CorVel Corporation's (CRVL) CEO Michael Combs on Q4 2020 Results - Earnings Call Transcript

CorVel Corporation (NASDAQ:CRVL) Q4 2020 Results Earnings Conference Call May 27, 2020 11:30 AM ET

Company Participants

Michael Combs - President and CEO

Brandon O'Brien - Chief Financial Officer

Conference Call Participants

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 fiscal year 2020 and the March quarter. On the call with me today is Brandon O'Brien, CorVel's Chief Financial Officer. Today I will be discussing how CorVel is responding to the COVID-19 pandemic, market trends, services on which we are focused and the progress we have made on key initiatives. Brandon will then provide an overview of our financial results for the fiscal year and the March quarter.

Revenues for fiscal 2020 were $592 million. Earnings per share were $2.55, an increase of 4% year-over-year. The March quarter revenues were $147 million. Earnings per share for the quarter were $0.64, an increase of 2% from $0.63 per share in the same quarter of the prior year.

This call comes at a challenging time as the COVID-19 pandemic begins to recede. The phrase uncertain times has been used appropriately so to describe these last several months. CorVel is managing through the economic disruption and uncertainty by adhering to the same principles that have sustained us through many periods of uncertainty during 30 plus years of operation.

We entered the pandemic from a position of strength, with a solid balance sheet. Prompt adjustments made to our operating plans have allowed us to maintain that position. CorVel’s cash level remains in the mid-$80 million range, down somewhat from the peak due to tax payments and bonus payments.

With consideration for the implications of the economic slowdown, we completed business continuity planning and all forms of discretionary activity within the company have been slowed considerably.

Much of CorVel’s business is tied the volume of healthcare spending and during the pandemic elective surgeries and general physician care has been curtailed. We have seen similar reduced activity in bill review and our other services, although increases have begun in the recent weeks.

Fortunately, approximately 90% of our expenses are variable. The majority of which are linked to delivery of professional services. Thus we are able to adjust spending to match expected business volumes.

In other industries, most companies have a higher level of fixed costs. We feel very somber about the adverse impact, our unavoidable adjustments to staff have had upon the people in CorVel, many of whom we work with for years. The resilient and dedicated team that we have in place quickly adapted to working-from-home and continues to deliver exceptional service and outcomes to our partners.

It is appropriate to expect the economy to impact CorVel, yet I am confident we can continue to manage both expenses and cash flow. Currently, the company is operating ahead of internal business forecast that were conducted at the outset of the pandemic.

For the last 20 years we have been expanding our capabilities in e-commerce and virtual services. Our current telephonic claims intake capabilities are the results of long-term efforts to create care management programs, which address the onset of illness or injury. Claims intake can in turn be triaged to telehealth services.

The telehealth applications and web-based platforms we have created are effectively serving the increased demand during the pandemic. The pace of change in healthcare management will continue to require investments in innovative solutions. CorVel is well-positioned in this dynamic environment.

Our diversification into commercial health has also been helpful during this time when the demand for workers' compensation claims management services reflects the reduced employment across the country.

The proprietary assets we have built in the Medical Review segment of the workers’ comp market leveraged our strengths and has made the expansion into the closely related health market relatively straightforward, continuing to develop the strength of CERiS is particularly important in this time as its markets are many-fold larger than the workers’ comp markets.

As COVID-19 affects the health market, business volumes and focus on payment integrity has generally remained robust. CERiS has made significant progress and the implementation of new clients, as well as incremental growth and expansion of business lines with established partners. As we continue to grow and develop payment integrity solutions will be a strategic focus in 2020 and beyond.

Symbeo, our provider of automated accounts payable services made advancements in key aspects of the payables process that shorten turnaround time and improved accuracy, which in turn decreased labor costs.

We have also increased the use of artificial intelligence and natural language processing, professional review nurses are already experiencing the benefits of using advanced optical character recognition and natural language processing in their daily work, increasing savings, consistency and reducing their review time. There is applicability for this technology to enhance operational performance in several segments of business in which we operate.

I would now like to talk about two product development efforts that are particular interest in the environment created by the pandemic. The first being telehealth and virtual services and the second, the latest developments in our proprietary claims management platform the Edge.

CorVel began building the telehealth service a number of years ago. Initially we’ve built a telephonic claims reporting module. More recently we added telehealth and now think of our services in this area as a Virtual Care service model.

Continuing the company's commitment to excellent service and outcomes, we released enhancements to service offerings and capabilities during the March quarter. CorVel’s Virtual Care platform, which includes telehealth, ancillary benefits, case management and pharmacy services is now fully integrated with 24x7 nurse triage services.

Physical therapy including virtual PT, radiology services and durable medical equipment can be properly scheduled, prescription cards can be sent to injured workers via text to CorVel’s pharmacy services. The continued advancement of CorVel’s Virtual Care process provides industry-leading connectivity from the initial report of injury.

