CorVel Corp (CRVL) 2004 Q1 法說會逐字稿

Thank you for standing by. Welcome to the Corvel corporation conference call. During the course of this call, CorVel may make projections or other statements regarding future events or future financial performances of the company. CorVel wishes to caution you that these statements are only predictions that actual as a result or events may differ materially. CorVel refers you to the documents from time to time with the Securities & Exchange Commission and 10-Q and 10-K files. These documents obtain and identify that could cause the actual results to differ materially from those containing in your statement organization forward-looking statements. At a question and answer session will be conducted later in the call. With instructions become given at that time. As a reminder, this conference call is being recorded. I would like to turn the call over to your host. Mr. Gordon Clemons.

I would like to summarize. Then I will go over some more detail on each items for the quarter we had revenue of (inaudible). Earnings per share were 40 cents up 10% from the same quarter 4 the prior year. I think two important accomplishments in the quarter were substantial expansion of document management capabilities and the development of next generation version of flag ship product MedCheck with which is a medical bill review product. Looking at the market, I think the distractions of the war, several new regulation and the soft labor market certainly combine to have an effect. Employers remain concerned a the workers compensation which is a benefit to us. I think strategically we see tons to continue develop our franchise in workers comp, auto and disability management. Internally we continue to roll out acceleration of versions of software developed in prior quarters. This place is quite a burden on our filed operations that was somewhat evidence evident in the quarter. The development pipeline remains very full as it has been for quite a while. We did have expansion in document management which was important to us. A lot of this combined to have expenses ahead of revenues in the quarter. We're addressing that and I'll talk more about that later. Going back to a little more detail on the market, we certainly saw some impact from the combination of the economy, the soft labor market that has resulted from that, the war particularly, I think put people in kind of a holding mold for a while. Insured bankruptcy had a impact on us. SARS was a distraction. Combined to make this unusual time. The government's appetite for expanded regulation in the midst of a difficult economy makes for a lot of manage. I would say. Insurers though are getting good price for undermining workers comp at this time and that is a have a good impact. Employers are frustrated with cost increases and are looking for new solutions. Health care inflation appears to actually cooled for a little bit. It's been a little less inflation here for the last couple of years which is probably good for the economy. And not quite helpful to us. A major force is our economy and appears to have quite a long way ago is pace of productivity gains thought the economy. This focuses on the employers on services which further support this gains. In insurer marketplace we see that in a lot of interest in automation, document management services that we need to we needed to expand in. So we made some moves in the quarter. Moving to business results, our patient management revenues increased 7% from the prior year in the quarter. Reflecting the economy I'd say provider program increased 21% continue the trends in the last year or so. Patient management profits were up 12% reflecting better pricing. Provider programs were up 10%. In the product lines on patient management, the volume as I said reflects I think the labor market trends. The pricing though appears to be a little more rational than it was a years action. KMCR (ph) our healthcare transaction processing website is a point of differentiation in this market. And certainly benefits us particularly in the next couple of years I think. Provider programs continue to see the revenue coming along our directed care networks are helping in that regard. New technology as we introduce it is certainly helping us gain ground on some of the smaller competitors, particularly. But it placed a lot of pressure , I think, in most situations on all competitors. The product mix for us has shifted a little bit to lower margin products. That's something that we were working on. We have some directed care networks that we are expanding. Insurer concerns regarding efficiency and competitive pressures have been looking for new solutions. And so the RFP pipeline remains active. In the quarter, we got as I mentioned, a little ahead of ourselves on expenses. I think I was feeling my oats little more you have a tendency to be in damn the torpedoes for a while, when you see the economy slowing down you want to keep some of you new projects moving. Most of this was in discretionary corporate and field overhead expenses which combine to add some expenses to other burdens. The product development opportunities always exceed our ability to reach out and go after them. We're always tempted to do as much as we can. We were aggressive in marketing and those expenses were higher than normal. We will adjust some of these fairly quickly in here. And they're all in a discretionary area. We want them to be a little more balanced with the pace of the economy. So we'll be making changes there. The strategic side, we continue to see meaningful opportunities within our current strategic focus so we have not changed our direction. We continue to emphasize technology investments. As we glow, certainly our size helps us there. We're always able to see more than we can grasp. We go for low hanging proof first. We have attracted product development opportunities. Past investments give us a good start in that area. We're in a phase of development of two-key applications where a few key addition will help a bit. That is to say we're in a more mature phase in on a couple of projects. We have something we're working on for the fall.

Going to product development, during the quarter we as I mentioned, made a substantial expansion in your ability to handle document management and what's call enterprise content management initiatives that are of interest to our customers. We required scan one sophisticated document management organization located in Portland Oregon. That is located actually next door to our data center. It was extremely fortuitous to define something to close to home. Scan one is already actively involved in the insurance marketplace. And brings us new customers in that area. And is already working closely with us on integrations with our MedCheck bill review processing. This was a cash purchase. Finished in the quarter by very late in the quarter. So it didn't have an impact other than slightly on the quarter's revenues. We have begun a roll out of services in several of applications as well as plan to expand those operations in to other cities across the country. In current CorVel offices that is. On MedCheck side, the product is coming along very nicely and increasingly differentiating us from competitors. We have a lot of lot idea for further development though. This fall we are planning a major release this product. This restructure it is project achieve substantially different economics than we had in the past. Much of your current plan development is already toward the transaction process for the insurance industry. On the KRRMC side which is our transaction processing website, I'd say the product continues to be very much on target as part of regular sales these days very much a part of most of your accounts. It is an ambitious and complicated project. Certainly has a long way to go to reach its full potential. They anticipated HIPPA, I think quite well, so we are in pretty good shape on that and I think in terms of the foundation, we're prepared to Handle the implications of HIPPA. This could bring us opportunities where other people struggle with HIPPA will have to wait and see. It is a established application at this point. As I said, we have quite a backlog though of development opportunities. The document management initiatives that we have underway fit very well on to CareMC it was already handling images and document processing. So the expansion there should fit pretty nicely. Current projects include expanded reports new transaction possessing capabilities. We continue to expand the AI capability of the site and try to add quality assurance aspects to the project. We are also looking to expand our business continuity in capabilities.

