Q4 2019 Earnings Call
Good morning, My name is Megan I will be to conference facilitator today.
This time I would like to welcome everyone to the Crawford and company fourth quarter 2019, earning <unk> earnings release Conference calls.
In conjunction with its called a supplementary financial presentation is available on our website at Www Crocco dotcom under the Investor Relations section all lines have been placed on mute to prevent any background noise. After the speaker's remarks don't give question and answer period instructions will follow at that time should anyone need assistance.
Not at any time during this conference. Please press Star then zero and an operator will assist <unk>.
As a reminder, ladies and gentlemen, this conference is being recorded today Friday March 2020.
The matters to be discussed in this conference call and in supplementary financial presentation May include forward looking statements involve risks and uncertainties. These statements may relate to among other things are expected future operating results and financial condition.
Our ability to grow our revenues and reduce our operating expenses expectations regarding our anticipated contribution.
On that defined benefit pension plan.
Collectability of are billed and Unbilled amounts on received financial results from our that recently somehow acquisition.
Our continued compliance with the financial and other carbon contained in our finance financing agreement.
Our long term Cape.
Oh, well, resourced and liquidity responsibilities and our ability to pay dividends in the future.
The companys actual results achieved in future quarters could differ materially from results.
Maybe implied by such forward looking statements.
The 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 cold or Trueflex difference of unanticipated events.
In addition, your my does that operating results for any historical period or not necessarily indicative of results to be expected for any future period for complete discussion regarding factors, which could affect the companys financial performance. Please refer to the company's form 10-K for the year ended December 31st 2019 filed with the Securities 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 as subsequent company filings with the FCC. This presentation also includes certain non-GAAP financial measures as defined under FCC rules as required reconciliation is provided for those measures to the most directly comparable GAAP measures I would now like to introduce Mr. Hersha, RT, President and Chief Executive Officer of Crawford and company Harsha.
You may begin your conference.
Good morning, and welcome to our fourth quarter in full year 2019 earnings call.
Joining me today, it's Bruce Swain, our Chief Financial Officer.
After our prepared remarks, we will open the call for your question.
Let me begin by providing a quick overview of our results for 2019.
For the year, we reported GAAP revenues before reimbursements of $1 billion and net income to shareholders of $12.5 million.
Non-GAAP basis, we reported revenues before reimbursements off 1 billion all $3 net income attributable to shareholders of $37 million operating earnings of $79 million, an adjusted EBITDA of 400 and.
$30 million.
Adjusting for the significant reduction in weather related search revenues in 2019, which I will discuss in a moment our underlying revenues grew by 1.3% in 2019.
Over the course of 2019, we accomplished many key business objectives, while making progress towards achieving crawfords long term strategic goals.
First and foremost we added over 600, new client programs this past year, which underscores the strength of our expanded offerings.
This momentum is supporting a strong sand culture for our team and we are aligned and motivated to accelerate our new business initiatives also we further improved our cash flow in 2019 with our.
Free cash flow growing more than $31 million year over year.
Twentytwenty, we intend to maintain our focus I'm, increasing our cash flow generation and further enhancing our financial strength and flexibility.
Despite disappointing topline performance.
Driven by lower weather related claims volumes and delays in the onboarding of new clients.
We believe that we will remain well positioned to execute our strategy to achieve.
Stain future revenue and earnings growth.
The investments we have made in our global same store teams are beginning to pay off as we expanded our global reach continue to invest in new product development and strengthen our brand perception to a forward looking any you know rate of claims solution provider.
Our new product introductions are creating additional entry points for our sales teams. In fact, we ended 2019 with the strongest sales pipeline in our company's history at nearly $250 million proving that are making the right investments.
You are tracked and acquired new clients.
We have also continued to invest in a REIT de capabilities to provide best in class solutions for clients.
Over the long term, we view this as an important driver operating leverage.
Our investments in our global sales teams and I T capabilities have led to an increase in that number and size of companies interested in our solutions.
Through the fourth quarter, we have signed $81 million, an annual revenue from new clients, which gives us confidence that we will not change in the future revenue and profit growth across all lines of our business.
