Net Income Increases 63%
Crawford & Company (www.crawfordandcompany.com) (NYSE: CRDA and CRDB), the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, today announced its financial results for the second quarter ended June 30, 2013.
Second Quarter Financial Highlights
Operating earnings increase 27%
Net income increases 63%
Diluted earnings per CRDB share of $0.30
Company increases certain aspects of full-year guidance
Second quarter 2013 consolidated revenues before reimbursements totaled $298.9 million, an increase of 2% from $293.8 million in the 2012 second quarter. Second quarter 2013 net income attributable to shareholders of Crawford & Company was $17.0 million, increasing 63% from $10.4 million in the 2012 second quarter. Second quarter 2013 diluted earnings per share were $0.31 for CRDA and $0.30 for CRDB, compared with diluted earnings per share of $0.19 for CRDA and $0.18 for CRDB, in the prior-year quarter.
Consolidated operating earnings, a non-GAAP financial measure, totaled $30.4 million in the 2013 second quarter, increasing 27% over $24.0 million in the 2012 second quarter.
During the 2012 second quarter, the Company recorded $1.6 million in special charges related to a project to outsource certain aspects of our U.S. technology infrastructure. There were no special charges during the 2013 second quarter.
Balance Sheet and Cash Flow
Crawford & Company's consolidated cash and cash equivalents position as of June 30, 2013 totaled $47.2 million compared with $71.2 million at December 31, 2012 and $45.7 million at June 30, 2012.
The Company used $15.1 million of cash in operations during the first six months of 2013, compared with $26.4 million during the first six months of 2012. The Company's operating cash needs typically peak during the first half of the year and decline during the balance of the year, due in part to annual payments made in the first half of each year to fund defined contribution retirement plans and incentive compensation plans.
Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "Our second quarter 2013 consolidated operating earnings increased 27% over last year's second quarter figures, reflecting Broadspire's improved operating performance and better results in our Americas segment. We were pleased to see more balanced consolidated operating results, as all of our segments produced positive operating earnings in the current quarter.
"The Americas segment saw the benefit of growth in Contractor Connection in the U.S., improvement in Latin America, and an increase in claims in our key Canadian market, which combined to generate solid year-over-year improvement in this segment.
"In our Broadspire business, we saw an improvement in operating profitability in the 2013 second quarter. While approximately $3.0 million of this improvement in revenues and operating earnings was a one-time benefit, the sequential increase in Broadspire's continuing operating earnings over the 2013 first quarter was an encouraging result. We are pleased with the progress being made in this important element of the Company's business and continue to be focused on driving ongoing operating improvements in Broadspire. We remain optimistic that this segment will show meaningful growth throughout the remainder of 2013.
"While the EMEA/AP segment posted strong results with a double digit operating margin in the 2013 quarter, revenues during the current quarter slowed in the U.K. and Asia-Pacific regions as compared to the 2012 period. During 2012, we were more heavily engaged in the ongoing handling of claims arising from the 2011 catastrophic flood losses in Thailand. While the Thailand catastrophe remains a meaningful project for us, related business activity has begun to taper as we wind up the handling of claims there.
"During the 2013 second quarter our Legal Settlement Administration segment remained engaged in responding to the Deepwater Horizon class action settlement, as well as a number of other meaningful class action and bankruptcy matters. We are encouraged to see our non-Gulf related work increasing, which bodes well for the longer-term outlook of this business. We expect operating activity in this segment to continue at a reduced rate as compared to the 2012 levels, but remain strong on a historical basis during the remainder of 2013."
Mr. Bowman concluded, "We are pleased with the strong, balanced results in the 2013 second quarter and we are encouraged by the opportunities in front of us. We are driving our Company to create long-term shareholder value and see our results for the first half of this year as evidence of this. Based on our positive outlook for the second half of the year, we are increasing certain aspects of our annual guidance for the remainder of 2013."
Certain marketing functions that were previously included in each segment are now included in our corporate administrative costs and allocated back to the segments. The results of prior periods have been revised to conform to the current presentation.
