CorVel Corp (CRVL) 2012 Q1 法說會逐字稿

Thank you for standing by. Welcome to the CorVel Corporation's 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-end quarter. These documents contain and identify important factors that could cause 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 being given at that time.

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.

Thank you, operator. I'd like to thank everyone for joining us today to review and discuss the results of CorVel's June 2011 quarter. I'm joined here by Gordon Clemons, our Chairman. However, in a small departure from our normal process, I will be covering all areas of the discussion and after the overview comments, Gordon and I will both be available for questions.

Now to the quarter's results. Revenue for the June quarter was $102 million, an increase of 12% from the June 2010 quarter. Earnings per share were $0.70 for the quarter, an increase of 9% from the $0.64 reported in the June 2010 quarter. The quarter's results represent record performance in four major areas, revenue, gross profit, net income and earnings per share.

During the June quarter, we continued the expansion of our Enterprise Comp product, CorVel's fully integrated workers' compensation solution, by continuing to expand across our existing footprint. And our Network Solutions results reflect continued strong growth rates in our pharmacy and directed care product lines.

From a marketplace perspective, the difficulty in the ongoing economic environment is creating legislative actions in some states specific to the workers' compensation laws. The changes being made are attempting to achieve two goals. Number one, as a way to rein in their own costs as an employer and number two, to position the individual state as being more employer friendly. North Carolina and Illinois are two states that have made recent changes that have been enacted.

The Illinois changes include a 30% reduction to the current reimbursement fee schedule, as well as providing the employers with a greater role in managing the direction of care for their injured workers. While this may sound intuitive to most on the call, it's a significant shift in favor of the employers in Illinois.

Secondarily in the market, acquisition activity within the industry has remained high. This past quarter included fairly significant acquisitions in all segments of the industry, third-party administrators, managed care companies and niche players. As the industry continues to evolve, and as industry participants look to enhance their service offering, I expect that the acquisition activity will remain high.

From a technology perspective, the advancements in mobile computing continue to impact everybody's lives and it's creating a significant wave. This wave is enabling many new opportunities to reach out to customers and to bring individuals and processes together.

This legislative issues are items that we as a Company continue to monitor and always adjust our business around. With every change, comes opportunity. We also see opportunities being created through the acquisition activity in the industry, as well as the growing influence of technology.

For 20 years, CorVel has responded to change and leveraged technology to improve its business, and we believe that our current strategy embraces these types of situations.

Now I'd like to discuss our product line performance, results and our key initiatives for 2011. In Patient Management, revenue was $48.3 million, that's a 12% growth over June 2010, and profit increased by 3%. Included in the Patient Management results are our third-party administration product, Enterprise Comp and our traditional case management product.

The quarter's results reflect sustained growth in our Enterprise Comp product and our continued progress in strategically entering the third-party administrator market. As I've discussed in past calls, we are through much of the start-up phase, and our quarterly efforts are focused on furthering our sales efforts, executing the operational plans to meet our growth needs, performing at a level that exceeds our new customers' expectations, and the continued development of the Enterprise Comp product.

In any one isolated quarter, it's difficult to observe significant progress. However, the gains that we have made in each of those areas I just mentioned has helped to positively position CorVel in the employer market. One area that we have made particular progress in this past quarter, that is normally behind the scene somewhat, is the area of carrier approval. For the past few years, we've been working on gaining ground in this area and thanks to an outstanding internal effort, we are now making strong progress.

Now onto Network Solutions. Revenue for the quarter was $54 million, that's a 12% growth over June 2010 quarter and profit grew by 9%. The June quarter's results reflect strong performance across our entire Network Solutions product line with particularly strong growth in our directed care networks and our out-of-network hospital bill review product.

The quarter's results in our directed care network, which include our pharmacy and physical therapy products, are consistent with our strategy of continuing to develop our next-generation PPO network, a network that not only delivers savings to our customers, but also includes utilization management components.

As more and more states implement reimbursement fee schedules and the existing reimbursement fee schedules are reduced, the overall management of service utilization is becoming more and more important in managing the total cost of care for an injured worker.

By working in conjunction with the providers, we are looking to achieve the appropriate amount of care in order to achieve the optimal healthcare outcome. The out-of-network specialty bill review service has produced a solid growth rate over the past few quarters with its best growth rate in the June quarter. With the complexity of hospital billing and an increased scrutiny on medical spent, there's an increasing interest in this product from the payer community.

