8-K
CRAWFORD & CO (CRD-A)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 5, 2020
CRAWFORD & COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Georgia
(State or Other Jurisdiction of Incorporation)
| 1-10356 | 58-0506554 |
|---|---|
| (Commission File Number) | (IRS Employer Identification No.) |
| 5335 Triangle Parkway, Peachtree Corners, Georgia | 30092 |
| (Address of Principal Executive Offices) | (Zip Code) |
(404) 300-1000
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | | --- | --- || o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | | --- | --- || o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | | --- | --- || o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | | --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Act of 1934.
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
| Securities Registered Pursuant to Section 12(b) of the Act: | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|---|
| Class A Common Stock — $1.00 Par Value | CRD-A | New York Stock Exchange, Inc. | |
| Class B Common Stock — $1.00 Par Value | CRD-B | New York Stock Exchange, Inc. |
ITEM 2.02. Results of Operations and Financial Condition
On May 5, 2020, Crawford & Company (the "Company") issued a press release containing information about the Company's financial results for the first quarter 2020. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by this reference.
ITEM 7.01. Regulation FD Disclosure
The Company has made available on the Company's website at www.crawco.com a presentation designed to enhance the information presented at its quarterly earnings conference call on Wednesday, May 6, 2020 at 8:30 a.m. Eastern Time. A copy of the presentation is attached hereto as Exhibit 99.2 and is incorporated herein by this reference.
ITEM 9.01. Financial Statements and Exhibits
(d) The following exhibits are being filed herewith:
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release dated May 5, 2020 |
| 99.2 | Slide Presentation |
The information contained in this current report on Form 8-K and in the accompanying exhibits shall not be incorporated by reference into any filing of the Company with the SEC, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing, unless expressly incorporated by specific reference to such filing. The information, including the exhibits hereto, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
2
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CRAWFORD & COMPANY<br><br>(Registrant) | |
|---|---|
| By: | /s/ W. BRUCE SWAIN |
| W. Bruce Swain | |
| Executive Vice President -<br><br>Chief Financial Officer |
Dated: May 5, 2020
3
Exhibit
Crawford & Company®
5335 Triangle Parkway
Peachtree Corners, GA 30092
FOR IMMEDIATE RELEASE
CRAWFORD & COMPANY REPORTS 2020 FIRST QUARTER RESULTS
ATLANTA, (May 5, 2020) -- Crawford & Company® (NYSE: CRD-A and CRD-B), 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 first quarter ended March 31, 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
First Quarter 2020
| • | Revenues before reimbursements of $237.5 million, compared with $247.1 million for the 2019 first quarter |
|---|---|
| • | Net (loss) income attributable to shareholders of $(11.4) million, compared with $6.1 million in the same period last year |
| --- | --- |
| • | Diluted (loss) earnings per share of $(0.21) for CRD-A and $(0.23) for CRD-B, compared with $0.12 for CRD-A and $0.10 for CRD-B in the prior year first quarter |
| --- | --- |
Non-GAAP Consolidated Results
First Quarter 2020
Non-GAAP results for the 2020 first quarter have been presented on a constant dollar basis to 2019 and exclude the non-cash pretax goodwill impairment of $17.7 million and pre-tax restructuring costs of $5.7 million. Non-GAAP consolidated results for the 2019 quarter contain no adjustments.
| • | Revenues before reimbursements, on a non-GAAP basis, of $238.8 million, compared with $247.1 million for the 2019 first quarter |
|---|---|
| • | Net income attributable to shareholders, on a non-GAAP basis, totaled $1.0 million in the 2020 first quarter, compared with $6.1 million in the same period last year |
| --- | --- |
| • | Diluted earnings per share, on a non-GAAP basis, of $0.03 for CRD-A and $0.01 for CRD-B in the 2020 first quarter, compared with $0.12 for CRD-A and $0.10 for CRD-B in the prior year first quarter |
| --- | --- |
| • | Consolidated adjusted operating earnings, on a non-GAAP basis, were $7.0 million, or 2.9% of non-GAAP revenues, in the 2020 first quarter, compared with $14.7 million, or 5.9% of revenues, in the 2019 first quarter |
| --- | --- |
| • | Consolidated adjusted EBITDA, a non-GAAP financial measure, was $16.7 million, or 7.0% of non-GAAP revenues, in the 2020 first quarter, compared with $21.1 million, or 8.5% of revenues, in the 2019 first quarter |
| --- | --- |
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Management Comments
Mr. Harsha V. Agadi, president and chief executive officer of Crawford & Company, stated, “While we saw solid momentum from new business wins, claims volume in the first quarter continued to be impacted by benign weather and a slowdown in certain areas of the business related to reduced commercial activity as COVID-19 spread across the globe. In addition, even though there were incremental claims from the weather-related surge events in Australia and the U.K., as expected, the lower number of absolute surge events we experienced in 2019 carried into the first quarter. These factors helped trigger a goodwill impairment in the quarter. However, our team continued to build the sales pipeline, albeit at a slower pace, demonstrating Crawford’s resilience despite the current economic conditions. Crawford entered the COVID-19 crisis with a strong financial position with low debt and solid liquidity. In the face of this unprecedented volatility, we continue to make prudent investments in the business to attract, acquire and more seamlessly serve clients through the enhancement of our IT infrastructure, as our scale will undoubtedly serve us in the future.”
Mr. Agadi concluded, “Late last month, we announced that Rohit Verma will be stepping into the role of chief executive officer of Crawford & Company and Joseph Blanco will assume the role of president, each effective May 15^th^. I believe the Company will thrive under Rohit’s leadership as his deep industry expertise, combined with his operational prowess and vision for the business will prove critical as we execute our long-term strategy. Joseph is a proven leader who embodies our core values and brings incredible experience to his role. I am thankful for the nearly five years I have served as president and chief executive officer and am proud of what we have achieved. I look forward to sharing in Crawford’s success going forward as a Director of the Company.”
