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): November 2, 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:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐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 ☐
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. ☐
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 November 2, 2020, Crawford & Company (the "Company") issued a press release containing information about the Company's financial results for the third 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 Tuesday, November 3, 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 November 2, 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.
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 | ||
|---|---|---|
| (Registrant) | ||
| By: | /s/ W. BRUCE SWAIN | |
| W. Bruce Swain | ||
| Executive Vice President - | ||
| Chief Financial Officer | ||
| Dated: November 2, 2020 |
3
crda-ex991_6.htm
Exhibit 99.1
Crawford & Company®
5335 Triangle Parkway
Peachtree Corners, GA 30092
FOR IMMEDIATE RELEASE
CRAWFORD & COMPANY REPORTS 2020 THIRD QUARTER RESULTS
WEATHER RELATED CLAIMS DRIVE IMPROVEMENT OVER 2019
ATLANTA, (November 2, 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 third quarter ended September 30, 2020.
The Company’s two classes of stock are substantially identical, except with respect to voting rights and the Company’s ability to pay greater cash dividends on the non-voting Class A Common Stock (CRD-A) than on the voting Class B Common Stock (CRD-B), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRD-A must receive the same type and amount of consideration as holders of CRD-B, unless different consideration is approved by the holders of 75% of CRD-A, voting as a class.
GAAP Consolidated Results
Third Quarter 2020
| • | Revenues before reimbursements of $253.1 million, compared with $254.7 million for the 2019 third quarter |
|---|---|
| • | Net income attributable to shareholders of $24.4 million, compared with $11.0 million in the same period last year |
| --- | --- |
| • | Diluted earnings per share of $0.46 for both CRD-A and CRD-B, compared with $0.21 for CRD-A and $0.19 for CRD-B in the prior year third quarter |
| --- | --- |
Non-GAAP Consolidated Results
Third Quarter 2020
Non-GAAP results for the 2020 third quarter have been presented on a constant dollar basis to 2019 and exclude the non-cash income tax impact of the first quarter 2020 goodwill impairment of $1.9 million and the after-tax gain on disposition of businesses of $11.3 million. Non-GAAP consolidated results for the 2019 quarter exclude arbitration and claim settlements of $0.9 million after tax.
| • | Revenues before reimbursements, on a non-GAAP basis, of $255.2 million, compared with $254.7 million for the 2019 third quarter |
|---|---|
| • | Net income attributable to shareholders, on a non-GAAP basis, totaled $15.2 million in the 2020 third quarter, compared with $11.9 million in the same period last year |
| --- | --- |
| • | Diluted earnings per share, on a non-GAAP basis, of $0.29 for both CRD-A and CRD-B in the 2020 third quarter, compared with $0.23 for CRD-A and $0.21 for CRD-B in the prior year third quarter |
| --- | --- |
| • | Consolidated adjusted operating earnings, on a non-GAAP basis, were $28.2 million, or 11.1% of non-GAAP revenues, in the 2020 third quarter, compared with $23.7 million, or 9.3% of revenues, in the 2019 third quarter |
| --- | --- |
| • | Consolidated adjusted EBITDA, a non-GAAP financial measure, was $35.2 million, or 13.8% of non-GAAP revenues, in the 2020 third quarter, compared with $32.2 million, or 12.6% of revenues, in the 2019 third quarter |
| --- | --- |
Management Comments
Mr. Rohit Verma, chief executive officer of Crawford & Company, stated, “Crawford delivered strong third quarter 2020 results that grew sequentially from the second quarter and exceeded third quarter 2019 results. Our results were driven by the strength of our core business and further propelled by the surge in weather-related activity in the U.S. Importantly, we expanded profitability, driving non-GAAP operating earnings to $28.2 million during the quarter. Additionally, we continue to see traction from our large-scale clients and momentum remains strong, winning over $22.5 million of new and enhanced business in the quarter. Our financial position remains very healthy, with operating cash flow up 35% over the prior year-to-date period and net debt at the lowest level since 2013.”
Mr. Verma concluded, “As we enter the fourth quarter, we remain focused on maintaining our market leadership position through a culture of innovation and unparalleled solutions. Our commitment to our people and service excellence to clients lead our priorities as we carry out our purpose of restoring and enhancing lives, businesses and communities. As a result, we are confident in our financial strength and our ability to deliver superior results for our shareholders over the long term.”
Segment Results for the Third Quarter
Crawford Claims Solutions
Crawford Claims Solutions revenues before reimbursements were $98.4 million in the third quarter of 2020, increasing from $86.3 million in the third quarter of 2019. Absent foreign currency rate fluctuations of ($0.9) million, third quarter 2020 revenues would have been $99.2 million, up 15.0% from the prior year third quarter.
Excluding centralized indirect support costs, gross profit increased to $22.7 million, or a gross margin of 23.1% in 2020 from $19.8 million, or a gross margin of 22.9% in 2019. Included in the 2020 third quarter direct costs was a $1.4 million benefit resulting from the Canada Emergency Wage Subsidy. After the allocation of indirect costs, the segment had operating earnings of $7.2 million in the 2020 third quarter increasing over the $2.7 million in the third quarter of 2019. The operating margin was 7.3% in the 2020 quarter and 3.1% in the 2019 quarter.
Crawford Specialty Solutions
Crawford Specialty Solutions revenues before reimbursements were $67.5 million in the third quarter of 2020, down from $68.9 million in the same period of 2019. Absent foreign exchange rate fluctuations of ($0.9) million, revenues would have been $68.5 million for the three months ended September 30, 2020, decreasing 0.6% compared with prior year third quarter revenues.
Excluding centralized indirect support costs, gross profit increased to $28.2 million, or a gross margin of 41.8% in 2020 from $24.8 million, or a gross margin of 36.0%, in 2019. Included in the 2020 third quarter direct costs was a $1.0 million benefit resulting from the Canada Emergency Wage Subsidy. After allocation of indirect costs, operating earnings were $17.4 million in the 2020 third quarter increasing over the $13.3 million in the 2019 period. The segment’s operating margin for the 2020 quarter was 25.7% as compared with 19.3% in the 2019 quarter.
Crawford TPA Solutions
Crawford TPA Solutions segment revenues before reimbursements were $87.2 million in the 2020 third quarter, decreasing from $99.5 million in the 2019 third quarter. Absent foreign currency rate fluctuations of ($0.3) million, third quarter 2020 revenues would have been $87.5 million, down 12.0% from prior year third quarter.
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Excluding centralized indirect support costs, gross profit decreased to $20.3 million, or a gross margin of 23.2% in 2020 from $26.7 million, or a gross margin of 26.8% in 2019. Included in the 2020 third quarter direct costs was a $0.4 million benefit resulting from the Canada Emergency Wage Subsidy. After allocation of indirect costs, Crawford TPA Solutions recorded operating earnings of $4.4 million in the third quarter of 2020 representing an operating margin of 5.1% compared with $9.3 million, or 9.4% of revenues, in the 2019 third quarter.
Unallocated Corporate and Shared Costs and Credits, Net
Unallocated corporate costs were $1.0 million in the third quarter of 2020, compared to $1.6 million in the same period of 2019. The decrease for the three months ended September 30, 2020 was due to a decrease in self-insurance expenses and a $1.9 million credit from the Canada Emergency Wage Subsidy, partially offset by an increase in incentive compensation.
Income Tax Impact of First Quarter Goodwill Impairment
The Company recognized a non-cash goodwill impairment in the 2020 first quarter, totaling $17.7 million, related to its Crawford Claims Solutions segment. Due to the non-discrete income tax treatment of the goodwill impairment, the initial income tax benefit related to the impairment will normalize during the remainder of the year, resulting in a lower full year income tax benefit. During the 2020 third quarter, the impact of this treatment decreased the income tax benefit by $1.9 million, or $0.04 per share.
Business Acquisitions and Dispositions
On June 12, 2020, the Company sold its 51% interest in Lloyd Warwick International (“LWI”) for cash proceeds of $19.6 million and payment of $3.6 million to settle intercompany indebtedness. In the third quarter, the Company recognized an additional $0.7 million related to net working capital adjustments under the terms of the acquisition agreement which increased the purchase price to $20.3 million. Due to the Company’s two-month reporting lag for reporting its international results, this transaction was recorded in the quarter ended September 30, 2020. The Company recognized a gain of $14.7 million ($11.7 million net of tax) on the disposition. The Company recognized an additional loss on the disposal of Crawford Compliance Inc. of $0.6 million in the third quarter. Both of these disposals were in our Crawford Specialty Solutions segment and resulted in a net gain of $0.21 per diluted share.
