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Crawford & Company Reports 2020 Third Quarter Results

Crawford & Company
·26 min read

Weather Related Claims Drive Improvement Over 2019

ATLANTA, Nov. 02, 2020 (GLOBE NEWSWIRE) -- Crawford & Company® (NYSE: CRD-A and CRD-B), the worlds largest publicly listed independent provider of claims management and outsourcing solutions to carriers, brokers and corporates, today announced its financial results for the third quarter ended September 30, 2020.

The Companys two classes of stock are substantially identical, except with respect to voting rights and the Companys 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 2020

  • Revenues before reimbursements of $253.1 million, compared with $254.7 million for the 2019 third quarter

  • Net income attributable to shareholders of $24.4 million, compared with $11.0 million in the same period last year

  • Diluted earnings per share of $0.46 for both CRD-A and CRD-B, compared with $0.21 for CRD-A and $0.19 for CRD-B in the prior year third quarter

Non-GAAP Consolidated Results
Third Quarter 2020

Non-GAAP results for the 2020 third quarter have been presented on a constant dollar basis to 2019 and exclude the non-cash income tax impact of the first quarter 2020 goodwill impairment of $1.9 million and the after-tax gain on disposition of businesses of $11.3 million. Non-GAAP consolidated results for the 2019 quarter exclude arbitration and claim settlements of $0.9 million after tax.

  • Revenues before reimbursements, on a non-GAAP basis, of $255.2 million, compared with $254.7 million for the 2019 third quarter

  • Net income attributable to shareholders, on a non-GAAP basis, totaled $15.2 million in the 2020 third quarter, compared with $11.9 million in the same period last year

  • Diluted earnings per share, on a non-GAAP basis, of $0.29 for both CRD-A and CRD-B in the 2020 third quarter, compared with $0.23 for CRD-A and $0.21 for CRD-B in the prior year third quarter

  • Consolidated adjusted operating earnings, on a non-GAAP basis, were $28.2 million, or 11.1% of non-GAAP revenues, in the 2020 third quarter, compared with $23.7 million, or 9.3% of revenues, in the 2019 third quarter

  • Consolidated adjusted EBITDA, a non-GAAP financial measure, was $35.2 million, or 13.8% of non-GAAP revenues, in the 2020 third quarter, compared with $32.2 million, or 12.6% of revenues, in the 2019 third quarter

Management Comments

Mr. Rohit Verma, chief executive officer of Crawford & Company, stated, Crawford delivered strong third quarter 2020 results that grew sequentially from the second quarter and exceeded third quarter 2019 results. Our results were driven by the strength of our core business and further propelled by the surge in weather-related activity in the U.S. Importantly, we expanded profitability, driving non-GAAP operating earnings to $28.2 million during the quarter. Additionally, we continue to see traction from our large-scale clients and momentum remains strong, winning over $22.5 million of new and enhanced business in the quarter. Our financial position remains very healthy, with operating cash flow up 35% over the prior year-to-date period and net debt at the lowest level since 2013.

Mr. Verma concluded, As we enter the fourth quarter, we remain focused on maintaining our market leadership position through a culture of innovation and unparalleled solutions. Our commitment to our people and service excellence to clients lead our priorities as we carry out our purpose of restoring and enhancing lives, businesses and communities. As a result, we are confident in our financial strength and our ability to deliver superior results for our shareholders over the long term.

Segment Results for the Third Quarter

Crawford Claims Solutions

Crawford Claims Solutions revenues before reimbursements were $98.4 million in the third quarter of 2020, increasing from $86.3 million in the third quarter of 2019. Absent foreign currency rate fluctuations of ($0.9) million, third quarter 2020 revenues would have been $99.2 million, up 15.0% from the prior year third quarter.

Excluding centralized indirect support costs, gross profit increased to $22.7 million, or a gross margin of 23.1% in 2020 from $19.8 million, or a gross margin of 22.9% in 2019. Included in the 2020 third quarter direct costs was a $1.4 million benefit resulting from the Canada Emergency Wage Subsidy. After the allocation of indirect costs, the segment had operating earnings of $7.2 million in the 2020 third quarter increasing over the $2.7 million in the third quarter of 2019. The operating margin was 7.3% in the 2020 quarter and 3.1% in the 2019 quarter.

Crawford Specialty Solutions

Crawford Specialty Solutions revenues before reimbursements were $67.5 million in the third quarter of 2020, down from $68.9 million in the same period of 2019. Absent foreign exchange rate fluctuations of ($0.9) million, revenues would have been $68.5 million for the three months ended September 30, 2020, decreasing 0.6% compared with prior year third quarter revenues.

