Q1 2021 Crawford & Co Earnings Call
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Good morning menu mix, Casey and I will be your conflict facilitator today.
At this time I would like to welcome everyone to the Crawford <unk> Company first quarter 2021 earnings release Conference call.
Sensing expectations regarding our anticipated contributions to our under under funded you find the benefit pension plans co.
Likeability of our build and unveiled accounts receivable financial results for my recently completed the acquisition our continued compliance with a financial another covenants contained in or if I need financing agreements Ah long-term capital vs.
For some liquidity requirements and our ability to pay a dividend from the future.
The company is actual results achieved in future quarters could differ materially from results that may be implied by such forward looking statements. The.
The company undertake no obligation to publicly release revisions for any forward looking statements made in this conference call to reflect events or circumstances occurring after the date of the call for to reflect the insurance of unanticipated events. In addition, you reminded that operate on operating result for any historic.
Or period are not necessarily indicators of results to be expected for any future period.
For a complete discussion regarding factors, which could affect the company's financial performance place for it to the company for them turnkey for the quarter ended March 31st 2021 filed with the Securities and Exchange Commission for.
Particularly the information under the headings risk factors and management's discussion analysis on financial condition and results of operations as well as subsequent company filings with the SEC. This presentation also include certain non-GAAP financial measures as defined number for <unk>.
Required for really conciliation was provided for those measures for the most directly comparable GAAP nature.
I would now like to introduce Mister <unk>, Vermont, Chief Executive Officer of Crawford and company 30, you begin your confidence.
Okay, Great good morning, and welcome to our first order 2020 on on in school. Joining me today is Bruce Wayne Archie Financial Officer, Joseph log on President and time, you Stevens on our general counsel as soon as you mentioned after our per bedroom arcs, we will open the call for your questions.
Like most of you we enter 20th 21 with optimism and our first borders performance only stress on our confidence for the future.
Revenue in Greece, 37 per cent and operating earnings increased 86% yet over here.
Despite the many challenges presented by the COVID-19 pandemic.
Of course, none of this would have been possible without would be on the way everybody commitment up on global workforce and the support and confidence of our clients.
Despite adversity, our leaders that employs continue for demonstrate tremendous resilience, allowing us to deliver on our clients commitment.
And adjusted EBITDA was $22.2 million for eight eight per cent of revenue during the first quarter.
As mentioned in prior quarters, our business is affected by weather driven factors.
According to the on global cap recap, we saw a number of U S cat events during the first quarter, resulting in over $24 billion, an economic losses, and an estimated 18 billion and insured losses.
Although we tend to see benign weather and the first one for its borders revenue from whether surge events was approximately $26 million in the first quarter as we responded.
To a significant influx of claims resulting from the Hailstorms in Australia, and the winter storms in the U S.
From an economic standpoint on the global business activity continues to increase it has not yet recovered inquiry pandemic levels.
Despite the global acceleration of Vaccinations, Canada, Europe, Latin America, and UK remain in lockdown through most of the first quarter.
This added direct impact on the performance of our casualty business in Los adjusting and Tpa.
While the decrease economic activity continues to impact our business, we're seeing more signs of an economic recovery, which we expect will favorably impact of results later in the year.
We continue to build upon it in the hands the foundations of our new operating model as we aim to further position that business for continued growth and cash generation.
A real line structure creates a better focus for management, allowing industrial average customer synergies and make our capital allocation framework simple and effective.
As we've announced the new structure realized Crawford tricky segments, Los adjusting platform solutions and third Party administration.
Los adjusting his do business lines to consider the volume business and the major and complex loss business, which we used to call GTS.
Our platform solutions segment consists of contract the connection in network business that include Vigo look Crawford inspection services and use cash.
Finally, our Tpa segment consists of our broad spot business as well as Crawford legal services.
As I conclude my first year as CEO I want to now take a moment to articulate how our segment realignment fits into our long term strategy.
As part of our envision future, we believe or re imagine and simplified customer solutions will streamline the most aggravating processes and the insurance ecosystem.
The quality of our services and solutions will set industry benchmarks globally and inspire prominent industry experts to join us in pursuit of our purpose.
This combination of innovation quality and people will foster trust and compelled our customers to choose us to enhance their brands.
As we look towards the next three years are GSL specific strategies are aimed at creating industry benchmarks for quality deepening expertise and strengthening digital solutions.
Strategic pillars will be enabled by transform mindsets and behaviors manager development and relationship building.
We believe our growth and success in Los adjusting lives and what our founder Jim Crawford point 80 years ago.
Quality promptly.
As part of this we aim to further unlock speed accuracy and simplicity strength on our position as a leader within the marketplace.
