CorVel Corp (CRVL) 2014 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 you to 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 and forms 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 like to now turn the conference over to your host, Mr. Gordon Clemons. Sir, please go ahead.

Thank you for joining us to review CorVel's March quarter and the last fiscal year. Revenues for the fiscal year ended March 31, 2014 were $479 million, an increase of 11.5% over the $429 million in revenue in FY13. Revenues for the March quarter were $120 million, 7.4% over the $112 million in revenue for the March 2013 quarter. Earnings per share for the fiscal year were $1.61, up 35% from the prior year. Earnings per share for the March quarter were $0.39, up 12.7% from the same quarter the prior year.

Our TPA business continues to grow at more than 20% per year. Our Network Solutions business, and particularly the CERiS operations, are in a period of increased growth. Corporate administrative costs were up somewhat in the quarter at 11.4% of revenue. They were 10.9% of revenue for the fiscal year. FY14 ending March 31 was a year of expansion in services to the health markets, as well as in our TPA services and workers' comp, general liability and the auto markets.

Now to review FY14. I'd like to begin the discussion of the current environment in our markets by first discussing the March quarter environment. The quarter witnessed the increase in our medical review for the health market. Developments in that market are likely to have a disproportionate impact on our results, whether positive or negative, throughout the coming year. Results are difficult to forecast, as insurers are still sorting out how best to adjust to the Affordable Healthcare Act.

Weather was, for us, as it was for much of commerce, a more meaningful factor in the quarter than it normally is in the winter. We are seeing the improved results for March and April -- rather, we're seeing in the improved results for March and April that weather did have a negative impact early in the quarter. It is difficult to size this, and I don't want to overemphasize it. We would normally hope to have other favorable developments offset weather-related issues.

We also had an important health market customer pull back to further assess its strategy regarding responses to the pressures of the Affordable Healthcare Act. This prevented total revenue growth from offsetting the other factors in the quarter.

The first quarter is also impacted by seasonally higher unemployment taxes. These costs fall away as we proceed through the year. The sum of these influences made for a quarter that was below our revenue trend lines. We continue to expect to achieve our internal budget for EPS for the calendar year, though. In the quarter, corporate overhead -- primarily information systems expenses -- were up over the levels of the prior year. We expect most of these spending levels to remain throughout the year.

The market for our services appears robust. In the health market, the impact and implications of the Affordable Healthcare Act continue to have direct as well as ripple effects in the market. CorVel continues to expand in this segment of the market. We have gotten start-up implementations going in the commercial segment of the total market. In addition, we're working on Medicaid prospects in several states.

We expect to see many states look for new ways to improve their control of Medicaid costs. At the same time, responses to ACA are still in their early stages of development in the marketplace. We expect an evolving marketplace as the various payers adjust to the new market forces. While carriers are pressured to reduce their costs and prices, providers also face cost pressures that could reduce care. The system cannot absorb millions of new participants without meaningful change.

We have substantially expanded our CERiS hub in the Dallas/Fort Worth area and are making regular enhancements to our services. CERiS, as you may recall, is the brand name for our specialty line of hospital bill review services. Our product strength in this market is its proprietary architecture, which allows our customers savings they may not achieve otherwise.

Interestingly, implementing CorVel services does not mean these organizations must leave their existing vendor relationships. The unique nature of this service causes it to be additive to their existing programs. While our service contributes in any of the segments of the health market, we've had more success recently in the expansion of our market share in the commercial segment.

The workers' comp market is also quite active in almost all segments. Private equity firms have bought up a number of the larger businesses in the industry. Since these PE firms, as they are known, look for rapid turnover in their assets, their presence in our industry has placed many competitors in play. In addition, some strategic consolidations have also added to this turnover.

These trends have several impacts upon CorVel. The press for growth by the PE firms has favored larger firms such as CorVel that can offset pricing pressures with the benefits of scale. The natural disruption created by changes in management at PE-owned firms favors those firms such as CorVel not involved in status changes.

And the PE firms tend to not invest in their acquisitions, but rather, to seek economy. This allows our long-term strategy to have a few years here where we can invest to gain a foothold with new services or capabilities. On the other hand, the PE firms have priced M&A targets above levels we would pay up for, leaving the market open to themselves. It will be interesting to see how this chapter plays out.

As always, there are a number of ideas trending in the marketplace. Integrated disability, the merger of workers' comp and STV remains of interest, as it has been for a couple of decades. The market and regulators are seeking better quality of information in PPO networks and in the tools provided to assist patients seeking care. Further, data analytics and mobile computing continue to expand throughout the market.

Integrated TPA solutions are of increasing interest. By integrated, we refer to the systems-based connecting of the various components of the total workers' compensation program. For decades, these components have existed in separate companies, and connections were poor, or even nonexistent. Only CorVel among the competitors and major competitors in the TPA marketplace owns all key service components, and thus, ideally, is situated to offer true integration.

From a strategic perspective, our business strategy has remained unchanged over the last year. Our primary focus is in the expansion of our enterprise comp TPA services and the introduction of our CERiS line of medical review services to the health markets. Each has made good progress over the year, and yet we have much left to do. We are expanding our investments in medical review and in provider networks. We have strategic initiatives in a couple of areas of mobile computing, and are hopeful that the coming year will see further advances in the device technology in that arena.

