Thank you for standing by. 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 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. Gordon Clemons. Gentlemen, please go ahead.

Thank you for joining us to review CorVel's September Quarter. In the quarter, our TPA business continued to win clients and to enjoy its emerging reputation. New investments in our Network Solutions business are underway. Expense reductions continued. The productivity management and efficiency projects started in the June quarter continued to progress toward implementation in the December quarter. Revenues for the September quarter were $105 million, 1% over the revenue for the September quarter 2011. Earnings per share for the quarter ended September 30, 2012 were $0.58, even with last quarter. EPS for the September quarter of 2011 was $0.68. The market for self-insured and high deductible programs for employers values the market for CorVel's full service programs remains active. The insured market continues to firm which is an important driver of trends in the company's services. Our TPA services we sell under the Enterprise Comp name are gaining momentum. Both the recognition of and support for CorVel has continued to improve. We also continue to expand approval of CorVel as a manager of high deductible programs for insurers. The private employer marketplace requires these approvals to use us in their programs. In addition, we had to build out our liability claims administration services. Although, we've been handling liabilities for many years, we have been bringing the software in that new line of services up to the level of our workers compensation offering. Workers compensation claims continued to increase in cost. Healthcare and Specialty Pharmacy costs continued to inflate as rate -- at rates well in excess of trends elsewhere in the economy. This has raised interest in our pharmacy management solutions. As we discussed last quarter, corporations have increasingly been hesitant to make major decisions until the election and the fiscal cliff outcomes are resolved. The Group health market…

[Operator Instructions] Our first question is from Gregory Macosko.

Just a few questions, if I could. Towards the end you talked about the long-term mission with regard to the data base, et cetera. Has that been part of the cost increase relative to cost of revenues et cetera? Is that where that increase -- is that more of a fixed cost than a variable cost going forward?

Well, I wouldn't say its fixed going forward, but I wouldn't want to say that it is -- or the reason for some of our margin deterioration. I'd say that the margin drop from last year is really a mix change in our business and we were taking some steps to address that. On the other hand, on the cost side of your question as far as the development of systems. We did have an increase in the fixed cost in G&A for depreciation on assets employed in the systems area. That peaked, I would say, maybe 6 or 9 months ago and we had finished a two-year period where we did ramp-up expenses in that area. We've since cut back a little bit, and made a few other changes that are gradually reducing our G&A expenses. So in that sense, I don't think of them as being fixed but there is a burden that comes in through depreciation. But it's not the reason for the change in the operating margins of the company.

So the primary reason on that score is the mix change, is that and that's just the, as you said, the slower growth in the network business were the decline?

Well, yes. And I would say that business -- the base of that business is fine and is growing. We did have one meaningful customer that was -- that we lost and that's happened to us before. And it's a good business in terms of margin. So that one account changed the results there. And this will be the last quarter that we have that comparison year-over-year, and then we will be back to more favorable comparisons.

Could you just talk about new customers? Has there been any added in that area, or are there any particular number of new customers or any numbers around that score?

Yes. We -- I mean we don't announce individual names, but we have had a couple of nice wins in that segment. And then I would say, as importantly, since I became more involved last spring, we really have put sort of re-emphasized that area. That is the highest technology part of our business. It's the place where we have the largest barriers to entry and the greatest employed assets for value-added services to our customers, and I believe it's a critical part of our business. So it is also CorVel's strength. We've had long-term investments in that area, beginning all the way back in the early '90s. So we are looking to be more aggressive in that segment of the market in the next year or 2.

And then with regard to workers comp, you said it was increasing. Are the number of claims that people are filing increasing, is that part of the patient revenue that, that 10% increase in patient revenue?

Well, I think as you get through a recession like we had and the labor market improves, there may be some change in that business that's more on a macro scale. But really the growth in that area is coming from the fact that we are a relatively newer entrant in the claims management business as defined in the TPA space that is managing the entire program. And we are having -- we are growing at rates greater than 20% in that segment, but that's really market share gain as opposed to changes in the business.

Okay. So just on a macro basis I realized that you may not be as close to it -- I mean you are closer to it now, you may not have a comparison basis but you are not really seeing the workers comp side on a macro basis increase at this point?

Well, I'd say it's -- I think it stabilized. There was a long-term drop in claims and on the other hand it was really at least in my personal opinion a drop in some of the less serious claims and some of the more frivolous claims. And that's why people always say the severity went up, really what happened is the claims that are coming in are more and more the real claims and less and less claims that aren't as serious. So, I don't think the business has changed a lot over the years. Right in here, there is some expectation that because of the investment opportunities having changed so much for insurance companies, they can no longer afford to run combined ratios that are as negative as they could with better investment returns. So there is at least logic out there for hardening of the insured market. When that happens, it usually favors the self-insured market, that is companies retain more risk when they see the insurance markets hardening. There is some evidence that that's beginning. I think the -- what I have seen so far is that it's quite preliminary and it isn't really the driver of our growth in that segment. We are in a place where we kind of have it in our own control in the sense that it's up to us to expand our market share and we're in a nice place to do that I think.

