Q2 2020 Crawford & Co Earnings Call
At this time I would like to welcome everyone to be Crawford <unk> Companys second quarter 2000, <unk> earnings release Conference call.
In conjunction with his call supplementary financial presentation is available on our website at www Dot crackers dotcom under the Investor Relations section.
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After the speaker's remarks, there will be a question and answer period instructions will follow at that time.
<unk> anyone need assistance at anytime during this conference. Please press Star then zero in an operator will assist you.
As a reminder, ladies and gentlemen, this conference is being recorded today Tuesday August 4th 2820.
Some of the matters discussed in this conference call and indeed supplementary financial presentation may include forward looking statements that involve risks and uncertainties.
These statements may relate to among other things to be impact of cobot 19, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses.
Teachings regarding our anticipated contributions to our under funded defined benefit pension plans collectability of our billed and Unbilled accounts receivable financial results from our recently completed acquisitions, our continue compliance with the financial and other covenants contained in our financial agreement.
I will long term capital resource and liquidity requirements and our ability to pay dividends in the future.
Companies actual results achieved in future quarters could differ materially from adults 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 coal or to reflect the occurrence of unanticipated events. In addition, you want reminded that operating results for any historic.
Oh period at 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 dashed Q for the quarter ended June Thirtyth 2020 filed with the securities in it.
[noise] change commission, particularly the information under the heading risk factors and management discussion and analysis of the financial condition and results of operations as well as subsequent company filings with the S. E C.
This presentation. All it also includes certain non-GAAP financial measures as defined under the FCC rules as required a reconciliation is provided for those measures to be the most directly comparable GAAP measures I would now like to introduce Mr. relief Burma, Chief Executive Officer of.
Crawford and company really you may begin your conference.
Thank you know Taleo. Good morning, everyone I Hope you and your families are healthy and well. It is great to join you on my first earnings call as CEO of Crawford and company.
Joining me today is Bruce Swain, our Chief Financial Officer, Sammy Stevenson, our new General Counsel and Joseph Blanca, Our president.
After our prepared remarks, we will open the call for your questions.
Before I discuss the highlights from the quarter I would like to touch on Crawfords current business priorities over the last several months. Our focus has been threefold first protect the health and safety or global workforce second navigate the financial turmoil greeted by Cobot 19, and third continue to deliver on our client commitments.
I was gratified to see the resiliency of our business can from doing the second quarter I'm impressed by the way our team has banded together to continue providing the highest level of service to our clients.
At the same time, we have prioritized the health and safety over employees.
Our commitment to corporate is purpose allowed us to deliver strong results amid this global economic uncertainty.
I'm proud to lead a nimble company, which demonstrated its ability to adapt to an unprecedented situation.
This is the result off a strong and seasoned management team that leverages, its knowledge and experience to drive our business.
Crawford was able to deliver a strong quarter the results exceeded our own expectations, which were tempered by the never before seen challenges to our operations due to the coated 19 pandemic.
We reported better than expected GAAP revenues before reimbursements of $234.4 billion net income attributable to shareholders of $5.9 million.
On a non-GAAP basis reported revenues before reimbursements of $240.2 million and net income attributable to shareholders of $8.8 million.
Operating earnings were $18.7 million into second quarter, achieving more than 82 times improvement from the $7 million reported in the fourth quarter.
Adjusted EBITDA was $25.9 billion into second quarter up from $16.7 million into first quarter.
In short our financial position remains healthy we continue to draw on our competitive position in the market and the advantages of our global scale.
We have paid down a revolver borrowing a $40 million, which we had initially drawn at the beginning of the pandemic.
In the process, we have for their bolstered our balance sheet and improve liquidity.
Our leverage ratio at the ended the quarter was very strong.
16 offer operating units exceeded 2019 revenue a testament to our Klein traction and investment to drive organic growth.
Additionally, we continued our prudent investment in key strategic initiatives to maintain our leadership position and best serve our clients' needs.
As we look to the second half of 2020, we are cautiously optimistic or future performance in light of the current global uncertainty.
As part of the insurance services sector, we remain acutely aware of the impact a weather and economic activity on our financial results.
