Date: November 6, 2014
From: Jeffrey T. Bowman
Chief Executive Officer
Crawford & Company Reports 2014 Third Quarter Results
Company Revises 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 third quarter ended September 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.
Third quarter 2014 consolidated revenues before reimbursements totaled $293.8 million, compared with $293.3 million for 2013. Third quarter 2014 net income attributable to shareholders of Crawford & Company was $10.2 million, compared with net income of $13.4 million in the third quarter of 2013. Third quarter 2014 diluted earnings per share were $0.19 for CRDA and $0.17 for CRDB, compared with diluted earnings per share of $0.25 for CRDA and $0.24 for CRDB in the prior year quarter.
Consolidated operating earnings, a non-GAAP financial measure, totaled $22.9 million in the 2014 third quarter, compared with $26.3 million in the 2013 third quarter.
Balance Sheet and Cash Flow
Crawford & Company's consolidated cash and cash equivalents position as of September 30, 2014 totaled $44.7 million compared with $76.0 million at December 31, 2013 and $51.1 million at September 30, 2013.
The Company used $44.2 million of cash in operations during the first nine months of 2014, compared with $9.5 million used during the first nine months of 2013. The increase in cash used in operating activities in the first nine months of 2014 compared with the first nine months of 2013 was primarily due to lower net income, an increase in billed and unbilled accounts receivable, an increase in payments for incentive compensation, defined benefit plans and defined contribution plans, and an increase in prepaid expenses and other current assets. 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.
Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, "Our third quarter 2014 revenues were flat with last year as new business in specialty markets overseas and Broadspire replaced declines in claims volume in the Americas, and the runoff of a special project within Legal Settlement Administration. Consolidated net income for the quarter reflected lower operating earnings in our Legal Settlement Administration and Americas segments and higher selling, general, and administrative costs that were partially offset by improvement in Broadspire's operating results. In addition, we saw a higher effective tax rate during the current quarter.
"During the 2014 third quarter, the Americas' operating performance declined from the prior-year period, as the 2013 period benefited from significant weather-related claims activity in the Canadian market. While Americas' segment operating earnings were down during the third quarter of 2014 as compared to the 2013 period, we have seen strong growth in our Contractor Connection operations in both the U.S. and Canada on a year-to-date basis.
"Our EMEA/AP segment operating results were flat as compared with the 2013 period, reflecting a relatively benign global claims environment as a result of fewer weather-related events. In addition, during the current quarter results were affected by continued investments in our specialty markets operations. We expect to continue to invest in this new product line through the remainder of 2014.
"Broadspire's third quarter 2014 operating performance showed a significant improvement over the 2013 period in both revenue gains and operating profitability. For the year-to-date period, Broadspire's operating earnings were up over 100% as compared to the 2013 period. We remain pleased with the progress being made in these operations.
"Results from our Legal Settlement Administration segment during the third quarter of 2014 continued to include activity from the Deepwater Horizon class action settlement, which is now in its fourth year, but anticipated slowing of volumes associated with this project and a few other large projects impacted results in the current quarter. These trends are expected to continue through the remainder of 2014 as compared to 2013 levels."
Mr. Bowman concluded, "We continue to drive our Company to create long-term shareholder value and remain focused on achieving our core strategic objectives. While there are a number of areas in which the Company is performing well, relatively weak overall global claim volumes remain a headwind for us. Therefore, based on our outlook for the remainder of this year, we are reducing our annual guidance for 2014."
Americas revenues before reimbursements were $92.2 million in the third quarter of 2014, decreasing from $95.9 million in the 2013 third 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 third quarter of 2014 compared with the prior year period by approximately 2%. Operating earnings were $7.0 million in the 2014 third quarter, compared with $9.7 million in the 2013 third quarter, representing an operating margin of 8%and10% in the 2014 and 2013 periods, respectively.
Third quarter 2014 revenues before reimbursements for the EMEA/AP segment totaled $86.2 million, compared with $84.0 million in the 2013 third quarter. Changes in foreign exchange rates favorably impacted revenues in this segment by approximately 4% in the third quarter of 2014 compared with the prior year period. EMEA/AP operating earnings were $4.2 million in the 2014 third quarter, compared with 2013 third quarter operating earnings of $4.3 million. The segment operating margin was unchanged at 5%.
Broadspire segment revenues before reimbursements were $68.2 million in the 2014 third quarter, up from $63.3 million in the 2013 third quarter. Broadspire recorded operating earnings of $4.4 million in the 2014 third quarter, representing an operating margin of 6%, compared with $1.9 million, or 3% of revenues, in the 2013 third quarter.
Legal Settlement Administration
Legal Settlement Administration revenues before reimbursements were $47.2 million in the 2014 third quarter, compared with $50.1 million in the 2013 third quarter. Operating earnings were $7.7 million in the 2014 third quarter, compared with $10.2 million in the 2013 third quarter, with the related operating margin decreasing from 20% in the 2013 period to 16% in the 2014 period. At September 30, 2014 there was a backlog of projects awarded totaling approximately $89.0 million, compared with $117.0 million at September 30, 2013.
Based on year-to-date results and current expectations, Crawford & Company is revising its guidance range for the full year 2014 as follows:
- Consolidated revenues before reimbursements between $1.12 and $1.14 billion;
- Consolidated operating earnings between $74.5 and $82.5 million;
- Consolidated cash provided by operating activities between $35.0 and $45.0 million;
- Consolidated net income attributable to shareholders of Crawford & Company between $38.0 and $42.5 million;
- Diluted earnings per share of $0.71 to $0.81 for CRDA; and
- Diluted earnings per share of $0.65 to $0.75 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. The Thailand flooding claims project within the EMEA/AP segment is substantially complete, and the Legal Settlement Administration projects continue to wind down. Revenues, and related operating earnings, from the Legal Settlement Administration projects, have reduced from prior periods, and we expect them to continue to be at a reduced rate through the remainder of 2014. 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.
Crawford & Company's management will host a conference call with investors on Thursday, November 6, 2014 at 3:00 p.m. EST to discuss third quarter 2014 results. The call will be recorded and available for replay through December 6, 2014. You may dial 1-855-859-2056 (404-537-3406 international) to listen to the replay. The access code is 23943881. 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 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||Nine months ended|
|September 30, 2014||% Margin||September 30, 2013||% Margin||September 30, 2014||% Margin||September 30, 2013|| %|
|Legal Settlement Administration||7,668||16||%||10,171||20||%||18,335||14||%||38,714||23||%|
|Unallocated corporate and shared costs and credits, net||(500||)||-||%||275||-||%||(2,190||)||-||%||(5,355||)||(1||)%|
|Consolidated Operating Earnings||22,851||8||%||26,320||9||%||57,832||7||%||74,675||8||%|
|Net corporate interest expense||(1,680||)||(1||)%||(1,519||)||(1||)%||(4,532||)||(1||)%||(4,762||)||(1||)%|
|Stock option expense||(184||)||-||%||(279||)||-||%||(680||)||-||%||(652||)||-||%|
|Net income attributable to non-controlling interests||(8||)||-||%||(303||)||-||%||(72||)||-||%||(105||)||-||%|
|Net income attributable to shareholders of Crawford & Company||$||10,192||3||%||$||13,405||5||%||$||27,308||3||%||$||40,152||5||%|
Further information regarding the Company's financial position, operating results, and cash flows for the quarter and nine months ended September 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.
Crawford 3Q 2014 Earnings Release
Exhibit 99.1 Press Release dated November 6, 2014