CorVel Corp (CRVL) 2013 Q3 法說會逐字稿

Good morning. 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 predictions 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 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. Gordon Clemons. Sir, please go ahead.

Thank you for joining us to review CorVel's December quarter. In the quarter, we made progress on each of our key initiatives. The TPA business continued to win clients and to enjoy its emerging acceptance in the market. We began an expansion of our Network Solutions product features, expense reductions continued, the productivity management and efficiency projects started in the June quarter reached initial implementation as expected in the quarter. Revenues for the December quarter were $107 million, 6% over the revenue for the December 2011 quarter. Earnings per share for the quarter ended December 31, 2012 were $0.53, 13% above the $0.47 reported a year earlier.

From a strategy perspective, the insurance market continues to harden, which typically improves the demand for self-insurance administration services. Our full-service workers' compensation solution, which we sell under the name Enterprise Comp, is gaining momentum. Brokerage recognition for and support of CorVel has continued to expand.

We have also continued to increase the number of workers' compensation insurers that approve CorVel as a manager of claims in their high deductible programs. The private employer marketplace requires the approval of CorVel by their insurers before these employers can use our services in their programs. We've continued to build out our liability claims administration services as well. Many employers bundle their liability and workers' compensation administration, so our continuing expansion of this service complements our disability management programs.

Workers' compensation claims costs continue to increase. Healthcare and especially pharmacy costs continue to inflate at rates well in excess of trends elsewhere in the economy. This has raised interest in our pharmacy management solutions. However, as the election neared and later as discussions of the fiscal cliff expanded, health insurers put new programs on hold pending further clarification of the administration's plans. We now expect a more active year this year as they adjust their programs in light of the coming change.

We are exploring relationships with administrators of government programs and expect private health insurers to be more inclined to implement cost control programs. Our MedCheck Select services are effective in managing fee-for-service transactions in health and Medicare markets.

In this year of change in healthcare insurance, our strategy is evolving. We expect the coming year to include expansions to our Network Solutions service features. Last year, we added important components to our full-service TPA productline and continued our expansion into liability services. These services have achieved momentum allowing us to balance our product development efforts going forward. Evolving technology is also creating partnering opportunities, which didn't exist previously.

A lot of insurance programs have year-end renewal dates. In the December quarter, CorVel picked up a number of name accounts for Enterprise Comp. These will continue the growth of that productline and also help us in our efforts to promote our brand in the marketplace. A number of these new accounts also helped us define additional product features we will now be adding to our service offerings.

As we discussed last quarter, the Company has been working to reduce overhead costs. In addition, we have two efficiency projects begun in the summer that are now beginning to improve our operating efficiencies in the field. Efficiencies in our more mature products are helping us absorb the launch expenses associated with the expansion of Enterprise Comp. Sales acquisition costs and initial program launch expenses caused the early period with a claims administration customer to have high expenses. As the new customer programs mature, the operating metrics improve.

I will now discuss our productline results at a detailed level we introduced last quarter. Patient management revenue for the quarter was $56 million, an annual increase of 13%. Gross profit increased 16% over the December quarter of fiscal 2012. Patient management includes third-party administration, that is TPA services, and traditional case management. TPA services has been growing at over 20% annual rates and have become a more important driver of overall Company results.

Network Solutions, as normally reported, is the medical reviews sold into just the payer marketplace. Revenue in that segment for the quarter was $51 million, down 1% from the same quarter of the prior year. Gross profit was down 3% year-over-year. Revenue for all medical review services combined though, that is including the medical reviews sold into our Enterprise Comp offering, was $62 million, flat with the prior year.

This productline, as I mentioned earlier, also includes services of growing interest in the group health market. Implementations in group health have been moving slowly awaiting more clarity in the new regulations. The pause created last year by the political uncertainty impacted results in this important segment of our Network Solutions productline. [Tighter] results for new implementations have gone well and we look for service volumes to improve later this year.