Our strategy for the volume business is to become more efficient with the use of technology on high frequency low complexity claims.
On client relationships scale and investment and innovation are competitive advantages for us.
We believe these advantages will enable us to capture market share and improve margins.
Our major and complex business relies on our deep trench bench of experts.
And we will continue to invest in the strategic pillar.
We believe that demand for this business will continue to grow as claims complexity is on rise and carriers continue to outsource large and complex claims.
Our focus here will be to increase our account nomination to brokers, while the build our bench of experts to become the market leader for complex claims business.
By combining low and high complexity handling into one business unit, we can more efficiently deploy resources on los assignments and be comprehensive solution provider through our clients across the spectrum of losses from $5000 to 5 billion.
Our aim for platform solutions history imagine traditional los adjusting by bringing together network resources and technology that transformed the current insurance claims value chain.
The businesses include.
Include platform solutions have several common characteristics.
And Crawford Carwile have catalyze the growth of our Tpa business.
Our growing alternative for liability claims handling has been the use of lawyers, who play a critical role in subrogation and fraud in particular.
Gross profit legal services as a way to capture share in markets, where we are allowed to complement our core loss adjusting business with ownership of a law firm.
For Crawford legal services on Prime refocus will be on building our expertise within UK, Australia, Latin America, and European markets as well as capitalize on investments in Canada.
Our realigned structure and refresh strategy is further supported by a relentless pursuit for service excellence that stems from our legacy of purpose.
And values.
Our global footprint and empowered team give us the reach and agility to meet the changing needs of the industry.
Our long stable history, and financial strength make us the most credible and reliable claims management company in the insurance industry.
Our thoughtful experts enabled by digital solutions create favorable claims outcomes and mitigate future losses, making up the embedded partner of choice.
Moving to the first quarter performance of these service line, let's talk about loss adjusting for.
Loss adjusting achieved 5% revenue growth as well as 370 basis points of margin expansion in the first quarter of 2021.
In our volume business storm activity drove additional revenues in U S as well as Australia.
In our major and complex business over the last six months, we've made over 50 strategic hires globally to further build upon loss adjusting expertise contributing to several new business wins and growth opportunities.
Additionally, we won over $5 million in new business during the first quarter led by the power of our value proposition based on technology innovation and expertise.
Turning to platform solutions, we are extremely pleased with the performance of the business, which was driven by an uptick in claims assignment from a large U S clients.
This was further bolstered by the ramp up of top five P&C carriers added to our cash and contractor connection businesses last year.
We are encouraged by the momentum. We go look continues to build this coupled with our strong market interest in Crawford inspection services makes us even more excited about the traction platform solutions has made.
We look forward to building upon this growth as the business becomes a critical contributor to our top and bottom line in coming years.
Finally in our Tpa business the decreased economic activity continues to be reflected in TPS earnings as volumes remain about 10% below pre COVID-19 levels.
Medical management services show clinical activity is still below pre pandemic levels. So we are seeing some benefits from COVID-19 related claims.
Although we continue to see weakness in Canada, UK and Europe, we're seeing signs of recovery in U S as employment levels and business activity begins to improve.
We expect this to help our tpa business returned to growth and profitability.
To drive organic growth you need three key ingredients are strong brand relationships and differentiation.
This is evident in the new business wins seen in the first quarter of 2021, as we continued our customer efforts around the world.
We added a net total of $13 million in new and enhanced business in the quarter further building on our already sound customer relationship as well as our top five carrier client relationships.
We also retained 95% of our bras by renewable business for the quarter.
R&D assets held steady at 45, giving us tremendous confidence in our service levels and highlighting opportunities, where we can further enhance our value proposition.
We concluded the first quarter in a strong financial position with the liquidity necessary to respond and adapt to continued challenges presented by the lack of economic activity as well as evolving client demands.
As of March 31, our net funded debt to adjusted EBITDA was one <unk> times, our operating cash flow improved by almost $10 million.
Additionally, we continue to use our cash to buy back shares repurchasing nearly 150000 shares during the first quarter.
Our strong earnings and balance sheet gives us tremendous flexibility to continue making investments for the long term benefit of the company.
Our most recent acquisitions of Crawford, Colorado, and HBA group are performing as anticipated and we are already beginning to see benefits from the businesses.
The success of these transactions has encouraged us to pursue more bolt on acquisitions that will further our competitive positioning and create more growth opportunities for us.
With that I would like to turn the call over to Joseph.
Thank you rod as much of our global workforce continues to combat challenges presented by COVID-19, the health and wellbeing of our employees remains our top priority.
