Dan Starck - President, CEO and COO 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 the 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 the 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, Mr. Dan Starck and Mr. Gordon Clemons. Gentlemen, please go ahead.

I would like to thank everyone for joining us today to review and discuss the results of CorVel's June 2010 quarter. I am joined by our chairman, Gordon Clemons, and in our normal fashion, I'll be reviewing the financial results and key initiatives, and Gordon will be reviewing product development. After the overview, we will open the call to questions. Now, to the quarter results. Revenue for the June quarter was $91.5 million, an increase of 12.5% from the June 2009 quarter. Earnings per share were $0.64 for the quarter, an increase of 30% from the $0.49 reported in the June 2009 quarter. During the June quarter, we continued the expansion of our Enterprise Comp product, CorVel's fully integrated workers' compensation claim solution and our Network Solutions results reflect growth in our pharmacy and directed care product lines, while case management growth is reflective of increasing volumes. From a marketplace perspective, the labor market remains soft and with national unemployment near 10%, there are no signs of affirming of the labor market in the near future. Workers' compensation claim volumes continue to decline, yet the average total cost per claim continues to increase. The increase in total claims cost is being driven by the growth in total medical cost thus emphasizing the need for cost containment. Industry participants are looking for ways to bring expanded service offerings to clients in order to fuel growth to overcome the declining claims volume. The expansion of service offerings by our competitors is coming in the form of both, acquisition consolidation as well as strategic partnerships. In this difficult economic period, the employers' decision to move their workers' compensation program is very difficult. Change and the associated frictional costs are becoming reason enough for companies to remain with their current workers' compensation service provider.…

Thank you, Dan. The June quarter included our largest increase in fixed assets in one quarter in the company's history. While we clearly want to control expenses and to be prudent, investing in our future has been a key to our success. With a long-term investment pace over the years, we have been able to gradually move our market position forward. As Dan discussed, the current success in claims administration is one such example. As much as it may seem that increasing spending must be carefully controlled, in fact, it is not easy for a relatively small company such as CorVel to meaningfully expand its investment pace in technology. Processes have to be changed. Over the last year, the development team has been working to address larger projects and to carefully evolve their processes to accommodate larger goals. As the company has grown, the approach to development has had to become more defined processes we used 10 years ago might have been okay for a smaller company, but at some point, CorVel had to make investments in its development processes in order to become a much larger enterprise. Dan and his team have been doing that. In the early phases of such a transition, these investments can cost more than they produce and can lead to lumpy results. As you can appreciate, the impact of Sarbanes-Oxley is naturally to discourage investment moves that can create bumps in earnings. However, successful investment is necessary for long-term growth, and therefore evolving our processes is necessary to our journey to being a more meaningful player in the insurance industry. Although understandably, Dan and his team don't want me to overstate their successes, I would like to compliment them on having have the determination and have taken the hard work necessary to make these…

Thank you, Gordon and I would like to add just a few more items prior to opening the call to questions. Quarter ending cash balance was $13.7 million, and our DSO was 45 days. Under our current share repurchased program 153,287 shares were repurchased in the quarter. We spent $5.5 million in that quarter. We have spent $224 million inception to date and we have repurchased 14 million shares inception to date. This represents a 54% repurchase of our entire outstanding shares. Hard shares at the end of the quarter were 11,907,000, and diluted EPS shares were 12,187,000. In closing, the June quarter is our fifth consecutive quarter of increased growth. The results of our product evolve the work that has been done over a number of years that tends to be lost in a moment like this. We are very proud of the work that CorVel team has done, and continues to do on a daily basis to lay the ground work for future growth. I would now like to open the call for questions.

(Operator Instructions).

Kate, may be if I could offer one item while we are waiting for questions if there are any. I did want to clarify for the group on the phone a little issue around our tax rate, and I want to make sure we clearly communicated it. Our tax rate is slightly lower this quarter due to some tax credits and lower rate resulted in a $0.01 benefit to EPS for the June quarter. So, again, without that we would have been at $0.63 in EPS. Maybe that will generate a question or two.

(Operator Instructions) At this time, there are no questions in queue.

We would like to just wrap up the call by thanking everybody who is on the call or through the webcast or those who may access the transcript through the internet. We would like to thank everyone just for showing the interest in CorVel. I'd characterize our mood as we close the call today as very pleased with our results, but not satisfied and our opportunities continue to expand in front of us and we are very much looking forward to the remainder of the year and meeting expectations, so thank you and we will see you soon.

Ladies and gentlemen, this concludes our conference call for today. Thank you for your participation. Please disconnect at this time.