The second quarter saw returned to normal weather pattern with severe weather across the U.S. you get in Australia in the form of convective storms floods tropical cyclone and wildfires.
According to the on global catastrophe recap U.S. saw spike in cat events during the second quarter, resulting in about $8 billion, an economic losses with an estimated $6 billion in insured losses.
This enabled us to capitalize on the client wins, we have accumulated over the last 18 months.
We also benefited from an increased volume of business interruption claims in UK and event cancellation claims in UK and Europe.
Claims volume in the quarter was also impacted by reduced business activity driven by corporate 19, which continued to caused a slowdown in RTP a business.
Hardened unemployment levels have led to reduced number of workers compensation claims.
As I mentioned the decrease economic activity continues to be a challenge for several of our clients, particularly those in the hospitality and entertainment space.
While we have seen declines we have seen pockets of increases as well.
We observed an increase in trip cancellations in Europe in Canada, as well as Corbett 19 related workers' compensation claims and U.S. for TV.
The use of telemedicine picked up during the quarter, providing an opportunity for additional revenue.
We also advanced our technology solutions in this segment by offering enhancements within the adjuster portal and improving the client ecosystem for access to key information and streamline third party integrations.
Our keep the business in Europe, and Australia showed solid growth that were 29 gene what the growth was not sufficient to offset the weaknesses in Canada in U.S.
In Crawford claims solutions, we saw momentum from our new clients into second quarter. We continue to see benefits from investments. We have made in our clients solutions, we aren't our first million dollar month in June from our most recent major carrier when.
The segments, all increased rather activity in Australia or near into your and we're still working through that inventory.
We go look has been extremely successful in winning remote claims handling business with a high somewhat of assignment seen in june than ever before.
We are seeing significant interesting remote claims management and our increasingly bringing the solution into our discussions good clients.
We have translated are you go look out into Dutch Mandarin and Spanish to increase accessibility within our global client base.
Additionally, our new facility in Dallas, especially commission for our most recent large carrier win is now operational and beyond the process of expanding it to fully utilize its capacity before fall.
Overall Crawford Graeme solution business grew in U.S., UK, Europe, and Australia, but this growth was offset by significant weakness in Canada.
Turning to Crawford specialty solutions, we are seeing a return on investment we have made in a contractor connection business.
We had the highest number of monthly assignments for 2020 in me driven by weather related storage events.
We onboarded another top 10 carried in June that we have started receiving assignments from.
This recent wins increases our penetration to 10 of top 25 U.S. carriers.
This quarter be implemented our proprietary job truck or dual Crawford is a first company in this space to offer it did it dies repair solution.
In response to covert 19, we expanded our decontamination service to additional countries and launch new commercial property modification service to help reduce the risk of spreading the widest during office we integration.
We saw significant strength in the G.D.S. side of Crawford specialty solutions, which is up over last year second quarter.
We have built an industry, leading data I know, it's based solution to handle the potential Sargent business interruption claims.
During the quarter, our casualty team continued to work on recent business interruption claims in UK.
Additionally, the frequency of cyber claims has also increased across Asia and Europe.
We also received an increase in events cancellations in Europe in UK and claims tied to covert 19 in Canada Europe in U.S.
These wins that you do you have to grow over 2019 with you can Australia seeing double digit growth.
Although current and potential clients have faced many obstacles due to the pandemic, we continued to see RFP activity and $123.6 million of new business during the second quarter.
With over $250 million indices sales pipeline as well as our recent client wins, we have maintained our new business momentum.
Our TB business saw several new business wins totaling $11.2 million, an annualized revenue as well as a 97% renewal rate on our existing business.
You know Crawford claim solution business, we are continuing to ramp up a new large carrier clients.
Crawford is gaining traction as the premier choice for large carriers in several supplied categories.
We have seen an increase in new business momentum from weather activity.
Sales teams are excited about continuing to drive new business activity led by a remote service offering.
In contractor connection we want to another top 25 carrier and completed major renewals in U.S. in Canada.
The GTS business saw several new nominations, including our largest programatic win in U.S.
Providing excellent customer service and delivering high quality solutions to our clients our core components of Crawfords offerings.
