Gordon Clemons – Chairman and Chief Executive Officer.

Analysts:.

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 the 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 the call over to your host, Mr. Gordon Clemons..

Thank you for joining us to review CorVel's September quarter. Revenues for the September quarter were $128.2 million, up 3% compared to revenue for the September 2015 quarter. Earnings per share for the quarter ended September 30, 2016 were $0.35, down from $0.41, in the same quarter of 2015.

The results for the quarter began to demonstrate the underlying growth in our business. We have though had expenses hit us in the quarter which we expect to moderate as we go forward. As many investors would know, resolving issues in any business typically takes a bit longer than management often expects.

Those of us who love competing and building franchises have to be optimists and to think we can overcome challenges. The expenses with which we've been dealing for several quarters continued to be an issue in the quarter, the impact of these expenses reduced earnings per share by $0.06 in the quarter.

I'd like to discuss the expenses before going on to discuss our market trends. As of other companies, we've been working to adjust to the new labor laws as regards, time, management for employees. We've had legal expenses as a result. Companies ourselves included will react to these regulation changes and make the necessary adjustments.

In addition, we've had some lessons to learn in our expansion into the TPA market. Specifically, we've learned that there is a narrow segment of the market where we should not provide service.

Our history has been one of believing we could make almost anything work, but we've learned that there are good reasons why we should avoid some segments of the market. As we have in the past, we will learn from these missteps and move on.

Turning now to the state of the markets we serve, the healthcare and insurance industries are highly regulated and this election year has introduced a fair amount of uncertainty. The uncertainty and the adjustments to the existing ACA legislation have lengthened sales cycles.

As you can appreciate many decisions are on hold, pending some clarity regarding the election outcome and after that some sense of the direction likely in legislation. Some segments of the market we serve are now particularly sensitive to national politics and in those markets the pace of business has remained active.

In general, we see an active and receptive market, but a couple of the expansion efforts we've had underway in the health market, continue to move more slowly than we had originally hoped. Competition remains active in the worker's compensation market, but customer receptivity to the offerings continues to build as we had hope.

Claims trends have continued to decline, making growth more difficult than in other coverages, as the market volumes remain soft and the length of – the lack of market growth has impacted the results in the PEO and firms. In terms those firms have begun to make adjustments in their operations, reflecting the impact of the slower market.

The pace of acquisitions in our market has slowed, but tougher market puts particular pressure on the leveraged firms. We believe we are in a good position to continue the pace of our investments in the business and to capitalize upon the more difficult market to press our advantage.

The broader healthcare market is increasingly important to CorVel's overall results. The health market has had the two substantial mergers going on, on top of or among rather the top healthcare insurers and understandably that has consumed a lot of their management operating time.

Both mergers are being contested by regulators, lengthening the period of time when each firm faces uncertainty. Our CERiS operations continue adding clients and improving their offering. They are adjusting their offerings to address how best to integrate their service in the carrier programs.

Increased sophistication in medical review can generate pushback from some providers. With the growth in CERiS reviews, we've had to provide support for our customers' payment integrity efforts.

One important customer though has resumed service after a period of time when they had to take time to evaluate how best to incorporate our medical reviews in their programs. Additionally CERiS has had some success expanding its sales efforts, below the tier of the largest carriers into the middle market for healthcare, insurers and TPAs.

There is clearly going to be an ongoing period of uncertainty in healthcare markets, but I feel we have become more adept at dealing with the environment in which we find ourselves. Product development remains a focal point for us.

We went through a period between perhaps 2006 and 2014 in which we had to focus resources on foundational improvements to our CareMC product. Much of this was in support of our expansion into the TPA market, but there were also a number of investments we had to make to improve strength of the underlying structures in that product.

I'd like to take this opportunity to complement our technology team, both our IT and IS staffs have had a number of important successes. We've been in the period where the month-to-month progress in our systems has been on target and has been of increasing support to our efforts in sales.

Although new ideas often get overhyped and can require an extended time to impact the market. I think it's clear that technology is increasingly impacting all businesses. Our investments in technology were intended to build the value of our franchise and they've done that.

More importantly, the technologies we can see coming to market over the next five years, only heighten the value of the infrastructure we put in place. For example, big data analytics has become an increasingly important management tool for all businesses.

Our investments in operating systems, web portals and data warehouses position us to increasingly employ analyses in support of strategic initiatives. Although our analytic efforts have already been important to our progress, we have much more we can do.

An integrated product line facilitates the implementation of recommendations from the analytic group.

In the last couple of years, changes made in our systems, management have resulted in improved throughput, the completion of important foundational projects and as a result, a steady increase in the percentage of our resources that can be focused upon strategic projects.

We continue to invest in improvements to our platform and expect that effort to be a permanent aspect of our systems investments. I've touched on some of the specifics of these efforts in past transcripts and I would refer you to those documents for more detail.

In our industry firms that do not relentlessly move to new platforms become trapped in legacy systems that cannot accommodate emerging technology. Although it is not inexpensive to be continuously modernizing our systems, we believe such investments are key to our ability to produce long-term results, for both our customers and our shareholders.

