Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - CRAWFORD & CO | exhibit991033117pressrelea.htm |
| 8-K - 8-K - CRAWFORD & CO | a033120178-k.htm |
May 8, 2017
First Quarter 2017
Earnings Conference Call
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2
• Forward-Looking Statements
—This presentation contains forward-looking statements, including statements about the expected future financial condition, results of operations
and earnings outlook of Crawford & Company. Statements, both qualitative and quantitative, that are not statements of historical fact may be
"forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements
involve a number of risks and uncertainties that could cause actual results to differ materially from historical experience or Crawford & Company's
present expectations. Accordingly, no one should place undue reliance on forward-looking statements, which speak only as of the date on which they
are made. Crawford & Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may
arise or not arise after the date the forward-looking statements are made. Results for any interim period presented herein are not necessarily
indicative of results to be expected for the full year or for any other future period. For further information regarding Crawford & Company, and the
risks and uncertainties involved in forward-looking statements, please read Crawford & Company's reports filed with the Securities and Exchange
Commission and available at www.sec.gov or in the Investor Relations section of Crawford & Company's website at www.crawfordandcompany.com.
—Crawford's business is dependent, to a significant extent, on case volumes. The Company cannot predict the future trend of case volumes for a
number of reasons, including the fact that the frequency and severity of weather-related claims and the occurrence of natural and man-made
disasters, which are a significant source of cases and revenue for the Company, are generally not subject to accurate forecasting.
• Revenues Before Reimbursements ("Revenues")
—Revenues Before Reimbursements are referred to as "Revenues" in both consolidated and segment charts, bullets and tables throughout this
presentation.
• Segment and Consolidated Operating Earnings
—Under the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 280, "Segment Reporting," the Company has
defined segment operating earnings as the primary measure used by the Company to evaluate the results of each of its four operating segments.
Segment operating earnings represent segment earnings, including the direct and indirect costs of certain administrative functions required to
operate our business, but excludes unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense,
amortization of customer-relationship intangible assets, restructuring and special charges, income taxes, and net income or loss attributable to
noncontrolling interests and redeemable noncontrolling interests.
• Earnings Per Share
—The Company's two classes of stock are substantially identical, except with respect to voting rights and the Company's ability to pay greater cash
dividends on the non-voting Class A Common Stock than on the voting Class B Common Stock, subject to certain limitations. In addition, with
respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of
Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
—In certain periods, the Company has paid a higher dividend on CRD-A than on CRD-B. This may result in a different earnings per share ("EPS") for
each class of stock due to the two-class method of computing EPS as required by ASC Topic 260 - "Earnings Per Share". The two-class method is
an earnings allocation method under which EPS is calculated for each class of common stock considering both dividends declared and participation
rights in undistributed earnings as if all such earnings had been distributed during the period.
• Non-GAAP Financial Information
—For additional information about certain non-GAAP financial information presented herein, see the Appendix following this presentation.
FORWARD-LOOKING STATEMENTS AND ADDITIONAL INFORMATION
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GLOBAL BUSINESS SERVICES LEADER
• The world's largest publicly listed
independent provider of global
claims management solutions
• Multiple globally recognized brand
names: Crawford®, Broadspire®,
GCG®
• Clients include multinational
insurance carriers, brokers and
local insurance firms as well as 200
of the Fortune® 500
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TODAY'S AGENDA
--- Welcome and Opening Comments
--- First Quarter 2017 Financial Review
--- 2017 Guidance and Strategic Initiatives
5
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FIRST QUARTER 2017 BUSINESS SUMMARY
(1) See Appendix for non-GAAP explanation and reconciliation
