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Crawford & Company Reports 2019 Third Quarter Results

NET INCOME UP SIGNIFICANTLY IN THIRD QUARTER

COMPANY ADJUSTS 2019 GUIDANCE

ATLANTA, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Crawford & Company (www.crawco.com) (NYSE:  CRD-A  and CRD-B), the world’s largest publicly listed independent provider of claims management and outsourcing solutions to insurance companies and self-insured entities, today announced its financial results for the third quarter ended September 30, 2019.

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 (CRD-A) than on the voting Class B Common Stock (CRD-B), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRD-A must receive the same type and amount of consideration as holders of CRD-B, unless different consideration is approved by the holders of 75% of CRD-A, voting as a class.

GAAP Consolidated Results Third Quarter 2019

  • Revenues before reimbursements of $254.7 million, compared with $255.0 million for the 2018 third quarter
     
  • Net income attributable to shareholders of $11.0 million, compared to $7.9 million in the same period last year
     
  • Diluted earnings per share of $0.21 for CRD-A and $0.19 for CRD-B, compared with $0.15 for CRD-A and $0.13 for CRD-B in the prior year third quarter

Non-GAAP Consolidated Results Third Quarter 2019

Non-GAAP results for 2019 have been presented on a constant dollar basis to 2018 and excluding the pretax arbitration and claim settlements of $1.2 million in the 2019 period. Non-GAAP consolidated results for the 2018 quarter exclude the loss on disposition of business line.

  • Revenues before reimbursements, on a non-GAAP basis, of $262.0 million, increasing 2.7% compared with $255.0 million for the 2018 third quarter
     
  • Net income attributable to shareholders, on a non-GAAP basis, totaled $12.1 million in the 2019 third quarter, up compared to $8.8 million in the same period last year
     
  • Diluted earnings per share, on a non-GAAP basis, of $0.23 for CRD-A and $0.21 for CRD-B in the 2019 third quarter, up from $0.17 for CRD-A and $0.15 for CRD-B in the prior year third quarter
     
  • Consolidated adjusted operating earnings, on a non-GAAP basis, were $24.0 million, or 9.2% of non-GAAP revenues, in the 2019 third quarter, up compared with $16.5 million, or 6.5% of revenues, in the 2018 third quarter
     
  • Consolidated adjusted EBITDA, a non-GAAP financial measure, was $32.5 million, or 12.4% of non-GAAP revenues, in the 2019 third quarter, up compared with $25.5 million, or 10.0% of revenues, in the 2018 period

Management Comments

Mr. Harsha V. Agadi, president and chief executive officer of Crawford & Company, stated, “For the 2019 third quarter, on a constant currency basis, we delivered 2.7% revenue growth and solid margin expansion, demonstrating an improving trend from the second quarter’s result. The velocity of new business wins across the Company, globally, continues to build as our investments in technology and new client solutions are resonating in the market. While I am excited with our new client wins and pace of business, our results are being impacted by more benign weather in the third quarter, continuing into the fourth quarter, and a slower than expected revenue ramp by new clients. While I am disappointed with the reduction in our full year 2019 guidance, I remain confident that our goal of delivering 5% revenue growth and 15% earnings growth, annually, is achievable in the medium-term.

As we have previously mentioned, the strategic investments that we have made in our sales teams to drive market share and in new product development to access large untapped markets continues to drive momentum in our business as can be seen in our new client wins where we have signed $85.1 million in annual revenue value, year to date, which provides solid visibility to future revenue and profit growth. As an example, our TPA segment has won 76 new clients through September with an estimated $32 million of revenue annually, which is only in the early stages of ramping up. We were also pleased with the new client wins in our Contractor Connection business where we entered agreements with major carriers in the U.S. and the U.K. during the quarter and also initiated a pilot program with a major Canadian carrier.

Weather has been a factor this quarter as global insured losses from catastrophes are estimated to be less that 50% of the level reported in the year ago third quarter. A clear focus of our management team is to reduce our reliance on severe weather in an effort to deliver more predictable financial results. To that end, we are focused on handling small and medium carriers’ claims on an outsourced basis which represents a large and untapped market opportunity and will ultimately increase the predictability of our revenues and cash flow. Claims management is our expertise, and we can offer an industry-leading end-to-end solution at a more effective cost to the client. Early signs of our success can be seen in our CCS segment where we onboarded a number of U.S. and U.K. carriers during the third quarter.

