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): March 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 March 5, 2020, Crawford & Company (the "Company") issued a press release containing information about the Company's financial results for the fourth quarter 2019. 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 Friday, March 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 March 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: March 5, 2020
3
Exhibit
Crawford & Company®
5335 Triangle Parkway
Peachtree Corners, GA 30092
FOR IMMEDIATE RELEASE
CRAWFORD & COMPANY REPORTS 2019 FOURTH QUARTER AND FULL YEAR RESULTS
ISSUES INITIAL 2020 GUIDANCE
ATLANTA, (March 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 fourth quarter and full year ended December 31, 2019.
The Company’s two classes of stock are substantially identical, except with respect to voting rights and the Company’s ability to pay greater cash dividends on the non-voting Class A Common Stock (CRD-A) than on the voting Class B Common Stock (CRD-B), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRD-A must receive the same type and amount of consideration as holders of CRD-B, unless different consideration is approved by the holders of 75% of CRD-A, voting as a class.
GAAP Consolidated Results
Fourth Quarter 2019
| • | Revenues before reimbursements of $247.2 million, compared with $263.8 million for the 2018 fourth quarter |
|---|---|
| • | Net loss attributable to shareholders of $(7.3) million, compared to income of $11.9 million in the same period last year |
| --- | --- |
| • | Diluted loss per share of $(0.13) for CRD-A and $(0.15) for CRD-B, compared with earnings per share of $0.22 for CRD-A and $0.20 for CRD-B in the prior year fourth quarter |
| --- | --- |
Non-GAAP Consolidated Results
Fourth Quarter 2019
Non-GAAP results for the 2019 fourth quarter have been presented on a constant dollar basis to 2018 and exclude goodwill impairment charges and valuation allowances on certain deferred tax assets. Non-GAAP consolidated results for the 2018 quarter exclude intangible asset impairment charges, loss on disposition of business line and the impact of tax reform in the U.S.
| • | Revenues before reimbursements, on a non-GAAP basis, of $253.3 million, decreasing 4.0% compared with $263.8 million for the 2018 fourth quarter |
|---|---|
| • | Net income attributable to shareholders, on a non-GAAP basis, totaled $7.9 million in the 2019 fourth quarter, down compared to $17.3 million in the same period last year |
| --- | --- |
| • | Diluted earnings per share, on a non-GAAP basis, of $0.16 for CRD-A and $0.14 for CRD-B in the 2019 fourth quarter, down from $0.32 for CRD-A and $0.30 for CRD-B in the prior year fourth quarter |
| --- | --- |
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| • | Consolidated adjusted operating earnings, on a non-GAAP basis, were $17.2 million, or 6.8% of non-GAAP revenues, in the 2019 fourth quarter, down compared with $32.2 million, or 12.2% of revenues, in the 2018 fourth quarter |
|---|---|
| • | Consolidated adjusted EBITDA, a non-GAAP financial measure, was $27.9 million, or 11.0% of non-GAAP revenues, in the 2019 fourth quarter, down compared with $41.4 million, or 15.7% of revenues, in the 2018 fourth quarter |
| --- | --- |
GAAP Consolidated Results
Full Year 2019
| • | Revenues before reimbursements of $1.006 billion in 2019, compared with $1.071 billion for 2018 |
|---|---|
| • | Net income attributable to shareholders of $12.5 million, compared to $26.0 million in 2018 |
| --- | --- |
| • | Diluted earnings per share of $0.26 for CRD-A and $0.19 for CRD-B, compared with $0.50 for CRD-A and $0.42 for CRD-B in 2018 |
| --- | --- |
Non-GAAP Consolidated Results
Full Year 2019
Non-GAAP results for 2019 full year have been presented on a constant dollar basis to 2018 and excluding goodwill impairment charges, arbitration and claim settlements and valuation allowances on certain deferred tax assets. Non-GAAP consolidated results for the 2018 full year exclude net operating results of the Garden City Group business, the “GCG business”, disposed of on June 15, 2018, the loss on disposition of the GCG business line, intangible asset impairment charges and the impact of tax reform in the U.S.
| • | Revenues before reimbursements, on a non-GAAP basis, of $1.027 billion, decreasing 1.3% compared with $1.041 billion for 2018 |
|---|---|
| • | Net income attributable to shareholders, on a non-GAAP basis, totaled $37.3 million in 2019 compared to $46.3 million last year |
| --- | --- |
| • | Diluted earnings per share, on a non-GAAP basis, of $0.72 for CRD-A and $0.65 for CRD-B in 2019, down from $0.86 for CRD-A and $0.79 for CRD-B in the prior year |
| --- | --- |
| • | Consolidated adjusted operating earnings, on a non-GAAP basis, were $78.7 million, or 7.7% of non-GAAP revenues, in 2019, down compared with $89.5 million, or 8.6% of revenues, in 2018 |
| --- | --- |
| • | Consolidated adjusted EBITDA, a non-GAAP financial measure, was $112.8 million, or 11.0% of non-GAAP revenues in 2019, compared with $127.2 million, or 12.2% of revenues, in 2018 |
| --- | --- |
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Management Comments
Mr. Harsha V. Agadi, president and chief executive officer of Crawford & Company, stated, “Operating a business with exposure to weather can ultimately be difficult to predict, and so while the impact on the fourth quarter and full year results were largely driven by external factors, we were still able to deliver on many of our objectives. We grew operating and free cash flow significantly, invested $14.0 million in innovations to better equip our client service delivery teams around the world, built a more robust pipeline of sales opportunities in all of our global service lines, and closed a large number of new clients which should help drive our growth in 2020. We continued to leverage our previous investments in technology towards broadening our product offerings, which has allowed us to close a number of small- and mid-sized carrier clients in the year.”
Mr. Agadi concluded, “Going forward, we will continue to focus on the areas we can control. On the expense side, we have identified several areas of cost savings that we expect to gain traction in the second quarter of this year, we will continue to focus on cash generation, paying down debt, and maintaining our strong and flexible balance sheet so that we can remain nimble with our strategic investments. Long term, we remain committed to sustained revenue and earnings growth, and are confident we have laid the foundation to achieve our future business goals. With catastrophic climate conditions as the new reality, our global teams are equipped to handle the increased claims volumes that should ensue. We have developed industry-leading offerings that are innovative and attractive to our customers who increasingly view us as strategic partners. Long term, this Company remains on a path to sustained growth and driving free cash flow generation to support our investments and returning cash to shareholders, which we believe will deliver meaningful value creation for our shareholders.”
Segment Results for the Fourth Quarter and Full Year
Crawford TPA Solutions
Crawford TPA Solutions segment revenues before reimbursements were $97.0 million in the 2019 fourth quarter, decreasing from $102.2 million in the 2018 fourth quarter. Absent foreign currency rate fluctuations of $1.0 million, fourth quarter 2019 revenues would have been $98.0 million, down 4.1% from prior year fourth quarter.
Excluding centralized indirect support costs, gross profit decreased to $23.8 million, or a gross margin of 24.6% in 2019 from $29.8 million, or a gross margin of 29.1% in 2018. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $6.1 million in the fourth quarter of 2019 representing an operating margin of 6.3% compared with $12.9 million, or 12.6% of revenues, in the 2018 fourth quarter.
For the year, Crawford TPA Solutions segment revenues before reimbursements were $393.9 million a decrease from $405.3 million in 2018. Absent foreign exchange rate fluctuations of $3.7 million, 2019 revenues were $397.6 million, down 1.9% from prior year.
Excluding centralized indirect support costs, gross profit decreased to $99.7 million, or a gross margin of 25.3% in 2019 from $109.2 million, or a gross margin of 26.9% in 2018. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $27.2 million in 2019 representing an operating margin of 6.9% compared with $36.9 million, or 9.1% of revenues, in 2018.
Crawford Claims Solutions
Crawford Claims Solutions revenues before reimbursements were $84.3 million in the fourth quarter of 2019, decreasing from $92.2 million in the fourth quarter of 2018. Absent foreign currency rate fluctuations of $3.0 million, fourth quarter 2019 revenues would have been $87.3 million, down 5.3% from the prior year fourth quarter.
Excluding centralized indirect support costs, gross profit decreased to $20.3 million, or a gross margin of 24.1% in 2019 from $21.1 million, or a gross margin of 22.9% in 2018. After the allocation of indirect costs, operating earnings were $3.6 million in the 2019 fourth quarter compared with operating earnings of $6.2 million in the fourth quarter of 2018. These results represent an operating margin of 4.2% in the 2019 quarter and 6.7% in the 2018 quarter.