Excluding centralized indirect support costs, gross profit increased to $28.2 million, or a gross margin of 41.8% in 2020 from $24.8 million, or a gross margin of 36.0%, in 2019. Included in the 2020 third quarter direct costs was a $1.0 million benefit resulting from the Canada Emergency Wage Subsidy. After allocation of indirect costs, operating earnings were $17.4 million in the 2020 third quarter increasing over the $13.3 million in the 2019 period. The segments operating margin for the 2020 quarter was 25.7% as compared with 19.3% in the 2019 quarter.

Crawford TPA Solutions

Crawford TPA Solutions segment revenues before reimbursements were $87.2 million in the 2020 third quarter, decreasing from $99.5 million in the 2019 third quarter. Absent foreign currency rate fluctuations of ($0.3) million, third quarter 2020 revenues would have been $87.5 million, down 12.0% from prior year third quarter.

Excluding centralized indirect support costs, gross profit decreased to $20.3 million, or a gross margin of 23.2% in 2020 from $26.7 million, or a gross margin of 26.8% in 2019. Included in the 2020 third quarter direct costs was a $0.4 million benefit resulting from the Canada Emergency Wage Subsidy. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $4.4 million in the third quarter of 2020 representing an operating margin of 5.1% compared with $9.3 million, or 9.4% of revenues, in the 2019 third quarter.

Unallocated Corporate and Shared Costs and Credits, Net

Unallocated corporate costs were $1.0 million in the third quarter of 2020, compared to $1.6 million in the same period of 2019. The decrease for the three months ended September 30, 2020 was due to a decrease in self-insurance expenses and a $1.9 million credit from the Canada Emergency Wage Subsidy, partially offset by an increase in incentive compensation.

Income Tax Impact of First Quarter Goodwill Impairment

The Company recognized a non-cash goodwill impairment in the 2020 first quarter, totaling $17.7 million, related to its Crawford Claims Solutions segment. Due to the non-discrete income tax treatment of the goodwill impairment, the initial income tax benefit related to the impairment will normalize during the remainder of the year, resulting in a lower full year income tax benefit. During the 2020 third quarter, the impact of this treatment decreased the income tax benefit by $1.9 million, or $0.04 per share.

Business Acquisitions and Dispositions

On June 12, 2020, the Company sold its 51% interest in Lloyd Warwick International (LWI) for cash proceeds of $19.6 million and payment of $3.6 million to settle intercompany indebtedness. In the third quarter, the Company recognized an additional $0.7 million related to net working capital adjustments under the terms of the acquisition agreement which increased the purchase price to $20.3 million. Due to the Companys two-month reporting lag for reporting its international results, this transaction was recorded in the quarter ended September 30, 2020. The Company recognized a gain of $14.7 million ($11.7 million net of tax) on the disposition. The Company recognized an additional loss on the disposal of Crawford Compliance Inc. of $0.6 million in the third quarter. Both of these disposals were in our Crawford Specialty Solutions segment and resulted in a net gain of $0.21 per diluted share.

On July 21, 2020, the Company acquired the remaining 15% membership interests of WeGoLook, LLC for $0.3 million. The non-compete agreements with the former minority members were terminated under the terms of the purchase agreement. As a result, the Company recognized $1.1 million of accelerated amortization on the non-compete agreement in the 2020 third quarter.

Subsequent Event s

On October 1, 2020, the Company acquired the remaining 85% equity interests in Crawford Carvallo and its subsidiaries. Crawford Carvallo is a leading provider for loss adjusting, claims management solutions and legal services in Chile. The purchase price includes an initial lump-sum payment $11.6 million and a maximum of $11.7 million payable over the next six years based on achieving certain EBITDA performance goals.

On November 1, 2020, the Company acquired 100% of HBA Group in Australia, including 100% of the stock in each of HBA Groups entities HBA Legal, Pillion and Paratus. HBA Legal is a legal services provider that will complement the Companys Crawford TPA Solutions segment in Australia. The purchase price includes an initial lump-sum payment of $5.0 million and a maximum $3.2 million payable over the next four years based on achieving certain revenue and EBITDA performance goals.

COVID-19

The Company estimates that COVID-19 negatively impacted its revenues in the range of $21.0 to $25.0 million for the three months ended September 30, 2020, and negatively impacted its revenues in the range of $46.0 to $54.0 million for the nine months ended September 30, 2020. The Company expects the ongoing global economic slowdown resulting from COVID-19 could have a material impact to its results of operations, financial condition and cash flow in one or more future quarters.

