CorVel Corp (CRVL) 2011 Q4 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 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-end 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.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Dan Starck and Mr. Gordon Clemons. Gentlemen, please go ahead.

I would like to thank everyone for joining us today to review and discuss the results of CorVel's March 2011 quarter, and the results of the fiscal year for 2011. I'm joined by our Chairman, Gordon Clemons. Since the March quarter concludes our fiscal year, there will be a fairly balanced discussion between the March quarter results and the fiscal year results. After the overview, we will open the call to questions.

Now, to this year's results. The March quarter results include a one-time charge of $9 million for settlement costs of a class action lawsuit in Louisiana that originated in 2006. This information is consistent with the 8-K that was filed on April 1st of 2011. The one-time charge reduced the March quarter's earnings per share by $0.46. Revenue for the March quarter was $100 million, an increase of 15% from the March 2010 quarter. This is CorVel's first $100 million revenue quarter.

Earnings per share were $0.22 for the quarter. EPS, excluding the one-time charge, would have been $0.68, an increase of 25% from the $0.54 reported in the March 2010 quarter. For the fiscal year 2011, revenue grew to $381 million, a 13% increase over fiscal 2010's revenue of $338 million. Earnings per share was $2.05 for fiscal 2011. EPS, excluding the one-time charge, would have been $2.51, a 21% increase over fiscal 2010. Revenues and gross profit were record results for the quarter and for the fiscal year. And excluding the one-time charge, earnings per share would have been a record result as well, for both the quarter and the fiscal year.

The March quarter results reflect strong results in our traditional network solutions product line, as well as the continued growth and expansion of our Enterprise Comp product, CorVel's integrated approach to managing workers compensation claims. The fiscal year results demonstrate a broader view of the continued success in CorVel's strategic transition, from a traditional workers compensation managed care Company to a full-service provider to the workers compensation industry. While this has seemed to be a daunting task at times over the past few years, many of the individual projects that the CorVel team have been working on are continuing to develop, and we are presenting cohesive product presentation to the industry, in both the employer market and the payer market.

Now, from a marketplace perspective. The continued economic recovery looks to be a positive for the service providers in the workers compensation industry. Early results indicate that there was an approximate 3% increase in reported loss time claims in 2010 versus 2009. Assuming that increase holds as the accident year data firms, it would mark the first increase in loss time claim volumes in 20 years, a positive sign for service providers.

Acquisition activity within the industry remains active in all phases, third party administrators, managed care companies and niche players. With the characteristics of the business, high fragmentation and low capital intensity, I expect that this acquisition activity will remain high. And from a technology perspective, the advancements in mobile computing and social media are impacting most people's lives today. It is a large wave that is enabling new opportunities to reach the consumer, as well as bring individuals and new processes together. While the acquisition activity and the growing influence of technology in the industry oftentimes cause us concern with many, we believe that these forces create opportunity for CorVel to advance our strategic initiatives, and we look forward to taking advantage of these changes.

Now, I would like to discuss our product line performance, and their specific results. In patient management, revenue for the quarter was $47 million. That's a 13.9% increase over the March 2010 quarter. Profits increased 13.4%. For the fiscal year, revenue increased to $179 million, an 18% increase over fiscal 2010, and profits increased by 35% over fiscal 2010.

Included in our patient management results are our traditional case management product, and our third party administration product, Enterprise Comp. The quarter and fiscal year results reflect sustained growth in our Enterprise Comp product, and our push to leverage our existing footprint to improve our presence in the TPA market. This past fiscal year, we won new Enterprise Comp accounts, all based in 14 new states, and now we administer claims in all 50 states. Our TPA presence is growing in many of the local markets.

Over the course of the past few years, we've come through many of the start-up type activities required to have a new product entry, acquisitions and subsequent acquisition integration, software development, internal training, and market acceptance. Our long-term approach and continued investment in the Enterprise Comp product has enabled CorVel to present a very strong product to the employer market. Throughout our history, our philosophy of proprietary assets, both software and services, now provides CorVel with a unique ability to directly manage all of the components of an employer's workers compensation program.

This advantage provides us with the ability to work closely with employers, to better manage their costs, and to improve their overall results and outcomes. Throughout the year, our case management product results improved. We saw this through the fiscal year, and we had both -- gains in efficiency and productivity. The case management product has proven to have strong synergies with our Enterprise Comp product as well.