Page 3 of 18
Crawford Claims Solutions revenues before reimbursements were $339.8 million for the full year 2019, decreasing from $361.1 million in 2018. Absent foreign currency rate fluctuations of $10.7 million, 2019 revenues were $350.5 million, down 2.9% from the prior year.
Excluding centralized indirect support costs, gross profit decreased to $76.7 million, or a gross margin of 22.6% in 2019 from $78.3 million, or a gross margin of 21.7% in 2018. After the allocation of indirect costs, operating earnings were $7.6 million in 2019 compared with operating earnings of $11.3 million in 2018. These results represent an operating margin of 2.2% in 2019 and 3.1% in 2018.
Crawford Specialty Solutions
Crawford Specialty Solutions revenues before reimbursements were $65.9 million in the fourth quarter of 2019, down from $69.4 million in the same period of 2018. Absent foreign exchange rate fluctuations of $2.1 million, revenues would have been $68.0 million for the three months ended December 31, 2019, decreasing 2.0% compared to prior year fourth quarter revenues of $69.4 million.
Excluding indirect support costs, gross profit decreased to $22.9 million, or a gross margin of 34.8% in the 2019 quarter, from $26.0 million, or a gross margin of 37.4%, in the 2018 period. After allocation of indirect costs, operating earnings were $11.2 million in the 2019 fourth quarter compared with $15.1 million in the 2018 period. The segment’s operating margin for the 2019 quarter was 17.0% as compared to 21.8% in the 2018 quarter.
Crawford Specialty Solutions revenues before reimbursements were $272.1 million in 2019, down from $304.6 million in 2018. Absent foreign exchange rate fluctuations of $7.2 million, revenues would have been $279.3 million for 2019, decreasing 8.3% over prior year revenues of $304.6 million, which included $29.9 million of GCG business revenues.
Excluding indirect support costs, gross profit decreased to $95.4 million, or a gross margin of 35.1% in 2019, down from $105.5 million, or a gross margin of 34.6%, in 2018, which included $6.2 million from the GCG business. After allocation of indirect costs, operating earnings were $49.3 million in 2019 compared with $49.6 million in 2018, which included $1.0 million from the GCG business. The segment’s operating margin for 2019 was 18.1% as compared to 16.3% in 2018.
Unallocated Corporate and Shared Costs and Credits, Net
Unallocated corporate costs, net were $4.1 million in the fourth quarter of 2019, compared with $2.0 million in the same period of 2018. The increase for the three months ended December 31, 2019 was primarily due to an increase in defined benefit pension expense of $1.1 million and bad debt expense of $0.7 million.
Unallocated corporate costs, net were $6.5 million in 2019, compared with $9.3 million in the same period of 2018. The decrease for 2019 was primarily due to lower professional fees of $4.9 million and other administrative costs of $2.3 million, partially offset by an increase of $4.4 million in U.S. defined benefit plan expense.
Arbitration and Claim Settlements
The Company recognized arbitration and claim settlement charges in 2019 of $12.6 million, or $0.17 per share after tax, related to an arbitration panel awarding three of four former executives of our former Garden City Group business unit additional payments associated with their departure from the Garden City Group on December 31, 2015, and a claim settlement with the fourth former executive. There are no other potential claimants related to this matter.
Page 4 of 18
Goodwill Impairment Charges
We recognized a non-cash goodwill impairment charge in 2019 totaling $17.5 million related to our Crawford Claims Solutions segment, due to lower forecasts in that reporting unit. This charge was partially offset by a $2.2 million reduction in income tax expense and $2.2 million credit in noncontrolling interest expense, or an aggregate impact of $0.24 per share.
Deferred Tax Asset Valuation Allowances
During the 2019 fourth quarter, the Company recognized a $2.0 million, or $0.04 per share, non-recurring deferred tax asset valuation allowance primarily related to certain state net operating loss carryforwards, foreign tax credits and capital losses. During the 2018 fourth quarter, the Company completed its accounting under Staff Accounting Bulletin No. 118 and recorded an income tax benefit of $3.4 million, or $0.06 per share, primarily related to the release of uncertain tax positions on transition tax, and an income tax expense of $7.0 million, or $0.13 per share, for valuation allowances against foreign tax credit carryforwards that are anticipated to expire unutilized.
Balance Sheet and Cash Flow
The Company’s consolidated cash and cash equivalents position as of December 31, 2019, totaled $51.8 million, compared with $53.1 million at December 31, 2018. The Company’s total debt outstanding as of December 31, 2019, totaled $177.0 million, compared with $190.4 million at December 31, 2018.
The Company’s operations provided $75.2 million of cash during 2019, compared with $52.4 million in 2018. The $22.8 million increase in cash provided by operating activities was primarily due to lower pension contributions and lower working capital requirements. Free cash flow improved by $31.7 million over 2018, reflecting lower capital expenditures in 2019 compared to 2018.
As expected, the Company made no contributions to its U.S defined benefit pension plan and $0.7 million to its U.K. plans for 2019, compared with contributions of $19.0 million and $5.0 million, respectively, in 2018.
During 2019, the Company repurchased 1,103,398 shares of CRD-A and 1,736,011 of CRD-B at an average cost of $9.33 and $9.17 per share, respectively. The total cost of share repurchases during 2019 was $26.2 million.
2020 Guidance
Crawford & Company is providing its initial guidance for 2020 as follows:
| • | Consolidated revenues before reimbursements between $1.00 and $1.05 billion; |
|---|---|
| • | Net income attributable to shareholders of Crawford & Company between $37.5 and $42.5 million, or $0.73 to $0.83 diluted earnings per CRD-A share, and $0.65 to $0.75 diluted earnings per CRD-B share; |
| --- | --- |
| • | Consolidated operating earnings between $80.0 and $90.0 million; |
| --- | --- |
| • | Consolidated adjusted EBITDA between $115.0 and $125.0 million. |
| --- | --- |
To a significant extent, Crawford’s business depends on claim volumes. The Company cannot predict the future trend of claim volumes for a number of reasons, including the fact that the frequency and severity of weather-related claims and the occurrence of natural and man-made disasters, which are a significant source of claims and revenue for the Company, are generally not subject to accurate forecasting.
Page 5 of 18
Conference Call
As previously announced, Crawford & Company will host a conference call on March 6, 2020 at 8:30 a.m. Eastern Time to discuss its fourth quarter 2019 results. The conference call can be accessed live by dialing 1-800-374-2518 and using Conference ID 6458497. 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 April 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 and intangible asset impairment charges, certain deferred tax asset tax valuation allowances, loss on disposition of business line, arbitration and claim settlements, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Gross profit is defined as revenues less direct expenses which exclude indirect overhead expenses allocated to the business. Indirect expenses consist of centralized administrative support costs, regional and local shared services that are allocated to each segment based on usage.
Adjusted EBITDA is not a term defined by GAAP and as a result our measure of adjusted EBITDA might not be comparable to similarly titled measures used by other companies. However, adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results. The Company believes that adjusted EBITDA is relevant and useful information widely used by analysts, investors and other interested parties. Adjusted EBITDA is defined as net income attributable to shareholders of the Company with recurring adjustments for depreciation and amortization, net corporate interest expense, income taxes and stock-based compensation expense and foreign exchange fluctuations. Additionally, adjustments for non-recurring expenses for goodwill and intangible asset impairment charges, certain deferred tax asset tax valuation allowances, arbitration and claim settlements, loss on disposition of business line and the disposed GCG business results have been included in the calculation of adjusted EBITDA.
Unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, certain unallocated professional fees, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
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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 | Twelve Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||
| Geographic Area | Currency | equivalent | % of total | equivalent | % of total | equivalent | % of total | equivalent | % of total | ||||
| U.S. | USD | 55.4 | % | 56.5 | % | 56.6 | % | 57.5 | % | ||||
| U.K. | GBP | 32,370 | 13.1 | % | 34,113 | 12.9 | % | 126,337 | 12.6 | % | 131,651 | 12.3 | % |
| Canada | CAD | 27,401 | 11.1 | % | 28,622 | 10.9 | % | 114,438 | 11.4 | % | 121,076 | 11.3 | % |
| Australia | AUD | 16,346 | 6.6 | % | 16,990 | 6.4 | % | 70,569 | 7.0 | % | 70,830 | 6.6 | % |
| Europe | EUR | 14,135 | 5.7 | % | 13,285 | 5.0 | % | 54,136 | 5.4 | % | 56,048 | 5.2 | % |
| Rest of World | Various | 20,021 | 8.1 | % | 21,638 | 8.2 | % | 71,117 | 7.1 | % | 75,679 | 7.1 | % |
| Total Revenues, before reimbursements | 100 | % | 100 | % | 100 | % | 100 | % |
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. The reconciliation of full year 2020 guidance is to the midpoint of the guidance range.
| Three months ended | Year Ended | Midpoint | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | Guidance 2020 | ||||||||||
| Operating earnings: | |||||||||||||||
| Crawford TPA Solutions | $ | 6,067 | $ | 12,895 | $ | 27,173 | $ | 36,909 | |||||||
| Crawford Claims Solutions | 3,572 | 6,198 | 7,630 | 11,308 | |||||||||||
| Crawford Specialty Solutions | 11,213 | 15,141 | 49,321 | 49,564 | |||||||||||
| Unallocated corporate and shared costs, net | (4,122 | ) | (2,005 | ) | (6,515 | ) | (9,321 | ) | |||||||
| Consolidated operating earnings | 16,730 | 32,229 | 77,609 | 88,460 | $ | 85,000 | |||||||||
| (Deduct) add: | |||||||||||||||
| Net corporate interest expense | (2,428 | ) | (2,707 | ) | (10,774 | ) | (10,109 | ) | (11,000 | ) | |||||
| Stock option expense | (537 | ) | (387 | ) | (1,885 | ) | (1,742 | ) | (2,050 | ) | |||||
| Amortization expense | (2,848 | ) | (2,810 | ) | (11,277 | ) | (11,152 | ) | (12,000 | ) | |||||
| Goodwill and intangible asset impairment charges | (17,484 | ) | (1,056 | ) | (17,484 | ) | (1,056 | ) | — | ||||||
| Arbitration and claim settlements | — | — | (12,552 | ) | — | — | |||||||||
| Tax valuation allowances | (1,991 | ) | — | (1,991 | ) | — | — | ||||||||
| Loss on disposition of business line | — | (1,274 | ) | — | (20,270 | ) | — | ||||||||
| Income taxes | (1,000 | ) | (12,287 | ) | (12,120 | ) | (18,542 | ) | (20,000 | ) | |||||
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | 2,246 | 230 | 2,959 | 389 | 50 | ||||||||||
| Net (loss) income attributable to shareholders of Crawford & Company | $ | (7,312 | ) | $ | 11,938 | $ | 12,485 | $ | 25,978 | $ | 40,000 |
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| Following is a reconciliation of net (loss) income attributable to shareholders of Crawford & Company on a GAAP basis to non-GAAP adjusted EBITDA. The reconciliation of full year 2020 guidance is to the midpoint of the guidance range. | Three months ended | Year Ended | Midpoint | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | Guidance 2020 | |||||||
| Net (loss) income attributable to shareholders of Crawford & Company | $ | (7,312 | ) | $ | 11,938 | $ | 12,485 | $ | 25,978 | $ | 40,000 | |
| Add (Deduct): | ||||||||||||
| Depreciation and amortization | 10,427 | 10,795 | 40,513 | 44,079 | 44,000 | |||||||
| Stock-based compensation | 1,499 | 1,358 | 4,109 | 6,196 | 5,000 | |||||||
| Net corporate interest expense | 2,428 | 2,707 | 10,774 | 10,109 | 11,000 | |||||||
| Goodwill and intangible asset impairment charges | 17,484 | 1,056 | 17,484 | 1,056 | — | |||||||
| Arbitration and claim settlements | — | — | 12,552 | — | — | |||||||
| Tax valuation allowances | 1,991 | — | 1,991 | — | — | |||||||
| Loss on disposition of business line | — | 1,274 | — | 20,270 | — | |||||||
| Income taxes | 1,000 | 12,287 | 12,120 | 18,542 | 20,000 | |||||||
| Foreign exchange fluctuations | 356 | — | 815 | — | — | |||||||
| Removal of the impact of the disposed GCG business | — | — | — | 1,007 | — | |||||||
| Non-GAAP adjusted EBITDA | $ | 27,873 | $ | 41,415 | $ | 112,843 | $ | 127,237 | $ | 120,000 |
Following is a reconciliation of operating cash flow to free cash flow for the year ended December 31, 2019 and December 31, 2018:
| Year Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 31, 2019 | December 31, 2018 | Change | |||||
| Net Cash Provided by Operating Activities | $ | 75,216 | $ | 52,419 | $ | 22,797 | ||
| Less: | ||||||||
| Property & Equipment Purchases, net | (8,688 | ) | (14,052 | ) | 5,364 | |||
| Capitalized Software (internal and external costs) | (12,436 | ) | (15,968 | ) | 3,532 | |||
| Free Cash Flow | $ | 54,092 | $ | 22,399 | $ | 31,693 |
Page 9 of 18
| Following are the reconciliations of GAAP Revenue, Operating Earnings, Pretax Earnings, Net (Loss) Income and (Loss) Earnings Per Share to related non-GAAP Adjusted figures, which reflect 2019 on a constant dollar basis before goodwill impairment charge, certain deferred tax asset valuation allowances and arbitration and claim settlements. These measures exclude the results of the disposal of the GCG business, goodwill and intangible impairment charges, the impact of tax reform in the U.S. and the loss on disposition of business line for the 2018 periods. | Three months ended December 31, 2019 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax (loss)earnings | Net (loss) income attributable to Crawford & Company | Diluted (loss) earnings per CRD-A share | Diluted (loss) earnings per CRD-B share | ||||||||||||||||||||
| GAAP | $ | 247,186 | $ | 16,730 | $ | (6,567 | ) | $ | (7,312 | ) | $ | (0.13 | ) | $ | (0.15 | ) | ||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Goodwill impairment charge | — | — | 17,484 | 13,057 | 0.24 | 0.24 | ||||||||||||||||||||
| Tax valuation allowances | — | — | — | 1,991 | 0.04 | 0.04 | ||||||||||||||||||||
| Foreign exchange fluctuations | 6,161 | 447 | 356 | 206 | 0.01 | 0.01 | ||||||||||||||||||||
| Non-GAAP Adjusted | $ | 253,347 | $ | 17,177 | $ | 11,273 | $ | 7,942 | $ | 0.16 | $ | 0.14 | ||||||||||||||
| Three months ended December 31, 2018 | ||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax earnings | Net income attributable to Crawford & Company | Diluted earnings per CRD-A share | Diluted earnings per CRD-B share | ||||||||||||||||||||
| GAAP | $ | 263,794 | $ | 32,229 | $ | 23,995 | $ | 11,938 | $ | 0.22 | $ | 0.20 | ||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Goodwill and intangible asset impairment charges | — | — | 1,056 | 785 | 0.01 | 0.01 | ||||||||||||||||||||
| Loss on disposition of business line, net of tax of $312 | — | — | 1,274 | 962 | 0.02 | 0.02 | ||||||||||||||||||||
| Impact of tax reform in the U.S. | — | — | — | 3,583 | 0.07 | 0.07 | ||||||||||||||||||||
| Non-GAAP Adjusted | $ | 263,794 | $ | 32,229 | $ | 26,325 | $ | 17,268 | $ | 0.32 | $ | 0.30 | Year ended December 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 | $ | 1,005,802 | $ | 77,609 | $ | 23,637 | $ | 12,485 | $ | 0.26 | $ | 0.19 | ||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Goodwill impairment charge | — | — | 17,484 | 13,057 | 0.24 | 0.24 | ||||||||||||||||||||
| Arbitration and claim settlements | — | — | 12,552 | 9,276 | 0.17 | 0.17 | ||||||||||||||||||||
| Tax valuation allowances | — | — | — | 1,991 | 0.04 | 0.04 | ||||||||||||||||||||
| Foreign exchange fluctuations | 21,592 | 1,136 | 815 | 471 | 0.01 | 0.01 | ||||||||||||||||||||
| Non-GAAP Adjusted | $ | 1,027,394 | $ | 78,745 | $ | 54,488 | $ | 37,280 | $ | 0.72 | $ | 0.65 |
Page 10 of 18
| Year ended December 31, 2018 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax earnings | Net income attributable to Crawford & Company | Diluted earnings per CRD-A share | Diluted earnings per CRD-B share | ||||||||||||
| GAAP | $ | 1,070,971 | $ | 88,460 | $ | 44,131 | $ | 25,978 | $ | 0.50 | $ | 0.42 | ||||||
| Adjustments: | ||||||||||||||||||
| Goodwill and intangible asset impairment charges | — | — | 1,056 | 785 | 0.01 | 0.01 | ||||||||||||
| Loss on disposition of business line, net of tax of $4,796 | — | — | 20,270 | 15,304 | 0.28 | 0.28 | ||||||||||||
| GCG business results | (29,875 | ) | 3,935 | 3,932 | 2,670 | 0.05 | 0.05 | |||||||||||
| Retained corporate overhead charged to GCG | — | (2,925 | ) | (2,925 | ) | (1,986 | ) | (0.04 | ) | (0.04 | ) | |||||||
| Impact of tax reform in the U.S. | — | — | — | 3,583 | 0.06 | 0.07 | ||||||||||||
| Non-GAAP Adjusted | $ | 1,041,096 | $ | 89,470 | $ | 66,464 | $ | 46,334 | $ | 0.86 | $ | 0.79 |
Following is information regarding the weighted average shares used in the computation of basic and diluted earnings per share.
