Gordon Clemons - Chairman and Chief Executive Officer.

Analysts:.

Welcome to the CorVel Corporation quarterly 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 the 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 events 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 June quarter. Revenues for the June quarter were $127 million, 2% over the $124 million in the revenue for the June 2014 quarter. Earnings per share for the quarter ended June 30, 2015, were $0.34. Earnings per share for the prior year were $0.39.

Both the network solutions and workers comp and the CERiS group heath business had improved results in the quarter. Our enterprise comp full service TPA offering continued its growth. G&A in the quarter was up both sequentially and year-over-year. I'll speak later to initiatives focused on improving efficiencies.

The results for the quarter, while improving sequentially, do not represent results with which we're satisfied. Such periods have always spurred us to examine our enterprise more critically, and this time is no different. We have begun a number of adjustments under our own control.

It's important to note that some of these changes involve practices for which I am responsible. Fortunately, this makes the discussion about change, one that I can have in a meeting of one. First, let's talk about the market for CorVel services. The health market continues to react to the Affordable Care Act.

This quarter witnessed the largest increase in the proposed consolidation of competitors in many years. Two of the top-five carriers have announced proposed acquisitions of two others of the top five. It is generally assumed that accommodations will be required to address antitrust implications.

But the point is that payers are very concerned about being efficient and being able to price competitively. Such M&A activity can delay the interest by these firms involved in the implementation of new programs such as ours.

However, the effort to improve cost is an important part of the industry response to the Affordable Care Act, which in turn favors the use of our CERiS services. The Act has certainly much increased the pace of change in the industry.

A long-term care insurance market, a subset of the health market, is showing interest in various forms of care management and claims administration. Expanding the services CorVel can bring to the health market is a part of our evolving strategy, and this market segment appears to be an area of opportunity for the company.

The workers compensation claims management marketplace remains our largest base of business, with expanding volumes also in auto and regular healthcare. The private equity owners of entities in the comp market bring new strategies to the marketplace, requiring all entrants to be more attentive to strategic adjustments.

CorVel's TPA offering, new five years ago is increasingly more well-recognized. We do, however, have to continue to work on the awareness of our offering among the leading brokers. CorVel's integrated solution competes with the unbundled offering of the major competitors.

By unbundled, I am referring to the fact that the major competing TPAs do not have in-house services for much of the managed care activities.

Thus they market that they are buying the best from subcontractors, whereas CorVel markets the advantages of an integrated solution, where the components of the total program work together in the same information management system.

We've always thought a differentiated solution, so competing with a new and differentiated solution brings increasing meaning to our product development efforts. As I noted last quarter that some of these influences make for a competitive market, where we see opportunities to make adjustments and yet where we are also adjusting our strategies.

You could say, its game-on in our business, and we feel well-positioned to engage in this competition. This quarter I'd like to discuss several of our operations management initiatives in a bit more depth. Clearly, our best long-term focus is upon the growth of our business.

During times when our results are pressured by transitions in the marketplace though, we also seek improvements to the efficiency of our operations, and each can feed one upon the other. Shared service call centers is one such efficiency opportunity. CorVel began as an organization built from the ground-up at the local branch level.

Our services were designed to be delivered locally in each market. Our computing systems operated locally and were networked for the consolidation of results. Over the years, information management technology has evolved and today we increasingly provide computing service through our own private cloud.

In addition, our Scan One division provide services, which enable both CorVel and other much larger corporations to automate functions previously provided in a more distributed and manual manner. Scan One operates automated mail reception and processing facilities, scanning, document management and storage and data conversion activities.

These in turn allow major corporations to automate administrative activities by moving them to Scan One. On the backend of Scan One's operation, the administrative output is delivered electronically to the accounting systems of their clients.

As administrative labor cost rise and the Affordable Care Act creates large cost increases in healthcare required to provide for all employees, major corporations are outsourcing administrative activities.