Country Presidents have been and will continue to actively connect with our employees to foster a strong sense of community on morale. So.
To further promote a sense of belonging and help guide our employees' well being.
Global work force receives benefit programs to support financial physical and mental wellness, including free membership to the meditation App headspace.
We are committed to cultivating a safe inclusive environment.
To acquire and retain the best talent build employee engagement and improved business performance, we are taking new steps to acknowledge our differences while value and the abilities and the ideals we share.
As part of our envision future, we believe our investments from the development of our people will continue to make us a covenant career choice with state of the art training programs that reinforce our position as respected industry educator around the world.
We continue to monitor employee satisfaction and engagement through our employee pulse surveys twice per year and the feedback we have received remains positive.
Most recently over 90% of our global workforce indicated they trust leadership to effectively respond to business challenges arising from the pandemic are.
A clear indication of the strength of our leaders and a testament to their unwavering focus on both our employees and customers.
As a key pillar to our strong culture, we're proud of our diverse workforce, which creates a space where innovation collaboration and new ideas can drive.
Our office of inclusion and diversity employee Advisory Council and employee resource groups allow us to cultivate an environment, where employees unique perspectives and experiences are heard and value.
Beyond our enterprise Crawford has a proud member of the business insurance diversity inclusion Institute, an organization dedicated to promoting and advancing diversity and inclusion in every aspect of the commercial industry commercial insurance industry.
Additionally, we have formed a global inclusion and diversity council to further promote inclusion and diversity and all of our communities.
I will now turn the call over to Bruce to review, our first quarter results for more detail.
Thank you Joseph Companywide revenues before reimbursements in the 2021 first quarter for $253 2 million up six 6% over the $237 5 million in the prior year's first quarter.
<unk> on a constant dollar basis to the prior year revenues before reimbursements totaled $247 9 million.
GAAP diluted EPS from the 2021 first quarter was 11 for both CRD, a and CRD day compared to a loss per share of <unk> 21 for CRD, a and 23 cents for CRD B in the 2020 period.
On a non-GAAP basis first quarter 2021 diluted EPS was <unk> 15 for both CRD and CRD b as compared to seven cents for CRD, a and <unk> for CRD B in the 2020 period.
The company's non-GAAP operating earnings totaled $13 million on the 2021 first quarter were five 1% of revenues, increasing 86% over the $7 million or 3% of revenues in the prior year period.
Consolidated adjusted EBITDA was $22 2 million in the 2021 first quarter were eight 8% of revenues up 33% over the $16 7 million or 7% of revenues in the 2020 quarter.
I will now review the first quarter performance of each of our segments.
Crawford loss adjusting revenues totaled $112 5 million, increasing five 1% from $107 1 million reported in last year's quarter.
Foreign exchange rate benefits totaled approximately $3 7 million in the first quarter of 2021.
The segment reported operating earnings of $4 9 million in the 2021 first quarter or for 3% of revenues increasing from 700000 force.
6% of revenues in the prior year quarter.
We anticipate the first quarter storm activity will benefit our second quarter results for the segment as we continue to work through pending inventories.
Revenues for Crawford platform solutions were $42 4 million in the 2021 first quarter up 37% from $32 4 million in the prior year quarter.
Foreign exchange rate benefits totaled 300000 for the quarter.
Operating earnings in Crawford platform solutions totaled $4 6 million or 10, 9% of revenues in the 2021 first quarter.
Increasing over operating earnings for $3 1 million were nine 7% of revenues in the 2020 quarter.
Similar to loss adjusting we anticipate the winter storms will benefit our second quarter results of operations for platform solutions.
Crawford Tpa solutions revenues for $98 2 million in the 2021 first quarter, increasing slightly from $98 million in the 2020 period.
Foreign exchange rate benefits totaled $1 3 million in the 2021 first quarter.
Crawford Tpa solutions operating earnings were $4 7 million during the first quarter of 2021 compared to last year's first quarter operating earnings of $6 3 million.
The operating margin in this segment was four 8% on the 2021 quarter and six 4% in the 2020 quarter.
During the 2021 first quarter the company realized a $1 9 million benefit to operating earnings from the Canada emergency wage subsidy there was no such benefit in the 2020 period.
Unallocated corporate costs were $1 2 million in the first quarter 2021 compared to cost of $3 $1 million on the same period of 2020.
This decrease was driven by a reduction in self insurance costs and the benefit from the Canada wage subsidy, partially offset by an increase in incentive compensation.
As previously reported the company acquired a 100% of HPA group in Australia. The purchase price includes an initial lump sum payment of $4 million net of a working capital adjustment.