Being consistent, moving forward in 2011, we will continue to focus on our four key initiatives. Our number one initiative continues to be the advancement of Enterprise Comp. Our efforts continue to focus on establishing the CorVel name in the third-party administrator business by leveraging our existing footprint. As with any distributed organization, we have areas of the country that are ahead of the others. This past quarter was especially strong for us in new customer acquisition activity in California and Oregon in the West and the Mid-Atlantic states in the East.

In recent quarters, we've seen our new customer acquisition activity in the Southeast and the Upper Midwest. Our goal of bringing a new and unique approach to managing workers' compensation claims is resonating with the employer market.

From a competitive standpoint today, our Enterprise Comp product is differentiated in the marketplace from the perspective that CorVel directly provides all services, from the onset of a claim all the way through to the employee's return to work. This level of both the visibility and accountability allows us to work closely with employers to manage the workers' compensation claims management process in order to better manage their costs and to improve their overall results. The reception of the product in the employer market has been positive and the feedback received from the market has provided us with ample product development opportunities.

Continuing the momentum in our sales performance is our second objective and a key initiative. We have now achieved seven consecutive quarters with double-digit growth and nine consecutive quarters of sequential growth. As we continue to enhance our Enterprise Comp product, new opportunities in the employer marketplace are presenting themselves.

The third initiative is the continued development and expansion of our Network Solutions product line. We continue to see strong growth in our pharmacy product offering, and while we have seen good growth, pharmacy continues to be one of the more exciting opportunities in front of us. From an industry trend perspective, pharmacy costs continue to grow in terms of both hard dollar spend, as well as the percentage of cost of the workers' compensation claim.

CorVel's position as both a pharmacy provider and a medical bill review service provider allows us to bring the entire pharmacy picture to our end customer, the employer. This comprehensive view allows us to maximize oversight in meeting positive goals in terms of network utilization and savings, but also the ability to monitor for over utilization.

Our fourth and final initiative is the continued transformation of our case management business. We are utilizing the advances in mobile computing to advance the value creation in this product. To date, we've deployed tablet computers to more than 50% of our case management workforce and we are on track to have 100% complete by the end of the year.

As we transition to product development, our product development efforts are in direct support of the Company's initiatives. Today, I'll cover three main topics. First, systems integration; second, workflow improvement; and three, information delivery.

The systems integration projects include both hardware and software. And from a hardware perspective, we continue to leverage the computing efficiencies gained in server utilization. This has been an ongoing project and one that over time will allow us to have greater computing efficiencies, as well as better end-user performance through load balancing. We are also busy implementing the VMware Configuration Manager as a tool to improve our ability to more rapidly deploy our software into both our production environments and other test environments.

In the area of workflow, we are continuing to develop our capabilities in the area of early claims and take. Similar to anything else, getting started correctly removes many future obstacles and a workers' compensation claim is no different. Many of our current efforts are aimed at breaking down what has traditionally been a complex process and simplifying it for the end user.

The current wave of mobile technology is opening new trails for communication [paths] that have traditionally not existed. These [paths] allow us to compress the time between functions of the claims handling process and connect each of the constituents in a real-time basis.

Lastly, information delivery is another critical element in our business. For the past few years, the development of our enterprise data warehouse has been one of our pursuits. While the delivery of accurate information is a prerequisite in any business, the comprehensive nature of our data sets allows for unique reporting capabilities. Our expanded data warehouse capabilities allow us to consolidate data at a high level for the executive suite yet also provide drill-down capabilities to a minute level of detail that allows our customers to make informed decisions at the operating level.

On a final note for systems, the June quarter is also one of the two seasonal quarters in the year, where we prepare for the second largest customer implementation date of the year, which is July 1. Our systems team did an excellent job of meeting the many demands of implementations on this crucial date, as we went through July.

Lastly, I'd just like to add a few items prior to opening the call to questions. Our quarter ending cash balance was $17.6 million and our DSO was 43 days. From a share repurchase standpoint, 77,530 shares were repurchased in the quarter. We spent $3.7 million in the quarter. We have spent $253 million inception to date and we have repurchased 14,569,000 shares inception to date. Hard shares at the end of the quarter were 11,578,000, and diluted EPS shares were 11,787,000.

