Crawford & Company Q1 2023 Earnings Call
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Good morning, My name is Brian and I'll do your contracts facilitator today at this time I would now like to welcome everyone to the profit and company first quarter 2023 earnings release conference call in conjunction with this call a supplementary financial presentation is available on our website.
At double the double double adult crocco dotcom.
The Investor Relations section.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period and instructions will follow at the end.
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 at this conference is being recorded today Thursday May four 2023, now I would like to.
To introduce Sami Stevenson Crawford <unk> company's general counsel.
Thank you, Brian some of the matters to be deep.
<unk> conference call and in the supplementary financial presentation May include forward looking statements and involve risks and uncertainties. These.
These statements may relate to among other things our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses expectations regarding our anticipated contributions to our underfunded defined benefit pension plans collectability of our billed and Unbilled accounts receivable financial results.
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 company's actual results achieved in future quarters could differ materially from the results that maybe 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're reminded that 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-K.
Thank you for the quarter ended March 31, 2023 filed with the Securities and Exchange Commission, particularly the information under the headings risk factors and management's discussion and analysis of financial condition and results of operation.
As well as subsequent company filings with the SEC.
The presentation also includes certain non-GAAP financial measures as defined under SEC rules as required a reconciliation is provided for those measures to the most directly comparable GAAP measures.
I'd now like to introduce Mr wrote Verma, Chief Executive Officer of Crawford and company. Thank you Tammy good morning, and welcome to our first quarter 2023 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer, Joseph Blanco, Our President and Tammy Stevenson, our general counsel.
After our prepared remarks, we will open the call for your questions.
We continued our momentum and delivered another quarter of exceptional results.
Revenues grew by 12% or 16% on a constant currency basis, and operating earnings nearly doubled year over year.
We experienced revenue growth and profit expansion across all segments, highlighting the underlying strength of our business model and solid execution of our stated strategy.
Our outstanding first quarter results marks our 10th consecutive quarter of revenue growth not only reflecting continued topline momentum and increasing profitability, but also the hard work and dedication of our valued teams across the globe.
Their unwavering commitment to quality and customer excellence and this is enabling us to execute our long term strategy and bring our envisioned future to life.
Two years ago, we shared our long term growth strategy focused on driving organic growth and improving margins across our business.
I am extremely pleased to share that to date, we have made tremendous progress against our goals, including sustained revenue growth and margin improvement.
Recall that for North America loss adjusting our strategy was to drive low to mid single digit revenue growth and improve margins through efficiency on the volume side and investment and the expertise on the major and complex side.
Our ongoing investment and expertise expansion of our geographic footprint and industry, leading quality have continued to drive growth in the North America loss adjusting business.
During the first quarter, our pricing actions and improve utilization drove meaningful margin expansion.
Moving forward, we believe we will see further growth, resulting from our efforts to hire additional specialists adjustors and increasingly scale of the business.
Our focus and broad spire was to capture share in alternative markets and leverage data to offer cutting edge analytics services to our clients.
In the quarter overall sales momentum was driven by new client wins and accelerated improvement in medical management revenues.
We expect continued recovery and medical management as claims frequency improved through new and existing client wins as well as healthy pricing.
Similarly, we had previously stated that our long term focus and platform solutions is to scale. This business to deliver double digit revenue growth and strong flow through to the bottom line.
We're delivering on this objective as a platform business remains our highest margin operating segment and continues to serve as a key growth engine for our business.
We delivered double digit revenue growth in the quarter, driven by pricing and if you improve utilization and contractor connection along with increased market share gains with our top five carriers partners in our cat business.
We expect continued strength moving forward supported by healthy underlying demand and solid execution.
We are very pleased with the turnaround we're seeing in our international business, which is now tracking towards our mid single digit growth target.
This is resulting from the specific actions, we have taken to address pricing and productivity, where we have implemented new systems improve processes and better aligned our cost structure with current market conditions. We.
We expect continued momentum and further improvement as we move forward.
