Crawford & Company Reports 2020 Second Quarter Results

ATLANTA, Aug. 03, 2020 (GLOBE NEWSWIRE) -- Crawford & Company® CRD, the world's largest publicly listed independent provider of claims management and outsourcing solutions to carriers, brokers and corporates, today announced its financial results for the  second quarter ended June 30, 2020.

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
Second Quarter 2020

• Revenues before reimbursements of $234.4 million, compared with $256.9 million for the 2019 second quarter
  
  
• Net income attributable to shareholders of $5.9 million, compared with $2.6 million in the same period last year
  
  
• Diluted earnings per share of $0.11 for CRD-A and $0.11 for CRD-B, compared with $0.06 for CRD-A and $0.04 for CRD-B in the prior year second quarter

Non-GAAP Consolidated Results
Second Quarter 2020

Non-GAAP results for the 2020 second 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 $2.2 million and the loss on disposition of business of $0.3 million. Non-GAAP consolidated results for the 2019 quarter exclude arbitration and claim settlements of $11.4 million.

• Revenues before reimbursements, on a non-GAAP basis, of $240.2 million, compared with $256.9 million for the 2019 second quarter
  
  
• Net income attributable to shareholders, on a non-GAAP basis, totaled $8.8 million in the 2020 second quarter, compared with $11.0 million in the same period last year
  
  
• Diluted earnings per share, on a non-GAAP basis, of $0.16 for CRD-A and $0.16 for CRD-B in the 2020 second quarter, compared with $0.21 for CRD-A and $0.19 for CRD-B in the prior year second quarter
  
  
• Consolidated adjusted operating earnings, on a non-GAAP basis, were $18.7 million, or 7.8% of non-GAAP revenues, in the 2020 second quarter, compared with $22.5 million, or 8.8% of revenues, in the 2019 second quarter
  
  
• Consolidated adjusted EBITDA, a non-GAAP financial measure, was $25.9 million, or 10.8% of non-GAAP revenues, in the 2020 second quarter, compared with $31.2 million, or 12.1% of revenues, in the 2019 second quarter

Management Comments

Mr. Rohit Verma, chief executive officer of Crawford & Company, stated, "Our second quarter 2020 operating results were below 2019 levels, however, we consider the operating earnings of $18.7 million generated for the quarter to be a strong result considering the current global economic backdrop.  These operating earnings represent a significant improvement over the $7.0 million we reported in this year's first quarter. While we saw weakness in our Broadspire business due to the economic downturn, our loss adjusting businesses capitalized on the new business wins over the last two years which had been suppressed due to lack of weather activity. Our momentum is strong, but could be dampened by the increasing COVID-19 infection rate in the U.S. and the possibility of future waves globally."

Mr. Verma concluded, "I would like to thank all our employees and our customers. Our employees have demonstrated strong commitment to our purpose, enabling the highest level of service even in these difficult times. I am thankful to our customers who continue to place their confidence and trust in us, giving us the opportunity to live our purpose of restoring and enhancing, lives businesses and communities."

Segment Results for the Second Quarter

Crawford TPA Solutions

Crawford TPA Solutions segment revenues before reimbursements were $86.7 million in the 2020 second quarter, decreasing from $99.5 million in the 2019 second quarter. Absent foreign currency rate fluctuations of $(0.9) million, second quarter 2020 revenues would have been $87.6 million, down 12.0% from prior year second quarter.

Excluding centralized indirect support costs, gross profit decreased to $19.8 million, or a gross margin of 22.8% in 2020 from $23.7 million, or a gross margin of 23.8% in 2019. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $3.2 million in the second quarter of 2020 representing an operating margin of 3.7% compared with $5.0 million, or 5.1% of revenues, in the 2019 second quarter.

Crawford Claims Solutions

Crawford Claims Solutions revenues before reimbursements were $81.5 million in the second quarter of 2020, decreasing from $86.0 million in the second quarter of 2019. Absent foreign currency rate fluctuations of $(2.8) million, second quarter 2020 revenues would have been $84.3 million, down 2.0% from the prior year second quarter.

Excluding centralized indirect support costs, gross profit decreased to $19.0 million, or a gross margin of 23.3% in 2020 from $19.6 million, or a gross margin of 22.7% in 2019. After the allocation of indirect costs, the segment had operating earnings of $2.8 million in the 2020 second quarter increasing over the $1.7 million in the second quarter of 2019. The operating margin was 3.4% in the 2020 quarter and 2.0% in the 2019 quarter.

