Q1 2021 Crawford & Co Earnings Call
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Good morning, many of these key fee and there will be of conflict facilitator today.
At this time I would like to welcome everyone to the Crawford <unk> Company first quarter 2021 earnings release Conference call.
And the expenses expectations regarding our anticipated contributions to our under under funded to find the benefit pension plans collectability of our build and unveiled accounts receivable financial results from my recently completed the accusation our continued compliance with the financial and other covenant.
Contained in or if I need the financing agreements Ah long-term capital resource and liquidity requirements and our ability to pay dividends in the future.
The company the actual results of cheap in the future of quarters could differ materially from the salt that made the implied by such forward looking statements.
The company undertake no obligation to publicly released the revisions to any forward looking statements made in this conference call to reflect events or circumstances occurring after the date of the call of too.
Of reflect the insurance of unanticipated events.
And the addition, you reminded the operator operating result for any of historical period are not necessarily indicator of of results to be expected for in the future period.
For a complete discussion regarding factors, which could affect the company's financial performance. Please refer to the company farm 10 P. For the quarter ended March 31st 2021 filed with the Securities and Exchange Commission.
Particularly the information under the headings risk factors and management's discussion analysis of financial condition and results of operations as well as subsequent company filings with the effect. This presentation also include certain non-GAAP financial measures as the fine number of <unk>.
Is required of me conciliation was provided for those measures to the most directly comparable GAAP nature.
I would now like to introduce Mister of Burma, Chief Executive Officer of Crawford and company 30, you begin your confidence.
Thank you day, great. Good morning, and welcome to our first order of 2021 in order to school. Joining me today is Rosemary of our Chief Financial Officer of Joseph log of our President and time you Stephen Center of General Counsel as gives you mentioned the after our prepared remarks, we will open the call for your questions.
Like most of you we enter the 20th 21 with the optimism and our first orders performance only strengthen our confidence for the future.
Revenue increase 37 per cent and operating earnings increased 86% yet over here the.
Despite the many challenges presented by the COVID-19 pandemic.
Of course, none of this would of been possible without the on the way of any commitment of of global workforce and the support of confidence of our clients.
Despite of adversity, our leaders that employs continue to demonstrate tremendous resilience, allowing us to deliver on our clients commitment.
And adjusted EBITDA was $22.2 million or 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 air on global cap recap, we saw a number of U S cat events during the first quarter, resulting in over $24 billion of economic losses, and an estimated 18 billion and insured losses.
Although we tend to see benign weather and the first one for the borders revenue from whether surge of events was approximately $26 million in the first quarter as we responded.
Two of significant influx of claims resulting from the Hailstorms in Australia, and the winter storms in the U S.
From an economic standpoint of the global business activity continues to increase it has not yet recovered to pre pandemic levels.
Despite the global acceleration of Vaccinations, Canada, Europe, Latin America, and UK remain in lockdown through most of the first quarter.
This had a direct impact of the performance of our casualty business in Los adjusting and Tpa.
While the decrease economic activity continues to impact of our business, we're seeing more signs of an economic recovery, which we expect will favor the impact of the results mater of the year.
We continue to build upon it in the hands the foundations of our new operating model as the end to further position the business for continued growth and cash generation.
Ah realign 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 Reallowance proper too tricky segments loss of adjusting platform solutions and third party administration of.
Los adjusting his do business lines to consider the volume business and the major and complex loss of business, which we used to call GTS.
Our platform solutions segment consists of contract the connection in network of business that include Vigo look Crawford inspection services and use cat.
Finally, our Tpa segment consists of a broad spar business as well as proper legal services.
As I conclude my first year of 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 the pursuit of our purpose.
This combination of innovation quality and people will foster trust and compelled our customers to chew the us to enhance their brands.
As we look towards the next three years are GSL specific strategies are aimed at creating industry benchmarks, where quality deepening expertise and strengthening digital solutions the.
The strategic pillars will be enabled by transform mindsets and behaviors manager development and relationship building.
We believe our growth and success and lots of adjusting lives and what our founder Jim Crawford point 80 years ago.
Top quality promptly.
As part of this we aim to further unlocked speed accuracy and simplicity strength in 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.
Ah client relationships scale and investment in the innovation are competitive advantages for us.
We believe these advantages will enable us to capture market share and improve margins.
Our major in the complex business relies on our deep trench expense of experts.
And we will continue to invest in the strategic pillar.
We believe the demand for this business will continue to grow as claim complexity of on rise and carriers continue to outsource large and complex planes.
Our focus here will be to increase of our account nomination to brokers, while the build our bench of experts to become the market leader for complex claims business.
By the mining low and high complexity handling into one business unit, we can more efficiently deploy resources on loss of assignments and the comprehensive solution provider through our clients across the spectrum of losses from $5000 to $5 billion.