Now, on to network solutions. Revenue for the quarter was $53.5 million. This is a 16% increase over last year's March quarter, and profit grew by 20%. For the fiscal year, revenues reached $202 million, an 8% increase over fiscal 2010, and profits grew by 7%. The March quarter results and the fiscal year results reflect strong performance across the entire product line, with particularly strong growth in our directed care networks and our MedCheck product, CorVel's proprietary medical bill review platform.

Very similar to our approach to Enterprise Comp, we've made considerable investments over the past few years to develop our directed care networks, specifically our pharmacy program and physical therapy programs. This past year, we've seen nearly 100% growth in our pharmacy product, and strong growth rates in our other direct care services. The work that has been done to improve our work flow and physical infrastructure has improved our service levels, and has allowed us to scale this product offering across the country, while delivering strong cost savings on behalf of our customers. MedCheck, which had very strong performance this past year, has long been a cornerstone for CorVel and our performance in this area continues at a high level.

Moving forward in 2011, we'll continue our focus on our four key initiatives. The number one initiative continues to be the advancement of Enterprise Comp, within which we have two main objectives. The first being the further establishment of the CorVel brand in the TPA market. We've seen good growth with our Enterprise Comp product throughout this past year, and as I said earlier, our presence is growing. As with any new product, there are many areas of the country that are more advancing -- or that are advancing more rapidly than others, yet we're currently making inroads in many markets.

The second objective is the development of our software and work flow. This past year, we have increased our investment in our IT development process. We have made some progress this year, and we feel strongly that systems capability will distinguish CorVel in the marketplace. This year, we will seek to further accelerate software delivery, and I expect to increase our IT investment.

The second initiative is improving our overall sales performance. It's been a stated goal for over three years. We've now achieved six consecutive quarters with double digit growth, and the fiscal year had 13% growth. With the emerging opportunities that we have in the employer market with our Enterprise Comp product, as well as opportunity in our traditional market, our goal is to continue that pace.

The third initiative is the continued development and expansion of our network solutions product line. The network solutions product suite delivers significant value to our customer base, whether delivered independently or as a support product within our comprehensive Enterprise Comp solution. In order to drive our network solutions performance, we're working on three specific areas. The first being MedCheck. I've not mentioned our medical bill review platform very often in the past few calls. However, as noted prior, it continues to drive strong results for CorVel. Our investment in this product continues to open new opportunities for CorVel, as well as support other products.

The second, being pharmacy. Pharmacy costs continue to grow rapidly in the workers compensation industry. And as I mentioned earlier, CorVel has a unique advantage of directly managing all service for it's customers. Our access through to data, mainly through the MedCheck operating platform, has enabled us to develop specific programs to deliver industry-leading network penetration results. By improving our network penetration, our customers enjoy significant reductions in pharmacy costs, due to not paying out-of-network rates.

Lastly in network solutions, we'll continue to develop our directed care networks. Through our directed care network, we are scheduling and managing the medical dollars spent on ancillary services in a proactive fashion. Our model allows us to deliver the appropriate level of care, along with the appropriate level of utilization.

Our fourth and final initiative is the continued transformation of our case management business. We're utilizing the advances in mobile computing to advance the value creation in this product. By the end of this calendar year, all of our field case managers will be utilizing mobile devices, and delivering critical information in real-time, in order to reduce inherent time delays in the workers compensation claims process, and ultimately helping to improve claims outcomes. Now I'd like to turn the call over to Gordon to discuss product development. Gordon?

Thanks, Dan. As we all know, no company builds entirely new applications each quarter, thus these quarterly discussions of our development must inevitably include projects that extend over multiple years. However, if we look back, maybe over a decade, you see CorVel having first moved into web applications, then expanded and initiated work in rules engine technology. That was followed by the implementation of work flow technologies. We got fairly heavily involved in document management, and that's become a cornerstone to a lot of our processing. And more recently, as Dan referenced, we've begun work in mobile computing. So while in any given quarter, not a lot changes, over the course of ten years, an awful lot has changed.

We are fortunate that the Company began a little more than a decade ago, to build a unique website designated to facilitate interaction among the various constituencies in an episode of care, and specifically in disability management. This effort resulted in the foundations that allow the Company to now capitalize upon the current wave of mobile computing, and other enhancements to the exchange of information. Our largest application software effort is focused on continuing to advance our claims processing software in the CareMC web portal, to which Dan referred.