Segment Results for the First Quarter
Crawford TPA Solutions
Crawford TPA Solutions segment revenues before reimbursements were $96.9 million in the 2020 first quarter, decreasing from $97.8 million in the 2019 first quarter. Absent foreign currency rate fluctuations of $(0.3) million, first quarter 2020 revenues would have been $97.3 million, down 0.5% from prior year first quarter.
Excluding centralized indirect support costs, gross profit decreased to $23.2 million, or a gross margin of 24.0% in 2020 from $25.5 million, or a gross margin of 26.0% in 2019. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $6.3 million in the first quarter of 2020 representing an operating margin of 6.5% compared with $6.7 million, or 6.9% of revenues, in the 2019 first quarter.
Crawford Claims Solutions
Crawford Claims Solutions revenues before reimbursements were $77.6 million in the first quarter of 2020, decreasing from $83.3 million in the first quarter of 2019. Absent foreign currency rate fluctuations of $(0.6) million, first quarter 2020 revenues would have been $78.2 million, down 6.1% from the prior year first quarter.
Excluding centralized indirect support costs, gross profit decreased to $13.8 million, or a gross margin of 17.8% in 2020 from $17.1 million, or a gross margin of 20.5% in 2019. After the allocation of indirect costs, the segment had an operating loss of $(3.7) million in the 2020 first quarter compared with an operating loss of $(0.3) million in the first quarter of 2019. The operating margin was (4.7)% in the 2020 quarter and (0.4)% in the 2019 quarter. The first quarter 2020 goodwill impairment was related to the Crawford Claims Solutions segment.
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Crawford Specialty Solutions
Crawford Specialty Solutions revenues before reimbursements were $63.0 million in the first quarter of 2020, down from $65.9 million in the same period of 2019. Absent foreign exchange rate fluctuations of $(0.3) million, revenues would have been $63.3 million for the three months ended March 31, 2020, decreasing 4.0% compared with prior year first quarter revenues.
Excluding indirect support costs, gross profit decreased to $19.0 million, or a gross margin of 30.2% in the 2020 quarter, from $22.4 million, or a gross margin of 34.0%, in the 2019 period. After allocation of indirect costs, operating earnings were $7.0 million in the 2020 first quarter compared with $12.2 million in the 2019 period. The segment’s operating margin for the 2020 quarter was 11.0% as compared with 18.5% in the 2019 quarter.
Unallocated Corporate and Shared Costs and Credits, Net
Unallocated corporate costs, net were $2.6 million in the first quarter of 2020, compared with $3.9 million in the same period of 2019. The decrease for the three months ended March 31, 2020 was due to a decrease in defined benefit pension expense and other administrative costs.
Goodwill Impairment
We recognized a non-cash goodwill impairment in the 2020 first quarter, totaling $17.7 million, related to our Crawford Claims Solutions segment, due to lower forecasts in that reporting unit and a decrease in our market capitalization. This charge was partially offset by a $6.9 million reduction in income tax expense and $1.7 million credit in noncontrolling interest expense, for a net impact of $9.1 million, or $0.18 per share. Due to the non-discrete income tax treatment of the goodwill impairment, we anticipate the income tax benefit of the impairment to normalize during the remainder of the year, resulting in a lower full year income tax benefit.
Restructuring Costs
We recorded restructuring costs of $5.7 million in 2020, related primarily to severance and other termination costs in an effort to consolidate and streamline various functions of our workforce. These costs were partially offset by a $2.4 million reduction in income tax expense, resulting in a net impact of $3.2 million, or $0.06 per share.
COVID-19
We estimate that COVID-19 negatively impacted our revenues by $3.5 million and operating earnings by $1.8 million in the three months ended March 31, 2020. We expect the ongoing global economic slowdown resulting from COVID-19 could have a material impact to our 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 March 31, 2020, totaled $83.1 million, compared with $51.8 million at December 31, 2019 as the Company accessed its revolving credit facility to increase its cash on hand as a result of the current economic conditions. The Company’s total debt outstanding as of March 31, 2020, totaled $227.1 million, compared with $177.0 million at December 31, 2019.
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The Company’s operations used $8.0 million of cash during 2020, compared with $0.5 million provided in 2019. The decrease in cash provided by operating activities was primarily due to an increase in pension contributions and lower operating earnings. Free cash flow decreased by $12.7 million compared with 2019, reflecting higher capital expenditures in 2020 compared with 2019.
The Company made $3.0 million in contributions to its U.S. defined benefit pension plan and $0.2 million to its U.K. plans for 2020, compared with no contributions to the U.S. plan and $0.2 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 decided to place a hold on its current share repurchase plan for the foreseeable future in order to preserve capital.
2020 Guidance
As announced in our April 6, 2020 press release, Crawford & Company has withdrawn its 2020 guidance provided on the Company’s fourth quarter and full year 2019 earnings call on March 5, 2020. Crawford & Company will provide additional business updates during its first quarter 2020 earnings call.
Conference Call
As previously announced, Crawford & Company will host a conference call on May 6, 2020 at 8:30 a.m. Eastern Time to discuss its first 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 June 6, 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, 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.
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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 and restructuring costs 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 | |||||||
|---|---|---|---|---|---|---|---|
| (in thousands) | March 31, 2020 | March 31, 2019 | |||||
| Geographic Area | Currency | equivalent | % of total | equivalent | % of total | ||
| U.S. | USD | 56.6 | % | 56.5 | % | ||
| U.K. | GBP | 32,382 | 13.6 | % | 31,581 | 12.8 | % |
| Canada | CAD | 25,220 | 10.6 | % | 29,884 | 12.1 | % |
| Australia | AUD | 15,545 | 6.6 | % | 16,255 | 6.6 | % |
| Europe | EUR | 13,389 | 5.6 | % | 12,865 | 5.2 | % |
| Rest of World | Various | 16,547 | 7.0 | % | 16,875 | 6.8 | % |
| Total Revenues, before reimbursements | 100.0 | % | 100.0 | % |
All values are in US Dollars.
