Q1 2020 Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to be a momentarily until that time. Your line. So young people used on musicals. Thank you for your patience.

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At this time I would like to welcome everyone to see Crawford and company first quarter Twentytwenty earnings release Conference call.

In conjunction with US call a supplementary financial presentation is available on our website at Www Dot C. R. E. W. C O M Dot com under the 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.

Should anyone need assistance at any time during this conference. Please press Star then zero and an operator will assist you.

As a reminder, ladies and gentlemen, this conference is being recorded today Wednesday may six twentytwenty.

Some of the matters to be discussed in this conference call and then a supplementary financial presentation may include forward looking statements that involve risks and uncertainties.

These statements may relate to among other things the impact of Cobot 19 are expected future operating results and financial condition.

Our ability to grow our revenues and reduce our operating expenses expectations regarding our anticipated contributions shore underfunded defined benefit pension plans.

The ability of our billed and Unbilled accounts receivable.

Tangible results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, our long term capital resource and liquidity requirements and our ability to pay dividends in the future.

The companys actual results achieved in future quarters could differ materially from results that may be implied by such forward looking statements.

The company undertakes no obligation to publicly release 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, you are reminded the operating results for any.

Historical period are 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, four the quarter ended March 31st Twentytwenty filed with the Securities and Exchange Commission.

Particularly the information under the headings risk factors and management's discussion and analysis, a financial condition and the results of operations 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.

Now I'd like to introduce Mr., Harsha, Gaudy, President and Chief Executive Officer of Crawford and company Harsha you May begin your conference.

Good morning, and welcome to our first quarter Twentytwenty earnings call.

Joining me today is Bruce Swain, our Chief Financial Officer.

<unk>, our global Chief operating officer, and soon to be Chief Executive officer or the company.

Hi, Joe the Blanca, our general counsel and soon to be president.

After our prepared remarks, we will open the call for your questions.

Let me start by taking a moment to extend our sincere interest is condolences on behalf of the entire Crawford team did those individuals and families affected by the Colbert 19 pandemic.

In this challenging time, our parks and prayers are with you all.

Before I provide a quick overview of our first quarter financial results for 2020.

I would like to take a moment to congratulate road pharma on his new role as Chief Executive Officer.

And Joe the Blanco as president of Crawford and company.

Oh, it wouldn't take over the roll off CEO on May 15 at the end of our annual General meeting.

Well I wouldn't read time I'd be not executive director on the company's board.

Right.

Served as the Companys Global Chief operating officer for almost three years.

He's industry expertise leadership and client centric vision.

Makes him an excellent choice to lead Crawford into the future.

I am equally excited with the appointment of Joe the Blanca as president of the company.

Joe that joined as our general counsel in 2016.

And we look forward to watching his responsibilities expand as he takes on the additional role as president.

On a personal down I am extremely grateful for the nearly five years I've served as president and CEO of Crawford and company.

I look back at our transformation journey.

I'm proud of the robust platform, we have been out.

Well as are hard working team I'm, clearly defined vision mission and values.

I look forward to continuing to serve on the board to for the support this game as we continue to build Crawford scale and market leadership.

Turning to our first quarter results for 2020, we reported GAAP revenues before reimbursements of 237.5 million.

I know that lost to shareholders of 11.4 million.

And by a goodwill impairment and restructuring costs.

On a non-GAAP basis, we reported revenues before reimbursements.

I wanted and 38.8 million.

Net income attributable to shareholders, a 1 million operating earnings of 7 million, an adjusted EBITDA or 16.7 million.

Adjusting for FX the reduction in weather related surge revenues as well as the impact of the coal that 19 pandemic I will discuss in a moment, our underlying <unk> revenues were flat quarter over quarter.

The first quarter ushered in one of the greatest health crisis, we I've ever seen in our lifetimes.

Within seven to 10 days, we transitioned over 93% of our workforce to working remotely to protect the health and wellbeing of our staff and their families for ensuring minimal disruptions to claims processing.