During the second quarter, we collected a record number of NPS scores for a single border with an enterprise scored a 40.
The signifies a high level of customer satisfaction, and we are constantly striving for further improvement.
Our management team remains focused on strengthening crawfords cash generation capability, while delivering value to shareholders through a disciplined capital allocation strategy.
Liquidity was better than expected for the second quarter.
Operating cash flow increased 40% over last years levels aided by solid outperformance.
At the end of second quarter, our leverage ratio was 1.57 times, EBITDA, which is excellent compared to industry peers.
Based on our strong financial position. The board has decided to increase the quarterly dividend to Fourq centsper share for both CRD, a and C. RGB.
We are evaluating our capital expenditure and are making prudent investments into business to attract acquire and more seamlessly serve clients.
We will continue to reevaluate our share repurchase program as a component over capital allocation strategy.
Now I would like to turn the call over to Joseph was that our response to covert 19 from the front Joseph.
Thank you really we entered the code at 19 crisis, where the focus while navigating the effects of the pandemic when our business while at the same time, keeping the morale up our employees high.
What are people is our greatest asset we continue to prioritize protecting the safety and well being of our workforce at all times, allowing them to successfully serve our clients.
Encouragingly the feedback we've received from employees to date has been overwhelmingly positive.
We remain active in the field and we continue to provide pp especial training from expert start employees, who are operating on the front line.
Our client impact has been another top priority throughout the quarter its way into carry on Crawfords mission, restoring and enhancing lives businesses and communities.
We have proved out critical our services can beat our clients bottom line by allowing them to continue operations and have the opportunity to achieve superior results.
Throughout the last few months, we follow through in our promise to be there for our clients when they need to legal enough. The most.
As we continue our journey toward service excellence and evolving our culture to become more inclusive we've formed in employee Advisory Council, which will become a sounding board for our leadership team with representation from employees globally.
We've also implemented a five point plan to guide our diversity and inclusion parties for the second half of 2020 2021.
Fine is aligned with our diversity and inclusion mission, which is to foster a safe and inclusive working environment, where employees can bring to our fenech cells to work and offer unique experiences and perspectives.
As we look towards the second half of 2020, we'll remain focused on the health and safety of our global workforce navigating the financial turmoil created by Cobot 19, and delivering on our client commitments.
With that let me turn the call over to Bruce to review the financial results of the second quarter in more detail.
Thank you guys are companywide revenues before reimbursements in the 2022nd quarter 234.4 million compared with 256.9 million in the prior year second quarter.
Non-GAAP basis, the company saw revenues of 240.2 million.
Our net income attributable to shareholders of Crawford and company totaling 5.9 million in the 2022nd quarter compared to net income of 2.6 million into 2019 period.
Second quarter 2020 diluted earnings per share was 11 cents for about CRT, a and C or D base compared with diluted EPS of six cents were CRD four.
Four cents for CRD be into 2019 period.
Non-GAAP basis net income attributable to shareholders was 8.8 million.
Second quarter 2020 diluted.
[laughter] 16 cents, CRD, a and C or D.
Into 2019.
21 cents for CRM.
19 cents for CRD B.
The company's non-GAAP operating earnings totaled 18.7 million in the 2022nd quarter were 7.8% of revenues compared with 22.5 million or 8.8% of revenues.
Consolidated adjusted EBITDA was 25.9 million in 2022nd quarter were 10.8% of revenues compared to 31.2 million or 12.1% of revenues in the 2019 quarter.
I will now review the second quarter performance of each segments.
Revenues for Crawford TPH solutions were 86.7 million into 2022nd quarter decreasing from 99.5 million into 2019 period.
Absent foreign exchange rate fluctuations of 900002nd quarter 2020 revenues would have been 87.6 million.
Crawford TPH solutions operating earnings were 3.2 million during the current quarter compared to last year's second quarter operating earnings of 5 million. The operating margin in this segment was 3.7% into 2020 quarter and 5.1% into 2019 quarter.
Revenues from the Crawford claim solution segment.