Another priority for our management team is the continued improvement in our cash generation while maintaining our expense discipline. Through the third quarter, we generated a $38.9 million improvement in free cash flow compared to the 2018 year to date period. We have been using this cash flow in part to strengthen our balance sheet and our leverage ratio of net funded debt to EBITDA is now below 1.5x. We have also been using our cash flow to buy back our shares as we continue to see our share price as very attractive. In the third quarter, we repurchased approximately 633 thousand shares for an average price of $9.62. Year to date, we have repurchased approximately 2.8 million shares, at an average price of $9.23.”

Mr. Agadi concluded, “While I am disappointed to be reducing our outlook for the remainder of the year, I am more confident than ever that our goal of delivering 5% revenue growth and 15% earnings growth, annually, is in sight.  Our new business wins and growing client revenue value provide visibility to improving financial results as we look to 2020. Additionally, our clients are seeing the many benefits that we can provide and are beginning to outsource large portions of their claims to Crawford which is an exciting growth opportunity that will ultimately help fuel our growth and reduce our reliance on severe weather.”

Segment Results for the Third Quarter

Crawford TPA Solutions

Crawford TPA Solutions segment revenues before reimbursements were $99.5 million in the 2019 third quarter, decreasing from $100.3 million in the 2018 third quarter. Absent foreign exchange rate fluctuations, revenues were $100.7 million, up from the prior year third quarter. Changes in foreign exchange rates resulted in a decrease in revenues of 1.2%, or $1.2 million, for the three months ended September 30, 2019, as compared with the 2018 period.

Excluding centralized indirect support costs, gross profit increased to $26.7 million, or a gross margin of 26.8% in 2019 from $26.5 million, or a gross margin of 26.5% in 2018, with slightly lower direct expenses as a percentage of revenues. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $9.3 million in the third quarter of 2019 representing an operating margin of 9.4% compared with $8.1 million, or 8.0% of revenues, in the 2018 third quarter.

Crawford Claims Solutions

Crawford Claims Solutions revenues before reimbursements were $86.3 million in the third quarter of 2019, increasing from $85.3 million in the third quarter of 2018 due to new clients in the U.S. and increases in the U.K. and Australia. Absent foreign currency rate fluctuations, third quarter 2019 revenues were $89.8 million up 5.3% from prior year third quarter.

Excluding centralized indirect support costs, gross profit increased to $19.8 million, or a gross margin of 22.9% in 2019 from $17.7 million, or a gross margin of 20.7% in 2018, due to an increase in new clients and expense reductions. After the allocation of indirect costs, operating earnings were $2.7 million in the 2019 third quarter compared with operating loss of $(0.1) million in the third quarter of 2018. These results represent an operating margin of 3.1% in the 2019 quarter and (0.2)% in the 2018 quarter.

Crawford Specialty Solutions

Crawford Specialty Solutions revenues before reimbursements were $68.9 million in the third quarter of 2019, down from $69.4 million in the same period of 2018. Absent foreign exchange rate fluctuations, revenues would have been $71.5 million for the three months ended September 30, 2019, increasing 3% over prior year revenues of $69.4 million. Changes in foreign exchange rates resulted in a decrease in revenues by 3.7%, or $2.6 million for the three months ended September 30, 2019, as compared with the 2018 period.

Excluding indirect support costs, gross profit decreased to $24.8 million, or a gross margin of 36.0%, in 2019 from $25.9 million, or a gross margin of 37.3%, in 2018, due to increased headcount to support client growth. After allocation of indirect costs, operating earnings were $13.3 million in the 2019 third quarter compared with $14.4 million in the 2018 period. The segment’s operating margin for the 2019 quarter was 19.3% as compared to 20.7% in the 2018 quarter.

Unallocated Corporate and Shared Costs and Credits, Net

Unallocated corporate costs, net were $1.6 million in the third quarter of 2019, compared with $5.8 million in the same period of 2018. The decrease for the three months ended September 30, 2019 was due to decreases in professional fees, self-insurance expense and other administrative costs, partially offset by an increase in defined benefit pension expense.

Arbitration and Claim Settlements

During the three months ended June 30, 2019, the Company recognized pretax charges in the amount of $11.4 million, or $0.15 per share after income taxes, related to an arbitration panel award to three of the four former executives of the Company's former Garden City Group associated with their departure from that company on December 31, 2015. During the three months ended September 30, 2019, the Company received a claim from the fourth former executive of the Garden City Group, which was settled for $1.2 million. The total expense for the nine months ended September 30, 2019 of $12.6 million, is classified as "Arbitration and claim settlements" on the Company's unaudited Condensed Consolidated Statements of Operations.

Balance Sheet and Cash Flow

The Company’s consolidated cash and cash equivalents position as of September 30, 2019, totaled $46.1 million, compared with $53.1 million at December 31, 2018. The Company’s total debt outstanding as of September 30, 2019, totaled $189.4 million, compared with $190.4 million at December 31, 2018.