On July 21, 2020, the Company acquired the remaining 15% membership interests of WeGoLook, LLC for $0.3 million. The non-compete agreements with the former minority members were terminated under the terms of the purchase agreement. As a result, the Company recognized $1.1 million of accelerated amortization on the non-compete agreement in the 2020 third quarter.
Subsequent Events
On October 1, 2020, the Company acquired the remaining 85% equity interests in Crawford Carvallo and its subsidiaries. Crawford Carvallo is a leading provider for loss adjusting, claims management solutions and legal services in Chile. The purchase price includes an initial lump-sum payment $11.6 million and a maximum of $11.7 million payable over the next six years based on achieving certain EBITDA performance goals.
On November 1, 2020, the Company acquired 100% of HBA Group in Australia, including 100% of the stock in each of HBA Group’s entities HBA Legal, Pillion and Paratus. HBA Legal is a legal services provider that will complement the Company’s Crawford TPA Solutions segment in Australia. The purchase price includes an initial lump-sum payment of $5.0 million and a maximum $3.2 million payable over the next four years based on achieving certain revenue and EBITDA performance goals.
Page 3 of 16
COVID-19
The Company estimates that COVID-19 negatively impacted its revenues in the range of $21.0 to $25.0 million for the three months ended September 30, 2020, and negatively impacted its revenues in the range of $46.0 to $54.0 million for the nine months ended September 30, 2020. The Company expects the ongoing global economic slowdown resulting from COVID-19 could have a material impact to its results of operations, financial condition and cash flow in one or more future quarters.
Balance Sheet and Cash Flow
The Company’s consolidated cash and cash equivalents position as of September 30, 2020, totaled $48.7 million, compared with $51.8 million at December 31, 2019. The Company’s total debt outstanding as of September 30, 2020, totaled $127.8 million, compared with $177.0 million at December 31, 2019.
The Company’s operations provided $57.3 million of cash during 2020, compared with $42.3 million provided in 2019. The increase in cash provided by operating activities was primarily due to deferred payroll tax filings and a benefit from the Canada Emergency Wage Subsidy, totaling $17.3 million. The Company incurred higher software development and capital expenditures in 2020, which partially offset the increase in cash flows from operations, leading to a free cash flow increase of $4.3 million as compared to the prior year.
The Company made $3.0 million in contributions to its U.S. defined benefit pension plan and $0.5 million to its U.K. plans for 2020, compared with no contributions to the U.S. plan and $0.5 million to the U.K. plans in 2019.
During 2020, the Company repurchased 155,351 shares of CRD-A and 161,459 of CRD-B at an average cost of $8.42 per share. The total cost of share repurchases during 2020 was $2.7 million. The Company did not repurchase any shares during the 2020 third quarter.
Conference Call
As previously announced, Crawford & Company will host a conference call on November 3, 2020 at 8:30 a.m. Eastern Time to discuss its third quarter 2020 results. The conference call can be accessed live by dialing 1-800-374-2518 and using Conference ID 3377243. A presentation for tomorrow’s call can also be found on the investor relations portion of the Company’s website, https://ir.crawco.com. The call will be recorded and available for replay through December 3, 2020. You may dial 1-855-859-2056 to listen to the replay.
Non-GAAP Presentation
In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under U.S. generally accepted accounting principles (“GAAP”), these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues, respectively, in our consolidated results of operations. In the foregoing discussion and analysis of segment results of operations, we do not include a gross up of segment expenses and revenues for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings. A reconciliation of revenues before reimbursements to consolidated revenues determined in accordance with GAAP is self-evident from the face of the accompanying unaudited condensed consolidated statements of operations.
Page 4 of 16
Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker (“CODM”) to evaluate the financial performance of our Company and operating segments, and make resource allocation and certain compensation decisions. Unlike net income, segment operating earnings is not a standard performance measure found in GAAP. We believe this measure is useful to others in that it allows them to evaluate segment and consolidated operating performance using the same criteria used by our senior management and CODM. Consolidated operating earnings represent segment earnings including certain unallocated corporate and shared costs, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, arbitration and claims settlement, gain on disposition of businesses, income taxes and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Gross profit is defined as revenues less direct expenses which exclude indirect overhead expenses allocated to the business. Indirect expenses consist of centralized administrative support costs, regional and local shared services that are allocated to each segment based on usage.
Adjusted EBITDA is not a term defined by GAAP and as a result our measure of adjusted EBITDA might not be comparable to similarly titled measures used by other companies. However, adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results. The Company believes that adjusted EBITDA is relevant and useful information widely used by analysts, investors and other interested parties. Adjusted EBITDA is defined as net income attributable to shareholders of the Company with recurring adjustments for depreciation and amortization, net corporate interest expense, income taxes, stock-based compensation expense and foreign exchange fluctuations. Additionally, adjustments for non-recurring expenses for goodwill impairment, restructuring costs, arbitration and claim settlements and gain on disposition of businesses have been included in the calculation of adjusted EBITDA.
Unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, certain unallocated professional fees and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
Income taxes, net corporate interest expense, stock option expense and amortization of customer-relationship intangible assets are recurring components of our net income, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income taxes are calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
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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:
| Nine Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | September 30,<br>2019 | September 30,<br>2020 | September 30,<br>2019 | |||||||||||||
| Geographic Area | Currency | % of total | equivalent | % of total | equivalent | % of total | equivalent | % of total | ||||||||
| U.S. | 60.3 | % | 57.4 | % | 57.8 | % | 57.0 | % | ||||||||
| U.K. | 11.9 | % | 12.1 | % | 13.1 | % | 12.4 | % | ||||||||
| Canada | CAD | 8.8 | % | 11.1 | % | 9.4 | % | 11.5 | % | |||||||
| Australia | AUD | 7.9 | % | 7.3 | % | 7.5 | % | 7.1 | % | |||||||
| Europe | 5.0 | % | 5.4 | % | 5.5 | % | 5.3 | % | ||||||||
| Rest of World | Various | 6.1 | % | 6.7 | % | 6.7 | % | 6.7 | % | |||||||
| Total Revenues, before reimbursements | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
All values are in British Pounds.