Overall, we continue to deliver on our strategic vision for growth and margin expansion across the business that we shared with you two years ago.
This track record of delivering what we laid out gives us confidence in our continued execution.
Our success to date position us for sustainable growth.
And we remain focused on delivering value to our shareholders.
Turning now to capital allocation, we continue to maintain a disciplined and prudent capital allocation strategy.
We leverage our liquidity to fund working capital needs related to the storm activities in the U S. During the first quarter.
As mentioned in the last quarter, we expect improved cash flow as we move forward.
Which will be used to pay down debt and reduce our leverage ratio taking it below two times EBITDA by 2023, which is in line with our previously stated leverage target.
Our positive earning results and conservatively managed balance sheet gives us tremendous flexibility to move forward when making investments for the benefit of the company.
These have also enabled us to continue our quarterly dividend of <unk> <unk> per share for both CRD, a and <unk>.
As a point of reference we have returned more than $120 million of capital to shareholders through share buybacks and dividends over the last four years.
Further highlighting our commitment to deliver shareholder value.
Overall, we are in a strong financial position and feel confident in our ability to continue execution on our long term growth strategy.
With that I'd like to hand, the call over to Joseph who will discuss our business line results for the first quarter. Thanks.
Thanks Rod.
Beginning with North America, La suggesting we experienced 20% revenue growth and expanded our operating margin by more than 400 basis points.
Strength in the quarter was driven by a gesture additions increased utilization and carryover from Hurricanes and winter storms in the U S.
We also gained new clients and so organic growth with existing clients in the quarter.
Our hiring efforts on the major and complex side during the first quarter allowed us to reach a significant milestone.
We officially surpassed our three year global hiring goal of 200 specialists adjusters and we did it one year ahead of schedule.
Looking ahead, we will continue to augment our deep bench of experts to drive penetration, but top carriers as Crawford remains the premier destination for talent, even in difficult labor market.
We are pleased with the progress we have made in our international operations, which grew revenues and expanded margins as rod mentioned, our actions to improve pricing and productivity as well as simplify our processes and cost structure are bearing fruit.
These actions combined with weather related activity drove a turnaround in the quarter.
Australia experienced continued strength from last year's unprecedented flooding event in southeast Queensland, New South Wales, along with the recovery in specialty claims.
In the U K.
Revenue growth was driven by winter freeze related claim activity during the first quarter, resulting in increased volumes are.
Our business in Europe also reported increased revenues and we made progress on our regionalization efforts, which have help restructure our cost basis.
Adding in the Philippines, along with search activity in Thailand, and client wins in Singapore, and Taiwan created higher than expected revenue in Asia.
In Latin America growth was driven by strength in Brazil, where we continue to add clients to our core business.
Looking at our broad spire business strength in the quarter was driven by an 11% increase in medical management revenues stemming from both recent new business wins and further post pandemic stabilization in this sector.
We anticipate a continued steady recovery in this business moving forward.
Additionally, we are pleased with the continued pricing momentum we're seeing in this segment.
We also continue to gain traction in the alternative market, where we are targeting cactus and NGA is through a dedicated sales effort that is bearing fruit.
Clients are driving more data and analytical services work to us as well.
Platform solutions are experiencing strong results delivering double digit revenue growth of 29% year over year.
This was led by networks, where we continue to deepen our relationship with two of the top five carriers in our property and flood businesses.
In addition, we on boarded a new top five carrier client.
In contractor connection we continued the momentum we saw late last year and delivered the best first quarter ever.
We benefited from price increases and improved utilization along with continued market share gains.
The exceptional growth in our networks business is now outpacing growth in contractor connection, which is shifting the overall mix and slightly impacted segment margins.
We remain confident that the long term health of the business and expect organic growth momentum to continue.
We won over 36 million of new and enhanced business in the first quarter. Additionally.
Additionally, our NPS score remains healthy at 47, and we are continuously looking for opportunities to improve our score.
We retained 97% of our U S <unk> business in the first quarter, and we are increasing market share with key carrier clients as well as corporate entities.