The Company’s operations provided $42.3 million of cash during the 2019 period, compared with $16.0 million in the 2018 period. The $26.3 million increase in cash provided by operating activities was primarily due to better accounts receivable management and lower working capital requirements, including the positive cash flow impact of the Garden City Group disposal in June 2018, and a decrease in discretionary U.S. and U.K. pension contributions in 2019 compared to 2018. Free cash flow improved by $38.9 million over 2018 for the nine month period.

As expected, the Company made no contributions to its U.S defined benefit pension plan and $0.5 million to its U.K. plans for the 2019 nine month period, compared with contributions of $19.0 million and $4.2 million, respectively, in the 2018 nine month period.

During the nine months ended September 30, 2019, the Company repurchased 1,103,398 shares of CRD-A and 1,680,377 of CRD-B at an average cost of $9.33 and 9.16 per share, respectively.

2019 Guidance

As a result of benign weather continuing into the fourth quarter and slower than expected revenue contribution from new clients, the Company is adjusting its 2019 guidance as follows:

  • Consolidated revenues before reimbursements between $1.00 and $1.05 billion;
  • Net income attributable to shareholders of Crawford & Company between $32.0 and $35.0 million, or $0.63 to $0.68 diluted earnings per CRD-A share, and $0.55 to $0.60 diluted earnings per CRD-B share;
  • Non-GAAP net income attributable to shareholders of Crawford & Company, before arbitration and claim settlements, between $40.0 and $45.0 million, or $0.80 to $0.85 diluted earnings per CRD-A share, and $0.72 to $0.77 diluted earnings per CRD-B share;
  • Consolidated operating earnings between $82.5 and $87.5 million;
  • Consolidated adjusted EBITDA between $115.0 and $120.0 million.

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.

Conference Call

As previously announced, Crawford & Company will host a conference call on November 5, 2019 at 8:30 a.m. Eastern Time to discuss its third quarter 2019 results. The conference call can be accessed live by dialing 1-800-374-2518 and using Conference ID 8497263. A presentation for tomorrow’s call can also be found on the investor relations portion of the Company’s website, http://www.crawco.com. The call will be recorded and available for replay through December 5, 2019. You may dial 1-855-859-2056 to listen to the replay.

Non-GAAP Presentation

In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under U.S. generally accepted accounting principles (“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 operations.

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, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, loss on disposition of business line, arbitration and claim settlements, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.

Gross profit is defined as revenues less direct expenses which exclude indirect overhead expenses allocated to the business. Indirect expenses consist of centralized administrative support costs, regional and local shared services that are allocated to each segment based on usage.

Adjusted EBITDA is not a term defined by GAAP and as a result our measure of adjusted EBITDA might not be comparable to similarly titled measures used by other companies. However, adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results. The Company believes that adjusted EBITDA is relevant and useful information widely used by analysts, investors and other interested parties. Adjusted EBITDA is defined as net income attributable to shareholders of the Company with recurring adjustments for depreciation and amortization, net corporate interest expense, income taxes and stock-based compensation expense and foreign exchange fluctuations. Additionally, adjustments for non-recurring expenses for arbitration and claim settlements, loss on disposition of business line and the disposed GCG business results have been included in the calculation of adjusted EBITDA.

Unallocated corporate and shared costs and credits include 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, certain unallocated professional fees, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.

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 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 vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, 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.

A significant portion of our operations are international. These international operations subject us to foreign exchange fluctuations. The following table illustrates revenue as a percentage of total revenue for the major currencies of the geographic areas that Crawford does business:

    Three Months Ended   Nine Months Ended
(in thousands) September 30,
 2019
  September 30,
 2018
  September 30,
 2019
  September 30,
 2018
Geographic Area  Currency USD equivalent % of total   USD equivalent % of total   USD equivalent % of total   USD equivalent % of total
U.S. USD $ 146,177   57.4 %   $ 143,144   56.1 %   $ 432,292   57.0 %   $ 466,541   57.8 %
U.K. GBP 30,844   12.1 %   32,631   12.8 %   93,967   12.4 %   97,538   12.0 %
Canada CAD 28,350   11.1 %   29,158   11.4 %   87,037   11.5 %   92,454   11.5 %
Australia AUD 18,648   7.3 %   18,859   7.4 %   54,223   7.1 %   53,838   6.7 %
Europe EUR 13,816   5.4 %   14,034   5.5 %   40,002   5.3 %   42,764   5.3 %
Rest of World Various 16,842   6.6 %   17,203   6.7 %   51,095   6.7 %   54,042   6.7 %
Total Revenues, before reimbursements $ 254,677   100 %   $ 255,029   100 %   $ 758,616   100 %   $ 807,177   100 %
                         
                         

Following is a reconciliation of segment and consolidated operating earnings to net income attributable to shareholders of Crawford & Company on a GAAP basis. The reconciliation of full year 2019 guidance is to the midpoint of the guidance range.