Following is a reconciliation of segment and consolidated operating earnings to net income attributable to shareholders of Crawford & Company on a GAAP basis:
| Three months ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||||
| Operating earnings: | ||||||||||||
| Crawford Claims Solutions | $ | 7,219 | $ | 2,661 | $ | 6,329 | $ | 4,058 | ||||
| Crawford Specialty Solutions | 17,390 | 13,301 | 38,340 | 38,108 | ||||||||
| Crawford TPA Solutions | 4,414 | 9,347 | 13,870 | 21,106 | ||||||||
| Unallocated corporate and shared costs, net | (968 | ) | (1,649 | ) | (5,227 | ) | (2,393 | ) | ||||
| Consolidated operating earnings | 28,055 | 23,660 | 53,312 | 60,879 | ||||||||
| (Deduct) add: | ||||||||||||
| Net corporate interest expense | (1,599 | ) | (3,162 | ) | (6,275 | ) | (8,346 | ) | ||||
| Stock option expense | (457 | ) | (450 | ) | (1,033 | ) | (1,348 | ) | ||||
| Amortization expense | (3,665 | ) | (2,829 | ) | (9,153 | ) | (8,429 | ) | ||||
| Goodwill impairment | — | — | (17,674 | ) | — | |||||||
| Restructuring costs | — | — | (5,714 | ) | — | |||||||
| Arbitration and claim settlements | — | (1,200 | ) | — | (12,552 | ) | ||||||
| Gain on disposition of businesses, net | 14,104 | — | 13,763 | — | ||||||||
| Income tax provision | (11,729 | ) | (5,328 | ) | (9,554 | ) | (11,120 | ) | ||||
| Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests | (312 | ) | 355 | 1,224 | 713 | |||||||
| Net income attributable to shareholders of Crawford & Company | $ | 24,397 | $ | 11,046 | $ | 18,896 | $ | 19,797 |
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Following is a reconciliation of net income attributable to shareholders of Crawford & Company on a GAAP basis to non-GAAP adjusted EBITDA:
| Three months ended | Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||||
| Net income attributable to shareholders of Crawford & Company | $ | 24,397 | $ | 11,046 | $ | 18,896 | $ | 19,797 | ||
| Add (Deduct): | ||||||||||
| Depreciation and amortization | 10,700 | 10,236 | 30,150 | 30,086 | ||||||
| Stock-based compensation | 734 | 1,211 | 2,732 | 2,610 | ||||||
| Net corporate interest expense | 1,599 | 3,162 | 6,275 | 8,346 | ||||||
| Goodwill impairment | — | — | 17,674 | — | ||||||
| Restructuring costs | — | — | 5,714 | — | ||||||
| Arbitration and claim settlements | — | 1,200 | — | 12,552 | ||||||
| Gain on disposition of businesses, net | (14,104 | ) | — | (13,763 | ) | — | ||||
| Income tax provision | 11,729 | 5,328 | 9,554 | 11,120 | ||||||
| Foreign exchange fluctuations | 142 | — | 516 | — | ||||||
| Non-GAAP adjusted EBITDA | $ | 35,197 | $ | 32,183 | $ | 77,748 | $ | 84,511 |
Following is a reconciliation of operating cash flow to free cash flow for the nine months ended September 30, 2020 and 2019:
| Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | September 30, 2020 | September 30, 2019 | Change | ||||||
| Net Cash Provided by Operating Activities | $ | 57,316 | $ | 42,325 | $ | 14,991 | |||
| Less: | |||||||||
| Property & Equipment Purchases, net | (10,850 | ) | (5,664 | ) | (5,186 | ) | |||
| Capitalized Software (internal and external costs) | (12,793 | ) | (7,276 | ) | (5,517 | ) | |||
| Free Cash Flow | $ | 33,673 | $ | 29,385 | $ | 4,288 |
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Following are the reconciliations of GAAP Revenue, Operating Earnings, Pretax Earnings, Net Income and Earnings Per Share to related non-GAAP Adjusted figures, which reflect 2020 on a constant dollar basis before goodwill impairment, restructuring costs and gain on disposition of businesses and for 2019 exclude the results of the arbitration and claim settlements:
| Three Months Ended September 30, 2020 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Revenues | Non-GAAP<br><br><br>Operating earnings | Pretax earnings | Net income<br><br><br>attributable to Crawford & Company^(1)^ | Diluted earnings per<br><br><br>CRD-A<br><br><br>share^(1)^ | Diluted earnings per<br><br><br>CRD-B<br><br><br>share^(1)^ | ||||||||||
| GAAP | $ | 253,124 | $ | 28,055 | $ | 36,438 | $ | 24,397 | $ | 0.46 | $ | 0.46 | ||||
| Adjustments: | ||||||||||||||||
| Income tax impact of first quarter goodwill impairment | — | — | — | 1,935 | 0.04 | 0.04 | ||||||||||
| Gain on disposition of businesses, net | — | — | (14,104 | ) | (11,275 | ) | (0.21 | ) | (0.21 | ) | ||||||
| Foreign exchange fluctuations | 2,120 | 179 | 142 | 142 | — | — | ||||||||||
| Non-GAAP Adjusted | $ | 255,244 | $ | 28,234 | $ | 22,476 | $ | 15,199 | $ | 0.29 | $ | 0.29 | ||||
| Three Months Ended September 30, 2019 | ||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax earnings | Net income attributable to Crawford & Company | Diluted earnings per CRD-A share | Diluted earnings per CRD-B share | ||||||||||
| GAAP | $ | 254,677 | $ | 23,660 | $ | 16,019 | $ | 11,046 | $ | 0.21 | $ | 0.19 | ||||
| Adjustments: | ||||||||||||||||
| Arbitration and claim settlements | — | — | 1,200 | 887 | 0.02 | 0.02 | ||||||||||
| Non-GAAP Adjusted | $ | 254,677 | $ | 23,660 | $ | 17,219 | $ | 11,933 | $ | 0.23 | $ | 0.21 | ||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | Revenues | Non-GAAP<br><br><br>Operating earnings | Pretax income | Net income attributable to Crawford & Company^(1)^ | Diluted earnings per<br><br><br>CRD-A<br><br><br>share^(1)^ | Diluted earnings per<br><br><br>CRD-B<br><br><br>share^(1)^ | ||||||||||
| GAAP | $ | 725,071 | $ | 53,312 | $ | 27,226 | $ | 18,896 | $ | 0.36 | $ | 0.34 | ||||
| Adjustments: | ||||||||||||||||
| Goodwill impairment | — | — | 17,674 | 13,274 | 0.25 | 0.25 | ||||||||||
| Restructuring costs | — | — | 5,714 | 3,263 | 0.06 | 0.06 | ||||||||||
| Gain on disposition of businesses, net | — | — | (13,763 | ) | (10,807 | ) | (0.20 | ) | (0.20 | ) | ||||||
| Foreign exchange fluctuations | 9,220 | 594 | 516 | 502 | 0.01 | 0.01 | ||||||||||
| Non-GAAP Adjusted | $ | 734,291 | $ | 53,906 | $ | 37,367 | $ | 25,128 | $ | 0.48 | $ | 0.46 | ||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||
| (in thousands) | Revenues | Non-GAAP Operating earnings | Pretax earnings | Net income attributable to Crawford & Company | Diluted earnings per CRD-A share | Diluted earnings per CRD-B share | ||||||||||
| GAAP | $ | 758,616 | $ | 60,879 | $ | 19,084 | $ | 19,797 | $ | 0.39 | $ | 0.33 | ||||
| Adjustments: | ||||||||||||||||
| Arbitration and claim settlements | — | — | 12,552 | 9,276 | 0.17 | 0.17 | ||||||||||
| Non-GAAP Adjusted | $ | 758,616 | $ | 60,879 | $ | 31,636 | $ | 29,073 | $ | 0.56 | $ | 0.50 |
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^(1)^ The income tax impact of goodwill impairment is based on the estimated annual effective income tax rate. Due to the non-discrete income tax treatment of the first quarter goodwill impairment, the income tax benefit will normalize as income is earned during the remainder of the year, resulting in a lower full year income tax benefit.
Following is information regarding the weighted average shares used in the computation of basic and diluted earnings per share:
| Three months ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | ||||
| GAAP | ||||||||
| Weighted-Average Shares Used to Compute Basic Earnings Per Share: | ||||||||
| Class A Common Stock | 30,643 | 30,645 | 30,575 | 30,701 | ||||
| Class B Common Stock | 22,510 | 22,831 | 22,533 | 23,071 | ||||
| Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | ||||||||
| Class A Common Stock | 30,937 | 31,140 | 30,810 | 31,116 | ||||
| Class B Common Stock | 22,510 | 22,831 | 22,533 | 23,071 | ||||
| Non-GAAP^^^(2)^ | ||||||||
| Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | ||||||||
| Class A Common Stock | 30,937 | 31,140 | 30,801 | 31,116 | ||||
| Class B Common Stock | 22,510 | 22,831 | 22,533 | 23,071 |
^(2^^)^ The Company determines year to date dilutive shares for GAAP reporting by averaging all quarterly dilutive shares for quarters where positive net income was reported. The Company had a net loss for GAAP reporting during the first quarter of 2020, that resulted in no additional dilutive securities added to the basic weighted average shares in calculating diluted weighted average shares for GAAP reporting as their impact would be anti-dilutive. As the Company had Non-GAAP positive net income for each quarter in 2020, dilutive securities from each quarter were averaged to determine Non-GAAP earnings per share for the nine months ended September 30, 2020.
Further information regarding the Company’s operating results for the quarter ended September 30, 2020, financial position as of September 30, 2020, and cash flows for the quarter ended September 30, 2020 is shown on the attached unaudited condensed consolidated financial statements.
Page 9 of 16
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.
