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Crawford & Company Reports 2022 Second Quarter Results

·15-min read

Double Digit Revenue Growth in Quarter

ATLANTA, August 08, 2022--(BUSINESS WIRE)--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 corporations, today announced its financial results for the second quarter ended June 30, 2022.

The Company’s two classes of stock are substantially identical, except with respect to voting rights and the Company’s ability to pay greater cash dividends on the non-voting Class A Common Stock (CRD-A) than on the voting Class B Common Stock (CRD-B), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRD-A must receive the same type and amount of consideration as holders of CRD-B, unless different consideration is approved by the holders of 75% of CRD-A, voting as a class.

GAAP Consolidated Results

Second Quarter 2022

  • Revenues before reimbursements of $293.3 million, up 10% over $267.5 million for the 2021 second quarter

  • Net income attributable to shareholders of $5.8 million, compared to $11.8 million in the same period last year

  • Diluted earnings per share of $0.12 for both CRD-A and CRD-B, compared with $0.22 for both CRD-A and CRD-B in the prior year second quarter

Non-GAAP Consolidated Results

Second Quarter 2022

Non-GAAP consolidated results for 2022 exclude the non-cash, after-tax adjustments for amortization of intangible assets of $1.5 million and the earnout adjustment of $0.2 million. Non-GAAP consolidated results for 2021 exclude a similar adjustment for amortization of intangible assets of $2.1 million.

  • Foreign currency exchange rates decreased revenues before reimbursements by $6.2 million or (2)%. Presented on a constant dollar basis to the prior year, revenues before reimbursements totaled $299.6 million, increasing 12% over $267.5 million for the 2021 second quarter

  • Net income attributable to shareholders, on a non-GAAP basis, totaled $7.6 million in the 2022 second quarter, compared with $13.8 million in the same period last year

  • Diluted earnings per share, on a non-GAAP basis, totaled $0.15 for CRD-A and $0.16 for CRD-B in the 2022 second quarter, compared with $0.25 for CRD-A and $0.26 for CRD-B in the prior year second quarter

  • Consolidated adjusted operating earnings, on a non-GAAP basis, were $12.9 million, or 4.4% of revenues before reimbursements in the 2022 second quarter, compared with $19.6 million, or 7.3% of revenues, in the 2021 second quarter

  • Consolidated adjusted EBITDA, a non-GAAP financial measure, was $21.8 million, or 7.4% of revenues before reimbursements in the 2022 second quarter, compared with $29.0 million, or 10.8% of revenues, in the 2021 second quarter

Management Comments

"Fueled by our strategic investments in the business, Crawford delivered another quarter of strong top-line results, with revenue growth increasing 10% over the prior year period. This strength was broad-based with solid increases across all our businesses, led by Platform Solutions and North American Loss Adjusting. Our Broadspire business also grew nicely in the second quarter, aided by new business wins and the expansion of our existing client base, and International Operations is improving as expected despite persistent global pressures," commented Mr. Rohit Verma, chief executive officer of Crawford & Company.

"While we are pleased with the continued revenue growth momentum through the second quarter, we are acutely focused on converting our top-line success into operating earnings expansion and cash flow improvement to accelerate our profitability across our business, which will be our top priority for the second half of the year. As we work to improve margin on the business and navigate an uncertain macro environment, we remain confident in our ability to execute on our long-term strategy and deliver superior results for our shareholders," concluded Mr. Verma.

Segment Results for the Second Quarter

North America Loss Adjusting

North America Loss Adjusting revenues before reimbursements were $65.8 million in the second quarter of 2022, increasing 17.0% from $56.2 million in the second quarter of 2021, including $3.6 million from the edjuster, Inc. acquisition.

The segment had operating earnings of $2.7 million in the 2022 second quarter, decreasing from $3.1 million in the second quarter of 2021. The 2021 quarter had a $1.0 million benefit from Canada Emergency Wage Subsidy ("CEWS"). The operating margin was 4.1% in the 2022 quarter and 5.5% in the 2021 quarter.

International Operations

International Operations revenues before reimbursements were $93.7 million in the second quarter of 2022, up 2.7% from $91.3 million in the same period of 2021, including $0.6 million from the BosBoon acquisition. Absent foreign exchange rate decreases of $5.3 million, revenues would have been $99.0 million for the 2022 second quarter.