The integration of all of CorVel's managed care services in our claims administration offering is a current strategic project which leverages CorVel's extensive product line. CorVel has the most complete product offering in the industry. But the big differentiator is the integration of all of our services in a real-time environment. Many of the most costly workers' compensation claims have always been exacerbated by the delays in the management of those claims. These delays have been such an integral part of claims administration that most participants in the industry have come to accept them as the norm.

Much as the use of rotary phones saw no need -- or the users of rotary phones saw no need for digital dialing, so too do participants in the healthcare market today take for granted most of the industry characteristics common today. Our goal is to make the healthcare experience for the employees of our clients increasingly easy and friendly.

Most of the point of sale developments in retailing may also become common in healthcare, but with more complexity. Moving the healthcare and insurance industries off paper, though, and off old legacy systems, is going to be a difficult process. In our small corner of that evolution, we're reaching the point where progress is becoming increasingly visible.

Now I'd like to discuss our product line results. Patient Management revenue for the quarter was $64 million, an increase of 9%. However, profit decreased 14% from the March quarter of 2013. This segment includes both case management and our full-service workers' compensation TPA solution. In the quarter, TPA services continued to expand. But the weather reduced case management sold both to carriers and other payers, and that provided as a service within our TPA programs. Our expansion plan in the TPA market continues on track. CorVel is better known in this market each year.

Our case management business, which had been doing better following the recession, was impacted by weather in the quarter. This service is also affected when competing TPAs choose not to refer a service to CorVel because of our involvement in the TPA market.

We have invested in mobile computing applications in case management to more tightly integrate it with claims management activities. These enhancements are of particular importance to our own enterprise comp programs, where we can build the tightest integration of service. This initiative meaningfully enhances the value of information collected in case management and the value in claims adjusting. We see similar integration opportunities among all service components in the total claims management process.

Network Solutions revenue for the quarter was $57 million, up 6% from the same quarter the prior year. Profit was up 23%. The mix of services in Network Solutions improved as CERiS volumes increased. Initial medical review programs are underway with four of the largest health insurers. The most rapid growth in the health market has been achieved in the commercial segment of the health market. We hope to see increasing future sales in the Medicare and Medicaid segments. Investments in CERiS hospital review services have continued in support of the growth of this service.

As most of you know, CorVel's involvement in the health market is a relatively new opportunity for us. Insurers are working to adapt to ACA. The high-profile insurers in this market have to be particularly thoughtful regarding changes they make. Cost control is a key to their performance, but it must be carefully balanced with its impact upon both providers and patients.

The market for CorVel's CERiS service is an order of magnitude larger than it is in the comp market. Although developments in this market are difficult to forecast, we have chosen to make a significant commitment to this opportunity. Volumes in our traditional workers' compensation bill review and PPO segments have also improved. Investments in service features for this market have been expanded.

Now to product development, where we had a busy quarter. The March quarter included investments in the codification of key elements of the claims management process, in adding features to our claims system, in the launch of a mobile app for patients, and in expansions of the features in our medical review programs, particularly those related to the management of pharmacy costs. We have also been adding foundation strength to our systems, expanding our data centers and constantly working on process improvements.

Codifying information in claims is a project on which we have already spent several years. The goal is to bring large amounts of information previously in text fields into the rules engine process. This allows more of the claims management to be included in workflow processes that much improves the automation of this work. This effort reduces lags in claims management and provides a much more consistent process.

Most feature additions to the claims process come from automated work flow and the introduction of specialization of labor to insurance claims processing. Our industry is accustomed to unbundled programs with multiple vendors involved in the various components of the program. Service norms in the industry include impediments associated with siloed or loosely connected services. CorVel is integrating on one database information from claims and case management from medical review, from pharmacy services and from other directed care activities. The value of this information is provided through CareMC, our web portal, to adjustors, employers and patients.

Mobile apps for patients have continued to proliferate in the market. CorVel's efforts are focused on each of the constituencies in workers' compensation, and more recently upon applications for workers' comp claimants. This is another area where the integration of our services provides the foundation for a strong product. We are able to display provider demographics as well as pharmacy and claims information to our claimants. In addition, we hope this year -- or we hope this is the year for further innovations in the form factors for mobile computing, particularly in the area of wearables.

Generating expanded value from medical review is an area of emphasis. Capitalizing upon the data flow in medical review, we provide alerts and medical history to the claims-adjusting process. These can be prompts for action based upon patterns of care, as well as improved visibility to the information that can be presented from patterns of pharmaceutical consumption. Additionally, clinical information is increasingly a source of helpful, predictive modeling that improves the focus of claims management upon those claimants most at risk.

And I'd like to add a couple of additional statistics. The quarter ending cash balance was $35 million, and our DSO was 43 days. This is up slightly from 40 days a year ago.

67,000 shares were repurchased in the quarter, and 830,000 shares in the fiscal year. We have returned $328 million to shareholders in the last 17 years in this fashion. Shares outstanding at the end of the quarter were 20,979,000. And diluted EPS shares were 21,270,000 for the quarter. Shares were reduced 5% in the year, and 2% this quarter over the same quarter of the prior year.

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

If you would like to open the call for questions. All right, go ahead. So that's the end of that. And then we would go into the Q&A session.

And there are no questions -- thank you -- at this time.

Any final comments?

Yes, I'd just like to thank everyone for joining us today. And we'll look forward to talking to you again at the end of the next quarter. Thank you.

Thanks for joining us. This ends our formal presentation. You may now disconnect.