Balance Sheet and Cash Flow

The Companys consolidated cash and cash equivalents position as of September 30, 2020, totaled $48.7 million, compared with $51.8 million at December 31, 2019. The Companys total debt outstanding as of September 30, 2020, totaled $127.8 million, compared with $177.0 million at December 31, 2019.

The Companys operations provided $57.3 million of cash during 2020, compared with $42.3 million provided in 2019. The increase in cash provided by operating activities was primarily due to deferred payroll tax filings and a benefit from the Canada Emergency Wage Subsidy, totaling $17.3 million. The Company incurred higher software development and capital expenditures in 2020, which partially offset the increase in cash flows from operations, leading to a free cash flow increase of $4.3 million as compared to the prior year.

The Company made $3.0 million in contributions to its U.S. defined benefit pension plan and $0.5 million to its U.K. plans for 2020, compared with no contributions to the U.S. plan and $0.5 million to the U.K. plans in 2019.

During 2020, the Company repurchased 155,351 shares of CRD-A and 161,459 of CRD-B at an average cost of $8.42 per share. The total cost of share repurchases during 2020 was $2.7 million. The Company did not repurchase any shares during the 2020 third quarter.

Conference Call

As previously announced, Crawford & Company will host a conference call on November 3, 2020 at 8:30 a.m. Eastern Time to discuss its third quarter 2020 results. The conference call can be accessed live by dialing 1-800-374-2518 and using Conference ID 3377243. A presentation for tomorrows call can also be found on the investor relations portion of the Companys website, https://ir.crawco.com. The call will be recorded and available for replay through December 3, 2020. 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, goodwill impairment, restructuring costs, arbitration and claims settlement, gain on disposition of businesses, 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, stock-based compensation expense and foreign exchange fluctuations. Additionally, adjustments for non-recurring expenses for goodwill impairment, restructuring costs, arbitration and claim settlements and gain on disposition of businesses 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,
2020

 

 

September 30,
2019

 

 

September 30,
2020

 

 

September 30,
2019

 

Geographic Area

Currency

USD equivalent

 

% of total

 

 

USD equivalent

 

% of total

 

 

USD equivalent

 

% of total

 

 

USD equivalent

 

% of total

 

U.S.

USD

$

152,728

 

 

60.3

%

 

$

146,177

 

 

57.4

%

 

$

419,064

 

 

57.8

%

 

$

432,292

 

 

57.0

%

U.K.

GBP

 

30,060

 

 

11.9

%

 

 

30,844

 

 

12.1

%

 

 

95,003

 

 

13.1

%

 

 

93,967

 

 

12.4

%

Canada

CAD

 

22,267

 

 

8.8

%

 

 

28,350

 

 

11.1

%

 

 

68,339

 

 

9.4

%

 

 

87,037

 

 

11.5

%

Australia

AUD

 

19,946

 

 

7.9

%

 

 

18,649

 

 

7.3

%

 

 

54,270

 

 

7.5

%

 

 

54,223

 

 

7.1

%

Europe

EUR

 

12,730

 

 

5.0

%

 

 

13,817

 

 

5.4

%

 

 

40,137

 

 

5.5

%

 

 

40,002

 

 

5.3

%

Rest of World

Various

 

15,393

 

 

6.1

%

 

 

16,840

 

 

6.7

%

 

 

48,258

 

 

6.7

%

 

 

51,095

 

 

6.7

%

Total Revenues, before reimbursements

$

253,124

 

 

100.0

%

 

$

254,677

 

 

100.0

%

 

$

725,071

 

 

100.0

%

 

$

758,616

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Following is a reconciliation of segment and consolidated operating earnings to net income attributable to shareholders of Crawford & Company on a GAAP basis:

 

Three months ended

 

 

Nine Months Ended

 

( in thousands )

September 30, 2020

 

September 30, 2019

 

 

September 30, 2020

 

September 30, 2019

 

Operating earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Crawford Claims Solutions

$

7,219

 

$

2,661

 

 

$

6,329

 

$

4,058

 

Crawford Specialty Solutions

 

17,390

 

 

13,301

 

 

 

38,340

 

 

38,108

 

Crawford TPA Solutions

 

4,414

 

 

9,347

 

 

 

13,870

 

 

21,106

 

Unallocated corporate and shared costs, net

 

(968

)

 

(1,649

)

 

 

(5,227

)

 

(2,393

)

Consolidated operating earnings

 

28,055

 

 

23,660

 

 

 

53,312

 

 

60,879

 

(Deduct) add:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net corporate interest expense

 

(1,599

)

 

(3,162

)

 

 

(6,275

)