The 1.5 million decreasing from 86 million reported in last year's quarter absent foreign exchange rate fluctuations of 2.8 million second quarter 2020 revenues would have been 84.3 million.
The segment reported operating earnings of 2.8 million into 2022nd quarter were 3.4% of revenues increasing over operating earnings of 1.7 million or 2% of revenues in the prior year quarter.
Crawford specialty solutions revenues were 66.2 million in the 2022nd quarter down from 71.4 million in the prior year quarter absent foreign exchange rate fluctuations of 2.2 million revenues would have been 68.4 million for the quarter.
Operating earnings and Crawford specialty solutions totaled 14 million were 21.1% of revenues into 2022nd quarter, increasing over operating earnings of <unk> point, Sixmillion were 17.7% of revenues and the 2019 second quarter.
Unallocated corporate costs were 1.7 million in the second quarter of 2020.
And the credits of 3.2 million in the same period of 2019.
This increase was driven by CEO transition costs severance and an increase in self insurance expense, partially offset by credit from the Canada emergency wage subsidy.
Decrease in defined benefit pension expense.
We estimate that cope at 19 negatively impacted our revenues.
Range of 20 to 26 million during the second quarter 2020.
We expect the ongoing global economic slowdown from Cobot 19 could have a material impact results of operations financial condition in cash was in one or more future quarters.
The 2022nd quarter operating earnings includes a total of 4.3 million in benefits from the Canada emergency wage subsidy.
In the first quarter of 2020.
We recognized a non cash goodwill impairment charge due to the non discrete income tax treatment of the goodwill impairment income tax benefit initially recognized for the impairment analyzed during the remainder of the year, resulting in a lower full year income tax benefits associated with the impairment during the second quarter the impact.
Of this treatment decreased the net income tax benefit by 2.2 million.
Four cents per share.
In June 2020, we sold our 51% stake and what we'd work international for initial cash proceeds of 23.2 million.
While we are finalizing the accounting for the sale. We expect this to result in a net gain at between 10 and 12 million.
Get a two month reporting lag for reporting or international results.
This transaction will be recognized in our 2023rd quarter.
The company's cash and cash equivalent position as of June 32020.
Totaled 60 million compared to 51.8 million at the 2019 year end.
Total receivables were down 4.8 million from year end as a result of the company's focus on working capital.
Increase in Unbilled revenues as it related to weather related increases in the UK, and Australia, which should turn as we move through the year.
Pension liabilities decreased 7.5 million from the 2019 year end. The company is not required to make additional pension contributions for the remainder of 2020.
The company's total debt outstanding as of June 32020 totaled 195.6 million compared with 177 million at the 2019 year end net debt stood at 135.6 million at the end of June the proceeds from the lwr sale will be used to.
Pay down outstanding borrowings during the third quarter.
We're pleased with her operating cash flow. So for this year cash provided by operations totaled 12 million in 2020 period compared to 8.7 million provided by operations in the prior year period, the 3.3 million improvement in operating cash flow was primarily due to and.
Actions and billed and Unbilled receivables, partially offset by an increase in pension contributions and lower operating earnings.
Free cash flow declined by 2.9 million compared with 2019, reflecting higher strategic software development and capital expenditures in 2020.
Our free cash flow generation remains a top priority for the company.
As mentioned on last quarter's call.
We decided to place a hole in our current share repurchase plan in March it did and did not work repurchased any shares during the 2022nd quarter.
With that I would like to turn the call back to roll it for concluding remarks.
Thank you Bruce as we look towards the second half of 2020, we remain committed to the health and safety up our employees.
We continue our exemplary service to customers and the pursuit of new business, leveraging our brand relationships and differentiation.
We believe this will help us navigate the covert 19 pandemic and never superior results for our shareholders.
Thank you again for your time today operator, please open the call for questions.
At this time if people thought 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're using a speakerphone. Please pick up your handset before asking your question, we will pause for just a moment to compile the today roster.
Your first question is on the line of Greg Peters with Raymond James.
Good morning, everyone. I guess, the first question would be around revenue specifically.
And Broadspire.
Could you give us a sense on activity levels as we move through.
April May June and maybe give us a sneak peak on July where you started to see a rebound in activity or just give us some sense of.
