Date: August 4, 2014
From: Jeffrey T. Bowman
Chief Executive Officer
Crawford & Company Reports 2014 Second Quarter Results
Company Reaffirms Annual Guidance
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, 2014.
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 non-voting Class A Common Stock (CRDA) than on the voting Class B Common Stock (CRDB), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRDA must receive the same type and amount of consideration as holders of CRDB, unless different consideration is approved by the holders of 75% of CRDA, voting as a class.
Second quarter 2014 consolidated revenues before reimbursements totaled $288.2 million, compared with $298.9 million for 2013. Second quarter 2014 net income attributable to shareholders of Crawford & Company was $10.5 million, compared with net income of $17.0 million in the second quarter of 2013. Second quarter 2014 diluted earnings per share were $0.19 for CRDA and $0.18 for CRDB, compared with diluted earnings per share of $0.31 for CRDA and $0.30 for CRDB in the prior year quarter.
Consolidated operating earnings, a non-GAAP financial measure, totaled $20.9 million in the 2014 second quarter, compared with $30.4 million in the 2013 second quarter.
Balance Sheet and Cash Flow
Crawford & Company's consolidated cash and cash equivalents position as of June 30, 2014 totaled $47.7 million compared with $76.0 million at December 31, 2013.
The Company used $59.6 million of cash in operations during the first six months of 2014, compared with $15.1 million during the first six months of 2013. The increase in cash used in operating activities in the first six months of 2014 compared with the first six months of 2013 was primarily due to lower net income, an increase in billed accounts receivable, and an increase in payments for incentive compensation, defined benefit plans and defined contribution plans. 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 2014 consolidated operating earnings showed improvement over first quarter results but were down from the prior year, consistent with our expectations heading into the quarter. The declines in revenues and operating earnings attributable to our Gulf-related special project in Legal Settlement Administration were a principal contributor to our decreased earnings.
"During the 2014 second quarter, the Americas operating performance showed marked improvement over the prior-year period, as severe weather had a positive effect on our North American property and casualty businesses. The Americas segment earnings also grew during the second quarter of 2014 as a result of continued improvement in our Canadian operations and growth in our Contractor Connection operations in both the U.S. and Canada. In the U.S. we have benefited from an increase in revenues from a major insurer under an outsourcing special project.
"Entering the year, we indicated our expectations that our EMEA/AP segment results would face difficult comparisons as we finalized claims in Thailand, and this is reflected in the 2014 second quarter's lower operating results. In addition, the decline in segment margin reflects expenses from our investment in our specialty markets operations, which we expect to continue through the remainder of the year.
"The comparison of Broadspire's second quarter 2014 operating performance against the 2013 period was impacted by a one-time benefit of $3.0 million in revenues and operating earnings in the prior-year period, related to certain life-time claim handling obligations that the Company was relieved of handling. Apart from this prior-year credit, we saw gains in both revenues and operating profitability during the 2014 second quarter, and we were pleased with the continuing progress made in these operations so far this year.
"Results from our Legal Settlement Administration segment during the second quarter of 2014 continue to include activity from the Deepwater Horizon class action settlement, but at a substantially reduced rate compared with the prior year. The Company has had recent success in winning new business opportunities, which should help mitigate, but not entirely offset, anticipated declines in revenues associated with this and a few other large projects during the remainder of 2014 as compared to 2013 levels."
Mr. Bowman concluded, "We remain dedicated to achieving our long-term strategic objectives. We are focused on the opportunities in front of us and are confident that as we successfully execute our strategies, we will create meaningful value for our shareholders. To that end, we are pleased to announce that our Board has approved a new Company stock repurchase authorization, increasing the size and extending the duration of the authorization, which we believe evidences our confidence in the long-term prospects of our Company."
Americas revenues before reimbursements were $93.6 million in the second quarter of 2014, increasing from $82.6 million in the 2013 second quarter. Americas revenues would have been higher were it not for a strengthened U.S. dollar compared to foreign currencies in the segment, which reduced our Americas revenues in the second quarter of 2014 compared with the prior year period by approximately 3%. Operating earnings were $8.1 million in the 2014 second quarter, compared with $4.4 million in the 2013 second quarter, representing an operating margin of 9% and 5% in the 2014 and 2013 periods, respectively.
Second quarter 2014 revenues before reimbursements for the EMEA/AP segment totaled $87.2 million, compared with $87.6 million in the 2013 second quarter. Changes in foreign exchange rates did not have a material impact on our EMEA/AP revenues in the second quarter of 2014 compared with the prior year period. EMEA/AP operating earnings were $4.3 million in the 2014 second quarter, compared with 2013 second quarter operating earnings of $8.4 million. The segment operating margin decreased from 10% in 2013 to 5% in 2014.