 

(8,346

)

Stock option expense

 

(457

)

 

(450

)

 

 

(1,033

)

 

(1,348

)

Amortization expense

 

(3,665

)

 

(2,829

)

 

 

(9,153

)

 

(8,429

)

Goodwill impairment

 

 

 

 

 

 

(17,674

)

 

 

Restructuring costs

 

 

 

 

 

 

(5,714

)

 

 

Arbitration and claim settlements

 

 

 

(1,200

)

 

 

 

 

(12,552

)

Gain on disposition of businesses, net

 

14,104

 

 

 

 

 

13,763

 

 

 

Income tax provision

 

(11,729

)

 

(5,328

)

 

 

(9,554

)

 

(11,120

)

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests

 

(312

)

 

355

 

 

 

1,224

 

 

713

 

Net income attributable to shareholders of Crawford & Company

$

24,397

 

$

11,046

 

 

$

18,896

 

$

19,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Following is a reconciliation of net income attributable to shareholders of Crawford & Company on a GAAP basis to non-GAAP adjusted EBITDA:

 

Three months ended

 

 

Nine Months Ended

 

( in thousands )

September 30, 2020

 

September 30, 2019

 

 

September 30, 2020

 

September 30, 2019

 

Net income attributable to shareholders of Crawford & Company

$

24,397

 

$

11,046

 

 

$

18,896

 

$

19,797

 

Add (Deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

10,700

 

 

10,236

 

 

 

30,150

 

 

30,086

 

Stock-based compensation

 

734

 

 

1,211

 

 

 

2,732

 

 

2,610

 

Net corporate interest expense

 

1,599

 

 

3,162

 

 

 

6,275

 

 

8,346

 

Goodwill impairment

 

 

 

 

 

 

17,674

 

 

 

Restructuring costs

 

 

 

 

 

 

5,714

 

 

 

Arbitration and claim settlements

 

 

 

1,200

 

 

 

 

 

12,552

 

Gain on disposition of businesses, net

 

(14,104

)

 

 

 

 

(13,763

)

 

 

Income tax provision

 

11,729

 

 

5,328

 

 

 

9,554

 

 

11,120

 

Foreign exchange fluctuations

 

142

 

 

 

 

 

516

 

 

 

Non-GAAP adjusted EBITDA

$

35,197

 

$

32,183

 

 

$

77,748

 

$

84,511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Following is a reconciliation of operating cash flow to free cash flow for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

 

(in thousands)

September 30, 2020

 

 

September 30, 2019

 

 

Change

 

Net Cash Provided by Operating Activities

$

57,316

 

 

$

42,325

 

 

$

14,991

 

Less:

 

 

 

 

 

 

 

 

 

 

 

Property & Equipment Purchases, net

 

(10,850

)

 

 

(5,664

)

 

 

(5,186

)

Capitalized Software (internal and external costs)

 

(12,793

)

 

 

(7,276

)

 

 

(5,517

)

Free Cash Flow

$

33,673

 

 

$

29,385

 

 

$

4,288

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020 on a constant dollar basis before goodwill impairment, restructuring costs and gain on disposition of businesses and for 2019 exclude the results of the arbitration and claim settlements:

Three Months Ended September 30, 2020

 

( in thousands )

Revenues

 

Non-GAAP
Operating
earnings

 

Pretax earnings

 

Net income
attributable to
Crawford &
Company (1)

 

Diluted
earnings per
CRD-A
share (1)

 

Diluted
earnings per
CRD-B
share (1)

 

GAAP

$

253,124

 

$

28,055

 

$

36,438

 

$

24,397

 

$

0.46

 

$

0.46

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax impact of first quarter goodwill impairment

 

 

 

 

 

 

 

1,935

 

 

0.04

 

 

0.04

 

Gain on disposition of businesses, net

 

 

 

 

 

(14,104

)

 

(11,275

)

 

(0.21

)

 

(0.21

)

Foreign exchange fluctuations

 

2,120

 

 

179

 

 

142

 

 

142

 

 

 

 

 

Non-GAAP Adjusted

$

255,244

 

$

28,234

 

$

22,476

 

$

15,199

 

$

0.29

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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

 

Non-GAAP Adjusted

$

254,677

 

$

23,660

 

$

17,219

 

$

11,933

 

$

0.23

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Nine Months Ended September 30, 2020

 

( in thousands )

Revenues

 

Non-GAAP
Operating
earnings

 

Pretax income

 

Net income
attributable to
Crawford &
Company (1)

 

Diluted
earnings per
CRD-A
share (1)

 

Diluted
earnings per
CRD-B
share (1)

