Q3 2019 Earnings Call
In conjunction with this call a supplementary financial presentation is available on our website at Www Krakow Dot com.
Investor Relations section.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer period instructions will follow at that time.
Anyone need assistance at anytime during this conference. Please press Star then see wrote an operator will assist Steve.
As a reminder, ladies and gentlemen, this conference is being recorded today Tuesday November 5th 2019, now I'd like to introduce Justin Blanca Crawford <unk> Companys General counsel.
Thank you good morning, some of the matters to be discussed in this conference call and then the supplementary financial presentation may include forward looking statements that involve risk and uncertainties.
These statements may relate to among other things are expected future operating results and financial condition or ability to grow our revenues to reduce our operating expenses expectations regarding our anticipated contributions to our underfunded defined benefit pension plan.
Let the ability of our billed and Unbilled accounts receivable.
Financial results from our recently completed acquisitions or continue compliance with the financial and other covenants contained in our financing agreement.
Our long term capital resource and liquidity requirements and our ability to pay dividends in the future.
The company's actual results achieved in future quarters could differ materially from results that maybe implied from such forward looking statements.
The company undertakes no obligation to publicly released revisions to any forward looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events.
In addition, youre reminded that operating results for any historical period or not necessarily indicative of results to be expected for any future period.
For a complete discussion regarding factors, which could affect the companys financial performance. Please refer to the company's Form 10-Q for the quarter ended September Thirtyth 2019 filed with the Securities and Exchange Commission, particularly the information under the headings risk factors and management's discussion and analysis of financial condition and results of operation.
As well subsequent company filings with the FCC.
This presentation also includes certain non-GAAP financial measures as defined under FCC rules.
Required a reconciliation is provided for those measures to the most directly comparable GAAP measures.
I would now like to introduce Mr., Harsha Gotti, President and Chief Executive Officer of Crawford and company Harsha you May begin your conference good morning, and welcome to our third quarter 2019 earnings call.
Joining me today, our Bruce Swain, our Chief Financial Officer, and Joseph Lanco, Our General Counsel.
After our prepared remarks, we will open the call for your questions.
Turning to our third quarter results, we delivered GAAP revenues before reimbursements of $254.7 million on a constant currency basis, we delivered non-GAAP revenues before reimbursement.
262 million, representing nearly 3% growth as well as 270 basis points of margin expansion.
It's positive as compared to the Euro go quarter.
Adjusted operating earnings on a non-GAAP basis were $24 million rising over 45% from the prior year quarter and up sequentially almost 5% from the $22.9 million that we achieved in the 2019.
Second core.
Our third quarter results clearly demonstrate an improving trend in our business as we benefit from the investments that we have made in technology and new client solutions, which are resonating in the market.
Well I'm extremely excited with our new client wins and pace the business the more benign weather that we experienced in the third quarter and thus far through the fourth quarter has resulted in our reduced guidance for the full year.
In fact global insured losses from catastrophic.
Our estimated to be less than 50% of the level reported in the year ago third quarter.
This benign weather.
Environment is masking the underlying strength in our claims management business.
As a result, I remain confident that our goal of delivering the 5% revenue growth and 15% earnings growth annually is achievable in the medium term.
This confidence comes from the strong acceleration in our new business development and client acquisition, which continued through the third quarter.
Our strategic investments in both our global sales teams and in new product development are driving this new business momentum and market share growth.
Through the third quarter, we have signed a phenomenal $85 million an annual revenue from new customers, which provides solid visibility the future revenue and profit growth.
This is across all lines of our business.
In regards to a few specifics our industry vertical solutions focused on the construction of hospitality in transportation sectors.
Continue to gain traction having had a record 324, new and enhanced pipeline opportunities in 2019 with continued new business momentum as we enter the fourth quarter.
Our industry solutions provide crawford with a market leading position as the one that's critical differentiation, where we can demonstrate our expertise and driving incremental business value for customers.
Our focus is to blend our deep claims experience with disruptive technologies to deliver once loss you know weight of claims service.
This can be seen in our recently introduced escape a water solution.
Which received the innovation award it in short Tech connect the world's largest in short tacky man that attracted more than 7000 attendees from 60 countries.
Importantly, our innovation is being recognized by the market as we hosted more than 80 meetings with potential clients and ensure tech company to explore strategic partnerships and other opportunities.