Product development, investments and systems remain the engine of our productline expansion. While we have reduced capital spending on office infrastructure, we have continued the pace of our investments in technology. The new developments in computing, communications and information storage continue to boost this strategy. In the coming year, we expect some expansion in our spending on hardware as well.

In the quarter, we implemented new features in our liability claims administration program and completed some new capabilities in support of sales made earlier in calendar 2012. We also began expanding investments in the further integration of different components in the overall claims administration environment.

As I did last quarter, I will discuss our technology expansion in three segments -- number one, the ongoing form factor evolution in personal computing; number two, the movement of on-site applications to the cloud; and number three, data and data analytics.

As regards to the move to mobile or really the form factor revolution in computing, I would add the following comments for the quarter. CorVel real-time tools for claims intake will be critical to managing the cost of healthcare. We have learned from our initial pilot applications and continue to develop these tools in the plan for further enhancements.

In tablets and smartphones for our nurses, we are differentiating our service in the marketplace and adding value to our case management services. We are seeing good traction in this effort and are working on new capabilities to be rolled out sequentially during this year.

We expect mobile computing to continue to evolve, making it steadily easier to communicate information to central or cloud applications directly from personal devices. This is important in our business as our relatively limited staff provides services to large organizations. The move to mobile allows our programs to interact directly with the production level in our customers' organizations.

Cloud concepts continue to evolve. CorVel's private cloud, CareMC, provides end-to-end solutions for employers and payors in casualty programs. Private cloud environments allow CorVel to handle the technical and specialty tasks involved in claims management and yet to share employee-facing activities with the employer and even with healthcare professionals.

During the quarter, we reached the initial implementation stage for our new Web services application that moves some custom activities in medical review to our customers where they want increased control. This forms what I would call an ASP plus capability that takes ASP approaches to shared software to the next level.

Data analytics have become a key to many business solutions. CorVel is involved in transaction processing in healthcare, which, of course, generates a lot of individual items. With all transactions in one database, we have the ability to eliminate data redundancies in healthcare activities, use immediate access to information to improve patient assistance and smooth the reimbursement difficulties typical of healthcare transactions and to use analytics to improve decision-making in the management of episodes of care. This is a large undertaking and has been a long-term mission of the Company.

A related effort having an impact upon many aspects of CorVel's operations is an ongoing move to shared services. We have been developing rules (inaudible) workflow applications for many years. These efforts are increasingly enabling us to scale out functions performed at the local branch level by creating real-time functionality at hub locations. These can be call centers, but such centers also include a range of tasks formerly conducted at many of our branches. We are committed to local sales and service for our customers and are using new technologies to create increased efficiency and consistency by employing practice leader hubs, training our local staff to focus on customer service.

I would now like to add a couple of additional statistics for the quarter. The quarter-ending cash balance was $21 million. Our DSO was 37 days. 395,000 shares were repurchased in the quarter. We have now returned almost $300 million to shareholders in the last 16 years. Shares outstanding at the end of the quarter were 10,866,000 and diluted EPS shares were 11,213,000 for the quarter.

Mix changes in CorVel's services are contributing to the reduction in capital employed and accounts receivable. During the last year, we have also been improving our banking systems, making our use of and handling of cash more efficient and more automated. Making our services more efficient allows us to pass savings along to our customers in the form of ever more competitive pricing.

I would now like to turn the call back over to our operator to open the question-and-answer session. Thank you.

(Operator Instructions). Gregory Macosko.

Yes, thank you. With regard to patient management, we saw improved growth there from the previous quarter, up 10% last quarter, up 13% this quarter. Just give us some color on why that has accelerated a little bit? What are we looking at sort of the background?

Sure, thank you. We have had increasing wins in the TPA space and so our Enterprise Comp product is picking up a little more volume in just hard dollars all the time. We actually had a little softer quarter in that product area for case management. The calendar is particularly tough this last year because Christmas was on a Tuesday and that makes it especially tough for us, just generating billable time in that month. So I would say the quarter was actually even a little stronger than it looked and most -- or all of the gains were in the TPA space where we had a number of wins that started in the fall and some more that will begin here in January.