 

GAAP

$

725,071

 

$

53,312

 

$

27,226

 

$

18,896

 

$

0.36

 

$

0.34

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill impairment

 

 

 

 

 

17,674

 

 

13,274

 

 

0.25

 

 

0.25

 

Restructuring costs

 

 

 

 

 

5,714

 

 

3,263

 

 

0.06

 

 

0.06

 

Gain on disposition of businesses, net

 

 

 

 

 

(13,763

)

 

(10,807

)

 

(0.20

)

 

(0.20

)

Foreign exchange fluctuations

 

9,220

 

 

594

 

 

516

 

 

502

 

 

0.01

 

 

0.01

 

Non-GAAP Adjusted

$

734,291

 

$

53,906

 

$

37,367

 

$

25,128

 

$

0.48

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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

 

$

60,879

 

$

19,084

 

$

19,797

 

$

0.39

 

$

0.33

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arbitration and claim settlements

 

 

 

 

 

12,552

 

 

9,276

 

 

0.17

 

 

0.17

 

Non-GAAP Adjusted

$

758,616

 

$

60,879

 

$

31,636

 

$

29,073

 

$

0.56

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) The income tax impact of goodwill impairment is based on the estimated annual effective income tax rate. Due to the non-discrete income tax treatment of the first quarter goodwill impairment, the income tax benefit will normalize as income is earned during the remainder of the year, resulting in a lower full year income tax benefit.

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,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

GAAP

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Shares Used to Compute Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

30,643

 

 

30,645

 

 

30,575

 

 

30,701

 

Class B Common Stock

 

22,510

 

 

22,831

 

 

22,533

 

 

23,071

 

Weighted-Average Shares Used to Compute Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

30,937

 

 

31,140

 

 

30,810

 

 

31,116

 

Class B Common Stock

 

22,510

 

 

22,831

 

 

22,533

 

 

23,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (2)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Shares Used to Compute Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

30,937

 

 

31,140

 

 

30,801

 

 

31,116

 

Class B Common Stock

 

22,510

 

 

22,831

 

 

22,533

 

 

23,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2 ) The Company determines year to date dilutive shares for GAAP reporting by averaging all quarterly dilutive shares for quarters where positive net income was reported. The Company had a net loss for GAAP reporting during the first quarter of 2020, that resulted in no additional dilutive securities added to the basic weighted average shares in calculating diluted weighted average shares for GAAP reporting as their impact would be anti-dilutive. As the Company had Non-GAAP positive net income for each quarter in 2020, dilutive securities from each quarter were averaged to determine Non-GAAP earnings per share for the nine months ended September 30, 2020.

Further information regarding the Companys operating results for the quarter ended September 30, 2020, financial position as of September 30, 2020, and cash flows for the quarter ended September 30, 2020 is shown on the attached unaudited condensed consolidated financial statements.

About Crawford & Company

Based in Atlanta, Crawford & Company (NYSE: CRD-A and CRD-B) is the world's largest publicly listed independent provider of claims management and outsourcing solutions to carriers, brokers and corporates with an expansive global network serving clients in more than 70 countries. The Companys 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. More information is available at www.crawco.com .

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 & Companys 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 & Companys reports filed with the SEC and available at www.sec.gov and in the Investor Relations section of Crawford & Companys 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,

 

2020

 

 

2019

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues Before Reimbursements

 

$

253,124

 

 

$

254,677

 

 

 

(1

)%

Reimbursements

 

 

8,545

 

 

 

11,165

 

 

 

(23

)%

Total Revenues

 

 

261,669

 

 

 

265,842

 

 

 

(2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Costs of Services Provided, Before Reimbursements

 

 

177,061

 

 

 

180,849

 

 

 

(2

)%

Reimbursements

 

 

8,545

 

 

 

11,165

 

 

 

(23

)%

Total Costs of Services

 

 

185,606

 

 

 

192,014

 

 

 

(3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, General, and Administrative Expenses

 

 

52,065

 

 

 

52,564

 

 

 

(1

)%

Corporate Interest Expense, Net

 

 

1,599

 

 

 

3,162

 

 

 

(49

)%

Arbitration and Claim Settlements

 

 

 

 

 

1,200

 

 

nm

 

Gain on Disposition of Businesses, Net

 

 

(14,104

)

 

 

 

 

nm

 

Total Costs and Expenses

 

 

225,166

 

 

 

248,940

 

 

 

(10

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense, Net

 

 

(65

)

 

 

(883

)

 

 

(93

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

36,438

 

 

 

16,019

 

 

 