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 10 of 16
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)
| Three Months Ended September 30, | 2020 | 2019 | % Change | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||
| Revenues Before Reimbursements | $ | 253,124 | $ | 254,677 | (1 | )% | |||
| Reimbursements | 8,545 | 11,165 | (23 | )% | |||||
| Total Revenues | 261,669 | 265,842 | (2 | )% | |||||
| Costs and Expenses: | |||||||||
| Costs of Services Provided, Before Reimbursements | 177,061 | 180,849 | (2 | )% | |||||
| Reimbursements | 8,545 | 11,165 | (23 | )% | |||||
| Total Costs of Services | 185,606 | 192,014 | (3 | )% | |||||
| Selling, General, and Administrative Expenses | 52,065 | 52,564 | (1 | )% | |||||
| Corporate Interest Expense, Net | 1,599 | 3,162 | (49 | )% | |||||
| Arbitration and Claim Settlements | — | 1,200 | nm | ||||||
| Gain on Disposition of Businesses, Net | (14,104 | ) | — | nm | |||||
| Total Costs and Expenses | 225,166 | 248,940 | (10 | )% | |||||
| Other Expense, Net | (65 | ) | (883 | ) | (93 | )% | |||
| Income Before Income Taxes | 36,438 | 16,019 | 127 | % | |||||
| Provision for Income Taxes | 11,729 | 5,328 | 120 | % | |||||
| Net Income | 24,709 | 10,691 | 131 | % | |||||
| Net (Income) Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | (312 | ) | 355 | (188 | )% | ||||
| Net Income Attributable to Shareholders of Crawford & Company | $ | 24,397 | $ | 11,046 | 121 | % | |||
| Earnings Per Share - Basic: | |||||||||
| Class A Common Stock | $ | 0.46 | $ | 0.22 | 109 | % | |||
| Class B Common Stock | $ | 0.46 | $ | 0.19 | 142 | % | |||
| Earnings Per Share - Diluted: | |||||||||
| Class A Common Stock | $ | 0.46 | $ | 0.21 | 119 | % | |||
| Class B Common Stock | $ | 0.46 | $ | 0.19 | 142 | % | |||
| Cash Dividends Per Share: | |||||||||
| Class A Common Stock | $ | 0.04 | $ | 0.07 | (43 | )% | |||
| Class B Common Stock | $ | 0.04 | $ | 0.05 | (20 | )% |
nm = not meaningful
Page 11 of 16
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts and Percentages)
| Nine Months Ended September 30, | 2020 | 2019 | % Change | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||
| Revenues Before Reimbursements | $ | 725,071 | $ | 758,616 | (4 | )% | |||
| Reimbursements | 25,519 | 31,449 | (19 | )% | |||||
| Total Revenues | 750,590 | 790,065 | (5 | )% | |||||
| Costs and Expenses: | |||||||||
| Costs of Services Provided, Before Reimbursements | 518,263 | 533,664 | (3 | )% | |||||
| Reimbursements | 25,519 | 31,449 | (19 | )% | |||||
| Total Costs of Services | 543,782 | 565,113 | (4 | )% | |||||
| Selling, General, and Administrative Expenses | 163,327 | 171,407 | (5 | )% | |||||
| Corporate Interest Expense, Net | 6,275 | 8,346 | (25 | )% | |||||
| Goodwill Impairment | 17,674 | — | nm | ||||||
| Restructuring Costs | 5,714 | — | nm | ||||||
| Arbitration and Claim Settlements | — | 12,552 | nm | ||||||
| Gain on Disposition of Businesses, Net | (13,763 | ) | — | nm | |||||
| Total Costs and Expenses | 723,009 | 757,418 | (5 | )% | |||||
| Other Expense, Net | (355 | ) | (2,443 | ) | (85 | )% | |||
| Income Before Income Taxes | 27,226 | 30,204 | (10 | )% | |||||
| Provision for Income Taxes | 9,554 | 11,120 | (14 | )% | |||||
| Net Income | 17,672 | 19,084 | (7 | )% | |||||
| Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | 1,224 | 713 | 72 | % | |||||
| Net Income Attributable to Shareholders of Crawford & Company | $ | 18,896 | $ | 19,797 | (5 | )% | |||
| Earnings Per Share - Basic: | |||||||||
| Class A Common Stock | $ | 0.36 | $ | 0.39 | (8 | )% | |||
| Class B Common Stock | $ | 0.34 | $ | 0.33 | 3 | % | |||
| Earnings Per Share - Diluted: | |||||||||
| Class A Common Stock | $ | 0.36 | $ | 0.39 | (8 | )% | |||
| Class B Common Stock | $ | 0.34 | $ | 0.33 | 3 | % | |||
| Cash Dividends Per Share: | |||||||||
| Class A Common Stock | $ | 0.14 | $ | 0.21 | (33 | )% | |||
| Class B Common Stock | $ | 0.12 | $ | 0.15 | (20 | )% |
nm = not meaningful
Page 12 of 16
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2020 and December 31, 2019
Unaudited
(In Thousands, Except Par Values)
| December 31, | |||||
|---|---|---|---|---|---|
| 2019 | |||||
| ASSETS | |||||
| Current Assets: | |||||
| Cash and Cash Equivalents | 48,739 | $ | 51,802 | ||
| Accounts Receivable, Net | 123,563 | 128,217 | |||
| Unbilled Revenues, at Estimated Billable Amounts | 106,610 | 103,894 | |||
| Income Taxes Receivable | 7,820 | 7,820 | |||
| Prepaid Expenses and Other Current Assets | 26,641 | 23,476 | |||
| Total Current Assets | 313,373 | 315,209 | |||
| Net Property and Equipment | 34,160 | 31,425 | |||
| Other Assets: | |||||
| Operating Lease Right-of-Use Asset, Net | 107,956 | 102,354 | |||
| Goodwill | 61,151 | 80,642 | |||
| Intangible Assets Arising from Business Acquisitions, Net | 66,223 | 75,083 | |||
| Capitalized Software Costs, Net | 64,130 | 66,445 | |||
| Deferred Income Tax Assets | 18,107 | 17,971 | |||
| Other Noncurrent Assets | 74,522 | 70,884 | |||
| Total Other Assets | 392,089 | 413,379 | |||
| Total Assets | 739,622 | $ | 760,013 | ||
| LIABILITIES AND SHAREHOLDERS’ INVESTMENT | |||||
| Current Liabilities: | |||||
| Short-Term Borrowings | 3,028 | $ | 28,531 | ||
| Accounts Payable | 33,592 | 34,377 | |||
| Operating Lease Liability | 31,918 | 30,765 | |||
| Accrued Compensation and Related Costs | 74,681 | 68,499 | |||
| Self-Insured Risks | 9,941 | 11,311 | |||
| Income Taxes Payable | 7,022 | 3,030 | |||
| Other Accrued Liabilities | 34,117 | 31,449 | |||
| Deferred Revenues | 27,129 | 28,288 | |||
| Current Installments of Finance Leases | 49 | 15 | |||
| Total Current Liabilities | 221,477 | 236,265 | |||
| Noncurrent Liabilities: | |||||
| Long-Term Debt and Finance Leases, Less Current Installments | 124,684 | 148,408 | |||
| Operating Lease Liability | 91,963 | 87,064 | |||
| Deferred Revenues | 23,921 | 24,080 | |||
| Accrued Pension Liabilities | 56,542 | 65,909 | |||
| Other Noncurrent Liabilities | 38,749 | 33,410 | |||
| Total Noncurrent Liabilities | 335,859 | 358,871 | |||
| Redeemable Noncontrolling Interests | - | 2,310 | |||
| Shareholders’ Investment: | |||||
| Class A Common Stock, 1.00 Par Value | 30,645 | 30,610 | |||
| Class B Common Stock, 1.00 Par Value | 22,510 | 22,671 | |||
| Additional Paid-in Capital | 66,339 | 63,392 | |||
| Retained Earnings | 258,504 | 249,551 | |||
| Accumulated Other Comprehensive Loss | (195,002 | ) | (206,907 | ) | |
| Shareholders’ Investment Attributable to Shareholders of Crawford & Company | 182,996 | 159,317 | |||
| Noncontrolling Interests | (710 | ) | 3,250 | ||
| Total Shareholders’ Investment | 182,286 | 162,567 | |||
| Total Liabilities and Shareholders’ Investment | 739,622 | $ | 760,013 |
All values are in US Dollars.