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Following is a reconciliation of segment and consolidated operating earnings to net (loss) income attributable to shareholders of Crawford & Company on a GAAP basis.
| Three months ended | ||||||
|---|---|---|---|---|---|---|
| (in thousands) | March 31, 2020 | March 31, 2019 | ||||
| Operating earnings: | ||||||
| Crawford TPA Solutions | $ | 6,285 | $ | 6,733 | ||
| Crawford Claims Solutions | (3,679 | ) | (313 | ) | ||
| Crawford Specialty Solutions | 6,957 | 12,195 | ||||
| Unallocated corporate and shared costs, net | (2,550 | ) | (3,914 | ) | ||
| Consolidated operating earnings | 7,013 | 14,701 | ||||
| (Deduct) add: | ||||||
| Net corporate interest expense | (2,224 | ) | (2,716 | ) | ||
| Stock option expense | (290 | ) | (485 | ) | ||
| Amortization expense | (2,756 | ) | (2,798 | ) | ||
| Goodwill impairment | (17,674 | ) | — | |||
| Restructuring costs | (5,714 | ) | — | |||
| Income tax benefit (provision) | 8,486 | (2,933 | ) | |||
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | 1,760 | 340 | ||||
| Net (loss) income attributable to shareholders of Crawford & Company | $ | (11,399 | ) | $ | 6,109 |
Following is a reconciliation of net (loss) income attributable to shareholders of Crawford & Company on a GAAP basis to non-GAAP adjusted EBITDA.
| Three months ended | ||||||
|---|---|---|---|---|---|---|
| (in thousands) | March 31, 2020 | March 31, 2019 | ||||
| Net (loss) income attributable to shareholders of Crawford & Company | $ | (11,399 | ) | $ | 6,109 | |
| Add (Deduct): | ||||||
| Depreciation and amortization | 10,060 | 9,624 | ||||
| Stock-based compensation | 880 | (247 | ) | |||
| Net corporate interest expense | 2,224 | 2,716 | ||||
| Goodwill impairment | 17,674 | — | ||||
| Restructuring costs | 5,714 | |||||
| Income tax (benefit) provision | (8,486 | ) | 2,933 | |||
| Foreign exchange fluctuations | 16 | — | ||||
| Non-GAAP adjusted EBITDA | $ | 16,683 | $ | 21,135 |
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Following is a reconciliation of operating cash flow to free cash flow for the three months ended March 31, 2020 and March 31, 2019:
| Three months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | March 31, 2020 | March 31, 2019 | Change | ||||||
| Net Cash (Used in) Provided by Operating Activities | $ | (7,978 | ) | $ | 523 | $ | (8,501 | ) | |
| Less: | |||||||||
| Property & Equipment Purchases, net | (2,708 | ) | (1,737 | ) | (971 | ) | |||
| Capitalized Software (internal and external costs) | (4,803 | ) | (1,605 | ) | (3,198 | ) | |||
| Free Cash Flow | $ | (15,489 | ) | $ | (2,819 | ) | $ | (12,670 | ) |
Following are the reconciliations of GAAP Revenue, Operating Earnings, Pretax (Loss) Earnings, Net (Loss) Income and (Loss) Earnings Per Share to related non-GAAP Adjusted figures, which reflect 2020 on a constant dollar basis before goodwill impairment and restructuring costs. There were no such adjustments applicable to the 2019 period.
| Three months ended March 31, 2020 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax loss | Net (loss) income attributable to Crawford & Company^(1)^ | Diluted (loss) earnings per CRD-A share^(1)^ | Diluted (loss) earnings per CRD-B share^(1)^ | ||||||||||
| GAAP | $ | 237,531 | $ | 7,013 | $ | (21,645 | ) | $ | (11,399 | ) | $ | (0.21 | ) | $ | (0.23 | ) |
| Adjustments: | ||||||||||||||||
| Goodwill impairment | — | — | 17,674 | 9,133 | 0.18 | 0.18 | ||||||||||
| Restructuring costs | — | — | 5,714 | 3,263 | 0.06 | 0.06 | ||||||||||
| Foreign exchange fluctuations | 1,268 | 9 | 16 | (10 | ) | — | — | |||||||||
| Non-GAAP Adjusted | $ | 238,799 | $ | 7,022 | $ | (3,955 | ) | $ | 987 | $ | 0.03 | $ | 0.01 | |||
| Three months ended March 31, 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 | $ | 247,058 | $ | 14,701 | $ | 8,702 | $ | 6,109 | $ | 0.12 | $ | 0.10 | ||||
| Adjustments: | — | — | — | — | — | — | ||||||||||
| Non-GAAP Adjusted | $ | 247,058 | $ | 14,701 | $ | 8,702 | $ | 6,109 | $ | 0.12 | $ | 0.10 |
^(1)^ The income tax impact of goodwill impairment and restructuring costs is based on the estimated annual effective income tax rate. Due to the non-discrete income tax treatment of the goodwill impairment and restructuring costs, we anticipate the income tax benefit to normalize as income is earned during the remainder of the year, resulting in a lower full year income tax benefit.
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Following is information regarding the weighted average shares used in the computation of basic and diluted (loss) earnings per share.
| Three months ended | ||
|---|---|---|
| (in thousands) | March 31, 2020 | March 31, 2019 |
| GAAP | ||
| Weighted-Average Shares Used to Compute Basic (Loss) Earnings Per Share: | ||
| Class A Common Stock | 30,562 | 30,658 |
| Class B Common Stock | 22,578 | 23,367 |
| Weighted-Average Shares Used to Compute Diluted (Loss) Earnings Per Share: | ||
| Class A Common Stock | 30,562 | 31,106 |
| Class B Common Stock | 22,578 | 23,367 |
| Non-GAAP ^(1)^ | ||
| Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | ||
| Class A Common Stock | 30,770 | 31,106 |
| Class B Common Stock | 22,578 | 23,367 |
^(1)^ The Company had a net loss for GAAP reporting during the first quarter, 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 quarter ended March 31, 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 March 31, 2020, financial position as of March 31, 2020, and cash flows for the quarter ended March 31, 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 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.
