Crawford & Company Reports 2022 Third Quarter Results

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 third quarter ended September 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

Third Quarter 2022

• Revenues before reimbursements of $294.9 million, up 2% over $288.5 million for the 2021 third quarter
• The Company recorded a non-cash goodwill impairment of $36.8 million in the 2022 third quarter
• Net loss attributable to shareholders of $(15.1) million, compared with income of $11.2 million in the same period last year
• Diluted loss per share of $(0.31) for both CRD-A and CRD-B, compared with diluted earnings per share of $0.20 for CRD-A and $0.21 for CRD-B in the prior year third quarter

Non-GAAP Consolidated Results

Third Quarter 2022

Non-GAAP consolidated results for 2022 exclude the non-cash, after-tax adjustments for goodwill impairment of $20.9 million, amortization of intangible assets of $1.5 million and the contingent earnout adjustment of $0.7 million. Non-GAAP consolidated results for 2021 exclude a similar adjustment for amortization of intangible assets of $2.2 million.

• Foreign currency exchange rates decreased revenues before reimbursements by $11.0 million or (4)%. Presented on a constant dollar basis to the prior year, revenues before reimbursements totaled $306.0 million, increasing 6% over $288.5 million for the 2021 third quarter
• Net income attributable to shareholders, on a non-GAAP basis, totaled $7.9 million in the 2022 third quarter, compared with $13.4 million in the same period last year
• Diluted earnings per share, on a non-GAAP basis, totaled $0.16 for both CRD-A and CRD-B in the 2022 third quarter, compared with $0.24 for CRD-A and $0.25 for CRD-B in the prior year third quarter
• Consolidated adjusted operating earnings, on a non-GAAP basis, were $14.2 million, or 4.8% of revenues before reimbursements in the 2022 third quarter, compared with $20.8 million, or 7.2% of revenues, in the 2021 third quarter
• Consolidated adjusted EBITDA, a non-GAAP financial measure, was $21.9 million, or 7.4% of revenues before reimbursements in the 2022 third quarter, compared with $29.5 million, or 10.2% of revenues, in the 2021 third quarter

Management Comments

“Our third quarter results reflect sustained top-line momentum driven by the strategic investments we are making across the business. Revenues increased 6% on a constant currency basis compared to a strong prior year period, which included pronounced weather events in the U.S. Platform Solutions delivered double-digit revenue growth, aided by strength within Networks and positive contributions from Praxis. At the same time, Broadspire continues a steady return toward pre-Covid activity levels,” commented Mr. Rohit Verma, chief executive officer of Crawford & Company. “Our International Operations remain challenged; however, we are encouraged by the early results of the corrective actions we have implemented, and we remain focused on driving change within this business.”

“I am proud of the way our team responded to recent storm activity in the U.S. including record-high deployments to assist with claims. This has enabled us to deliver excellent service for our clients while building a solid foundation to support momentum going into the fourth quarter. We remain confident in our strategy and our ability to drive growth, take market share, and return value for all our stakeholders,” concluded Mr. Verma.

Segment Results for the Third Quarter

North America Loss Adjusting

North America Loss Adjusting revenues before reimbursements were $66.8 million in the third quarter of 2022, increasing 3.9% from $64.3 million in the third quarter of 2021, including $1.9 million from the edjuster, Inc. acquisition.

The segment had operating earnings of $3.7 million in the 2022 third quarter, decreasing from $4.4 million in the third quarter of 2021. The operating margin was 5.5% in the 2022 quarter and 6.8% in the 2021 quarter.

International Operations

International Operations revenues before reimbursements were $86.1 million in the third quarter of 2022, down (6.3)% from $91.9 million in the same period of 2021, including $1.4 million from the BosBoon and Van Dijk acquisitions. Absent foreign exchange rate decreases of $10.1 million, revenues would have been $96.2 million for the 2022 third quarter.

Operating losses were $(3.8) million in the 2022 third quarter, decreasing from earnings of $1.9 million in the 2021 period. The segment’s operating margin for the 2022 quarter was (4.5)% as compared with 2.1% in the 2021 quarter.

Broadspire

Broadspire segment revenues before reimbursements were $78.4 million in the 2022 third quarter, increasing 3.4% from $75.8 million in the 2021 third quarter.

Broadspire recorded operating earnings of $6.2 million in the third quarter of 2022, representing an operating margin of 7.9%, increasing from $6.9 million, or 9.2% of revenues, in the 2021 third quarter.