Operating losses were $(0.7) million in the 2022 second quarter, decreasing from earnings of $2.1 million in the 2021 period. The segment’s operating margin for the 2022 quarter was (0.8)% as compared with 2.3% in the 2021 quarter.

Broadspire

Broadspire segment revenues before reimbursements were $80.1 million in the 2022 second quarter, increasing 5.5% from $75.9 million in the 2021 second quarter.

Broadspire recorded operating earnings of $7.7 million in the second quarter of 2022, representing an operating margin of 9.6%, increasing from $6.6 million, or 8.7% of revenues, in the 2021 second quarter.

Platform Solutions

Platform Solutions revenues before reimbursements were $53.7 million in the second quarter of 2022, up 21.9% from $44.1 million in the same period of 2021, including $3.8 million from the Praxis Consulting acquisition.

Operating earnings were $4.6 million in the 2022 second quarter, decreasing from $9.1 million from the 2021 period. The segment’s operating margin for the 2022 quarter was 8.6% as compared with 20.6% in the 2021 quarter.

Unallocated Corporate and Shared Costs and Credits, Net

Unallocated corporate costs were $1.4 million in the second quarter of 2022, compared with $1.2 million in the same period of 2021. Primary components of this variance was a $1.2 million CEWS benefit in 2021, not present in 2022, partially offset by a reduction in other unallocated costs.

Other Matters

For the 2022 second quarter, the Company recognized no benefit from CEWS as compared with an overall benefit of $2.2 million in the 2021 second quarter recorded between North America Loss Adjusting and Unallocated Corporate Costs.

On April 1, 2022, the Company purchased assets associated with R.P. van Dijk B.V., a bodily injury loss adjusting company based in the Netherlands. The purchase price includes an initial cash consideration of $4.3 million and a maximum of $2.2 million payable over the next two years based on achieving certain revenue targets and other nonfinancial milestones, as defined in the purchase agreement.

In addition, the Company recognized a pretax contingent earnout expense totaling $0.3 million in the 2022 second quarter related to the fair value adjustment of earnout liabilities arising from recent acquisitions. This adjustment, which is not a component of operating earnings, is based on favorable changes to projections of acquired entities over the respective earnout periods, which span multiple years.

Balance Sheet and Cash Flow

The Company’s consolidated cash and cash equivalents position as of June 30, 2022, totaled $46.3 million, compared with $53.2 million at December 31, 2021. The Company’s total debt outstanding as of June 30, 2022, totaled $254.2 million, compared with $175.0 million at December 31, 2021.

The Company’s operations used $12.8 million of cash during the first six months of 2022, compared with $10.5 million provided in 2021. The decrease in cash provided by operating activities was primarily due to a $20.5 million year-over-year increase in change in unbilled receivables primarily resulting from the flooding in Australia, increased incentive compensation payments of $6.4 million in 2022 compared to 2021, and $2.0 million of prior year benefits received related to CEWS that were not present in 2022, partially offset by a $4.6 million reduction in pension contributions.

The Company made no contributions to its U.S. defined benefit pension plan and $0.3 million in contributions to its U.K. plans for the first half of 2022, compared with $4.5 million in contributions to the U.S. plan and $0.4 million to the U.K. plans in 2021.

During 2022, the Company repurchased 2,656,474 shares of CRD-A and 963,472 shares of CRD-B at an average per share cost of $7.41 and $7.32, respectively. The total cost of share repurchases during 2022 was $26.7 million.

Conference Call

As previously announced, Crawford & Company will host a conference call on August 9, 2022, at 8:30 a.m. Eastern Time to discuss its second quarter 2022 results. The conference call can be accessed live by dialing 1-888-396-8049 and using Conference ID 88204978. 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 September 9, 2022. You may dial 1-877-674-7070 and use passcode 204978# 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, contingent earnout adjustments, income taxes and net income or loss attributable to noncontrolling interests.

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, contingent earnout adjustments, income taxes and stock-based compensation expense.

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, amortization of customer-relationship intangible assets and contingent earnout adjustments 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. Contingent earnout adjustments relate to changes in the fair value of earnouts associated with our recent acquisitions. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings 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

Six Months Ended

(in thousands)

June 30,
2022

June 30,
2021

June 30,
2022

June 30,
2021

Geographic Area

Currency

USD equivalent

% of total

USD equivalent

% of total

USD equivalent

% of total

USD equivalent

% of total

U.S.

USD

$

174,961

59.6

%

$

155,714

58.2

%

$

340,453

59.5

%

$

301,116

57.8

%

U.K.