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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. |
|---|
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)
| Three Months Ended March 31, | 2020 | 2019 | % Change | ||||
|---|---|---|---|---|---|---|---|
| Revenues: | |||||||
| Revenues Before Reimbursements | $ | 237,531 | $ | 247,058 | (4 | )% | |
| Reimbursements | 8,515 | 9,319 | (9 | )% | |||
| Total Revenues | 246,046 | 256,377 | (4 | )% | |||
| Costs and Expenses: | |||||||
| Costs of Services Provided, Before Reimbursements | 177,604 | 177,888 | — | % | |||
| Reimbursements | 8,515 | 9,319 | (9 | )% | |||
| Total Costs of Services | 186,119 | 187,207 | (1 | )% | |||
| Selling, General, and Administrative Expenses | 55,754 | 58,659 | (5 | )% | |||
| Corporate Interest Expense, Net | 2,224 | 2,716 | (18 | )% | |||
| Goodwill Impairment | 17,674 | — | nm | ||||
| Restructuring Costs | 5,714 | — | nm | ||||
| Total Costs and Expenses | 267,485 | 248,582 | 8 | % | |||
| Other (Expense) Income | (206 | ) | 907 | (123 | )% | ||
| (Loss) Income Before Income Taxes | (21,645 | ) | 8,702 | (349 | )% | ||
| Provision for Income Taxes | (8,486 | ) | 2,933 | (389 | )% | ||
| Net (Loss) Income | (13,159 | ) | 5,769 | (328 | )% | ||
| Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | 1,760 | 340 | 418 | % | |||
| Net (Loss) Income Attributable to Shareholders of Crawford & Company | $ | (11,399 | ) | $ | 6,109 | (287 | )% |
| (Loss) Earnings Per Share - Basic: | |||||||
| Class A Common Stock | $ | (0.21 | ) | $ | 0.12 | (275 | )% |
| Class B Common Stock | $ | (0.23 | ) | $ | 0.10 | (330 | )% |
| (Loss) Earnings Per Share - Diluted: | |||||||
| Class A Common Stock | $ | (0.21 | ) | $ | 0.12 | (275 | )% |
| Class B Common Stock | $ | (0.23 | ) | $ | 0.10 | (330 | )% |
| Cash Dividends Per Share: | |||||||
| Class A Common Stock | $ | 0.07 | $ | 0.07 | — | % | |
| Class B Common Stock | $ | 0.05 | $ | 0.05 | — | % |
nm = not meaningful
Page 10 of 14
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2020 and December 31, 2019
Unaudited
| (In Thousands, Except Par Values) | March 31 | December 31, | |||||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and Cash Equivalents | $ | 83,110 | $ | 51,802 | |||
| Accounts Receivable, Net | 121,230 | 128,217 | |||||
| Unbilled Revenues, at Estimated Billable Amounts | 108,898 | 103,894 | |||||
| Income Taxes Receivable | 13,289 | 7,820 | |||||
| Prepaid Expenses and Other Current Assets | 23,470 | 23,476 | |||||
| Total Current Assets | 349,997 | 315,209 | |||||
| Net Property and Equipment | 30,680 | 31,425 | |||||
| Other Assets: | |||||||
| Operating Lease Right-of-Use Asset, Net | 108,974 | 102,354 | |||||
| Goodwill | 62,883 | 80,642 | |||||
| Intangible Assets Arising from Business Acquisitions, Net | 72,625 | 75,083 | |||||
| Capitalized Software Costs, Net | 65,850 | 66,445 | |||||
| Deferred Income Tax Assets | 19,221 | 17,971 | |||||
| Other Noncurrent Assets | 71,442 | 70,884 | |||||
| Total Other Assets | 400,995 | 413,379 | |||||
| Total Assets | $ | 781,672 | $ | 760,013 | |||
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT | |||||||
| Current Liabilities: | |||||||
| Short-Term Borrowings | $ | 39,784 | $ | 28,531 | |||
| Accounts Payable | 33,335 | 34,377 | |||||
| Operating Lease Liability | 29,277 | 30,765 | |||||
| Accrued Compensation and Related Costs | 58,140 | 68,499 | |||||
| Self-Insured Risks | 10,594 | 11,311 | |||||
| Income Taxes Payable | — | 3,030 | |||||
| Other Accrued Liabilities | 35,948 | 31,449 | |||||
| Deferred Revenues | 31,265 | 28,288 | |||||
| Current Installments of Finance Leases | 38 | 15 | |||||
| Total Current Liabilities | 238,381 | 236,265 | |||||
| Noncurrent Liabilities: | |||||||
| Long-Term Debt and Finance Leases, Less Current Installments | 187,271 | 148,408 | |||||
| Operating Lease Liability | 95,522 | 87,064 | |||||
| Deferred Revenues | 24,042 | 24,080 | |||||
| Accrued Pension Liabilities | 60,548 | 65,909 | |||||
| Other Noncurrent Liabilities | 31,677 | 33,410 | |||||
| Total Noncurrent Liabilities | 399,060 | 358,871 | |||||
| Redeemable Noncontrolling Interests | 430 | 2,310 | |||||
| Shareholders’ Investment: | |||||||
| Class A Common Stock, $1.00 Par Value | 30,519 | 30,610 | |||||
| Class B Common Stock, $1.00 Par Value | 22,510 | 22,671 | |||||
| Additional Paid-in Capital | 63,949 | 63,392 | |||||
| Retained Earnings | 231,927 | 249,551 | |||||
| Accumulated Other Comprehensive Loss | (207,876 | ) | (206,907 | ) | |||
| Shareholders’ Investment Attributable to Shareholders of Crawford & Company | 141,029 | 159,317 | |||||
| Noncontrolling Interests | 2,772 | 3,250 | |||||
| Total Shareholders’ Investment | 143,801 | 162,567 | |||||
| Total Liabilities and Shareholders’ Investment | $ | 781,672 | $ | 760,013 |
Page 11 of 14
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT COMPENSATION AND OTHER EXPENSES
Unaudited
(In Thousands, Except Percentages)
Three Months Ended March 31,
| Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||||||||||||
| Revenues Before Reimbursements | $ | 96,935 | $ | 97,794 | (0.9 | )% | $ | 77,587 | $ | 83,319 | (6.9 | )% | $ | 63,009 | $ | 65,945 | (4.5 | )% | ||||||
| Direct Compensation, Fringe Benefits & Non-Employee Labor | 58,929 | 58,381 | 0.9 | % | 53,380 | 55,901 | (4.5 | )% | 35,871 | 34,958 | 2.6 | % | ||||||||||||
| % of Revenues Before Reimbursements | 60.8 | % | 59.7 | % | 68.8 | % | 67.1 | % | 56.9 | % | 53.0 | % | ||||||||||||
| Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor | 31,721 | 32,680 | (2.9 | )% | 27,886 | 27,731 | 0.6 | % | 20,181 | 18,792 | 7.4 | % | ||||||||||||
| % of Revenues Before Reimbursements | 32.7 | % | 33.4 | % | 35.9 | % | 33.3 | % | 32.0 | % | 28.5 | % | ||||||||||||
| Total Operating Expenses | 90,650 | 91,061 | (0.5 | )% | 81,266 | 83,632 | (2.8 | )% | 56,052 | 53,750 | 4.3 | % | ||||||||||||
| Operating Earnings^(1)^ | $ | 6,285 | $ | 6,733 | (6.7 | )% | $ | (3,679 | ) | $ | (313 | ) | 1,075.4 | % | $ | 6,957 | $ | 12,195 | (43.0 | )% | ||||
| % of Revenues Before Reimbursements | 6.5 | % | 6.9 | % | (4.7 | )% | (0.4 | )% | 11.0 | % | 18.5 | % |
^(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, and certain unallocated corporate and shared costs and credits. See pages 4-5 for additional information about segment operating earnings.
Page 12 of 14
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT AND INDIRECT COSTS
Unaudited
(In Thousands, Except Percentages)
Three Months Ended March 31,
| Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||||||||||||
| Revenues Before Reimbursements | $ | 96,935 | $ | 97,794 | (0.9 | )% | $ | 77,587 | $ | 83,319 | (6.9 | )% | $ | 63,009 | $ | 65,945 | (4.5 | )% | ||||||
| Direct Expense | 73,694 | 72,331 | 1.9 | % | 63,800 | 66,242 | (3.7 | )% | 44,007 | 43,504 | 1.2 | % | ||||||||||||
| % of Revenues Before Reimbursements | 76.0 | % | 74.0 | % | 82.2 | % | 79.5 | % | 69.8 | % | 66.0 | % | ||||||||||||
| Segment Gross Profit | 23,241 | 25,463 | (8.7 | )% | 13,787 | 17,077 | (19.3 | )% | 19,002 | 22,441 | (15.3 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 24.0 | % | 26.0 | % | 17.8 | % | 20.5 | % | 30.2 | % | 34.0 | % | ||||||||||||
| Indirect Costs | 16,956 | 18,730 | (9.5 | )% | 17,466 | 17,390 | 0.4 | % | 12,045 | 10,246 | 17.6 | % | ||||||||||||
| % of Revenues Before Reimbursements | 17.5 | % | 19.2 | % | 22.5 | % | 20.9 | % | 19.1 | % | 15.5 | % | ||||||||||||
| Operating Earnings^(1)^ | $ | 6,285 | $ | 6,733 | (6.7 | )% | $ | (3,679 | ) | $ | (313 | ) | 1,075.4 | % | $ | 6,957 | $ | 12,195 | (43.0 | )% | ||||
| % of Revenues Before Reimbursements | 6.5 | % | 6.9 | % | (4.7 | )% | (0.4 | )% | 11.0 | % | 18.5 | % |
^(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, and certain unallocated corporate and shared costs and credits. See pages 4-5 for additional information about segment operating earnings.
Page 13 of 14
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, 2020 and March 31, 2019
Unaudited
| (In Thousands) | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities: | |||||||
| Net (Loss) Income | $ | (13,159 | ) | $ | 5,769 | ||
| Reconciliation of Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities: | |||||||
| Depreciation and Amortization | 10,060 | 9,624 | |||||
| Goodwill Impairment | 17,674 | — | |||||
| Stock-Based Compensation Costs | 880 | (247 | ) | ||||
| Changes in Operating Assets and Liabilities: | |||||||
| Accounts Receivable, Net | 6,084 | 1,571 | |||||
| Unbilled Revenues, Net | (7,240 | ) | (8,361 | ) | |||
| Accrued or Prepaid Income Taxes | (10,355 | ) | 1,922 | ||||
| Accounts Payable and Accrued Liabilities | (4,617 | ) | (8,257 | ) | |||
| Deferred Revenues | 2,898 | 1,578 | |||||
| Accrued Retirement Costs | (8,638 | ) | (3,393 | ) | |||
| Prepaid Expenses and Other Operating Activities | (1,565 | ) | 317 | ||||
| Net Cash (Used in) Provided by Operating Activities | (7,978 | ) | 523 | ||||
| Cash Flows From Investing Activities: | |||||||
| Acquisitions of Property and Equipment | (2,708 | ) | (1,737 | ) | |||
| Capitalization of Computer Software Costs | (4,803 | ) | (1,605 | ) | |||
| Net Cash Used in Investing Activities | (7,511 | ) | (3,342 | ) | |||
| Cash Flows From Financing Activities: | |||||||
| Cash Dividends Paid | (3,268 | ) | (3,282 | ) | |||
| Proceeds from Shares Purchased Under Employee Stock-Based Compensation Plans | 10 | (110 | ) | ||||
| Repurchases of Common Stock | (2,666 | ) | (16,418 | ) | |||
| Increases in Revolving Credit Facility Borrowings | 65,179 | 30,385 | |||||
| Payments on Revolving Credit Facility Borrowings | (11,910 | ) | (11,578 | ) | |||
| Increases in Finance Lease Obligations | 138 | — | |||||
| Payments on Finance Lease Obligations | (2 | ) | (54 | ) | |||
| Acquisition of Noncontrolling Interests | (292 | ) | — | ||||
| Dividends Paid to Noncontrolling Interests | — | (84 | ) | ||||
| Net Cash Provided by (Used In) Financing Activities | 47,189 | (1,141 | ) | ||||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | (392 | ) | 515 | ||||
| Increase (Decrease) in Cash and Cash Equivalents | 31,308 | (3,445 | ) | ||||
| Cash and Cash Equivalents at Beginning of Year | 51,802 | 53,119 | |||||
| Cash and Cash Equivalents at End of Period | $ | 83,110 | $ | 49,674 |
Page 14 of 14
exhibit99233120r28304da0