And a maximum of $3 2 million payable over the next four years based on achieving certain EBITDA performance goals.
During 2021, the company repurchased approximately 90000 shares for CRD, a and 59000 shares of CRD day at an average per share cost of $8 five and.
$7 90, respectively.
The total cost of share repurchases during 2021 was $1 2 million.
We estimate that COVID-19 negatively impacted our revenues in the range of $5 million to $10 million in the first quarter of 2021 as compared to 2020.
The company's cash and cash equivalent position as of March 31, 2021 totaled $42 7 million as compared to $44 7 million at for 2020 year end.
The company made no contributions to its U S defined benefit pension plan in 2021, compared with $3 million in 2020 and made a 200000 contract and contributions to the U K plans in both 2021 and 2020.
The Companys total debt outstanding as of March 31, 2021 totaled $119 2 million compared with $113 6 million as of December 31, 2020.
Net debt stood at $76 5 million as of March 31, 2021, while our leverage ratio under our credit agreement closed at one eight times EBITDA. Additionally, our pension liability was down to $51 4 million at the end of the first quarter.
We are encouraged by our operating cash flow so far in 2021.
Cash provided by operations totaled $1 6 million during 2021, increasing $9 6 million over the first quarter of 2020 the.
The increase in cash provided by operating activities was primarily due to higher operating earnings and lower pension contributions as a reminder, the first quarter is typically our lowest cash flow period.
Free cash flow was a negative $3 4 million in 2021, but improved $12 1 million as compared with the prior year's negative $15 5 million, our free cash flow generation remains a top priority for the company.
With that I would like to turn the call back to ROA for concluding remarks.
Thank you so much Bruce 2021 marks a momentous CFO Crawford as we will celebrate our <unk> anniversary of restoring and enhancing lives businesses and communities we.
We are pleased with our strong first quarter performance, which positions us well for continued success during this milestone year.
Our top priority remains the health and safety of our global workforce, which has allowed us to deliver best in class service to our clients regardless of the global environment.
We aim to further strengthen our industry leadership through our innovation and market leading solutions.
Additionally, we believe the recent realignment of our business will enable us to confidently execute on our growth plans and envision future supported by the right group of experts and leaders to achieve our long term strategy.
As we look at the road ahead, we are confident in our financial position and look forward to continuing to deliver value to our shareholders, while fulfilling our purpose.
Thank you for your time today Casey, let's open the call for questions.
Thank you at this time line.
Ask a question please press star.
And then number one on your telephone keypad can withdraw your question press the pound key.
We are using a speakerphone please pick up your handset before asking your question for Pat.
So just a moment to compile the Q&A line.
Thank you.
Thank you for your question here comes from Mark can you from Q.
Please go ahead. Your line is now open.
Yeah. Thank you good morning.
All remarks.
Biomarker.
In the.
Plug for business and talk about the large U S clients driving revenue unusual I've said very strong growth there.
What's the trajectory of that kind of refresh me on the.
Are those initiatives that youre going to get a bump for awhile the dual.
Bill Lowe.
Just give me a sense of.
So on how that plays out on these days.
No at this point.
Sure Mark as you know.
<unk>.
Platforms business is composed of on contractor connection business, our U S catastrophe business on Regal look business come on on most recently launched Crawford inspection services in all of these businesses, while continuing to add new clients and ramp up clients.
There is a very heavy dependence on these businesses, but we believe.
On that with the power of the innovation and solutions that we're driving in this space. We should continue to see growth in this business.
Yeah.
But with respect to the weather you had mentioned I think at $26 million contribution this quarter what was the comparable last year on that same day.
It's kind of hard to do low converted last year interest we have the team debated back.
But the issue is you've got.
Claims that are coming in from clients on do you already have so you can make a comparative there but that would be added new clients. Maybe you didn't hop claims last year. So that's why the comparison becomes a little bit difficult on to do between this year and last year.
But I would say that significantly.
Significantly muscles on this.
Last year was.
Maybe it would be less.
Net.
Probably.
<unk> tended to $10 million to $12 million lower than us.
But it's not apples to apples comparison.
Great. Thank you for that.
Making a contribution on the top line for sure. It is an essential element of on innovation within platforms.
Crawford inspection services has been added on to the Regal look infrastructure itself. So it's giving us the ability to really scaled back on further and I Hope. We go look still has very attractive economics. The individual transaction level. So our goal is to continue to grow with transactions because as we'd add the transactions grow it starts to become a meeting.
For a contributor so we feel very good about the business day actually that'd be goes on we also believe that as the normality returns from the pandemic and you can you're gonna see more auto activity on the roads uhm the biggest contributor in vivo, though still tends to be auto claims and.