On the cash flow side in the quarter, we had a good quarter because we did make some substantial gains in accounts receivable. I think the normal cash flow is pretty consistent with prior quarters. But the big change was on the reduction in accounts receivable. Day sales outstanding dropped 4 days from the March quarter which got us back in the area where we would like to be. Cash came out 5.5 million which was relatively unchanged in the prior quarter. Largely due to the acquisition of scan one. On the stock repurchase side we reduce shares about 81,000 in the quarter. Spent 3 million on stock repurchases. Hard shares are down now to 10 million 6 and weighted shares are under 10.9 million. We continue to experience positive cash flow that we can use there. Although, as we did in the quarter, I think we would like to be a little more aggressive looking at opportunities in this marketplace. We certainly have plenty of areas where we would like to add to our business. So we are being a little more aggressive on that side. That concludes my specific comments. I would like to turn it over the moderator and go to questions.

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please stress star one. All questions will be taken as they are removed. You may remove yourself at any time by pressing star two. We'll pause for just a moment to aloe those callers with questions to enter the queue. Your first questions come from Chris Arndt with select equity group.

Hi, how are you?

I'm good.

The only question is I have on the provider program side, was the flow of profitability growth entirely due to mix issue or were there other factors.

I think that we were -- we could have seen more revenue growth than we did. And these are things that, you know, you can always look at either way. I would say. There was some mix shift there. I would say also that we felt there were a couple of situations where we would have liked to seen a little more revenue than we had. We had a couple of things that didn't go as well as we like. I think the mix shift could continue as we continue to expand. But the base business just needs to keep growing. We'll with fine there. We did have a good stretch in there. We're continue to grow on some of the more high margin in there as well. Which is MedCheck whether is hospital bill processing service we have.

If you put aside the growth of the directed care network on the provider program side, would the rest of the business the PBO and the bill review had been up about 10%, I mean, similar to what the profit growth was or --

I don't have those numbers around we're not really breaking out the directed care volumes yet. I think the other business was not too changed. I would say that it would have been. Our spend rate on discretionary spending was higher than a we should sustain with the revenue growth we had in the quarter. We did see a slow-down. I think the biggest thing that hit us was late March and most of April. Medical services just dropped off. We had some off sets frankly with some of your group expenses for CorVel employees slowed down in that period as well. We had a softer April than we would have liked. I think that had the biggest impact on the quarter. May and June came back and you could see that people were back seeing the doctor.

Okay. And in terms of the oval G&A expense – what does that mean in absolute dollars, would that be down in the third quarter and fourth quarter or are you holding it sequentially flat? Is there any more color you can provide on that

We had been looking to stay around 8%. We had a little run where we were running a little bit better and the economy seemed to be strengthening. We were fudging a little bit in the prior quarters and getting up in the high 8s and even 9% this one quarter. This last quarter, we were till spending at that kind of level. And, if the revenues weren't moving enough to carry that. We historically had wanted to stay around 8%. It wouldn't seem to outsider to a lot of money. These things have an impact. I think with were particularly aggressive in marketing programs that are discretionary and where we can be a little more frugal. I don't see a big change. We're hat a margin looking to pick up enough. We would have been liked to have been a little stronger in this quarter than we were. So I'll think we'll slow down a little bit on some of those programs. At the field level it's more challenging because the changes have to be controlled and communicated across the large number of people. We'll make some efforts there and we are. I think we have the ability in the corporate office to make changes fairly quickly.

So you would look in the subsequent quarter in fiscal year for G&A and percentage of sales to be closer to 8%?

Yes. I think if we have room to be above that and our spending areas are productive, we'll do that. Also right in here as I mentioned, one of the things hitting us not too dramatically, but it is a added burden to respond to sar vains (ph) and HIPPA. I think we are well prepared on the software side but devoting people full time to HIPPA for a company our size is some expense that. That should also work its way through the system I think and balance back out. We are putting effort in to both of those. It does cost us machine at the margin.

Thanks a lot.

Are there any further questions? There are no further questions. Mr. Clemons, do you have any further comments.

Yes. I'll add in closing here in the quarter our margins -- I little bit our margins in case management did move up to 11.6. Our margins in provider programs were only off slightly they were off from 23.9% to 23% in the quarter to so slightly below prior quarters. G&A was 8.7% of revenues up from 8.5 in the prior quarter. So slightly above our 8.0 rough guideline normally. We also normally report revenue on those patient revenues were approximately 33.9 million. Provider programs were right at 42 million in the quarter. So that's concludes my remarks. And I like to thank you for joining us.

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