CRVL - NASDAQ

Thank you for standing by. Welcome to the CorVel Corporation Quarterly Earnings Release Webcast. During the course of this webcast, 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 that 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. I would now like to turn it over to Michael Combs, President and Chief Executive Officer.

Good morning. Thank you for joining us to review CorVel's September quarter results. I'm very pleased to welcome Brian Nichols, CorVel's Chief Financial Officer to the call today.

Thank you, Michael, and good morning, everyone. It's a pleasure to join the call this morning.

Today, we're going to review our operational performance, key growth drivers and the market trends that are shaping our business. I'll also discuss how we're positioning the company to capture emerging opportunities and manage associated risks. Finally, I'll provide a closer look at our AI initiatives, highlighting the tangible benefits we're already seeing as well as the road map ahead. Brian, let's start with an overview of the quarter's financial results. After that, would you please share a bit about your journey at CorVel and your perspective on the opportunities you see in your new role to further strengthen the organization.

Certainly. The September quarter revenues were $240 million, 7% above the $224 million in the September 2024 quarter. The earnings per share for the quarter ending September 30, 2025 were $0.54, an increase of 20% over the same quarter of the prior year's EPS of $0.45. As a reminder to our listeners, the earnings per share results from the quarter and annual comparisons have been adjusted to account for the 3-for-1 stock split reported in the December 2024. It's not unusual to have onetime events. Sometimes they work in our favor. Other times, like the September quarter results, they do not. The combined effect of onetime events in the September quarter softened the increase in EPS by approximately 9 percentage points. Overall, the organization's fundamentals are strong. Regarding my journey at CorVel, I've been with the company for 15 years, much of that time spent with our ancillary care program. I started as a patient care coordinator providing administrative support for physical therapy cases. Towards the end of my first year, I was promoted to Manager and then the Director over ancillary care operations a few years later. In 2016, I accepted the Vice President Network Solutions role, which included all product and operational management of our ancillary care services. Subsequently, pharmacy, IME and PPO programs were added to my span of management, giving me an opportunity to oversee a large portion of our network solutions and patient management services. One of my goals now as CFO is to leverage my past CorVel product and operations experience in building resources and tools that will empower our business managers for maximizing growth opportunities.

