Gordon Clemons - Chairman and Chief Executive Officer Michael Combs - President.
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 event 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 results to differ materially from those contained in our projections or forward-looking statements. I would now like to turn it over to Mr. Gordon Clemons..
Thank you for joining us to review CorVel's September quarter. Revenues for the September quarter were $136.4 million, up 6% compared to the revenue for the September 2016 quarter. Earnings per share for the quarter ended September 30, 2017 were $0.44, up 25% from $0.35 for the same quarter of 2016. In general, the quarter reflected good results.
We continue to make progress improving our operations. Michael Combs will discuss operations further in a moment. Every quarter is impacted by what most refer to as one time event. Although typically such references are to unusual expenses, we are impacted by onetime events that are both positive and negative.
For once we could pick out an occasional item of this nature, in recent years it feels as though every quarter has some. Each is, yes, a onetime event but every quarter has a number of such onetime events so in the aggregate they are not really one time in nature. The quarter was impacted by the unusual hurricane activity.
We are fortunate to have a de-centralized service structure in which we can route work to offices less affected by unusual conditions. We have unusually high expenses in our own self-insured healthcare benefits. We expect those costs to return in the future quarters to levels closure to our trend lines.
Reserves were increased in some AR accounts, as well as in an incubator venture investment made several years ago. Our PBM had seasonally lower margins and the quarter had one less work day than did the June quarter. On the positive side, stock option exercises reduced our quarterly tax rate and we had lower legal expenses than in the prior periods.
On balance, these items more or less offset one another. We don’t typically comment on such items. This quarter we just had a number of them. The operating results for the quarter included growth in our TPA services and yet continued softness in case management. Medical review volumes were also up slightly.
We continue to add incremental improvements to this product line. Our TPA services branded enterprise comp continued to be well received. Service results have been good which helps build our name in the market. We have three important software releases on which we are focused. Two have reached the version 1.0 stage and have been implemented.
Michael Combs will speak to those in a moment. Turning to the state of our markets served. Last quarter I discussed the growth of next generation service models in our industry.
Since that discussion we have introduced our next generation claims management work station and have held our annual partnership meeting where we shared with our customers three of our high priority product innovations. We received good input at that meeting which we will incorporate in our development plan.
The workers compensation market continues to be active integrating service and capitalizing upon the improved outcomes such integration creates, is reducing the cost of workers' compensation, which in turn softens the insurance market pricing for this coverage.
Some market participants perceive the softness in pricing as part of the regular repeating cycle in our industry pricing. However, it appears to us that improvements in service can permanently reduce the cost of workers' compensation.
The newer approaches to managing workers compensation in addition to improving outcomes, are also creating the opportunity to connect the management of disability even to other workplace absence management program. The impact technology is having upon all of businesses and particularly retailing, could perhaps be referred to as being Amazon.
The pace of change has accelerated to the point that is obsolescing any market participant not intensely focused upon reinventing themselves to leverage new ideas and solutions. This is causing businesses to outsource activities which are not fundamental to their core business.
In turn this requires outsourced vendors such as CorVel to provide service platform tightly integrated with our customers. We expect to see the pace of employers exploring new approaches to old cost management programs to increase.
Our sales mix has also been changing, reflecting the impact technology has had upon the relative value contributed by each form of care management. For example, our older case management product revenues have declined. This has been more than offset by the increase in our enterprise from TPA sale.
CorVel is bringing outsourced business functionality to markets beyond insurance. We do this under the brand name Symbio. This business unit is now offering to do the entire payables functions for large corporations. Other financial management activities are also moving in this direction.
In this next generation of the service bureau model, the customer is served by software and hardware operated by the vendor, as in the old ASP model. But the vendor now handles specialty functions and by concentrating such functions across customers, achieves substantial service advantages to scale.