In closing, the June quarter is our seventh consecutive quarter of double-digit growth and our ninth consecutive quarter of sequential growth. The results are a product of all the hard work that has been done over the number of years and significant improvement from the CorVel team. We are very proud of the work that the team has done, and we continue to lay the groundwork for our future growth.

I'd now like to open the call to questions.

(Operator Instructions) Daniel Baldini.

Good morning, gentlemen. Thanks for all the hard work. The results are really impressive. I have a question. You mentioned at the beginning of the call that there's been a lot of acquisition activity in your space, and a little bit later you mentioned that you saw the opportunity arising from that. And I'm curious what exactly do you mean by that? What are these opportunities more specifically?

Well, a couple of things that I see, Dan. This is Dan. The opportunity that we've seen historically as whether -- as acquisitions get integrated, customers some want to make moves and some do not. And we'd prefer not to be part of acquisition consolidation, that's one aspect of it. The second aspect of it is, I had referenced one point of carrier approval and kind of a more -- small set of the industry as carriers and/or TPAs are acquired or consolidated, more opportunities arise for CorVel to work directly with carriers on their TPA approval list.

So, as again as TPAs are consolidated, the number that they work with shrinks and oftentimes they want to have a certain number. So opportunity is open for us at that point.

Okay, great. Thanks.

You're welcome.

(Operator Instructions) Jim Larkin.

Hi, good morning. I wondered if you could just address a little bit your success in commercial versus kind of the more municipal or public organizations on the TPA business?

Sure, Jim. Our focus and through our acquisition activity historically put us largely in the municipality business. Our goal here, as we expand is to move more of that business to the private sector. We've been somewhat successful in that. Our message continues to penetrate that market. We'd like to grow that segment faster. But we're pretty pleased with the growth rate we've seen. Our goal is to just continue to diversify that message though and make sure that we're driving really a better mix or a continued mix towards the private business.

Okay. Thank you. And then on the legislation side where reimbursements come down, is that net-net always kind of positive for you in terms of driving your customers' behavior towards additional management of their costs and you're a solution to that or are there scenarios in those -- in that legislation where it can create some challenges for your business or maybe the speed at which customers want to engage you and use your services?

The reimbursement issue is well, specifically, there is opportunity in both, from a perspective of -- we've often benefited or done well in that situation where there's been a reduction. Certainly, there's still a lot of work to do behind the scenes to make sure that any time a fee schedule or there's a significant reimbursement reduction made at the state level that it's translated through to software that then actually delivers those level of savings for the customers. But, we've adjusted the business a number of times in the past to the change. It's one of the values we feel is very important as we have a distributed organization across the 50 states. We have individuals responsible for monitoring that in every state and we're making sure that we are able to feed that information back, understand how we need to adjust the business in that state, and then as with every change, it does create opportunity for us.

Okay, great. Thank you.

Yeah, I'm -- go ahead.

Go ahead. I was going to change to some -- to another, just housekeeping point. But if you had an another comment, please continue.

I was just going to add one point. I think state regulations can't change the pricing structure in our business and there are times in the past we've -- this is going back a number of years, maybe seven or eight years, we've responded a little too slowly to some pricing changes that were the implications of a regulatory change. And I think, we've become more nimble at adjusting to that now. And our service -- we're one of the -- I would like to think most cost-effective services out there.

So we sometimes have to change how we do business when regulations change, but in general, I think regulations tend to push new services, areas like clearing houses and electronic interfaces are sort of a new frontier, not a lot going on, a few states making some changes, but in general over the last, say, three decades, I would say, regulations have tended to push new forms of managed care.

Great. Couple of housekeeping items. You mentioned the buyback, can you just repeat the number of shares and the amount you have spent on the buyback?

Jim, in the quarter or inception to date?

In the quarter.

In the quarter, we spent $3.7 million in the quarter and repurchased 77,000 shares -- 78,000 shares.

Okay. And -- then tax rate looks like [about] 38%, 39%. Is that a good number kind of to use going forward?

Yes.

Okay, great. All right. Thanks a lot.

Thanks, Jim.

(Operator Instructions) There are no further questions. Mr. Starck and Mr. Clemons, do you have any further comments?

We'd just like to wrap up, thanking everybody who joined the call and as well as those who'll access through the recording on our Internet site. We look forward to speaking with everybody again in 90 days. Thank you.

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