CorVel Corp (CRVL) 2014 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 and other forward-looking statements regarding future events or of the future financial performances of the Company. CorVel wishes to caution you that these statements are only predictions and that our actual events or results made 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 Form 10-Q filed for the most recent fiscal year and 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. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Gordon Clemons.

Thank you for joining us to review CorVel's December quarter. Our enterprise comp CPA continued its growth and the development of its services. In the quarter, we made substantial investments in the specialty medical review services sold to the health market. This service is well-received by major carriers and we are expanding to serve new customers.

Revenues for the December quarter were $121 million, 13% over the revenue for the December 2012 quarter. Earnings per share for the quarter ended December 31, 2013 were $0.41, up 56% from the same quarter of the prior year. Pretax margins increased to 12% from 9% the prior year. I will speak to margins later in the discussion of our operations.

First, I would like to discuss the market in general for our services. The impact and implications of the Affordable Care Act continue to be somewhat in flux as the implementation continues. The Act places pressures on insurers to improve their management of health costs and, in turn, these major carriers are looking for new tools for managing healthcare costs. We don't expect this period to be smooth, as there would seem to be any number of developing ripples from the bill. As those emerge, the participants in the industry recalibrate their plans.

The Affordable Care Act implementation has implications for every aspect of any healthcare or healthcare insurance service. Both providers and payers are concerned regarding the funding relative to their cost of operations. The first impact on CorVel from the legislation has been an increase in the demand for our network solutions services, specifically in our proprietary hospital bill review services.

We see opportunities in each segment of the marketplace, whether that is the private carrier market, Medicaid, or Medicare. We expect to also incur some extra cost in our own benefit plan for our employees.

In the Workers' Compensation market, the Company continues to see expansions in both the sale of managed care to carriers and in the sale of our enterprise comp line of full-service claims management services to employers. These markets have not been directly impacted by the Affordable Care Act. But, nonetheless, there is a steady pace of change in each.

There is continuous -- there is a continuous drumbeat of new regulations in Workers' Compensation. These changes require adjustments in our system and at times, subtle changes in our marketing strategies. The growth in our full-service GPA programs continues.

The Company is continuing to invest in further enhancements to those services. Each year we are able to add more capabilities to our offering. As we gain scale, we are also able to increase the pace of our investments. The latter portion of calendar 2013 witnessed improved margins and at least one analyst has published a report, forecasting continuing margin improvements.

At times, our margins can improve as the mix of our services changes. At other times, industry pricing can impact our results. Our long-term goal has actually not been to steadily increase margins. We prefer revenue growth to margin improvements, where these two different approaches to building CorVel involve trade-offs.

Either approach can result in the same short-term gain for investors. But growing the size of our enterprise, we believe, provides a better long-term value for customers, shareholders and employees.

Investments in systems have had the effect of gradually making the Company more efficient. This can cause higher margins at times. Our plan has been to utilize our investments to create higher value-added services, but to capitalize upon such improvements to be more competitive in the marketplace.

This effort can be expressed by being more competitive with our pricing or it can help us further increase the cost of product development efforts. Either of these choices is ultimately designed to improve our growth.

In the past year, the Company was able to achieve its revenue growth without a commensurate increase in field administrative costs. This was the cause of last year's pretax margin increase. Assisting with this gradual change in how our organization is structured has been an increase in the use of workflow software and, as a result, an increase in the use of call center activities that assist with branch level effectiveness.

Although not a plan which we often point, the gradual improvement in managed workflow processes has continued. The Company has increasingly utilized call centers to accelerate the timeliness of our services, as well as to bring specialized talent to a claim or case at the appropriate moment.

Pretax margins in the quarter increased to 12.3% (sic -- 12.0%, see closing remarks), which is above our long-term average. During the year, we increased spending for product development, in contrast to 2012, when we were cautious with corporate office level spending.

Now I would like to discuss our product line results. Patient management revenue for the quarter was $62.4 million, an annual increase of 12%. Gross profit increased 29% over the December quarter of 2012.

Patient management includes third-party administration, that is TPA services, and traditional case management. TPA services have been growing at over 20% annual rates and are an important driver of overall Company results. During our initial expansion into the TPA industry, this portion of our business was dominated by existing case management services. At this point, though, a majority of the services in patient management are derived from our enterprise comp line of TPA services.

The holiday calendar this year, coupled with the weather effects on business, made for a difficult quarter for case management. Offsetting that was the continued growth in TPA services. We continue to invest in new technology for the case management services, but we expect TPA services to increasingly dominate this portion of our business.