| Three months ended | Year ended | |||
|---|---|---|---|---|
| (in thousands) | December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 |
| Weighted-Average Shares Used to Compute Basic Earnings Per Share: | ||||
| Class A Common Stock | 30,449 | 30,734 | 30,637 | 30,805 |
| Class B Common Stock | 22,689 | 24,429 | 22,975 | 24,449 |
| Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | ||||
| Class A Common Stock | 30,449 | 31,404 | 31,090 | 31,434 |
| Class B Common Stock | 22,689 | 24,429 | 22,975 | 24,449 |
Further information regarding the Company’s operating results for the quarter and year ended December 31, 2019, and financial position as of December 31, 2019, and cash flows for the year ended December 31, 2019 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.
Page 11 of 18
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. |
|---|
Page 12 of 18
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)
| Three Months Ended December 31, | 2019 | 2018 | % Change | ||||
|---|---|---|---|---|---|---|---|
| Revenues: | |||||||
| Revenues Before Reimbursements | $ | 247,186 | $ | 263,794 | (6 | )% | |
| Reimbursements | 10,376 | 10,726 | (3 | )% | |||
| Total Revenues | 257,562 | 274,520 | (6 | )% | |||
| Costs and Expenses: | |||||||
| Costs of Services Provided, Before Reimbursements | 177,284 | 181,617 | (2 | )% | |||
| Reimbursements | 10,376 | 10,726 | (3 | )% | |||
| Total Costs of Services | 187,660 | 192,343 | (2 | )% | |||
| Selling, General, and Administrative Expenses | 55,763 | 53,514 | 4 | % | |||
| Corporate Interest Expense, Net | 2,428 | 2,707 | (10 | )% | |||
| Goodwill and Intangible Asset Impairment Charges | 17,484 | 1,056 | 1,556 | % | |||
| Loss on Disposition of Business Line | — | 1,274 | nm | ||||
| Total Costs and Expenses | 263,335 | 250,894 | 5 | % | |||
| Other (Expense) Income | (794 | ) | 369 | (315 | )% | ||
| (Loss) Income Before Income Taxes | (6,567 | ) | 23,995 | (127 | )% | ||
| Provision for Income Taxes | 2,991 | 12,287 | (76 | )% | |||
| Net (Loss) Income | (9,558 | ) | 11,708 | (182 | )% | ||
| Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | 2,246 | 230 | 877 | % | |||
| Net (Loss) Income Attributable to Shareholders of Crawford & Company | $ | (7,312 | ) | $ | 11,938 | (161 | )% |
| (Loss) Earnings Per Share - Basic: | |||||||
| Class A Common Stock | $ | (0.13 | ) | $ | 0.23 | (157 | )% |
| Class B Common Stock | $ | (0.15 | ) | $ | 0.21 | (171 | )% |
| (Loss) Earnings Per Share - Diluted: | |||||||
| Class A Common Stock | $ | (0.13 | ) | $ | 0.22 | (159 | )% |
| Class B Common Stock | $ | (0.15 | ) | $ | 0.20 | (175 | )% |
| Cash Dividends Per Share: | |||||||
| Class A Common Stock | $ | 0.07 | $ | 0.07 | — | % | |
| Class B Common Stock | $ | 0.05 | $ | 0.05 | — | % |
nm = not meaningful
Page 13 of 18
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)
| Year Ended December 31, | 2019 | 2018 | % Change | ||||
|---|---|---|---|---|---|---|---|
| Revenues: | |||||||
| Revenues Before Reimbursements | $ | 1,005,802 | $ | 1,070,971 | (6 | )% | |
| Reimbursements | 41,825 | 52,008 | (20 | )% | |||
| Total Revenues | 1,047,627 | 1,122,979 | (7 | )% | |||
| Costs and Expenses: | |||||||
| Costs of Services Provided, Before Reimbursements | 710,948 | 755,997 | (6 | )% | |||
| Reimbursements | 41,825 | 52,008 | (20 | )% | |||
| Total Costs of Services | 752,773 | 808,005 | (7 | )% | |||
| Selling, General, and Administrative Expenses | 227,170 | 242,421 | (6 | )% | |||
| Corporate Interest Expense, Net | 10,774 | 10,109 | 7 | % | |||
| Goodwill and Intangible Asset Impairment Charges | 17,484 | 1,056 | 1,556 | % | |||
| Arbitration and Claim Settlements | 12,552 | — | nm | ||||
| Loss on Disposition of Business line | — | 20,270 | nm | ||||
| Total Costs and Expenses | 1,020,753 | 1,081,861 | (6 | )% | |||
| Other (Expense) Income | (3,237 | ) | 3,013 | (207 | )% | ||
| Income Before Income Taxes | 23,637 | 44,131 | (46 | )% | |||
| Provision for Income Taxes | 14,111 | 18,542 | (24 | )% | |||
| Net Income | 9,526 | 25,589 | (63 | )% | |||
| Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | 2,959 | 389 | 661 | % | |||
| Net Income Attributable to Shareholders of Crawford & Company | $ | 12,485 | $ | 25,978 | (52 | )% | |
| Earnings Per Share - Basic: | |||||||
| Class A Common Stock | $ | 0.27 | $ | 0.51 | (47 | )% | |
| Class B Common Stock | $ | 0.19 | $ | 0.43 | (56 | )% | |
| Earnings Per Share - Diluted: | |||||||
| Class A Common Stock | $ | 0.26 | $ | 0.50 | (48 | )% | |
| Class B Common Stock | $ | 0.19 | $ | 0.42 | (55 | )% | |
| Cash Dividends Per Share: | |||||||
| Class A Common Stock | $ | 0.28 | $ | 0.28 | — | % | |
| Class B Common Stock | $ | 0.20 | $ | 0.20 | — | % |
nm = not meaningful
Page 14 of 18
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2019 and December 31, 2018
Unaudited
| (In Thousands, Except Par Values) | December 31, | December 31, | |||||
|---|---|---|---|---|---|---|---|
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and Cash Equivalents | $ | 51,802 | $ | 53,119 | |||
| Accounts Receivable, Net | 128,217 | 131,117 | |||||
| Unbilled Revenues, at Estimated Billable Amounts | 103,894 | 108,291 | |||||
| Income Taxes Receivable | 7,820 | 4,084 | |||||
| Prepaid Expenses and Other Current Assets | 23,476 | 24,237 | |||||
| Total Current Assets | 315,209 | 320,848 | |||||
| Net Property and Equipment | 31,425 | 34,303 | |||||
| Other Assets: | |||||||
| Operating Lease Right-of-Use Asset, Net | 102,354 | — | |||||
| Goodwill | 80,642 | 96,890 | |||||
| Intangible Assets Arising from Business Acquisitions, Net | 75,083 | 85,023 | |||||
| Capitalized Software Costs, Net | 66,445 | 72,210 | |||||
| Deferred Income Tax Assets | 17,971 | 22,146 | |||||
| Other Noncurrent Assets | 70,884 | 70,022 | |||||
| Total Other Assets | 413,379 | 346,291 | |||||
| Total Assets | $ | 760,013 | $ | 701,442 | |||
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT | |||||||
| Current Liabilities: | |||||||
| Short-Term Borrowings | $ | 28,531 | $ | 23,195 | |||
| Accounts Payable | 34,377 | 37,834 | |||||
| Operating Lease Liability | 30,765 | — | |||||
| Accrued Compensation and Related Costs | 68,499 | 66,530 | |||||
| Self-Insured Risks | 11,311 | 15,246 | |||||
| Income Taxes Payable | 3,030 | 3,145 | |||||
| Deferred Rent | — | 15,919 | |||||
| Other Accrued Liabilities | 31,449 | 32,391 | |||||
| Deferred Revenues | 28,288 | 30,961 | |||||
| Current Installments of Finance Leases | 15 | 89 | |||||
| Total Current Liabilities | 236,265 | 225,310 | |||||
| Noncurrent Liabilities: | |||||||
| Long-Term Debt and Finance Leases, Less Current Installments | 148,408 | 167,126 | |||||
| Operating Lease Liability | 87,064 | — | |||||
| Deferred Revenues | 24,080 | 21,713 | |||||
| Accrued Pension Liabilities | 65,909 | 74,323 | |||||
| Other Noncurrent Liabilities | 33,410 | 32,024 | |||||