Our aim for platform solutions history of imagine traditional loss of adjusting by bringing together network resources and technology that transformed the current insurance claims value chain.
The businesses include.
The include platform solutions have several common characteristics.
So that 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 of 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 the service lines, let's talk about loss of adjusting first.
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 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 of 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 the 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 of legal continues to build this coupled with the strong market interest in the property 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 tpa as 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 of 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.
Our NPS has 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 Theres much of our global work Force continues to combat challenges presented by COVID-19, the health and wellbeing of our employees remains our top priority.
The country presidents have been and will continue to actively connect with our employees to foster a strong sense of community of morale to.
To further promote a sense of belonging and help guide our employees well being a global work force receives benefit programs, the 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 of 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 the 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 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 the 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 of our employees and customers.
As a key pillar to our strong culture, we're proud of our diverse workforce, which creates the 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 of 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 the 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 of more detail.
Thank you Joseph Companywide revenues before reimbursements in the 2021 first quarter were $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 <unk> 11 per boat CRD, a and CRD day compared to a loss per share of <unk> 21 per CRD, a and <unk> 23 for CRD B in the 2020 period.
On a non-GAAP basis first quarter 2021 diluted EPS was <unk> 15 per boat 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 in 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 of 33% over the $16 7 million or 7% of revenues in the 2020 quarter.
I will now review of 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 four 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 of our operating earnings of $3 1 million were nine 7% of revenues in the 2020 quarter.
Similar to loss adjusting we anticipate the winter storms will benefit of our second quarter results of operations for platform solutions.
Crawford Tpa solutions revenues were $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 from 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.
The operating margin in this segment was four 8% in the 2021 quarter and six 4% in the 2020 quarter.
During the 2021 first quarter the company realized a $1 9 million benefit the 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 in 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 100% of HPA group in Australia. The purchase price includes an initial lump sum payment of $4 million net of of working capital adjustment.
And of 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 of CRD, a and 59000 shares of CRD B 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 the 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 the 2020 year end.
The company made no contributions to its U S defined benefit pension plan in 2021, compared with $3 million in 2020. It made of 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 the 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 of 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 March the momentum CFO of Crawford as we will celebrate our <unk> anniversary of restoring and enhancing lives businesses and communities.
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, the 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, if you would like to ask a question. Please press star.
And the number one on your telephone keypad could withdraw your question press the pound key.
Using a speakerphone please pick up your handset before asking your question.
So I guess at the moment the comparison.
Hey, Ross.
Thank you.
And your first question here comes from Brian can you from Q.
Please go ahead of your line is now open.
Yeah. Thank you good morning.
Hey, Mark.
Volume loss.
In the.
Platform business day, and talking about the large U S clients driving revenue unusual of said very strong growth there.
What's the trajectory of the kind of refresh me on the.
Are those initiatives that youre going to get a bump for while the Bill Lowe.
Just give me a sense of the.
Of how that plays out lease base.
Which you know at this point.
Sure.
As you know.
The.
Platforms business is composed of our contractor connection business, our U S catastrophe business on Regal look business and then most recently launched call of inspection services in all of these businesses, while continuing to add new clients and ramp up clients.
There is a very heavy better dependence on these businesses, but we believe that.
With the power of the innovation and solutions that we're driving in this space, we should continue to see growth in this.
This.
But with respect to the other you had mentioned I think of $26 million contribution this quarter, what was the comparable last year of the basin.
It's kind of hard to do lot of converted last year interest we have the <unk>.
Team debated.
Thank you index the issuance of <unk> got.
Claims that are coming in from clients that we already have so you can make the comparator there, but then we've added new clients, maybe you didn't heartland last year. So that's why the comparison becomes a little bit difficult to do between this year and last year.
But I would say that.
Significantly index of Windows.
The last year with significantly less.
During the second net.
Probably.
And to do $10 million to $12 million lower than this.
But it's not apples to apples from Barrington.
Great. Thank you for the.
It is making a contribution on the top line for sure. It is an essential element of our innovation within platforms the car.
Offered inspection services has been added onto the we go look infrastructure itself. So it's giving us the ability to really scale dot platform further.
And I Hope we go look still has very attractive economics of the individual transaction level. So our goal is to continue to grow with transactions because that's the week at the transactions growth. It starts to become a meaningful contributor. So we feel very good about the business of back to the that'd be the song. We also believe that as the normality returns from the.
Pandemics and you can you we're gonna see more auto activity on the roads Uhm the biggest contributor in revolt of still tends to be other planes and.
I believe that the miles driven on thinking of to increase the end of the auto claims activity continue the increase we should see a list and can we go look because of the client base of there in the activity that we're seeing from declined based uhm has room can scale up.
