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Corvel’s revenue surges 10% amid tax reform benefits

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Corvel Corp.’s revenue rose in the fourth quarter of 2017, with the company expecting additional revenue benefits from U.S. tax reform.

The Irvine, California-based workers comp insurance and claims management service provider reported revenue of $140.7 million for the fourth quarter of last year, up 9.6% compared to the same quarter in 2016, according to the company’s earnings report released Tuesday.

Gordon Clemons, Corvel’s chief executive officer, attributed the higher profits to continued growth in its third-party administration business and medical review services entity, operating improvements and positive benefits from the revamp of the U.S. tax code, which will lower the company’s 38% combined state and federal tax rate to about 25% to 26%, during the company’s earnings conference call Tuesday.

“We believe the tax law change adds to our competitive advantage” because it improves the company’s cash flow and net of taxes paid relative to competitors, Mr. Clemons said. “This is due to the limitations the new legislation places on the deductibility of interest for tax purposes.”

Michael Combs, Corvel’s president, said the company recorded a $3 million benefit from the tax law. 

Corvel also experienced operational issues that adversely affected its operating margins in the fourth quarter, including incurring some expenses related to the fair value of some investments in start-up companies and continued investments in technology.

“Such investments are important to the long-term success of the company, but inevitably result in quarters where we have short-term expenses,” Mr. Clemons said. “Ultimately, our focus has to remain long term in nature and on producing ever-more productive services for our customers.”

But the workers comp market the company serves remained in a “healthy condition” in the fourth quarter, he said.

“The strength of the current economy and related labor markets has reduced unemployment to record levels,” Mr. Clemons said. “Once such tighter labor markets have been in place beyond the initial recovery, workplace injuries have a tendency to increase. This period comes toward the end of most recoveries as employers push into segments of the workforce less trained and less acclimated to work and should improve the market for our services. I would add that this improvement, should it occur, would be an offset to the long-term decline in claims reported, which has typified the workers compensation market for the last couple of decades.”

“Automation continues to be a theme in the marketplace,” he added.  

Revenue for the nine months ending on Dec. 31 were $414.8 million, up 7.7% from the same period in 2016, according to the report.