And Crawford claims solutions momentum is building as the revenues from a top five carrier inquiries and our top three clients in the UK renewed their contracts for the next two to five years.
In addition, we are pleased to have recently signed a multiyear contract would take top five carrier for which we will be one of two service providers handling the carriers cats and flood claims in the United States.
Due to the size scale and complexity of large carriers. The onboarding process can take at least 18 months still fully ramp up a flagship client.
This is very exciting new client win demonstrating our momentum all the expanded relationships and we expect this decline to be a meaningful contributor to our long term growth story.
In RTP a business 2019 was one of our strongest fan fears to date acquiring hundred in 68, new clients globally.
With expected revenues of $45 million annually.
At the same time, we experience if you isolate a client losses outside of our control.
Despite the new business wins during the year the volume of claims did not materialize as quickly as we would have expected to offset these losses.
That said, we remain very confident in this business I believe the growth and strength of the segment remain key components to our long term growth and diversification strategy.
Crawford specialty solutions added new programs and increased service density to current clients capitalizing on additional points of sale within our client base.
Global Technical services contributed positive revenues globally, while it added new programs for clients.
The company is evaluating potential M&A opportunities they expand our capabilities in new areas.
For example, our 2019 acquisition in Belgium, Penta is now servicing Crawford clients across Europe, which were not previously handled by pent up.
GTS is now responding to claims from the Australian Bushfires, and recent UK and European Winter storms, which will likely benefit us beginning in the second quarter.
Similarly contractor connection added new programs, including in roofing program for a current top five.
Carrier Cline.
Our tailored one Crawford vertical solutions continue to gain traction in the market with the construction hospitality and transportation verticals, attracting a fast growing pipeline.
Entering 2020, we have 170 opportunities in these verticals weren't the over $20 million an annualized revenue.
We are targeting the increase market share in the small and medium carrier market.
These declines were planning increasing role within the growth of our business as our offerings allow the small and medium sized businesses to benefit from Crawford <unk> industry, leading outsourced solutions.
Although our growth in 2019 was impeded by multiple external factors, we are focusing on the areas. We can control in our business.
We are acutely aware of volatility of our performance due to weather in any given year ritual heightened in 2019, given relatively few weather related events.
Revenues from weather surge events drop to approximately $83 million in 2019 down from 110 million in 2018. However, this decline is in line with the market trends for 2019, which we are seeing continue into the.
First quarter of 2020.
This decrease was also seen in lower caseload received this past year from our historically strong carrier appliance, we're able to handle more claims in house, because they're just as we're not responding to as many diverse adverse weather events.
It is important to note our caseload have not decline due to client losses.
While we will continue to intensify our efforts to grow our non weather related businesses.
Parts of our business well always be subject to the occurrence of weather events.
Given the volatility in our results as of late we are taking a critical look at the expectations. We've said for the company externally that said we are proud of our achievements. During 2019, we are optimistic in our ability to grow revenue and earnings in 2020.
As we see great opportunities in the road ahead for Crawford.
The overall benign weather in 2019, how didn't impact on our results.
That said it is inconceivable to us that in the future catastrophic weather events will not continue as this is when our clients lean on us the mouse.
Our teams are prepared for these events in the future as demonstrated by the UK flags Australian Bushfires and the recent Nashville storms, we have developed the capabilities to handle high volume of claims was there were a few of these events in 2019.
Which word devastatingly severe they primarily occurred outside of our current geographic footprint example, Japan.
This is a strong indicator as to why our strategy to build our global presence is the right path for Crawford in order to service, our clients, when and where they need us to handle large scale claims.
In the near future, we expect to further expand our presence in international markets that have the opportunity for Crawford at scale and drive growth.
While the Corona virus is impacting many parts of the world. We do not expect to see a major surge in claims volume from the virus as Pandemics are typically excluded from most business interruption policies.
At this time, we're closely monitoring that developments related to the virus.
And the potential impacts it may have on our global operations.
As a primary objective our management team has also been focused on finding the company's cash generation, while delivering value to shareholders through a disciplined capital allocation strategy.
In doing so we ended 2019 with a strong balance sheet, but leverage I had a three year low at around 1.5 ex next funded debt to EBITDA and cash flows at a three year hi.