Platform Solutions

Platform Solutions revenues before reimbursements were $63.7 million in the third quarter of 2022, up 12.7% from $56.5 million in the same period of 2021, including $5.4 million from the Praxis Consulting acquisition.

Operating earnings were $10.1 million in the 2022 third quarter, increasing over the $9.7 million in the 2021 period. The segment’s operating margin for the 2022 quarter was 15.8% as compared with 17.2% in the 2021 quarter.

Unallocated Corporate and Shared Costs and Credits, Net

Unallocated corporate costs were $1.9 million in the third quarter of 2022, compared with $2.2 million in the same period of 2021. Primary components of this variance were a reduction in incentive compensation, partially offset by the absence of a CEWS benefit in 2021, and an increase in self-insurance costs.

Goodwill Impairment

The Company recognized a $36.8 million pre-tax non-cash goodwill impairment in the third quarter of 2022. This impairment reduced the carrying value of North American Loss Adjusting and Platform Solutions goodwill by $3.4 million and $10.7 million, respectively. The Company's International Operations goodwill was fully impaired with a charge of $22.7 million. This charge was partially offset by a $15.9 million reduction in income tax expense, for a net impact of $20.9 million, or $0.43 per share. Due to the non-discrete income tax treatment of the goodwill impairment, the income tax benefit of the impairment will normalize during the fourth quarter, resulting in a lower anticipated full-year income tax benefit of $3.4 million.

Other Matters

For the 2022 third quarter, the Company recognized no benefit from CEWS as compared with an overall benefit of $1.8 million in the 2021 third quarter recorded between North America Loss Adjusting and Unallocated Corporate Costs.

In addition, the Company recognized a pretax contingent earnout expense totaling $0.9 million in the 2022 third 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 September 30, 2022, totaled $33.1 million, compared with $53.2 million at December 31, 2021. The Company’s total debt outstanding as of September 30, 2022, totaled $257.4 million, compared with $175.0 million at December 31, 2021.

The Company’s operations used $16.2 million of cash during the first nine months of 2022, compared with $20.0 million provided in 2021. The increase in cash used by operating activities was driven by a $19.9 million increase in the use of payroll and related tax accruals, increased incentive compensation payments of $10.4 million, a $6.5 million increase in the use of billed and unbilled receivables, and $6.1 million of prior year CEWS benefits received that were not present in 2022, offset by a $9.0 million reduction in pension contributions.

The Company made no contributions to its U.S. defined benefit pension plan and $0.5 million in contributions to its U.K. plans for the first three quarters of 2022, compared with $9.0 million in contributions to the U.S. plan and $0.5 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. There were no shares repurchased during the 2022 third quarter.

Conference Call

As previously announced, Crawford & Company will host a conference call on November 9, 2022, at 8:30 a.m. Eastern Time to discuss its third quarter 2022 results. The conference call can be accessed live by dialing 1-888-396-8049 and using Conference ID 62792241. 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 9, 2022. You may dial 1-877-674-7070 and use passcode 792241# 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, goodwill impairment, 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 adjustments for depreciation and amortization, net corporate interest expense, goodwill impairment, 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.

Goodwill impairments arise from time to time due to various factors, but are not allocated to our operating segments since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.

A significant portion of our operations are international. These international operations subject us to foreign exchange fluctuations. The following table illustrates revenue as a percentage of total revenue for the major currencies of the geographic areas that Crawford does business:

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

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

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

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

⁽¹⁾ Sum of reconciling items may differ from total due to rounding of individual components.

Following is information regarding the weighted average shares used in the computation of basic and diluted earnings per share:

⁽¹⁾ The Company had a net loss for GAAP reporting during the three and nine months ended September 30, 2022, resulting in no additional dilutive securities added to the basic weighted average shares in calculating diluted weighted average shares for GAAP reporting as their impact would be anti-dilutive. As the Company has Non-GAAP positive net income for the three and nine months ended September 30, 2022, these dilutive securities were added back to calculate Non-GAAP earnings per share.

Further information regarding the Company’s operating results for the three and nine months ended September 30, 2022, financial position as of September 30, 2022, and cash flows for the nine months ended September 30, 2022 is shown on the attached unaudited condensed consolidated financial statements.

About Crawford®

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 corporations with an expansive global network serving clients in more than 70 countries. 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 percent of CRD-A, 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.

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For further information regarding this press release, please call Bruce Swain at (404) 300-1051.