Americas revenues before reimbursements increased 7%, to $82.6 million in the second quarter of 2013, compared with $77.6 million in the 2012 second quarter. Operating earnings improved from $1.4 million in the 2012 period to $4.4 million in the 2013 period, representing an operating margin of 2% and 5% in the 2012 and 2013 periods, respectively. Changes in foreign exchange rates reduced our Americas revenues in the second quarter of 2013 compared with the prior year period by approximately 1%, but had a negligible impact on operating earnings.
Second quarter 2013 revenues before reimbursements for the EMEA/AP segment totaled $87.6 million, a 7% decrease from $93.8 million in the 2012 period. EMEA/AP operating earnings were $8.4 million in the 2013 period, a decrease of 28% from 2012 second quarter operating earnings of $11.7 million. The operating margin decreased from 13% in the 2012 period to 10% in 2013. Changes in foreign exchange rates reduced our EMEA/AP revenues in the second quarter of 2013 compared with the prior year period by approximately 2%, but had a negligible impact on operating earnings.
Broadspire segment revenues before reimbursements were $65.8 million in the 2013 second quarter, compared with $60.0 million in the 2012 quarter. Included in Broadspire's revenues and operating earnings in the 2013 second quarter is a one-time benefit of $3.0 million related to the recognition of previously deferred revenue for certain lifetime claims handling obligations that the Company has been relieved of in the future as a result of events occurring during the quarter. Broadspire recorded operating earnings of $4.4 million in the 2013 second quarter, representing an operating margin of 7%, compared with an operating loss of $0.4 million in the 2012 second quarter, or an operating margin of (1)%.
Legal Settlement Administration
Legal Settlement Administration revenues before reimbursements were $63.0 million in the 2013 second quarter, compared with $62.5 million in the 2012 second quarter. Operating earnings were $16.5 million in the 2013 second quarter, increasing 5% from $15.8 million in 2012, with the related operating margin increasing slightly from 25% in the 2012 period to 26% in the 2013 period. The segment's awarded project backlog approximated $130.0 million at June 30, 2013, compared with $73.0 million at June 30, 2012.
Crawford & Company is affirming and increasing certain aspects of its full year 2013 guidance as follows:
Consolidated revenues before reimbursements between $1.12 and $1.14 billion.
Consolidated operating earnings between $95.0 and $99.0 million.
Consolidated cash provided by operating activities between $65.0 and $70.0 million.
Consolidated net income attributable to shareholders of Crawford & Company on a GAAP basis between $51.5 and $54.0 million, or $0.90 to $0.95 diluted earnings per CRDB share.
To a significant extent, Crawford's business depends on case volumes. The Company cannot predict the future trend of case volumes for a number of reasons, including the fact that the frequency and severity of weather-related claims and the occurrence of natural and man-made disasters, which are a significant source of claims and revenue for the Company, are generally not subject to accurate forecasting.
Earnings per share may be different between CRDA and CRDB due to the payment of a higher per share dividend on CRDA than CRDB, and the impact that has on the earnings per share calculation according to generally accepted accounting principles. References in this release are generally only to CRDB, as that presents a more dilutive measure.
Crawford & Company's management will host a conference call with investors on Monday, August 5, 2013 at 3:00 p.m. EST to discuss second quarter 2013 results. The call will be recorded and available for replay through August 19, 2013. You may dial 1-855-859-2056 (404-537-3406 international) to listen to the replay. The access code is 22871358. Alternatively, please visit our web site at www.crawfordandcompany.com for a live audio web cast and related financial presentation.
In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues, respectively, in our consolidated results of operations. In the foregoing discussion and analysis of segment results of operations, we do not include a gross up of segment expenses and revenues for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings (loss). A reconciliation of revenues before reimbursements to consolidated revenues determined in accordance with GAAP is self-evident from the face of the accompanying unaudited condensed consolidated statements of income.
Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker ("CODM") to evaluate the financial performance of our Company and operating segments, and make resource allocation and certain compensation decisions. Unlike net income, segment operating earnings is not a standard performance measure found in GAAP. We believe this measure is useful to others in that it allows them to evaluate segment and consolidated operating performance using the same criteria our management and CODM use. Consolidated operating earnings (loss) represent segment earnings (loss) including certain unallocated corporate and shared costs and credits, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, special charges and credits, income taxes, and net income or loss attributable to noncontrolling interests. The reconciliation of operating earnings (loss) to net income attributable to shareholders of Crawford & Company on a GAAP basis is presented below.
Unallocated corporate and shared costs and credits represent expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments but are included in our financial performance measure of consolidated operating earnings.
Income tax expense, net corporate interest expense, stock option expense, and amortization of customer-relationship intangible assets are recurring components of our net income, but they are not considered part of our consolidated or segment operating earnings (loss) because they are managed on a corporate-wide basis. Income tax expense is calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and varies significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
Special charges and credits may arise from events (such as expenses related to restructurings, losses on subleases, etc.) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.
Following is a reconciliation of segment and consolidated operating earnings (loss) to net income attributable to shareholders of Crawford & Company on a GAAP basis and the related margins as a percentage of revenues before reimbursements for all periods presented (in thousands, except percentages):
|Quarter ended||Six months ended|
|June 30, 2013||% Margin||June 30, 2012||% Margin||June 30, 2013||% Margin||June 30, 2012||% |
|Operating Earnings (Loss):|
|Legal Settlement Administration||16,530||26||%||15,792||25||%||28,543||24||%||26,475||24||%|
|Unallocated corporate and shared costs and credits||(3,333||)||(1||)%||(4,603||)||(2||)%||(5,630||)||(1||)%||(5,964||)||(1||)%|
|Consolidated Operating Earnings||30,365||10||%||23,956||8||%||48,355||8||%||38,348||7||%|
|Net corporate interest expense||(1,600||)||(1||)%||(2,387||)||(1||)%||(3,243||)||(1||)%||(4,556||)||(1||)%|
|Stock option expense||(293||)||-||%||(123||)||-||%||(373||)||-||%||(245||)||-||%|
|Net loss (income) attributable to non-controlling interests||140||-||%||(267||)||-||%||198||-||%||(422||)||-||%|
|Net income attributable to shareholders of Crawford & Company||$||17,008||6||%||$||10,425||4||%||$||26,747||5||%||$||16,490||3||%|
Further information regarding the Company's financial position, operating results, and cash flows for the quarter and six months ended June 30, 2013 is shown on the attached unaudited condensed consolidated financial statements.
About Crawford & Company
Based in Atlanta, Georgia, Crawford & Company (www.crawfordandcompany.com) is the world's largest independent provider of claims management solutions to the risk management and insurance industry, as well as to self-insured entities, with an expansive global network serving clients in more than 70 countries. The Crawford System of Claims Solutions® offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management, workers' compensation claims and medical management, and legal settlement administration. The Company's shares are traded on the NYSE under the symbols CRDA and CRDB.
The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash dividends on the Class A Common Stock than on the Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
|This press release contains forward-looking statements, including statements about the financial condition, results of operations and earnings outlook of Crawford & Company. Statements, both qualitative and quantitative, that are not historical facts may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from historical experience or Crawford & Company's present expectations. Accordingly, no one should place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Crawford & Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise or not arise after the date the forward-looking statements are made. For further information regarding Crawford & Company, including factors that could cause our actual financial condition, results or earnings to differ from those described in any forward-looking statements, please read Crawford & Company's reports filed with the SEC and available at www.sec.gov or in the Investor Relations section of Crawford & Company's website at www.crawfordandcompany.com.|
FOR FURTHER INFORMATION REGARDING THIS PRESS RELEASE, PLEASE CALL BRUCE SWAIN AT (404) 300-1051.
Based in Atlanta, Ga., Crawford & Company (www.crawfordandcompany.com) is the world's largest independent provider of claims management solutions to the risk management and insurance industry as well as self-insured entities, with an expansive global network serving clients in more than 70 countries. The Crawford System of Claims Solutions® offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management, workers compensation claims and medical management, and legal settlement administration. The Company's shares are traded on the NYSE under the symbols CRDA and CRDB.