We are impressed with the ease with which our global teams have adapted to operating in the new norm of while maintaining the high level of excellent service, we always try.

For our clients.

Meanwhile, we continue to be active in the field with our nurse isn't adjusters.

We have provided additional BP and special training from exports as necessary.

Protect them why did they stay on the front lines to deliver on our mission or restoring and enhancing lives businesses I'm communities.

Despite the significant challenges presented by Colbert 19, we continue to draw on our competitive position in the market and the advantages of our global scale.

Our financial position remains strong and we have implemented several actions to preserve our financial crime.

For the execution of various cost cutting and capital preservation measures, resulting in a $5.7 million, especially charge.

At the same time, we are continuing prudent investment in key infrastructure initiatives to maintain our leadership position and continue to best serve our clients' needs.

Through the first quarter, we accomplished many key business objectives, while continuing to work towards Crawfords long term strategic goals.

However claims volume was negatively impacted by the continuation of benign weather trends in the first quarter. Despite incremental claims from the weather related surge events in Australia.

Data collected by the National centers for environmental information shows and states in the Continental United States reported record warm temperatures in the first quarter of 2020.

This varies significantly from the first quarter of 2019, when no stage reported record warm temperatures.

As a result, we're experiencing lower volume of claims in Ccs and contractor assignments in CFS from the less extreme weather conditions experienced in the first quarter.

Claims volume in the quarter was also impacted by reduced business activity driven by the covert 19, pandemic, which caused a slowdown in certain areas or the business.

With some more impacted done others based on customer concentration and geographic spread.

While new business momentum continued into the first quarter were anticipating a slowdown in the pace of client acquisitions as several opportunities have been deferred by potential and current clients.

As a result of cobot 19.

However, we will still continue to advance our sales efforts and leverage our competitive positioning and market leadership further demonstrating Crawford resiliency.

Now I would like to turn the call Overdraw ahead to discuss our segment results in more detail as well as recent market crimes.

<unk> return to discuss our ongoing capital allocation strategy.

Thank you Harsha.

I would like to thank harsha for his leadership over the last five years.

I'm looking forward to working closely with them as you returns back to the roll off and on executive director.

First I has been the lead docket that up a mission vision and values.

This has enabled crawford to be established as a leader in the marketplace.

Our global scale enabled by people and inhalation they'll continue to drive Klein success, leading to market leadership for us.

Speaking of execution across our service lines are TPL business continued to see robust new business activity, but several new client wins in the first quarter.

We saw double digit increases in the UK on Australia business small markets for us, but essential for long term growth.

We continue to consolidate.

Our U.S. position their revenues were slightly ahead of last year, but below our expectations.

This was driven by a large takeover of a new blind being deferred to later in the year as well as a delay in Onboarding, a new client you do a merger.

Canada experience, nor claims volume and the auto appraisal segment, which was expected due to a client's decision to in source that auto appraisal business late last year.

The TPL business will likely experienced significant gold at 19 in fact as evident in the last two weeks of March in the U.S. where volumes dropped significantly.

Lockup economic activity will directly impact new claims.

And put pressure on the service line.

It really employment statistics are expected to show that unemployment exceeded 16% in April which would be a record.

Our focus in Ccs has been to onboard allstate or most recent large client win.

The other area of focus was technology development and enablement for our adjusters.

During the first quarter reinvested in ramping up for new client wins by securing a brand new site in Dallas with capacity of over 600 stuff members.

We have already begun to process claims and have several adjusters deployed at this site.

In terms of technology, we accelerated the deployment of Hugo look or self service to video collaboration the integration or we go look and other remote adjusting capabilities.

We note that 33% of the claimants and the U.S. are willing to use a self service option, though number considerably higher than the low single digits. We saw prior to cold at 19 environment.

We expect to continue investing in those technologies as we expect they will stay in demand for school that 19.

Hi revenues in Ccs were down $5 million compared to last year.