Thank you, Brian. I want to dive into some market trends. There are 3 key trends that I'll discuss this morning: the first, our challenges in the workers' compensation labor market; the second, in the Commercial Health segment, our CERiS division is operating in an environment of elevated pricing pressure, driving an increased focus on delivering savings and operational efficiencies; and the third market trend, the most significant of the 3 I will review is the emergence of Agentic AI and its implications for our business. Specifically, how we're leveraging this technology to implement enhancements to our systems more quickly, how we're leveraging it to generate optimized results for our partners and also to ameliorate the impact of the first 2 trends, the workers' compensation labor market and the commercial health pricing pressure. But let's start with the labor market. The workers' compensation field is experiencing what I define as a demographic shift. The industry is losing experienced professionals faster than it's attracting the replacements. Many entered the field in the '80s and '90s, that's in 1980s and '90s, when workers' compensation legislation was evolving rapidly, and they're now approaching retirement age. Meanwhile, workers' compensation has not, let's say, traditionally been due to the destination industry for new graduates. It receives little exposure in business, insurance or health care educational programs. As a result, it has become increasingly challenging to recruit and retain experienced claims management, underwriting professionals. So what's CorVel's response? Well, we're investing in people, while this is an industry-wide challenge, we see the opportunity in it through CorVel University. Now in its fourth class, we are bringing new professionals into both the industry and into CorVel itself. The program has delivered exceptional retention rates and continues to build the next generation of experts who serve our partners. Although, we'll acknowledge, we can't single handily solve the workforce challenges across the entire industry, CorVel U is making a measurable difference for our company and for our clients. At the same time, we're experiencing these labor challenges. Technological innovation is arriving and what I would say is just the right moment to augment and accelerate workforce development. Generative AI and now Agentic AI are maturing rapidly, enabling us to rethink how work gets done across our business. Agentic AI represents the next evolution in artificial intelligence. Systems did not only analyze data, but also take actions to complete tasks and deliver outcomes. By automating multistep processes, Agentic AI can enhance productivity, reduce costs and accelerate decision-making across the enterprise. And I would say, parenthetically, that Agentic AI is going to have a greater impact than we've seen in the last couple of years with Generative AI, unless I'm entirely accurate. The brain underlying Agentic AI is, in fact, Generative AI. At a very high level, we are leveraging Agentic AI to simplify the work of our claims professionals as one example, allowing them to focus on high-value judgment and care coordination rather than the administrative tasks. Agentic AI is also transforming the development of software itself rather than coding every line manually, developers can now orchestrate and audit intelligent, task-specific AI agents that execute components of a software build, what once took weeks can now in many cases, be completed in days. For CorVel, this shift means faster feature delivery within our business systems, greater agility in applying system enhancements that improve outcomes for our partners, improved system interoperability across the care continuum. And overall, we'll see increased operating leverage. And I want to point out that while the pace of AI innovation is accelerating, it is essential to note that our commitment to responsible AI principles remains unchanged, including continuous evaluation for bias, ensuring model accuracy and promoting transparency and how AI supports our processes or approach centers on human expertise directing AI, not the other way around, we use Agentic AI to enhance creativity, decision-making and efficiency, always with people at the core. The expertise of our teams is foundational to our success and the investments in training, development and tools amplify the capabilities and the quality of service we deliver. Now transitioning to the different segments within the organization, the CERiS continues to innovate under increasing pricing pressure from its payer partners as well as the expectation to deliver incremental additional savings each and every year. Recent AI-driven enhancements have improved both capacity and precision in identifying medical bills and claims with potential savings. By automating and augmenting review selection, we can now review more claims and identify savings more effectively. Our adoption of advanced automation, analytics and one-touch processing enables us to conduct a greater number of reviews per claim, thereby increasing both partner savings and CorVel's revenue opportunities. We've also prioritized transparency and explainability in our results, and this is incredibly important in the industry. This supports our strong acceptance rate amongst payers and medical partners. Finally, AI integration has strengthened our agility in adapting to regulatory and coding rule changes, keeping CERiS at the forefront of the industry and compliance innovation -- industry compliance and innovation. Now moving to the Property and Casualty space. We've implemented supervisory quality and compliance agents that enhance claims accuracy and ensure the timely completion of tasks. Additionally, we've added an enhanced claims workflow that minimizes context switching, thereby improving efficiency and throughput across teams. We are also building a new digital communication platform for injured workers, integrated into our proprietary claims CareMC platform. The portal supports AI-powered summarization of communications, data extraction from transcripts and the creation of intelligent alerts, all designed to augment the work of claims professional, supervisors and managers. In summary, CorVel is addressing industry challenges and leveraging emerging technology to its vantage. Through CorVel University, we're developing new talent, through Agentic AI we're empowering that talent with more intelligent systems, faster processes, optimize results and deeper insights. Together, these initiatives are positioning CorVel to continue delivering superior outcomes for our partners and the patients we serve. And regarding our product development organization, effectively leveraging technology is perhaps now more critical than at any point in CorVel's history. We're intensely focused on building our competency with AI, particularly now Agentic AI and expanding our capacity to enhance our systems and deliver optimized results to our partners. Now moving to sales management. Expansion of business with existing partners has been a key driver of growth this year. We are proud of the consistently high-quality results our operation team delivers. Organic growth with our existing partners by the addition of new services and offerings only occurs when we're delivering quality results for the services we already offer. Momentum in CorVel's Payment Integrity Health Solution has also continued during the September quarter. Our growing customer base, strategic positioning within each partnership and enhanced capabilities and cost containment services powered by AI, distinguish CERiS in the market and provide a strong foundation to build upon. Brian, would you please provide an update on the acquisition completed in June, the additional focus on mergers and acquisitions as well as further details on the quarter's results.

As reviewed in the August earnings release, CorVel completed the acquisition of assets and key talent from a privately held technology firm at the end of the June quarter. The assets acquired and the talent now engaged with CorVel's existing AI team, are driving the progress outlined on today's call. We're pleased with the current trajectory, the meaningful impact already realized and the pipeline of additional enhancement. To further progress our activity in the M&A space, we will add dedicated resources to focus on synergistic opportunities. The priority is to expand our suite of offerings to current partners and further enhance our existing team's technological expertise and capacity. And finally, I would like to review some additional financial items. Revenue growth for the September 2025 quarter was driven by both our Patient Management and Network Solutions segment. As Michael noted earlier, organic growth and expanded activity with existing partners contribute meaningfully to performance across both areas. Within patient management services, claims operations generated approximately $4 million in revenue growth. Network Solutions increased by $12 million, primarily reflecting higher utilization of our CERiS, Ancillary Care and Bill Review Solutions. The quarter also resulted in improved gross margin and net income, reaching $28 million, up from $23 million in the previous year. Ongoing product enhancements and strong operational management have generated lower direct costs. Those efficiencies along with sustained responsible management of general and administrative expenses have placed CorVel in a position where revenue growth has outpaced expenses. During the quarter, CorVel repurchased 143,774 shares at a cost of $12.8 million. From inception to date, the company has repurchased 114.7 million shares for an aggregated total of $854 million. Through this program, the company has now repurchased 69% of the total shares outstanding. The repurchasing of shares continues to be funded from the company's strong operating cash flow. CorVel's days sales outstanding was 40 days in the September quarter, an improvement of 2 days compared to the same period a year ago. The quarter ending cash balance was $207 million, and in contrast to many other organizations in the industry who are facing increasing debt loads and associated interest costs. CorVel remains able to manage operational risk. The strong and debt-free balance sheet generates improved earnings and positions CorVel well for continued product expansion and acquisition opportunities. Thank you for your time this morning. I will now invite the operator to open the session for questions.