Page 13 of 16
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT COMPENSATION AND OTHER EXPENSES
Unaudited
(In Thousands, Except Percentages)
Three Months Ended September 30,
| Crawford Claims Solutions | % | Crawford Specialty Solutions | % | Crawford TPA Solutions | % | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
| Revenues Before Reimbursements | $ | 98,369 | $ | 86,250 | 14.1 | % | $ | 67,545 | $ | 68,932 | (2.0 | )% | $ | 87,210 | $ | 99,495 | (12.3 | )% | |||||||||
| Direct Compensation, Fringe Benefits & Non-Employee Labor | 65,673 | 56,985 | 15.2 | % | 32,928 | 35,993 | (8.5 | )% | 53,613 | 58,594 | (8.5 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 66.8 | % | 66.1 | % | 48.7 | % | 52.2 | % | 61.5 | % | 58.9 | % | |||||||||||||||
| Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor | 25,477 | 26,604 | (4.2 | )% | 17,227 | 19,638 | (12.3 | )% | 29,183 | 31,554 | (7.5 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 25.9 | % | 30.8 | % | 25.5 | % | 28.5 | % | 33.5 | % | 31.7 | % | |||||||||||||||
| Total Operating Expenses | 91,150 | 83,589 | 9.0 | % | 50,155 | 55,631 | (9.8 | )% | 82,796 | 90,148 | (8.2 | )% | |||||||||||||||
| Operating Earnings ^(1)^ | $ | 7,219 | $ | 2,661 | 171.3 | % | $ | 17,390 | $ | 13,301 | 30.7 | % | $ | 4,414 | $ | 9,347 | (52.8 | )% | |||||||||
| % of Revenues Before Reimbursements | 7.3 | % | 3.1 | % | 25.7 | % | 19.3 | % | 5.1 | % | 9.4 | % |
Nine Months Ended September 30,
| Crawford Claims Solutions | % | Crawford Specialty Solutions | % | Crawford TPA Solutions | % | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
| Revenues Before Reimbursements | $ | 257,407 | $ | 255,572 | 0.7 | % | $ | 196,794 | $ | 206,237 | (4.6 | )% | $ | 270,870 | $ | 296,807 | (8.7 | )% | |||||||||
| Direct Compensation, Fringe Benefits & Non-Employee Labor | 171,107 | 168,951 | 1.3 | % | 102,677 | 106,003 | (3.1 | )% | 166,243 | 177,911 | (6.6 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 66.5 | % | 66.1 | % | 52.2 | % | 51.4 | % | 61.4 | % | 59.9 | % | |||||||||||||||
| Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor | 79,971 | 82,563 | (3.1 | )% | 55,777 | 62,126 | (10.2 | )% | 90,757 | 97,790 | (7.2 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 31.1 | % | 32.3 | % | 28.3 | % | 30.1 | % | 33.5 | % | 32.9 | % | |||||||||||||||
| Total Operating Expenses | 251,078 | 251,514 | (0.2 | )% | 158,454 | 168,129 | (5.8 | )% | 257,000 | 275,701 | (6.8 | )% | |||||||||||||||
| Operating Earnings ^(1)^ | $ | 6,329 | $ | 4,058 | 56.0 | % | $ | 38,340 | $ | 38,108 | 0.6 | % | $ | 13,870 | $ | 21,106 | (34.3 | )% | |||||||||
| % of Revenues Before Reimbursements | 2.5 | % | 1.6 | % | 19.5 | % | 18.5 | % | 5.1 | % | 7.1 | % |
^(1)^ A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, gain on disposition of businesses, arbitration and claim settlements, and certain unallocated corporate and shared costs and credits. See page 4-5 for additional information about segment operating earnings.
Page 14 of 16
CRAWFORD & COMPANY
SUMMARY RESULTS BY OPERATING SEGMENT WITH DIRECT AND INDIRECT COSTS
Unaudited
(In Thousands, Except Percentages)
Three Months Ended September 30,
| Crawford Claims Solutions | % | Crawford Specialty Solutions | % | Crawford TPA Solutions | % | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
| Revenues Before Reimbursements | $ | 98,369 | $ | 86,250 | 14.1 | % | $ | 67,545 | $ | 68,932 | (2.0 | )% | $ | 87,210 | $ | 99,495 | (12.3 | )% | |||||||||
| Direct Expense | 75,689 | 66,498 | 13.8 | % | 39,306 | 44,130 | (10.9 | )% | 66,937 | 72,785 | (8.0 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 76.9 | % | 77.1 | % | 58.2 | % | 64.0 | % | 76.8 | % | 73.2 | % | |||||||||||||||
| Segment Gross Profit | 22,680 | 19,752 | 14.8 | % | 28,239 | 24,802 | 13.9 | % | 20,273 | 26,710 | (24.1 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 23.1 | % | 22.9 | % | 41.8 | % | 36.0 | % | 23.2 | % | 26.8 | % | |||||||||||||||
| Indirect Costs | 15,461 | 17,091 | (9.5 | )% | 10,849 | 11,501 | (5.7 | )% | 15,859 | 17,363 | (8.7 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 15.7 | % | 19.8 | % | 16.1 | % | 16.7 | % | 18.2 | % | 17.5 | % | |||||||||||||||
| Operating Earnings^(1)^ | $ | 7,219 | $ | 2,661 | 171.3 | % | $ | 17,390 | $ | 13,301 | 30.7 | % | $ | 4,414 | $ | 9,347 | (52.8 | )% | |||||||||
| % of Revenues Before Reimbursements | 7.3 | % | 3.1 | % | 25.7 | % | 19.3 | % | 5.1 | % | 9.4 | % |
Nine Months Ended September 30,
| Crawford Claims Solutions | % | Crawford Specialty Solutions | % | Crawford TPA Solutions | % | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
| Revenues Before Reimbursements | $ | 257,407 | $ | 255,572 | 0.7 | % | $ | 196,794 | $ | 206,237 | (4.6 | )% | $ | 270,870 | $ | 296,807 | (8.7 | )% | |||||||||
| Direct Expense | 201,936 | 199,190 | 1.4 | % | 124,470 | 133,771 | (7.0 | )% | 207,594 | 220,956 | (6.0 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 78.5 | % | 77.9 | % | 63.2 | % | 64.9 | % | 76.6 | % | 74.4 | % | |||||||||||||||
| Segment Gross Profit | 55,471 | 56,382 | (1.6 | )% | 72,324 | 72,466 | (0.2 | )% | 63,276 | 75,851 | (16.6 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 21.5 | % | 22.1 | % | 36.8 | % | 35.1 | % | 23.4 | % | 25.6 | % | |||||||||||||||
| Indirect Costs | 49,142 | 52,324 | (6.1 | )% | 33,984 | 34,358 | (1.1 | )% | 49,406 | 54,745 | (9.8 | )% | |||||||||||||||
| % of Revenues Before Reimbursements | 19.1 | % | 20.5 | % | 17.3 | % | 16.7 | % | 18.2 | % | 18.4 | % | |||||||||||||||
| Operating Earnings^(1)^ | $ | 6,329 | $ | 4,058 | 56.0 | % | $ | 38,340 | $ | 38,108 | 0.6 | % | $ | 13,870 | $ | 21,106 | (34.3 | )% | |||||||||
| % of Revenues Before Reimbursements | 2.5 | % | 1.6 | % | 19.5 | % | 18.5 | % | 5.1 | % | 7.1 | % |
^(1)^ A non-GAAP financial measurement which represents net income attributable to the applicable reporting segment excluding income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, gain on disposition of businesses, arbitration and claim settlements, and certain unallocated corporate and shared costs and credits. See page 4-5 for additional information about segment operating earnings
Page 15 of 16
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date Period Ended September 30, 2020 and September 30, 2019
Unaudited
(In Thousands)
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities: | ||||||
| Net income | $ | 17,672 | $ | 19,084 | ||
| Reconciliation of net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 30,150 | 30,086 | ||||
| Goodwill impairment | 17,674 | — | ||||
| Gain on disposition of businesses, net | (13,763 | ) | — | |||
| Stock-based compensation | 2,732 | 2,610 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable, net | 485 | 1,108 | ||||
| Unbilled revenues, net | (9,223 | ) | (8,740 | ) | ||
| Accrued or prepaid income taxes | 2,462 | 443 | ||||
| Accounts payable and accrued liabilities | 16,097 | (4,361 | ) | |||
| Deferred revenues | (1,491 | ) | 514 | |||
| Accrued retirement costs | (6,101 | ) | 1,545 | |||
| Prepaid expenses and other operating activities | 622 | 36 | ||||
| Net cash provided by operating activities | 57,316 | 42,325 | ||||
| Cash Flows From Investing Activities: | ||||||
| Acquisitions of property and equipment | (10,850 | ) | (5,664 | ) | ||
| Capitalization of computer software costs | (12,793 | ) | (7,276 | ) | ||
| Cash proceeds from disposition of business, net of cash disposed | 19,273 | — | ||||
| Payments for business acquisitions, net of cash acquired | — | (2,296 | ) | |||
| Net cash used in investing activities | (4,370 | ) | (15,236 | ) | ||
| Cash Flows From Financing Activities: | ||||||
| Cash dividends paid | (6,986 | ) | (9,894 | ) | ||
| Proceeds from shares purchased under employee stock-based compensation plans | 811 | 1,909 | ||||
| Repurchases of common stock | (2,666 | ) | (25,673 | ) | ||
| Increases in revolving credit facility borrowings | 76,876 | 65,449 | ||||
| Payments on revolving credit facility borrowings | (124,454 | ) | (64,962 | ) | ||
| Payments on finance lease obligations | (33 | ) | (106 | ) | ||
| Cash paid for equity investments | (603 | ) | — | |||
| Dividends paid to noncontrolling interests | (196 | ) | (458 | ) | ||
| Net cash used in financing activities | (57,251 | ) | (33,735 | ) | ||
| Effects of exchange rate changes on cash and cash equivalents | 1,242 | (372 | ) | |||
| Decrease in cash and cash equivalents | (3,063 | ) | (7,018 | ) | ||
| Cash and cash equivalents at beginning of year | 51,802 | 53,119 | ||||
| Cash and cash equivalents at end of period | $ | 48,739 | $ | 46,101 |
Page 16 of 16
crda-ex992_482.pptx.htm
Crawford & Company Third Quarter 2020 Earnings Conference Call CRD-A & CRD-B (NYSE)
Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion 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, gain on disposition of businesses, 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.