Quarter Ended
March 31, March 31,
($ in millions, except per share amounts) 2017 2016 Change
Revenues $267.3 $277.2 (4 )%
Net Income Attributable to Shareholders of
Crawford & Company $7.7 $8.6 (10 )%
Diluted Earnings per Share
CRD-A $0.14 $0.16 (13 )%
CRD-B $0.12 $0.14 (14 )%
Operating Earnings (1) $18.3 $21.7 (16 )%
Operating Margin 6.8 % 7.8 % (100) bps
Adjusted EBITDA (1) $26.6 $30.1 (12 )%
Adjusted EBITDA Margin 10.0 % 10.9 % (90) bps
6
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FIRST QUARTER 2017 BUSINESS HIGHLIGHTS
• First quarter results were below expectations given the challenges in our
Garden City Group segment
• Expense reduction plan enacted to remove at least $20 million in annual
costs Company wide
• U.S. Services results reflect advertising investments in Contractor
Connection to penetrate insurance direct market
• WeGoLook platform creating innovative and disruptive service offerings
• International segment margin improvement driven by the UK, Asia-Pacific,
Canada, and Hurricane Matthew
• Broadspire saw strong growth in our disability product line and had a
number of notable client wins, which bodes well for the future
• The Garden City Group experienced a slow down in case volume and the
continued run-off of two large projects; focus on returning Garden City
Group to profitability
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FIRST QUARTER 2017
Financial Review
8
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Unaudited ($ in thousands, except per share amounts)
Three Months Ended March 31, 2017 2016 % Change
Revenues Before Reimbursements $ 267,267 $ 277,234 (4 )%
Costs of Services Provided, Before Reimbursements 192,554 201,433 (4 )%
Selling, General, and Administrative Expenses 59,992 56,797 6 %
Corporate Interest Expense, Net 2,036 2,768 (26 )%
Restructuring and Special Charges 605 2,417 (75 )%
Total Costs and Expenses Before Reimbursements 255,187 263,415 (3 )%
Other Income 378 117 223 %
Income Before Income Taxes 12,458 13,936 (11 )%
Provision for Income Taxes 4,835 5,307 (9 )%
Net Income 7,623 8,629 (12 )%
Net Loss Attributable to Noncontrolling Interests and
Redeemable Noncontrolling Interests 41 1 nm
Net Income Attributable to Shareholders of Crawford &
Company $ 7,664 $ 8,630 (11 )%
Earnings Per Share - Diluted:
Class A Common Stock $ 0.14 $ 0.16 (13 )%
Class B Common Stock $ 0.12 $ 0.14 (14 )%
Cash Dividends per Share:
Class A Common Stock $ 0.07 $ 0.07 — %
Class B Common Stock $ 0.05 $ 0.05 — %
STATEMENT OF OPERATIONS HIGHLIGHTS
nm = not meaningful
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Revenues by Service Line
($ in millions)
Cases Received by Service Line
(In thousands)
Operating Results (1Q 2017 v. 1Q 2016)
• Revenues of $60.4 million versus $58.5 million
• Operating earnings of $5.5 million versus $9.1 million
• Operating earnings margin of 9.2% versus 15.5%
• Cases received of 128,567 versus 94,472, primarily due to
high-frequency low-complexity WeGoLook cases
Highlights
• Acquisition of WeGoLook ("WGL") completed
• Increase in advertising expense to expand the presence of
Contractor Connection in the consumer repair market
• Mix shift negatively impacted operating margins
U.S. Catastrophe (CAT) Adjuster Activity
• CAT revenues of $13.1 million versus $14.5 million
• Average CAT adjusters deployed of 408 in 2017 vs. 426 in
2016
U.S. SERVICES SEGMENT HIGHLIGHTS
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Revenues by Geographic Region
($ in millions)
Operating Results (1Q 2017 v. 1Q 2016)
• Revenues of $110.6 million versus $117.5 million
• Exchange rates reduced revenues by 5%, or $6.0
million
• Operating earnings of $9.3 million versus $7.0
million
• Operating earnings margin of 8.4% versus 6.0%
• Cases received of 172,021 versus 177,131
Regional Highlights
• Operating earnings increased in the segment due to
margin improvements in the UK, Asia Pacific,
Canada and the impact of Hurricane Matthew
• Revenues were negatively impacted by foreign
exchange rate fluctuations and a decrease in
weather-related claims in the U.K.
• Case volumes decreased due to exiting certain
unprofitable business lines in Asia-Pacific
INTERNATIONAL SEGMENT HIGHLIGHTS
Cases Received
(In thousands)
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Revenues by Service Line
($ in millions)
Broadspire Cases Received
(In thousands)
Operating Results (1Q 2017 v. 1Q 2016)
• Revenues of $77.0 million versus $76.2 million
• Operating earnings of $7.1 million versus $8.7
million
• Operating earnings margin of 9.2% versus 11.4%
• Cases received of 113,299 versus 108,563
Highlights
• Revenue growth in disability product line
• Strong pipeline of future sales opportunities being
pursued
• Recent client wins include Innovative Captive
Strategies, Selective Insurance, Arch Travel, and
Aaron's Inc.