Contractor connection.
Had significant wins in the quarter, including major carriers in the UK and the U.S. and a pilot with a major Canadian carrier.
These significant new client wins demonstrate contractor connections market, leading position and point to an acceleration in growth into next year.
Our new top five U.S.C. carrier Cline that'd be fine last year continues to ramp up steadily during 2019.
In the UK GTS had 16 $1 million plus property claims from eight different insurers over an eight week period during the quarter that were not weather driven.
These large and special claims demonstrate that our clients continued trust us with their most complex claims and is a further sign of our gold standard in the market.
Lastly, our global TPS segment also experienced strong new client growth across the globe in the third quarter, having added 36 new clients.
As you can see we're executing and positioning Crawford for accelerated growth.
That said, our new clients have been slow to ramp their claims volume.
As an example, our TPS segment has 176 new clients. So far this year with an expected revenue run rate of approximately $32 million annually, which is only in the early stages of ramping up.
While there has been a delay in claims received from some of these new clients, which has been a headwind to our near term results. It provides very good visibility to future growth.
Looking forward a clear focus of our management team is to diversify our revenue streams by augmenting our weather related businesses with more predictable revenue sources.
Our goal is to expand our TP, a business and our small and medium carrier outsourcing business, which are more predictable and will help reduce the weather related headwinds that we experienced recently.
An example in our strategy they handle small and medium carrier claims on an outsource basis, which represents a large an untapped market opportunity and well ultimately increase the predictability of our revenues and earnings.
Early signs of our success can be seen in RCC Es segment, where we onboarded multiple to U.S. and UK carriers during the third quarter.
These new client wins build our success in the second quarter, where we signed a top 15 PNC carrier in the United States, who outsource hundred percent of their small business program to Crawford.
Importantly, these new programs are validations of our value proposition.
And clearly demonstrate the value that we can provide as ensures work to improve their profitability.
The outsourced market for internally run claims departments.
Is significant and our ongoing client discussions are very encouraging.
We will continue to transition our business model towards more predictable recurring revenue, while still maintaining our competitive claims offerings in the weather driven market segments.
Well our growth initiatives are firmly taking hold I'm also very pleased with the customer validation that we are receiving.
We have surveyed 378 of our customers and our net promoter score for entire business has reached an impressive 45 through the third quarter.
Our goal is to receive feedback from at least 70% of all our clients.
As we continue to focus on client development execution and retention.
Beyond our strategic initiatives designed to drive growth. Our management team has also been focused on improving the company's cash generation, while delivering value to shareholders through a disciplined capital allocation strategy.
Notably, we generated $38.9 million of additional free cash flow through the 2019 third quarter as compared to the 2018 period.
We have been using this cash flow to strengthen our balance sheet and our leverage ratio is now below 1.5 times net funded debt even though this makes us one of the lowest levered companies in the claims management industry.
We have also been using our cash flow to buyback our shares as we continue to see our share price as very attractive.
This year, we have bought back over 5% of our outstanding stock through the third quarter.
We are also focused on continued expense discipline and operating efficiency as an example over the last three years, we have reduced our noncompensation expenses and have reinvested those savings in our people.
Looking forward, we remain continuously focus on expense discipline, and we'll be working diligently to further reduce our discretionary spending in the fourth quarter.
I would now like to turn the call over to Bruce to review the financial results of the third quarter in more detail.
Thank you Harsha.
Companywide revenues before reimbursements and the 2019 third quarter were 254.7 million and on a constant currency basis were 262 million revenues into 2018 third quarter totaled 255 million.
non-GAAP basis, excluding FX fluctuations third quarter, 2019 revenues were up 7 million or approximately 3% over the 2018 quarter.
Our net income attributable to shareholders of Crawford and company totaled 11 million into 2019 third quarter compared to 7.9 million and the 2018 period.
Third quarter 2019 diluted earnings per share were 21 cents for CRD eggs and 19 cents foresee RGB compared to 15 cents for CRD, a and 13 cents for CRD be into 2018 period.
During the 2019 third quarter. The company recorded a 1.2 million pre tax expense related to the settlement of a claim involving the remaining former executive of or disposed up Garden City group business line.
After tax this non operating expense equated to two cents per share for the quarter.