| Total Noncurrent Liabilities | 358,871 | 295,186 | |||||
| Redeemable Noncontrolling Interests | 2,310 | 5,500 | |||||
| Shareholders’ Investment: | |||||||
| Class A Common Stock, $1.00 Par Value | 30,610 | 30,927 | |||||
| Class B Common Stock, $1.00 Par Value | 22,671 | 24,408 | |||||
| Additional Paid-in Capital | 63,392 | 58,793 | |||||
| Retained Earnings | 249,551 | 273,607 | |||||
| Accumulated Other Comprehensive Loss | (206,907 | ) | (216,447 | ) | |||
| Shareholders’ Investment Attributable to Shareholders of Crawford & Company | 159,317 | 171,288 | |||||
| Noncontrolling Interests | 3,250 | 4,158 | |||||
| Total Shareholders’ Investment | 162,567 | 175,446 | |||||
| Total Liabilities and Shareholders’ Investment | $ | 760,013 | $ | 701,442 |
Page 15 of 18
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT COMPENSATION AND OTHER EXPENSES
Unaudited
(In Thousands, Except Percentages)
Three Months Ended December 31,
,
| Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | Change | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||
| Revenues Before Reimbursements | $ | 97,049 | $ | 102,183 | (5.0 | )% | $ | 84,265 | $ | 92,165 | (8.6 | )% | $ | 65,872 | $ | 69,446 | (5.1 | )% | ||||||
| Direct Compensation, Fringe Benefits & Non-Employee Labor | 58,942 | 58,107 | 1.4 | % | 54,688 | 62,345 | (12.3 | )% | 35,773 | 35,950 | (0.5 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 60.7 | % | 56.9 | % | 64.9 | % | 67.6 | % | 54.3 | % | 51.8 | % | ||||||||||||
| Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor | 32,040 | 31,181 | 2.8 | % | 26,005 | 23,622 | 10.1 | % | 18,886 | 18,355 | 2.9 | % | ||||||||||||
| % of Revenues Before Reimbursements | 33.0 | % | 30.5 | % | 30.9 | % | 25.6 | % | 28.7 | % | 26.4 | % | ||||||||||||
| Total Operating Expenses | 90,982 | 89,288 | 1.9 | % | 80,693 | 85,967 | (6.1 | )% | 54,659 | 54,305 | 0.7 | % | ||||||||||||
| Operating Earnings (1) | $ | 6,067 | $ | 12,895 | (53.0 | )% | $ | 3,572 | $ | 6,198 | (42.4 | )% | $ | 11,213 | $ | 15,141 | (25.9 | )% | ||||||
| % of Revenues Before Reimbursements | 6.3 | % | 12.6 | % | 4.2 | % | 6.7 | % | 17.0 | % | 21.8 | % |
| Twelve Months Ended December 31, | Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | Change | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||
| Revenues Before Reimbursements | $ | 393,856 | $ | 405,335 | (2.8 | )% | $ | 339,837 | $ | 361,053 | (5.9 | )% | $ | 272,109 | $ | 304,583 | (10.7 | )% | |||||||
| Direct Compensation, Fringe Benefits & Non-Employee Labor | 236,853 | 235,813 | 0.4 | % | 223,639 | 239,123 | (6.5 | )% | 141,776 | 156,771 | (9.6 | )% | |||||||||||||
| % of Revenues Before Reimbursements | 60.1 | % | 58.2 | % | 65.8 | % | 66.2 | % | 52.1 | % | 51.5 | % | |||||||||||||
| Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor | 129,830 | 132,613 | (2.1 | )% | 108,568 | 110,622 | (1.9 | )% | 81,012 | 98,248 | (17.5 | )% | |||||||||||||
| % of Revenues Before Reimbursements | 33.0 | % | 32.7 | % | 31.9 | % | 30.6 | % | 29.8 | % | 32.3 | % | |||||||||||||
| Total Operating Expenses | 366,683 | 368,426 | (0.5 | )% | 332,207 | 349,745 | (5.0 | )% | 222,788 | 255,019 | (12.6 | )% | |||||||||||||
| Operating Earnings (1) | $ | 27,173 | $ | 36,909 | (26.4 | )% | $ | 7,630 | $ | 11,308 | (32.5 | )% | $ | 49,321 | $ | 49,564 | (0.5 | )% | |||||||
| % of Revenues Before Reimbursements | 6.9 | % | 9.1 | % | 2.2 | % | 3.1 | % | 18.1 | % | 16.3 | % |
(1) A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, loss on disposition of business line, arbitration and claim settlements, goodwill and intangible asset impairment charges and certain unallocated corporate and shared costs and credits. See pages 6-8 for additional information about segment operating earnings.
Page 16 of 18
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT AND INDIRECT COSTS
Unaudited
(In Thousands, Except Percentages)
Three Months Ended December 31,
| Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | Change | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||
| Revenues Before Reimbursements | $ | 97,049 | $ | 102,183 | (5.0 | )% | $ | 84,265 | $ | 92,165 | (8.6 | )% | $ | 65,872 | $ | 69,446 | (5.1 | )% | ||||||
| Direct Expense | 73,216 | 72,430 | 1.1 | % | 63,926 | 71,053 | (10.0 | )% | 42,931 | 43,472 | (1.2 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 75.4 | % | 70.9 | % | 75.9 | % | 77.1 | % | 65.2 | % | 62.6 | % | ||||||||||||
| Segment Gross Profit | 23,833 | 29,753 | (19.9 | )% | 20,339 | 21,112 | (3.7 | )% | 22,941 | 25,974 | (11.7 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 24.6 | % | 29.1 | % | 24.1 | % | 22.9 | % | 34.8 | % | 37.4 | % | ||||||||||||
| Indirect Costs | 17,766 | 16,858 | 5.4 | % | 16,767 | 14,914 | 12.4 | % | 11,728 | 10,833 | 8.3 | % | ||||||||||||
| % of Revenues Before Reimbursements | 18.3 | % | 16.5 | % | 19.9 | % | 16.2 | % | 17.8 | % | 15.6 | % | ||||||||||||
| Operating Earnings (1) | $ | 6,067 | $ | 12,895 | (53.0 | )% | $ | 3,572 | $ | 6,198 | (42.4 | )% | $ | 11,213 | $ | 15,141 | (25.9 | )% | ||||||
| % of Revenues Before Reimbursements | 6.3 | % | 12.6 | % | 4.2 | % | 6.7 | % | 17.0 | % | 21.8 | % |
Twelve Months Ended December 31,
| Crawford TPA Solutions | % | Crawford Claims Solutions | % | Crawford Specialty Solutions | % | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | Change | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||
| Revenues Before Reimbursements | $ | 393,856 | $ | 405,335 | (2.8 | )% | $ | 339,837 | $ | 361,053 | (5.9 | )% | $ | 272,109 | $ | 304,583 | (10.7 | )% | ||||||
| Direct Expense | 294,172 | 296,111 | (0.7 | )% | 263,116 | 282,778 | (7.0 | )% | 176,702 | 199,055 | (11.2 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 74.7 | % | 73.1 | % | 77.4 | % | 78.3 | % | 64.9 | % | 65.4 | % | ||||||||||||
| Segment Gross Profit | 99,684 | 109,224 | (8.7 | )% | 76,721 | 78,275 | (2.0 | )% | 95,407 | 105,528 | (9.6 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 25.3 | % | 26.9 | % | 22.6 | % | 21.7 | % | 35.1 | % | 34.6 | % | ||||||||||||
| Indirect Costs | 72,511 | 72,315 | 0.3 | % | 69,091 | 66,967 | 3.2 | % | 46,086 | 55,964 | (17.7 | )% | ||||||||||||
| % of Revenues Before Reimbursements | 18.4 | % | 17.8 | % | 20.3 | % | 18.5 | % | 16.9 | % | 18.4 | % | ||||||||||||
| Operating Earnings (1) | $ | 27,173 | $ | 36,909 | (26.4 | )% | $ | 7,630 | $ | 11,308 | (32.5 | )% | $ | 49,321 | $ | 49,564 | (0.5 | )% | ||||||
| % of Revenues Before Reimbursements | 6.9 | % | 9.1 | % | 2.2 | % | 3.1 | % | 18.1 | % | 16.3 | % |
(1) A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, loss on disposition of business line, arbitration and claim settlements, goodwill and asset impairment charges and certain unallocated corporate and shared costs and credits. See pages 6-8 for additional information about segment operating earnings.
