CorVel Corp (CRVL) 2010 Q3 法說會逐字稿

Thank you for standing by. Welcome to the CorVel Corporation earnings release conference call. During the course of this conference call, CorVel Corporation may make projections or other forward-looking statements regarding future events or the future financial performances of the company. CorVel wishes to caution you that these statements are only predictions and that actual events or results may differ materially.

CorVel refers you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's last Form 10-K and 10-Q filed for the most recent fiscal year and quarter. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements

At this time all participants are in a listen-only mode. A question and answer session will be conducted later in the call with [instructions] (technical difficulty) given at that time. As a reminder, this conference (technical difficulty) is being recorded.

(technical difficulty) now like to turn today's call over to our hosts, Mr. Dan Starck and Mr. Gordon Clemons. Gentlemen, please go ahead.

I'd like to thank everyone for joining us today to review and discuss CorVel's December 2009 quarter results. I'm joined by our Chairman, Gordon Clemons, and in our normal format, I'll be covering the financial results and current initiatives, and Gordon will be covering the product development section. After the overview we will open the call to (technical difficulty) questions.

Now (technical difficulty) [December] 2009 quarter results. Revenue for the quarter was $86.6 million, an increase of 12.6% over the December 2008 quarter, and earnings per share were $0.54 for the quarter, an increase of 59% over the [$0.34] (technical difficulty) reported in the December 2008 quarter.

During the December quarter our network solutions results reflect improved savings outcomes for our customers as well as increased transaction volume. And our case management results are reflective of stabilizing volumes and improved productivity. We expanded our Enterprise Comp product, CorVel's unique approach to managing workers' compensation claims, by (technical difficulty) customers and further laying our systems foundation.

Overall, the results of the quarter show strong growth over the December 2008 quarter and a third consecutive quarter of improved revenue growth and earnings per share growth.

From a strategic perspective, we feel that our strategic move to reposition CorVel to a full-service provider to the workers' compensation industry is working. We have seen an increased growth rate over the past three quarters of 2009, achieving double-digit organic growth in the latest quarter, with much of the growth coming from our new Enterprise Comp product. By executing our strategy, we have opened CorVel to new [market] (technical difficulty) [opportunities], and we have positioned the company for future long-term growth.

(technical difficulty) a marketplace perspective, claim volumes have continued to drop to historical lows, and as unemployment remains at 10% or higher, any short-term or even medium-term increase in claim counts seems unlikely. As a response to the decrease in claims volume, and yet (technical difficulty) claims administration companies are rapidly developing bundled solutions for the end customer. They are putting together these bundled products through a combination of internalized services or strategic alliances that allows them to coordinate a full suite of services.

Activities around sales are high in the marketplace, however, the majority of businesses tended to remain with the current vendors. The broader economic conditions have generated significant [price] (technical difficulty) sensitivity and new [wrinkles] (technical difficulty) around guaranteeing performance.

E-commerce and (technical difficulty) continue to be important topics in the industry, and Gordon will cover this area in the product development section.

In summary, with the current market conditions and CorVel's ability to offer a full suite of services, claims administration, cost containment, e-commerce, and regulatory reporting, all of which are proprietary in nature, this provides CorVel with significant paths for [growth in the] (technical difficulty) future.

Now I would like to discuss our product line performance, specific results, and the key initiatives for 2009.

In patient management, revenue was $41.1 million. This represents a 23.4% increase over the December 2008 quarter and a 14.6% increase over the September of 2009 quarter. Profits increased 90% over the December 2008 quarter and 55% over the September 2009 quarter.

Included in the patient management results are our traditional case management product and our third-party administration product, Enterprise Comp. As evidenced by the quarter's results, we are beginning to recognize significant positive financial effects of our strategic repositioning efforts in our patient management product.

Enterprise Comp showed strong growth in the quarter, and we are continuing to generate strong interest from potential customers. Our growth over the past six months has been fueled by new customer implementations, both large and small.

Our overall improvement in the patient management area follows what I believe to be a fairly normal business cycle. In 2007 we acquired two claims administration companies and enjoyed the immediate financial benefit that comes with growth in a new area. In 2008 we went through the process of merging cultures and operations as well as continuing to work on the overall systems [integration] (technical difficulty) development, all of which required investment. In 2009 we began to grow our Enterprise Comp product, thus taking advantage of our investments and leveraging them as we have added new business.