127

%

Provision for Income Taxes

 

 

11,729

 

 

 

5,328

 

 

 

120

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

24,709

 

 

 

10,691

 

 

 

131

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (Income) Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

 

 

(312

)

 

 

355

 

 

 

(188

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Shareholders of Crawford & Company

 

$

24,397

 

 

$

11,046

 

 

 

121

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share - Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.46

 

 

$

0.22

 

 

 

109

%

Class B Common Stock

 

$

0.46

 

 

$

0.19

 

 

 

142

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.46

 

 

$

0.21

 

 

 

119

%

Class B Common Stock

 

$

0.46

 

 

$

0.19

 

 

 

142

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.04

 

 

$

0.07

 

 

 

(43

)%

Class B Common Stock

 

$

0.04

 

 

$

0.05

 

 

 

(20

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

nm = not meaningful

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

Nine Months Ended September   30,

 

2020

 

 

2019

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Revenues Before Reimbursements

 

$

725,071

 

 

$

758,616

 

 

 

(4

)%

Reimbursements

 

 

25,519

 

 

 

31,449

 

 

 

(19

)%

Total Revenues

 

 

750,590

 

 

 

790,065

 

 

 

(5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Costs of Services Provided, Before Reimbursements

 

 

518,263

 

 

 

533,664

 

 

 

(3

)%

Reimbursements

 

 

25,519

 

 

 

31,449

 

 

 

(19

)%

Total Costs of Services

 

 

543,782

 

 

 

565,113

 

 

 

(4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, General, and Administrative Expenses

 

 

163,327

 

 

 

171,407

 

 

 

(5

)%

Corporate Interest Expense, Net

 

 

6,275

 

 

 

8,346

 

 

 

(25

)%

Goodwill Impairment

 

 

17,674

 

 

 

 

 

nm

 

Restructuring Costs

 

 

5,714

 

 

 

 

 

nm

 

Arbitration and Claim Settlements

 

 

 

 

 

12,552

 

 

nm

 

Gain on Disposition of Businesses, Net

 

 

(13,763

)

 

 

 

 

nm

 

Total Costs and Expenses

 

 

723,009

 

 

 

757,418

 

 

 

(5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense, Net

 

 

(355

)

 

 

(2,443

)

 

 

(85

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

27,226

 

 

 

30,204

 

 

 

(10

)%

Provision for Income Taxes

 

 

9,554

 

 

 

11,120

 

 

 

(14

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

17,672

 

 

 

19,084

 

 

 

(7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

 

 

1,224

 

 

 

713

 

 

 

72

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Shareholders of Crawford & Company

 

$

18,896

 

 

$

19,797

 

 

 

(5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share - Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.36

 

 

$

0.39

 

 

 

(8

)%

Class B Common Stock

 

$

0.34

 

 

$

0.33

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.36

 

 

$

0.39

 

 

 

(8

)%

Class B Common Stock

 

$

0.34

 

 

$

0.33

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.14

 

 

$

0.21

 

 

 

(33

)%

Class B Common Stock

 

$

0.12

 

 

$

0.15

 

 

 

(20

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

nm = not meaningful

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2020 and December 31, 2019
Unaudited
(In Thousands, Except Par Values)

 

 

September   30,

 

 

December   31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

48,739 $51,802 Accounts Receivable, Net 123,563 128,217 Unbilled Revenues, at Estimated Billable Amounts 106,610 103,894 Income Taxes Receivable 7,820 7,820 Prepaid Expenses and Other Current Assets 26,641 23,476 Total Current Assets 313,373 315,209 Net Property and Equipment 34,160 31,425 Other Assets: Operating Lease Right-of-Use Asset, Net 107,956 102,354 Goodwill 61,151 80,642 Intangible Assets Arising from Business Acquisitions, Net 66,223 75,083 Capitalized Software Costs, Net 64,130 66,445 Deferred Income Tax Assets 18,107 17,971 Other Noncurrent Assets 74,522 70,884 Total Other Assets 392,089 413,379 Total Assets $739,622 $760,013 LIABILITIES AND SHAREHOLDERS INVESTMENT Current Liabilities: Short-Term Borrowings $3,028 $28,531 Accounts Payable 33,592 34,377 Operating Lease Liability 31,918 30,765 Accrued Compensation and Related Costs 74,681 68,499 Self-Insured Risks 9,941 11,311 Income Taxes Payable 7,022 3,030 Other Accrued Liabilities 34,117 31,449 Deferred Revenues 27,129 28,288 Current Installments of Finance Leases 49 15 Total Current Liabilities 221,477 236,265 Noncurrent Liabilities: Long-Term Debt and Finance Leases, Less Current Installments 124,684 148,408 Operating Lease Liability 91,963 87,064 Deferred Revenues 23,921 24,080 Accrued Pension Liabilities 56,542 65,909 Other Noncurrent Liabilities 38,749 33,410 Total Noncurrent Liabilities 335,859 358,871 Redeemable Noncontrolling Interests - 2,310 Shareholders’ Investment: Class A Common Stock, $1.00 Par Value 30,645 30,610 Class B Common Stock, $1.00 Par Value 22,510 22,671 Additional Paid-in Capital 66,339 63,392 Retained Earnings 258,504 249,551 Accumulated Other Comprehensive Loss (195,002) (206,907)Shareholders’ Investment Attributable to Shareholders of Crawford & Company 182,996 159,317 Noncontrolling Interests (710) 3,250 Total Shareholders’ Investment 182,286 162,567 Total Liabilities and Shareholders’ Investment $739,622 $760,013