Progress continues each quarter in this effort, and will continue throughout the planning horizon. Because our claims system is built on an interactive web-based platform, our plans include unique approaches to the intake and output of claims and healthcare information processed in this portal. In turn, that approach to claims management systems has allowed us to begin managing claims, incorporating new ideas and processes, not a part of traditional claims management.

At a high level, the implications of our software development for claims processing include, intaking of -- or excuse me, initiating assistance to injured workers more quickly, extending work flow into the operations of our customers as opposed to only reporting at the senior levels, collapsing time delays in claims management, simplifying the work required to achieve regulatory compliance, achieving real-time reporting versus the traditional very delayed processes in last-generation systems, and enabling analytic reviews of workers compensation.

We continue to work on a range of applications that address the claims intake aspects of insurance administration. These include call center activities and supporting work flow that extend CorVel's information technologies into both our internal claims work and into the operations of our customers. Taking such interfaces from browser-based desktop applications to mobile (inaudible) has required important advances in our ability to secure -- to securely employ web services. As we've all become accustomed to enjoying, the mobile app environment involves regular updates to the mobile applications we all use now daily.

Since our applications interact directly with our Enterprise operations, updates to the mobile apps must be structured to function seamlessly with the internal foundation data processing within CorVel. Coordinating versioning of both mobile and central systems, adds a new level of complexity to our systems management. Security for all of this is a primary concern, building serious apps that address this critical concern demands a lot of our planning, and of the tools we employ in our systems.

I believe the current wave of new mobile capabilities provides both an opportunity for CorVel, and yet also a major hurdle for competing firms. These changes will, I believe drive consolidation of the smaller firms in the industry. Change typically comes slowly at first in insurance, but these changes are those that demand timely and sophisticated responses.

Reporting in EDIs are a prominent component of all of our services. CorVel's reporting capabilities continue to expand each quarter. Although much of this is provided through our CareMC portal, we also continue to provide some EDI interfaces, and on the local level through PC-based systems. We continue to find new opportunities to leverage our data warehouse and management -- data management capabilities.

A benefit of this effort has been that such reports allow both we and our customers to more clearly understand the cost drivers in each organization's workers compensation. This in turn reduces unnecessary ambiguity regarding the outcomes in workers compensation, and facilitates efforts to further improve service. An important component of our reporting these days is the initiation of the interface to CMS, the Medicare reporting unit of the federal government.

As we've previously discussed, this has to do with compliance all employers and payers must achieve, as regards to the integration of workers compensation healthcare liabilities, with Medicare's responsibility for other post-retirement healthcare expenses. CorVel is a primary provider of such reporting services, and the implementation of this regulatory requirement is quite complex. CMS has understandably, had to adjust their -- conceptual discussion of this new regulation to the practical day-to-day realities of implementation. This is another of the emerging trends in our industry which require sophisticated computing capability.

In the quarter, we also successfully implemented improved processes for our document management systems. I'd like to now turn the call back over to Dan. Dan?

Thank you, Gordon. I would just like to add a few more items, prior to opening the call to questions. Quarter ended cash balance was $12.3 million, and our DSO was 44 days. We repurchased 159,790 shares in the quarter, and we spent $7.8 million in the quarter repurchasing those shares. We have spent $249 million inception to date, and we have repurchased 14,491,000 shares. Hard shares at the end of the quarter were 11,631,000, and diluted EPS shares were 11,843,000.

In closing, the March quarter marks the eighth consecutive quarter of sequential growth, and the close to a successful year, both financially and strategically. Our revenue growth and operating performance have significantly improved over the course of the past year. We're very proud of the diligent work that the CorVel team has done. And I'd now like to open the call to questions. Thank you.

(Operator Instructions).

There are no questions at this time. Mr. Starck and Mr. Clemons, do you have any further comments?

Just a couple of closing comments to the group. I guess Gordon and I's explanation of the quarter and the year was exhaustive, so we didn't need any. But we really would like to thank everyone who joined the call, and who also listened via the web. And with this being the fiscal year, our call was a little later than normal, and the June quarter is well under way. So we'll look forward to speaking with everybody in early August. Thanks again, everybody. Take care.

This concludes our conference call for today. Thank you for your participation. Please disconnect at this time.