• Investments in new client-facing technologies and
sales and marketing continue
BROADSPIRE SEGMENT HIGHLIGHTS
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Backlog
($ in millions)
Operating Results (1Q 2017 v. 1Q 2016)
• Revenues of $19.2 million versus $25.0 million
• Operating (loss) earnings of $(0.9) million versus $1.5
million
• Operating (loss) earnings margin of (4.6)% versus 6.0%
• Backlog of $74 million versus $103 million
Highlights
• Low project volume and relative values during the 2017
quarter
• Deepwater Horizon class action settlement project
continues to wind down
• Expense reductions recently made in response to
market trends
GARDEN CITY GROUP SEGMENT HIGHLIGHTS
Revenues
($ in millions)
13
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Unaudited ($ in thousands)
March 31,
2017
December 31,
2016 Change
Cash and cash equivalents $ 68,797 $ 81,569 $ (12,772 )
Accounts receivable, net 164,073 153,566 10,507
Unbilled revenues, net 108,868 101,809 7,059
Total receivables 272,941 255,375 17,566
Goodwill 115,764 91,750 24,014
Intangible assets arising from business acquisitions, net 103,864 86,931 16,933
Goodwill and intangible assets arising from business acquisitions 219,628 178,681 40,947
Deferred revenues 65,316 63,340 1,976
Pension liabilities 100,371 105,175 (4,804 )
Short-term borrowings and current portion of capital leases 6,685 1,012 5,673
Long-term debt, less current portion 237,273 187,002 50,271
Total debt 243,958 188,014 55,944
Total stockholders' equity attributable to Crawford & Company 163,205 153,883 9,322
Net debt (1) 175,161 106,445 68,716
Nonredeemable noncontrolling interests 7,187 — 7,187
(1) See Appendix for non-GAAP explanation and reconciliation
BALANCE SHEET HIGHLIGHTS
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Unaudited ($ in thousands) 2017 2016 Variance
Net Income Attributable to Shareholders of Crawford &
Company $ 7,664 $ 8,630 $ (966 )
Depreciation and Other Non-Cash Operating Items 11,517 10,847 670
Unbilled and Billed Receivables Change (15,025 ) (7,918 ) (7,107 )
Working Capital Change (20,388 ) (12,146 ) (8,242 )
U.S. and U.K. Pension Contributions (4,283 ) (4,565 ) 282
Cash Flows from Operating Activities (20,515 ) (5,152 ) (15,363 )
Property & Equipment Purchases, net (695 ) (1,535 ) 840
Capitalized Software (internal and external costs) (5,432 ) (4,513 ) (919 )
Free Cash Flow (1) ($26,642 ) ($11,200 ) ($15,442 )
For the year-to-date period ended March 31,
OPERATING AND FREE CASH FLOW
(1) See Appendix for non-GAAP explanation
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Crawford & Company is reaffirming its guidance for 2017 as follows:
YEAR ENDING DECEMBER 31, 2017 Low End High End
Consolidated revenues before reimbursements $1.10 $1.13 billion
After expected restructuring and special charges, net income attributable to
shareholders of Crawford & Company $34.0 $39.0 million
Diluted earnings per share--CRD-A $0.63 $0.73 per share
Diluted earnings per share--CRD-B $0.55 $0.65 per share
Consolidated operating earnings $90.0 $100.0 million
Consolidated adjusted EBITDA $130.0 $140.0 million
Before expected restructuring and special charges, net income attributable
to shareholders of Crawford & Company on a non-GAAP basis $43.0 $48.0 million
Diluted earnings per share--CRD-A $0.78 $0.88 per share
Diluted earnings per share--CRD-B $0.71 $0.81 per share
2017 GUIDANCE
The Company expects to incur restructuring and special charges in 2017 totaling approximately $13.0 million pretax. This is
expected to be comprised of $3.0 million related to the Company's Global Business Services Center in Manila, Philippines
and Global Technology Services Center in Pune, India (the "Centers") and $10.0 million related to other restructuring
activities.