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

Three Months Ended September 30,

Crawford Claims Solutions

%

Crawford Specialty Solutions

%

Crawford TPA Solutions

%

2020

2019

Change

2020

2019

Change

2020

2019

Change

Revenues Before Reimbursements

$

98,369

$

86,250

14.1

%

$

67,545

$

68,932

(2.0

)%

$

87,210

$

99,495

(12.3

)%

Direct Compensation, Fringe Benefits & Non-Employee Labor

65,673

56,985

15.2

%

32,928

35,993

(8.5

)%

53,613

58,594

(8.5

)%

% of Revenues Before Reimbursements

66.8

%

66.1

%

48.7

%

52.2

%

61.5

%

58.9

%

Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor

25,477

26,604

(4.2

)%

17,227

19,638

(12.3

)%

29,183

31,554

(7.5

)%

% of Revenues Before Reimbursements

25.9

%

30.8

%

25.5

%

28.5

%

33.5

%

31.7

%

Total Operating Expenses

91,150

83,589

9.0

%

50,155

55,631

(9.8

)%

82,796

90,148

(8.2

)%

Operating Earnings (1)

$

7,219

$

2,661

171.3

%

$

17,390

$

13,301

30.7

%

$

4,414

$

9,347

(52.8

)%

% of Revenues Before Reimbursements

7.3

%

3.1

%

25.7

%

19.3

%

5.1

%

9.4

%

Nine Months Ended September 30,

Crawford Claims Solutions

%

Crawford Specialty Solutions

%

Crawford TPA Solutions

%

2020

2019

Change

2020

2019

Change

2020

2019

Change

Revenues Before Reimbursements

$

257,407

$

255,572

0.7

%

$

196,794

$

206,237

(4.6

)%

$

270,870

$

296,807

(8.7

)%

Direct Compensation, Fringe Benefits & Non-Employee Labor

171,107

168,951

1.3

%

102,677

106,003

(3.1

)%

166,243

177,911

(6.6

)%

% of Revenues Before Reimbursements

66.5

%

66.1

%

52.2

%

51.4

%

61.4

%

59.9

%

Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor

79,971

82,563

(3.1

)%

55,777

62,126

(10.2

)%

90,757

97,790

(7.2

)%

% of Revenues Before Reimbursements

31.1

%

32.3

%

28.3

%

30.1

%

33.5

%

32.9

%

Total Operating Expenses

251,078

251,514

(0.2

)%

158,454

168,129

(5.8

)%

257,000

275,701

(6.8

)%

Operating Earnings (1)

$

6,329

$

4,058

56.0

%

$

38,340

$

38,108

0.6

%

$

13,870

$

21,106

(34.3

)%

% of Revenues Before Reimbursements

2.5

%

1.6

%

19.5

%

18.5

%

5.1

%

7.1

%

(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, goodwill impairment, restructuring costs, gain on disposition of businesses, arbitration and claim settlements, and certain unallocated corporate and shared costs and credits. See page 4-5 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 Claims Solutions

%

Crawford Specialty Solutions

%

Crawford TPA Solutions

%

2020

2019

Change

2020

2019

Change

2020

2019

Change

Revenues Before Reimbursements

$

98,369

$

86,250

14.1

%

$

67,545

$

68,932

(2.0

)%

$

87,210

$

99,495

(12.3

)%

Direct Expense

75,689

66,498

13.8

%

39,306

44,130

(10.9

)%

66,937

72,785

(8.0

)%

% of Revenues Before Reimbursements

76.9

%

77.1

%

58.2

%

64.0

%

76.8

%

73.2

%

Segment Gross Profit

22,680

19,752

14.8

%

28,239

24,802

13.9

%

20,273

26,710

(24.1

)%

% of Revenues Before Reimbursements

23.1

%

22.9

%

41.8

%

36.0

%

23.2

%

26.8

%

Indirect Costs

15,461

17,091

(9.5

)%

10,849

11,501

(5.7

)%

15,859

17,363

(8.7

)%

% of Revenues Before Reimbursements

15.7

%

19.8

%

16.1

%

16.7

%

18.2

%

17.5

%

Operating Earnings (1)