Our financial strength leaves us well position to pursue strategic bolt on acquisitions in key markets, where do we see opportunities.
Oh, so 2019 once a record year for share buybacks as we bought back over 5% of the stock.
Moving forward, we intend to continue our share repurchase program as we see our shares trading significantly below their intrinsic value, while also delivering a meaningful dividend yield as part of our capital allocation strategy.
We believe.
Hey buying back shares.
He is one of the best investments, we can make in the company and over time, we expect to return greater value to our shareholders.
With that let me turn the call over to Bruce to review the financial results of the fourth quarter in more detail.
Thank you Harsha companywide revenues before reimbursements in the 2019 fourth quarter were 247.2 million compared with 263.8 million in the prior year fourth quarter on a non-GAAP basis. The company saw revenues before reimbursements of 253.3 million down 4% from two.
Hundred 63.8 million in the 2018 core.
Our net income attributable to shareholders are Crawford and company totaled a loss of seven point Threemillion into 2019 fourth quarter compared to income of 11.9 million into 2018 period fourth quarter 2019 diluted loss per share was 13 cents for CRD, a and 15 cents first.
CRD be compared with diluted earnings per share of 22 cents were CRD a in 20 cents for CRD be into 2018 period.
On a non-GAAP basis fourth quarter 2019 diluted earnings per share or 16 cents for CRD, a and 14 cents for CRD be as compared to 2018 diluted earnings per share of 32 cents for CRD, a and 30 cents for CRD B.
The company's non-GAAP operating earnings totaled 17.2 million into 2019 fourth quarter were 6.8% of revenues compared with 32.2 million were 12.2% of revenues in the prior year period.
Consolidated adjusted EBITDA was 27.9 million in the 2019 fourth quarter were 11% of revenues compared to 41 point Fourmillion were 15.7% of revenues in the 2018 quarter.
I will now review the fourth quarter performance of each of our segments.
Revenues for Crawford TPH solutions were 97 million into 2019 fourth quarter down from 102.2 million into 2018 period absent foreign exchange rate fluctuations or 1 million fourth quarter 2019 revenues would have been 98 million.
Crawford TPH solutions operating earnings were 6.1 million during the current quarter compared to last year's fourth quarter operating earnings of 12.9 million.
The operating margin in this segment was 6.3% into 2019 quarter and 12.6% in the 2018 quarter.
Revenues from the Crawford claim solution segment totaled 84 point Threemillion decreasing from the 92.2 million reported in last year's quarter absent foreign exchange rate fluctuations of 3 million fourth quarter 2019 revenues would have been 87.3 million.
Operating earnings in the segment were 3.6 million in the 2019 fourth quarter were 4.2% of revenues compared to operating earnings of 6.2 million were 6.7% of revenues in the prior year quarter.
Crawford specialty solutions revenues were 65.9 million into 2019 fourth quarter down from 69.4 million in the prior year quarter absent foreign exchange rate fluctuations of 2.1 million revenues would have been 68 million for the quarter.
Operating earnings and Crawford specialty solutions totaled 11.2 million in the 2019 fourth quarter were 17% of revenues compared to operating earnings of 15.1 million were 21.8% of revenues into 2018 fourth quarter.
The company's cash and cash equivalent position at December 31, 2019 totaled 51.8 million compared to 53.1 million at the 2018 year end.
Investment in Unbilled Unbilled receivables has decreased by 7.3 million during 2019, reflecting our focus on improving or billing and collections practice.
Our defined benefit pension plan liability decreased by 8.4 million due to strong asset returns during 2019.
The company's total debt outstanding as of December 31, 2019 totaled 177 million compared with 190.4 million at December 31, 2018, demonstrating our continued financial strength and flexibility.
Competitive advantage that allows us for the continued investment in our business.
Net debt did that the lowest level since the 2016 yearend.
Cash provided by operations totaled 75.2 million for 2019, increasing 43.5% over the 52.4 million provided by operations in the prior year. The 22.8 million dollar improvement in cash flow, primarily due to lower pension contributions and.
So we're we're working capital requirements.
