CorVel Q2 2024 Earnings Report

CorVel EPS Results

• Actual EPS: $0.38
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

CorVel Revenue Results

• Actual Revenue: $195.52 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CorVel Announcement Details

• Quarter: Q2 2024
• Date: 10/30/2023
• Time: N/A
• Conference Call Date: Tuesday, October 31, 2023
• Conference Call Time: 8:00AM ET

CorVel (NASDAQ:CRVL) provides workers' compensation, auto, liability, and health solutions. It applies technology, including artificial intelligence, machine learning, and natural language processing to enhance the managing of episodes of care and the related health care costs. The company also offers network solutions services, including automated medical fee auditing, preferred provider management and reimbursement, retrospective utilization review, facility claim review, professional review, pharmacy, directed care, clearinghouse, independent medical examination, and inpatient medical bill review services, as well as Medicare solutions. In addition, it provides a range of patient management services, such as claims management, case management, 24/7 nurse triage, utilization management, vocational rehabilitation, and life care planning, as well as processing of claims for self-insured payors with respect to property and casualty insurance. The company offers solutions to employers, third party administrators, insurance companies, and government agencies to assist them in managing the medical costs and monitoring the quality of care associated with healthcare claims. CorVel Corporation was incorporated in 1987 and is based in Fort Worth, Texas.

CorVel Q2 2024 Earnings Call Transcript

[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 ks and 10 Q files for the most recent fiscal year end quarter.

[Operator]

These documents contain and identify important factors that could cause the actual results to differ hear 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.

[Speaker 1]

Good morning. Thank you for joining us to review CorVel's September quarter. Brandon O'Brien, CorVel's Chief Financial Officer is on the call with me today. Today, I will review business performance, the current environment and market trends And progress on new product and service offerings. Brendan will then provide additional details on the financial results for the September quarter.

[Speaker 1]

The September quarter revenues were $196,000,000 10 percent over the $177,000,000 of revenue for the September 2022 quarter. Earnings per share for the quarter were $1.15 increasing 39% from $0.83 per share in the same quarter of the prior year. The September quarter reflects balanced growth in our Network Solutions inpatient management business. Cerus focused on the commercial health payment integrity market experienced continued maturation of the new services added last year. We expect increasing momentum over the next several quarters as transaction volume increases and additional components of the new payment integrity service are optimized.

[Speaker 1]

CorVel's ancillary benefits management solution, CareIQ, is receiving a meaningful increase in market due to the quality of service delivered and the results achieved, investments made over the last several years have come to fruition at a time when other vendors are experiencing challenges meeting industry expectations. Additionally, our business is experiencing robust growth through the addition of new services for existing partners and new bookings. We are pleased to see ongoing investments in technology and operational excellence being well received in the market, and we look forward to engaging and partners in the upcoming months. At the recent National Workers' Compensation and Disability Conference, A recurring topic was the challenges our industry is experiencing with the labor market. We have more positions than qualified people, While work from home and hybrid work challenges the propagation of culture, claims professionals are moving between organizations and out of the industry And there's also what is referred to as the looming silver tsunami.

[Speaker 1]

Baby boomers have been an influential force in American life for over 70 years, bringing life changing innovations and creating new services in entire industries. By 2,030, all baby boomers will reach the age of 65. While it's estimated that a significant portion of boomers will remain in the workforce past this age, it is projected that nearly 50% of the current insurance industry personnel will exit the workforce by 2,034. While this trend has impacted all industry segments, it has been more dramatic in the insurance sector, Which is second to last in national industry rankings for recruiting new talent. It is projected that as many as 400,000 open positions currently exist within the U.

[Speaker 1]

S. Insurance workforce. Intentional efforts to attract younger individuals and replace the knowledge and experience lost with the increase in retirements are necessary for the continued health of the industry. The next generation is looking for modern operations, meaningful work, efficient processes and opportunities for growth among other things. At CorVel, we are addressing the opportunity with a multifaceted approach.