As you know North America represents for 50% of this segment.

As a result benign weather in the first quarter with no name storms and higher than expected temperatures suppressed claims frequency in the first quarter.

Additionally, there was no two from any storms in the 2019 fourth quarter, resulting in significant pullback in outsourcing needs of claims by carriers.

While we had double digit growth in Europe and be continue to win new clients across the globe. The weather weakness did not allow these wins to turn into revenue.

However, the position us well to continue taking market share.

Crawford specialty solutions saw a decline primarily driven by decreased revenues and contractor connection.

It is another one of our businesses, which is heavily concentrated in north America and subject to the volatility or better.

Assignment counts were down as a large number of lines have seen a decrease in claims frequency.

A delay in job starts due to the shelter in place orders was caused a delay in our revenue recognition.

However in contractor connection we added nine new programs during the first quarter.

This included Rolling out Goofing program for one of the largest insurers in the U.S. Additionally, we are in advanced negotiations with three very large carriers.

Building on our leadership, we launched the most extensive decontamination program in anticipation of demand during the cold at 19 recovery agree integration phase starting now.

We have already had several assignments and be expects to continue growing this business.

Although our GTS business was impacted by travel restrictions, resulting from the spread of covert 19, especially in the international countries that were first affected the team still added several new programs during the first quarter.

This included a property claims outsourcing program in distress in Brazil, our largest program to date in Latin America.

Additionally, we were appointed on several large losses in Asia and Europe.

These included major casinos in Macau to airlines in the UK as well as a notable events cancellation in Europe.

We also on boarded a new team in Japan, giving us an opportunity to grow in the worst third largest insurance market.

Our UK business grew double digits, and we saw solid growth in Europe. However, the weather driven weakness in U.S. in Canada erase those gains.

We continue to focus on those areas, we can control within our business and remains acutely aware of the volatility of a performance year to weather.

In line with market trends, our revenue in the first quarter was impacted by lack of frequency from weather.

Also the initial impacts of cold in 19 hindered our ability to access properties by adjusters Nucor's network contractors.

However, we saw weather activity late in the first quarter between likely impact revenues in the second quarter.

As a strategy, we will continue to create differentiation through our technology stability and people.

This differentiation will lead to more wins and make us the obvious market choice.

As you all know the impractical with 19 pandemic on the global economy has been widespread.

We have seen global decline and claims frequency evident in auto and workers compensation.

As such we hear from our carriers client carrier Klein said, they are redeploying adjusters or moving operations in house to minimize the need for their own stopped production, which with which we believe will be followed by other cost reduction measures.

There's a high likelihood that these decisions, which required us to reevaluate the strength of our pipeline both school that 19.

While there is tremendous media rhetoric on business interruption Flames. Our experience is most standard policies include pandemics understood. It explicitly in the policy or bought as a special color.

While we believe the impact of school with 19 on auto in Workers' compensation lines were largely quality economic recovery pattern weather dependent claims should come back as we enter the storm season in the northern Hemisphere.

We have already receive claims from the Australian Bushfires storms and floods in the UK.

Based on their tornado and hail activity in recent weeks, we expect weather related claims to continue, albeit at a lower level of outsourcing.

We are also closely watching settlement preferences as there is a possibility more policyholders may decide to choose how settlement over repair.

This as you know well directly impact our contractor connection business.

At this point, we're watching all up this unfold closely and are staying alert as well as nimble to pivot based on changing trends.

With that let me turn the call back to Moshe.

Thank you Raul hit our management team remains focused.

On strengthening the company's cash generation, while delivering value to shareholders through a disciplined capital allocation strategy.

In the face of this honor precedented volatility we are evaluating our capital expenditures and we have already implemented smart reductions, where we saw an opportunity to do so.

Crawford will continue to make prudent investments into business to attract acquire and more seamlessly serve clients through the announcement of our IP infrastructure as our scale will undoubtedly benefit our clients and our global sales teams now.

And in the future.