$

7,219

$

2,661

171.3

%

$

17,390

$

13,301

30.7

%

$

4,414

$

9,347

(52.8

)%

% of Revenues Before Reimbursements

7.3

%

3.1

%

25.7

%

19.3

%

5.1

%

9.4

%

Nine Months Ended September 30,

Crawford Claims Solutions

%

Crawford Specialty Solutions

%

Crawford TPA Solutions

%

2020

2019

Change

2020

2019

Change

2020

2019

Change

Revenues Before Reimbursements

$

257,407

$

255,572

0.7

%

$

196,794

$

206,237

(4.6

)%

$

270,870

$

296,807

(8.7

)%

Direct Expense

201,936

199,190

1.4

%

124,470

133,771

(7.0

)%

207,594

220,956

(6.0

)%

% of Revenues Before Reimbursements

78.5

%

77.9

%

63.2

%

64.9

%

76.6

%

74.4

%

Segment Gross Profit

55,471

56,382

(1.6

)%

72,324

72,466

(0.2

)%

63,276

75,851

(16.6

)%

% of Revenues Before Reimbursements

21.5

%

22.1

%

36.8

%

35.1

%

23.4

%

25.6

%

Indirect Costs

49,142

52,324

(6.1

)%

33,984

34,358

(1.1

)%

49,406

54,745

(9.8

)%

% of Revenues Before Reimbursements

19.1

%

20.5

%

17.3

%

16.7

%

18.2

%

18.4

%

Operating Earnings (1)

$

6,329

$

4,058

56.0

%

$

38,340

$

38,108

0.6

%

$

13,870

$

21,106

(34.3

)%

% of Revenues Before Reimbursements

2.5

%

1.6

%

19.5

%

18.5

%

5.1

%

7.1

%

(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, goodwill impairment, restructuring costs, gain on disposition of businesses, arbitration and claim settlements, and certain unallocated corporate and shared costs and credits. See page 4-5 for additional information about segment operating earnings

CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date Period Ended September 30, 2020 and September 30, 2019
Unaudited
(In Thousands)

2020

2019

Cash Flows From Operating Activities:

Net income

$

17,672

$

19,084

Reconciliation of net income to net cash provided by operating activities:

Depreciation and amortization

30,150

30,086

Goodwill impairment

17,674

Gain on disposition of businesses, net

(13,763

)

Stock-based compensation

2,732

2,610

Changes in operating assets and liabilities:

Accounts receivable, net

485

1,108

Unbilled revenues, net

(9,223

)

(8,740

)

Accrued or prepaid income taxes

2,462

443

Accounts payable and accrued liabilities

16,097

(4,361

)

Deferred revenues

(1,491

)

514

Accrued retirement costs

(6,101

)

1,545

Prepaid expenses and other operating activities

622

36

Net cash provided by operating activities

57,316

42,325

Cash Flows From Investing Activities:

Acquisitions of property and equipment

(10,850

)

(5,664

)

Capitalization of computer software costs

(12,793

)

(7,276

)

Cash proceeds from disposition of business, net of cash disposed

19,273

Payments for business acquisitions, net of cash acquired

(2,296

)

Net cash used in investing activities

(4,370

)

(15,236

)

Cash Flows From Financing Activities:

Cash dividends paid

(6,986

)

(9,894

)

Proceeds from shares purchased under employee stock-based compensation plans

811

1,909

Repurchases of common stock

(2,666

)

(25,673

)

Increases in revolving credit facility borrowings

76,876

65,449

Payments on revolving credit facility borrowings

(124,454

)

(64,962

)

Payments on finance lease obligations

(33

)

(106

)

Cash paid for equity investments

(603

)

Dividends paid to noncontrolling interests

(196

)

(458

)

Net cash used in financing activities

(57,251

)

(33,735

)

Effects of exchange rate changes on cash and cash equivalents

1,242

(372

)

Decrease in cash and cash equivalents

(3,063

)

(7,018

)

Cash and cash equivalents at beginning of year

51,802

53,119

Cash and cash equivalents at end of period

$

48,739

$

46,101

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