At Crawford everything we do ties back to our purpose of restoring lives businesses and communities.
We believe in minimizing our environmental impact.
Living with honesty, and integrity and driving conscious inclusion and diversity at every level of the organization.
We continue to make consistent progress on our.
Human capital initiatives.
Our employee resource groups for Eog's continued to engage employees segments, such as multi racial and ethnic employees women LGBTQ plus employees and disabled employees.
Additionally.
To monitor employee satisfaction and engagement Crawford continues to conduct employee pulse surveys.
This helps us gather open and honest feedback about where our organization is succeeding and where more support as needed in.
In 2022, we had an overall response rate of 75%, which shows that our employees have a strong desire to be heard and that their voices matter.
The survey items also revealed the state of current employee sentiments around dei with a significant number of respondents agreeing that they'd not face any bias due to their personal identity and the Crawford is committed to the fair treatment of its employees.
The outcome from the survey underscores the efficacy of our culture and people programs and creating an inclusive workplace we.
We will continue to focus on areas to enhance our overall employee experience.
We also strive to be an organization, where our people can thrive with our focus on professional development and operational excellence in 2022, our employees when multiple awards around the globe in a wide range of categories, including dei corporate Counsel excellence in claims management and technological innovation.
For example, we are proud to have been named on the 2022 insurance business five star diversity equity and inclusion list, which has given us a small number of companies across the insurance industry, they're demonstrating effective DDI programs that help foster change.
Overall, we remain steadfast in our commitment to ESG and we are dedicated to cultivating a safe inclusive environment, which everyones unique perspective as experiences are heard and valued.
We will continue to look for opportunities across our enterprise to become more socially responsible and are increasingly integrating ESG best practices into our operations.
In the coming weeks, we will be publishing our 2022 global citizenship report, which highlights our accomplishments, thus far and outlines our commitments for the future as we continue on our journey to help make the world a better place.
With that let me turn the call over to Bruce for a deeper look at our financial performance.
Thank you Joseph Companywide revenues before reimbursements in the 2023 first quarter were $313 million up 12% from 279 million in the prior year first quarter.
Foreign exchange rates decreased revenues by $9 4 million or 3% on a constant dollar basis revenues totaled $322 4 million, increasing 16% compared to the 2020 to first quarter.
GAAP diluted EPS in the 2023 first quarter was 22.
CRD, a and CRD b compared to 10 cents for both share classes in the 2022 period on a non-GAAP basis first quarter 2023 diluted EPS was <unk> 28 for CRD, a and CRD b compared to <unk> 14 for both share classes in the prior year period.
The company's non-GAAP operating earnings totaled $24 9 million in the 2023 first quarter were seven 9% of revenues up from $12 5 million or four 5% of revenues in the prior year period.
Consolidated adjusted EBITDA was $32 8 million in the 2023 first quarter were 10, 5% of revenues compared to $21 3 million or seven 6% of revenues in the 2022 quarter.
I'll now review the first quarter 2023 performance for each of our segments.
North America loss adjusting revenues totaled $77 1 million in the 2023 first quarter, increasing 19, 7% from $64 4 million reported in last year's quarter as we expanded our GTS roster and benefited from weather related activity.
The segment reported operating earnings of $8 1 million in the 2023 first quarter nearly doubling the $4 1 million reported in last year's quarter.
The operating margin was 10, 5% in the 2023 quarter compared to six 4% in the 2022 quarter.
International operations revenues totaled $91 9 million in the 2023 first quarter up two 9% from the $89 3 million reported in last year's quarter, including 700000 from the Van Dyke acquisition.
On a constant dollar basis international revenues totaled $99 6 million growing 11, 6% over last year's quarter.
The segment reported operating earnings of $3 million in the 2023 first quarter improving significantly from losses of $3 1 million reported in last year's quarter.
The operating margin was three 3% in the 2023 quarter compared to negative three 4% in 2022 quarter.
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<unk> revenues were $81 2 million in the 2023 first quarter, increasing six 2% from $76 5 million in the 2022 period, driven by improving medical management revenues.