GBP

33,402

11.4

%

34,280

12.8

%

67,452

11.8

%

66,503

12.8

%

Canada

CAD

24,674

8.4

%

20,337

7.6

%

48,935

8.5

%

41,571

8.0

%

Australia

AUD

23,643

8.1

%

27,497

10.3

%

42,360

7.4

%

51,707

9.9

%

Europe

EUR

24,016

8.2

%

14,145

5.3

%

47,682

8.3

%

27,409

5.3

%

Rest of World

Various

12,650

4.3

%

15,484

5.8

%

25,488

4.5

%

32,332

6.2

%

Total Revenues, before reimbursements

$

293,345

100.0

%

$

267,457

100.0

%

$

572,370

100.0

%

$

520,638

100.0

%

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

Three Months Ended

Six Months Ended

(in thousands)

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Operating earnings:

North America Loss Adjusting

$

2,695

$

3,081

$

6,831

$

7,442

International Operations

(707

)

2,126

(3,774

)

1,453

Broadspire

7,667

6,570

14,101

13,304

Platform Solutions

4,596

9,091

12,633

13,109

Unallocated corporate and shared costs, net

(1,373

)

(1,248

)

(3,825

)

(2,662

)

Consolidated operating earnings

12,878

19,620

25,966

32,646

(Deduct) add:

Net corporate interest expense

(1,780

)

(1,213

)

(3,298

)

(2,795

)

Stock option expense

(130

)

(264

)

(336

)

(404

)

Amortization expense

(2,060

)

(2,750

)

(3,786

)

(5,549

)

Contingent earnout adjustments

(303

)

(2,359

)

Income tax provision

(2,768

)

(3,590

)

(5,194

)

(6,061

)

Net (income) loss attributable to noncontrolling interests

(7

)

(23

)

(67

)

7

Net income attributable to shareholders of Crawford & Company

$

5,830

$

11,780

$

10,926

$

17,844

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

Six Months Ended

(in thousands)

June 30,
2022

June 30,
2021

June 30,
2022

June 30,
2021

Net income attributable to shareholders of Crawford & Company

$

5,830

$

11,780

$

10,926

$

17,844

Add:

Depreciation and amortization

9,356

10,464

18,455

20,942

Stock-based compensation

1,750

1,954

3,410

3,563

Net corporate interest expense

1,780

1,213

3,298

2,795

Contingent earnout adjustments

303

2,359

Income tax provision

2,768

3,590

5,194

6,061

Non-GAAP adjusted EBITDA

$

21,787

$

29,001

$

43,642

$

51,205

Following is a reconciliation of operating cash flow to free cash flow for the six months ended June 30, 2022 and 2021:

Six Months Ended

(in thousands)

June 30, 2022

June 30, 2021

Change

Net Cash (Used in) Provided by Operating Activities

$

(12,752

)

$

10,532

$

(23,284

)

Less:

Property & Equipment Purchases, net

(3,123

)

(2,120

)

(1,003

)

Capitalized Software (internal and external costs)

(12,561

)

(10,083

)

(2,478

)

Free Cash Flow

$

(28,436

)

$

(1,671

)

$

(26,765

)

Following are the reconciliations of GAAP Pretax Earnings, Net Income and Earnings Per Share to related non-GAAP Adjusted figures, which reflect 2022 before amortization of intangible assets and contingent earnout adjustments, and for 2021 exclude the amortization of intangible assets:

Three Months Ended June 30, 2022

(in thousands)

Pretax earnings

Net income
attributable to Crawford &
Company

Diluted
earnings per
CRD-A
share

Diluted
earnings per
CRD-B
share(1)

GAAP

$

8,605

$

5,830

$

0.12

$

0.12

Adjustments:

Amortization of intangible assets

2,060

1,545

0.03

0.03

Contingent earnout adjustments

303

224

Non-GAAP Adjusted

$

10,968

$

7,599

$

0.15

$

0.16

Three Months Ended June 30, 2021

(in thousands)

Pretax earnings

Net income
attributable to Crawford &
Company

Diluted
earnings per
CRD-A
share(1)

Diluted
earnings per
CRD-B
share

GAAP

$

15,393

$

11,780

$

0.22

$

0.22

Adjustments:

Amortization of intangible assets

2,750

2,063

0.04

0.04

Non-GAAP Adjusted

$

18,143

$

13,843

$

0.25

$

...