Insurers outsource work to CorVel and working with Scan One, we are using workflow software to hub some functions and to access lower cost labor, while still providing local service. Within CorVel, we're also using these techniques.

Our operations have become more and more able to incorporate call center and other hub activities, while retaining the value of local service.

We operate a number of hubs, each providing some portions of a particular service, improving technology coupled with the desire to increase quality and reduced operating expense has created a steady evolution in the structure of both our service technology and the physical configuration of our offering.

During the first half of this calendar year, we moved our data center and the Scan One division into a new location in Portland, Oregon. We also operate hubs for other activities in Ohio, Indiana and Virginia and have been expanding our electronic banking and reimbursement for the carrier community.

It is our expectation that over the next few years we will continue to evolve our workflow, as technology continues to better support improving forms of service delivery.

As we've spoken about in previous calls, the company invests in mobile computing, private cloud offerings and specialty portals for the purpose of giving our customers real-time access to and involvement in the administration of disability benefits. Automated workflow is also changing service delivery.

We've been expanding our use of workflow technology for over 10 years. Hubbing activities invites more sophisticated workflow implementations. We will increasingly apply these internally and Scan One offers them to corporations looking to streamline their administrative activities. We're also seeking to manage with improved metrics.

We are simultaneously reviewing the organizational implications of our evolving technology. We have found that as our processing capabilities evolve, we need to adjust the internal operating metrics for the business.

With our economic performance below our long-term trend line, we're beginning efforts to tighten our management of expenses in several areas. These efforts will help us to be more competitive in the marketplace and will enable a more sophisticated review of results by office and by product line.

The budgeting and operations reporting tools we've used historically, while still productive, require the addition of metrics measuring results in real time and at a greater depth than previous tools. Our goal is improved tools for local management to employ managing day-to-day operation.

Another of the adjustments we can control internally is the manner in which we price. As I have previously noted, the private equity firms in the industry have brought increased focus to the complexities involved in our competitive profile when bidding on opportunities.

We've increased the use of analytic reviews of each new opportunity and find that we benefit by being more strategic in how we price for the various components of our service. This has admittedly been a learning experience for us and we expect to be more effective than we have been at leveraging our breadth of service.

CorVel's enterprise comp systems are improving. As with most initiatives to enter either a new market or a new service, our entry into the TPA marketplace earned lower margins than we'd prefer for more developed market position. We've wanted to create our own claim system, because we are offering a unique solution in the market.

As we have been building out our new system, our operations have been less sufficient than we'd like. Also, we wanted to be careful to have a strong service quality. Each year, we've added a lot to our claims system. We build this software on a same database with our managed care services and connected all of this to the same web-based infrastructure.

As we continue to connect this to mobile computing for claimants and employers and portals for providers, an ecosystem is being created connecting all constituents in workers compensation. This year each of the major platform tools we employ have seen improvements.

Here I'm referring to the computing, hardware, the storage, operating systems and web browsers we employ. In the most recent quarter, we introduced the first major claims management application of our rules engine and managed workflow technology.

This latest release is expected to improve our operations efficiency, as well as the quality of claims management. By claims management, I'm really referring at this point to the adjusters' activity and not to the broader range of managed care activities in which we're involved.

This sets the stage for further extensions of the technology in the coming quarters and years. It would be inappropriate to discuss the competitive capability this creates on a public call such as this, but the overall goal is to create a new approach to the management and control of claims adjusting activity.

We are converting the claims intake process from one of regulatory compliant to one of proactive care management where the administrative aspects are handled quietly in the background. This has been a long-term project and there is more to do, but the most recent release was an important milestone for the company.

From a strategic perspective, I'd like to talk about the implications of all of this. In the world I just described, our investments and technology continue as the cornerstone of our business development. The Affordable Healthcare Act has increased customer interest in improvements to new medical services, medical review services that is.

Implementing constant change, while protecting the valuable local branch and service network CorVel has built is remaining an important aspect of our technology strategy. And as always, we look to expand our service continuum during each planning period. Less frequently, we also enter new markets. Now, I would like to discuss our product line results.