Broadspire segment revenues before reimbursements were $66.7 million in the 2014 second quarter, up from $65.8 million in the 2013 second quarter. Broadspire recorded operating earnings of $2.7 million in the 2014 second quarter, representing an operating margin of 4%, compared with $4.4 million, or 7% of revenues, in the 2013 second quarter.
Legal Settlement Administration
Legal Settlement Administration revenues before reimbursements were $40.7 million in the 2014 second quarter, compared with $63.0 million in the 2013 second quarter. Operating earnings were $5.7 million in the 2014 second quarter, compared with $16.5 million in the 2013 second quarter, with the related operating margin decreasing from 26% in the 2013 period to 14% in the 2014 period. At June 30, 2014 we had a backlog of projects awarded totaling approximately $96.6 million, compared with $130.0 million at June 30, 2013.
Crawford & Company is reaffirming its guidance range for 2014 as follows:
- Consolidated revenues before reimbursements between $1.08 and $1.12 billion;
- Consolidated operating earnings between $84.0 and $98.5 million;
- Consolidated cash provided by operating activities between $50.0 and $60.0 million;
- Consolidated net income attributable to shareholders of Crawford & Company between $46.5 and $54.0 million;
- Diluted earnings per share of $0.84 to $0.99 for CRDA; and
- Diluted earnings per share of $0.80 to $0.95 for CRDB.
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.
In recent periods the Company has derived a material portion of its revenues and operating earnings from a limited number of client engagements and special projects within its Legal Settlement Administration and EMEA/AP segments, specifically their work on the gulf-related class action settlement and Thailand flooding claims. These projects are either completed or continue to wind down and management expects revenues, and related operating earnings from these projects, to continue to be at a reduced rate through the remainder of 2014 as compared to 2013 levels. No assurances of timing of the project end dates and, therefore, continued revenues or operating earnings, can be provided. In the event the Company is unable to replace revenues and related operating earnings from these projects as they wind down, or upon the termination or other expiration thereof, with revenues and operating earnings from new projects and customers within this or other segments, there could be a material adverse effect on the Company's results of operations.
The Company is also announcing that its Board of Directors has approved a new stock repurchase authorization, which allows for the repurchase of up to 2.0 million shares of CRDA or CRDB (or both) through July 2017. Stock repurchases may be made in open market or privately negotiated transactions from time to time. The Company will base future repurchase decisions on such factors as stock price, general economic and market conditions, the potential impact on its capital structure, and the expected return on potentially competing uses of capital. Crawford can give no assurance as to the amount of repurchases to be made or the actual purchase prices.
Crawford & Company's management will host a conference call with investors on Monday, August 4, 2014 at 3:00 p.m. EST to discuss second quarter 2014 results. The call will be recorded and available for replay through September 4, 2014. You may dial 1-855-859-2056 (404-537-3406 international) to listen to the replay. The access code is 77577462. 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. 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 used by our senior management and CODM. Consolidated operating earnings represent segment earnings including certain unallocated corporate and shared costs and credits, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, income taxes, and net income or loss attributable to noncontrolling interests. The reconciliation of operating earnings 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 taxes, 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 because they are managed on a corporate-wide basis. Income taxes are 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 the Board of Directors 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.
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, 2014||% Margin||June 30, 2013||% Margin||June 30, 2014||% Margin||June 30, 2013|| % |
|Operating Earnings (Loss):|
|Legal Settlement Administration||5,700||14||%||16,530||26||%||10,667||13||%||28,543||24||%|
|Unallocated corporate and shared costs and credits, net||53||-||%||(3,333||)||(1||)%||(1,690||)||-||%||(5,630||)||(1||)%|
|Consolidated Operating Earnings||20,920||7||%||30,365||10||%||34,981||6||%||48,355||8||%|
|Net corporate interest expense||(1,551||)||(1||)%||(1,600||)||(1||)%||(2,852||)||(1||)%||(3,243||)||(1||)%|
|Stock option expense||(202||)||-||%||(293||)||-||%||(496||)||-||%||(373||)||-||%|
|Net (income) loss attributable to non-controlling interests||(130||)||-||%||140||-||%||(64||)||-||%||198||-||%|
|Net income attributable to shareholders of Crawford & Company||$||10,464||4||%||$||17,008||6||%||$||17,116||3||%||$||26,747||5||%|
Further information regarding the Company's financial position, operating results, and cash flows for the quarter and six months ended June 30, 2014 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 (based on annual revenues) 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 SolutionSM 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 non-voting CRDA than on the voting CRDB, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRDA must receive the same type and amount of consideration as holders of CRDB, unless different consideration is approved by the holders of 75% of CRDA, voting as a class.
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.
|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.
Exhibit 99.1 Press Release dated August 4, 2014