  Three months ended   Nine months ended   Midpoint
(in thousands) September 30, 2019 September 30, 2018   September 30, 2019 September 30, 2018   Guidance 2019
Operating earnings:              
Crawford TPA Solutions $ 9,347   $ 8,055     $ 21,106   $ 24,014      
Crawford Claims Solutions 2,661   (135 )   4,058   5,110      
Crawford Specialty Solutions 13,301   14,363     38,108   34,423      
Unallocated corporate and shared costs, net (1,649 ) (5,798 )   (2,393 ) (7,316 )    
Consolidated operating earnings 23,660   16,485     60,879   56,231     $ 85,000  
(Deduct) Add:              
Net corporate interest expense (3,162 ) (2,398 )   (8,346 ) (7,402 )   (10,800 )
Stock option expense (450 ) (393 )   (1,348 ) (1,355 )   (1,900 )
Amortization expense (2,829 ) (2,786 )   (8,429 ) (8,342 )   (11,200 )
Arbitration and claim settlements (1,200 )     (12,552 )     (12,552 )
Loss on disposition of business line   (1,201 )     (18,996 )    
Income taxes (5,328 ) (1,828 )   (11,120 ) (6,255 )   (16,000 )
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests 355   17     713   159     952  
Net income attributable to shareholders of Crawford & Company $ 11,046   $ 7,896     $ 19,797   $ 14,040     $ 33,500  
               
               

Following is a reconciliation of net income attributable to shareholders of Crawford & Company on a GAAP basis to non-GAAP adjusted EBITDA. The reconciliation of full year 2019 guidance is to the midpoint of the guidance range.

  Three months ended   Nine months ended   Midpoint
(in thousands) September 30, 2019 September 30, 2018   September 30, 2019 September 30, 2018   Guidance 2019
Net income attributable to shareholders of Crawford & Company $ 11,046   $ 7,896     $ 19,797   $ 14,040     $ 33,500  
Add (Deduct):              
Depreciation and amortization 10,236   10,644     30,086   33,284     40,648  
Stock-based compensation 1,211   1,483     2,610   4,838     4,000  
Net corporate interest expense 3,162   2,398     8,346   7,402     10,800  
Arbitration and claim settlements 1,200       12,552       12,552  
Loss on disposition of business line   1,201       18,996      
Income taxes 5,328   1,828     11,120   6,255     16,000  
Foreign exchange fluctuations 272       816        
Removal of the impact of the disposed GCG business         1,007      
Non-GAAP adjusted EBITDA $ 32,455   $ 25,450     $ 85,327   $ 85,822     $ 117,500  
               
               

Following is a reconciliation of operating cash flow to free cash flow for the nine months ended September 30, 2019 and September 30, 2018:

Nine Months Ended
(in thousands) September 30, 2019   September 30, 2018   Change
Net Cash Provided by Operating Activities $ 42,325     $ 16,027     $ 26,298  
Less:          
Property & Equipment Purchases, net (5,664 )   (12,406 )   6,742  
Capitalized Software (internal and external costs) (7,276 )   (13,098 )   5,822  
Free Cash Flow $ 29,385     $ (9,477 )   $ 38,862  
           
           

Following are the reconciliations of GAAP Revenue, Operating Earnings, Pretax Earnings, Net Income and Earnings Per Share to related non-GAAP Adjusted figures, which reflect 2019 on a constant dollar basis before arbitration and claim settlements and exclude the results of the disposal of the GCG business and the loss on disposition of business line for the three and nine months ended September 30, 2018.

Three months ended September 30, 2019
(in thousands) Revenues Non-GAAP Operating earnings Pretax earnings Net income attributable to Crawford & Company Diluted earnings per CRD-A share Diluted earnings per CRD-B share
GAAP $ 254,677   $ 23,660   $ 16,019   $ 11,046   $ 0.21   $ 0.19  
Adjustments:            
Arbitration and claim settlements     1,200   887   0.02   0.02  
Foreign exchange fluctuations 7,322   347   272   214      
Non-GAAP Adjusted $ 261,999   $ 24,007   $ 17,491   $ 12,147   $ 0.23   $ 0.21  
             