[Speaker 1]

We are enhancing systems with automation and augmentation To increase the time professionals spend with injured workers and on decisions that directly impact outcomes. Mundane repetitive tasks are being automated using machine learning. During the quarter, claims document transformation functionality was released, leveraging generativeai to review medical documents, identify and extract the most important information for an adjuster and assist with file documentation, we have a compelling roadmap to embed generative AI in additional workflows. While generative AI assists with increasing efficiency and freeing time for the most impactful interactions, it also plays an increasingly important role in assisting new professionals, historical data is being used to augment the decision making of professionals who are earlier in their careers. The market feedback from brokers, current partners and prospects has been very positive.

[Speaker 1]

There is an understanding and appreciation that CorVel is at the leading edge of a metamorphosis that will transform our industry. In addition to expecting modern technology, younger professionals desire a sense of purpose in their work. At CorVel, the company's culture translates and instills meaning throughout the organization. This year, we launched CorVel University, a program designed to introduce current employees and external candidates to claims management. The curriculum of the program includes a mix of in person and virtual sessions covering insurance basics, claims adjudication, CorVel's culture and a review of our systems.

[Speaker 1]

Once the class portion of the curriculum is completed, attendees are paired with mentors who will provide ongoing support as they advance in their careers. The 1st class had over 1100 applicants, a very positive indicator of the program's appeal. We are pleased to see a diverse a group of applicants, including those who are just entering the workforce seeking to launch a career in risk management with CorVel. We look forward to measuring the success of our participants as they progress and to welcoming new inductees to the program. In the future, we may open the program to industry partners who have expressed interest in sending their team members through CorVel U.

[Speaker 1]

The level at which we are investing in the future on programs such as CorVel U and on technology, including generative AI, Is a reflection of CorVel's strong financial position. We remain unencumbered by debt and the challenges presented by disparate siloed systems. The business environment in which we operate is dynamic. We are proactively adjusting to a continually shifting landscape. The CorVel team is deeply involved in the industry to influence policy and legislation on behalf of our clients.

[Speaker 1]

2 active areas are physical therapy and pharmacy. The Texas Department of Insurance Division of Workers' Compensation recently released a pharmacy and utilization report. The report identified an overall decrease in pharmacy utilization following the adoption of their closed formulary in 2011. The study found that the number of pharmacy claims decreased 57%, total scripts were down 73%, opioid scripts decreased 86% and total pharmacy costs were down 73%. The results demonstrate the impact of these state level plans.

[Speaker 1]

Our pharmacy program automates and enforces state formularies for both in and out of network bills. In addition, our clinical team of nurses and PharmDs regularly consult with state agencies to identify opportunities for drug inclusions and clarifications for formulations and dosages. The combination of our systematic application of state formularies, coupled with clinical resources who are actively engaged in our programs results in a meaningful reduction in pharmacy spend. One of our partners who has been with us for over 10 years recently spoke at our annual partnership event and shared that they have experienced an 87% decrease in pharmacy spend during the entirety of their program. While pharmacy costs have been trending down, physical therapy visits have been moving in the opposite direction.

[Speaker 1]

WCRI IRRIAI noted a 13% increase in visits over the last 8 years, which has brought the average from 17 to 20 visits per claim. In addition to the higher number of visits, there's also been a 17% increase in the cost per visit. The rise has been driven by a combination of inflation And the change in licensure degree requirements from a master's to a doctorate. In CorVel's CareIQ book of business, visits have risen 23% less and cost per visit 65% less than the respective industry changes. The results achieved exemplify the value we create by combining advanced technology and personal expertise.

[Speaker 1]

With each of CorVel's ancillary services provided, we have experienced a noteworthy elevation in transaction volume. The growth is attributed to a boost in industry awareness of the quality of the service provided and the outcomes obtained. Carexue is being viewed as an excellent alternative in the market. At Cerus, there continues to be a focus on adding new services. The approach has been to prioritize bringing new offerings to market as soon as we can generate compelling value for our partners.