Yes. Okay, a good explanation. And then with regard, just back to the SG&A line, it has to come down and do you -- are you expecting to see additional cuts in the G&A line?

Yes. I would like to. I think I have to admit in that area, I probably don't do this the way people like to. I hear lot of people saying, there should be one big, huge drop and then you're done with it. And I've just never been smart enough to figure that all out in one step. So we will just kind of gradually, I think, see some improvements there. We have made some changes that will have an effect in the coming years. So some of it's already in the cake, I'd say. But a big chunk of our G&A is systems investments. And those are -- that is an area where I have to admit also inclined to spill some milk as we go along. So we'll continue to be aggressive on technology and to believe that, that's kind of the core of our business. But we have found a number of opportunities to, I'd say, incrementally reduce our G&A. What we look for some kind of long-term ratios, I would say, we kind of expect a certain pre-tax percentage margin in the business and it has to be -- we have to fit the G&A in, in a way that allows that. So, until we get back to the balance that we like to see, we'll be cautious on our expenses.

Okay. In terms of your longer terms goal I know that quarters past you have given I believe goal of -- in terms of income from operations something, I think talked on a longer term basis, 15% or so?

Well, I don't know. I'd like to get there. But I don't think so. In a service business like ours, I feel that there is a natural pressure in the marketplace to keep margins down. We've tried to be around 10% after all in -- all expenses in. And yet, we could live in a business that had a lower margin. We don't like it and we'll -- we're trying to get back toward 10%. But, as technology improves there are changes coming. And we're -- we think we're positioned with technology to be more aggressive than our competitors. So, we don't really look for the highest margins, I would rather see us building our business. And this year, as I mentioned in the call, we've expanded quite a bit in the liability area. We're adding some other features in our service at the same time. So, we have really just an ongoing expense associated with expansion and at times it doesn't pay off in total. I know our total growth rate has been disappointing the last couple of years, but our strategies are to continue to that. So, I would not see our pre-tax getting above 10%.

And then with regard to building the business that should continue throughout next year, I mean is there a sort of a goal with regard to that building new products, new services et cetera?

Well, right now, we're investing a lot in the building out of our private cloud, which supports the current and more traditional definition of a TPA. But we do have our plan set on taking advantage of mobile computing and cloud computing to have our services reach, as I mentioned more deeply into the organizations of our customers to provide I'd say a much more real and real time kind of service support to the employees of our customers. And that's more of a long-term strategy. It has to move at the same pace as the industry developments in mobile computing. But we've had a 3 year investment in mobile computing. This year, we've had two nice implementations, one on smartphones and one on iPads. And we see those -- we started with 4 different projects and we narrowed it down to 2 and those have really gotten some traction. So, I would say our investments in growth will definitely continue next year. And as we get to be a bigger company, we always raise that percentage -- we keep the percentage of our investment as a part of our revenue fairly constant. So, as our business gets bigger, we try to expand our in -- our pace of investment.

I've asked a lot of questions, you've been very kind. The last one, I promise. Was the buyback of 72,000 shares, did you -- I mean the cash clearly built on the balance sheet. Do you -- does that -- did you hold back on the buyback relative to wanting to have cash available for opportunities and perhaps, acquisitions?

Yes. We did -- we didn't cut it a lot, but we didn't invest as much in our stock as we could have. And as you point out, that caused cash to move up and maybe, I thought that is kind of a nice indicator. I thought that was a positive in the quarter and it reflects both our operating results as well as being a little more careful with some of our capital investments. So, we do want to be in a place where we are flexible to take action here depending on what develops over the next maybe 4 or 5 months.

How much did you spend on the buyback?

Let's see. Just a second. I think $3.7 million.

[Operator Instructions] There are no further questions. Mr. Starck and Mr. Clemons, do you have any further comments?

Yes. So, just in closing, I know we're going through a really tough time in the Northeast for probably a lot of people on this call. CorVel does have operations in the Northeast. We were down yesterday in New York, Connecticut, Maryland and New Jersey. Today, we're -- and we had operations going on as we were able to in those states. We just had our offices closed. We do have operations open in all of those today. I think we have a remaining outage in New Jersey, because of the lack of power. So, we can be affected. We don't have any expectant -- our expectations for substantial impact on operating results as a result of the storm but I did want to just mention that. We do operate in all 50 states and do have offices throughout the Northeast. So it's affecting our employees and their families, as it is everyone else. So, we're hoping things move forward and expecting that we'll be back to normal pretty quickly. And that really completes what I had to say today. I'd like to thank everybody for joining us on a day when I know a lot of you in the Northeast are probably preoccupied with more important matters. We'll look forward to talking to you again next quarter.

This concludes our conference call for today. Thank you for your participation. Please disconnect at this time.