Three months ended September 30, 2018
(in thousands) Revenues Non-GAAP Operating earnings Pretax earnings Net income attributable to Crawford & Company Diluted earnings per CRD-A share Diluted earnings per CRD-B share
GAAP $ 255,029   $ 16,485   $ 9,707   $ 7,896   $ 0.15   $ 0.13  
Adjustments:            
Loss on disposition of business line, net of tax of $303     1,201   898   0.02   0.02  
Non-GAAP Adjusted $ 255,029   $ 16,485   $ 10,908   $ 8,794   $ 0.17   $ 0.15  
             


Nine months ended September 30, 2019
(in thousands) Revenues Non-GAAP Operating earnings Pretax earnings Net income attributable to Crawford & Company Diluted earnings per CRD-A share Diluted earnings per CRD-B share
GAAP $ 758,616   $ 60,878   $ 30,204   $ 19,797   $ 0.39   $ 0.33  
Adjustments:            
Arbitration and claim settlements     12,552   9,276   0.17   0.17  
Foreign exchange impacts 19,501   939   816   463   0.01   0.01  
Non-GAAP Adjusted $ 778,117   $ 61,817   $ 43,572   $ 29,536   $ 0.57   $ 0.51  
             


Nine months ended September 30, 2018
(in thousands) Revenues Non-GAAP Operating earnings Pretax earnings Net income attributable to Crawford & Company Diluted earnings per CRD-A share Diluted earnings per CRD-B share
GAAP $ 807,177   $ 56,231   $ 20,136   $ 140,040   $ 0.28   $ 0.22  
Adjustments:            
Loss on disposition of business line, net of tax of $4,796     18,996   14,200   0.25   0.25  
GCG business results (29,875 ) 3,935   3,932   2,670   0.05   0.05  
Retained corporate overhead charged to GCG   (2,925 ) (2,925 ) (1,986 ) (0.04 ) (0.04 )
Non-GAAP Adjusted $ 777,302   $ 57,241   $ 40,139   $ 154,924   $ 0.54   $ 0.48  
             
             

Following is information regarding the weighted average shares used in the computation of basic and diluted earnings per share.

  Three months ended Nine months ended
(in thousands) September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Weighted-Average Shares Used to Compute Basic Earnings Per Share:        
Class A Common Stock 30,645   30,713   30,701   30,829  
Class B Common Stock 22,831   24,446   23,071   24,455  
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:        
Class A Common Stock 31,140   31,390   31,116   31,451  
Class B Common Stock 22,831   24,446   23,071   24,455  
         
         

Further information regarding the Company’s operating results for the quarter and nine months ended September 30, 2019, and financial position as of September 30, 2019, and cash flows for the nine months ended September 30, 2019 is shown on the attached unaudited condensed consolidated financial statements.

About Crawford & Company

Based in Atlanta, Georgia, Crawford & Company (www.crawco.com) is the world's largest publicly listed independent provider of claims management and outsourcing 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 Company’s shares are traded on the NYSE under the symbols CRD-A and CRD-B. 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 than on the voting 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.

Earnings per share may be different between CRD-A and CRD-B due to the payment of a higher per share dividend on CRD-A than CRD-B, and the impact that has on the earnings per share calculation according to generally accepted accounting principles.

FOR FURTHER INFORMATION REGARDING THIS PRESS RELEASE, PLEASE CALL BRUCE SWAIN AT (404) 300-1051.

This press release contains forward-looking statements, including statements about the expected future 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 and in the Investor Relations section of Crawford & Company’s website at www.crawco.com.
 

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)

Three Months Ended September 30, 2019   2018   % Change
           
Revenues:          
Revenues Before Reimbursements $ 254,677     $ 255,029     %
Reimbursements 11,165     9,834     14 %
Total Revenues 265,842     264,863     %
           
Costs and Expenses:          
Costs of Services Provided, Before Reimbursements 180,849     179,238     1 %
Reimbursements 11,165     9,834     14 %
Total Costs of Services 192,014     189,072     2 %
           
Selling, General, and Administrative Expenses 52,564     63,247     (17 )%
Corporate Interest Expense, Net 3,162     2,398     32 %
Arbitration and claim settlements 1,200         nm  
Loss on Disposition of Business Line     1,201     nm  
Total Costs and Expenses 248,940     255,918     (3 )%
           
Other (Expense) Income (883 )   762     (216 )%
           
Income Before Income Taxes 16,019     9,707     65 %
Provision for Income Taxes 5,328     1,828     191 %
           
Net Income 10,691     7,879     36 %
           
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests 355     17     1,988 %
           
Net Income Attributable to Shareholders of Crawford & Company $ 11,046     $ 7,896     40 %
           
Earnings Per Share - Basic:          
Class A Common Stock $ 0.22     $ 0.15     47 %
Class B Common Stock $ 0.19     $ 0.13     46 %
           