[Speaker 1]

In the case of the DRG service introduced in early 2023, workflow optimization has been an ongoing concerted effort. Within the DRG system, a new optimized document viewer and navigator was incorporated into the workflow during the quarter. The enhanced functionality leverages AI and ML to improve the efficacy and efficiency of the process. We look forward to additional technological enhancements planned for the coming quarters and the corresponding positive impact on financial results. The additional new services flowing through the CERIS development lifecycle to be released in early and mid-twenty 24 we'll leverage the AI and ML foundation developed for the DRG service and have shorter maturation cycles.

[Speaker 1]

In the payables market, we have developments in both the revenue cycle management arm, SYMBEO and our Treasury Services department. At Symbio, while our team guides partners through digital payment transformations, the advent of hyperautomation, which is a combination of AI, machine learning and robotic process automation technologies presents an expanded opportunity in the market. The goals of hyperautomation are faster invoice cycle times, lower total cost of ownership and an enhanced user experience. By using SYMDEA's Invoice2Pay and ProPayable solutions, partners receive the benefits of touchless digital invoices, AI enabled optical character recognition, a machine learning document classification model, configurable AP rules and standard ERP we will be conducting a few key integrations via

[Speaker 2]

robotic process automation.

[Speaker 1]

In the Treasury Services department, we have endeavored to provide convenience and flexibility of a variety of payment options including checks, ACH and credit cards. Most recently, we expanded the CorVel Connected online payment portals to facilitate access for claimants and customers. Previously, the portal was available to vendors and providers. The online portals provide a secure interface to upload, review, update and manage data. Future enhancements will further and functionality to bring additional value to each stakeholder.

[Speaker 1]

Brandon will now provide additional texture on the financial results for the September quarter. Brandon?

[Speaker 2]

Thank you, Michael, and good morning, everyone. As Michael indicated at the top of the call, revenues for the September quarter were $196,000,000 10% over the $177,000,000 revenue for the September 2022 quarter. Earnings per share for the quarter were $1.15 increasing 39% from the $0.83 per share in the same quarter of the prior year. The revenue for patient management, including 3rd party administration, TPA services and traditional case management for the September quarter was $130,000,000 an annual increase of 9%. Gross profit increased by 43% from the September quarter of 2022.

[Speaker 2]

Improvements in operational efficiency, especially the better coordination of staffing with claim volume within our 3rd party administration services significantly contributed to the increase in gross profit this quarter compared to the September 2022 quarter. This milestone was reached following a comprehensive evaluation of our procedures by management across all levels. Artificial intelligence tools, including real world implementations of augmentation and automation functionality within CareMC, offered a distinct advantage in our results. The advanced work, including an initial application of GenAI augmentation within the claims space was recently demonstrated at our annual customer partnership event. The enhancements received a warm reception as our partners expressed appreciation for CorVel's investments in innovation and ongoing technology roadmap.

[Speaker 2]

This positive feedback reinforces our commitment to continuous improvement in the service quality and outcomes achieved for our TPA partners. The revenue for network solutions Sold in the wholesale market for the September quarter was $66,000,000 up 13% from the same quarter of the prior year. Gross profit in the wholesale business was up 7% from the September quarter of 2022. Cirrus included within Network Solutions has been widening its suite of services and bolstering its scalability to address major health insurance partners' diverse and evolving product requirements. The lead time to recruit and train staff for the new services can vary greatly based on the complexity of the service.

[Speaker 2]

While the investments in staffing for the rollout of the DRG product are on the higher end of the spectrum, we are we will see an increase in ROI as the product matures. Overall, the company's results were strong as demonstrated by the record revenue and EPS. I would now like to review a few additional financial items. During the quarter, the company repurchased 45,501 shares at a total cost of $9,400,000 From inception to date, the company has repurchased 38,000,000 shares at a cost of $775,000,000 Through this program, the company has repurchased 69% of the total shares outstanding. The repurchasing of the our shares continues to be funded via the company's strong operating cash flow.

[Speaker 2]

Our DSO, as in days sales outstanding of receivables, was 40 days, down 4 days from a year ago. The quarter ending cash balance was 92,000,000 CorVel's strong and debt free balance sheet generates improved earnings in contrast to many others in the segment facing increasing debt loads with associated interest rate cost headwinds. That concludes our remarks for today. Thank you for joining us. I'll now return the call to our operator.

[Operator]

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