CorVel Corp (CRVL) 2015 Q1 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 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 files 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. Gordon Clemons. Sir, please go ahead.

Thank you for joining us to review CorVel's June quarter. Revenues for the June quarter were $124.4 million, 5.3% over the $118 million in the revenue for the June 2013 quarter. Earnings per share for the quarter ended June 30, 2014, were $0.391; earnings per share for the prior year were $0.399.

Gross profit increased 3% compared to the same quarter the prior year. New sales, which had been strong in 2012 and were somewhat softer last year, have picked up again this year. New sales do not impact though results for at least a year following the sale.

G&A in the quarter increased 11%; a couple of one-time costs for the reasons for the increase in G&A. Network solutions continued to improve. The Enterprise Comp product line growth continued, but margins decreased.

After a period of rapid improvement in results in the fiscal years 2012 and 2013, from that higher plateau, we have consolidated our gains and have been making increased investments in the next leg of our journey.

Now, looking at the overall market, first the health market continues in a period of rapid transition. Our CERiS Hospital Review product positions the company well in this market. Insurers have moved cautiously forward making sure to test results and to review all possible implications of increased reviews of the in-patient facility charges.

The volume of prospects in the worker's compensation TPA market have been more plentiful this year than last. Private equity investors have continued to be active on settling both target companies and large carriers, who must assess the impact of the changing ownership in managed care and in the TPAs. Private equity investors dominate the M&A activity taking much of the industry into leveraged temporary ownership.

These owners focus on scale, short-term growth and synergies. It will be interesting to see how this cycle evolves. Some of these influences make for a competitive market where we see the opportunities to make investments and yet where we also have to adjust our strategies.

Looking now specifically at the health market, the pace of change there continues. The impact and implications of the Affordable Care Act continue to have direct as well as ripple effects in the market.

In the June quarter, carriers continued as they had last year and through the March quarter to explore methods of better containing costs. CorVel continues to expand in this segment of the market.

Each of the major carriers operates in multiple segments of the total market and each business unit within each carrier makes separate decisions regarding the use of new services. Carriers are expanding their use of medical review, but doing so cautiously.

We've expanded our management team and facilities in the CERiS unit within CorVel. CorVel sells CERiS services through its existing national branch network. Our product strength in this market is this proprietary architecture which allows our customers savings they may not achieve otherwise.

It's fair to say that all constituents in the health care marketplace feel pressure to produce more for less. Changes in the reimbursement processes require contractual support in the provider network agreements, which in turn can extend the implementation process for new sales.

While implementation of ACA continues to include imponderables, the use of improved medical review services appears to fit with any of the likely futures in this market. As you can appreciate, interpretations of the Act from appellate courts, reactions from key providers, pressures to interact in a market that includes new health care exchanges, all introduce additional considerations.

The environment is understandably challenging for our customers.

Now, moving to the comp market, the worker's compensation market, as I mentioned, is being impacted by private equity M&A activity. The industry is being consolidated into fewer, but more horizontally integrated firms.

In addition, some assets consolidated through M&A into health carriers are subsequently sold off, placing them back into organizations focused on worker's compensation. The structures of these service organizations being sold and resold are typically restructured during the changes in ownership.

This has introduced a period of uncertainty for the customers of these organizations. In addition, these enterprises typically attempt to reduce overhead during such changes, which forestalls investments in development.

The impact of these repeated changes in ownership is a period where it is important for CorVel to make adjustments in our plans as opportunities open in the market. We respect the talented management and ownership teams being introduced to our market. They bring specific strategies to the combinations they create, strategies appropriate to the goals of private equity firms.

Clients normally difficult to extract from old relationships can be inclined in this period to consider contingencies during such periods of disruption. To simplify the impact of these forces, they press upon pricing in search of volume increases and they open opportunities to act during unique windows of opportunity.

This is a period in which the landscape in our markets is being considerably restructured. During this period of disruption, CorVel's inclined to capitalize upon our strengths in technology and upon our strong capital structure to compete aggressively for business and to press our investments in long-term product development.

As I discussed last quarter, there are a number of services and service ideas trending in the marketplace. Integrated disability -- that is, the merging of worker's compensation and STD -- remains of interest as it has been for a couple of decades.

This concept, ever more supported by new technology, continues the expansion of the definition of disability management to include non-work related injuries, as well as, other forms of absence. CorVel's investment in the claims intake process lend themselves to deployment in integrated disability.

Interestingly, the market shares for key underwriters are also in a state of fairly rapid flux. The positions enjoyed by key participants, long rather stagnant, are now changing. The industry has a new leading underwriter and a couple of other carriers with dynamic expansion plans.

At the same time, some of the long-term leaders are seeing meaningful losses of market share. An issue receiving attention in the market and with regulators is the effort to seek better quality PPO network administration. The tools provided to assist patients seeking care are called upon to meet higher standards each year.