On a non-GAAP basis third quarter 2019 diluted earnings per share were 23 cents for CRD, a and 21 cents for CRD be compared to 17 cents for CRD, a and 15 cents for CRD be in the 2018 third quarter.
The company's non-GAAP operating earnings totaled 24 million and the 2019 third quarter were 9.2% of revenues up 45% as compared with 16.5 million were 6.5% of revenues in the prior year period.
Consolidated adjusted EBITDA was 32.5 million into 2019 third quarter were 12.4% of revenues compared to 25.5 million or 10% of revenues in the 2018 quarter.
Our non-GAAP results for the current quarter have been calculated excluding the impact of FX fluctuations and the GCG claim settlement.
The prior year quarter excludes an incremental loss on disposal of the GCG business.
I will now review the third quarter performance of each of our segments.
On a constant currency basis Crawford claim solutions third quarter 2019 revenues were 89.8 million, increasing 4.5 million were 5.3% over the prior year quarter.
This increase was driven by the U.S. UK and Australia.
On a non constant currency basis, our revenues and the 2019 quarter were up 1.1%.
Gross profit before the allocation of indirect cost was 19.8 million or 22.9% of revenue into 2019 quarter.
Compared to 17.7 million or 20.7% of revenue in the 2018 quarter.
Operating earnings in the segment were 2.7 million into 2019 third quarter were 3.1% of revenues compared to an operating loss of 135000 or negative 0.2% of revenues and the prior year quarter. We continue to demonstrate our commitment to driving growth in improving profitability in this segment.
On a constant currency basis PPI solutions third quarter 2019 revenues were 100 point sevenmillion, increasing slightly over the 2018 third third quarter revenues of 100 point Threemillion.
On a non constant currency basis, our revenues and the 2019 quarter were down marginally at 99.5 million.
Gross profit before the allocation of indirect cost was 26.7 million or 26.8% of revenue in the 2019 quarter compared to 26.5 million or 26.5% of revenue in the prior year period.
Operating earnings were 9.3 million during the current quarter, increasing over last year's third quarter operating earnings of 8.1 million. The operating margin in this segment was 9.4% and the 2019 quarter and 8% and the 2018 core.
On a constant currency basis specialty solutions 2019 third quarter revenues were 71.5 million, increasing 2.1 million or 3% over the 2018 third quarter, reflecting growth in GTS.
On a non constant currency basis, our revenues in the 2019 quarter were down slightly from the prior year period.
Gross profit before the allocation of indirect cost was 24.8 million or 36% of revenues and the 2019 quarter compared to 25.9 million were 37.3% of revenues in the prior year quarter.
Operating earnings totaled 13.3 million were 19.3% of revenues and the 2019 third quarter compared to operating earnings at 14.4 million or 20.7% of revenues in the 2018 core.
The company's cash and cash equivalent position at September 32019 totaled 46.1 million as compared to 53.1 million at the 2018 year round.
Our investment in Unbilled and billed receivables has increased by 7.6 million during 2019, reflecting growth in certain international operations from increased business, we continue to focus on better managing or billing and collection process globally.
Pension liabilities decreased 3.2 million in the quarter.
As previously discussed the company is not making voluntary comp contributions to what you asked in UK pension plans during 2019.
Our total debt decreased 1 million from the 2018 year end and that is net of 25.7 million in year to date share repurchases. Our net debt at the end of the 2019 third quarter was 143.3 million, reflecting our ongoing financial strength and flexibility, which is a competitive.
Advantage for us and gives us the ability for continued investment in our business.
Cash provided by operations totaled 42.3 million for the 2019 period compared to 16 million provided by operations in the prior year. This 26.3 million improvement in cash flow was primarily due to a significant decrease in pension contributions during 2019 better.
Accounts receivable management, and lower working capital requirements, including the positive cash flow impact as a result of the June 2018 Garden City group disposal.
Our free cash flow improved by 38.9 million year over year looking forward, improving our free cash flow generation remains a top priority for the company.
During the 2019 third quarter of the company repurchased approximately 402000 shares of CRT D.A. and 231000 shares of CRD be at a weighted average price of non dollar 62 cents per share.
Year to date, we have repurchased approximately 1.1 million shares of CRT, <unk> and 1.7 million shares of CRD be at a weighted average price of $9.23 per share.
As a result of benign weather continuing into the fourth quarter and a slower than expected ramp up and some of our new business wins. The company is lowering its guidance for 2019 as follows consolidated revenues before reimbursements between one and 1.05 billion.