If I look at that -- well, you mentioned TPA and new wins, etc. Do you ever look at it with regard to sort of same customer growth or is all the growth really on new customers-oriented?

Normally, I would say it is new customers. There is some inflation in the cost of workers' compensation. So there is some growth in certain programs. Let's say pharmacy expenditures have been a tough area for employers to control. So there is a little bit of growth in there that is caused by inflation. And then because we are new in this space, we do have customers where we are only working on their new claims and we are not working on the claims that were reported prior to our taking over their program.

So in those customers, we will see more growth quarter-to-quarter than would be normal. And that is just, I would say, just the nature of a business like ours, which is picking up a number of new customers as a percentage of its total mix. This is probably higher than normal.

And if I look at just the workers' comp area overall, I mean we have -- sort of we are seeing sort of stabilization decrease in the number of claims. How does that affect your new business? Does it really have an effect on it or does it matter in terms of just the overall environment relative to workers' comp claims?

Yes, I think that when the economy is particularly strong and it hasn't gotten there yet, then claims tend to be a little more prevalent than they are during weaker economies. So I would say the comp market has been a little soft. The premium or pricing for insurance aspect of comp has begun to harden a bit, but that is sometimes not directly connected to the claims volume. Also, although claims have declined over the years, the serious claims have not. So I would say the business has become more made up of the more serious claims or people will say the severity has gone up. So the claims trends are also quite mild compared to just whether we are winning or losing business. So I think that we feel like our results are dominated pretty much by our ability to get out and compete.

I see. In other words, gain share in the space kind of no matter what happens on claims? Obviously, the overall market affects you, but the sales driver here is much more new accounts, new customers?

Yes, yes. We would love to see -- claims growth would certainly -- while it wouldn't be good for employers, it would probably be good for us, but we feel like we are new in enough in the space that most of our results we have to go out and dig up ourselves.

Okay. And then could you talk about the Texas facility and where that stands and what you are expecting there? I know that you had that big customer there.

Well, let's see, I am trying to remember. I think we -- we have a service down there that had a delay in a customer and that was somewhat related to the national healthcare legislation. And I would say that we now have more clarity on whether or not Obamacare is going to become law. I think it is still probably a little uncertain as to whether there could be delays or some difficulty in getting it all working. But, at this point, the customers in that market know the hand they are dealt and so we are working on picking those volumes back up. They haven't started yet, but we are hopeful that this coming year will be a better time in that marketplace.

Just looking at that facility, how utilized is it and I mean at this particular point? I know that, in July, you talked about -- maybe there was one customer that might begin in 2013, I believe, early in January?

Yes, well, I don't know if it will be January, but we do have expectations that our volumes will pick up there. We also have some other sales in that same sector, so we are feeling better there. We do have some capacity in that operation. We did expand to take care of a customer that had been delayed. So we are in a place where we would be picking up better margins as we fill up some of that capacity in the coming year.

Okay. And I would assume that there is more fixed cost in that operation than the rest of your operations?

Well, no, not so much. I think that it is just that our margins are tough enough that anything that affects our employment impacts our bottom line. So we just got our hiring a little ahead of the customer and we have worked it off a little bit, but we didn't want to bounce around too much on our employment. So we did swallow some expenses there, but I think these days we are a little more normalized, but we do have the rented space and we have some fixed expenses. But our business is not -- doesn't have a lot of truly fixed cost. In this case, we have some because we just got a little ahead of ourselves.

Okay, I appreciate your answer to the questions. Just, lastly, I didn't get the -- in terms of the buyback, you said 395,000 shares?

Yes, yes, that is right. We had a little acceleration in our program in the quarter and we also opened it up to pick up a couple of blocks. So we did purchase, I think, close to $20 million worth of stock in the quarter.

Okay, thank you very much.

(Operator Instructions). There are no further telephone questions at this time.

All right. Well then I would like to thank everybody for joining us today and we will look forward to talking to you again after the March quarter. Thank you.

This does conclude today's conference call. You may now disconnect.