CorVel Corp. (CRVL)

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CorVel Corporation (CRVL)

F2Q09 Earnings Call

November 4, 2008; 11:30 am ET


Daniel Starck - President, Chief Executive Officer and Chief Operating Officer

Gordon Clemons - Chairman



Welcome to the CorVel Corporation 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 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 files for the most recent fiscal year and quarter. These documents contain and identify important factors that could cause actual results 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, Dan Starck and Gordon Clemons. Gentlemen, please go ahead.

Dan Starck

Thank you, Dennis. This Dan Starck and I would like to thank everyone for joining us today to review and discuss CorVel’s September 2008, quarter results and as you know I’m joined by our Chairman, Gordon Clemons.

In our usual format, I’ll be covering the financial results and future initiatives and Gordon will be covering product development. After our overview we’ll open the call to questions. Now to the September 2008 quarter results.

Revenue for the quarter was $77.9 million, which is a 5.9% increase from the September 2007 quarter. Earnings per share were $0.36 for the quarter, versus the $0.40 reported in the September 2007 quarter.

During the quarter, in our traditional business lines, the network solutions results reflect ongoing expansion of our overall savings results for customers and improving volumes in our directed care network business. Our case management results continue to show improved results as well.

We also continued with our enterprise comp expansion; our strategic initiative of bringing a new approach to claims management and our transition to becoming a full service provider to the workers compensation market.

As a company, we continue to move through a strategic repositioning of CorVel. From being a traditional managed care provider, serving a portion of the workers compensation industry, to becoming a full service provider, able to serve all buyers in the workers compensation industry. The combination of traditional business growth and our strategic repositioning has required increases in our general and administrative expenses.

This quarter’s results reflect the ongoing investments required to support these initiatives as the year-over-year growth in G&A represents more than the entire net income variance from the September 2007 quarter. As we have covered in prior calls, in the past 18 months, CorVel has acquired two claims administration companies. Following the completion of those acquisitions, came a period of analysis and the setting forth of development plans and at this point we’re now investing to implement our plans for enterprise comp.

During this period, we’ve also continued to invest in our other product lines, such as our directed care network and these product lines enable CorVel to bring a full suite of products to the marketplace and continue our transition process of becoming a full service provider.

Our G&A expense increase have been in three main areas. First, in information technology. Our objective is to bring a unique solution to the workers comp claims handling process and the foundation of that plan is systems driven. As with many projects, upfront investment is required to ensure long term growth and stability and this situation is no different.

From a software perspective, we have made investments in our development processes, in order to support not only our enterprise comp initiative, but also our other existing product lines. From an infrastructure standpoint, in order to ensure stability and security, we moved our data center to a colocation site last fall. The collocation site comes at a fairly significant cost that does not have a direct return. However, with systems as a core component of the CorVel strategy, we feel that the investment is necessary.

Our second area is people and resource additions. We’ve added senior level managers to CorVel in order to manage and integrate the acquired companies, to support the continued development process of the enterprise comp initiative and support product development for other product lines.

Our third area of investment has been in training and integration. As we’ve added additional services and capability, we have invested in training our account executives and our managers on the new products and services. In order for the transition that CorVel is making to be successful, there is a required level of investment. We are actively looking at ways to leverage the investments we’ve made up to this point and reduce any unnecessary expenses.

From a marketplace perspective, the workers compensation market continues to be soft, yet very competitive. Claims volumes have continued at historical low levels creating excess capacity at the claims administration level. Frequency, that is the number of claims, continues to decline; however, severity, the medical cost per claim continues to increase.

From a political perspective, states continue to develop legislation geared towards automating the healthcare transaction process. At this point, it appears as though the Federal Government is also taking a more significant interest in workers compensation or at least ensuring that workers compensation costs are paid for by the appropriate party.

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