BY GLOBAL SERVICE LINES $18 BILLION+ Claims managed annually AT A GLANCE BY GEOGRAPHY 39%⎹ Crawford Claims Solutions (P&C adjusting solutions) 26%⎹ Crawford Specialty Solutions (Global Technical Services & Contractor Connection) 34%⎹ Crawford TPA solutions (Broadspire) 60%⎹ US 9%⎹ Canada 12%⎹ UK 8% ⎹ Australia 11%⎹ Rest of the world Crawford & Company The world’s largest publicly listed independent provider of global claims management solutions 1.6 MILLION Claims handled 9,000 Total employees Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion OUR VISION: To be the leading provider and most trusted source for expert assistance, serving those who insure and self-insure the risks of businesses and communities anywhere in the world. OUR PURPOSE: To restore and enhance lives, businesses, and communities OUR VALUES: RESTORE Respect, Empowerment, Sustainability, Training, One Crawford, Recognition, Entrepreneurial Spirit
(1) See appendix for non-GAAP explanation and reconciliation of non-GAAP measures Financial Highlights Third Quarter 2020 GAAP NON-GAAP¹ KEY METRICS¹ $253.1 MILLION Revenues before reimbursements $24.4 MILLION Net income $255.2 MILLION Revenues before reimbursements $79 MILLION Net Debt $35.2 MILLION Adjusted EBITDA 13.8% EBITDA margin $28.2 MILLION Operating earnings $0.46 EPS Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion $57.3 MILLION Operating cash flow
Weather Indicators Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion Source: Met Office, Australian Government – Dept. of Home Affairs, Disaster Declaration FEMA Source: Aon Global Catastrophic Recap. Note: Insured losses assumed to be 75% of the total economic losses United States Q1 2020 Q2 2020 Q3 2020 Flood 2 2 3 Tropical cyclone 0 0 6 Wildfire 1 2 9 Storm/Tornado 4 7 3 Earthquake 2 0 0 UK Q1 2020 Q2 2020 Q3 2020 Flood 3 0 2 Heatwave/ Drought 0 0 2 Storm/Tornado 4 0 3 Canada Q1 2020 Q2 2020 Q3 2020 Flood 1 1 1 Winter Storm/Hail 1 1 0 Wildfire 0 0 7 Storm/Tornado 0 3 0 Australia Q1 2020 Q2 2020 Q3 2020 Flood 9 5 3 Tropical cyclone 3 0 0 Wildfire 0 0 0 Storm/Tornado 8 6 4 Expansion Flat Contraction Note: Wildfires counted by number of states or provinces affected
Economic Indicators Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion United States Q1 2020 Q2 2020 Q3 2020 Unemployment rate 4.4% 11.1% 7.9% Miles driven (B) 235.1 197.2 (-16.2%) 239.7 (21.5%) Housing starts (000’s) 1,484 1,079 (-27.3%) 1,454 (34.7%) Retail sales ($B) 481.1 476.9 (-0.9%) 536.0 (12.4%) Notes: Miles driven, Housing starts, permits and Retail sales displayed are monthly averages for the quarter, Q3 Miles driven is for the month of July based on latest data available, Q3 Retail sales and Housing Starts is the average of July and Aug based on latest data available. Q3 UK Retail sales are average of July and Aug based on latest data available. Recent data on UK housing starts not available US Unemployment rate, seasonally adjusted, Oct 2019 – Sept 2020 Source: Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics, United States Census Bureau UK Q1 2020 Q2 2020 Q3 2020 Unemployment rate 3.9% 3.9% 4.1% Housing starts (000’s) 33.0 15.9 (-51.8%) - Retail sales (£B) 38.9 32.1 (-17.5%) 34.6 (7.9%) Australia Q1 2020 Q2 2020 Q3 2020 Unemployment rate 5.2% 7.1% 6.8% Building permits (000’s) 14.9 13.3 (-10.7%) 13.6 (2.3%) Retail sales (AUD B) 28.5 27.8 (-2.5%) 30.0 (8.0%) Canada Q1 2020 Q2 2020 Q3 2020 Unemployment rate 7.8% 12.3% 10.2% Housing starts (000’s) 208.6 190.7 (-8.5%) 238.6 (25.1%) Retail sales (CAD B) 50.4 43.6 (-13.5%) 52.9 (21.3%) University of Michigan's consumer sentiment Business sentiment – ISM Manufacturing PMI US Business and Consumer Sentiment Expansion Flat Contraction
Revenue $67.5M Operating Earnings $17.4M Impact Across Our Global Service Lines (GSLs) Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion WeGoLook saw the highest ever claims volume Dallas claims facility is online, functional and expanding to support our most recent large carrier client Launched the Digital Assist solution Contractor Connection 8 of the top 10 U.S. clients saw year-over-year increase in third quarter non-surge volume Won top personal lines carrier in Canada GTS Won a $500 million claim due to the delay of a significant global event in Asia Strategic hires in the U.S. with plans to grow internationally Onboarded new client users to our new ecosystem throughout the quarter Decreased economic activity remains a headwind Reduced medical management revenue from delays in non-essential medical services Weekly auto claims in Canada reached pre-COVID-19 levels Crawford Claims Solutions 39% of total revenues Crawford Specialty Solutions 26% of total revenues Crawford TPA Solutions: Broadspire 34% of total revenues Third Quarter Performance Revenue $98.4M Operating Earnings $7.2M Revenue $87.2M Operating Earnings $4.4M
Continued RFP activity, winning $22.5 million of new and enhanced business Customer Excellence Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion New and Renewal Business Activity¹ CCS added $9 million in revenues Contractor Connection won $3 million in revenues GTS closed $3.5 million in revenues TPA added $7 million in revenues during the third quarter and renewed 96% of U.S. business year-to-date Sales Pipeline Over $265 million of new business in the pipeline Over 270 new or enhanced client programs Demonstrating brand strength and differentiation through new and enhanced business Net Promoter Score Surveyed nearly 70% of top clients, with an overall score of 42 Signifies a high level of customer satisfaction (1) New business revenues represent annualized figures
35% 1.11x $0.14 Proactively manage capital allocation across the business and adapt to reflect the new economic reality increase in operating cash flow over last year net funded debt-to-EBITDA, a seven-year low leverage ratio CASH FLOW Strong financial position with liquidity surpassing expectations Continuing to evaluate share repurchases as a component of our capital allocation strategy Our Capital Allocation Strategy Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion $57.3M $0.12 per share dividends paid for CRD-A year-to-date per share dividends paid for CRD-B year-to-date
Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion Latin American and Australian Expansion Crawford Carvallo Acquired Crawford Carvallo, recognized as the market leader in loss adjusting, claims management solutions and legal services in Chile Crawford is now the largest loss adjusting company in in Latin America Further extending our global footprint through a disciplined M&A strategy Reinvigorated M&A Pipeline HBA Group Acquired HBA Group, a legal services provider which will complement the Crawford TPA Solutions segment in Australia and the larger Asian region The acquisition is anticipated to serve as a legal services growth platform
Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion Supporting Our Global Workforce Prioritizing the Safety and Well-Being of our Workforce Providing flexible remote work arrangements to protect the health and safety of employees and their families PPE and expert training provided to our teams in the field Conducting pre-visit screenings to ensure the safety of our teams Inclusion and Diversity Established Employee Resource Groups and an Employee Advisory Council aligned with our purpose to foster a safe and inclusive working environment, where employees can bring their authentic selves to work and offer unique experiences and perspectives Human Capital Development Promote an environment where employees are empowered to grow, emboldened to act and inspired to innovate through internal programs and initiatives Continuing to demonstrate our resilience despite the significant challenges presented by COVID-19
