CorVel Corporation (NASDAQ:CRVL)
Q1 2021 Earnings Call
Aug 4, 2020, 11:30 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
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 of the future financial performances of the company. CorVel wishes to caution you that these statements are only predictions and the 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 filed 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 -- CEO & President
Good day. Thank you for joining us to review CorVel's June quarter. On the call with me today is Brandon O'Brien, CorVel's Chief Financial Officer.
Today, I'll be discussing the current environment, business performance, market trends, services we're focusing on, and the progress we've made on key initiatives. Brendan will then provide additional insight into our financial results for the June quarter.
Earnings per share for the quarter ended June 30, 2020 were $0.46. Revenues for the period were $129.6 million. As much of CorVel's business is tied to the volume of healthcare spending, the June quarter results reflect the reduction of elective surgeries and general physician care due to the pandemic.
While business remains very dynamic, volumes increased incrementally in each month of the June quarter. These increases led to a quarter ending cash balance of $94 million, which is up $11 million from the end of last quarter.
The start of the fiscal year coincided with the emergence of COVID-19. At the onset, we defined priorities for managing the business, taking into consideration three key constituencies: our employees, customers, and shareholders. They included, ensuring the safety of the CorVel team members, continuing to deliver the highest quality service and outcomes to our partners, managing liquidity to operate the business and continuing systems investments to meet the current and evolving needs of the markets in which we operate.
The prompt actions we took at the start of the quarter have allowed us to meet each of these objectives. More than 97% of our workforce transitioned seamlessly to working from home in early April. A small number of team members who manage physical operation functions have adhered to CDC guidelines. In a few cases, we've picked up additional physical functions for our partners.
Our financial strength has given us the ability to meet the dynamic needs of customers, while continuing to deliver high quality service and outcomes. With no debt and over 90% variable expenses, the operational adjustments made in the June quarter were effective. We were able to scale many of our expenses to the level of business activity. The strong balance sheet with which we entered the pandemic actually improved during the quarter.
Also, we restarted our stock repurchase program on June 15, resuming our long-standing commitment of returning equity to shareholders. We had initially paused the repurchase plan early in the pandemic out of an abundance of caution, until we were able to ascertain the financial impact on business operations.
CorVel's ongoing investment in technology has allowed us to scale our virtual care functionality to meet a 10-fold increase in demand for these services. COVID-19 has shattered the barriers to widespread adoption of the virtual care delivery model. This model dovetails perfectly with our fully integrated solution. With the ease of use, improved outcomes and the reduced costs associated with this approach to the delivery of care, we expect continued increased usage post-pandemic.
Later in the discussion, I'll review the essential and elevated role we see technology playing in business and our intention to increase investments in this area to meet the rapidly evolving need.
In the commercial health market, which CERiS serves, the demand for payment integrity solutions has increased during the pandemic. In addition to expanding our customer base for existing services, we're actively engaged with insurer partners to develop new services and solutions. We're on-track to go live with new offerings later this year.
The last several years have seen the consolidation of several payment integrity vendors. In some cases, poor service and results attributed to this consolidation are causing health plans to look for more robust and stable solutions. The service team leveraging a growing suite of services continues to deliver consistent industry-leading results.
As discussed on previous calls, the commercial health market will be increasingly important to CorVel's overall results. Increased investment in this area, including the expansion of our product leadership team that occurred earlier this year is creating exciting new opportunities for growth.
In the workers' compensation market, delivering virtual care solutions was a key focus in the June quarter. CorVel responded to the market needs by quickly scaling telehealth physician capabilities as well as developing and expanding tele-rehab, mail order prescriptions and home delivery of durable medical equipment.
Tele-rehab, also referred to as virtual PT, expanded from five states to more than 40 states, as rules were relaxed to allow access and reimbursement for virtual PT. Refills on medications, home delivery from retail pharmacies, and increased need for mail order medications have become the norm.
Our case and utilization management teams adapted virtual nursing assessments, incorporating video interfaces. They also developed COVID-19 clinical treatment guidelines based on CDC, MD data and infection control protocols to ensure field case management continued despite the challenges of the pandemic. There's also been a significant effort by all CorVel nurses to provide ongoing education to patients, customers, communities, and co-workers on preventing COVID-19 transmission.
In summary, our investment strategy has chiefly focused on the continuing development of technology and its deployment into our business. The integration of virtual care services with the intake process is an aspect of healthcare, in which we can break down delays in the employees episode of care and their return to work, reducing the time needed to provide care to an injured employed, directly improves the outcome of the claim.
Our dynamic ability to integrate the activities of patients, providers, and employers in the managed care continuum is a result of the long-term investments we've been making in our business applications.
The pandemic has amplified the importance of an agile team supported by robust and flexible systems. We've been pleased to provide responsive solutions to our partners during these unprecedented times.
Turning to product development. Two efforts are particularly relevant in the environment created by the pandemic: Telehealth and virtual care services, and our proprietary claims management platform, the Edge. As the adoption rate for telehealth has increased, we have accelerated initiatives in the area of virtual care. Some exciting pilots are planned in the next quarter that will leverage additional tele-health benefits. Using data and analytics, specialized telehealth visits will be used for claims with elevated patient risk and cost drivers.
The new Edge Insights interface gives a clear view of the current status of a claim throughout its life cycle, in real time and in one place for all stakeholders. This interface presents all claims activities, medical data, financials return-to-work information, next steps and all additional details.