<unk> operating earnings were $7 9 million in the 2023 first quarter up from last year's first quarter operating earnings of $6 4 million. The operating margin. In this segment was nine 8% in the 2023 quarter improving from eight 4% in the 2022 period.
Revenues for platform solutions were $62 8 million into 2023 first quarter, increasing 28, 6% over the $48 9 million in the prior year quarter due to growth in networks and contractor connection.
Operating earnings in platform solutions totaled 10 million or 15, 9% of revenues in the 2023 first quarter compared to operating earnings of $8 million or 16, 5% of revenues in the prior year quarter.
Unallocated corporate costs were $4 1 million in the 2023 first quarter compared to cost of $3 million in the same period of 2022.
The variance was primarily due to a $1 8 million gain on the sale of our Canadian head office in the 2022 first quarter and an increase in self insurance cost in 2023, partially offset by other cost reductions.
During the 2023 first quarter non service pension costs were $2 2 million compared to a 500000 credit in the 2022 period.
These cost and credits are not a component of operating earnings and are added back for non-GAAP earnings and EPS similar to how we treat the amortization of intangible assets and contingent earn out adjustments.
We recognized a pre tax contingent earn out expense of 200000 into 2023 period compared to $2 1 million in the 2022 quarter.
This was a result of net changes to projections of certain recently acquired entities.
During the first three months of 2023, the company did not repurchase any shares of CRD, a or CRD b. As a reminder, approximately one 8 million shares are eligible to be repurchased.
Under our 2021 share repurchase authorization.
Companys cash and cash equivalent position as of March 31, 2023 totaled $43 3 million compared to $46 million at the 2022 year end.
Our total receivables were up $15 4 million from the 2022 year end, primarily due to increased U S revenues.
We've made no discretionary contributions to our U S defined benefit pension plan for the first quarter of 2023, and we do not intend to make contributions during the remainder of the year.
The company's total debt outstanding as of March 31, 2023 totaled $249 4 million compared with $238 9 million as of December 31, 2022.
Net debt stood at $206 1 million as at March 31, 2023, while our leverage ratio under our credit agreement closed at 2.07 times EBITDA. Additionally, our pension liability was $25 7 million at the end of the first quarter, reflecting our funding ratio of 91.
9%.
Cash used in operations totaled 445000 during 2023 compared with $15 3 million used in 2022 to $14 8 million improvement in operating cash flow was driven by the increase in operating earnings and an improvement in working capital.
Free cash flow was negative $9 1 million for the first three months of 2023, improving from negative $22 9 million in the prior year period with that ill turn the call back to ROE with concluding remarks. Thank you Bruce overall, we're tremendously pleased with our strong results for the first quarter, which highlight the effectiveness of our.
<unk> term strategy commitment to our people and confidence of our customers.
As we look to the year ahead, we are excited about our promising growth trajectory and we will continue our focus on delivering healthy margins and earnings growth across the business. We remain in an enviable financial position and we look forward to delivering value to our shareholders in 2023, while fulfilling our purpose of restoring lives businesses and communities.
Thank you for your time today, Brian Please open the call for questions.
Thank you at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Draw your question press the pound key if youre using a speakerphone. Please pick up your handset before asking your question, we'll pause for just a moment to compile the Q&A roster.
Okay.
Sort of activity Youre seeing more capped as being formed youre seeing more MGA is being formed and a lot of them are looking for.
Unbundling of claims, meaning the places where they're getting the paper from is different from where they want to place. Their claim. So I think that is a trend that will continue particularly given the harder market on the P&C side as I'm sure you are covering for your carrier clients and and as a result of that the clients would like to take on more risk and we will use different vehicles to take on risks. So.
Thank you, Brian and thank you all of our employees our clients our shareholders for your continued commitment to Crawford <unk> company are fantastic start to 2023 provides strong momentum for the rest of the year and beyond as always we appreciate well and look forward to taking you along on the journey with us Thank you and God bless.