.

However, it is possible that recorded accruals may not be adequate to cover the future payment of claims.

Adjustments, if any, to estimated accruals resulting from ultimate claim payments will be reflected in earnings during the periods in which such adjustments are determined.

The Company’s self-insured liabilities contain uncertainties beca use management is required to make assumptions and judgments to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the balance sheet date.

The Company’s self-insured liabilities contain uncertainties because management is required to make assumptions and judgments to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the balance sheet date.

The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate its self-insured liabilities.

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Legal and Other Contingencies :

As discussed in Part I, Item 3 of this annual report, “Legal Proceedings” and in Note 10, “Contingencies and Legal Proceedings” of our consolidated financial statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business.

As discussed in Part I, Item 3 of this annual report, “ Legal Proceedings” and in Note 1 0 , “Contingencies and Legal Proceedings” in the notes to o ur consolidated financial statements, the Company is subject to various legal proceedings a nd claims that arise in the ordinary course of business.

The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.

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Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The Co mpany do es not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense.

However, if actual results are not consistent with our estimates or as sumptions, we may be exposed to changes in stock-based compensation expense that could be material.

The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material.

Software Development Costs :

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Recently Issued Accounting Standards

Guidance Adopted

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”.

The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”.

The pronouncement also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

Effective April 1, 2020, the Company adopted ASU 2019-12.

Adoption of the standard did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 regarding ASC Topic 326, “Measurement of Credit Losses on Financial Instruments”.

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This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The adoption of this guidance will not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 regarding ASC Topic 350, “Simplifying the Test for Goodwill Impairment”.

The pronouncement simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test.

Under this guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

This standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”.

The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”.

The pronouncement also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company is still evaluating the impact this guidance will have on its consolidated financial statements.

Guidance Adopted

In February 2016, the FASB issued ASU No.

2016-02, “Leases”, which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e.

lessees and lessors).

The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases.

This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months or less will be accounted for using an approach that is similar to the existing guidance for operating leases.

The standard is to be applied using a modified retrospective transition method.

The Company has adopted this standard as of April 1, 2020.

The adoption of this standard did not have a material impact on retained earnings on the consolidated balance sheet and did not have a material impact on the consolidated statements of income.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical assessments of whether contracts are or contain leases, lease classification, and initial direct costs.

The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

Refer to Note 9 of the accompanying consolidated financial statements for a description of the impact of this adopted guidance.

On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).

This standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services.

In July 2015, the FASB approved a one-year delay of the effective date of this new revenue recognition standard.

The Company has adopted this standard as of April 1, 2018.

Refer to Note 2 of the accompanying consolidated financial statements for a description of the impact of the adopted guidance.

In January 2016, the FASB issued ASU 2016-01 regarding Subtopic 825-10, “Financials Instruments — Overall:

Recognition and Measurements of Financial Assets and Financial Liabilities”.

The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.

It requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income.

The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.

The Company adopted this guidance prospectively on April 1, 2018.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No.

2016-15, “Statement of Cash Flows”, which reduces diversity in the practice of how certain transactions are classified in the statement of cash flows.

The new guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted.

The Company adopted this guidance prospectively on April 1, 2018.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM

The adoption did not have a material impact on our consolidated financial statements.

On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of CorVel Corporation

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Adoption of New Accounting Standard

As described in Notes 1 and 9 to the consolidated financial statements, on April 1, 2019, the Company changed its method of accounting for leases.

Basis for Opinion

Change in Accounting Principle

As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2020.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

REPORT OF INDEPEND ENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

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The Company recognizes revenue upon transfer of control of promised services or products to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or products.

Certain customer contracts contain provisions that permit the customer to compensate the Company only for services that it chooses to accept, which directly impacts the amount of revenue recognized by the Company.

Significant judgment is exercised by management in determining revenue recognition for these customer contract provisions, including the following:

Determination of whether a reasonable estimate of the transaction price can be made for related customer contracts.

Estimation of the amount of variable consideration to which the Company will be entitled in exchange for transferring the promised services to a customer.

Determination of whether the variable consideration should be constrained.

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

Certain services and products involve estimation of the related transaction price that, in turn, led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s judgments.

Revenues that are most significantly impacted by management’s estimates and judgments include (i) bill review services that contain contractual provisions that allow the customer to compensate the Company only for services that it utilizes and (ii) directed care services at period-end for which the Company has not been billed by the related provider.