Our free cash flow improved by 31.7 million year over year aided by lower capital expenditures in 2019 as compared to 2018.
In the upcoming year, we expect our capital expenditures to be 33 billion, an increase from 2019, which will primarily be allocated towards software development and technology investments. These expenditures are part of our effort to stay ahead of the curve and better service. Our clients that said, we will continue to maintain free cash.
Cash flow generation as a top priority for the company.
During the 2019 fourth quarter the company repurchased approximately 50000 shares CRD be at an average cost of Nondollar 65 cents on a full year basis. During 2019, the company repurchased approximately 1.1 million shares of CRD a in over 1.7 million shares at sea.
Already be at an average cost of $9 33, and $9 17, respectively.
The company repurchased over 5% of total shares outstanding in 2019, and the cost of share repurchases. During 2019 was 26.2 million.
At year end the company had remaining authorization to repurchase approximately 959000 shares under the 2019 repurchase authorization.
Two significant extent crawfords business depends on claims volumes.
The company cannot predict the future trend of claim volumes for a number of reasons, including the fact that the frequency and severity of weather related claims in the occurrence of natural manmade disasters, which are a significant source of claims revenue for the company are generally not subject to accurate forecasting.
Initial guidance for 2020 is as follows consolidated revenues before reimbursements between 1.0, and 1.5 billion net income attributable to shareholders of Crawford and company between 37.5, and 42.5 million were 73 to 83 cents per.
Diluted CRD, a share and 65 to 75 cents per diluted CRD b share.
Consolidated operating earnings between 80 and 90 million.
And consolidated adjusted EBITDA between 115 and 125 million.
With that I would like to turn the call back to Harsha for concluding remarks.
Thank you Bruce 2019 was a year of challenges as well as achievements for Crawford.
From a governance perspective, we were proud to recently announced a new board member game in Gonna be Bill who comes to us from the Lloyds of London.
She was the first female CEO in the global insurance and reinsurance markets 352 year history.
The election of Daming, though three off nine directors are female which elevates Crawford to a select group of companies that push above that 30% threshold of female directors.
We are proud of the company's commitments and actions as we know that our diversity initiatives make us a stronger and smarter company.
This initiative in conjunction with our recently established office of diversity and inclusion further income passes our continued efforts to promote and inclusive culture across our more than 700 offices globally.
We are excited as we view these milestones as essential in advancing Crawfords mission of restoring and enhancing lives businesses and communities.
Our momentum from new business is stronger than ever our investments within our sales teams globally are expected to continue the excitement surrounding our pipeline and client acquisition as we targeted improvements in the velocity of our revenue growth.
We will continue to make strategic investments in technology that will add value to our clients and provide crawford with an innovative edge.
Beginning in 2020, our claims fabric platform.
Serving our loss adjusting business in Crawford claim solutions and global Technical services will provide real time integration of Crawford systems with external clients and partners.
This thing, though platform will become the hub of all information sharing within Crawford claims solutions and well start to roll out in the second quarter of 2020.
With our continued focus on improving our financial strength, we are driving cash flow growth, while continuing to deliver meaningful returns to shareholders.
As always we will continue to carefully evaluate the company's capital expenditures and increasing operating and administrative efficiency, where we see opportunities to do so.
Over the long term, we are confident we're building the right platform to serve small medium and large insurance carriers and we are committed to the strategic direction. We have set for the company.
Even with the benign weather in 2019, our robust pipeline and the extensive number of new client wins from the year show Crawfords potential and how were building to capitalize on additional areas of growth.
Given the market conditions, we continue to believe carriers of all sizes will be attracted to our outsourcing model and look for a partner of the size scale and quality of Crawford to provide claims solutions anywhere in the world.
With that in mine, we are increasingly confident in crawfords outlook and optimistic about the opportunities for the company that lay ahead in all aspects of the business as we pursue the path to achieving sustained revenue and earnings growth.
Thank you again for your time today operator, please open the call for questions.
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Our first.
Yeah.
Thank you good morning.
Good morning, Mark.
The 1.3% underlying revenue growth with that poor for years that fourth quarter.
That's for full year Yep.
When we think about the guidance for 2020, how are you looking at that underlying growth number.