Page 17 of 18
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2019 and December 31, 2018
Unaudited
| (In Thousands) | 2019 | 2018 | |||||
|---|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities: | |||||||
| Net Income | $ | 9,526 | $ | 25,589 | |||
| Reconciliation of Net Income to Net Cash Provided by Operating Activities: | |||||||
| Depreciation and Amortization | 40,513 | 44,079 | |||||
| Goodwill and Intangible Asset Impairment Charges | 17,484 | 1,056 | |||||
| Deferred Income Taxes | 3,040 | 7,947 | |||||
| Stock-Based Compensation Costs | 4,109 | 6,196 | |||||
| Loss on Disposition of Business Line | — | 20,270 | |||||
| Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions: | |||||||
| Accounts Receivable, Net | 5,922 | 7,844 | |||||
| Unbilled Revenues, Net | 5,302 | (18,588 | ) | ||||
| Accrued or Prepaid Income Taxes | (5,985 | ) | 2,270 | ||||
| Accounts Payable and Accrued Liabilities | (6,946 | ) | (8,952 | ) | |||
| Deferred Revenues | (281 | ) | (4,969 | ) | |||
| Accrued Retirement Costs | 3,387 | (25,896 | ) | ||||
| Prepaid Expenses and Other Operating Activities | (855 | ) | (4,427 | ) | |||
| Net Cash Provided by Operating Activities | 75,216 | 52,419 | |||||
| Cash Flows From Investing Activities: | |||||||
| Acquisitions of Property and Equipment | (8,688 | ) | (14,052 | ) | |||
| Cash Proceeds from Disposition of Business Line | — | 39,187 | |||||
| Capitalization of Computer Software Costs | (12,436 | ) | (15,968 | ) | |||
| Payments for Business Acquisitions, Net of Cash Acquired | (2,296 | ) | (2,500 | ) | |||
| Other Investing Activities | — | (218 | ) | ||||
| Net Cash (Used in) Provided by Investing Activities | (23,420 | ) | 6,449 | ||||
| Cash Flows From Financing Activities: | |||||||
| Cash Dividends Paid | (13,171 | ) | (13,528 | ) | |||
| Payments Related to Shares Received for Withholding Taxes Under Stock-Based Compensation Plans | (827 | ) | (1,110 | ) | |||
| Proceeds from Shares Purchased Under Employee Stock-Based Compensation Plans | 2,104 | 1,387 | |||||
| Repurchases of Common Stock | (26,210 | ) | (10,409 | ) | |||
| Increases in Short-Term and Revolving Credit Facility Borrowings | 66,197 | 101,428 | |||||
| Payments on Short-Term and Revolving Credit Facility Borrowings | (80,948 | ) | (135,433 | ) | |||
| Payments on Finance Lease Obligations | (93 | ) | (477 | ) | |||
| Dividends Paid to Noncontrolling Interests | (458 | ) | (574 | ) | |||
| Capitalized Loan Costs | — | (23 | ) | ||||
| Net Cash Used In Financing Activities | (53,406 | ) | (58,739 | ) | |||
| Effects of Exchange Rate Changes on Cash and Cash Equivalents | 293 | (1,021 | ) | ||||
| Decrease in Cash and Cash Equivalents | (1,317 | ) | (892 | ) | |||
| Cash and Cash Equivalents at Beginning of Year | 53,119 | 54,011 | |||||
| Cash and Cash Equivalents at End of Period | $ | 51,802 | $ | 53,119 |
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crd4q19earningspresentat
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 and intangible asset impairment charges, certain tax valuation allowances, loss on disposition of business line, arbitration and claim settlements , income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests. 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 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. 2
Crawford & Company The world’s largest publicly listed independent provider of global outsourced claims management solutions to carriers, brokers and corporates 1.6Million Claims handled worldwide Organized across global service lines: 9,000 • Crawford Claims Solutions (P&C adjusting solutions) Total employees • Crawford TPA Solutions (Broadspire) CRD-A & CRD-B • Crawford Specialty Solutions (Global Technical Listed on NYSE Services & Contractor Connection) 3
Full Year 2019 Financial Highlights GAAP $1.0 Billion $12.5 Million Net income attributable to Revenues before reimbursements shareholders Non-GAAP $1.03 Billion $79 Million 7.7% Revenues before reimbursements1 Adjusted operating earnings1 Adjusted operating margin1 $113 Million 11.0% Consolidated adjusted EBITDA1 EBITDA as % of revenue1 Excluding the weather-related surge decline, underlying revenues grew by 1.3% (1) See appendix for non-GAAP explanation and reconciliation of non-GAAP measures. 4
2019 Accomplishments •Added over 600 client programs in 2019, contributing to Crawford’s growth strategy Increased free cash flow by more than $31 million year-over-year Success from ongoing sales and new product development investments Ended 2019 with the strongest sales pipeline at nearly $250 million Enhancing IT capabilities to better serve clients and drive operating leverage Signed $81 million in estimated annual new revenues through the fourth quarter 5
Execution Across Our Service Lines •Crawford Claims Solutions • Momentum building with increased revenues and renewed contracts • New multi-year contract with a top-5 carrier Crawford TPA Solutions • 168 new clients this year worth $45 million annually Crawford Specialty Solutions • Global Technical Services contributed positive revenues • Contractor Connection added new programs, including a program with a current top-5 carrier client One Crawford • Vertical solutions gaining traction with the construction, hospitality and transportation verticals attracting a fast-growing pipeline 6
Impact of Weather on the Market External Catastrophe Market Stats – $12M less weather-related Weather¹ revenue in 4Q19 than in 4Q18 180 160 140 $113 2019 surge-related revenue 120 $110 $27M lower than 2018 100 80 $83 60 2 Insured Losses ($B) Losses Insured 40 2019 revenue growth of 1.3% 20 excluding surge related decline 0 2017 2018 2019 Global Insured Losses U.S. Insured Losses Estimated Global Surge Revenue as a Component of Crawford Revenue ($M) (1) Source: Aon 7 (2) 2018 Non-GAAP Revenues $1.041B, less Surge Decline of $0.027B compared to 2019 Non-GAAP Revenues of $1.027B
Disciplined Capital Allocation 1.5x Net Debt to + $31.7M Growth in EBITDA Free Cash Flow Leverage at three-year low Cash flow at three-year high 2.8M Shares $0.28 & $0.20 Repurchased in 2019 Consistent cash dividends per Outstanding shares reduced share for CRD-A and CRD-B, by 5% respectively 8
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Fourth Quarter 2019 Financial Summary Quarter Ended December 31, December 31, ($ in millions, except per share amounts) 2019 2018 % Change Revenues $247.2 $263.8 (6)% Non-GAAP Revenues excluding foreign exchange fluctuations(1) $253.3 $263.8 (4)% Net (Loss) Income Attributable to Shareholders of Crawford & Company ($7.3) $11.9 (161)% Diluted (Loss) Earnings per Share CRD-A ($0.13) $0.22 (159)% CRD-B ($0.15) $0.20 (175)% Non-GAAP Diluted Earnings per Share 1 CRD-A $0.16 $0.32 (50)% CRD-B $0.14 $0.30 (53)% Adjusted Operating Earnings 1 $17.2 $32.2 (47)% Adjusted Operating Margin 1 6.8% 12.2% (540)bps Adjusted EBITDA 1 $27.9 $41.4 (33)% Adjusted EBITDA Margin 1 11.0% 15.7% (470)bps (1) See appendix for non-GAAP explanation and reconciliation of non-GAAP measures. 10