Have you know where that revenue base might stabilize that I guess is what I'm thinking about.
Sure right first of all that great to hear from you Hope you and your family are doing well.
Look when you think about our business really there are two aspects of our business. One is the weather related business and the other the economic activity related business TPS, certainly falls and Broadspire certainly falls in the economic activity related parts of the business.
Within that you've got a workers compensation component than a general liability component. The workers compensation is gonna be directly tracked to what's happening with the unemployment rate and obviously the business had.
Quite a bit and in last few weeks of March I'm going to April we have seen a slight uptick, but I think our concern as Tom that are still uncertainty around cold bid and how things will develop over the coming months. So.
We are still very cautiously optimistic about where the volume will be initial results in July seem inline with our expectations of how we expected.
I'd like to be coming back.
Okay and also I think in your comments.
Talked about being involved and business interruption and embed cancellation claims.
And as you know, there's you know and ongoing debate about you know virus exclusions.
And physical damage and I'm curious, how how youre seeing that way out with your caught your customers. Your clients and you know how you think that's going to evolve over the next several months.
Yeah and up when we think about the U.S. market. Our understanding is that most of the policies exclude the global pandemic that is what our clients have shared with us as well with the exception of some limited policies, where it's a manuscript that into the policy.
In the UK, we're obviously awaiting where what dfc is going to decide and we are in active dialogue with several of our clients and hop in how we will support them and help them respond depending on how the F.C. has been a land on on their decision. Those other two primary markets, where I would say we've had most of the discussions there is.
Some discussion about in the Australian market as well I think it's very already.
On one which way things will go and Australia. As you know has seen less of an impact of covert 19 on a global scale.
Got it the final question I guess is wrong cashflow I mean, it's actually a nice surprise result, you know as is the is the second half of this year.
Looking to be a strong or there was gonna be some catch up tax payments that might offset the back half the year, just just I guess.
You know how do we think about cash flow for the full year.
Given your success for the first half Yeah, Hey, Greg. This is Bruce that's a good question. You know we were pleased with the operating cash flow for the first six months of the year.
We are.
You know like our operations thing caution we are cautiously optimistic there were also cautiously optimistic on the.
Cash flow side.
We expect.
Unwind some of the working capital that that we had on the books at the end of 2019 and for that to continue to kind of come in and give us some benefit.
This year, where we're benefiting from.
From a few things in the back half of the year. One is yeah, we're not.
We're not required to make any additional defined benefit pension contributions and our current planning.
As is not making any more for the remainder of the year.
We're getting up the benefit under the cares active a deferral in payroll tax payments for for this year.
Which will help us it doesn't.
Resulting up handheld benefit, but it is a cash flow benefit and that will have to pay back in 2021 in 2022.
So and we're also seeing the Canada emergency wage subsidy as a as a cash benefit to us.
In the back half of the year, So we anticipate our operating cash flow being.
Strong in the second half of the year.
As well and as you know historically the back half of the years traditionally band.
Hi, as cash generation period for the company.
Great. Thank you for the answers and.
Congratulations on your first conference call CEO.
You read the script flawlessly, so if that's any indication of the future.
Indeed is gonna be better so good luck to other one.
Thank you Greg I had good I have a good team and good coaches.
Yeah, I bet, Alright take care guys.
Uh huh.
Again to ask a question. Please press Star then the number one on your telephone keypad.
Your next question. Please open the line of Mark Hughes with Suntrust.
Yes. Thank you good morning.
More and more Maury Mark.
I appreciate all the detail in the presentation.
When you think about the revenue impact I think you've just said 20 to 26 million absent that presumably revenue would have been steady to up a little bit.
When you're thinking about the second half.
Just roughly speaking kind of puts and takes.
To sing general thoughts about the where the other trend.
And again in the context to the 20 to 26.
Yeah, Mark first of all we are as we said I'm feeling good confidence into future. We feel the momentum is good frankly.
You've raised the dividend because we feel good about how things are moving in the future I think.
