CorVel Corporation
Q4 2019 Earnings Call Transcript

Published: 4 Feb 2020

[Operator:]

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 files 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:]

Thank you for joining us to review CorVel's December quarter. On the call with me today is Brandon O'Brien, CorVel's Chief Financial Officer. Today I will be discussing market trends, the services on which we are focused, and the progress that we've made on our key initiatives. Brandon will then provide an overview of our financial results for the December quarter.Revenues for the December quarter were $148 million. Earnings per share were $0.50, a decrease of 7% from $0.54 per share in the same quarter of the prior year. Each quarter has positive and negative one-time events. While each may be unique and appropriately categorized as one time, the occurrence of such items is not unusual.In the December quarter, the adverse one-time events exceeded those which were positive. The quarter included one-time expenses related to our recovery from the security event from the prior quarter. We've had a change in subcontractors used by CorVel, and this created both some one-time expenses, as well as a period of time where some of our specialty revenues were disrupted.Within the March quarter, we will be operating under more normal conditions. CorVel's results for the quarter also include the investments we are making in the ongoing digital transformation in healthcare, advances in computing power, the impending 5G evolution in communications, and in general, the multifaceted implementation in healthcare of improving information management, combined to create acceleration in the pace of change in our industry.The overarching trend in the healthcare market is ongoing rapid computing power advances, which is bringing more practicality to the coming uses of artificial intelligence in healthcare. The innovations resulting from the application of machine learning and A.I. promise to improve healthcare, as well as to make it more affordable. However, a fundamental prerequisite is a dramatic improvement in the codification and storage of healthcare data.To make healthcare data useful in this emerging environment, healthcare information must be able to be integrated across services, specialties, and related sets of diagnostic and treatment activities. Within the managed care industry in casualty healthcare, only CorVel possesses an integrated database that includes all of the critical managed care specialties.Concurrent with the advances in the use of computing power is the imperative to protect personal healthcare information. Investment required to make the necessary assurances are substantial and ongoing. A significant implication of the security mandate is a direct correlation in the inherent risk as the number of vendors connected in an unbundled workers' compensation managed care model increase. Workers' comp claims environments grew out of the very early entry of property causality insurers into the first workers' comp laws. As the industry evolved, new forms of managed care developed. Typically, each innovation came from a different new vendor, and thus, today's programs usually include a dozen or more different vendors, most of whom are relatively small firms, which exposes patient information to a wide array of vulnerabilities.Just as other industries evolved towards full-service vendors, the managed care industry's move in that direction is being accelerated by the need to close down the vulnerability of patient information to the complexities created through the access many small entities have to ensure information flows. CorVel's fully integrated system allows insurers to reduce outside access to their computing platforms significantly.The power of telehealth is perhaps the most widely accepted new development in treatment modalities. To employ telehealth productively, a patient must have immediate access telephonically to an advocate who can triage as appropriate. CorVel initiates healthcare episodes from a telephonic nursing hotline, and triages incoming incidents to telehealth. Expanding this supporting technology has been a priority for us.And lastly, CorVel is expanding its position in the much larger health markets

[Brandon O'Brien:]

Thank you, Michael, and good morning, everyone.Revenues for the December quarter increased to $148 million, producing a net income of $9.4 million. Earnings per share were $0.50 for the December quarter, a decrease of 7% from $0.54 per share in the same quarter of the prior year. Revenue for patient management, including third-party administration, TPA services, and traditional case management for the December quarter was $98 million, an annual increase of 7%. Gross profit increased by 9% from the December quarter of 2018.Our third-party administration services hit record levels, and continue to be well received in the marketplace, driving annual growth of patient management. As mentioned earlier, a subset of the patient management services experienced a temporary capacity decrease due to a change in subcontractors. This transitionary disruption lowered the total output of utilization management services, leaving some of the demand for these services partially unfulfilled by CorVel. We expect to achieve the supply and demand equilibrium of these services again during this current quarter ending March 2020.Revenue for network solutions sold in the wholesale market for the quarter was $50 million, a decrease of 8% for the same quarter of the prior year. Gross profit in the wholesale business was down 8% from the December quarter of 2018. Gross margins were maintained while experiencing cresting customer turn primarily in the casualty wholesale market.Anticipated growth of the CERiS business within network solutions represents an opportunity of new revenue at accretive margins. Investments in our security positioning contributed to higher G&A period costs from comparative quarters. Professional consultant services contributed as one-time or short-term increases. These investments are expected to positively impact our long-term growth potential by expanding our customers' assurance in our current services and expanding into new service capabilities in the ongoing digital transformation of healthcare.I would now like to review a few additional financial items. Operating cash flow in the quarter was strong at $20 million, and together with our strong balance sheet continues to position the company well for new investments. During the quarter, the company repurchased 240,000 shares for a total price of $19.2 million. Inception to date, the company has repurchased 36.1 million shares for a cost of $514 million. Through this program, the company has repurchased 67% of the total shares outstanding. The quarter ending cash balance was $90 million. Our DSO, that is day sales outstanding in the receivables, was 41 days, up two days from a year ago, and down three days from the September 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.