2 Forward-Looking Statements and Additional Information Forward-Looking Statements This presentation 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 statements of historical fact may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other 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. Results for any interim period presented herein are not necessarily indicative of results to be expected for the full year or for any other future period. For further information regarding Crawford & Company, and the risks and uncertainties involved in forward-looking statements, please read Crawford & Company's reports filed with the Securities and Exchange Commission and available at www.sec.gov or in the Investor Relations section of Crawford & Company's website at www.crawco.com. Crawford's business is dependent, to a significant extent, 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 cases and revenue for the Company, are generally not subject to accurate forecasting. Revenues Before Reimbursements ("Revenues") Revenues Before Reimbursements are referred to as "Revenues" in both consolidated and segment charts, bullets and tables throughout this presentation. Segment and Consolidated Operating Earnings Under the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 280, "Segment Reporting," the Company has defined segment operating earnings as the primary measure used by the Company to evaluate the results of each of its three operating segments. Segment operating earnings represent segment earnings, including the direct and indirect costs of certain administrative functions required to operate our business, but excludes unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, income taxes and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests. Earnings Per Share 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. In certain periods, the Company has paid a higher dividend on CRD-A than on CRD-B. This may result in a different earnings per share ("EPS") for each class of stock due to the two-class method of computing EPS as required by ASC Topic 260 - "Earnings Per Share". The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period. Segment Gross Profit Segment gross profit is defined as segment revenues, less direct costs, which exclude indirect centralized administrative support costs 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. Non-GAAP Financial Information For additional information about certain non-GAAP financial information presented herein, see the Appendix following this presentation.
3
First Quarter 2020 Financial Highlights 4
Crawford's Response to COVID-19 5
First Quarter 2020 Performance 6
7 Execution Across Our Service Lines
8 Current Market Trends
9 Disciplined Capital Allocation
10
11 First Quarter 2020 Financial Summary Quarter Ended March 31, March 31, ($ in millions, except per share amounts) 2020 2019 % Change Revenues $237.5 $247.1 (4)% Non-GAAP Revenues excluding foreign exchange fluctuations(1) $238.8 $247.1 (3)% Net (Loss) Income Attributable to Shareholders of Crawford & Company ($11.4) $6.1 (287)% Diluted (Loss) Earnings per Share CRD-A ($0.21) $0.12 (275)% CRD-B ($0.23) $0.10 (330)% Non-GAAP Diluted Earnings per Share (1) CRD-A $0.03 $0.12 (75)% CRD-B $0.01 $0.10 (90)% Adjusted Operating Earnings (1) $7.0 $14.7 (52)% Adjusted Operating Margin (1) 2.9% 5.9% (300)bps Adjusted EBITDA (1) $16.7 $21.1 (21)% Adjusted EBITDA Margin (1) 7.0% 8.5% (150)bps (1) See appendix for non-GAAP explanation and reconciliation of non-GAAP measures.
12 Crawford TPA Solutions Segment Highlights Three months ended Highlights 2020 (in thousands, except March 31, March 31, Based on percentages) 2020 2019 Variance 2019 rates Variance • U.S. client renewal rate at 98% and several new client wins in the quarter Revenues $96,935 $97,794 (0.9%) $97,278 (0.5%) • Economic weakness caused claims volume headwinds, with slight increase in claims from the Direct expenses 73,694 72,331 1.9% 73,944 2.2% healthcare sector Gross profit 23,241 25,463 (8.7%) 23,334 (8.4%) Indirect expenses 16,956 18,730 (9.5%) 16,990 (9.3%) Operating Results (1Q 2020 v. 1Q 2019) Operating earnings $6,285 $6,733 (6.7%) $6,344 (5.8%) Gross profit margin 24.0% 26.0% (2.0%) 24.0% (2.0%) • Revenues of $96.9 million versus $97.8 million • Constant dollar revenues of $97.3 million Operating margin 6.5% 6.9% (0.4%) 6.5% (0.4%) • Gross profit of $23.2 million versus $25.5 million • Gross profit margin of 24.0% versus 26.0% Total cases received 204,600 201,694 1.4% • Operating earnings of $6.3 million versus $6.7 Full time equivalent million employees 3,230 3,158 2.3% • Operating earnings margin of 6.5% versus 6.9%
13 Crawford Claims Solutions Segment Highlights Three months ended 2020 Highlights (in thousands, except March 31, March 31, Based on percentages) 2020 2019 Variance 2019 rates Variance • Secured new Dallas site with over 600 staff Revenues $77,587 $83,319 (6.9%) $78,211 (6.1%) members to support our newest large carrier • Accelerated deployment of YouGoLook, video Direct expenses 63,800 66,242 (3.7%) 64,218 (3.1%) collaboration, and other new adjusting capabilities • Benign weather in North America with no named Gross profit 13,787 17,077 (19.3%) 13,993 (18.1%) storms and warm temperatures Indirect expenses 17,466 17,390 0.4% 17,560 1.0% Operating loss ($3,679) ($313) nm ($3,567) nm Operating Results (1Q 2020 v. 1Q 2019) Gross profit margin 17.8% 20.5% (2.7%) 17.9% (2.6%) • Revenues of $77.6 million versus $83.3 million Operating margin (4.7%) (0.4%) (4.3%) (4.6%) (4.2%) • Constant dollars revenues of $78.2 million • Gross profit of $13.8 million versus $17.1 million Total cases received 111,407 119,182 (6.5%) • Gross profit margin of 17.8% versus 20.5% Full time equivalent • Operating loss of $(3.7) million versus $(0.3) million employees 2,748 2,908 (5.5%) • Operating loss margin of (4.7)% versus (0.4)%