So we think about the guidance for for 2020, you know, we're giving some recognition to the fact that there's a significant part of our business that's impacted by my weather and there's an inherent.
Yeah unpredictability in that so.
You know, we we had a few drops in our guidance in 2019, we want to set ourselves up for her 20 by establishing a what we hope to be a conservative figure initially for for 2020 and wait to see or our growth initiatives take.
Take hold as weak as we go throughout the year as Harsha mentioned, the the soft whether that we saw a ending 2019, we've seen continue into the first quarter of 2020. So that also colors our outlook for the year.
And I think in addition, mark with the number of wins, we've had in 2019, the clients have started up and they're spread throughout the year in terms of start times and as each quarter progresses, we should see this continuing to build in a forward momentum and as also.
Bruce mentioned, we are being conservative and careful with the guidance.
You think.
If we look at it on underlying basis kind of adjusting for weather are you looking at the positive growth isn't lows are low single digit or put 2020.
We are definitely looking at positive growth and I would say low single digits would be a good answer.
The Oh I'm, sorry, one more thing Mark as as I mentioned, we signed a brand new contract with a top five carrier, where where one of two service providers and we're gonna be focusing on daily cat and flood claims and.
And that we've just signed the contract that'll start building and it's a significant contract. So all of that is helping us point into right direction.
If you think about the P.P.A. business I think the margins that you feel some top line pressure margins were down there.
What a is that just a timing issue or are you a.
Anticipate that you'll be able to.
Streamline cost perhaps.
The revenue I think you're down maybe it.
The margin was 6% persons, 12% last year.
How do we think about that margin 2020.
Sure. So first of all the first a response do you eat it timing as we have had significant number of new clients sign up as well as some I've already started and some others are starting so.
When there is delayed timing that puts pressure. The second is we did see cost opportunities as you rightly pointed out and we've actually taken some early action in Q1 old ready to reflect and recognize that slowness in revenue so to us 2000.
20, we should see T. P. P eight continuing to move into right direction, and kinda going back onto its trajectory in terms of upward growth as well as margin accretion.
No no Crawford claim solution. Your gross profit was up the percentage year over year. Your operating profit was a was down a few corn.
Is that another opportunity to.
To get them or cost improvement.
Correct. It is another opportunity Youre conclusion is accurate and we've actually taken some action there as well and going back to T. P. I should mention one more thing the other big change that we went through last year a positive changes we've started to gain a lot a carrier traction in.
TB and we have a number of clients that have signed up and that I've started up business in the new yes.
And then the.
Bruce the cash from operations, obviously quite strong this year.
There's some help from a acceleration of receivables anything like that that would be a not necessarily repeatable and 2020 or is this a 75 million is that a decent baseline.
Well for 2020, we certainly look to to exceed this and continue to grow or or cash flow from operations.
We think there's still room to improve or Unbilled unbilled accounts receivable and we're going to be pushing on that through 2020.
One benefit that we got in 19 was a lack of defined benefit pension plan contributions. So we basically didn't make any contributions to our DB plan in the in the U.S. during.
2019, we didn't make any in the UK either for 2020, we expect to make $9 million contributions in the U.S. still zero in the UK in the in the UK. We think we're at this point on funding those plans there and in overfunded position.
Currently but in the U.S., we expect make $9 million contribution you know each year over the next five years.
So that'll be a that'll be a a piece of it but we don't think that that contribution is.
Is going to result in a material change in our outlook of growing our operating free cash flow year over year.
Are you able to do some sort of pension risk transfer in the UK and not just kick it off your books completely.
We're looking at that and we've actually annuitized in the in the U.S. for a couple of years looking at.
Transferring off some of those liability so that's an ongoing effort.
We have it's not a complete transfer the book, but but we are transferring a conscious of those liabilities and we'll continue to look at that in 2020 as well.
Thank you.
Thank you Mark.
Your next question is from Greg Peters with Raymond James Your line is open.
Good morning, well running right.
I'm gonna have to say that mark covered all the questions I had.
So.
Maybe you know and me.