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2017 STRATEGIC INITIATIVES
• Having a strong financial foundation
Implement cost reduction initiatives to drive margin expansion
• Building an entrepreneurial culture
Identify attractive markets for expansion
• Enhancing global capabilities
Explore strategic M&A opportunities
• Delivering excellence in execution
Increase speed of doing business enterprise wide
• Being a sales and service driven organization
Form a robust sales funnel and capitalize on cross-selling
• Providing new products and services that matter
Deliver customized value propositions to clients
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Appendix
FIRST QUARTER 2017
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Measurements of financial performance not calculated in accordance with GAAP should be considered as
supplements to, and not substitutes for, performance measurements calculated or derived in accordance with
GAAP. Any such measures are not necessarily comparable to other similarly-titled measurements employed by
other companies.
Reimbursements for Out-of-Pocket Expenses
In the normal course of our business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under
GAAP, these out-of-pocket expenses and associated reimbursements are required to be included when reporting expenses and revenues, respectively,
in our consolidated results of operations. In this presentation, we do not believe it is informative to include in reported revenues the amounts of
reimbursed expenses and related revenues, as they offset each other in our consolidated results of operations with no impact to our net income or
operating earnings. As a result, unless noted in this presentation, revenue and expense amounts exclude reimbursements for out-of-pocket expenses.
Net Debt
Net debt is computed as the sum of long-term debt, capital leases and short-term borrowings less cash and cash equivalents. Management believes
that net debt is useful because it provides investors with an estimate of what the Company's debt would be if all available cash was used to pay down
the debt of the Company. The measure is not meant to imply that management plans to use all available cash to pay down debt.
Free Cash Flow
Management believes free cash flow is useful to investors as it presents the amount of cash the Company has generated that can be used for other
purposes, including additional contributions to the Company's defined benefit pension plans, discretionary prepayments of outstanding borrowings
under our credit agreement, and return of capital to shareholders, among other purposes. It does not represent the residual cash flow of the Company
available for discretionary expenditures. The reconciliation from Cash Flows from Operating Activities is provided on slide 14.
Segment and Consolidated Operating Earnings
Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker to evaluate the
financial performance of our Company and operating segments, and make resource allocation and certain compensation decisions. Management
believes operating earnings is useful to others in that it allows them to evaluate segment and consolidated operating performance using the same
criteria our management and chief operating decision maker use. Consolidated operating earnings represent segment earnings including certain
unallocated corporate and shared costs, but before net corporate interest expense, stock option expense, amortization of customer-relationship
intangible assets, restructuring and special charges, income taxes, and net income or loss attributable to noncontrolling interests.
APPENDIX: NON-GAAP FINANCIAL INFORMATION
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Adjusted EBITDA
Adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results and the Company believes that adjusted
EBITDA is relevant and useful information widely used by analysts, investors and other interested parties. Adjusted EBITDA is defined as net income
with adjustments for depreciation and amortization, interest expense-net, income tax provision, restructuring and special charges, and non-cash stock-
based compensation expense. Adjusted EBITDA is not a term defined by GAAP and as a result our measure of adjusted EBITDA might not be
comparable to similarly titled measures used by other companies.
Non-GAAP Adjusted Net Income and Diluted Earnings per Share
Included in non-GAAP adjusted net income and diluted earnings per share are restructuring and special charges, which arise from non-core items not
directly related to our normal business or operations, or our future performance. Management believes it is useful to exclude these charges when
comparing net income and diluted earnings per share across periods, as these charges are not from ordinary operations.