14 Crawford Specialty Solutions Segment Highlights Highlights Three months ended • 2020 (in thousands, except March 31, March 31, Based on percentages) 2020 2019 Variance 2019 rates Variance • GTS added several new programs across the globe, and we expanded our presence in Japan, the Revenues $63,009 $65,945 (4.5%) $63,310 (4.0%) world's third largest insurance market • Beginning to see COVID-19-related BI claims Direct expenses 44,007 43,504 1.2% 44,249 1.7% activity Gross profit 19,002 22,441 (15.3%) 19,061 (15.1%) • Lower assignments in North America for Contractor Connection driven by benign weather Indirect expenses 12,045 10,246 17.6% 12,086 18.0% Operating earnings $6,957 $12,195 (43.0%) $6,975 (42.8%) Operating Results (1Q 2020 v. 1Q 2019) Gross profit margin 30.2% 34.0% (3.8%) 30.1% (3.9%) Operating margin 11.0% 18.5% (7.5%) 11.0% (7.5%) • Revenues of $63.0 million versus $65.9 million • Constant dollars of $63.3 million Total cases received 69,521 86,387 (19.5%) • Gross profit of $19.0 million versus $22.4 million Full time equivalent • Gross profit margin of 30.2% versus 34.0% employees 1,458 1,496 (2.5%) • Operating earnings of $7.0 million versus $12.2 million • Operating margin of 11.0% versus 18.5%
15 Balance Sheet Highlights March 31, December 31, Unaudited ($ in thousands) 2020 2019 Change Cash and cash equivalents $ 83,110 $ 51,802 $ 31,308 Accounts receivable, net 121,230 128,217 (6,987) Unbilled revenues, net 108,898 103,894 5,004 Total receivables 230,128 232,111 (1,983) Goodwill 62,883 80,642 (17,759) Intangible assets arising from business acquisitions, net 72,625 75,083 (2,458) Deferred revenues 55,307 52,368 2,939 Pension liabilities 60,548 65,909 (5,361) Short-term borrowings and current portion of finance leases 39,822 28,546 11,276 Long-term debt, less current portion 187,271 148,408 38,863 Total debt 227,093 176,954 50,139 Total stockholders' equity attributable to Crawford & Company 141,029 159,317 (18,288) Net debt (1) 143,983 125,152 18,831 (1) See Appendix for non-GAAP explanation and reconciliation
16 Operating and Free Cash Flow For the year to date periods ended March 31, Unaudited ($ in thousands) 2020 2019 Change Net Income Attributable to Shareholders of Crawford & Company $ (11,399) $ 6,109 $ (17,508) Goodwill Impairment 17,674 — 17,674 Depreciation and Other Non-Cash Operating Items 9,180 9,037 143 Billed Receivables Change 6,084 1,571 4,513 Unbilled Receivables Change (7,240) (8,361) 1,121 Change in Accrued Compensation and 401K (10,928) (8,960) (1,968) Change in Accrued and Prepaid Income Taxes (10,355) 1,922 (12,277) Other Working Capital Changes 2,162 (602) 2,764 U.S. and U.K. Pension Contributions (3,156) (193) (2,963) Cash Flows from Operating Activities (7,978) 523 (8,501) Property & Equipment Purchases, net (2,708) (1,737) (971) Capitalized Software (internal and external costs) (4,803) (1,605) (3,198) Free Cash Flow(1) $ (15,489) $ (2,819) $ (12,670) (1) See Appendix for non-GAAP explanation and reconciliation
17 2020 Outlook
18 CONCLUSION Looking forward at Crawford's four primary objectives:
19
21 Appendix: Non-GAAP Financial Information Measurements of financial performance not calculated in accordance with GAAP should be considered as supplements to, and not substitutes for, performance measurements calculated or derived in accordance with GAAP. Any such measures are not necessarily comparable to other similarly-titled measurements employed by other companies. Reimbursements for Out-of-Pocket Expenses In the normal course of our business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues, respectively, in our consolidated results of operations. In this presentation, we do not believe it is informative to include in reported revenues the amounts of reimbursed expenses and related revenues, as they offset each other in our consolidated results of operations with no impact to our net income or operating earnings. As a result, unless noted in this presentation, revenue and expense amounts exclude reimbursements for out-of-pocket expenses. Net Debt Net debt is computed as the sum of long-term debt, capital leases and short-term borrowings less cash and cash equivalents. Management believes that net debt is useful because it provides investors with an estimate of what the Company's debt would be if all available cash was used to pay down the debt of the Company. The measure is not meant to imply that management plans to use all available cash to pay down debt. Free Cash Flow Management believes free cash flow is useful to investors as it presents the amount of cash the Company has generated that can be used for other purposes, including additional contributions to the Company's defined benefit pension plans, discretionary prepayments of outstanding borrowings under our credit agreement, and return of capital to shareholders, among other purposes. It does not represent the residual cash flow of the Company available for discretionary expenditures. Segment and Consolidated Operating Earnings Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker to evaluate the financial performance of our Company and operating segments, and make resource allocation and certain compensation decisions. Management believes operating earnings is useful to others in that it allows them to evaluate segment and consolidated operating performance using the same criteria our management and chief operating decision maker use. Consolidated operating earnings represent segment earnings including certain unallocated corporate and shared costs and credits, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, income taxes and net income or loss attributable to noncontrolling interests.