Overall we are pleased with the results of each of our acquisitions. Each of them has been an extension of our strategy, and each has provided us with a growth platform.

We've also worked diligently on our case management product over the last few years. As a result, we are starting to see better performance. We've actively reduced our case management business in areas that were underpriced and subsequently made the corresponding expense reductions. At the same time, we focused our internal efforts on improving productivity.

Now on to network solutions. Revenue for the quarter was $45.6 million, a 4.3% increase over the December 2008 quarter, down two-point (technical difficulty) percent from the September 2009 quarter. Profit was up 8.6% over the December 2008 quarter and down 7% from September 2009.

We've made great strides with our network solutions products, both in terms of revenue and profitability over the past couple of years. And it will be -- continue to be the cornerstone of our product offering, whether we provide it on a standalone basis or as part of the Enterprise Comp offering. Medical costs now make up nearly [60%] (technical difficulty) [entire] cost of a workers' compensation claim, so our network solutions product plays a key role in the overall spectrum of claims management.

On a [comparison] (technical difficulty) with the results of the December 2009 quarter [are] (technical difficulty) [approved] transaction volume in our core medical bill review product, as well as continued growth in our [pharmacy] (technical difficulty) product and directed net -- care network product.

On a [sequential] (technical difficulty) [quarter] basis the results are really reflective of one less day of processing in the December quarter versus September.

Moving forward in 2010, we will continue to focus our efforts in four (technical difficulty) and their role in transitioning CorVel. The [first] (technical difficulty) continues to be the expansion of our Enterprise Comp initiative. We've seen improved growth in this area, and as we begin the [year] (technical difficulty) seeing improving (technical difficulty) [opportunities].

As I mentioned earlier in the call, claims administration companies are moving toward offering a full complement of services. Across the industry with our competitors, at least one of these services in their offering is either subcontracted or leased. CorVel, on the other hand, owns each component of our entire service offering, providing us [flexibility] (technical difficulty) [differing] needs of the end customers.

By leveraging our historic systems expertise, we've begun to integrate our different service offerings towards one platform in order to enable and differentiate Enterprise Comp from the competition. System integration and overall development is a very complex issue to address, and at this point we are beginning to increase resources dedicated to the development of this product.

As we continue in 2010 with Enterprise Comp, we truly have three goals.

One is to gain scale; two, to establish the CorVel brand; and three, clearly differentiate our Enterprise Comp (technical difficulty) [product] from our [competitors] (technical difficulty).

The second goal is improving our overall sales [performance] (technical difficulty). This has been a stated goal of ours for the past two years and with the ultimate goal of returning CorVel to double-digit growth rates. While we achieved that goal in the December 2009 quarter, our goal now is to sustain (technical difficulty) the growth. We believe that there is enough opportunity in the market for us to be able to achieve that goal.

The third initiative is the continued development and expansion of our network solutions product line. Strong performance in network solutions provides us with the opportunity to provide services and savings across the entire spectrum of buyers in the workers' compensation industry. Our traditional [comp] (technical difficulty) [customers], insurance carriers and TPAs, as well as new customers and new opportunities, the employer, who generally buys network solutions as part of our Enterprise Comp offering.

In order to drive our network solutions (technical difficulty) on three specific areas. First, our overall PPO performance; second, the improvement in our pharmacy management product; and third, our directed care network.

Our fourth and final initiative is the continued transformation of our case management business. We've seen better performance in this business the past quarter, and we continue to move towards a paperless work environment and improved productivity. The case management business has strong synergies with our new Enterprise Comp offering and plays an important role in its success.

Now I would like to turn the call over to Gordon to discuss product development.

Thanks Dan. The project areas I'll cover today include our network -- or excuse me -- our next-generation claims handling technology; secondly, the projects related to e-commerce legislation; the directed care workflow software area; and reporting and -- I call it account management and support tools.

Most of our projects support near-term strategic initiatives, but the e-commerce projects reflect longer-term expectations for developments in healthcare financing and healthcare transaction management.

First in Enterprise Comp, our total workers' compensation solution continues to be the largest set of projects on which we are working. Building claims, handling functionality into CareMC and the CareMC portal is the largest part of this effort. However, integrating those CareMC activities with our older managed care services is another important area. And thirdly, a meaningful project area (technical difficulty) [while] addressing the unique needs of some of the large customers that we bring on.