APPENDIX: NON-GAAP FINANCIAL INFORMATION (continued)
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Quarter Ended Quarter Ended Full Year
March 31, March 31, Guidance
Unaudited ($ in thousands) 2017 2016 2017 *
Revenues Before Reimbursements
Total Revenues $ 279,530 $ 290,908 $ 1,183,000
Reimbursements (12,263 ) (13,674 ) (68,000 )
Revenues Before Reimbursements $ 267,267 $ 277,234 $ 1,115,000
Costs of Services Provided, Before Reimbursements
Total Costs of Services $ 204,817 $ 215,107
Reimbursements (12,263 ) (13,674 )
Costs of Services Provided, Before Reimbursements $ 192,554 $ 201,433
Revenues, Costs of Services Provided, and Operating Earnings
Quarter Ended Quarter Ended Full Year
March 31, March 31, Guidance
Unaudited ($ in thousands) 2017 2016 2017 *
Operating Earnings:
U.S. Services $ 5,542 $ 9,054
International 9,288 7,034
Broadspire 7,096 8,705
Garden City Group (891 ) 1,495
Unallocated corporate and shared costs (2,742 ) (4,618 )
Consolidated Operating Earnings 18,293 21,670 $ 95,000
(Deduct) add:
Net corporate interest expense (2,036 ) (2,768 ) (11,000 )
Stock option expense (417 ) (90 ) (1,575 )
Amortization expense (2,777 ) (2,459 ) (11,700 )
Restructuring and special charges (605 ) (2,417 ) (13,165 )
Income taxes (4,835 ) (5,307 ) (20,960 )
Net loss (income) attributable to non-controlling interests and redeemable
noncontrolling interests 41 1 (100 )
Net Income Attributable to Shareholders of Crawford & Company $ 7,664 $ 8,630 $ 36,500
RECONCILIATION OF NON-GAAP ITEMS
* Midpoints of Company's Guidance, reaffirmed May 8, 2017
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RECONCILIATION OF NON-GAAP ITEMS (continued)
Adjusted EBITDA
Quarter Ended Full Year
March 31, March 31, Guidance
Unaudited ($ in thousands) 2017 2016 2017 *
Net income attributable to
shareholders of Crawford &
Company $ 7,664 $ 8,630 $ 36,500
Add:
Depreciation and amortization 10,180 10,294 47,375
Stock-based compensation 1,296 729 6,000
Net corporate interest expense 2,036 2,768 11,000
Restructuring and special
charges 605 2,417 13,165
Income taxes 4,835 5,307 20,960
Adjusted EBITDA $ 26,616 $ 30,145 $ 135,000
* Midpoints of Company's Guidance, reaffirmed May 8, 2017
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RECONCILIATION OF NON-GAAP ITEMS (continued)
Net Debt
March 31, December 31,
Unaudited ($ in thousands) 2017 2016
Net Debt
Short-term borrowings $ 6,037 $ 30
Current installments of capital leases 648 982
Long-term debt and capital leases, less current installments 237,273 187,002
Total debt 243,958 188,014
Less:
Cash and cash equivalents 68,797 81,569
Net debt $ 175,161 $ 106,445
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RECONCILIATION OF NON-GAAP ITEMS (continued)
Non-GAAP Adjusted Net Income and Diluted Earnings Per Share
Three Months Ended March 31, 2017
Unaudited ($ in
thousands)
Income
Before Taxes Income Taxes Net Income
Net Income
Attributable to
Crawford &
Company
Diluted
Earnings per
CRD-A Share
Diluted
Earnings per
CRD-B Share
GAAP $ 12,458 $ (4,835 ) $ 7,623 $ 7,664 $ 0.14 $ 0.12
Add back:
Restructuring and
special charges 605 (198 ) 407 407 0.01 0.01
Non-GAAP
Adjusted $ 13,063 $ (5,033 ) $ 8,030 $ 8,071 $ 0.15 $ 0.13
Three Months Ended March 31, 2016
Unaudited ($ in
thousands)
Income
Before Taxes Income Taxes Net Income
Net Income
Attributable to
Crawford &
Company
Diluted
Earnings per
CRD-A Share
Diluted
Earnings per
CRD-B Share
GAAP $ 13,936 $ (5,307 ) $ 8,629 $ 8,630 $ 0.16 $ 0.14
Add back:
Restructuring and
special charges 2,417 (781 ) 1,636 1,636 0.03 0.03
Non-GAAP
Adjusted $ 16,353 $ (7,794 ) $ 8,559 $ 8,560 $ 0.19 $ 0.17
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RECONCILIATION OF NON-GAAP ITEMS (continued)
Non-GAAP Adjusted Net Income and Diluted Earnings Per Share
*Full Year Guidance 2017
Unaudited ($ in
thousands)
Income
Before Taxes Income Taxes Net Income
Net Income
Attributable to
Crawford &
Company
Diluted
Earnings per
CRD-A Share
Diluted
Earnings per
CRD-B Share
GAAP $ 57,560 $ (20,960 ) $ 36,600 $ 36,500 $ 0.68 $ 0.60
Add back:
Restructuring and
special charges 13,165 (4,344 ) 8,821 8,821 0.15 0.15
Non-GAAP
Adjusted $ 70,725 $ (25,304 ) $ 45,421 $ 45,321 $ 0.83 $ 0.75
* Midpoints of Company's Guidance, reaffirmed May 8, 2017