Earnings Per Share - Diluted:          
Class A Common Stock $ 0.21     $ 0.15     40 %
Class B Common Stock $ 0.19     $ 0.13     46 %
           
Cash Dividends Per Share:          
Class A Common Stock $ 0.07     $ 0.07     %
Class B Common Stock $ 0.05     $ 0.05     %
           

nm = not meaningful

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)

Nine Months Ended September 30, 2019   2018   % Change
           
Revenues:          
Revenues Before Reimbursements $ 758,616     $ 807,177     (6 )%
Reimbursements 31,449     41,282     (24 )%
Total Revenues 790,065     848,459     (7 )%
           
Costs and Expenses:          
Costs of Services Provided, Before Reimbursements 533,664     574,380     (7 )%
Reimbursements 31,449     41,282     (24 )%
Total Costs of Services 565,113     615,662     (8 )%
           
Selling, General, and Administrative Expenses 171,407     188,907     (9 )%
Corporate Interest Expense, Net 8,346     7,402     13 %
Arbitration and claim settlements 12,552         nm  
Loss on Disposition of Business line     18,996     nm  
Total Costs and Expenses 757,418     830,967     (9 )%
           
Other (Expense) Income (2,443 )   2,644     (192 )%
           
Income Before Income Taxes 30,204     20,136     50 %
Provision for Income Taxes 11,120     6,255     78 %
           
Net Income 19,084     13,881     37 %
           
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests 713     159     348 %
           
Net Income Attributable to Shareholders of Crawford & Company $ 19,797     $ 14,040     41 %
           
Earnings Per Share - Basic:          
Class A Common Stock $ 0.39     $ 0.28     39 %
Class B Common Stock $ 0.33     $ 0.22     50 %
           
Earnings Per Share - Diluted:          
Class A Common Stock $ 0.39     $ 0.28     39 %
Class B Common Stock $ 0.33     $ 0.22     50 %
           
Cash Dividends Per Share:          
Class A Common Stock $ 0.21     $ 0.21     %
Class B Common Stock $ 0.15     $ 0.15     %
           

nm = not meaningful

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2019 and December 31, 2018
Unaudited
(In Thousands, Except Par Values)

  September 30,   December 31,
  2019   2018
ASSETS      
       
Current Assets:      
Cash and Cash Equivalents $ 46,101     $ 53,119  
Accounts Receivable, Net 131,329     131,117  
Unbilled Revenues, at Estimated Billable Amounts 115,672     108,291  
Income Taxes Receivable 4,084     4,084  
Prepaid Expenses and Other Current Assets 24,253     24,237  
Total Current Assets 321,439     320,848  
       
Net Property and Equipment 32,035     34,303  
       
Other Assets:      
Operating Lease Right-of-Use Asset, Net 93,610      
Goodwill 97,152     96,890  
Intangible Assets Arising from Business Acquisitions, Net 76,529     85,023  
Capitalized Software Costs, Net 66,352     72,210  
Deferred Income Tax Assets 19,687     22,146  
Other Noncurrent Assets 68,687     70,022  
Total Other Assets 422,017     346,291  
       
Total Assets $ 775,491     $ 701,442  
       
LIABILITIES AND SHAREHOLDERS’ INVESTMENT      
       
Current Liabilities:      
Short-Term Borrowings $ 33,606     $ 23,195  
Accounts Payable 31,178     37,834  
Operating Lease Liability 30,073      
Accrued Compensation and Related Costs 66,559     66,530  
Self-Insured Risks 14,873     15,246  
Income Taxes Payable 2,236     3,145  
Deferred Rent     15,919  
Other Accrued Liabilities 37,242     32,391  
Deferred Revenues 29,007     30,961  
Current Installments of Finance Leases 13     89  
Total Current Liabilities 244,787     225,310  
       
Noncurrent Liabilities:      
Long-Term Debt and Finance Leases, Less Current Installments 155,761     167,126  
Operating Lease Liability 78,371      
Deferred Revenues 23,839     21,713  
Accrued Pension Liabilities 71,093     74,323  
Other Noncurrent Liabilities 29,761     32,024  
Total Noncurrent Liabilities 358,825     295,186  
       
Redeemable Noncontrolling Interests 4,846     5,500  
       
Shareholders’ Investment:      
Class A Common Stock, $1.00 Par Value 30,420     30,927  
Class B Common Stock, $1.00 Par Value 22,727     24,408  
Additional Paid-in Capital 62,716     58,793  
Retained Earnings 260,621     273,607  
Accumulated Other Comprehensive Loss (212,122 )   (216,447 )
Shareholders’ Investment Attributable to Shareholders of Crawford & Company 164,362     171,288  
Noncontrolling Interests 2,671     4,158  
Total Shareholders’ Investment 167,033     175,446  
       