(1) See appendix for non-GAAP explanation and reconciliation of non-GAAP measures. Quarter Ended September 30, September 30, ($ in millions, except per share amounts) 2020 2019 % Change Revenues $253.1 $254.7 (1)% Non-GAAP Revenues excluding foreign exchange fluctuations(1) $255.2 $254.7 0% Net Income Attributable to Shareholders of Crawford & Company $24.4 $11.0 121% Diluted Earnings per Share CRD-A $0.46 $0.21 119% CRD-B $0.46 $0.19 142% Non-GAAP Diluted Earnings per Share 1 CRD-A $0.29 $0.23 26% CRD-B $0.29 $0.21 38% Adjusted Operating Earnings 1 $28.2 $23.7 19% Adjusted Operating Margin 1 11.1% 9.3% 180bps Adjusted EBITDA 1 $35.2 $32.2 9% Adjusted EBITDA Margin 1 13.8% 12.6% 120bps Third Quarter 2020 Financial Summary Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Highlights Saw major lift in claims from large carrier clients Strong performance in the U.S. from storm activity WeGoLook had the highest “look” volumes in its history Operating Results (3Q 2020 v. 3Q 2019) Revenues of $98.4 million versus $86.3 million Constant dollar revenues of $99.2 million Gross profit of $22.7 million versus $19.8 million Gross profit margin of 23.1% versus 22.9% Operating earnings of $7.2 million versus $2.7 million Operating margin of 7.3% versus 3.1% Three months ended (in thousands, except percentages) September 30, 2020 September 30, 2019 Variance 2020 Based on 2019 rates Variance Revenues $98,369 $86,250 14.1% $99,228 15.0% Direct expenses 75,689 66,498 13.8% 76,324 14.8% Gross profit 22,680 19,752 14.8% 22,904 16.0% Indirect expenses 15,461 17,091 (9.5%) 15,659 (8.4%) Operating earnings $7,219 $2,661 171.3% $7,245 172.3% Gross profit margin 23.1% 22.9% 0.2% 23.1% 0.2% Operating margin 7.3% 3.1% 4.2% 7.3% 4.2% Total cases received 141,381 117,296 20.5% Full time equivalent employees 2,882 2,918 (1.2%) Crawford Claims Solutions Segment Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Highlights Contractor Connection Strong level of daily assignments in the third quarter Won a top personal lines carrier contract in Canada Saw traction of decontamination service in the U.K. GTS Won one of its largest claims due to the delay of a significant global event in Asia Appointed strategic new hires in the U.S. and internationally Operating Results (3Q 2020 v. 3Q 2019) Revenues of $67.5 million versus $68.9 million Constant dollar revenues of $68.5 million Gross profit of $28.2 million versus $24.8 million Gross profit margin of 41.8% versus 36.0% Operating earnings of $17.4 million versus $13.3 million Operating margin of 25.7% versus 19.3% Three months ended (in thousands, except percentages) September 30, 2020 September 30, 2019 Variance 2020 Based on 2019 rates Variance Revenues $67,545 $68,932 (2.0%) $68,488 (0.6%) Direct expenses 39,306 44,130 (10.9%) 39,880 (9.6%) Gross profit 28,239 24,802 13.9% 28,608 15.3% Indirect expenses 10,849 11,501 (5.7%) 11,104 (3.5%) Operating earnings $17,390 $13,301 30.7% $17,504 31.6% Gross profit margin 41.8% 36.0% 5.8% 41.8% 5.8% Operating margin 25.7% 19.3% 6.4% 25.6% 6.3% Total cases received 83,270 82,330 1.1% Full time equivalent employees 1,357 1,493 (9.1%) Crawford Specialty Solutions Segment Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Three months ended (in thousands, except percentages) September 30, 2020 September 30, 2019 Variance 2020 Based on 2019 rates Variance Revenues $87,210 $99,495 (12.3%) $87,528 (12.0%) Direct expenses 66,937 72,785 (8.0%) 67,138 (7.8%) Gross profit 20,273 26,710 (24.1%) 20,390 (23.7%) Indirect expenses 15,859 17,363 (8.7%) 15,960 (8.1%) Operating earnings $4,414 $9,347 (52.8%) $4,430 (52.6%) Gross profit margin 23.2% 26.8% (3.6%) 23.3% (3.6%) Operating margin 5.1% 9.4% (4.3%) 5.1% (4.3%) Total cases received 193,234 213,028 (9.3%) Full time equivalent employees 2,977 3,201 (7.0%) Highlights Renewed 96% of U.S. business year-to-date Continued robust traction in the pipeline Onboarded users to advanced technology solutions Operating Results (3Q 2020 v. 3Q 2019) Revenues of $87.2 million versus $99.5 million Constant dollar revenues of $87.5 million Gross profit of $20.3 million versus $26.7 million Gross profit margin of 23.2% versus 26.8% Operating earnings of $4.4 million versus $9.3 million Operating margin of 5.1% versus 9.4% Crawford TPA Solutions Segment Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Additional Financial Matters In The Third Quarter 2020 Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion Unallocated Corporate and Shared Costs and Credits Unallocated corporate costs of $1.0 million Decrease driven by lower self insurance expenses and a credit from the Canada Emergency Wage Subsidy, and partially offset by incentive compensation and severance costs Income Tax Impact of First Quarter Goodwill Impairment Income tax benefit from goodwill impairment in the first quarter being normalized through the ETR during the rest of the year Decreased income tax benefit by $1.9 million, or $0.04 per share during the third quarter Acquisitions and Dispositions of Business Recognized an after tax gain of $11.7 million on the disposition of Lloyd Warwick International (“LWI”) Recognized an additional loss on the disposal of Crawford Compliance Inc. of $0.6 million in the third quarter Acquired the remaining 15% membership interests of WeGoLook, LLC for $0.3 million Subsequent Events Acquired the remaining 85% equity interests in Crawford Carvallo and its subsidiaries Acquired 100% of HBA Group in Australia COVID-19 Estimate COVID-19 negatively impacted revenues in the range of $21.0 to $25.0 million during the quarter
(1) See Appendix for non-GAAP explanation and reconciliation Unaudited ($ in thousands) September 30, 2020 December 31, 2019 December 31, 2019 December 31, 2018 Change Change Cash and cash equivalents $ 48,739 $ 51,802 $ (3,063 ) Accounts receivable, net 123,563 128,217 (4,654 ) Unbilled revenues, net 106,610 103,894 2,716 Total receivables 230,173 232,111 (1,938 ) Goodwill 61,151 80,642 (19,491 ) Intangible assets arising from business acquisitions, net 66,223 75,083 (8,860 ) Deferred revenues 51,050 52,368 (1,318 ) Pension liabilities 56,542 65,909 (9,367 ) Short-term borrowings and current portion of finance leases 3,077 28,546 (25,469 ) Long-term debt, less current portion 124,684 148,408 (23,724 ) Total debt 127,761 176,954 49,193 Total stockholders' equity attributable to Crawford & Company 182,996 159,317 23,679 Net debt 1 79,022 125,152 (46,130 ) Balance Sheet Highlights Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Net Debt and Pension Liability Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion $79.0 million $56.5 million Net debt at low of $79.0 million Pension liability at a multi-year low of $56.5 million $171.2 million $121.7 million
(1) See Appendix for non-GAAP explanation and reconciliation Unaudited ($ in thousands) 2020 2019 2019 2018 Change Change Net Income Attributable to Shareholders of Crawford & Company $ 18,896 $ 19,797 $ (901 ) Goodwill Impairment 17,674 — 17,674 Gain on Disposition of Businesses, Net (13,763 ) — (13,763 ) Depreciation and Other Non-Cash Operating Items 31,658 31,983 (325 ) Billed Receivables Change 485 (1,108 ) (623 ) Unbilled Receivables Change (9,223 ) (8,740 ) (483 ) Change in Accrued Compensation and 401K (5,130 ) 487 4,643 Change in Accrued and Prepaid Income Taxes 2,462 443 2,019 Other Working Capital Changes 7,452 (2,226 ) 9,678 U.S. and U.K. Pension Contributions (3,455 ) (527 ) (2,928 ) Cash Flows from Operating Activities 57,316 42,325 14,991 Property & Equipment Purchases, net (10,850 ) (5,664 ) (5,186 ) Capitalized Software (internal and external costs) (12,793 ) (7,276 ) (5,517 ) Free Cash Flow1 $ 33,673 $ 29,385 $ 4,288 For the year to date periods ended September 30, Operating And Free Cash Flow Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
Employee Health & Safety Protect our workforce first and foremost Customer Excellence Provide best-in-class service to our clients regardless of the global environment Brands, Relationships & Differentiation Maintain industry leadership through our innovations and market leading solutions Future Growth Deliver superior results for our shareholders 2020 Priorities Introduction | External Factors | Claims Volume | New Business Momentum | Disciplined Capital Allocation | Our Workforce | Financial Results | Conclusion
9,000 50,000+ 70 $18B+ Employees Field Resources Countries Claims Managed Annually Crawford & Company The world’s largest publicly listed independent provider of global claims management and outsourcing solutions.