How the Critical Matter was Addressed in the Audit:

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to estimate the amount of variable consideration to which the Company will be entitled in exchange for transferring the promised services to a customer.

Specifically, we tested controls over management’s review of the significant inputs and assumptions used in developing such estimates.

The audit procedures we applied included, among others, evaluating the methodology used, analyzing the significant assumptions discussed above, and testing the accuracy and completeness of key underlying data used in management’s calculations.

This included testing inputs to the calculation by comparing historical information to source documents and evaluating the historical accuracy of management’s estimates by comparing such estimates to subsequent actual results.

We also applied the following audit procedures related to the Company’s revenue recognition for these customer contracts:

We tested the effectiveness of internal controls related to the identification of customer contracts that contain such terms and provisions.

We tested the effectiveness of internal controls related to the estimation of variable consideration.

We evaluated management’s significant accounting policies related to these customer agreements for reasonableness.

For significant customer contracts that contain such terms and provisions, we performed the following procedures:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

Obtained and read customer contract source documents for each selection, including any other communications that were part of the customer arrangement.

Tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.

Assessed the terms in the customer contract and evaluated the appropriateness of management’s application of the Company’s accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

The primary procedures we performed to address this critical audit matter included the following, among others:

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to estimate the most likely amount of consideration to which the Company will be entitled in exchange for transferring the promised services or products to a customer.

We tested the effectiveness of certain controls over revenue recognition, including management’s controls over the methodology used to determine estimated revenues.

We tested the underlying data used by the Company to determine related bill review revenue estimates by examining customer contracts and analyzing historical utilization analyses completed by the Company.

We also examined subsequent period invoicing and cash collection activities to evaluate the reasonableness of management’s estimates.

We tested significant assumptions used in management’s calculations of period-end directed care revenues by analyzing historical time lag patterns between the provision of service and provider invoicing.

We also examined trends associated with the number of period-end provider referrals and performed gross margin reasonableness analyses to evaluate management’s estimates.

We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements.

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Irvine, California

June 10, 2020

CORVEL CORPORATION

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Other intangible assets, net

Right-of-use asset, net (Note 9)

Right-of-use asset, net

Deferred tax asset, net

LIABILITIES AND STOCKHOLDERS' EQUITY

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Deferred income taxes, net

Long-term operating lease liabilities (Note 9)

Long-term lease liabilities

Total liabilities

Commitments and contingencies (Notes 6, 7, 10, 11 and 13)

Commitments and contingencies

Stockholders' Equity

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respectively)

( 564,435,000

( 531,764,000

Retained earnings

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Balance – March 31, 2018

( 430,989,000

Stock issued under employee stock

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Purchase of treasury stock

Adjustment to deferred income

taxes for prior year's stock options

Balance – March 31, 2019

( 466,156,000

Stock issued under employee stock

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Balance – March 31, 2020

( 531,764,000

Stock issued under employee stock

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Balance – March 31, 2021

( 564,435,000

See accompanying notes to consolidated financial statements.

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Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Actual results could differ from those estimates.

Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance for doubtful accounts, accrual for income taxes, share-based payments related to performance-based awards, loss contingencies, estimated lives of claims for claims administration revenue recognition, estimates used in stock options valuations, and accrual for self-insurance reserves.

Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance for doubtful accounts, work in process, accrual for income taxes, share-based payments related to performance-based awards, loss contingencies, estimated lives of claims for claims administration revenue recognition, estimates used in stock options valuations, and accrual for self-insurance reserves.

Cash and Cash Equivalents:

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The carrying amount of the Company’s financial instruments (i.e.

cash and cash equivalents, accounts receivable, accounts payable, etc.) are all Level 1, and the Company believes their respective carrying values approximates their fair values at March 31, 2020 and 2019 due to the short-term nature of those instruments.

The Company has no Level 2 or Level 3 assets or liabilities.

Investment in Private Equity:

The Company has made an investment of $2,250,000 into a private equity limited partnership that invests in start-up companies primarily in the data analytics industry.

The Company accounts for the investment using the cost minus impairment method, plus or minus any changes resulting from observable price changes in orderly transactions.

The investment is recorded in other assets on the accompanying consolidated balance sheets.

It is not practicable to estimate the fair value of the investment due to the fact that the investment is in a diversified portfolio of companies whose shares are not traded in public markets.

cash and cash equivalents, accounts receivable, accounts payable, etc.) approximates their fair values at March 31, 2021 and 2020 due to the short-term nature of those instruments.