Data analytics and mobile computing continue to expand throughout the market. The company has introduced a claimant application designed to assist patients with their administrative activities during an episode of care.

This is a mobile app that will experience a fairly rapid expansion in its features. Making such an application very powerful and yet very easy to use requires the kinds of integration of information in which CorVel has been investing for a long time.

We also expect the end of the current calendar year to witness the introduction of next generation wearable devices. The continuum of devices used by all of us is moving from one of PCs sitting over the top of tablets, in turn, sitting over smartphones to one potentially of PCs sitting over smartphones, sitting over wearables. Where just a year ago it was vogue to reference the demise of the PC, now the PC is perhaps is going to evolve to where it severely limits the use of tablets as we've known them.

Wearables are expected to assist with the diagnosis phase of an episode of care, as well as in the monitoring of the recovery phase. The rapid evolution of these devices has very important implications regarding the foundation of claims systems with which they will have to interact.

CorVel has been making the kinds of investments necessary to allow true interactions across the spectrum of its computing resources. Integrating devices and services is complicated by the amount of information necessary to manage health care.

The new forms of integration have implications for even the manner in which health care is managed. Hopefully, the process can become less intrusive and more efficient. From a strategic perspective, I would offer that in the world I just described, our investments in technology continue as the cornerstone of our business development.

The Affordable Health Care Act has increased customer interest in improvements in medical review services. Implementing constant change while protecting the value of local branch and service networks CorVel has built is an important aspect of our technology strategy.

And as always, we're looking to continue evolving our service continuum during the planning horizon. Now, I would like to discuss our product line results.

Patient management revenue for the quarter was $65.4 million, an annual increase of 7%. Expenses outpaced revenues reducing field margins by over 20% compared to the strong June quarter a year ago.

Patient management includes our full service worker's compensation solution and our traditional case management product. We have increased our allocation of overhead to the Enterprise Comp product to reflect the focus of sales efforts in that market segment.

Our case management business is increasing in the retail segment addressed by the Enterprise Comp TPA services and is pressured in the wholesale market. Mobile computing applications in this service will be most effective as we more tightly integrate them with the claims management services. The mobile platform improves the value of the service by improving the immediacy of the information the service produces.

Network solutions revenue for the quarter was almost $59 million, up 4% from the same quarter of the prior year.

Profit was up 22%, impacted by improving results in the health market. We've increased the investments in feature development for this product line and are also involved in a long-term project to place this service on a next generation technology platform.

Opportunities to expand network solutions are coming from new worker's compensation regulatory initiatives in key states, as well as the impact of changes of ownership among important competitors. Developments in the health market will play an increasing role.

Our product development costs continue to dominate our corporate overhead expenses. The current fiscal year continues the strategic project areas we've discussed previously. Those are the claims intake process and how it integrates with claims administration, new claims systems features, extending our use of web portals, network solutions investments and added foundation strength for our systems and data centers.

Back to the claims intake process, which continues to evolve, CorVel is uniquely positioned to integrate the various pieces of claims intake -- that is, ask-a-nurse type hotlines, claims intake, triage and telephonic claims management -- as we provide each through proprietary CorVel assets. Leading these into the work flow of claims management is a complex but promising area of development.

New claims features include the integration of all services included in worker's compensation through the accomplishment of this at a data management level in CorVel systems, a capability which differentiates our service results.

Investments in the speed and stability of these systems was an area of emphasis in the quarter. More friendly systems interfaces for our customers will improve the use of our product.

The development and implementation of mobile application features for patients is a current project with promise.

Our ability to bring unique features to such an application is enhanced by the integration efforts we've made in all related claims management components.

As I discussed earlier, network solutions is undergoing a major rewrite. This began a couple of years ago and will stretch forward for another couple of years.

Investments in the foundations to our systems continue throughout the current year. The new data center continues to come online; expansions continue to our use of .Net software and web services; we're gradually including new programming languages and tools, as well as continuous improvements to the hardware we employ.

Now, I'd like to cover a couple of additional statistics. The quarter-ending cash balance was $34 million and our DSO -- that is, days sales outstanding in receivables -- was 42 days compared to 39 a year ago. 123,400 shares were repurchased in the quarter for $5.7 million.

We have returned $344 million to shareholders in the last 17 years, repurchasing in that period of time 32,270,000 shares. Shares outstanding at the end of the quarter were 20,881,000 and diluted EPS shares were 21,210,000 for the quarter.

Shares were reduced 2% this last year as we allowed our cash balances to increase. I'd like to now turn the call back over the operator to open the question and answer session. Thank you.

(Operator Instructions) It appears there are no questions at this time. I would like to turn the floor back over to Mr. Clemons for concluding comments.

Thank you. Thank you all for joining us and we'll look forward to talking to you again next quarter. Goodbye.

Thank you, ladies and gentlemen. This does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.