In the insurance industry, technology allows CorVel to connect services in real time to the needs of the claims professional. In this next wave in the provision of services, the customer enjoys the control achieved with functions handled in-house and yet the power achieved through the use of specialty experts.
We are introducing new tools for use by our customers which help them better interface to our services. Customer reaction has been quite favorable as we have introduced these tools to our partners, their feedback has identified additional features which will enhance our future offering.
As we are launching these services over the coming quarters, the market for managed care and TPA services continues to be active. We believe market decisions will increasingly be driven by these disruptive new technology. The broader healthcare market continues to be important to CorVel's overall results and future plans.
The uncertainty created by ongoing legislative activities related to the Affordable Care Act has slowed some decision making though. I would now like to turn the call over to Michael Combs, who will discuss our operating results and product development..
Thank you, Gordon. I will start by discussing our product line results. Patient management includes third-party administration; TPA, services and traditional case management. Revenue for the quarter was $78 million. Gross profit increased 19.3% from the September quarter of 2016. Our TPA services had another nice increase this quarter.
The results that we have been able to achieve with our integrated model are compelling. It is our expectation that the product initiatives that I will be reviewing momentarily will further differentiate CorVel in the market place. Our case management revenues continue to fall short of expectations.
Product initiatives are underway to move our case management services into the 21st century. It is our expectation that these efforts in addition to renewed focus will result in expansion of this segment of the business.
Network solutions revenue sold in the wholesale market for the quarter was $58 million, an increase of 3.5% over the same quarter of the prior year. The services in this segment continue to benefit by our consistent investment in the underlying technology which has increased over the course of the year.
Our systems development efforts had a productive quarter.
Broad areas of focus include, increasing the value of the medical review services that we deliver to the carrier market, the evolution of our hubbed activities, smart technology and business process workflow, laying the foundation for the next generation of medical review, and ongoing improvements to our claims intake, medical review, TPO and return to work processes.
During the quarter we released the first phase of our new adjuster interface called CareMC Edge, which consolidates and prioritizes claims management information so the adjuster can make faster decisions and spend less time managing the system and more time interacting with the injured parties.
In future phases, CareMC Edge will connect directly with our customers systems and improve productivity and increase efficiencies. This will be a very active and exciting area for us for the foreseeable future.
We continue to add functionality to our return to work module ensuring that the adjuster is presented timely and actionable information for each claim. In this quarter, we added the ability to track information such as we dual employment and transitional duty.
In the next quarter we will be integrating impairment ratings and the evaluations into our return to work interface. Web services are being expanded to our clients and business partners. Our goal is to support real time transaction processing between our enterprise applications and our client systems.
To achieve integration through a generic and flexible subscription configuration model using well established protocols. All of the applications I have mentioned leverage our ability to integrate healthcare solutions to provide unique solutions for the carriers, employers and other business partners for whom we work.
In this quarter we also added functionality to our rules engine to identify errors and inconsistencies in the medical review process.
In the next quarter we will start work on an integrated intake model to increase revenue opportunities and operational efficiencies to improve collection of injury information and better data to support our predictive analytics and machine learning initiatives.
Work continues, as I have mentioned previously, on transitioning our medical review platform to the most modern technology stack. This will continue into the first quarter of 2018 and will create efficiencies as our enterprise applications are accessed on a single web-based platform.
As well as increase the long-term value of our medical review software. Now I would like to cover a few additional statistics. The quarter ending cash balance was $38 million. Our DSO, that is days sales outstanding, was 44 days. 249,000 shares have been repurchased during the six months ended September 2017 for $11 million.
We have returned $431 million to shareholders in the last 20 years, repurchasing 34,900,000 shares in that period. Shares outstanding at the end of the quarter were 18,824,000. The diluted EPS shares for the quarter were 18,966,000. Shares outstanding were reduced 3.9% during the last 12 months.
I would now like to turn the call back over to the operator. Thank you..
This concludes today's webcast. You may disconnect your lines at this time..