Case and claims management services are increasingly integrated in our service and systems. And investments in case management add to the effectiveness of our claims management efforts.

We have been -- we have an active backlog of additional projects and plan to continue building proprietary strength in our services.

Network solutions is a medical review sold into the payer marketplace. Revenue in that service for the quarter was $59 million, up 13% from the same quarter of the prior year. Gross profit was up 29% year over year.

The December quarter included one-time expenses to expand the specialty bill review we are now introducing in the health markets. As I explained in prior quarterly discussions, CorVel has a proprietary database of inpatient pricing information, which provides unique reviews of hospital reimbursements. We have expanded the infrastructure to support this business and have also been expanding the staffing in this business.

To reflect the growing importance of this business, the Company has branded a line of services in the health market and, specifically, the operations in the Dallas-Fort Worth Metroplex under the [Cirrus] name. We will be continuing to invest in our specialty services under that name.

Expansion in the quarter continued at a rapid pace. As a result, we incurred unusual expenses for office expansion, recruiting, and labor. We expect this pace to slow somewhat in the current quarter, but to continue throughout 2014.

Our ideal scenario would be to continue rapid expansion to service specific additional customers. We have committed to our customers that we will continue to expand to provide services as they define the needs under the new act.

The Affordable Care Act has created and will continue to create meaningful change in Medicare, Medicaid, and private health insurance. Our services have application in each of these segments of the health market. All of the major constituencies in healthcare -- providers, payers, employers, and employees -- are being impacted by the changes underway.

It is difficult to forecast the breadth or depth of the change that is ongoing in healthcare reimbursement, and we will experience adjustments in the strategies of the major players on a fairly regular basis. Cirrus services are also employees in our Workers' Compensation business, for investments in this business are complementary. We expect to be in a period of investment and adjustment throughout our planning horizon.

It is not uncommon for changes in healthcare to require as many as 10 years or more to be fully reflected in the marketplace for healthcare. Now I would like to speak to our product development efforts.

The key IT industry trends include hardware virtualization, which has greatly simplified our data center configuration. Workflow and document management, which we used to improve the development of shared service activities; dynamic load balancing, which promises to greater reduce the redundancy involved in systems recovery investments; and lastly, the ongoing progress in data storage and its costs, these infrastructures advances continue to drive three application trends important to CorVel.

The move from PCs to mobile devices, followed by what we expect to be as evolution in PCs; the expansion of cloud applications, and cloudlike configuration; and data analytics. At CorVel, these are expressed as follows.

In the move from PCs to mobile, CorVel real-time tools for claims intake continue to be an area where we believe improvements can be made. This last holiday season witnessed what some are calling a watershed moment in the growing use of smartphone-based transaction processing. We believe this same trend will impact health care and continue our investments in such obligations.

Tablets and smartphones for our nurse case managers are adding value to our case management and claims services. Our efforts in this area are now focused on improving the effectiveness of earlier releases. At the same time, I expect the introduction of laptops that share the best features of tablets while allowing users to deploy the best of PC-based software.

The movement of on-site applications to cloud applications, or, in this case, CorVel's private cloud, continues. In the quarter, we worked on improving the usability of CareMC, CorVel's private cloud, and the reporting provided there.

Data analytics continues to expand at CorVel. Improving the power of analytics tools available in CareMC has been a focus. Analytics continues to assist us with internal metrics that can help us manage our enterprise and the quality of our services.

Now I would like to speak to a few additional figures regarding the quarter. The quarter-ending cash balance was $33 million. Our days sales outstanding was 42 days.

106,000 shares were repurchased in the quarter and [1,056,000] shares have been repurchased over the last year. This reduced the shares outstanding by 5% year-over-year. We have now returned $325 million to shareholders in the last 16 years.

Shares outstanding at the end of the quarter were 20,938,000 and diluted EPS shares were 21,256,000 for the quarter.

I would now like to turn the call back over to our operator for the question and answer period. Thank you.

(Operator Instructions) I am showing we have no questions. Mr. Clemons, do you have any further comments?

Yes. Thank you. I did want to correct one comment I made during the text. I referred to our pretax margins as 12.3% and I think in the quarter they were actually 12.0%. So I just wanted to make that one additional comment.

And, otherwise, to thank everyone for joining us today and we will look forward to talking to you again after the March quarter. Thank you.

And this does conclude today's conference. You may now disconnect.