Total Liabilities and Shareholders’ Investment $ 775,491     $ 701,442  
               

CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT COMPENSATION AND OTHER EXPENSES
Unaudited
(In Thousands, Except Percentages)

Three Months Ended September 30,

  Crawford TPA Solutions % Crawford Claims Solutions % Crawford Specialty Solutions %
  2019 2018 Change 2019 2018 Change 2019 2018 Change
                   
Revenues Before Reimbursements $ 99,495   $ 100,271   (0.8 )% $ 86,250   $ 85,332   1.1 % $ 68,932   $ 69,426   (0.7 )%
                   
Direct Compensation, Fringe Benefits & Non-Employee Labor 58,594   59,146   (0.9 )% 56,985   56,306   1.2 % 35,993   34,758   3.6 %
% of Revenues Before Reimbursements 58.9 % 59.0 %   66.1 % 66.0 %   52.2 % 50.1 %  
                   
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor 31,554   33,070   (4.6 )% 26,604   29,161   (8.8 )% 19,638   20,305   (3.3 )%
% of Revenues Before Reimbursements 31.7 % 33.0 %   30.8 % 34.2 %   28.5 % 29.2 %  
                   
Total Operating Expenses 90,148   92,216   (2.2 )% 83,589   85,467   (2.2 )% 55,631   55,063   1.0 %
                   
Operating Earnings (1) $ 9,347   $ 8,055   16.0 % $ 2,661   $ (135 ) (2,071.1 )% $ 13,301   $ 14,363   (7.4 )%
% of Revenues Before Reimbursements 9.4 % 8.0 %   3.1 % (0.2 )%   19.3 % 20.7 %  

Nine Months Ended September 30,

  Crawford TPA Solutions % Crawford Claims Solutions % Crawford Specialty Solutions %
  2019 2018 Change 2019 2018 Change 2019 2018 Change
                   
Revenues Before Reimbursements $ 296,807   $ 303,152   (2.1 )% $ 255,572   $ 268,888   (5.0 )% $ 206,237   $ 235,137   (12.3 )%
                   
Direct Compensation, Fringe Benefits & Non-Employee Labor 177,911   177,706   0.1 % 168,951   176,778   (4.4 )% 106,003   120,821   (12.3 )%
% of Revenues Before Reimbursements 59.9 % 58.6 %   66.1 % 65.7 %   51.4 % 51.4 %  
                   
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor 97,790   101,432   (3.6 )% 82,563   87,000   (5.1 )% 62,126   79,893   (22.2 )%
% of Revenues Before Reimbursements 32.9 % 33.5 %   32.3 % 32.4 %   30.1 % 34.0 %  
                   
Total Operating Expenses 275,701   279,138   (1.2 )% 251,514   263,778   (4.6 )% 168,129   200,714   (16.2 )%
                   
Operating Earnings (1) $ 21,106   $ 24,014   (12.1 )% $ 4,058   $ 5,110   (20.6 )% $ 38,108   $ 34,423   10.7 %
% of Revenues Before Reimbursements 7.1 % 7.9 %   1.6 % 1.9 %   18.5 % 14.6 %  
                               

(1) A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, loss on disposition of business line, arbitration and claim settlements, and certain unallocated corporate and shared costs and credits. See pages 5-7 for additional information about segment operating earnings.

CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT AND INDIRECT COSTS
Unaudited
(In Thousands, Except Percentages)

Three Months Ended September 30,

  Crawford TPA Solutions % Crawford Claims Solutions % Crawford Specialty Solutions %
  2019 2018 Change 2019 2018 Change 2019 2018 Change
                   
Revenues Before Reimbursements $ 99,495   $ 100,271   (0.8 )% $ 86,250   $ 85,332   1.1 % $ 68,932   $ 69,426   (0.7 )%
                   
Direct Expense 72,785   73,738   (1.3 )% 66,498   67,635   (1.7 )% 44,130   43,503   1.4 %
% of Revenues Before Reimbursements 73.2 % 73.5 %   77.1 % 79.3 %   64.0 % 62.7 %  
                   
Segment Gross Profit 26,710   26,533   0.7 % 19,752   17,697   11.6 % 24,802   25,923   (4.3 )%
% of Revenues Before Reimbursements 26.8 % 26.5 %   22.9 % 20.7 %   36.0 % 37.3 %  
                   
Indirect Costs 17,363   18,478   (6.0 )% 17,091   17,832   (4.2 )% 11,501   11,560   (0.5 )%
% of Revenues Before Reimbursements 17.5 % 18.4 %   19.8 % 20.9 %   16.7 % 16.7 %  
                   