I believe that the miles driven on it and get it to increase the and the auto claims activity continue to increase we should see a lift in uhm can we go look because the client base is there on the activity that we're seeing from declined based on his room to scale up.
Great. Thank you very much.
Thank you Mark.
Once again, if you would like to ask a question. Please press style from the back of number one on your telephone keypad your.
Your next question comes from the line of Alex built in from Raymond James. Please go ahead, you Lightning smell open.
Hi, good morning, I'm, calling on on behalf of Greg Peters.
Maybe <unk> sorry.
Maybe circling back to comp claims you know just kind of curious what you're seeing yoga day, you know if you're saying.
Uhm improvements as we go from month to month.
Yes, we are seeing an improvement.
Say it probably something there are for some better parody, but then there are other things where there's two competitor separate separation.
The Crawford inspection services.
The service itself you can say, yes that service does exist in the marketplace. Today. So we're not the first one is to come up with it Ah how we're delivering it and a platform that we're delivering it and the user experience that comes with it is unique and second to non in the industry. So we feel very good about the traction that we're building that on the strong customer interest that'd be created there.
We are already launched in a number of states and literally every week uhm that number of states and the density of service in those states is increasing.
Okay, and maybe just one more yeah I guess for Ya.
You mentioned the claims volume you know, we'll wagon too cute too and there's still kind of working through that you know just kind of curious as it is on both in the U S and in Australia.
Yes.
We've got some events that.
That happened in Australia that we're still working through so we will see tailwind with that and and Q2.
And then you've already mentioned the winter storm in the U S. On will have some tailwind for us in queue too.
Okay I appreciate all the answers.
Thank you Alex.
Hello to Iraq.
Will do.
Your next question comes from the line as Kevin Frankie from Bank <unk>. Please go ahead to your line account open.
Good morning, Thanks for taking the questions. So obviously you talked about.
Benefiting from whether surge revenue in the first quarter here, but do you think your maybe taking a greater share.
Those weather related claims overtime cause based on your value proposition and and.
For various investments you've made in technology and.
Et cetera.
Hi, Kevin I. This was on that first of all great do great to connect with you and.
That.
That you are on listening into the call.
Yes, so to answer your question and we do believe that at the end of the day. This is this is a market share game and the.
The quality of your brand.
The quality of your relationships and ultimately that differentiation that you create from your solutions is the key to taking market share.
We do believe that we are taking a greater share this year than we were last year just on the nature of relationships that we built new clients that we've added and me feel very good about the innovations and solutions that we have put together, where we will continue to attract new clients on we're expanding.
On relationships.
And we had.
Over over 90 Hunter I can close to 2000 Ah meetings in the last quarter with our clients, new and existing clients and and the key aspect of those meeting is to make sure that they get a better understanding of what we're delivering how we're delivering in line to differentiate it from our competition.
There is no insurance carrier in the world that we don't have some kind of relationship at some point.
Of our of our Edr journey. So a lot of this is going into those relationships, making sure they understand the differentiation we're providing.
And taking a breeze on market share. So we feel very good about our trajectory on that.
Okay, Great and then sorry, if I missed it for.
Any update on.
Your efforts to penetrate the small and midsized interior market with.
You're fully outsource solutions for claims management.
Update or progress on that front.
Yes, and we are making a lot of progress in that space, both on abroad fire business as well as on Los adjusting business is working with a number of small to mid sized carriers on a full outsource based on it.
What we are getting most success with is on your Nga's that are being formed.
As you know a lot of these new <unk> eventually turn into carriers.
Partnering with a number of them are sort of digital approach to claims is really appealing to day or value proposition because that's what they're presenting to their clients.
That is going on that is going well.
And again as the the advantage for US is that it's it's a very it gives us great growth leverage right. So as these companies grow and activity in these organizations grow.
It bodes well for our growth as well.
Okay, Great. That's all I had for now well thanks for taking the questions.
Karen.
And then a note for good question going on.
Now can I call back over connect confirm or for Clinton.
<unk>.
Thank you Kathy and thank you all on for your steadfast commitment to Crawford and company.
Great start to 20th 21 for like strong momentum for the rest of the year as always we wish you well and look for too.
Talking to you along the journey with us Thank you and God bless.
Thank you for participating inconvenience Crawford and company conference call. Please call will be available to replay because at 11 30 am Eastern standard time today through at 11 59 P M.
On your time on gene can take 2021 day.
Thank you and number for the replay T. G 1971 day link.
The number to die on for the new place is 825.
5858367 or for.
For 1662146 14.
He may now disconnect.
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