Internally, we will continue to stabilize and strengthen our remote work infrastructure as the coal bed 19 pandemic has pro and this capability.

To be imperative in order to remain resilient in today's world.

Additionally, we have decided to place a hold our current share repurchase plan for the foreseeable future.

While we have accumulated a large amount of Crawford and company shares through our repurchase program in the recent years. We believe it is the in the best interest to the company. If me pause. This plan during this time of economic uncertainty in order to.

Preserved capital and cash.

We said in a very strong liquidity position in excess of $180 million at the end of March.

With that let me turn the call over to Bruce to review the financial results off the first quarter in more detail.

Thank you Harsha companywide revenues before reimbursements in the 2021st quarter were 237.5 million compared with 247.1 million in the prior years first quarter on a non-GAAP basis. The company saw revenues before reimbursements of 238.8 million.

Our net loss attributable to shareholders of Crawford and company totaled 11.4 million in the 2021st quarter, driven by a goodwill impairment and restructuring costs compared to net income of 6.1 million into 2019 period.

First quarter 2020 diluted loss per share was 21 cents for CRD, a 23 cents for CRT be compared with earnings per share of 12 cents for CRT, a 10 cents foresee already be into 2019 period.

During the 2021st quarter, we recognized a noncash goodwill impairment 17.7 million related tour Crawford claim solution segment after tax and non controlling interest this equated to 18 cents per share.

Also in the quarter, we recorded restructuring costs of 5.7 million primarily related to severance costs in an effort to consolidate and streamline various functions of our workforce. After tax this charge was six cents per share.

On a non-GAAP basis, excluding the goodwill impairment and restructuring costs first quarter 2020 diluted earnings per share were three cents foresee already a and once and for C or D. As compared to 2019 diluted earnings per share of 12 cents foresee already a in 10 cents for CRD B.

The company's non-GAAP operating earnings totaled 7 million and the 2021st quarter or 2.9% of revenues compared with 14.7 million or 5.9% of revenues and the prior year period.

Consolidated adjusted EBITDA was 16.7 million and the 2021st quarter or 7% of revenues compared to 21.1 million were 8.5% of revenues and the 2019 quarter.

While none of our segments were materially impacted by Cobot 19 in the 2021st quarter, we estimate that on a consolidated basis revenues and operating earnings were reduced by 3.5 million.

Point 8 million, respectively in the U.S. in Canada.

There was minimal impact in the first quarter for other international operations due to the two month reporting lag for reporting their financial results.

I will now review the first quarter performance of each of our segments.

Revenues for Crawford TPH solutions were 96.9 million in the 2021st quarter down from 97.8 million into 2019 period absent foreign exchange rate fluctuations of 300001st quarter 2020 revenues would have been 97.3 million.

Crawford TPH solutions operating earnings were 6.3 million during the current quarter compared to last year's first quarter operating earnings of 6.7 million.

The operating margin in this segment was 6.5% and the 2020 quarter at 6.9% and the 2019 quarter.

Revenues from the Crawford claim solution segment totaled 77.6 million decreasing from the 83.3 million reported in last year's quarter.

Absent foreign exchange rate fluctuations of 600001st quarter 2020 revenues would have been 78.2 million.

The segment reported an operating loss of 3.7 million into 2021st quarter were negative 4.7% of revenues compared to an operating loss of 300000 or negative 0.4% of revenues and the prior year quarter.

Crawford specialty solutions revenues were 63 million into 2021st quarter down from 65.9 million in the prior year quarter.

Absent foreign exchange rate fluctuations of 300000 revenues would have been 63.3 million for the quarter.

Operating earnings and Crawford specialty solutions totaled 7 million or 11% of revenues and the 2021st quarter compared to operating earnings of 12.2 million were 18.5% of revenues and the 2019 first quarter.

The company's cash and cash equivalent position at March 31, 2020 totaled 83.1 million compared to 51.8 million at the 2019 year end at the company took steps to increase its cash on hand, as a result with the current economic uncertainty.

