CorVel Corporation
Q2 2020 Earnings Call Transcript

Published: 8 Aug 2020

[Operator:]

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 of 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 it over to Michael Combs, President and Chief Executive Officer.

[Michael Combs:]

Good day. Thank you for joining us to review CorVel's June quarter. On the call with me today is Brandon O'Brien, CorVel's Chief Financial Officer. Today, I'll be discussing the current environment, business performance, market trends, services we're focusing on, and the progress we've made on key initiatives. Brendan will then provide additional insight into our financial results for the June quarter. Earnings per share for the quarter ended June 30, 2020 were $0.46. Revenues for the period were $129.6 million. As much of CorVel's business is tied to the volume of healthcare spending, the June quarter results reflect the reduction of elective surgeries and general physician care due to the pandemic. While business remains very dynamic, volumes increased incrementally in each month of the June quarter. These increases led to a quarter ending cash balance of $94 million, which is up $11 million from the end of last quarter. The start of the fiscal year coincided with the emergence of COVID-19. At the onset, we defined priorities for managing the business, taking into consideration three key constituencies

[Brandon O'Brien:]

Thank you, Michael, and good morning, everyone. I want to thank our employees and our customer partners who have shown incredible levels of resiliency and collaboration through this pandemic. Those efforts have provided increasingly better results throughout this quarter. Revenues for the June quarter were $130 million, down 14% from the same quarter of the prior year. Earnings per share for the quarter were $0.46. The June quarter results were primarily driven by the effects of the COVID-19 pandemic on the market, our customers and the flow of claims in healthcare-related services. We demonstrated our ability to maintain a profit of $0.46 a share through the reductions in cost of goods sold and operating expenses via prompt and measured management actions. Our decisive early actions were important to the success we had during this pandemic. The first priority was our employee's safety. Our system's strength allowed us to easily move employees to working from home. The management of our cash flow and liquidity followed as a high priority and ultimately, we adjusted our expenses to the lower volumes of work that resulted from the closing of hospitals to elective surgery. As stated earlier, CorVel's balance sheet actually strengthened in the quarter. CorVel did not apply for, nor received any support payments from the federal programs. Although it is not typical to discuss monthly results within the quarter, the monthly gross profit margin trends are noteworthy due to COVID-19. The month of April represented the low points within the quarter, with May improving on April and June improving on May. Gross profit margins increased an average of 300 basis points per month as volumes generally increased while cost of goods sold and other operating expense adjustments were realized throughout the quarter. The accumulation of these factors allows CorVel to exit the quarter on an upward financial trajectory. Revenue for patient management, including third-party administration, TPA services and traditional case management for the June quarter was $85 million, an annual increase of 14%. Gross profit decreased 12% from the June quarter of 2019. Included within the patient management offering is CorVel's proprietary Telehealth services. These services are being particularly well received by our TPA customers. Quarterly revenue for the Telehealth services expanded nearly 300% above the prior quarterly averages with supply constraints outpacing immediate demand. As such, Telehealth services represent an area of ongoing revenue expansion as these services provide a convergence of the needs favorable to the employee, employer and CorVel. The ongoing implications of COVID-19 stay-at-home orders are combining with shifts of behavioral attitude to propel CorVel's virtual care services forward. Quarterly revenue for Network Solutions in the wholesale market was $44 million, a decrease of 12% from the same quarter of the prior year. Gross profit in the wholesale business was down 27% from the June quarter of 2019. The pandemic temporarily disrupted certain stages in the processing of medical bills. In order to overcome these disruptions, labor costs were increased primarily during the first half of the quarter, resulting in lower margins. In the commercial healthcare market, CERiS has continued to gain traction by expanding the breadth and depth of services provided to the large commercial health carriers. The development and rollout of these new innovative service offerings in stages provides growth rates that can fluctuate quarter-over-quarter but over a longer time horizon represents an area of dynamic long-term growth. I would now like to review a few additional financial items. During the quarter, the company repurchased 34,638 shares for a total price of $2.4 million. Since its inception, the company has repurchased 36.3 million shares at a cost of $534.2 million. Through this program, the company has repurchased 67% of the total shares outstanding. As the pandemic grew and introduced high levels of uncertainty into the market, CorVel stopped repurchasing shares on March 21, 2020. This was done out of abundance of caution to assure the health of our business, including maintaining full flexibility to focus on serving our customers during the COVID-19 pandemic. As initial market uncertainties subsided and our cost initiatives were showing their effectiveness and maintaining comfortable cash levels, CorVel resumed share repurchases starting June 15, 2020. The quarter ending cash balance was $94 million, which is up $11 million from 31, 2020. DSO, days sales outstanding in receivables, was 47 days, up six days from a year ago. This change in DSO remains within the historical range for our business and there's only a nominal impact on cash flow and reserves. Cash flow remained strong and positive throughout the quarter. That concludes our remarks for today. Thank you for joining us. I'll now return the call to our operator.

[End of Q&A:]

This concludes today’s webcast. You may disconnect your lines at this time.