Crawford TPA Solutions Segment Highlights Three months ended Highlights 2019 (in thousands, December December Based on except percentages) 31, 2019 31, 2018 Variance 2018 rates Variance • Record number of new business wins in 2019 Revenues $97,049 $102,183 (5.0%) $97,994 (4.1%) • Strong pipeline of new program opportunities worth $144 million Direct expenses 73,216 72,430 1.1% 73,871 2.0% Gross profit 23,833 29,753 (19.9%) 24,123 (18.9%) Operating Results (4Q 2019 v. 4Q 2018) Indirect expenses 17,766 16,858 5.4% 18,073 7.2% Operating earnings $6,067 $12,895 (53.0%) $6,050 (53.1%) • Revenues of $97.0 million versus $102.2 million • Constant dollar revenues of $98.0 million • Gross profit of $23.8 million versus $29.8 million Gross profit margin 24.6% 29.1% (4.5%) 24.6% (4.5%) • Gross profit margin of 24.6% versus 29.1% Operating margin 6.3% 12.6% (6.3%) 6.2% (6.4%) • Operating earnings of $6.1 million versus $12.9 million Total cases • Operating earnings margin of 6.3% versus 12.6% received 200,951 205,123 (2.0%) Full time equivalent employees 3,206 3,167 1.2% 11
Crawford Claims Solutions Segment Highlights Three months ended 2019 (in thousands, December December Based on Highlights except percentages) 31, 2019 31, 2018 Variance 2018 rates Variance • On a global basis, weather-related losses were Revenues $84,265 $92,165 (8.6%) $87,311 (5.3%) down in Full Year 2019 by $27 billion • Gaining traction with small and medium carrier Direct expenses 63,926 71,053 (10.0%) 65,920 (7.2%) outsourcing programs Gross profit 20,339 21,112 (3.7%) 21,391 1.3% Operating Results Indirect expenses 16,767 14,914 12.4% 17,595 18.0% (4Q 2019 v. 4Q 2018) • Revenues of $84.3 million versus $92.2 million Operating earnings $3,572 $6,198 (42.4%) $3,796 (38.8%) • Constant dollars revenues of $87.3 million • Gross profit of $20.3 million versus $21.1 million Gross profit margin 24.1% 22.9% 1.2% 24.5% 1.6% • Gross profit margin of 24.1% versus 22.9% • Operating earnings of $3.6 million versus $6.2 Operating margin 4.2% 6.7% (2.5%) 4.3% (2.4%) million in 2018 • Operating earnings margin of 4.2% versus 6.7% Total cases received 107,385 125,414 (14.4%) Full time equivalent employees 2,894 3,068 (5.7%) 12
Crawford Specialty Solutions Segment Highlights Three months ended Highlights 2019 (in thousands, December December Based on except percentages) 31, 2019 31, 2018 Variance 2018 rates Variance • GTS saw revenue growth from new clients and expanded service offerings Revenues $65,872 $69,446 (5.1%) $68,042 (2.0%) • Contractor Connection was impacted by lower weather-related claims but added a major new Direct expenses 42,931 43,472 (1.2%) 44,413 2.2% program with a U.S. top-5 carrier Gross profit 22,941 25,974 (11.7%) 23,629 (9.0%) Operating Results (4Q 2019 v. 4Q 2018) Indirect expenses 11,728 10,833 8.3% 12,288 13.4% Operating earnings $11,213 $15,141 (25.9%) $11,341 (25.1%) • Revenues of $65.9 million versus $69.4 million • Constant dollar revenues of $68.0 million • Gross profit of $22.9 million versus $26.0 million Gross profit margin 34.8% 37.4% (2.6%) 34.7% (2.7%) • Gross profit margin of 34.8% versus 37.4% Operating margin 17.0% 21.8% (4.8%) 16.7% (5.1%) • Operating earnings of $11.2 million versus $15.1 million Total cases received 69,066 82,926 (16.7%) • Operating margin of 17.0% versus 21.8% Full time equivalent employees 1,458 1,462 (0.3%) 13
Balance Sheet Highlights December 31, December 31, Unaudited ($ in thousands) 2019 2018 Change Cash and cash equivalents $ 51,802 $ 53,119 $ (1,317) Accounts receivable, net 128,217 131,117 (2,900) Unbilled revenues, net 103,894 108,291 (4,397) Total receivables 232,111 239,408 (7,297) Goodwill 80,642 96,890 (16,248) Intangible assets arising from business acquisitions, net 75,083 85,023 (9,940) Deferred revenues 52,368 52,674 (306) Pension liabilities 65,909 74,323 (8,414) Short-term borrowings and current portion of finance leases 28,546 23,284 5,262 Long-term debt, less current portion 148,408 167,126 (18,718) Total debt 176,954 190,410 (13,456) Total stockholders' equity attributable to Crawford & Company 159,317 171,288 (11,971) Net debt 1 125,152 137,291 (12,139) 14 (1) See Appendix for non-GAAP explanation and reconciliation
Operating and Free Cash Flow For the years ended December 31 Unaudited ($ in thousands) 2019 2018 Change Net Income Attributable to Shareholders of Crawford & Company $ 12,485 $ 25,978 $ (13,493) Goodwill and Intangible Asset Impairment Charges 17,484 1,056 16,428 Depreciation and Other Non-Cash Operating Items 44,703 57,833 (13,130) Loss on Disposition of Business Line — 20,270 (17,795) Billed Receivables Change 5,922 7,844 (1,922) Unbilled Receivables Change 5,302 (18,588) 23,890 Change in Accrued Compensation and 401K 1,656 (7,660) 9,316 Change in Accrued and Prepaid Income Taxes (5,985) 2,270 (8,255) Other Working Capital Changes (5,627) (12,632) 7,005 U.S. and U.K. Pension Contributions (724) (23,952) 23,228 Cash Flows from Operating Activities 75,216 52,419 22,797 Property & Equipment Purchases, net (8,688) (14,052) 5,364 Capitalized Software (internal and external costs) (12,436) (15,968) 3,532 Free Cash Flow1 $ 54,092 $ 22,399 $ 31,693 15 (1) See Appendix for non-GAAP explanation and reconciliation
Share Repurchases During the three months ended December 31, 2019, the Company repurchased approximately 56 thousand shares of CRD-B at a weighted average cost of $9.65 During the year ended December 31, 2019, the Company repurchased approximately 1.1 million shares of CRD-A and 1.7 million shares of CRD-B at a weighted average cost of $9.23 During 2019, the Company repurchased 5.3% of its average common shares outstanding At December 31, 2019, the Company had remaining authorization to repurchase approximately 959 thousand shares under the 2019 Repurchase Authorization 16
2020 Guidance Crawford & Company is providing initial guidance for 2020 as follows: Year ending December 31, 2020 Low End High End Consolidated revenues before reimbursements $1.00 $1.05 billion Net income attributable to shareholders of Crawford & Company $37.5 $42.5 million Diluted earnings per share--CRD-A $0.73 $0.83 per share Diluted earnings per share--CRD-B $0.65 $0.75 per share Consolidated operating earnings $80.0 $90.0 million Consolidated adjusted EBITDA1 $115.0 $125.0 million 17 (1) See Appendix for non-GAAP explanation and reconciliation
Conclusion Looking forward at Crawford’s primary objectives: Maximize Growth System Readiness Continue new business momentum and Strategically invest in technology to add achieve sustained revenue and earnings value to customers and maintain a growth competitive edge People Readiness Fiscal Responsibility Strengthen our global sales teams, advance Drive cash flow generation while delivering employee development, and strive to carry a meaningful return to shareholders out Crawford’s mission 18
19 Crawford – Attractive Business Model Experienced Management Team Technology Enabled BPO Aligned with Shareholders Platform Global Product and Geographic Blue Chip Global Client Base Diversification with Long-Term Relationships Recurring Fee For Service Solid Balance Sheet and Low Revenue Model Debt Profile Strong Cash Flow Generation Healthy Dividend Yield Over 50 Years as a Public Company
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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 and intangible asset impairment charges, loss on disposition of business line, arbitration and claim settlements, certain tax valuation allowances and net income or loss attributable to noncontrolling interests. 21