Goodwill decreased as a result of the impairment related to our Crawford claim solution segment, we no longer have goodwill in that segment.

Pension liabilities decreased 5.4 million in the quarter. The company made a discretionary 3 million contribution to the U.S. pension plan during the 2021st quarter. The company is not planning on making additional voluntary contributions to which you S and UK pension plans during the remainder of 2020.

The company's total debt outstanding as of March 31, 2020 totaled 227.1 million compared with 177 million. After 2019 year round. This increase was largely due to a 40 million borrowing the company used to increase its cash position.

Cash used in operations totaled 8 million for the 2020 period compared to 500000 provided by operations in the prior year period.

8.5 million decline in operating cash flow was primarily due to lower operating earnings and the 2021st quarter and a 3 million discretionary pension contribution.

Free cash flow declined by 12.7 million as we made increase software development and technology investments and the 2021st quarter looking forward, our free cash flow generation remains a top priority for the company.

During the first quarter of 2020, the company repurchased approximately 155000 shares of CRT, a and 161000 shares of CRT be at an average cost of $8.42 per share.

The total cost of share repurchases during 2020 was 2.7 million.

As far as her commented we have decided to place a hold on our current share repurchase plan for the foreseeable future in order to preserve capital.

On April six 2020.

Company announced he withdrew its 2020 guidance, while we're closely monitoring the unprecedented cobot 19 pandemic and its financial impact on our business operations. It is difficult to quantify the ultimate impact on our clients and the broader economy at this time.

However, we expect the ongoing economic slowdown, resulting from cobot 19 could have a material impact on our results of operations financial condition and cash flows in one or more future quarters.

With that I would like to turn the call back to Harsha for concluding remarks.

Thank you Bruce as you can see our first quarter financial performance strong sales pipeline and new business momentum.

Concentrates crawfords resilience, despite the softness seen due to weather along with the significant challenges presented by Corbett 19.

We ended up a crisis with low debt any strong liquidity position relative to peers as we emerge from this crisis, we remain confident in our strong market position and long term strategy supported by Crawfords financial.

Thanks, Frank and flexibility.

We believe we can come back quickly post cobot 19.

As we ended up at second quarter, we are focused on enhancing our competitive position in the market, providing excellent service to our clients and preserving long term value for our shareholders.

In doing so we will continue to make prudent investments in technology.

Solidify crawfords position as the leader within the industry.

Due to the success of our strategic investments in the business. We continue to believe Crawford can achieve sustained revenue and earnings growth in the years the comp.

It has been an absolute honored to serve as the president and CEO of Crawford and company and I look forward to watching the continued success of the company unfold as a member of the board.

I would like to thank each and every one of our employees for their hard work and dedication during my tenure.

Crawford would not be the successful organization. It is today without their contribution and commitment.

I would like to thank the chairman of the board of directors.

And.

The Crawford family for the opportunity to serve and lead Crawford.

I extend my best wishes to roll up and Joseph and Hope you would join me in congratulating them in their new roles.

Thank you again for your time today operator, please open the call for questions.

Thank you at this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound. The key if you are using a speakerphone. Please pick up your handset before asking your question well pause for just a moment to compile the Q1 day roster.

Once again, if you'd like to ask a question. Please press star one.

At this time there are no questions Mr. Ekati are there any closing remarks, yes Ah. Thank you very much I want to tank.

On a few for listening to the call and I wish the employees the best I would like to just like all employees and investors know one thing that they era that has rolled it tomorrow my Jos a block one Bruce Swain going into the next generation leadership will be calling the growth era of Crawford and.

Company. Thank you all.

Thank you for participating in today's Crawford and company Conference call. This call will be available for replay beginning at 11 38 and today through 11 59 P.M. on June six Twentytwenty. The conference I'd number for the replay is threed 377 to four.

Three the number to dial for the replay is 18558 fivenine to 056 or 4045373 406. Thank you you may now disconnect.

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