Since he covered those questions I'm, maybe you can just step back I Harsha I understand and appreciate the enthusiasm and optimistic outlook that you have painted for the company for this upcoming year.
And I just you know one of the challenges. We have is we're sitting here crunching numbers is just trying to reconcile.
The optimism with the reality is that the fourth quarter results the challenges so.
Maybe you could just step back in and tell us how strategically you.
Do you think the company's positioned.
You know for the next three to five years, because clearly this pasture was a challenge for the company.
Okay. Good question, Greg So let me just.
Goal by line of business to keep it simple in strike.
First the companys emphasis on an overall basis on rope and sales being front and center, we have beefed up our sales force and continue to do so so for example, we're adding sales.
Talent into our Ccs branches Whitney P.P.A., we haven't fourth and improved our relationships with brokers.
Who play a big roll a in that TPH space within GTS, we've done that same with broker relationships and be beefed up our GTF sales force and we have signed up Greg as I mentioned, we have a new contract with the eight top five key.
Area, you did significant and eat is starting to get ready. We in fact are gonna have a center in Dallas.
Were hiring lots and lots of people to get ready for this whether even though that was our if you will complain in 2019, where the carrier had record results and actually <unk> record results was lower claims due to the benign weather interestingly.
The Australian Bush fire the UK flights the European Winter storms, all of that has kicked in or variety and it's more ramp up going on the other piece I should mention is I do believe and so does the team there is reduction possible.
In our operating expenses and also to make some of our expenses variable to revenue and therefore have a better bottom line. We've taken action already a in February as it relates to that and we should have sufficient if you will cushion to.
Would stand if benign weather continues forward, having said that despite the optimism I do believe Greg our guidance is fairly conservative as we're showing in our guidance just a little bit abroad, and we're showing that our bottom end of the guidance.
It's going to be slightly higher in terms of bottom line than last year. The top end it'd be guidance would show how much world is actually possible. During the year now we've had significant kick in on Klein starting up we should start seeing some of that traction as well and some of it has.
The gun and it should only picked up so we should be able to see quarter to quarter.
Fair amount of improvement throughout the year, and we have budgeted internally right.
Very benign weather in our plans just to be conservative last year was one of the lowest.
Weather related events in the air for the United States and in fact, it was 14% below the average for the last 10 years, having said that the early weather activity. It is definitely in the favor of our revenue and we will continue to pay that down well continue to look at certain ball.
Just on acquisitions that make a meaningful difference where we continue to be very choosy on the acquisitions because as the CEO capital allocation is that pretty focused job for me to make sure. Our we buying shares back at the right value are we making the right acquisition.
And some of the acquisitions were looking at which are bolt on either giving us additional geography or additional solutions that we can offer our thousands of clients is going to make a big difference to the growth of the company.
Thank you very much for that.
Till dance or.
It it it strikes me that you're.
You're in a delicate balance because you're trying to invest in sales initiatives and yet.
Manager costs.
And.
You know you highlighted some of the investments you've made into sales initiatives and you know.
Deepening your your outreach.
What about some of the initiatives that you've you've deployed to reduce expenses can you talk about that a little more detail.
Sure.
We have kind of gone through company wide I should say in identifying opportunities where either you have duplication of prophecies or <unk> or look for opportunities to reduce layers in management and we see some more that might exist and having said that.
We've already gone ahead and taken I use the word preemptive action, regardless of what the outcome for the year as we said we'll move early so that we get a majority of the gain into 2020. So we've done some of that already there might be some more to do but we've taken a large piece of the.
Action already.
Perfect you don't see that because where we are yet to report Q1, and Q2 and Q3. So you don't see that but you should see that come through into future years. Okay. Great. Thank you for your answer I future quarters, sorry. Thank you.
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At this time.
I do want to take a moment and thank the management team all levels of the management team immensely for going through a challenging 2019, and thank the investors and the board for supporting the.
Team throughout the.
Last year as well as really looking forward to the growth in both topline and bottom line in 2020. Thank you very much.
Thank you for participating in today's Crawford and company Conference call. This call will be available for replay beginning at 11.
Today.
On April 2020.
Conference I'd number for the.
458 or nine.
The number today.
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Thanks.
3734.
Thank you.
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