CorVel Corp. (CRVL)

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CorVel Corporation (CRVL)

Q1 2009 Earnings Call Transcript

August 5, 2008 11:30 am ET


Daniel Starck – President, CEO and COO

Gordon Clemons – Chairman


Dick Herber [ph] – SBH [ph]



Thank you for standing by and 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 the actually events or results may differ materially. CorVel refers to you the documents the company files from time to time with the SEC, 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 actual results to differ materially from those contained in our projections or forward-looking statements.

(Operator instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Dan Starck and Mr. Gordon Clemons. Gentlemen, please go ahead.

Daniel Starck

Thank you, Tina. This is Dan Starck, and I would like to thank everyone for joining us today to review and discuss CorVel’s June 2008 quarter results. I’m joined by Gordon Clemons, our Chairman. And as we have for the past several calls, I will 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 June 2008 quarter results. Revenue for the quarter was $78.2 million, which is a 5% increase from the June 2007 quarter. Earnings per share were $0.40 for the quarter, up 3% from the $0.39 reported in the June 2007 quarter. When comparing the June 2008 quarter to the June 2007 quarter in our traditional business lines, Network Solutions results continued to improve from our expansion in our customer savings and growth in unit volumes. The Case Management business line also showed improved margins and revenues as well.

We continued with our Enterprise Comp expansion, our strategic initiative of bringing in a new approach to claims management, and becoming a full service provider for the workers compensation market. With our traditional business growth, our Enterprise Comp expansion, and the infrastructure required to support our transition, over the course of the past year we’ve experienced growth in our general and administrative expenses. As we’ve discussed before, CorVel is in the process of becoming a full service provider to the workers compensation industry. And in the past 18 months, we’ve acquired two claims administration companies in support of this initiative.

Following the completion of the acquisitions came a period of analysis and the setting forth of development plans. At this point, we are now investing to implement our plans for Enterprise Comp. Our investments have been in three main areas. First, 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 we believe this situation is no different. While the investment has been significant, we expect that it will begin to pay dividends into the future and will be the foundation upon which we were built.

The second area we’ve added is in people and resources. We’ve added senior level managers to CorVel in order to manage and integrate our acquired companies as well as support the continued development process of the entire Enterprise Comp product line.

From a training and integration standpoint, the third area – we’ve added additional services and capabilities and we’ve invested in training our account executives and all of our managers on our new products and services. The result of this is a total expense run rate that is a little higher than we would prefer, and we’ve already implemented some cost containment measures to try to reduce that.

Now from a marketplace perspective, the workers compensation market continues to be soft. Claims volumes have continued at historic low levels and medical costs continued to climb. The average medical cost per claim continued to climb in 2007 rising by about 6%, while medical benefits now make up nearly 60% of total losses. For comparative purposes, only three or four years ago the medical costs contained only – only were approximately 40% of losses. While industry consolidation was busy this past year, it’s been relative quiet thus far this year. However, last year’s activity is still generating considerable activity in the marketplace. Overall, with the current market environment and opportunity that we see ahead, we are confident in our strategic direction.

Now, I’d like to discuss our product line performance specific results and our key initiatives for 2008. In Patient Management, revenue for the quarter was $33.3 million. On an annual basis, that’s a 10.2% growth rate and on a sequential basis, it’s a 1.3% growth rate. Profit on an annual basis is up 32.3% versus the June 2007 quarter; sequentially it’s down 14.7%. Our initiative to reposition our entire Patient Management business continues.

In Case Management, we’ve been actively moving away from low price business over the past couple of years as well as working to improve our efficiencies. While our strategy is basic, it is translating into better results as our revenues affirmed even slightly improved and margins have improved. With our Patient Management business we continue to develop our claims administration capabilities, bringing this product to the market allows CorVel to service all types of buyers in the workers comp market. As I’ve already remarked, we have made significant investments in this area over the course of the past year in all phases – systems, management, and training.

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