The Company has no financial instruments that are measured at fair value on a recurring basis.

Revenue Recognition:

The Company adopted ASC 606 using the modified retrospective method for those contracts which were not substantially completed as of the transition date, which was April 1, 2018.

The reported results for the fiscal years ended March 31, 2020 and 2019 reflect the application of the guidance of ASC 606.

Revenue is recognized when control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration expected t o be entitled to in exchange for those services.

The reported results for the three fiscal years ended March 31, 2021, 2020, and 2019 reflect the application of the guidance of ASC 606.

Revenue is recognized when control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange for those services.

As the Company completes its performance obligations which are identified in Note 2 , it has an unconditional right to consideration as outlined in the Company’s contracts.

Generally, the Company’s accounts r eceivable are expected to be collected in 30 days in accordance with the underlying payment terms.

Generally, the Company’s accounts receivable are expected to be collected in 30 days in accordance with the underlying payment terms.

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

however, it also provides the customer with an option to acquire a dditional services.

however, it also provides the customer with an option to acquire additional services.

The Company offers multiple services under its patient management and network solutions service lines.

The Company typically provides a menu of offerings from which the customer may choose to purchase.

The price of each service is separ ate and distinct and provides a separate and distinct value to the customer.

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 .

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Accounts receivable includes $ 17,213,000 , and $ 19,692,000 of unbilled receivables at March 31, 2021 and 2020, respectively.

Unbilled receivables represent the revenue for work performed which has not yet been invoiced to the customer.

Unbilled receivables represent the amounts expected to be collected for work performed which has not yet been invoiced to the customer.

Unbilled receivables are generally invoiced within one year.

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Substantially all of the Company’s customers are payors of workers’ compensation benefits and property and casualty insurance, which include insurance companies, third party administrators, self-insured employers and government entities.

Receivables are generally due within 30 days.

Credit losses consistently have been within management’s expectations.

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No customer accounted for 10 % or more of revenue for either fiscal 2021, 2020 or 2019.

No customer accounted for 10% or more of accounts receivable at either March 31, 2020 or 2019.

One customer accounted for 10 % or more of accounts receivable at March 31, 2021.

No customer accounted for 10 % or more of accounts receivable at March 31, 2020.

Property and Equipment:

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Such evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are deployed.

The Company adopted ASC 842 using the modified retrospective method and utilizing the effective date as the date of initial application.

The Company determines if an arrangement includes a lease at inception.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term;

and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the commencement date of the lease, renewal date of the lease or significant remodeling of the lease space based on the present value of the remaining future minimum lease payments.

Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term.

The interest rate implicit in lease contracts is typically not readily determinable.

As a result, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Goodwill and Indefinite Lived Long-Lived Assets:

The Company accounts for its business combinations in accordance with the ASC 805-10 through ASC 805-50, “Busin ess Combinations,” which (i) requires that the purchase method of accounting be applied to all business combinations and (ii) addresses the criteria for initial recognition of intangible assets and goodwill.

In accordance with ASC 350-10 through ASC 350-30 , goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment.

If the carrying value of goodwill or an intangible asset exce eds its fair value, an impairment loss will be recognized.

The Company accounts for its business combinations in accordance with the ASC 805-10 through ASC 805-50, “Business Combinations,” which (i) requires that the purchase method of accounting be applied to all business combinations and (ii) addresses the criteria for initial recognition of intangible assets and goodwill.

In accordance with ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually at December 31, 2020, or more frequently if circumstances indicate the possibility of impairment.

If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss will be recognized.

Based on the Company’s tests and reviews, no impairment of its goodwill, intangible assets or other long-lived assets existed at March 31, 2021.

However, future events or changes in current circu mstances could affect the recoverability of the carrying value of goodwill and long-lived assets.

However, future events or changes in current circumstances could affect the recoverability of the carrying value of goodwill and long-lived assets.

Goodwill amounted to $ 36,814,000 (net of accumulated amortization of $ 2,069,000 ) at March 31, 2021 and at March 31, 2020.

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The Company accounts for share-based compensation in accordance with the provisions of ASC Topic 718 “Compensation – Stock Compensation”.

Under ASC 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

Under ASC 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

The Company issues performance-based stock options which vest only upon the Company’s achievement of certain earnings per share targets on a calendar year basis, as determined by the Company’s Board of Directors.