This proprietary system automates the integration of all medical notes, reports and documents events instantly for claims professionals allowing the needs of the injured worker to be their primary focus in an industry where immediate access to treatment and a team approach to patient care are of the utmost importance. This integration significantly reduces traditional delays in care, avoids duplicative efforts and allows for efficient coordination of treatment of the injured worker.

Our integrated claims management platform, CareMC Edge received multiple enhancements during the quarter. The groundbreaking claims insight interface was expanded to include the liability interface. This new feature gives adjustors, supervisors and risk managers complete visibility to easily manage all workers’ compensation and liability claims activities, including claims details, damages, litigation and financials.

CareIQ, CorVel’s directed care branch introduced a new care management platform in the Edge for the complete oversight of ancillary care services. This update allows claims professionals to better manage their claims with ancillary services to improve efficiencies and cost savings for our customers.

Additionally, we released an enhancement to the Edge Executive Dashboard for wholesale interior customers. This Dashboard provides a dynamic and interactive high level overview of the program's claims including real-time updates, which helps users proactively manage their program. The current enhancements include several new views based on partner feedback, expanded benchmarking to include business segments relevant to the customer and a new interface for pharmacy management.

CorVel’s goal is to be recognized as the leading care and cost management solutions provider, utilizing advanced technology and industry-leading innovation to improve outcomes and reduce risk. We are in a solid position for vibrant growth as we emerged from the pandemic. My best wishes to everyone as we work through this pandemic and my sincere appreciation for those on the front-lines.

Brandon will now provide an overview of the financial results for the fiscal year and the March quarter. Brandon?

Brandon O'Brien

Thank you, Michael, and good morning, everyone. Revenues for fiscal 2020 were $592 million. Earnings per share were $2.55, an increase of 4% year-over-year. Revenues for the March quarter were $147 million. Earnings per share for the quarter were $0.64, an increase of 2% from $0.63 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 March quarter, we had two such events. The first item was a positive conclusion and insurance reimbursement of the remaining business interruption funds from July of 2019. The second event was the escalation of the COVID-19 response in the United States with the stay-at-home order starting mid-March. Although, both were felt within the quarter, they were somewhat offsetting, normally occurring business fluctuations were the primary driver for the results of the quarter.

Revenue for patient management including third-party administration, TPA services and traditional case management for the fiscal year ended March 31st were $387 million, an annual increase of 5%. Fiscal year gross profit increased 11%. Revenue for the March quarter was $93 million, an annual decrease of 3%. Gross profit decreased by 10% from the March quarter of 2019.

Revenue for network solutions sold in the wholesale market for the fiscal year was $205 million, an annual decrease of 10%. Fiscal year gross profit decreased 7%. Network solutions revenue for the quarter was $54 million, a decrease of 2% from the same quarter of the prior year. Gross profit in the wholesale business was down 2% from the March quarter of 2019.

As the COVID-19 pandemic hit the U.S. economy, CorVel’s balance sheet was strong with near record high cash and no debt. Our decisive and early action, realization of the CARES Act, payroll tax deferrals and the essential nature of care and cost management services allow CorVel to continue to operate from a position of financial strength. While avoiding the liquidity concerns that affect other organizations with excessive death and now challenged revenue.

New sales during the first nine months of the fiscal year have been lower than years past, allowing some of the typical customer churn to appear more prominent when looking at the product growth numbers. New sales were robust in the March quarter, greatly exceeding past performance. This trend has continued throughout the pandemic.

At CorVel, we are a technology company but strive to maintain the human touch. The success of this philosophy has been demonstrated during this time when relationships have to be managed through technology. Our sales team has demonstrated prowess conducting and winning virtual finalists presentations while sequestering at home.

The calendar year trends for new sales are 3 times higher than 2019 calendar year sales through April and our pipeline is seasonally very strong. New sales typically take some six months to 12 months for their ultimate run rate to be fully realized.

I would now like to review a few additional financial items. During the quarter, the company repurchased 233,450 shares for a total price of $18.1 million. Inception to-date, the company has repurchased 36.3 million shares for a cost of $531.8 million. Through this program, the company has repurchased 67% of the total shares outstanding.

In order to provide the maximum flexibility to focus on serving our customers as we navigate the COVID-19 pandemic, CorVel stopped repurchasing shares on March 21, 2020. Due to the current market uncertainties, CorVel is evaluating the timing of resuming share repurchases and will remain nimble based on market conditions.

Quarter ending cash balance was $83 million. As of this week, bank cash is higher than the comparable value at quarter end. DSO, that is, days sales outstanding and receivables was 41 days, down two days from a year ago.

That concludes our remarks for today. Thank you for joining us. I will now return the call to our Operator.

Question-and-Answer Session

Q -

Operator

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