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 and intangible asset impairment charges, certain tax valuation allowances, arbitration and claim settlements, loss on disposition of business line and the disposed GCG business results have been included in the calculation of adjusted EBITDA. 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 the disposed of GCG business, goodwill and intangible asset impairment charges, arbitration and claim settlements, certain tax valuation allowances, foreign exchange impacts, impact of tax reform in the U.S. and loss on disposition of business line net of tax, 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 22
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 Twelve Months Ended December 31, December 31, December 31, December 31, (in thousands) 2019 2018 2019 2018 USD % of USD USD % of USD Geographic Area Currency equivalent total equivalent % of total equivalent total equivalent % of total U.S. USD $ 136,913 55.4% $ 149,146 56.5% $ 569,205 56.6% $ 615,687 57.5% U.K. GBP 32,370 13.1% 34,113 12.9% 126,337 12.6% 131,651 12.3% Canada CAD 27,401 11.1% 28,622 10.9% 114,438 11.4% 121,076 11.3% Australia AUD 16,346 6.6% 16,990 6.4% 70,569 7.0% 70,830 6.6% Europe EUR 14,135 5.7% 13,285 5.0% 54,136 5.4% 56,048 5.2% Rest of World Various 20,021 8.1% 21,638 8.2% 71,117 7.1% 75,679 7.1% Total Revenues, before reimbursements $ 247,186 100% $ 263,794 100% $ 1,005,802 100% $ 1,070,971 100% 23
Reconciliation of Non-GAAP Items Revenues, Costs of Services Provided, and Operating Earnings Quarter Ended Quarter Ended Full Year December 31, December 31, Guidance Unaudited ($ in thousands) 2019 2018 2020 * Revenues Before Reimbursements Total Revenues $ 257,562 $ 274,520 $ 1,068,000 Reimbursements (10,376) (10,726) (43,000) Revenues Before Reimbursements $ 247,186 $ 263,794 $ 1,025,000 Costs of Services Provided, Before Reimbursements Total Costs of Services $ 187,660 $ 192,343 Reimbursements (10,376) (10,726) Costs of Services Provided, Before Reimbursements $ 177,284 $ 181,617 Quarter Ended Quarter Ended Full Year December 31, December 31, Guidance Unaudited ($ in thousands) 2019 2018 2019 * Operating Earnings: Crawford Claims Solutions $ 3,572 $ 6,198 Crawford TPA Solutions 6,067 12,895 Crawford Specialty Solutions 11,213 15,141 Unallocated corporate and shared costs and credits, net (4,122) (2,005) Consolidated Operating Earnings 16,730 32,229 $ 85,000 (Deduct) Add: Net corporate interest expense (2,428) (2,707) (11,000) Stock option expense (537) (387) (2,050) Amortization expense (2,848) (2,810) (12,000) Goodwill and intangible asset impairment charges (17,484) (1,056) — Tax valuation allowances (1,991) — — Loss on disposition of business line — (1,274) Income taxes (1,000) (12,287) (20,000) Net loss attributable to non-controlling interests and redeemable noncontrolling interests 2,246 230 50 Net (Loss) Income Attributable to Shareholders of Crawford & Company $ (7,312) $ 11,938 $ 40,000 * Midpoints of Company's Guidance, issued March 5, 2020 24
Reconciliation of Non-GAAP Items (cont.) Adjusted EBITDA Quarter Ended Full Year December 31, December 31, Guidance Unaudited ($ in thousands) 2019 2018 2020* Net (loss) income attributable to shareholders of Crawford & Company $ (7,312) $ 11,938 $ 40,000 Add: Depreciation and amortization 10,427 10,795 44,000 Stock-based compensation 1,499 1,358 5,000 Net corporate interest expense 2,428 2,707 11,000 Goodwill and intangible asset impairment charges 17,484 1,056 — Tax valuation allowances 1,991 — — Loss on disposition of business line — 1,274 — Income taxes 1,000 12,287 20,000 Foreign exchange impacts 356 — — Adjusted EBITDA $ 27,873 $ 41,415 $ 120,000 *Midpoints of Company's Guidance, issued March 5, 2020 25
Reconciliation of Non-GAAP Items (cont.) Net Debt December 31, December 31, Unaudited ($ in thousands) 2019 2018 Net Debt Short-term borrowings $ 28,531 $ 23,195 Current installments of capital leases 15 89 Long-term debt and capital leases, less current installments 148,408 167,126 Total debt 176,954 190,410 Less: Cash and cash equivalents 51,802 53,119 Net debt $ 125,152 $ 137,291 26
Reconciliation of Non-GAAP Items (cont.) Segment Gross Profit Three months ended December 31, December 31, ($ in thousands) 2019 2018 Segment gross profit: Crawford TPA Solutions $ 23,833 $ 29,753 Crawford Claims Solutions 20,339 21,112 Crawford Specialty Solutions 22,941 25,974 Segment gross profit 67,113 76,839 Segment indirect costs: Crawford TPA Solutions (17,766) (16,858) Crawford Claims Solutions (16,767) (14,914) Crawford Specialty Solutions (11,728) (10,833) Unallocated corporate and shared costs, net (4,122) (2,005) Consolidated operating earnings 16,730 32,229 Net corporate interest expense (2,428) (2,707) Stock option expense (537) (387) Amortization expense (2,848) (2,810) Goodwill and intangible asset impairment charges (17,484) (1,056) Tax valuation allowances (1,991) — Loss on disposition of business line — (1,274) Income taxes (1,000) (12,287) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests 2,246 230 Net (loss) income attributable to shareholders of Crawford & Company $ (7,312) $ 11,938 27
Reconciliation of Fourth Quarter Non-GAAP Results Three Months Ended December 31, 2019 Net (Loss) Income Diluted Diluted Non-GAAP Attributable (Loss) (Loss) Operating Pretax (Loss) to Crawford Earnings per Earnings per Unaudited ($ in thousands) Revenues Earnings Earnings & Company CRD-A Share CRD-B Share GAAP $ 247,186 $ 16,730 $ (6,567) $ (7,312) $ (0.13) $ (0.15) Adjustments: Goodwill impairment charge — — 17,484 13,057 0.24 0.24 Tax valuation allowances — — — 1,991 0.04 0.04 Foreign exchange fluctuations 6,161 447 356 206 0.01 0.01 Non-GAAP Adjusted $ 253,347 $ 17,177 $ 11,273 $ 7,942 $ 0.16 $ 0.14 Three Months Ended December 31, 2018 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 $ 263,794 $ 32,229 $ 23,995 $ 11,938 $ 0.22 $ 0.20 Adjustments: Goodwill and intangible asset impairment charges — — 1,056 785 0.01 0.01 Loss on disposition of business line — — 1,274 962 0.02 0.02 Impact of tax reform in the U.S. — — — 3,583 0.07 0.07 Non-GAAP Adjusted $ 263,794 $ 32,229 $ 26,325 $ 17,268 $ 0.32 $ 0.30 28
Reconciliation of Full Year Non-GAAP Results Year Ended December 31, 2019 Net Income Non-GAAP Attributable to Diluted Diluted Operating Pretax Crawford & Earnings per Earnings per Unaudited ($ in thousands) Revenues Earnings Earnings Company CRD-A Share CRD-B Share GAAP $ 1,005,802 $ 77,609 $ 23,637 $ 12,485 $ 0.26 $ 0.19 Adjustments: Goodwill impairment charge — — 17,484 13,057 0.24 0.24 Arbitration and claim settlements — — 12,552 9,276 0.17 0.17 Tax valuation allowances — — — 1,991 0.04 0.04 Foreign exchange fluctuations 21,592 1,136 815 471 0.01 0.01 Non-GAAP Adjusted $ 1,027,394 $ 78,745 $ 54,488 $ 37,280 $ 0.72 $ 0.65 Year Ended December 31, 2018 Net Income Non-GAAP Attributable to Diluted Diluted Operating Pretax Crawford & Earnings per Earnings per Unaudited ($ in thousands) Revenues Earnings Earnings Company CRD-A Share CRD-B Share GAAP $ 1,070,971 $ 88,460 $ 44,131 $ 25,978 $ 0.50 $ 0.42 Adjustments: Goodwill and intangible asset impairment charges — — 1,056 785 0.01 0.01 GCG business results (29,875) 3,935 3,932 2,670 0.05 0.05 Retained corporate overhead charged to GCG (2,925) (2,925) (1,986) (0.04) (0.04) Loss on disposition of business line — — 20,270 15,304 0.28 0.28 Impact of tax reform in the U.S. — — — 3,583 0.06 0.07 Non-GAAP Adjusted $ 1,041,096 $ 89,470 $ 66,464 $ 46,334 $ 0.86 $ 0.79 29