Operating Earnings (1) $ 9,347   $ 8,055   16.0 % $ 2,661   $ (135 ) (2,071.1 )% $ 13,301   $ 14,363   (7.4 )%
% of Revenues Before Reimbursements 9.4 % 8.0 %   3.1 % (0.2 )%   19.3 % 20.7 %  

Nine Months Ended September 30,

  Crawford TPA Solutions % Crawford Claims Solutions % Crawford Specialty Solutions %
  2019 2018 Change 2019 2018 Change 2019 2018 Change
                   
Revenues Before Reimbursements $ 296,807   $ 303,152   (2.1 )% $ 255,572   $ 268,888   (5.0 )% $ 206,237   $ 235,137   (12.3 )%
                   
Direct Expense 220,956   223,681   (1.2 )% 199,190   211,725   (5.9 )% 133,771   155,583   (14.0 )%
% of Revenues Before Reimbursements 74.4 % 73.8 %   77.9 % 78.7 %   64.9 % 66.2 %  
                   
Segment Gross Profit 75,851   79,471   (4.6 )% 56,382   57,163   (1.4 )% 72,466   79,554   (8.9 )%
% of Revenues Before Reimbursements 25.6 % 26.2 %   22.1 % 21.3 %   35.1 % 33.8 %  
                   
Indirect Costs 54,745   55,457   (1.3 )% 52,324   52,053   0.5 % 34,358   45,131   (23.9 )%
% of Revenues Before Reimbursements 18.4 % 18.3 %   20.5 % 19.4 %   16.7 % 19.2 %  
                   
Operating Earnings (1) $ 21,106   $ 24,014   (12.1 )% $ 4,058   $ 5,110   (20.6 )% $ 38,108   $ 34,423   10.7 %
% of Revenues Before Reimbursements 7.1 % 7.9 %   1.6 % 1.9 %   18.5 % 14.6 %  
                               

(1) A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, loss on disposition of business line, arbitration and claim settlements and certain unallocated corporate and shared costs and credits. See pages 5-7  for additional information about segment operating earnings.

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2019 and September 30, 2018
Unaudited
(In Thousands)

    2019   2018
Cash Flows From Operating Activities:        
Net Income   $ 19,084     $ 13,881  
Reconciliation of Net Income to Net Cash Provided by Operating Activities:        
Depreciation and Amortization   30,086     33,284  
Stock-Based Compensation Costs   2,610     4,838  
Loss on Disposition of Business Line       18,996  
Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions:        
Accounts Receivable, Net   1,108     12,811  
Unbilled Revenues, Net   (8,740 )   (26,156 )
Accrued or Prepaid Income Taxes   443     788  
Accounts Payable and Accrued Liabilities   (4,361 )   (10,665 )
Deferred Revenues   514     (2,068 )
Accrued Retirement Costs   1,545     (26,486 )
Prepaid Expenses and Other Operating Activities   36     (3,196 )
Net Cash Provided by Operating Activities   42,325     16,027  
         
Cash Flows From Investing Activities:        
Acquisitions of Property and Equipment   (5,664 )   (12,406 )
Cash Proceeds from Disposition of Business Line       40,275  
Capitalization of Computer Software Costs   (7,276 )   (13,098 )
Payments for Business Acquisitions, Net of Cash Acquired   (2,296 )   (2,500 )
Other Investing Activities       (218 )
Net Cash (Used in) Provided by Investing Activities   (15,236 )   12,053  
         
Cash Flows From Financing Activities:        
Cash Dividends Paid   (9,894 )   (10,159 )
Proceeds from Shares Purchased Under Employee Stock-Based Compensation Plans   1,909     1,301  
Repurchases of Common Stock   (25,673 )   (7,715 )
Increases in Short-Term and Revolving Credit Facility Borrowings   65,449     89,554  
Payments on Short-Term and Revolving Credit Facility Borrowings   (64,962 )   (100,895 )
Payments on Finance Lease Obligations   (106 )   (361 )
Dividends Paid to Noncontrolling Interests   (458 )   (349 )
Net Cash Used In Financing Activities   (33,735 )   (28,624 )
         
Effects of Exchange Rate Changes on Cash and Cash Equivalents   (372 )   (128 )
Decrease in Cash and Cash Equivalents   (7,018 )   (672 )
Cash and Cash Equivalents at Beginning of Year   53,119     54,011  
Cash and Cash Equivalents at End of Period   $ 46,101     $ 53,339  
                 

Crawford_2013_287C.jpg

Source: Crawford & Company