Net income attributable to shareholders of Crawford and company between 32, and 35 million or 63 to 68 cents per diluted CRD, a share and 55 to 60 cents per diluted CRD b share.
Excluding the effect of the arbitration and claim settlements non-GAAP net income attributable to shareholders of Crawford and company between 40, and 45 million or 80 to 85 cents per diluted C or D. A share and 72 to 77 cents per diluted CRD b share.
Consolidated operating earnings between 82.5 and 87.5 million.
Consolidated adjusted EBITDA between 115, and 120 million.
With that I would like to turn the call back to Harsha for concluding remarks. Thank you Bruce we continue to make progress positioning Crawford for growth and market leadership in the outsource claims industry.
Our innovative solutions are driving continued client engagement, which is leading to strong new business wins across all our businesses whether in global TCPA, where we have a significant level of new client wins this year contractor connection which continues to expand.
Trying to globally, and importantly, with our small and medium carrier offering which is gaining traction with new wins in the UK and U.S.
This momentum will help us diversify our revenue streams.
All commenting our weather related businesses with more predictable revenue sources and gives us the confidence that our medium term goals of 5% revenue growth and 15% earnings growth annually isn't site.
The combination of new client wins, and our technology and sales investments leave me would tremendous confidence in delivering our goal.
I would like to conclude by thanking our employees.
Continue to execute on our mission of restoring and enhancing lives businesses and communities.
Our clients and potential clients are taking note.
They are seen Crawford in a renewed light, which provides me with confidence in our future.
Thank you again for your time today operator, please open the call for questions.
At this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press. The pound key if you are using a speakerphone. Please pick up your handset before asking your question.
For just a moment to compile became a day roster.
Your first question comes from Mark Hughes of Suntrust.
Yes. Thank you good morning.
Good morning.
Yeah in 5 million in the new business that you signed up could you give a [noise], maybe some context or comparison on that.
So we know the magnitude of.
You know versus the prior trend.
A significantly higher Mark and I would say at least almost I'd put that number almost 50% higher than a year ago. Andy other beauty with this is there is a slew of.
A plethora I would say of smaller clients. So this is not dependent on the eight client we have representing that 85 million. We have a whole number of clients you know half a million million dollars. So we just starting to gain market share. If you will in number of clients within the sector.
And it is heavy pp a.
Related.
Understood the delay in claims ramping up I think you talked about the.
Volume so when they get to full run rate will be a will be you very healthy, but they're slow in ramping is that because they.
Clients don't have the claims.
They're not allocating those two you do you have firm commitments on volume how should we think about that.
Yeah, Here's what I would say is when we sign up a client there is one always a lag and the lag is estimated but sometimes it takes longer as you're switching over from one provider to the others. So that delay off a month to month three months can add up.
Over time, but once it begins it begins and its there to stay so we have ramp up going on right. Now we had some of it happened in Q3, and we have continuously going through Q4 ramp up is on but the full impact to that would it be fad more in the coming here.
As my opinion.
Yes, Mark maybe further to that as it relates to TCPA. The the majority of the new client wins that we had this year.
His have start dates in the back half of the year so whereas in prior years. We may have had new clients that started in the first or second quarter. These clients or the vast majority of them starting in the third or though for the fourth quarter since sometimes there's a delay yeah.
Understood the specialty solutions, a quick big pieces received were down 9%.
Is that a.
Digital kind of a robust threeq of last year or what is that what's going on there.
That is a clear case, where as weather gets benign the number of claims coming in drops and therefore, you have fewer cases coming into in particular in areas like contractor connection we've not lost clients in fact in many cases, we have the.
Provider and we actually have ramp up going on with a very large PNC carrier. So it's yes, basically the volume is down because of weather, but it will come back. So we're not terribly concerned other than our relationship so strong our clients remain in play with.
And we're expecting more and more volume and one of things some of the clients that started to.
Tell us if they'd like to give us more lines because our execution as that was pointing out the net promoter score is very high that there. So pleased with the execution that they like to give us new lines in the Crawford specialty segment, if you want.
No no final question that.
You're talking about more momentum in the small and medium curier outsourcing business. What is driving that is there a structural being or is that.
Our execution on the sales for.