Great. Thank you very much.
Thank you Mark.
Once again a P. The dry cask the question <unk> from the back of number one on your telephone keypad.
Your next question comes from the line of Alex built in from Random change. Please go ahead, you lightning kind of a pain.
Hi, good morning, I'm, calling in on behalf of the.
Peters.
Maybe <unk>.
Maybe circling back to comp claim you know just kind of of curious what you're seeing yoga day, you know of you're saying.
Uhm improvements actually go from month to month.
Yes, we are seeing an improvement.
You are seeing the claim volume picked out now what happened in January was we saw of pretty significant chunk of COVID-19 claims, which came from the November December timeframe, but out of those claims have have tapered down we're starting to see months of amount of increased cost uhm. Your regular workers comp claims that's come from the the retail sector of the manufacturing.
Sector still hospitality sector continues to be slow, but but we're seeing that seem that update that's why I was mentioning that <unk> Q1 claims. This year. The Q1 claims last year, we're only about about a one per cent depth of me consider Q1 of of last year The street pandemic novels.
And I would say probably something there are more of a competitor parity, but then the other things where there's two competitor separate separation.
The Crawford inspection services.
The service itself you can say, yes that sort of is does exist in the marketplace. Today. So we're not the first ones to come up with it Ah how we're delivering it and the platform that we're delivering it and the use of experienced that comes with it is unique and the second to none in the industry. So we feel very good about the attraction that we're building the and the strong customer interest that'd be created there.
We are already launched and the number of states and literally every week uhm that number of states and the density of service and those staples increasing.
Okay, and then just one more you know you'll get Ya.
You mentioned the claims volume you know, we'll wagon too Q2, and there's still kind of working through that you know just kind of curious of the birth of the U S and in Australia.
Yes the.
We've got some events that.
That happened in Australia of that we're still working through so we will see tailwind of of that in in queue too.
And then you've already mentioned the winter storm in the U S will have some tailwind for us in the queue too.
Okay I appreciate all the answers.
Thank you Alex.
Hello to Iraq.
Well the.
Your next question comes from the line as Kevin Frankie Bang can me Shh. Please go ahead of you like the kind of a thing.
Good morning, Thanks for taking the questions.
Of obviously you talked about.
Benefiting from whether surge revenue in the first quarter here, but do you think your maybe taking of a greater share of.
Those weather related claims overtime cause based on your value proposition in.
The various investments you've made in technology and.
Et cetera.
Hi, Kevin I. This is our first of all great too great to connect with you and.
Glad that.
That you are of 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 the market share game and.
The quality of your brand.
The quality of of your relationships and ultimately the differentiation that you create from your solution is the key to or taking market share.
We do believe that we are taking of greater share. This year and then the more last year just by 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 are expanding.
Relationships.
And we have the.
Over over 1900 at the close to 2000 Ah meetings in the last quarter with our clients, new and existing clients and the key aspect of those meetings is to make sure that they get a better understanding of what we're delivering how we're delivering and wise of differentiate it from our competition.
The up there is no insurance carrier in the world that we don't have some kind of relationship at some point.
Of our of our <unk> our journey. So a lot of this is going into those relationships, making sure the understand the differentiation, we're providing and the and taking a breather market share. So we feel very good about our projected on that.
Okay, Great and then sorry, if I missed the bird.
Any update on.
Of your efforts to penetrate the small and midsize interior market with.
You're fully outsource solution for claims management.
Update or the progress on the front.
Yes, and we are making a lot of progress in that space, both out of crossfire business as well as our loss of adjusting business is working with the number of of small to mid sized carriers on the full outsource basis.
What we are getting most success with is and you're nga's that are being formed.
As you know a lot of these new MGA of eventually turn into carriers, we're partnering with the number of them are sort of digital approach to claims is really appealing to day of value proposition because that's what they're presenting to their clients.
So that is going on that is going well and.
And again as the the advantage for US is that it's it's a very it gives us great growth average right. So as these companies grow and activity in these organizations growth.
Both of them out for our growth as well.
Okay, Great. That's all I had for now well thanks for taking the questions.
Think of Kevin.
And then of no for the question. So I Love now can I call back over the next confirm actually contain the link.
Thank you Kathy and thank you all for your steadfast commitment to Crawford and company are great start the 20th 21 for like strong momentum for the rest of the year as always we wish you well and look forward to.
Talking to you along the journey with us Thank you and God bless.
Thank you for participating inconvenience Comforting company conference call.
<unk> will be available to replay the can.
11, 30 am Eastern standard time today through at 11 59 P. M. Eastern standard time, I'm Jean could take 2021, the confidence I D number for the replay 221971 of the link.
Number to dial for the the pain is 825.
5858367.
41662146 14. Thank you he may now disconnect.
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