Crawford Specialty Solutions

Crawford Specialty Solutions revenues before reimbursements were $66.2 million in the second quarter of 2020, down from $71.4 million in the same period of 2019. Absent foreign exchange rate fluctuations of $(2.2) million, revenues would have been $68.4 million for the three months ended June 30, 2020, decreasing 4.2% compared with prior year second quarter revenues.

Excluding indirect support costs, gross profit decreased to $25.1 million, or a gross margin of 37.9% in the 2020 quarter, from $25.2 million, or a gross margin of 35.3%, in the 2019 period. After allocation of indirect costs, operating earnings were $14.0 million in the 2020 second quarter increasing over the $12.6 million in the 2019 period. The segment's operating margin for the 2020 quarter was 21.1% as compared with 17.7% in the 2019 quarter.

Unallocated Corporate and Shared Costs and Credits, Net

Unallocated corporate costs were $1.7 million in the second quarter of 2020, compared with credits of $3.2 million in the same period of 2019. The increase for the three months ended June 30, 2020 was due to CEO transition costs, severance costs, and an increase in self-insurance expenses, partially offset by a credit from the Canada Emergency Wage Subsidy and a decrease in defined benefit pension expense.

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 second quarter, the impact of this treatment decreased the income tax benefit by $2.2 million, or $0.04 per share.

Subsequent Event

On June 12, 2020, the Company sold its 51% interest in Lloyd Warwick International for cash proceeds of $19.6 million and payment of $3.6 million intercompany indebtedness. Due to the two-month reporting lag for reporting its international results, this transaction will be recognized in the 2020 third quarter. Based on preliminary analysis we estimate this transaction will result in a gain between $10.0 to $12.0 million in the third quarter, or $0.19 to $0.23 per diluted share.

COVID-19

The Company estimates that COVID-19 negatively impacted its revenues in the range of $22.0 to $26.0 million for the three months ended June 30, 2020, and negatively impacted its revenues in the range of $25.0 to $29.0 million for the six months ended June 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 Company's consolidated cash and cash equivalents position as of June 30, 2020, totaled $60.0 million, compared with $51.8 million at December 31, 2019. The Company's total debt outstanding as of June 30, 2020, totaled $195.6 million, compared with $177.0 million at December 31, 2019.

The Company's operations provided $12.0 million of cash during 2020, compared with $8.7 million provided in 2019. The increase in cash provided by operating activities was primarily due to improved collections in billed and unbilled receivables offset by an increase in pension contributions and lower operating earnings. Free cash flow decreased by $2.9 million compared with 2019, reflecting higher software development and capital expenditures in 2020 compared with 2019.

The Company made $3.0 million in contributions to its U.S. defined benefit pension plan and $0.3 million to its U.K. plans for 2020, compared with no contributions to the U.S. plan and $0.3 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 has placed a hold on its current share repurchase plan and did not repurchase any shares during the 2020 second quarter.

Conference Call

As previously announced, Crawford & Company will host a conference call on August 4, 2020 at 8:30 a.m. Eastern Time to discuss its second quarter 2020 results. The conference call can be accessed live by dialing 1-800-374-2518 and using Conference ID 3377243. 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 September 4, 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, loss on disposition of business, 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 loss on disposition of business 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:

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

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

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

Following are the reconciliations of GAAP Revenue, Operating Earnings, Pretax Earnings (Loss), Net Income (Loss) and Earnings (Loss) Per Share to related non-GAAP Adjusted figures, which reflect 2020 on a constant dollar basis before goodwill impairment, restructuring costs, and loss on disposition of business and for 2019 exclude the results of the arbitration and claim settlements:

⁽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 (loss) per share:

⁽²⁾ The Company had a net loss for GAAP reporting for the six months ended June 30, 2020, resulting 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 has Non-GAAP positive net income for the six months ended June 30, 2020, these dilutive securities were added back to calculate Non-GAAP earnings per share.

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

About Crawford & Company

Based in Atlanta, Crawford & Company CRD 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 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. 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.

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

nm = not meaningful

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

nm = not meaningful

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

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

Three Months Ended June 30,

Six Months Ended June 30,

⁽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, loss on disposition of business, 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 June 30,

Six Months Ended June 30,