Okay. So I think the first is when you look at the U.S. market for insurance carriers 2500 carriers are categorized into small and medium carriers that is a very large number of carriers that would range between say 2 billion to $5 billion in premium so that's.
On a very large chunk and what we have identified is that space is very good for us because we can provide an all in solution for a complete outsourcing what do you does for the small medium carry areas. They can actually take that savings and redeploy if you will in under.
Or writing and sales while we handled the claims for them. So were starting to gain traction. There also quite open to the new solutions that we have that we have invested in technology that is making a big difference so whether its HEICO times or how long it takes for a claim to be process.
Or the accuracy of the claims all of that is making a difference, but we also have beefed up our sales force over the last say nine months and we do have an entire sales force that is focused on the small and medium carries segment and the U.S. east the largest market.
And to small and medium carriers is a very large segment.
Well, let's go one more if you're buying the.
Workers comp claims trends I wonder if you have any observations about the [noise].
Yeah, I think the claims volume has come down it did in Q3, despite that on a constant currency basis, we were able to show growth not just for the company, but pp included but having said that we're seeing now a slow spike coming back into work.
As comp so that is I'd times also reflection of moving parts of the economy, whether its manufacturing whether it is retail whether its services. That's shifting that goes on can impact the workers comp claims volume.
Thank you.
Thank you Mark.
Your next question comes from Greg Peters of Raymond James.
Hello, Greg.
Good morning. This is mark is calling in for Greg.
Okay. Good morning morning.
Hey, I was hoping you guys could break down to new business. She said most of it was a cheap but can you give us a breakdown between the remain segments.
Sure I would say in in simplicity, it's about a 70% in that TPS segment, and the remainder would be between Ccs and Crawford specialty and this is as off I'd say November 5th a we're continuing to actively so.
We still have almost.
55 days left in the year and that could shift eventually to probably a 50 20 525 sit today majority is TB.
Okay and.
You mentioned, you beefed up the sales Cowen and I assume and.
So a function of new product solution.
When you think the balance of the new business growth was in can you give us a refreshing and one of the new solution to TPS segment far.
Yeah. It let's talk about first of all the sales force and what I wanted to make sure I'm clear is we have beefed up the salesforce a in all three segments, but in particular in TPH and that is reflected in our numbers because we needed more sales.
Folks, especially if you're going after the small and medium carriers, which is a large number of carriers. In addition to that what I would tell you is we do have as we said in the prepared remarks solutions like the escape a water solution the demand for warrant a sense.
So as the demand for monitoring that we're doing is making a very big difference where the first notice of loss is immediately registered with us and we also notify the carrier. In addition to that the tree arching of claims true look is making a big difference so a combination.
And off.
Innovative solutions and the sales force in the melding of the two is starting to gain traction in the marketplace. Despite the benign weather, we seem to be not only very optimistic but very positive with a number of wins, we've had and the number of these have just started and more yet the stock.
So we're seeing a very robust 2020, as we're moving into the coming year.
Got it and I guess my final question in the context of your medium term goal is theirs.
Targeted revenue amount for the TV segment for say, where you think.
Earnings will become more predictable and you'd be able to comfortably hit that.
Yeah, I would say Oh first of all on P.A. It has been actually the last many years.
The more predictable love our three businesses.
Having said that our medium term goal of five in 15, we did demonstrate nearly 3% growth in revenue in Q3, and you know when you see.
GAAP numbers it negates that due to currency, which is happening in a lot of U.S. businesses at the moment with the strong dollar, but I would say that the 5% growth should be attainable, particularly with PPL alone, having you know $32 million the wins year to date represent.
Being 76 clients so going into 2020, there is a whole slew of new clients that one have either started or will be starting up well before the year begins.
Great. Thank you guys.
Thank you.
There are no other questions in queue I'd now like to turn the call back over to Mr. Gotti for any closing remarks.
Thank you very much for all those listening.
And continuing to have faith in Crawford and company, we sit at an inflection point, which points to a very robust future and we are very confident as an entire team at Crawford and company that the needle will continue to move forward. Thank you and Douglas.
Thank you for participating in today's Crawford and company Conference call. This call will be available for replay beginning at 11 30 am today through 11 59 PM on December 15 2019.
The conference I'd number for the replay is 849 17 six three.
The number to dial in for the replay is 18558 fivenine to 056 or 4045373 for the rest sick.
Thank you you may now disconnect.