22 Appendix: Non-GAAP Financial Information (cont.) Segment and Consolidated Gross Profit 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 Adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results and 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 goodwill impairment and restructuring costs have been included in the calculation of adjusted EBITDA. 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. Adjusted Revenue, Operating Earnings, Pretax Earnings, Net Income, Diluted Earnings per Share and EBITDA Included in non-GAAP adjusted measurements as an add back or subtraction to GAAP measurements, are impacts of goodwill impairment, restructuring costs and foreign exchange impacts, which arise from non-core items not directly related to our normal business or operations, or our future performance. Management believes it is useful to exclude these charges when comparing net income and diluted earnings per share across periods, as these charges are not from ordinary operations.
23 Total Revenues Before Reimbursements by Major Currency The following table illustrates revenue as a percentage of total revenue in the major currencies of the geographic areas in which Crawford does business: Three Months Ended March 31, March 31, (in thousands) 2020 2019 USD USD Geographic Area Currency equivalent % of total equivalent % of total U.S. USD $ 134,448 56.6% $ 139,598 56.5% U.K. GBP 32,382 13.6% 31,581 12.8% Canada CAD 25,220 10.6% 29,884 12.1% Australia AUD 15,545 6.5% 16,255 6.6% Europe EUR 13,389 5.6% 12,865 5.2% Rest of World Various 16,547 7.0% 16,875 6.8% Total Revenues, before reimbursements $ 237,531 100% $ 247,058 100%
24 Reconciliation of Non-GAAP Items Revenues, Costs of Services Provided, and Operating Earnings Quarter Ended Quarter Ended March 31, March 31, Unaudited ($ in thousands) 2020 2019 Revenues Before Reimbursements Total Revenues $ 246,046 $ 256,377 Reimbursements (8,515) (9,319) Revenues Before Reimbursements $ 237,531 $ 247,058 Costs of Services Provided, Before Reimbursements Total Costs of Services $ 186,119 $ 187,207 Reimbursements (8,515) (9,319) Costs of Services Provided, Before Reimbursements $ 177,604 $ 177,888 Quarter Ended Quarter Ended March 31, March 31, Unaudited ($ in thousands) 2020 2019 Operating Earnings: Crawford Claims Solutions $ (3,679) $ (313) Crawford TPA Solutions 6,285 6,733 Crawford Specialty Solutions 6,957 12,195 Unallocated corporate and shared costs and credits, net (2,550) (3,914) Consolidated Operating Earnings 7,013 14,701 (Deduct) Add: Net corporate interest expense (2,224) (2,716) Stock option expense (290) (485) Amortization expense (2,756) (2,798) Goodwill impairment (17,674) — Restructuring costs (5,714) — Income tax benefit (provision) 8,486 (2,933) Net loss attributable to non-controlling interests and redeemable noncontrolling interests 1,760 340 Net (Loss) Income Attributable to Shareholders of Crawford & Company $ (11,399) $ 6,109
25 Reconciliation of Non-GAAP Items (cont.) Adjusted EBITDA Quarter Ended March 31, March 31, Unaudited ($ in thousands) 2020 2019 Net (loss) income attributable to shareholders of Crawford & Company $ (11,399) $ 6,109 Add: Depreciation and amortization 10,060 9,624 Stock-based compensation 880 (247) Net corporate interest expense 2,224 2,716 Goodwill impairment 17,674 — Restructuring costs 5,714 — Income tax (benefit) provision (8,486) 2,933 Foreign exchange impacts 16 — Adjusted EBITDA $ 16,683 $ 21,135
26 Reconciliation of Non-GAAP Items (cont.) Net Debt March 31, December 31, Unaudited ($ in thousands) 2020 2019 Net Debt Short-term borrowings $ 39,784 $ 28,531 Current installments of capital leases 38 15 Long-term debt and capital leases, less current installments 187,271 148,408 Total debt 227,093 176,954 Less: Cash and cash equivalents 83,110 51,802 Net debt $ 143,983 $ 125,152
27 Reconciliation of Non-GAAP Items (cont.) Segment Gross Profit Three months ended March 31, 2020 March 31, 2019 (in thousands) Segment gross profit: Crawford TPA Solutions $ 23,241 $ 25,463 Crawford Claims Solutions 13,787 17,077 Crawford Specialty Solutions 19,002 22,441 Segment gross profit 56,030 64,981 Segment indirect costs: Crawford TPA Solutions (16,956) (18,730) Crawford Claims Solutions (17,466) (17,390) Crawford Specialty Solutions (12,045) (10,246) Unallocated corporate and shared costs, net (2,550) (3,914) Consolidated operating earnings 7,013 14,701 Net corporate interest expense (2,224) (2,716) Stock option expense (290) (485) Amortization expense (2,756) (2,798) Goodwill impairment (17,674) — Restructuring costs (5,714) — Income tax benefit (provision) 8,486 (2,933) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests 1,760 340 Net (loss) income attributable to shareholders of Crawford & Company $ (11,399) $ 6,109
28 Reconciliation of First Quarter Non-GAAP Results Three Months Ended March 31, 2020 Net (Loss) Income Non-GAAP Attributable Diluted (Loss) Diluted (Loss) Operating to Crawford & Earnings per Earnings per Unaudited ($ in thousands) Revenues Earnings Pretax Loss Company CRD-A Share CRD-B Share GAAP $ 237,531 $ 7,013 $ (21,645) $ (11,399) $ (0.21) $ (0.23) Adjustments: Goodwill impairment — — 17,674 — 9,133 0.18 0.18 Restructuring costs — — 5,714 — 3,263 0.06 0.06 Foreign exchange fluctuations 1,268 9 16 1 (10) — — , Non-GAAP Adjusted $ 238,799 $ 7,022 $ 1,759 $ 987 $ 0.03 $ 0.01 Three Months Ended March 31, 2019 Net Income Non-GAAP Attributable Diluted Diluted Operating Pretax to Crawford & Earnings per Earnings per Unaudited ($ in thousands) Revenues Earnings Earnings Company CRD-A Share CRD-B Share GAAP $ 247,058 $ 14,701 $ 8,702 $ 6,109 $ 0.12 $ 0.10 Adjustments: — — — — — — Non-GAAP Adjusted $ 247,058 $ 14,701 $ 8,702 $ 6,109 $ 0.12 $ 0.10