Appendix: Non-GAAP Financial Information
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, gain on disposition of businesses, arbitration and claim settlements, income taxes and net income or loss attributable to noncontrolling interests.
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, restructuring costs, gain on disposition of businesses, and arbitration and claim settlements 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 goodwill impairment, restructuring costs, loss on disposition of business, arbitration and claim settlements, 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.
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 Nine Months Ended (in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Geographic Area Currency USD equivalent % of total USD equivalent % of total USD equivalent % of total USD equivalent % of total U.S. USD $ 152,728 60.3% $ 146,177 57.4% $ 419,064 57.8% $ 432,292 57.0% U.K. GBP 30,060 11.9% 30,844 12.1% 95,003 13.1% 93,967 12.4% Canada CAD 22,267 8.8% 28,350 11.1% 68,339 9.4% 87,037 11.5% Australia AUD 19,946 7.9% 18,649 7.3% 54,270 7.5% 54,223 7.1% Europe EUR 12,730 5.0% 13,817 5.4% 40,137 5.5% 40,002 5.3% Rest of World Various 15,393 6.1% 16,840 6.7% 48,258 6.7% 51,095 6.7% Total Revenues, before reimbursements $ 253,124 100.0% $ 254,677 100.0% $ 725,071 100.0% $ 758,616 100.0%
Reconciliation of Non-GAAP Items Revenues, Costs of Services Provided, and Operating Earnings Quarter Ended Quarter Ended Quarter Ended Quarter Ended September 30, December 31, September 30, December 31, Unaudited ($ in thousands) 2020 2019 2019 2018 Revenues Before Reimbursements Total Revenues $ 261,669 $ 265,842 Reimbursements (8,545 ) (11,165 ) Revenues Before Reimbursements 253,124 254,677 Costs of Services Provided, Before Reimbursements Total Costs of Services 185,606 192,014 Reimbursements (8,545 ) (11,165 ) Costs of Services Provided, Before Reimbursements $ 177,061 $ 180,849 Quarter Ended Quarter Ended Quarter Ended Quarter Ended September 30, December 31, September 30, December 31, Unaudited ($ in thousands) 2020 2019 2019 2018 Operating Earnings: Crawford Claims Solutions $ 7,219 $ 2,661 Crawford Specialty Solutions 17,390 13,301 Crawford TPA Solutions 4,414 9,347 Unallocated corporate and shared costs and credits, net (968 ) (1,649 ) Consolidated Operating Earnings 28,055 23,660 (Deduct) Add: Net corporate interest expense (1,599 ) (3,162 ) Stock option expense (457 ) (450 ) Amortization expense (3,665 ) (2,829 ) Arbitration and claim settlements — (1,200 ) Gain on disposition of businesses 14,104 — Income tax provision (11,729 ) (5,328 ) Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests (312 ) 355 Net Income Attributable to Shareholders of Crawford & Company $ 24,397 $ 11,046
Reconciliation of Non-GAAP Items (cont.) Adjusted EBITDA Quarter Ended Quarter Ended September 30, December 31, September 30, December 31, Unaudited ($ in thousands) 2020 2019 2019 2018 Net income attributable to shareholders of Crawford & Company $ 24,397 $ 11,046 Add: Depreciation and amortization 10,700 10,236 Stock-based compensation 734 1,211 Net corporate interest expense 1,599 3,162 Arbitration and claim settlements — 1,200 Gain on disposition of businesses (14,104 ) — Income tax provision 11,729 5,328 Foreign exchange impacts 142 — Adjusted EBITDA $ 35,197 $ 32,183
Reconciliation of Non-GAAP Items (cont.) Net Debt September 30, December 31, December 31, December 31, Unaudited ($ in thousands) 2020 2019 2019 2018 Net Debt Short-term borrowings $ 3,028 $ 28,531 Current installments of capital leases 49 15 Long-term debt and capital leases, less current installments 124,684 148,408 Total debt 127,761 176,954 Less: Cash and cash equivalents 48,739 51,802 Net debt $ 79,022 $ 125,152
Reconciliation of Non-GAAP Items (cont.) Segment Gross Profit Three months ended Three months ended ($ in thousands) September 30, 2020 December 31, 2019 September 30, 2019 December 31, 2018 Segment gross profit: Crawford Claims Solutions $ 22,680 $ 19,752 Crawford Specialty Solutions 28,239 24,802 Crawford TPA Solutions 20,273 26,710 Segment gross profit 71,192 71,264 Segment indirect costs: Crawford Claims Solutions (15,461 ) (17,091 ) Crawford Specialty Solutions (10,849 ) (11,501 ) Crawford TPA Solutions (15,859 ) (17,363 ) Unallocated corporate and shared costs, net 968 1,649 Consolidated operating earnings 28,055 23,660 Net corporate interest expense (1,599 ) (3,162 ) Stock option expense (457 ) (450 ) Amortization expense (3,665 ) (2,829 ) Arbitration and claim settlements — (1,200 ) Gain on disposition of businesses 14,104 — Income tax provision (11,729 ) (5,328 ) Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests (312 ) 355 Net income attributable to shareholders of Crawford & Company $ 24,397 $ 11,046
Reconciliation of Third Quarter Non-GAAP Results Three Months Ended September 30, 2020 Unaudited ($ in thousands) Revenues Revenues Non-GAAP Operating Earnings Non-GAAP Operating Earnings Pretax Earnings Pretax (Loss) Earnings Net Income Attributable to Crawford & Company Net (Loss) Income Attributable to Crawford & Company Diluted Earnings per CRD-A Share Diluted (Loss) Earnings per CRD-A Share Diluted Earnings per CRD-B Share Diluted (Loss) Earnings per CRD-B Share GAAP $ 253,124 $ 28,055 $ 36,438 $ 24,397 $ 0.46 $ 0.46 Adjustments: Income tax impact of first quarter goodwill impairment — — — 1,935 0.04 0.04 Gain on disposition of businesses — — (14,104 ) (11,275 ) (0.21 ) (0.21 ) Foreign exchange fluctuations 2,120 179 142 142 — — Non-GAAP Adjusted $ 255,244 $ 28,234 $ 22,476 $ 15,199 $ 0.29 $ 0.29 Three Months Ended September 30, 2019 Unaudited ($ in thousands) Revenues Revenues Non-GAAP Operating Earnings Non-GAAP Operating Earnings Pretax Earnings Pretax Earnings Net Income Attributable to Crawford & Company Net Income Attributable to Crawford & Company Diluted Earnings per CRD-A Share Diluted Earnings per CRD-A Share Diluted Earnings per CRD-B Share Diluted Earnings per CRD-B Share GAAP $ 254,677 $ 23,660 $ 16,019 $ 11,046 $ 0.21 $ 0.19 Adjustments: Arbitration and claim settlements — — 1,200 887 0.02 0.02 Non-GAAP Adjusted $ 254,677 $ 23,660 $ 17,219 $ 11,933 $ 0.23 $ 0.21