Some of the more interesting investments in the underlying systems we employ include, expanding the use of workflow software, rules engine used applications, web service deployment, and of course data analytics and now machine learning. Technology often takes longer to productively create results than most of us tend to believe.

However, ongoing investments are finally producing results in the areas the industry has talked about literally for decades. Shortening lag times in an episode of care, improves patient experiences and outcomes. In our model, we seek to have highly functional connections between services.

Our industry and our competitors operate unbundled siloed services, which make information sharing cumbersome and often unworkable.

Manual exchanges of information in varying formats have been the norm in the industry for so long that the business model operating on a uniform, unified database with common codification structures is difficult for most to even envision.

An important challenge and yet opportunity in healthcare is to tightly link different services to create a more productive total environment. Over the coming year, we expect to make impactful progress in this aspect of our strategy.

In the quarter, we implemented new document management systems that improve the ability of our systems to incorporate active participation in our services by the staff at carriers and in the employers we serve.

Building more and more powerful access control, while simultaneously improving bandwidth and system responsiveness is challenging, but I think we are making good progress. I'd now like to discuss our product line results. Patient management includes third-party administration that is TPA services and the traditional medical case management.

Revenues for the quarter were $72 million. Gross profits from operations excluding the period cost described earlier, improved slightly in margins were approximately 14%, down fractionally from the prior year. TPA services continue to be an important strategic expansion for the Company.

Margins in this business have reflected our marketing goal of pushing for market share gains. A number of cost aspects of this service model have not been optimized as we have focused upon expanding service delivery and the value we deliver for the customer. We have initiatives in place in 2017 to improve margins.

We've continued to expand our presence in the private sector market segment. Private sector accounts have less turnover than those in the public sector. This makes expanding in that sector more difficult, but such accounts for more stable base over the long-term.

Also we are learning to focus ourselves efforts on market segments, which value service performance and quality, and to be in much more cautious segments purchasing based upon price. Price pressures are not a serious factor for us as we our own components and technology, and as a result have a lower cost of operation than to our competitors.

However, the mindset of buyers focused on price trends can be coincident with a less collegial interest in partnering for a total program success. This is a subtle aspect of our operation and orientation to building the CorVel franchise, and is difficult to communicate to our investors.

Investors can though see the results of this focus in our long-term record. When we went public there were perhaps 7,000 public companies, today we understand that only 800 of that original 7,000 remain as independent entity. Many of the management levers at our disposal are set to the choices that build long-term value.

The public sector market is important that includes many large prospects. We've experienced some expensive lessons over the last couple of years and expect to be more judicious in our efforts in this sector going forward. We've learn the hard way that there are some segments we should avoid.

We'll chalk these lessons up to our learning process as we expand. Over the last decade, we've added some improvements to our claims management processes, some have added more value than others and more recently we believe we finally isolated a couple of areas where investments have the most impact improving worker's compensation claims outcome.

We are focusing next year's investments in those areas and believe we can create more separation between our results and those of our competitors. We'd like to see a few more chicken hatch before we get too vocal about these ideas, but have our 2017 key projects focused on the efforts that have shown the most promise.

As we say in our purpose statement, we seek to serve, but we seek to do so in a manner that truly makes a difference. Case management remains a service vital to our total claims management process, implementing technology that makes a difference has been a long-term goal and I am hopeful for the coming year.

I must acknowledge though this is been a service in which meaningful service differentiation has been elusive. I believe we have a plan to achieve that in the coming year, but caution that this has been a goal I have chased for literally decade. Network Solutions revenue sold in the wholesale market for the quarter was $56 million, flat annually.

Gross margins were increased to 31%, up both sequentially and annually. CERiS services are sold primarily in the health market and are included in our Network Solutions totals. The review engines in both CERiS from the health markets and MedCheck for the workers compensation and auto markets are areas of investment for CorVel at this time.

We operate proprietary technology in each of these services and have enjoyed competitive advantages through our technology investments. We've increased our focus in medical review technology.

This segment also includes our pharmacy management services, the tight integration between our medical review and pharmacy management program creates improved savings for our customers and the volume of the pharmacy PBM sales continues to see growth. The political rhetoric during this election year has caused sales cycles to expand.

Our market will not feel as it has enough guidance regarding the regulatory environment until sometime after the election. The current uncertainty has been a significant impediment to growth in most segments of the market for Network Solutions. Now I'd like to cover a couple of additional statistics.

The quarter ending cash balance was $41 million, our DSO that is days sales outstanding in receivables was 43 days. 64,000 shares were repurchased in the quarter for $2.6 million and we have returned $396 million to shareholders over the last 19 years, repurchasing 34 million shares in that period.

Shares outstanding at the end of the quarter were 19,552,000. The diluted EPS shares were for the quarter 19,733,000. Shares outstanding were reduced 1.6% during the last 12 months. I'd now like to turn the call back over to our operator. Thank you..

Thank you for joining us. This concludes today's webcast. You may disconnect your lines at this time..

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