In coming quarters, we will be expanding this view to transform the traditional paper claim review process to allow for electronic file reviews. This new approach enables participants to review files virtually and address next steps in real time. It also includes the ability for users to set personal tasks within the system, including alerts for appropriate follow-ups, eliminating the need for managing these tasks outside of the system.
Lastly, CorVel's use of machine learning technology will be expanded in the coming months with the incorporation of an Edge module to enhance the assessment of liability risk. This new offering will analyze claims across the enterprise to identify criteria and data that indicate the duration and cost of the claim may fall outside of expected parameters. Claims with escalated risk will receive proactive measures to mitigate the increased liability.
The changes we've seen these last many decades will pale in comparison to those we will experience during the remainder of the current decade. Technology is being applied to address practical business applications at an accelerated pace. Processes which used to require humans to do manual error-prone work are being replaced with AI augmented functionality.
We are already using natural language processing in the review of medical records for our professional nurses to produce higher quality results in a fraction of the time. As machine learning becomes increasingly ubiquitous due to the billions of dollars cloud vendors are investing, momentum is building for seismic shifts in business. CorVel intends to increase investments to more fully leverage artificial intelligence, machine learning and natural language processing, which will result in a meaningful impact on outcomes, quality and consistency.
Brandon will now provide an overview of the financial results for the June quarter.
Brandon O'Brien -- Chief Financial Officer
Thank you, Michael, and good morning, everyone. I want to thank our employees and our customer partners who have shown incredible levels of resiliency and collaboration through this pandemic. Those efforts have provided increasingly better results throughout this quarter.
Revenues for the June quarter were $130 million, down 14% from the same quarter of the prior year. Earnings per share for the quarter were $0.46. The June quarter results were primarily driven by the effects of the COVID-19 pandemic on the market, our customers and the flow of claims in healthcare-related services. We demonstrated our ability to maintain a profit of $0.46 a share through the reductions in cost of goods sold and operating expenses via prompt and measured management actions.
Our decisive early actions were important to the success we had during this pandemic. The first priority was our employee's safety. Our system's strength allowed us to easily move employees to working from home. The management of our cash flow and liquidity followed as a high priority and ultimately, we adjusted our expenses to the lower volumes of work that resulted from the closing of hospitals to elective surgery.
As stated earlier, CorVel's balance sheet actually strengthened in the quarter. CorVel did not apply for, nor received any support payments from the federal programs.
Although it is not typical to discuss monthly results within the quarter, the monthly gross profit margin trends are noteworthy due to COVID-19. The month of April represented the low points within the quarter, with May improving on April and June improving on May. Gross profit margins increased an average of 300 basis points per month as volumes generally increased while cost of goods sold and other operating expense adjustments were realized throughout the quarter. The accumulation of these factors allows CorVel to exit the quarter on an upward financial trajectory.
Revenue for patient management, including third-party administration, TPA services and traditional case management for the June quarter was $85 million, an annual increase of 14%. Gross profit decreased 12% from the June quarter of 2019.
Included within the patient management offering is CorVel's proprietary Telehealth services. These services are being particularly well received by our TPA customers. Quarterly revenue for the Telehealth services expanded nearly 300% above the prior quarterly averages with supply constraints outpacing immediate demand. As such, Telehealth services represent an area of ongoing revenue expansion as these services provide a convergence of the needs favorable to the employee, employer and CorVel.
The ongoing implications of COVID-19 stay-at-home orders are combining with shifts of behavioral attitude to propel CorVel's virtual care services forward.
Quarterly revenue for Network Solutions in the wholesale market was $44 million, a decrease of 12% from the same quarter of the prior year. Gross profit in the wholesale business was down 27% from the June quarter of 2019.
The pandemic temporarily disrupted certain stages in the processing of medical bills. In order to overcome these disruptions, labor costs were increased primarily during the first half of the quarter, resulting in lower margins.
In the commercial healthcare market, CERiS has continued to gain traction by expanding the breadth and depth of services provided to the large commercial health carriers. The development and rollout of these new innovative service offerings in stages provides growth rates that can fluctuate quarter-over-quarter but over a longer time horizon represents an area of dynamic long-term growth.
I would now like to review a few additional financial items. During the quarter, the company repurchased 34,638 shares for a total price of $2.4 million. Since its inception, the company has repurchased 36.3 million shares at a cost of $534.2 million. Through this program, the company has repurchased 67% of the total shares outstanding.
As the pandemic grew and introduced high levels of uncertainty into the market, CorVel stopped repurchasing shares on March 21, 2020. This was done out of abundance of caution to assure the health of our business, including maintaining full flexibility to focus on serving our customers during the COVID-19 pandemic.
As initial market uncertainties subsided and our cost initiatives were showing their effectiveness and maintaining comfortable cash levels, CorVel resumed share repurchases starting June 15, 2020. The quarter ending cash balance was $94 million, which is up $11 million from 31, 2020.
DSO, days sales outstanding in receivables, was 47 days, up six days from a year ago. This change in DSO remains within the historical range for our business and there's only a nominal impact on cash flow and reserves. Cash flow remained strong and positive throughout the quarter.
That concludes our remarks for today. Thank you for joining us. I'll now return the call to our operator.
[Operator Closing Remarks]
Questions and Answers:
Duration: 17 minutes
Michael Combs -- CEO & President
Brandon O'Brien -- Chief Financial Officer