By themselves, these three categories of projects would keep us very busy. However, in addition we've found that our activity in claims adjusting services has provided us new insights into our [older] (technical difficulty) managed care service. As you can see in our results over recent quarters, these insights have helped us further improve our results in the base business.

I think our competitors thought that in choosing to enter the TPA [service] (technical difficulty) market CorVel was getting into more than we knew. And I think it's fair to say they were probably correct. (technical difficulty) [much] of what we have learned about what we hadn't known, we didn't know, has helped us find improvements across the entire spectrum of our services. It is fair to say, though, that it has created a very busy time in product development.

The second category involves a range of clearinghouse activities. Clearinghouse work is another important segment of our product development. Our services in the clearinghouse industry connect to other clearinghouses, to managed care and claim services, as well as to our Medicare agency services. Clearinghouse tools interface us to state governments, providers, customers, and, again, to the Medicare CMS office. Our compliance with clearinghouse effort legislation in Minnesota has helped us win additional traditional work and is a good example of the byproduct of this focus we have in communications.

As the entire communications industry continues to evolve, I believe our efforts in the clearinghouse work will also help us find more new ideas and new services. The complexity involved in healthcare financing makes this aspect of the financial services industry tend to lag in automation, that is, the [insurance] (technical difficulty) [sector]. But the progress visible in other sectors of financial services, which have come along more rapidly, will eventually come to the insurance industry and to the healthcare financing segment in which we participate.

Directed care activities, our PPO networks to which Dan referred, that include services to assist patients with the scheduling of care. This is a complex [expansion] (technical difficulty) [to our] PPO networks, but it has important synergies with other long-term initiatives of the company. Integrating directed care to our claims management activities is an important initiative in this segment of our development work.

And lastly, the support for all of our systems and the integration of our activities has been an important part of the resources we have to devote during this time of transition. During the last couple of quarters, we had quite a bit of work involved in the expansion of the numbers of users in our CareMC portal. As we build functionality into this web portal and as communications make the use of these kinds of tools more comfortable and popular with customers, customers have wanted to add more users than we had previously envisioned.

We've also begun to extend our workflow ideas downstream into the employers' worksite environment. The potential applications in this area are numerous and yet add to the complexities of our access control for our own support staff and for customers. I think this aspect of our business, though, is likely to continue changing how we interact with our customers (technical difficulty) [forward].

The old paper-based and last-generation claims systems prevented employers from participating as they might in the reporting and resolution and even management of workers' compensation claims. As CareMC, the web portal, opens proper and private access to the claims process, the real-time involvement this allows employers generates a constant flow of new ideas.

Now I'd like to turn the call back to Dan for his closing comments.

Just a couple of more items I'd like to address. We have been actively repurchasing our own stock, and we have done this for a number of reasons. One, we continue to look for strategic acquisitions, however, we have not encountered any acquisition opportunities in the recent quarters that we considered to be the right fit. We believe that the repurchase of the stock has been a good value and definitely a good use of cash.

We've also started to increase our IT resourcing for the development of Enterprise Comp, and by lowering the shares outstanding, we are able to negate any drag on EPS. With that said, we did repurchase 313,000 shares in the quarter and spent $9.5 million. We've spent $213 million, inception to date, and we've repurchased 13.6 million shares, inception to date.

Our quarter ending cash balance was $7[.9] (technical difficulty) [million], and our DSO was 47 days.

Hard shares at the end of the quarter were 12,140,000, and diluted EPS shares were 12,426,000.

In closing, we continue to execute on our strategic plan of transitioning CorVel from a traditional managed care company to a full-service provider to the industry. Our revenue growth and operating performance have significantly improved over the course of the past year despite a difficult overall economy. We are very proud of the diligent work that the CorVel team has done.

Now I would like to open the call to (technical difficulty)

(Operator Instructions). At this time we have no questions. [I'll] (technical difficulty) call back over to management for closing remarks.

Just a couple of things I'd like to comment as we end. 2009 has been a strong year for the company, and we've continued to lay the foundational blocks for our strategy, and we are continuing to execute on it. 2010 and future years are filled with growth opportunities for the company. And we look forward to sharing it with each of the people (technical difficulty) forward. So thank you, and thank you everybody who listened.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.