Like most other businesses, where we are concerned about as what happened with <unk> and its impact on both from an economic standpoint onto the economic activity. But then also our carrier customers and that is the reason why have you ever even cautiously optimistic on new business momentum is good you you've demonstrated.
That our pipeline is good the investments that we've made are bearing fruit. So yeah. We feel good about where we are the only wildcard for US is covert 19, Bruce I don't know if you want to add to that.
No I think that that covered it pretty well. It is it is a period of uncertainty and.
You know I think we'll know more as the next few months unfold.
For the Uh Huh.
Nick is trending in that.
Yes.
No.
Yes, sorry go ahead, none of go ahead. Please.
Oh, I was going to shift topic I'm interested to hear your comment there.
Yeah, I was gonna say that what we're expecting from a weather perspective, it's just a normal weather pattern for the rest of the year and as you know where roughly half whether half economic activity. So that part of the business. We feel very good about and the momentum that we have in that part of the business.
Thank you for that on the T. a business you so you've seen a slight uptick.
[music].
You know your growth there was what down 12% or what have your competitors reported a similar type of decline.
How much of that is a head count versus that seems like on the comp side. There's maybe some hesitancy to report claims at this point in the in the cycle or we just dependent on.
The job market coming back or do you think there could be some normalization even aside from the.
Yeah, when we look at our Broadspire business, they're really three three piece parts of the Broadspire business. There is disability, there's general liability and there's workers compensation, obviously, there are small or other parts, but those are probably the three biggest barge I think when we look at disability in workers' compensation that has a direct correlation to unemployment.
Right as the employment grade picks up we should see the claims activity on that come back.
It's hard for me to comment whether the claims activity itself is suppressed by you know people learned about their jobs or not it again, there could be some impact of that but it's hard for us to really discerned that but there's also sectorial play and then tried if you look at what's happening with hospitality and entertainment those par sold.
Well I meant our much harder hit than say the health care part. So the good news for US is that our book is generally pretty balanced and we're not overweight on one side. So that's the reason why I believe that in some ways I would like to say that are reductions are less than what we've heard about what we believe some of our competitors may be facing whoever heavier.
Book, and hospitality Entertainment and retail.
Oh, so oh and the GE L. side is purely an economic activity right. If there are more people traveling more people walking into hotels more people walking to restaurants, you expect to see more GL claims activity. So.
You know one related to the already to unemployment the other one related more generally to economic activity.
Understood Okay.
Canada.
From the 4.3 million this quarter.
What do you anticipate you will.
Will that continue into the second half is there an amount the you can estimate on there.
Yeah, Hey, Mark this is Bruce it it will continue into the into the second half. We originally thought that it would just be something that moved into the third quarter, but the Canadian government has has recently announced an extension through the through the ended the year.
Although that extension will be at lower levels, and then what we've seen.
Thus far in.
The second quarter second quarter, we had 4.3 million, we would anticipate in the third quarter.
Another three and a half million or so and then we'll have to see where.
Where it goes beyond some of its going to be dependent upon the rules and regs that the Canadian government puts out related to the remainder of the year.
And though still working finalized as of yet.
The final question. The I think you describe the 250 million dollar sales pipeline.
Has the RFP activity.
Returning to normal can you give a sense of where it is relative to.
Got a pre coded.
Sure Mark Mark to our surprised actually the RFP activity has continued we did see a brief slow down I would say in the second half of March and April but since then we've actually seen a pick up or is it backhaul limited the covert 19 levels no, but it's certainly higher than what we would have anticipated as we entered the pending.
Okay.
Thank you very much.
Thank you.
If there are no further questions I will turn the call back over to Mr. Burma for closing remarks.
Thank you so much Italia I just wanted to thank all our customers all our employees for their support and their confidence in us we feel very good about where the company's headed we feel very good about the momentum that we have and we look forward to for their successful Crawford and company. Thank you so much.
Thank you for participating in today's Crawford and company Conference call. This call will be available for replay beginning at 11 38 M. today through 11 59 PM on September 4th 2020, The conference I'd number for the replay is 3915.
Hi, there for 79, the number two dal for the replay is winding 855859, 205 seeks or 40453 73, three or zero sakes. Thank you you may now disconnect.
[music].