Patient management revenue for the quarter was $71 million, an annual increase of 9%. Deal margins remained under pressure with gross margins at the field level 9% down from last year. Patient management includes our full service workers compensation solution that is TPA service and our traditional case management product.

We expect our field margins to improve over the coming year through a combination of the initiatives I discussed earlier. Our case management business is increasing the retail segment addressed by the enterprise comp TPA services and is somewhat pressured in the wholesale market. We are beginning some service in the health market.

The health market services differ from the case management we've delivered in the past in workers compensation, and therefore have required an additional period of pilot operations and process development. Volume should increase in the second half of this calendar year.

Network solutions revenue for the quarter was almost $56 million, down 5.5% from the same quarter of the prior year. Profit was down 6.7% year-over-year, but was up 18% sequentially. The sequential improvement in results came largely from CERiS.

As I have stated previously, results from this business are difficult to forecast, because the carriers are still sorting through the various alternatives for responding to the new legislation. During the quarter, we continued to work on our provider networks.

The increased investment in networks solution has identified service features targeted for improvement. It is fair to acknowledge though that meaningful capability changes in this service typically involve fairly substantial development efforts focusing our resources on the most important priorities is necessary to being able to move the rock.

Product development had a good quarter, highlighted by new claims system releases discussed earlier.

The current fiscal year is focused on the same strategic projects we have discussed on previous calls that is claims intake and related workflows and claims administration and care management, new claims systems features, extending our use of web portals, network solutions investments and adding strength to our systems and data centers.

Claims intake continues to evolve. CorVel continues to evolve the services at the front-end of a new disability incident. In addition to the Ask a Nurse hotline, claims intake, triage and telephonic claims management, we're now adding telemedicine. This is converting what was claims intake to become a care management continuum.

Telemedicine promises to play an important role in the provision of improved support to those involved in the onset of a major episode of care. We're also introducing new claims features.

The integration of all services included in workers compensation is being accomplished at the data management level in CorVel systems, a capability, which as I said earlier differentiates our service and our result.

The newest workflow automation feature is being implemented this quarter are the culmination of a major effort that stretched over several years. We believe we're now at the point where each incremental change will bring improved claims management. It does though take an accumulation of changes to create meaningful change and outcomes.

More friendly systems interfaces for our constituents will improve the use of our product. The development and implementation of new interfaces for each of the constituents in an episode of care promises to gradually improve the outcomes in the treatment of injury.

Having an ecosystem like this gives CorVel a unique competitive advantage, one which has a long runway in front of it. And yet it is very important to not just have new features, but to also continually improve the interface we have with each constituency.

Where in the world is Steve Jobs, when we need him? As I discussed earlier, network solutions is undergoing a major rewrite. This began a couple of years ago and will stretch into calendar 2016. This is the third complete rewrite of the software in our history, an investment CorVel makes to maintain the value of this important application.

Investments in the foundations to our systems continue throughout the current year. The new backup 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.

New browsers, operating systems and new solid state storage will combine to provide a more effective experience for our users. The most recent round of infrastructure advances should help make our user experience much better. Now, I'd like to speak to a couple of additional statistics we always provide.

The quarter ending cash balance was $27 million and our DSO was 41 days compared to 42 days a year ago. 260,000 shares were repurchased in the quarter for $9.1 million. We have returned $369 million to shareholders in the last 17 years, repurchasing 33,253,000 shares.

Shares outstanding at the end of the quarter were 20,025,000 and diluted EPS shares were 20,335,000 for the quarter. Shares were reduced 4% this last year. I'd now like to turn the call back over to our operator to open the question-and-answer session. Thank you..

[Operator Instructions] There are no questions at this time. I would like to turn the floor back over to Gordon for closing comments. Thank you..

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End of Q&A.

Thank you. And I'd like to thank everyone for joining us. We will look forward to talking to you again at the end of the September quarter..

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation..