United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ | ||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended March 31, 2024
OR
☐ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ____ to ____
Commission file number 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
Georgia | 58-0506554 | |||
(State or other jurisdiction of | ||||
incorporation or organization) | (I.R.S. Employer Identification No.) | |||
5335 Triangle Parkway | ||||
Peachtree Corners, Georgia | 30092 | |||
(Address of principal executive offices) | (Zip Code) |
(404) 300-1000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock — $1.00 Par Value | CRD-A | New York Stock Exchange |
Class B Common Stock — $1.00 Par Value | CRD-B | New York Stock Exchange |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer",filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☑ | |
Non-accelerated filer | ☐ | |||
Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of shares outstanding of each class of the Registrant's common stock, as of October 31, 2017,April 24, 2024, was as follows:
Class A Common Stock, $1.00 par value:
Class B Common Stock, $1.00 par value:
CRAWFORD & COMPANY
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2017
Table of Contents
Page | ||||||||
Condensed Consolidated Statements of Operations (unaudited) for the three months ended | ||||||||
| ||||||||
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2024 and | 4 | |||||||
Condensed Consolidated Balance Sheets (unaudited) as of | 5 | |||||||
Condensed Consolidated Statements of Cash Flows (unaudited) for the | 7 | |||||||
Condensed Consolidated Statements of Shareholders' Investment (unaudited) as of and for the three months ended March 31, 2024 and | 8 | |||||||
9 | ||||||||
21 | ||||||||
22 | ||||||||
37 | ||||||||
37 | ||||||||
38 | ||||||||
38 | ||||||||
5. | Other Information | 38 | ||||||
Item 6. | 39 | |||||||
40 |
2
Part I — Financial Information
Item 1. Financial Statements
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended September 30, | |||||||
(In thousands, except per share amounts) | 2017 | 2016 | |||||
Revenues: | |||||||
Revenues before reimbursements | $ | 270,551 | $ | 277,286 | |||
Reimbursements | 16,115 | 18,101 | |||||
Total Revenues | 286,666 | 295,387 | |||||
Costs and Expenses: | |||||||
Costs of services provided, before reimbursements | 191,977 | 193,453 | |||||
Reimbursements | 16,115 | 18,101 | |||||
Total costs of services | 208,092 | 211,554 | |||||
Selling, general, and administrative expenses | 57,859 | 60,325 | |||||
Corporate interest expense, net of interest income of $174 and $278, respectively | 2,524 | 2,262 | |||||
Restructuring and special charges | 1,431 | 1,488 | |||||
Total Costs and Expenses | 269,906 | 275,629 | |||||
Other Income | 132 | 197 | |||||
Income Before Income Taxes | 16,892 | 19,955 | |||||
Provision for Income Taxes | 4,922 | 8,606 | |||||
Net Income | 11,970 | 11,349 | |||||
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | (157 | ) | (404 | ) | |||
Net Income Attributable to Shareholders of Crawford & Company | $ | 11,813 | $ | 10,945 | |||
Earnings Per Share - Basic: | |||||||
Class A Common Stock | $ | 0.22 | $ | 0.21 | |||
Class B Common Stock | $ | 0.20 | $ | 0.19 | |||
Earnings Per Share - Diluted: | |||||||
Class A Common Stock | $ | 0.22 | $ | 0.20 | |||
Class B Common Stock | $ | 0.20 | $ | 0.18 | |||
Weighted-Average Shares Used to Compute Basic Earnings Per Share: | |||||||
Class A Common Stock | 31,276 | 30,922 | |||||
Class B Common Stock | 24,550 | 24,690 | |||||
Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | |||||||
Class A Common Stock | 32,097 | 31,665 | |||||
Class B Common Stock | 24,550 | 24,690 | |||||
Cash Dividends Per Share: | |||||||
Class A Common Stock | $ | 0.07 | $ | 0.07 | |||
Class B Common Stock | $ | 0.05 | $ | 0.05 |
|
| Three Months Ended March 31, |
| |||||
(In thousands, except per share amounts) |
| 2024 |
|
| 2023 |
| ||
Revenues: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Revenues before reimbursements |
| $ | 301,654 |
|
| $ | 316,334 |
|
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
Total Revenues |
|
| 313,073 |
|
|
| 327,938 |
|
|
|
|
|
|
|
| ||
Costs and Expenses: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Costs of services provided, before reimbursements |
|
| 214,389 |
|
|
| 227,078 |
|
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
Total costs of services |
|
| 225,808 |
|
|
| 238,682 |
|
|
|
|
|
|
|
| ||
Selling, general, and administrative expenses |
|
| 77,320 |
|
|
| 66,711 |
|
|
|
|
|
|
|
| ||
Corporate interest expense, net of interest income of $901 and $276, respectively |
|
| 3,596 |
|
|
| 4,399 |
|
|
|
|
|
|
|
| ||
Total Costs and Expenses |
|
| 306,724 |
|
|
| 309,792 |
|
|
|
|
|
|
|
| ||
Other Loss, net |
|
| (2,523 | ) |
|
| (2,145 | ) |
|
|
|
|
|
|
| ||
Income Before Income Taxes |
|
| 3,826 |
|
|
| 16,001 |
|
|
|
|
|
|
|
| ||
Provision for Income Taxes |
|
| 1,047 |
|
|
| 5,271 |
|
|
|
|
|
|
|
| ||
Net Income |
|
| 2,779 |
|
|
| 10,730 |
|
|
|
|
|
|
|
| ||
Net Loss (Income) Attributable to Noncontrolling Interests |
|
| 58 |
|
|
| (49 | ) |
|
|
|
|
|
|
| ||
Net Income Attributable to Shareholders of Crawford & Company |
| $ | 2,837 |
|
| $ | 10,681 |
|
|
|
|
|
|
|
| ||
Earnings Per Share - Basic: |
|
|
|
|
|
| ||
Class A Common Stock |
| $ | 0.06 |
|
| $ | 0.22 |
|
Class B Common Stock |
| $ | 0.06 |
|
| $ | 0.22 |
|
|
|
|
|
|
|
| ||
Earnings Per Share - Diluted: |
|
|
|
|
|
| ||
Class A Common Stock |
| $ | 0.06 |
|
| $ | 0.22 |
|
Class B Common Stock |
| $ | 0.06 |
|
| $ | 0.22 |
|
|
|
|
|
|
|
| ||
Weighted-Average Shares Used to Compute Basic Earnings Per Share: |
|
|
|
|
|
| ||
Class A Common Stock |
|
| 29,586 |
|
|
| 28,841 |
|
Class B Common Stock |
|
| 19,542 |
|
|
| 19,848 |
|
|
|
|
|
|
|
| ||
Weighted-Average Shares Used to Compute Diluted Earnings Per Share: |
|
|
|
|
|
| ||
Class A Common Stock |
|
| 30,279 |
|
|
| 29,141 |
|
Class B Common Stock |
|
| 19,542 |
|
|
| 19,848 |
|
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
3
CRAWFORD & COMPANY
Nine Months Ended September 30, | |||||||
(In thousands, except per share amounts) | 2017 | 2016 | |||||
Revenues: | |||||||
Revenues before reimbursements | $ | 807,065 | $ | 836,863 | |||
Reimbursements | 43,103 | 47,101 | |||||
Total Revenues | 850,168 | 883,964 | |||||
Costs and Expenses: | |||||||
Costs of services provided, before reimbursements | 570,858 | 595,248 | |||||
Reimbursements | 43,103 | 47,101 | |||||
Total costs of services | 613,961 | 642,349 | |||||
Selling, general, and administrative expenses | 175,178 | 178,182 | |||||
Corporate interest expense, net of interest income of $581 and $498, respectively | 6,674 | 7,553 | |||||
Restructuring and special charges | 8,818 | 7,431 | |||||
Total Costs and Expenses | 804,631 | 835,515 | |||||
Other Income | 898 | 719 | |||||
Income Before Income Taxes | 46,435 | 49,168 | |||||
Provision for Income Taxes | 16,569 | 20,029 | |||||
Net Income | 29,866 | 29,139 | |||||
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests | (188 | ) | (937 | ) | |||
Net Income Attributable to Shareholders of Crawford & Company | $ | 29,678 | $ | 28,202 | |||
Earnings Per Share - Basic: | |||||||
Class A Common Stock | $ | 0.56 | $ | 0.54 | |||
Class B Common Stock | $ | 0.50 | $ | 0.48 | |||
Earnings Per Share - Diluted: | |||||||
Class A Common Stock | $ | 0.55 | $ | 0.53 | |||
Class B Common Stock | $ | 0.49 | $ | 0.47 | |||
Weighted-Average Shares Used to Compute Basic Earnings Per Share: | |||||||
Class A Common Stock | 31,359 | 30,731 | |||||
Class B Common Stock | 24,639 | 24,690 | |||||
Weighted-Average Shares Used to Compute Diluted Earnings Per Share: | |||||||
Class A Common Stock | 32,156 | 31,200 | |||||
Class B Common Stock | 24,639 | 24,690 | |||||
Cash Dividends Per Share: | |||||||
Class A Common Stock | $ | 0.21 | $ | 0.21 | |||
Class B Common Stock | $ | 0.15 | $ | 0.15 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three Months Ended September 30, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net Income | $ | 11,970 | $ | 11,349 | |||
Other Comprehensive Income (Loss): | |||||||
Net foreign currency translation income (loss), net of tax of $0 and $0, respectively | 6,994 | (4,095 | ) | ||||
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $975 and $1,126, respectively | 1,745 | 2,171 | |||||
Other Comprehensive Income (Loss) | 8,739 | (1,924 | ) | ||||
Comprehensive Income | 20,709 | 9,425 | |||||
Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests | (151 | ) | (503 | ) | |||
Comprehensive Income Attributable to Shareholders of Crawford & Company | $ | 20,558 | $ | 8,922 | |||
Nine Months Ended September 30, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net Income | $ | 29,866 | $ | 29,139 | |||
Other Comprehensive Income: | |||||||
Net foreign currency translation income (loss), net of tax of $0 and $0, respectively | 8,525 | (648 | ) | ||||
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $2,954 and $3,339, respectively | 5,278 | 6,453 | |||||
Other Comprehensive Income | 13,803 | 5,805 | |||||
Comprehensive Income | 43,669 | 34,944 | |||||
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests | 502 | 47 | |||||
Comprehensive Income Attributable to Shareholders of Crawford & Company | $ | 44,171 | $ | 34,991 | |||
|
| Three Months Ended March 31, |
| |||||
(In thousands) |
| 2024 |
|
| 2023 |
| ||
Net Income |
| $ | 2,779 |
|
| $ | 10,730 |
|
|
|
|
|
|
|
| ||
Other Comprehensive Income: |
|
|
|
|
|
| ||
Net foreign currency translation gain, net of tax of $0 and $0, respectively |
|
| 1,199 |
|
|
| 7,690 |
|
|
|
|
|
|
|
| ||
Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $643 and $731, respectively |
|
| 2,559 |
|
|
| 2,086 |
|
|
|
|
|
|
|
| ||
Other Comprehensive Income |
|
| 3,758 |
|
|
| 9,776 |
|
|
|
|
|
|
|
| ||
Comprehensive Income |
|
| 6,537 |
|
|
| 20,506 |
|
|
|
|
|
|
|
| ||
Comprehensive loss (income) attributable to noncontrolling interests |
|
| 123 |
|
|
| (7 | ) |
|
|
|
|
|
|
| ||
Comprehensive Income Attributable to Shareholders of Crawford & Company |
| $ | 6,660 |
|
| $ | 20,499 |
|
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
* | |||||||
(In thousands) | September 30, 2017 | December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 73,289 | $ | 81,569 | |||
Accounts receivable, less allowance for doubtful accounts of $16,122 and $14,499 respectively | 164,660 | 153,566 | |||||
Unbilled revenues, at estimated billable amounts | 123,783 | 101,809 | |||||
Income taxes receivable | 3,661 | 3,781 | |||||
Prepaid expenses and other current assets | 26,483 | 24,006 | |||||
Total Current Assets | 391,876 | 364,731 | |||||
Net Property and Equipment | 32,680 | 29,605 | |||||
Other Assets: | |||||||
Goodwill | 117,362 | 91,750 | |||||
Intangible assets arising from business acquisitions, net | 99,682 | 86,931 | |||||
Capitalized software costs, net | 87,834 | 80,960 | |||||
Deferred income tax assets | 28,252 | 30,379 | |||||
Other noncurrent assets | 60,660 | 51,503 | |||||
Total Other Assets | 393,790 | 341,523 | |||||
TOTAL ASSETS | $ | 818,346 | $ | 735,859 |
|
|
|
|
| * |
| ||
(In thousands) |
| March 31, |
|
| December 31, |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 45,196 |
|
| $ | 58,363 |
|
Accounts receivable, less allowance for expected credit losses of $8,539 and $8,599, respectively |
|
| 125,985 |
|
|
| 131,362 |
|
Unbilled revenues, at estimated billable amounts |
|
| 127,597 |
|
|
| 116,611 |
|
Income taxes receivable |
|
| 2,586 |
|
|
| 4,842 |
|
Prepaid expenses and other current assets |
|
| 44,460 |
|
|
| 58,168 |
|
Total Current Assets |
|
| 345,824 |
|
|
| 369,346 |
|
Net Property and Equipment |
|
| 21,597 |
|
|
| 22,742 |
|
Other Assets: |
|
|
|
|
|
| ||
Operating lease right-of-use assets, net |
|
| 86,141 |
|
|
| 88,615 |
|
Goodwill |
|
| 76,621 |
|
|
| 76,724 |
|
Intangible assets arising from business acquisitions, net |
|
| 80,341 |
|
|
| 81,786 |
|
Capitalized software costs, net |
|
| 99,942 |
|
|
| 96,770 |
|
Deferred income tax assets |
|
| 26,162 |
|
|
| 26,247 |
|
Other noncurrent assets |
|
| 39,649 |
|
|
| 36,969 |
|
Total Other Assets |
|
| 408,856 |
|
|
| 407,111 |
|
TOTAL ASSETS |
| $ | 776,277 |
|
| $ | 799,199 |
|
* Derived from the audited Consolidated Balance Sheet
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
Unaudited
* | |||||||
(In thousands, except par value amounts) | September 30, 2017 | December 31, 2016 | |||||
LIABILITIES AND SHAREHOLDERS' INVESTMENT | |||||||
Current Liabilities: | |||||||
Short-term borrowings | $ | 3,627 | $ | 30 | |||
Accounts payable | 49,670 | 51,991 | |||||
Accrued compensation and related costs | 71,423 | 74,466 | |||||
Self-insured risks | 12,284 | 14,771 | |||||
Income taxes payable | 8,154 | 3,527 | |||||
Deferred rent | 11,142 | 12,142 | |||||
Other accrued liabilities | 39,893 | 34,922 | |||||
Deferred revenues | 36,987 | 37,456 | |||||
Current installments of long-term debt and capital leases | 372 | 982 | |||||
Total Current Liabilities | 233,552 | 230,287 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt and capital leases, less current installments | 246,083 | 187,002 | |||||
Deferred revenues | 24,443 | 25,884 | |||||
Accrued pension liabilities | 91,265 | 105,175 | |||||
Other noncurrent liabilities | 23,878 | 28,247 | |||||
Total Noncurrent Liabilities | 385,669 | 346,308 | |||||
Redeemable Noncontrolling Interests | 7,085 | — | |||||
Shareholders' Investment: | |||||||
Class A common stock, $1.00 par value; 50,000 shares authorized; 31,243 and 31,296 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 31,243 | 31,296 | |||||
Class B common stock, $1.00 par value; 50,000 shares authorized; 24,515 and 24,690 shares issued and outstanding at September 30, 2017 and December 31, 2016 respectively | 24,515 | 24,690 | |||||
Additional paid-in capital | 53,138 | 48,108 | |||||
Retained earnings | 276,304 | 261,562 | |||||
Accumulated other comprehensive loss | (197,280 | ) | (211,773 | ) | |||
Shareholders' Investment Attributable to Shareholders of Crawford & Company | 187,920 | 153,883 | |||||
Noncontrolling interests | 4,120 | 5,381 | |||||
Total Shareholders' Investment | 192,040 | 159,264 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT | $ | 818,346 | $ | 735,859 |
|
|
|
|
| * |
| ||
(In thousands, except par value amounts) |
| March 31, |
|
| December 31, |
| ||
LIABILITIES AND SHAREHOLDERS' INVESTMENT |
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
| ||
Short-term borrowings |
| $ | 19,354 |
|
| $ | 14,813 |
|
Accounts payable |
|
| 45,232 |
|
|
| 45,107 |
|
Accrued compensation and related costs |
|
| 64,256 |
|
|
| 97,842 |
|
Self-insured risks |
|
| 20,188 |
|
|
| 33,238 |
|
Income taxes payable |
|
| 5,334 |
|
|
| 6,130 |
|
Operating lease liability |
|
| 24,438 |
|
|
| 24,351 |
|
Other accrued liabilities |
|
| 48,108 |
|
|
| 42,271 |
|
Deferred revenues |
|
| 37,224 |
|
|
| 35,540 |
|
Total Current Liabilities |
|
| 264,134 |
|
|
| 299,292 |
|
Noncurrent Liabilities: |
|
|
|
|
|
| ||
Long-term debt and finance leases, less current installments |
|
| 210,823 |
|
|
| 194,335 |
|
Operating lease liability |
|
| 74,295 |
|
|
| 78,029 |
|
Deferred revenues |
|
| 23,807 |
|
|
| 24,871 |
|
Accrued pension liabilities |
|
| 23,440 |
|
|
| 24,006 |
|
Other noncurrent liabilities |
|
| 36,540 |
|
|
| 38,835 |
|
Total Noncurrent Liabilities |
|
| 368,905 |
|
|
| 360,076 |
|
Shareholders' Investment: |
|
|
|
|
|
| ||
Class A common stock, $1.00 par value; 50,000 shares authorized; 29,628 and 29,525 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively |
|
| 29,628 |
|
|
| 29,525 |
|
Class B common stock, $1.00 par value; 50,000 shares authorized; 19,469 and 19,555 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively |
|
| 19,469 |
|
|
| 19,555 |
|
Additional paid-in capital |
|
| 83,104 |
|
|
| 82,589 |
|
Retained earnings |
|
| 227,311 |
|
|
| 228,564 |
|
Accumulated other comprehensive loss |
|
| (214,792 | ) |
|
| (218,615 | ) |
Shareholders' Investment Attributable to Shareholders of Crawford & Company |
|
| 144,720 |
|
|
| 141,618 |
|
Noncontrolling interests |
|
| (1,482 | ) |
|
| (1,787 | ) |
Total Shareholders' Investment |
|
| 143,238 |
|
|
| 139,831 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT |
| $ | 776,277 |
|
| $ | 799,199 |
|
* Derived from the audited Consolidated Balance Sheet
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
6
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended September 30, | |||||||
(In thousands) | 2017 | 2016 | |||||
Cash Flows From Operating Activities: | |||||||
Net income | $ | 29,866 | $ | 29,139 | |||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 30,648 | 30,643 | |||||
Stock-based compensation | 4,973 | 3,246 | |||||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | |||||||
Accounts receivable, net | (6,181 | ) | (7,628 | ) | |||
Unbilled revenues, net | (16,996 | ) | (16,118 | ) | |||
Accrued or prepaid income taxes | 5,202 | 9,067 | |||||
Accounts payable and accrued liabilities | (16,233 | ) | 5,410 | ||||
Deferred revenues | (2,352 | ) | (4,153 | ) | |||
Accrued retirement costs | (13,360 | ) | (7,128 | ) | |||
Prepaid expenses and other operating activities | (1,683 | ) | 7,605 | ||||
Net cash provided by operating activities | 13,884 | 50,083 | |||||
Cash Flows From Investing Activities: | |||||||
Acquisitions of property and equipment | (10,465 | ) | (5,782 | ) | |||
Capitalization of computer software costs | (19,906 | ) | (13,653 | ) | |||
Payments for business acquisitions, net of cash acquired | (36,029 | ) | (3,672 | ) | |||
Other investing activities | (2,148 | ) | (95 | ) | |||
Net cash used in investing activities | (68,548 | ) | (23,202 | ) | |||
Cash Flows From Financing Activities: | |||||||
Cash dividends paid | (10,288 | ) | (10,162 | ) | |||
Payments related to shares received for withholding taxes under stock-based compensation plans | (547 | ) | (15 | ) | |||
Proceeds from shares purchased under employee stock-based compensation plans | 1,048 | 1,208 | |||||
Decrease in note payable for stock repurchase | — | (2,206 | ) | ||||
Repurchases of common stock | (6,066 | ) | — | ||||
Increases in short-term and revolving credit facility borrowings | 82,905 | 79,664 | |||||
Payments on short-term and revolving credit facility borrowings | (22,697 | ) | (95,855 | ) | |||
Payments on capital lease obligations | (964 | ) | (1,119 | ) | |||
Dividends paid to noncontrolling interests | (291 | ) | (381 | ) | |||
Other financing activities | — | (12 | ) | ||||
Net cash provided by (used in) financing activities | 43,100 | (28,878 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents | 3,284 | (2,406 | ) | ||||
Decrease in cash and cash equivalents | (8,280 | ) | (4,403 | ) | |||
Cash and cash equivalents at beginning of year | 81,569 | 76,066 | |||||
Cash and cash equivalents at end of period | $ | 73,289 | $ | 71,663 |
|
| Three Months Ended March 31, |
| |||||
(In thousands) |
| 2024 |
|
| 2023 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||
Net income |
| $ | 2,779 |
|
| $ | 10,730 |
|
Reconciliation of net income to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 9,299 |
|
|
| 9,050 |
|
Stock-based compensation |
|
| 1,218 |
|
|
| 1,023 |
|
(Gain) loss on disposal of property and equipment |
|
| (81 | ) |
|
| 20 |
|
Contingent earnout adjustments |
|
| 151 |
|
|
| 248 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable, net |
|
| 6,312 |
|
|
| (17 | ) |
Unbilled revenues, net |
|
| (9,511 | ) |
|
| (6,333 | ) |
Accrued or prepaid income taxes |
|
| 942 |
|
|
| 3,895 |
|
Accounts payable and accrued liabilities |
|
| (25,837 | ) |
|
| (15,818 | ) |
Deferred revenues |
|
| 116 |
|
|
| 2,841 |
|
Accrued retirement costs |
|
| (3,546 | ) |
|
| (2,887 | ) |
Prepaid expenses and other operating activities |
|
| (1,645 | ) |
|
| (3,197 | ) |
Net cash used in operating activities |
|
| (19,803 | ) |
|
| (445 | ) |
|
|
|
|
|
| |||
Cash Flows from Investing Activities: |
|
|
|
|
|
| ||
Acquisitions of property and equipment |
|
| (1,541 | ) |
|
| (1,031 | ) |
Capitalization of computer software costs |
|
| (8,009 | ) |
|
| (7,610 | ) |
Net cash used in investing activities |
|
| (9,550 | ) |
|
| (8,641 | ) |
|
|
|
|
|
| |||
Cash Flows from Financing Activities: |
|
|
|
|
|
| ||
Cash dividends paid |
|
| (3,443 | ) |
|
| (2,925 | ) |
Repurchases of common stock |
|
| (733 | ) |
| — |
| |
Increases in revolving credit facility borrowings |
|
| 35,807 |
|
|
| 19,394 |
|
Payments on revolving credit facility borrowings |
|
| (14,794 | ) |
|
| (10,265 | ) |
Payments of contingent consideration on acquisitions |
|
| (579 | ) |
|
| (848 | ) |
Other financing activities |
|
| (185 | ) |
|
| (169 | ) |
Net cash provided by financing activities |
|
| 16,073 |
|
|
| 5,187 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
| 394 |
|
|
| 1,195 |
|
Decrease in Cash, Cash Equivalents, and Restricted Cash |
|
| (12,886 | ) |
|
| (2,704 | ) |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Year |
|
| 59,545 |
|
|
| 46,645 |
|
Cash, Cash Equivalents, and Restricted Cash at End of Period |
| $ | 46,659 |
|
| $ | 43,941 |
|
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
7
CRAWFORD & COMPANY
Unaudited
(In thousands)
Common Stock | Accumulated | Shareholders' Investment Attributable to | |||||||||||||||||||||||||||||
2017 | Class A Non-Voting | Class B Voting | Additional Paid-In Capital | Retained Earnings | Other Comprehensive Loss | Shareholders of Crawford & Company | Noncontrolling Interests | Total Shareholders' Investment | |||||||||||||||||||||||
Balance at January 1, 2017 | $ | 31,296 | $ | 24,690 | $ | 48,108 | $ | 261,562 | $ | (211,773 | ) | $ | 153,883 | $ | 5,381 | $ | 159,264 | ||||||||||||||
Net income (1) | — | — | — | 7,664 | — | 7,664 | 137 | 7,801 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 3,475 | 3,475 | (814 | ) | 2,661 | ||||||||||||||||||||||
Cash dividends paid | — | — | — | (3,441 | ) | — | (3,441 | ) | — | (3,441 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 1,296 | — | — | 1,296 | — | 1,296 | |||||||||||||||||||||||
Cumulative-effect adjustment of ASU 2016-09 | — | — | — | 692 | — | 692 | — | 692 | |||||||||||||||||||||||
Common stock activity, net | 231 | — | (629 | ) | — | — | (398 | ) | — | (398 | ) | ||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | 34 | — | — | 34 | (715 | ) | (681 | ) | |||||||||||||||||||||
Balance at March 31, 2017 | $ | 31,527 | $ | 24,690 | $ | 48,809 | $ | 266,477 | $ | (208,298 | ) | $ | 163,205 | $ | 3,989 | $ | 167,194 | ||||||||||||||
Net income (1) | — | — | — | 10,201 | — | 10,201 | 275 | 10,476 | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 2,273 | 2,273 | 130 | 2,403 | |||||||||||||||||||||||
Cash dividends paid | — | — | — | (3,428 | ) | — | (3,428 | ) | — | (3,428 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 2,109 | — | — | 2,109 | — | 2,109 | |||||||||||||||||||||||
Repurchases of common stock | (357 | ) | (48 | ) | — | (3,029 | ) | — | (3,434 | ) | — | (3,434 | ) | ||||||||||||||||||
Common stock activity, net | 88 | — | 172 | — | — | 260 | — | 260 | |||||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | 424 | — | — | 424 | — | 424 | |||||||||||||||||||||||
Balance at June 30, 2017 | $ | 31,258 | $ | 24,642 | $ | 51,514 | $ | 270,221 | $ | (206,025 | ) | $ | 171,610 | $ | 4,394 | $ | 176,004 | ||||||||||||||
Net income (1) | — | — | — | 11,813 | — | 11,813 | 435 | 12,248 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 8,745 | 8,745 | (6 | ) | 8,739 | ||||||||||||||||||||||
Cash dividends paid | — | — | — | (3,419 | ) | — | (3,419 | ) | — | (3,419 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 1,568 | — | — | 1,568 | — | 1,568 | |||||||||||||||||||||||
Repurchases of common stock | (194 | ) | (127 | ) | — | (2,311 | ) | — | (2,632 | ) | — | (2,632 | ) | ||||||||||||||||||
Acquisition of noncontrolling interests | — | — | (404 | ) | — | — | (404 | ) | (412 | ) | (816 | ) | |||||||||||||||||||
Common stock activity, net | 179 | — | 460 | — | — | 639 | — | 639 | |||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | — | (291 | ) | (291 | ) | |||||||||||||||||||||
Balance at September 30, 2017 | $ | 31,243 | $ | 24,515 | $ | 53,138 | $ | 276,304 | $ | (197,280 | ) | $ | 187,920 | $ | 4,120 | $ | 192,040 |
|
| Common Stock |
|
|
|
|
|
|
|
| Accumulated |
|
| Shareholders' |
|
|
|
|
|
|
| |||||||||||
2024 |
| Class A |
|
| Class B |
|
| Additional |
|
| Retained |
|
| Other |
|
| Shareholders |
|
| Noncontrolling |
|
| Total |
| ||||||||
Balance at January 1, 2024 |
| $ | 29,525 |
|
| $ | 19,555 |
|
| $ | 82,589 |
|
| $ | 228,564 |
|
| $ | (218,615 | ) |
| $ | 141,618 |
|
| $ | (1,787 | ) |
| $ | 139,831 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,837 |
|
|
| — |
|
|
| 2,837 |
|
|
| (58 | ) |
|
| 2,779 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,823 |
|
|
| 3,823 |
|
|
| (65 | ) |
|
| 3,758 |
|
Cash dividends paid (Class A - $0.07 per share, Class B - $0.07 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,443 | ) |
|
| — |
|
|
| (3,443 | ) |
|
| — |
|
|
| (3,443 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,218 |
|
|
| — |
|
|
| — |
|
|
| 1,218 |
|
|
| — |
|
|
| 1,218 |
|
Repurchases of common stock |
|
| — |
|
|
| (86 | ) |
|
| — |
|
|
| (647 | ) |
|
| — |
|
|
| (733 | ) |
|
| — |
|
|
| (733 | ) |
Decrease in value of noncontrolling interest due to acquisition |
|
| — |
|
|
| — |
|
|
| (550 | ) |
|
| — |
|
|
| — |
|
|
| (550 | ) |
|
| 550 |
|
|
| — |
|
Shares issued in connection with stock-based compensation plans, net |
|
| 103 |
|
|
| — |
|
|
| (153 | ) |
|
| — |
|
|
| — |
|
|
| (50 | ) |
|
| — |
|
|
| (50 | ) |
Dividends paid to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (122 | ) |
|
| (122 | ) |
Balance at March 31, 2024 |
| $ | 29,628 |
|
| $ | 19,469 |
|
| $ | 83,104 |
|
| $ | 227,311 |
|
| $ | (214,792 | ) |
| $ | 144,720 |
|
| $ | (1,482 | ) |
| $ | 143,238 |
|
|
| Common Stock |
|
|
|
|
|
|
|
| Accumulated |
|
| Shareholders' |
|
|
|
|
|
|
| |||||||||||
2023 |
| Class A |
|
| Class B |
|
| Additional |
|
| Retained |
|
| Other |
|
| Shareholders |
|
| Noncontrolling |
|
| Total |
| ||||||||
Balance at January 1, 2023 |
| $ | 28,764 |
|
| $ | 19,848 |
|
| $ | 78,158 |
|
| $ | 213,094 |
|
| $ | (215,321 | ) |
| $ | 124,543 |
|
| $ | (1,165 | ) |
| $ | 123,378 |
|
Net income |
| — |
|
| — |
|
| — |
|
|
| 10,681 |
|
| — |
|
|
| 10,681 |
|
|
| 49 |
|
|
| 10,730 |
| ||||
Other comprehensive income (loss) |
| — |
|
| — |
|
| — |
|
| — |
|
|
| 9,818 |
|
|
| 9,818 |
|
|
| (42 | ) |
|
| 9,776 |
| ||||
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
| — |
|
| — |
|
| — |
|
|
| (2,925 | ) |
| — |
|
|
| (2,925 | ) |
|
| — |
|
|
| (2,925 | ) | ||||
Stock-based compensation |
| — |
|
| — |
|
|
| 1,023 |
|
| — |
|
| — |
|
|
| 1,023 |
|
|
| — |
|
|
| 1,023 |
| ||||
Shares issued in connection with stock-based compensation plans, net |
|
| 161 |
|
| — |
|
|
| (87 | ) |
| — |
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| 74 |
| |||
Dividends paid to noncontrolling interests |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| (229 | ) |
|
| (229 | ) | |||||
Balance at March 31, 2023 |
| $ | 28,925 |
|
| $ | 19,848 |
|
| $ | 79,094 |
|
| $ | 220,850 |
|
| $ | (205,503 | ) |
| $ | 143,214 |
|
| $ | (1,387 | ) |
| $ | 141,827 |
|
(SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements)
8
Common Stock | Accumulated | Shareholders' Investment Attributable to | |||||||||||||||||||||||||||||
2016 | Class A Non-Voting | Class B Voting | Additional Paid-In Capital | Retained Earnings | Other Comprehensive Loss | Shareholders of Crawford & Company | Noncontrolling Interests | Total Shareholders' Investment | |||||||||||||||||||||||
Balance at January 1, 2016 | $ | 30,537 | $ | 24,690 | $ | 41,936 | $ | 239,161 | $ | (222,631 | ) | $ | 113,693 | $ | 10,658 | $ | 124,351 | ||||||||||||||
Net income (loss) | — | — | — | 8,630 | — | 8,630 | (1 | ) | 8,629 | ||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 338 | 338 | (614 | ) | (276 | ) | |||||||||||||||||||||
Cash dividends paid | — | — | — | (3,373 | ) | — | (3,373 | ) | — | (3,373 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 729 | — | — | 729 | — | 729 | |||||||||||||||||||||||
Common stock activity, net | 14 | — | — | — | — | 14 | — | 14 | |||||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | 1,079 | — | — | 1,079 | (4,879 | ) | (3,800 | ) | |||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | — | (186 | ) | (186 | ) | |||||||||||||||||||||
Balance at March 31, 2016 | $ | 30,551 | $ | 24,690 | $ | 43,744 | $ | 244,418 | $ | (222,293 | ) | $ | 121,110 | $ | 4,978 | $ | 126,088 | ||||||||||||||
Net income | — | — | — | 8,627 | — | 8,627 | 534 | 9,161 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 8,474 | 8,474 | (469 | ) | 8,005 | ||||||||||||||||||||||
Cash dividends paid | — | — | — | (3,389 | ) | — | (3,389 | ) | — | (3,389 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 1,228 | — | — | 1,228 | — | 1,228 | |||||||||||||||||||||||
Common stock activity, net | 250 | — | 181 | — | — | 431 | — | 431 | |||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | — | (23 | ) | (23 | ) | |||||||||||||||||||||
Balance at June 30, 2016 | $ | 30,801 | $ | 24,690 | $ | 45,153 | $ | 249,656 | $ | (213,819 | ) | $ | 136,481 | $ | 5,020 | $ | 141,501 | ||||||||||||||
Net income | — | — | — | 10,945 | — | 10,945 | 404 | 11,349 | |||||||||||||||||||||||
Other comprehensive (loss) income | — | — | — | — | (2,023 | ) | (2,023 | ) | 99 | (1,924 | ) | ||||||||||||||||||||
Cash dividends paid | — | — | — | (3,400 | ) | — | (3,400 | ) | — | (3,400 | ) | ||||||||||||||||||||
Stock-based compensation | — | — | 1,289 | — | — | 1,289 | — | 1,289 | |||||||||||||||||||||||
Common stock activity, net | 151 | — | 597 | — | — | 748 | — | 748 | |||||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | 209 | — | — | 209 | (209 | ) | — | ||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | — | — | — | — | (172 | ) | (172 | ) | |||||||||||||||||||||
Balance at September 30, 2016 | $ | 30,952 | $ | 24,690 | $ | 47,248 | $ | 257,201 | $ | (215,842 | ) | $ | 144,249 | $ | 5,142 | $ | 149,391 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Based in Atlanta, Georgia, Crawford & Company ("Crawford" or "the Company") is the world's largest publicly listed independenta leading provider of claims management and outsourcing solutions to the risk managementinsurance companies and insurance industry, as well as to self-insured entities with an expansive global network serving clients in more than 70 countries. The Crawford Solution
Shares of the Company's two classes of common stock are traded on the New York Stock Exchange ("NYSE") under the symbols CRD-A and CRD-B, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights for the Class B Common Stock (CRD-B), and the Company's ability to pay greater cash dividends onprotections for the non-voting Class A Common Stock than(CRD-A). More information is available 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. The Company's website is
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated byof the United States Securities and Exchange Commission (the "SEC"). Accordingly, theseThese unaudited condensed consolidated financial statements do not include allomit certain notes and other financial information. Therefore, should be read in conjunction with the 2023 Form 10-K. The Condensed Consolidated Balance Sheet information presented herein as of December 31, 2023 has been derived from the audited consolidated financial statements as of that date. For further information, refer to the consolidated financial statements and footnotes required by GAAPthereto included in the Company's Form 10-K for complete financial statements. Operatingthe year ended December 31, 2023.
Due to the impact of weather activity and other macroeconomic uncertainties, the Company's operating results for the three months and nine months ended March 31, 2024 and the Company's financial position as of September 30, 2017March 31, 2024 are not necessarily indicative of the results or financial position that may be expected for the year ending December 31, 20172024 or for other future periods. The financial results from the Company's operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines, are reported and consolidated on a two-month delayed basis (fiscal year-end of October 31) as permitted by GAAP in order to provide sufficient time for accumulation of their results.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments (consisting only of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. There have been no material changes to our significant accounting policies and estimates from those disclosed in the Company's Annual Report onfinancial statements included in Form 10-K for the year ended December 31, 2016.
The Company has four reportable segments have been reclassified to conform to the current presentation. These reclassifications had no effect on the Company's reported consolidated results.consisting of North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. Significant intercompany transactions have been eliminated in consolidation.
The Company consolidates the liabilities of its deferred compensation plan and the related assets, which are held in a rabbi trust and also considered a variable interest entity ("VIE") of the Company. The rabbi trust was created to fund the liabilities of the Company's deferred compensation plan. The Company is considered the primary beneficiary of the rabbi trust because the Company directs the activities of the trust and can use the assets of the trust to satisfy the liabilities of the Company's deferred compensation plan. At September 30, 2017March 31, 2024 and December 31, 2016,2023, the liabilities of the deferred compensation plan were $7,572,000$6,439,000 and $9,385,000,$6,261,000, respectively, which represented obligations of the Company rather than of the rabbi trust, and the values of the assets held in the related rabbi trust were $16,462,000$10,256,000 and $16,227,000,$10,237,000, respectively. These liabilities and assets are included in "Other noncurrent liabilities" and "Other noncurrent assets," respectively, on the Company's unaudited Condensed Consolidated Balance Sheets.
Noncontrolling interests represent the minority shareholders' share of the net income or loss and shareholders' investment in consolidated subsidiaries. Noncontrolling interests are presented as a component of shareholders' investment in the unaudited Condensed Consolidated Balance Sheets and reflect the initial fair value of these investments by noncontrolling shareholders, along with their proportionate share of the income or loss of the subsidiaries, less any dividends or distributions. Noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' investment as "Redeemable Noncontrolling Interests" and are carried at either their initial fair value plus any profits or losses or estimated redemption value if an adjustment is required.
9
2. Business Acquisition
Improvements to Accounting for Hedging Activities
In August 2017,November 2023, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU") 2017-12, "TargetedASU 2023-07, Segment Reporting (Topic 280): Improvements to Accounting for Hedging Activities."Reportable Segment Disclosures, which requires more detailed information about a reportable segment’s expenses. The ASU was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. Additionally, the amendments in this update simplify the application of the hedge accounting guidance. The updatenew standard is effective for annualfiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted,2024, with the effect of adoption reflected as of the beginning of the fiscal year of adoption.retrospective application required. The Company is currently evaluating the effectimpact of this ASU may haveguidance on its results of operations,consolidated financial condition and cash flows. The Company is not partystatements.
Improvements to any derivative contracts.
In July 2017,December 2023, the FASB issued ASU 2017-11, "Earnings Per Share2023-09, Income Taxes (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives740): Improvements to Income Tax Disclosures, a new accounting standard to enhance the transparency and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacementdecision usefulness of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception."income tax disclosures. The ASU Part I changes the classification analysis of certain equity-linked financial instruments with down round features and the related disclosures. Part II of the amendments recharacterizes the indefinite deferral of certain provisions of Topic 480 and do not have an accounting effect. The updatenew standard is effective for annual periodsfiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect this ASU may have on its results of operations, financial condition and cash flows.
3. Revenue Recognition
Revenue from Contracts with Customers
Revenues are recognized when control of the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." Under ASU 2014-09, companies will be requiredpromised services is transferred to recognize revenue to depict the transfer of control for goods or services toCompany's customers in amountsan amount that reflectreflects the consideration to which the companyCompany expects to be entitled to in exchange for those goodsservices. Revenues are recognized net of any sales, use or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and modify guidance for multiple-element arrangements. In August 2015, the FASB issued ASU 2015-14,value added taxes collected from customers, which deferred by one year the effective date of ASU 2014-09. The one year deferral of the effective date of this standard changed the effective date for the Companyare subsequently remitted to January 1, 2018. Early adoption is permitted, but not before the original effective date. The FASB issued ASU 2016-08, "Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" in March 2016, ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing" in April 2016, ASU 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," in May 2016, and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” in December 2016. All of these amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard.
The Company's North America Loss Adjusting and International Operations segments generate revenue for adjusting services provided to insurance companies and self-insured entities related to property and casualty losses caused by physical damage to commercial and residential real property and certain types of personal property. These segments also generate revenues for claims management services provided to insurance companies and self-insured entities related to large, complex losses with technical adjusting and industry experts servicing a broad range of industries. The Company charges on a fee-per-claim basis for each optional purchase of the claims management services exercised by its customer. The Company also performs Legal Services within its International Operations segment. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services is transferred to the customer. Revenue is recognized based on the claim type for fixed fee claims applied utilizing a portfolio approach based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer. Task assignment services are single optional purchase performance obligations which are generally satisfied at a point in time when the control of the service is transferred to the customer. Therefore, revenue is recognized when the customer receives the service requested.
The following table presents North America Loss Adjusting revenues before reimbursements disaggregated by geography for the three months ended March 31, 2024 and 2023:
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
U.S. |
| $ | 53,524 |
|
| $ | 52,983 |
|
Canada |
|
| 23,841 |
|
|
| 24,614 |
|
Total North America Loss Adjusting Revenues before Reimbursements |
| $ | 77,365 |
|
| $ | 77,597 |
|
10
The following table presents International Operations revenues before reimbursements disaggregated by geography and service line for the three months ended March 31, 2024 and 2023:
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
U.K. |
| $ | 37,899 |
|
| $ | 30,732 |
|
Europe |
|
| 23,621 |
|
|
| 22,764 |
|
Australia |
|
| 17,280 |
|
|
| 20,636 |
|
Asia |
|
| 5,369 |
|
|
| 5,627 |
|
Latin America |
|
| 8,196 |
|
|
| 6,235 |
|
International Loss Adjusting |
| $ | 92,365 |
|
| $ | 85,994 |
|
|
|
|
|
|
|
| ||
Crawford Legal Services |
| $ | 5,727 |
|
| $ | 5,869 |
|
Total International Operations Revenues before Reimbursements |
| $ | 98,092 |
|
| $ | 91,863 |
|
The Company’s Broadspire segment is a third party administrator that generates revenue through its Claims Management and Medical Management service lines.
The Claims Management service line includes Workers' Compensation, Liability, Property and Disability Claims Management. This service line also performs additional services such as Accident & Health claims programs, including Affinity type claims, and disability and leave management services. Each claim referred by the customer is considered an additional optional purchase of claims management services under the agreement with the customer. The transaction price is specified in the contract and is fixed for each service. Revenue is recognized over time as services are provided as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document, and report the claim and control of these services is transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type applied utilizing a portfolio approach based on time elapsed for these claims as the Company believes this is the most accurate depiction of the transfer of claims management services to its customer. Broadspire also provides claims management services on a monthly basis for which revenue is recognized over time monthly based on claims received and staff required to complete our claim handling obligations. Broadspire also provides Risk Management Information Services and Account Administration Services and generates revenues from income earned for managing funds maintained to administer claims for its customers. For non-claim services provided in our Claims Management service line, revenue is recognized over time as services are provided and control of these services is transferred to the customer. Revenue is recognized as time elapses as this is the most accurate depiction of the transfer of the service to the customer.
The Company's obligation to manage claims under the Claims Management service line can range from less than one year, on a one- or two-year basis or for the lifetime of the claim. Under certain claims management agreements, the Company receives consideration from a customer at contract inception prior to transferring services to the customer, however, it would begin performing services immediately. The period between a customer’s payment of consideration and the completion of the promised services could be greater than one year. There is no difference between the amount of promised consideration and the cash selling price of the promised services. The fee is billed upfront by the Company in order to provide customers with simplified and predictable ways of purchasing its services and it is customary to invoice service fees when the claim is assigned. The Company considered whether a significant financing component exists and determined that there is not a significant financing component at the contract level.
The Medical Management service line offers case managers who provide administration services by proactively managing medical treatment plans for claimants while facilitating an understanding of and participation in their rehabilitation process. Revenue for Medical Management services is recognized over time as the performance obligations are satisfied through the effort expended to manage the medical treatment for claimants and control of these services is transferred to the customer. Medical Management services are generally billed based on time incurred, are considered variable consideration, and revenue is recognized at the amount in which the Company has the right to invoice for services performed. This method of revenue recognition is the most accurate depiction of the transfer of the Medical Management services to the customer. The Company also identifyingperforms medical bill review services. Medical bill review services provide an analysis of medical charges for clients’ claims to identify opportunities for savings. Medical bill review services revenues are recognized over time as control of the service is transferred to the customer. Revenue is recognized based upon the transfer of the results of the medical bill review service to the customer as this is the most accurate depiction of the transfer of the service to the customer.
11
The following table presents Broadspire revenues before reimbursements disaggregated by service line for the three months ended March 31, 2024 and preparing to implement changes2023:
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
Claims Management |
| $ | 48,398 |
|
| $ | 43,108 |
|
Medical Management |
|
| 45,900 |
|
|
| 40,946 |
|
Total Broadspire Revenues before Reimbursements |
| $ | 94,298 |
|
| $ | 84,054 |
|
The Company's Platform Solutions segment principally generates revenues through its Contractor Connection, Networks and Subrogation service lines.
The Contractor Connection service line generates revenue through its independently managed contractor network. Contractor Connection primarily generates revenue by receiving a fee for each project that is sold by its network of contractors. Revenue is recognized at a point in time once the consumer accepts the contractor's proposal as Contractor Connection’s performance obligation of referring projects to its accounting policiescontractors has been completed and disclosure requirements.the Company is entitled to consideration at that time. The contractor takes control of the service upon the consumer’s acceptance of the contractor’s proposal.
The Networks service line generates revenues for claims management services provided to insurance companies and self-insured entities related to property, casualty and catastrophic losses. Networks also generates revenue by providing on-demand inspection, verification and other task specific field services for businesses and consumers. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services is transferred to the customer. Revenue is recognized based on the claim type for fixed fee claims, applied based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer.
The Subrogation service line provides subrogation recovery and consultative services for the property and casualty insurance industry. Revenue is recognized at a point in time when the subrogation is successful and cash consideration is received.
The following table presents Platform Solutions revenues before reimbursements disaggregated by service line for the three months ended March 31, 2024 and 2023:
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
Contractor Connection |
| $ | 16,945 |
|
| $ | 19,301 |
|
Networks |
|
| 7,743 |
|
|
| 37,403 |
|
Subrogation |
|
| 7,211 |
|
|
| 6,116 |
|
Total Platform Solutions Revenues before Reimbursements |
| $ | 31,899 |
|
| $ | 62,820 |
|
In the normal course of business, the Company's segments incur certain out-of-pocket expenses that are thereafter reimbursed by its customers. The Company controls the promised good or service before it is transferred to its customer, therefore it is a principal in the transaction. These out-of-pocket expenses and associated reimbursements are reported on a gross basis within expenses and revenues, respectively, in the Company's unaudited Condensed Consolidated Statements of Operations.
Claims Management Performance Obligations
For claims management services, the Company typically has one performance obligation; however, it also provides the customer with an option to acquire additional services. The Company sells multiple lines of claims processing and different levels of processing depending on the complexity of the claims. The Company typically provides a menu of offerings from which the customer chooses to purchase at its option. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is consistent for each service irrespective of the other services or quantities requested by the customer. For example, if the ASU requires increased disclosure,Company provides claims processing for both auto and general liability, those services are priced and delivered independently. These additional services represent optional purchases of additional claims management services and do not represent arrangements with multiple performance obligations.
12
Performance-based fees
The Company, from time-to-time, entered into contracts with certain clients within its International Operations that provided for additional fee revenues or revenue reductions based on its efficiency in managing claim portfolios and on the basis of claim outcomes and the resulting average claim costs for the respective portfolios. These amounts were in addition to, or a reduction of, the fee revenues discussed above. These performance-based revenues, which represent variable consideration, were based on performance metrics set forth in turnthe underlying contracts. These were generally under multi-year contracts but with discrete individual contract year measurement periods that remained subject to adjustment until claim closure. Each period, the Company based its estimates of performance-based revenues on an individual contract year basis, which were subject to adjustment in future years based on changes in average claim costs. Accordingly, the amounts represented the Company's best estimate of amounts earned using historical averages and other factors. Because the expectation of the ultimate contingent revenue amounts to be earned could vary from period to period, these estimates could change significantly from quarter to quarter, and such adjustments could occur in future periods until the individual contract year measurement period was closed. Variable consideration was recognized when the Company concluded, based on all the facts and information available at the reporting date, that it was probable that a significant revenue reversal would not occur in future periods. During 2023, the Company completed its obligations for performance-based revenues under these contracts.
Contract Balances
The timing of revenue recognition, billings and cash collections result in billed accounts receivables, unbilled accounts receivable reported as "Unbilled revenues, at estimated billable amounts," and "Deferred revenues" on the Company’s unaudited Condensed Consolidated Balance Sheets. Unbilled revenues is expectedrecorded for revenue that has been recognized in advance of billing the customer, resulting from professional services delivered that the Company expects and is entitled to receive as consideration under certain contracts. Billing requirements vary by contract but substantially, all unbilled revenues are billed within one year.
When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain claims management agreements, it records deferred revenues on its unaudited Condensed Consolidated Balance Sheets, which represents a contract liability. These fixed-fee service agreements typically result from the Broadspire segment and require certain new processesthe Company to handle claims on either a one- or two-year basis, or for the lifetime of the claim. In cases where it handles a claim on a non-lifetime basis, the Company typically receives an additional fee on each anniversary date that the claim remains open. For service agreements where it provides services for the life of the claim, the Company is paid one upfront fee regardless of the duration of the claim. The Company recognizes deferred revenues as revenues as it performs services and system changes. transfers control of the services to the customer and satisfies the performance obligation which it determines utilizing a portfolio approach.
The Company's evaluation indicateddeferred revenues for claims handled for one or two years are not as sensitive to changes in claim closing rates since the performance obligations are satisfied within a fixed length of time. Deferred revenues for lifetime claim handling are more sensitive to changes in claim closing rates since the Company is obligated to handle these claims to conclusion with no additional fees received for long-lived claims. Deferred revenues related to lifetime claim handling arrangements approximated $40,121,000 and $39,800,000 as of March 31, 2024 and December 31, 2023, respectively. For all fixed fee service agreements, revenues are recognized over the expected service periods by type of claim. Based upon its historical averages, the Company closes approximately 99% of all cases referred to it under lifetime claim service agreements within five years from the date of referral. Also, within that processfive-year period, the percentage of cases remaining open in any one particular year has remained relatively consistent from period to period. Each quarter the Company evaluates its historical case closing rates by type of claim utilizing a portfolio approach and systemadjusts deferred revenues as necessary. As a portfolio approach is utilized to recognize deferred revenues, any changes are required to capturein estimates will impact the amounts and expected timing of revenue recognition and any changes in estimates are recognized in the period in which they are determined.
The table below presents the deferred revenues to be recognized frombalance as of January 1, 2024 and the significant activity affecting deferred revenues during the three months ended March 31, 2024:
(In Thousands) |
|
|
| |
Customer Contract Liabilities |
| Deferred |
| |
Balance at January 1, 2024 |
| $ | 60,411 |
|
Quarterly additions |
|
| 24,919 |
|
Revenue recognized from the prior periods |
|
| (15,358 | ) |
Revenue recognized from current quarter additions |
|
| (8,941 | ) |
Balance as of March 31, 2024 |
| $ | 61,031 |
|
Remaining Performance Obligations
As of March 31, 2024, the Company had $104,300,000 of remaining performance obligations duringrelated to claims and non-claims services in which the price is fixed. Remaining performance obligations consist of deferred revenues as of each reporting period andwell as certain unbilled receivables where the Companyclaims processing has completed a majority of these process and system changes at this time.not yet occurred. The Company expects to adopt this new standardrecognize approximately 72% of its remaining performance obligations as of January 1, 2018 usingrevenues within one year and the modified retrospective methodremaining balance thereafter.
13
Costs to Obtain a Contract
The Company has a sales incentive compensation program where payment is based on the revenues recognized in the period. The payment does not represent an incremental cost to the Company that may resultprovides a future benefit expected to be longer than one year and would meet the criteria to be capitalized and presented as a contract asset on the Company's unaudited Condensed Consolidated Balance Sheets.
Practical Expedients Elected
As a practical expedient, the Company does not adjust the consideration in a cumulative effectcontract for the effects of a significant financing component it expects, at contract inception, when the period between a customer’s payment of consideration and the transfer of promised services to the customer will be one year or less. For claims management services that are billed on a time and expense incurred or per unit basis, the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company does not disclose the value of remaining performance obligations for (i) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed, or (ii) contracts with variable consideration allocated entirely to a single performance obligation.
4. Credit Losses
The Company maintains an allowance for expected credit losses resulting primarily from the inability of clients to make required payments. Such losses are accounted for as bad debt expense. These allowances are established using historical write-off or adjustment information to project future experience and by considering the current creditworthiness of clients, any known specific collection problems, and an assessment of current industry and economic conditions. The Company evaluates the risks related to its trade receivables and contract assets by considering customer type, geography, and aging. Actual experience may differ significantly from historical or expected loss results. The Company writes off account receivables and unbilled revenues when they become uncollectible, and any payments subsequently received are accounted for as of the date of adoption.recoveries.
5. Income Taxes
The Company's consolidated effective income tax rate may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from the Company's various domestic and international operations, which are subject to income taxes at different rates, the Company's ability to utilize net operating loss and tax credit carryforwards, and amounts related to uncertain income tax positions. The Company estimates that its effective income tax rate for 2017 will be approximately 30% after considering known discrete items. The decrease in rate is due to certain non-recurring benefits in 2017positions and changes in the mix of income. goodwill impairments.
The provision for income taxes on consolidated income before income taxes totaled $4.9 milliona provision of $1,047,000 and $8.6 million$5,271,000 for the three months ended September 30, 2017March 31, 2024 and 2016, respectively. The provision for income taxes on consolidated income totaled $16.6 million and $20.0 million for the nine months ended September 30, 2017 and 2016,2023, respectively. The overall effective tax rate decreased to 35.7%27.4% for the ninethree months ended September 30, 2017March 31, 2024 compared with 40.7%32.9% for the 20162023 period primarily due to changes in non-recurringa larger impact of discrete tax items and mix of income year over year.resulting from lower year-over-year earnings.
6. Defined Benefit Pension Plans
Net periodic benefit cost related to all of the Company's defined benefit pension plans recognized in the Company's unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and nine months ended September 30, 2017 and
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
Service cost |
| $ | 384 |
|
| $ | 357 |
|
Interest cost |
|
| 5,746 |
|
|
| 5,939 |
|
Expected return on assets |
|
| (6,409 | ) |
|
| (6,773 | ) |
Amortization of actuarial loss |
|
| 3,186 |
|
|
| 2,978 |
|
Net periodic cost |
| $ | 2,907 |
|
| $ | 2,502 |
|
Three months ended | Nine months ended | ||||||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Service cost | $ | 333 | $ | 167 | $ | 980 | $ | 825 | |||||||
Interest cost | 5,656 | 6,726 | 16,829 | 23,298 | |||||||||||
Expected return on assets | (8,608 | ) | (8,024 | ) | (25,623 | ) | (28,782 | ) | |||||||
Amortization of actuarial loss | 2,782 | 2,911 | 8,297 | 9,729 | |||||||||||
Net periodic benefit cost | $ | 163 | $ | 1,780 | $ | 483 | $ | 5,070 |
For the nine-month periodthree months ended September 30, 2017,March 31, 2024 and 2023, the non-service components of net periodic pension expense of $2,523,000 and $2,145,000, respectively, are included in "Other Loss, net" on the unaudited Condensed Consolidated Statements of Operations. For the three months ended March 31, 2024, the Company made nocontributions of
14
7. Net Income Attributable to Shareholders of Crawford & Company per Common Share
The Company computes earnings per share of its non-voting Class A Common Stock ("CRD-A") and voting Class B Common Stock ("CRD-B") using the two-class method, which allocates the undistributed earnings in each period to each class on a proportionate basis. The Company's Board of Directors has the right, but not the obligation, to declare higher dividends on the CRD-A shares than on the CRD-B shares, subject to certain limitations. In periods when the dividend is the same for CRD-A and CRD-B or when no dividends are declared or paid to either class, the two-class method generally will yield the same earnings per share for CRD-A and CRD-B. During the first three quarters of each of 20172024 and 2016,2023, the Board of Directors has declared a higherthe same dividend on CRD-A than onand CRD-B.
The computations of basic net income attributable to shareholders of Crawford & Company per common share were as follows:
|
| Three Months Ended | ||||||
|
| March 31, |
| March 31, | ||||
(in thousands, except per share amounts) |
| CRD-A |
| CRD-B |
| CRD-A |
| CRD-B |
Earnings per share - basic: |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Allocation of undistributed earnings |
| $(365) |
| $(241) |
| $4,595 |
| $3,161 |
Dividends paid |
| 2,074 |
| 1,369 |
| 1,734 |
| 1,191 |
Net income attributable to common shareholders, basic |
| $1,709 |
| $1,128 |
| $6,329 |
| $4,352 |
|
|
|
|
|
|
|
| |
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
| 29,586 |
| 19,542 |
| 28,841 |
| 19,848 |
Earnings per share - basic |
| $0.06 |
| $0.06 |
| $0.22 |
| $0.22 |
Three months ended | Nine months ended | ||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||
(in thousands, except per share amounts) | CRD-A | CRD-B | CRD-A | CRD-B | CRD-A | CRD-B | CRD-A | CRD-B | |||||||||||||||||||
Earnings per share - basic: | |||||||||||||||||||||||||||
Numerator: | �� | ||||||||||||||||||||||||||
Allocation of undistributed earnings | $ | 4,703 | $ | 3,691 | $ | 4,195 | $ | 3,350 | $ | 10,858 | $ | 8,532 | $ | 10,003 | $ | 8,037 | |||||||||||
Dividends paid | 2,193 | 1,226 | 2,166 | 1,234 | 6,593 | 3,695 | 6,459 | 3,703 | |||||||||||||||||||
Net income attributable to common shareholders, basic | $ | 6,896 | $ | 4,917 | $ | 6,361 | $ | 4,584 | $ | 17,451 | $ | 12,227 | $ | 16,462 | $ | 11,740 | |||||||||||
Denominator: | |||||||||||||||||||||||||||
Weighted-average common shares outstanding, basic | 31,276 | 24,550 | 30,922 | 24,690 | 31,359 | 24,639 | 30,731 | 24,690 | |||||||||||||||||||
Earnings per share - basic | $ | 0.22 | $ | 0.20 | $ | 0.21 | $ | 0.19 | $ | 0.56 | $ | 0.50 | $ | 0.54 | $ | 0.48 |
The computations of diluted net income attributable to shareholders of Crawford & Company per common share were as follows:
|
| Three Months Ended |
| |||||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(in thousands, except per share amounts) |
| CRD-A |
|
| CRD-B |
|
| CRD-A |
|
| CRD-B |
| ||||
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Allocation of undistributed earnings |
| $ | (368 | ) |
| $ | (238 | ) |
| $ | 4,614 |
|
| $ | 3,142 |
|
Dividends paid |
|
| 2,074 |
|
|
| 1,369 |
|
|
| 1,734 |
|
|
| 1,191 |
|
Net income attributable to common shareholders, diluted |
| $ | 1,706 |
|
| $ | 1,131 |
|
| $ | 6,348 |
|
| $ | 4,333 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common shares outstanding, basic |
|
| 29,586 |
|
|
| 19,542 |
|
|
| 28,841 |
|
|
| 19,848 |
|
Weighted-average effect of dilutive securities |
|
| 693 |
|
|
| — |
|
|
| 300 |
|
| — |
| |
Weighted-average common shares outstanding, diluted |
|
| 30,279 |
|
|
| 19,542 |
|
|
| 29,141 |
|
|
| 19,848 |
|
Earnings per share - diluted |
| $ | 0.06 |
|
| $ | 0.06 |
|
| $ | 0.22 |
|
| $ | 0.22 |
|
Three months ended | Nine months ended | ||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||
(in thousands, except per share amounts) | CRD-A | CRD-B | CRD-A | CRD-B | CRD-A | CRD-B | CRD-A | CRD-B | |||||||||||||||||||
Earnings per share - diluted: | |||||||||||||||||||||||||||
Numerator: | |||||||||||||||||||||||||||
Allocation of undistributed earnings | $ | 4,756 | $ | 3,638 | $ | 4,239 | $ | 3,306 | $ | 10,978 | $ | 8,412 | $ | 10,071 | $ | 7,969 | |||||||||||
Dividends paid | 2,193 | 1,226 | 2,166 | 1,234 | 6,593 | 3,695 | 6,459 | 3,703 | |||||||||||||||||||
Net income attributable to common shareholders, diluted | $ | 6,949 | $ | 4,864 | $ | 6,405 | $ | 4,540 | $ | 17,571 | $ | 12,107 | $ | 16,530 | $ | 11,672 | |||||||||||
Denominator: | |||||||||||||||||||||||||||
Weighted-average common shares outstanding, basic | 31,276 | 24,550 | 30,922 | 24,690 | 31,359 | 24,639 | 30,731 | 24,690 | |||||||||||||||||||
Weighted-average effect of dilutive securities | 821 | — | 743 | — | 797 | — | 469 | — | |||||||||||||||||||
Weighted-average common shares outstanding, diluted | 32,097 | 24,550 | 31,665 | 24,690 | 32,156 | 24,639 | 31,200 | 24,690 | |||||||||||||||||||
Earnings per share - diluted | $ | 0.22 | $ | 0.20 | $ | 0.20 | $ | 0.18 | $ | 0.55 | $ | 0.49 | $ | 0.53 | $ | 0.47 |
Listed below are the shares excluded from the denominator in the abovepreceding computation of diluted earnings per share for CRD-A because their inclusion would have been antidilutive:
|
| Three Months Ended | ||
(in thousands) |
| March 31, |
| March 31, |
Shares underlying stock options excluded |
| — |
| 1,532 |
Performance stock grants excluded because performance conditions have not been met (1) |
| 1,100 |
| 758 |
(1) Compensation cost is recognized for these performance stock grants based on expected achievement rates; however, no consideration is given to these performance stock grants when calculating diluted earnings per share until the performance measurements have been achieved.
15
Three months ended | Nine months ended | ||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||
Shares underlying stock options excluded | 729 | 50 | 692 | 70 | |||||||
Performance stock grants excluded because performance conditions have not been met (1) | 201 | 895 | 201 | 895 |
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
CRD-A issued under the Non-Employee Director Stock Plan |
|
| 71 |
|
|
| 134 |
|
CRD-A issued under the Employee Stock Purchase Plan |
|
| 32 |
|
|
| 27 |
|
Three months ended | Nine months ended | ||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||
CRD-A issued under Non-Employee Director Stock Plan | 9 | 2 | 99 | 121 | |||||||
CRD-A issued under the Employee Stock Purchase Plan | 102 | 119 | 102 | 119 | |||||||
CRD-A issued under the U.K. ShareSave Scheme | 4 | 10 | 63 | 151 | |||||||
CRD-A issued under the International Employee Stock Purchase Plan | 8 | 7 | 8 | 7 | |||||||
CRD-A issued under the Executive Stock Bonus Plan | — | 13 | 107 | 17 | |||||||
CRD-A issued under the 2016 Omnibus Stock and Incentive Plan | 75 | — | 137 | — |
Effective November 4, 2021, the Company with the ability to repurchase up to 2,000,000 shares of CRD-A or CRD-B (or both). The 2014 Repurchase Authorization was terminated on July 28, 2017.
During the three months ended September 30, 2017, the Company repurchased 193,527 shares of CRD-A, of which 75,000 shares were repurchased prior to July 29, 2017, under the 2014 Repurchases Authorization and 127,100 shares of CRD-B, of which 74,890 shares were repurchased under the 2014 Repurchase Authorization prior to July 29, 2017, at an average cost of $7.77 and $8.87, respectively. During the three months ended September 30, 2016March 31, 2024, the Company did notnot repurchase any shares of CRD-A or CRD-B. During the nine months ended September 30, 2017, the Companyand repurchased 549,847 shares of CRD-A and 175,58885,632 shares of CRD-B at an average cost of $8.19 and $8.89, respectively.$8.56. During the ninethree months ended September 30, 2016March 31, 2023, the Company did notnot repurchase any shares of CRD-A or CRD-B.
8. Accumulated Other Comprehensive Loss
Comprehensive (loss) income (loss) for the Company consists of the total of net income, foreign currency translation adjustments, and accrued pension and retiree medical liability adjustments. Foreign currency translation adjustments include the net realized gains from intra-entity loans that are long-term in nature of $822,000 for the three months ended March 31, 2024. The changes in components of "Accumulated other comprehensive loss" ("AOCL"), net of taxes and noncontrolling interests, included in the Company's unaudited condensed consolidated financial statements were as follows:
|
| Three Months Ended March 31, 2024 |
|
| |||||||||
(in thousands) |
| Foreign |
|
| Retirement |
|
| AOCL |
|
| |||
Beginning balance |
| $ | (49,486 | ) |
| $ | (169,129 | ) |
| $ | (218,615 | ) |
|
Other comprehensive income before reclassifications |
|
| 1,264 |
|
|
| — |
|
|
| 1,264 |
|
|
Amounts reclassified from accumulated other comprehensive income to net income |
|
| — |
|
|
| 2,559 |
|
|
| 2,559 |
|
|
Net current period other comprehensive income |
|
| 1,264 |
|
|
| 2,559 |
|
|
| 3,823 |
|
|
Ending balance |
| $ | (48,222 | ) |
| $ | (166,570 | ) |
| $ | (214,792 | ) |
|
|
| Three Months Ended March 31, 2023 |
| |||||||||
(in thousands) |
| Foreign |
|
| Retirement |
|
| AOCL |
| |||
Beginning balance |
| $ | (52,581 | ) |
| $ | (162,740 | ) |
| $ | (215,321 | ) |
Other comprehensive income before reclassifications |
|
| 7,732 |
|
|
| — |
|
|
| 7,732 |
|
Amounts reclassified from accumulated other comprehensive income to net income |
|
| — |
|
|
| 2,086 |
|
|
| 2,086 |
|
Net current period other comprehensive income |
|
| 7,732 |
|
|
| 2,086 |
|
|
| 9,818 |
|
Ending balance |
| $ | (44,849 | ) |
| $ | (160,654 | ) |
| $ | (205,503 | ) |
(1)Retirement liabilities reclassified to net income are related to the amortization of actuarial losses and are included in "Other Loss, net" in the Company's unaudited Condensed Consolidated Statements of Operations. See Note 6, "Defined Benefit Pension Plans" for additional details.
16
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||||||||||||
(in thousands) | Foreign currency translation adjustments | Retirement liabilities (1) | AOCL attributable to shareholders of Crawford & Company | Foreign currency translation adjustments | Retirement liabilities (1) | AOCL attributable to shareholders of Crawford & Company | |||||||||||||||||
Beginning balance | $ | (31,234 | ) | $ | (174,791 | ) | $ | (206,025 | ) | $ | (33,449 | ) | $ | (178,324 | ) | $ | (211,773 | ) | |||||
Other comprehensive income before reclassifications | 7,000 | — | 7,000 | 9,215 | — | 9,215 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 1,745 | 1,745 | — | 5,278 | 5,278 | |||||||||||||||||
Net current period other comprehensive income | 7,000 | 1,745 | 8,745 | 9,215 | 5,278 | 14,493 | |||||||||||||||||
Ending balance | $ | (24,234 | ) | $ | (173,046 | ) | $ | (197,280 | ) | $ | (24,234 | ) | $ | (173,046 | ) | $ | (197,280 | ) | |||||
Three months ended September 30, 2016 | Nine months ended September 30, 2016 | ||||||||||||||||||||||
(in thousands) | Foreign currency translation adjustments | Retirement liabilities (1) | AOCL attributable to shareholders of Crawford & Company | Foreign currency translation adjustments | Retirement liabilities (1) | AOCL attributable to shareholders of Crawford & Company | |||||||||||||||||
Beginning balance | $ | (19,817 | ) | $ | (194,002 | ) | $ | (213,819 | ) | $ | (24,347 | ) | $ | (198,284 | ) | $ | (222,631 | ) | |||||
Other comprehensive (loss) income before reclassifications | (4,194 | ) | — | (4,194 | ) | 336 | — | 336 | |||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 2,171 | 2,171 | — | 6,453 | 6,453 | |||||||||||||||||
Net current period other comprehensive (loss) income | (4,194 | ) | 2,171 | (2,023 | ) | 336 | 6,453 | 6,789 | |||||||||||||||
Ending balance | $ | (24,011 | ) | $ | (191,831 | ) | $ | (215,842 | ) | $ | (24,011 | ) | $ | (191,831 | ) | $ | (215,842 | ) | |||||
9. Fair Value Measurements
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis and that are categorized using the fair value hierarchy:
Fair Value Measurements at September 30, 2017 | |||||||||||||||
Significant Other | Significant | ||||||||||||||
Quoted Prices in | Observable | Unobservable | |||||||||||||
Active Markets | Inputs | Inputs | |||||||||||||
(in thousands) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||
Assets: | |||||||||||||||
Money market funds (1) | $ | 10,127 | $ | 10,127 | $ | — | $ | — | |||||||
|
|
|
|
| Fair Value Measurements at March 31, 2024 |
| ||||||||||
|
|
|
|
|
|
|
| Significant Other |
|
| Significant |
| ||||
|
|
|
|
| Quoted Prices in |
|
| Observable |
|
| Unobservable |
| ||||
|
|
|
|
| Active Markets |
|
| Inputs |
|
| Inputs |
| ||||
(in thousands) |
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds (1) |
| $ | 10,842 |
|
| $ | 10,842 |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent earnout liability (2) |
| $ | 5,917 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,917 |
|
(1) The fair values of the money market funds were based on recently quoted market prices and reported transactions in an active marketplace. Money market funds are included in the Company's unaudited Condensed Consolidated Balance Sheets as "Cash and cash equivalents."
(2) The Level 3 fair value of the contingent earnout liability was estimated using internally-prepared revenue and EBITDA projections, and discount rates determined using a combination of observable and unobservable market data updated quarterly based on changes to projections of acquired entities over the respective earnout periods, which span multiple years. The Company recognized a pretax contingent earnout expense totaling $151,000 and $248,000 in the three months ended March 31, 2024 and March 31, 2023, respectively, related to the fair value adjustment of earnout liabilities. The fair value of the contingent earnout liability is included in "Other accrued liabilities" and "Other noncurrent liabilities" on the Company's unaudited Condensed Consolidated Balance Sheets, based upon the term of the contingent earnout agreement.
Fair Value Disclosures
There were no transfers of assets between fair value levels during the three months or nine months ended September 30, 2017.March 31, 2024. The categorization of assets and liabilities within the fair value hierarchy and the measurement techniques are reviewed quarterly. Any transfers between levels are deemed to have occurred at the end of the quarter.
The fair values of accounts receivable, unbilled revenues, accounts payable and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The interest rate on the Company's variable rate long-term debt resets at least every 90 days;days; therefore, the recorded value approximates fair value.
Nonrecurring Fair Value Disclosures
Goodwill is an asset that represents the excess of the purchase price over the fair value of the separately identifiable net assets (tangible and intangible) acquired in certain business combinations. Indefinite-lived intangible assets consist of trade names associated with acquired businesses. Goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing at least annually. Other long-lived assets consist primarily of property and equipment, capitalized software, and amortizable intangible assets related to customer relationships, technology, and trade names with finite lives. Other long-lived assets are evaluated for impairment when impairment indicators are identified.
Goodwill is tested for impairment on October 1st of each year, or between annual impairment tests, if events or circumstances have occurred which indicate potential impairment of goodwill. When testing for impairment, the carrying value approximatesof each reporting unit, including goodwill, is compared with the estimated fair value.value of the respective reporting unit as determined utilizing a combination of the income and market approaches and is classified in Level 3 of the fair value hierarchy.
There were no goodwill impairments in 2023. The Company did not identify any impairment indicators during the three months ended March 31, 2024.
17
10. Segment Information
The Company has four reportable segments consisting of North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. The Company's reportable segments are comprised of the following:
The Platform Solutions reportable segment represents the aggregation of certain service line operating segments.
Effective January 1, 2024, the Company combined the operating segments within North America Loss Adjusting and International Operations, and accordingly, there are no operating segments within these reportable segments to aggregate.
Financial information for the three months ended March 31, 2024 and nine months ended September 30, 2017 and 20162023 related to the Company's reportable segments, including a reconciliation from segment operating earnings to income before income taxes, the most directly comparable GAAP financial measure, is presented below.below:
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
Revenues: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 77,365 |
|
| $ | 77,597 |
|
International Operations |
|
| 98,092 |
|
|
| 91,863 |
|
Broadspire |
|
| 94,298 |
|
|
| 84,054 |
|
Platform Solutions |
|
| 31,899 |
|
|
| 62,820 |
|
Total segment revenues before reimbursements |
|
| 301,654 |
|
|
| 316,334 |
|
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
Total revenues |
| $ | 313,073 |
|
| $ | 327,938 |
|
|
|
|
|
|
| |||
Segment Operating Earnings: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 4,479 |
|
| $ | 8,065 |
|
International Operations |
|
| 1,690 |
|
|
| 3,035 |
|
Broadspire |
|
| 12,804 |
|
|
| 7,927 |
|
Platform Solutions |
|
| 1,115 |
|
|
| 9,966 |
|
Total segment operating earnings |
|
| 20,088 |
|
|
| 28,993 |
|
|
|
|
|
|
| |||
Deduct: |
|
|
|
|
|
| ||
Unallocated corporate and shared costs, net |
|
| (8,007 | ) |
|
| (4,119 | ) |
Net corporate interest expense |
|
| (3,596 | ) |
|
| (4,399 | ) |
Stock option expense |
|
| (167 | ) |
|
| (156 | ) |
Amortization of acquisition-related intangible assets |
|
| (1,868 | ) |
|
| (1,899 | ) |
Contingent earnout adjustments |
|
| (151 | ) |
|
| (248 | ) |
Non-service pension costs |
|
| (2,473 | ) |
|
| (2,171 | ) |
Income before income taxes |
| $ | 3,826 |
|
| $ | 16,001 |
|
18
Three months ended | Nine months ended | ||||||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Revenues: | |||||||||||||||
U.S. Services | $ | 63,052 | $ | 56,530 | $ | 184,843 | $ | 173,969 | |||||||
International | 110,784 | 120,950 | 331,019 | 360,425 | |||||||||||
Broadspire | 76,683 | 76,676 | 231,544 | 227,975 | |||||||||||
Garden City Group | 20,032 | 23,130 | 59,659 | 74,494 | |||||||||||
Total segment revenues before reimbursements | 270,551 | 277,286 | 807,065 | 836,863 | |||||||||||
Reimbursements | 16,115 | 18,101 | 43,103 | 47,101 | |||||||||||
Total revenues | $ | 286,666 | $ | 295,387 | $ | 850,168 | $ | 883,964 | |||||||
Segment Operating Earnings (Loss): | |||||||||||||||
U.S. Services | $ | 9,537 | $ | 9,354 | $ | 26,187 | $ | 27,943 | |||||||
International | 10,165 | 13,460 | 29,682 | 31,867 | |||||||||||
Broadspire | 8,240 | 8,263 | 24,235 | 23,497 | |||||||||||
Garden City Group | 188 | 2,152 | (2,267 | ) | 5,982 | ||||||||||
Total segment operating earnings | 28,130 | 33,229 | 77,837 | 89,289 | |||||||||||
Deduct: | |||||||||||||||
Unallocated corporate and shared (costs) and credits, net | (4,078 | ) | (6,947 | ) | (6,333 | ) | (17,454 | ) | |||||||
Net corporate interest expense | (2,524 | ) | (2,262 | ) | (6,674 | ) | (7,553 | ) | |||||||
Stock option expense | (468 | ) | (176 | ) | (1,342 | ) | (403 | ) | |||||||
Amortization of customer-relationship intangible assets | (2,737 | ) | (2,401 | ) | (8,235 | ) | (7,280 | ) | |||||||
Restructuring and special charges | (1,431 | ) | (1,488 | ) | (8,818 | ) | (7,431 | ) | |||||||
Income before income taxes | $ | 16,892 | $ | 19,955 | $ | 46,435 | $ | 49,168 |
Operating earnings is the primary financial performance measure used by the Company's senior management and chief operating decision maker ("CODM") to evaluate the financial performance of the Company's
Segment operating earnings includes allocations of certain corporate and shared costs. If the Company changes its allocation methods or changes the types of costs that are allocated to its
four operating segments, prior period amounts presented in the current period financial statements are adjusted to conform to the current allocation process.Intersegment transactions are not material for any period presented. Certain of the Company’s reportable segments represent the aggregation of certain business units which represent separate operating segments.
Revenues before reimbursements by major service line in the U.S. Services segmentInternational Operations, Broadspire and the Broadspire segmentPlatform Solutions segments are shown in the following table. It is not practicable to provide revenues by service line for the International segment. The Company considers all Garden City GroupNorth America Loss Adjusting revenues to be primarily derived from one service line.
|
| Three Months Ended |
| |||||
(in thousands) |
| March 31, |
|
| March 31, |
| ||
International Operations |
|
|
|
|
|
| ||
International Loss Adjusting |
| $ | 92,365 |
|
| $ | 85,994 |
|
Crawford Legal Services |
|
| 5,727 |
|
|
| 5,869 |
|
Total Revenues before Reimbursements--International Operations |
| $ | 98,092 |
|
| $ | 91,863 |
|
|
|
|
|
|
|
| ||
Broadspire |
|
|
|
|
|
| ||
Claims Management |
| $ | 48,398 |
|
| $ | 43,108 |
|
Medical Management |
|
| 45,900 |
|
|
| 40,946 |
|
Total Revenues before Reimbursements--Broadspire |
| $ | 94,298 |
|
| $ | 84,054 |
|
|
|
|
|
|
|
| ||
Platform Solutions |
|
|
|
|
|
| ||
Contractor Connection |
| $ | 16,945 |
|
| $ | 19,301 |
|
Networks |
|
| 7,743 |
|
|
| 37,403 |
|
Subrogation |
|
| 7,211 |
|
|
| 6,116 |
|
Total Revenues before Reimbursements--Platform Solutions |
| $ | 31,899 |
|
| $ | 62,820 |
|
Three months ended | Nine months ended | ||||||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
U.S. Services | |||||||||||||||
Claims Field Operations | $ | 22,596 | $ | 21,657 | $ | 65,965 | $ | 62,363 | |||||||
Technical Services | 7,990 | 7,127 | 22,123 | 21,056 | |||||||||||
Catastrophe Services | 12,016 | 9,198 | 33,806 | 35,153 | |||||||||||
Subtotal U.S. Claims Services | 42,602 | 37,982 | 121,894 | 118,572 | |||||||||||
Contractor Connection | 18,270 | 18,548 | 56,611 | 55,397 | |||||||||||
WeGoLook | 2,180 | — | 6,338 | — | |||||||||||
Total Revenues before Reimbursements--U.S. Services | $ | 63,052 | $ | 56,530 | $ | 184,843 | $ | 173,969 | |||||||
Broadspire | |||||||||||||||
Medical Management Services | 40,395 | 41,149 | 121,754 | 121,433 | |||||||||||
Workers' Compensation, Disability and Liability Claims Management | 32,656 | 32,028 | 99,245 | 95,910 | |||||||||||
Risk Management Information Services | 3,632 | 3,499 | 10,545 | 10,632 | |||||||||||
Total Revenues before Reimbursements--Broadspire | $ | 76,683 | $ | 76,676 | $ | 231,544 | $ | 227,975 |
11. Commitments and Contingencies
As part of the Company's credit facility, the Company maintains a letter of credit facility to satisfy certain of its own contractual requirements. At September 30, 2017,On March 31, 2024, the aggregate committed amount of letters of credit outstanding under the credit facility was $14,470,000.
In the normal course of its business, the Company is sometimes named as a defendant or responsible party in suits or other actions by insureds or claimants contesting decisions made by the Company or its clients with respect to the settlement of claims. Additionally, certain clients of the Company have in the past brought, and may, in the future bring, claims for indemnification on the basis of alleged actions by the Company, its agents, or its employees in rendering services to clients. The majority of these claims are of the type covered by insurance maintained by the Company. However, the Company is responsible for the deductibles and self-insured retentions under various insurance coverages. In the opinion of Company management, adequate provisions have been made for such known and foreseeable risks. However, given the inherent unpredictability of litigation and disputes related to these matters, it is possible an adverse outcome or settlement, if not covered by insurance, could have a material effect on the Company's results of operations, financial position, or cash flows.
19
The Company is subject to numerous federal, state, and foreign labor, employment, worker health and safety, antitrust and competition, environmental and consumer protection, import/export, anti-corruption, and other laws, and fromlaws. From time to time the Company faces claims and investigations by employees, former employees, and governmental entities under such laws.laws or employment contracts with such employees or former employees. In addition, the Company may on occasion be engaged in disputes with certain of its clients, vendors or other trading partners. Such claims, investigations, negotiations, and any litigation involving the Company could divert management's time and attention from the Company's business operations and could potentially result in substantial costs of defense, settlement or other disposition, which could have a material adverse effect on the Company's results of operations, financial position, and cash flows. In the opinion of Company management, adequate provisions have been made for any items that are probable and reasonably estimable.
12. Cash and Special Charges
Cash and special charges for thecash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. The fair value of cash and nine months ended September 30, 2017 were $1,431,000cash equivalents approximates carrying value due to their short-term nature. Cash balances that are legally restricted as to usage or withdrawal are separately included in "Prepaid expenses and $8,818,000, respectively.
Three months ended | Nine months ended | ||||||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Implementation and phase-in of the Centers | $ | 91 | $ | 775 | $ | 314 | $ | 3,177 | |||||||
Restructuring and integration costs | 741 | 586 | 7,457 | 2,189 | |||||||||||
Asset impairments and lease termination costs | 599 | — | 1,047 | 1,165 | |||||||||||
Total restructuring charges | $ | 1,431 | $ | 1,361 | $ | 8,818 | $ | 6,531 | |||||||
(In thousands) |
| March 31, 2024 |
|
| December 31, 2023 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Cash and cash equivalents |
| $ | 45,196 |
|
| $ | 58,363 |
|
| $ | 43,304 |
|
| $ | 46,007 |
|
Restricted cash within prepaid expenses and other current assets |
|
| 1,463 |
|
|
| 1,182 |
|
|
| 637 |
|
|
| 638 |
|
Total cash, cash equivalents and restricted cash |
| $ | 46,659 |
|
| $ | 59,545 |
|
| $ | 43,941 |
|
| $ | 46,645 |
|
The
13. Client Funds
The Company maintains funds in custodial accounts at financial institutions to administer claims for certain clients. These funds are not available for the Company's general operating activities and, as such, have not been recorded in the accompanying unaudited Condensed Consolidated Balance Sheets. The amount of these costs toSeptember 30, 2017 were as follows:funds totaled $508,474,000 and $494,329,000 at March 31, 2024 and December 31, 2023, respectively.
20
Three months ended September 30, 2017 | ||||||||||||||||||||
(in thousands) | Deferred rent | Accrued compensation and related costs | Accounts payable | Other accrued liabilities | Total | |||||||||||||||
Beginning balance, June 30, 2017 | $ | 2,241 | $ | 5,196 | $ | — | $ | 1,069 | $ | 8,506 | ||||||||||
Additions | 348 | — | 734 | 101 | 248 | 1,431 | ||||||||||||||
Adjustments to accruals | (300 | ) | — | — | — | (300 | ) | |||||||||||||
Cash payments | — | (2,733 | ) | (81 | ) | (545 | ) | (3,359 | ) | |||||||||||
Ending balance, September 30, 2017 | $ | 2,289 | $ | 3,197 | $ | 20 | $ | 772 | $ | 6,278 | ||||||||||
Nine months ended September 30, 2017 | ||||||||||||||||||||
(in thousands) | Deferred rent | Accrued compensation and related costs | Accounts payable | Other accrued liabilities | Total | |||||||||||||||
Beginning balance, December 31, 2016 | $ | 3,066 | $ | 1,525 | $ | 617 | $ | 1,949 | $ | 7,157 | ||||||||||
Additions | 348 | — | 7,567 | 195 | 708 | 8,818 | ||||||||||||||
Adjustments to accruals | (1,125 | ) | — | — | (431 | ) | (1,556 | ) | ||||||||||||
Cash payments | — | (5,895 | ) | (792 | ) | (1,454 | ) | (8,141 | ) | |||||||||||
Ending balance, September 30, 2017 | $ | 2,289 | $ | 3,197 | $ | 20 | $ | 772 | $ | 6,278 | ||||||||||
Report of legal and professional fees.
To the Company, its subsidiaries Crawford & Company Risk Services Investments Limited, Crawford & Company (Canada) Inc. and Crawford & Company (Australia) Pty. Ltd. (the Company, together with such subsidiaries, as borrowers (the "Borrowers")), Wells Fargo Bank, National Association, as administrative agent and a lender ("Wells Fargo"), Bank of America, N.A., as syndication agent and a lender, Citizens Bank, N.A., as documentation agent and a lender, and the other lenders party thereto, entered into an Amended and Restated Credit Agreement (the "Amended and Restated Credit Agreement"), which amended and restated that certain Credit Agreement, dated as of December 8, 2011, by and among, inter alia, the Borrowers, Wells Fargo and the other lenders from time to time party thereto (as previously amended, the "Original Credit Agreement"). In connection with the Amended and Restated Credit Agreement, the Company, the Company’s guarantor subsidiaries party thereto and Wells Fargo entered into an Amended and Restated Pledge and Security Agreement (the "Amended and Restated Pledge and Security Agreement") and an Amended and Restated Guaranty Agreement ( the "Amended and Restated Guaranty Agreement"), each dated as of the date of the Amended and Restated Credit Agreement.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Crawford & Company (the Company) as of September 30, 2017, andMarch 31, 2024, the related condensed consolidated statements of operations and comprehensive income, and shareholders' investment for the three-month and nine-month periods ended September 30, 2017 and
We conducted our reviewhave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2023, the related consolidated statements of operations, comprehensive income, shareholders’ investment and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 4, 2024, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial informationstatements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
May 1, 2024
Atlanta, Georgia
21
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of OperationsCautionary Statement Concerning Forward-Looking Statements
This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Statements contained in this report that are not statements of historical fact are forward-looking statements made pursuant to the "safe harbor" provisions thereof. 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 from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, expectations regarding the timing, costs and synergies from our global business and technology services centers and our other long-term capital resource and liquidity requirements. These statements may also relate to our business strategies, goals and expectations concerning our market position, future operations, margins, case and project volumes, profitability, contingencies, liquidity position, and capital resources. The words "anticipate", "believe", "could", "would", "should", "estimate", "expect", "intend", "may", "plan", "goal", "strategy", "predict", "project", "will" and similar terms and phrases, or the negatives thereof, identify forward-looking statements contained in this report.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations and the forward-looking statements related to our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially adversely affect our financial condition and results of operations, and whether the forward-looking statements ultimately prove to be correct. Included among the risks and uncertainties we face are risks related to the following:
22
As a result, undue reliance should not be placed on any forward-looking statements. Actual results and trends in the future may differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements speak only as of the date they are made and we undertake no obligation to publicly update any of these forward-looking statements in light of new information or future events.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with 1)(i) our unaudited condensed consolidated financial statements and accompanying notes thereto for the three months ended March 31, 2024 and nine months ended September 30, 2017 and
Results of Operations
Consolidated revenues before reimbursements decreased $6.7$14.7 million, or 2.4%(4.6)%, for the three months ended September 30, 2017 and $29.8 million or 3.6% for the nine months ended September 30, 2017March 31, 2024, compared with the same periodsperiod of
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||
|
|
|
|
| Based on exchange rates for the three months ended March 31, 2023 |
| ||||||||||||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
|
| March 31, |
|
| % Variance |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
North America Loss Adjusting |
| $ | 77,365 |
|
| $ | 77,597 |
|
|
| (0.3 | )% |
| $ | 77,330 |
|
|
| (0.3 | )% |
International Operations |
|
| 98,092 |
|
|
| 91,863 |
|
|
| 6.8 | % |
|
| 97,208 |
|
|
| 5.8 | % |
Broadspire |
|
| 94,298 |
|
|
| 84,054 |
|
|
| 12.2 | % |
|
| 94,298 |
|
|
| 12.2 | % |
Platform Solutions |
|
| 31,899 |
|
|
| 62,820 |
|
|
| (49.2 | )% |
|
| 31,899 |
|
|
| (49.2 | )% |
Total revenues before reimbursements |
|
| 301,654 |
|
|
| 316,334 |
|
|
| (4.6 | )% |
|
| 300,735 |
|
|
| (4.9 | )% |
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
|
| (1.6 | )% |
|
| 11,309 |
|
|
| (2.5 | )% |
Total Revenues |
| $ | 313,073 |
|
| $ | 327,938 |
|
|
| (4.5 | )% |
| $ | 312,044 |
|
|
| (4.8 | )% |
Excluding foreign currency impacts, consolidated revenues before reimbursements decreased $15.6 million, or (4.9)%, for the three months ended March 31, 2024 compared to the prior year periods. Changes in foreign exchange rates reduced revenuesfirst quarter. Revenues from the North America Loss Adjusting segment decreased slightly in the 2024 first quarter due to a decrease in weather-related activity. Revenues from the International Operations segment increased in the 2024 first quarter primarily due to increases in the U.K., Europe, and Latin America, partially offset by $1.0 milliona reduction in Australia. Revenues from the Broadspire segment increased for the quarter due to an increase in Claims and Medical Management revenues. Revenues from the Platform Solutions segment decreased in the first quarter primarily due to a reduction in our Networks service line as we were completing claims related to Hurricane Ian in the 2023 period.
Overall, there was a decrease in cases received of (4.0)% for the three months ended September 30, 2017March 31, 2024 due to a reduction of approximately 22,100 high-frequency, low-severity cases in our North America Loss Adjusting and $12.7 millionPlatform Solutions operating segments that were present in the 2023 first quarter that generated minimal revenues in the 2023 period. This includes 10,300 cases received in our North America Loss Adjusting segment in the 2023 first quarter related to Contractor Connection in Canada, as well as 11,800 cases received in our Platform Solutions segment in the 2023 first quarter related to the Networks service line.
Cases received are presented below by segment for the ninethree months ended September 30, 2017 as comparedMarch 31, 2024 and 2023:
|
| Three Months Ended | ||||
(whole numbers, except percentages) |
| March 31, |
| March 31, |
| Variance |
North America Loss Adjusting |
| 61,937 |
| 73,002 |
| (15.2)% |
International Operations |
| 135,652 |
| 126,483 |
| 7.2% |
Broadspire |
| 135,698 |
| 128,722 |
| 5.4% |
Platform Solutions |
| 76,270 |
| 98,490 |
| (22.6)% |
Total Crawford Cases Received |
| 409,557 |
| 426,697 |
| (4.0)% |
23
To illustrate exposure to the prior year periods.
|
|
|
| Three Months Ended | ||||||
|
|
|
| March 31, 2024 |
| March 31, 2023 | ||||
(in thousands) |
|
|
| USD equivalent |
| % of total |
| USD equivalent |
| % of total |
U.S. |
| USD |
| $179,721 |
| 59.6% |
| $199,857 |
| 63.2% |
U.K. |
| GBP |
| 40,255 |
| 13.4% |
| 33,124 |
| 10.5% |
Canada |
| CAD |
| 23,841 |
| 7.9% |
| 24,614 |
| 7.8% |
Australia |
| AUD |
| 19,661 |
| 6.5% |
| 22,994 |
| 7.2% |
Europe |
| EUR |
| 14,885 |
| 4.9% |
| 14,038 |
| 4.4% |
Rest of World |
|
|
| 23,291 |
| 7.7% |
| 21,707 |
| 6.9% |
Total Revenues, before reimbursements |
|
|
| $301,654 |
|
|
| $316,334 |
|
|
Costs of services provided, before reimbursements, decreased $1.5$12.7 million, or 1%5.6%, for the three months ended September 30, 2017 and $24.4 million or 4.1% for the nine months ended September 30, 2017March 31, 2024 as compared with the same periods of 2016. These decreases were2023 period. This decrease was primarily due to decreasesa decrease in professional feescompensation expense and compensationother costs in our International and Garden City Group segments and decreases in non-employee labor costs in our International, Broadspire, and Garden City Group segments, partially offset by an increase in costs in our U.S. Servicesthe Platform Solutions segment resulting from the acquisition of WeGoLooklower revenues, partially offset by increases in compensation expense and start-upother costs in our three other operating segments.
Selling, general, and administrative expenses increased $10.6 million, or 15.9%, in the three months ended September 30, 2017 to mobilize staff in areas affected by hurricane activity
Restructuring Charges | Three months ended | Nine months ended | |||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||
Implementation and phase-in of the Centers | $ | 91 | $ | 775 | $ | 314 | $ | 3,177 | |||||
Restructuring and integration costs | 741 | 586 | 7,457 | 2,189 | |||||||||
Asset impairments and lease termination costs | 599 | — | 1,047 | 1,165 | |||||||||
Total restructuring charges | $ | 1,431 | $ | 1,361 | $ | 8,818 | $ | 6,531 | |||||
Operating Earnings of our Operating Segments
We believe that a discussion and analysis of the segment operating earnings of our four operating segments is helpful in understanding the results of our operations. Operating earnings is our segment measure of profitability presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting." Operating earnings is the primary financial performance measure used by our senior management and CODM to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions.
We believe operating earnings is a measure that is useful tofor others in that it allows them to evaluate segment operating performance using the same criteria used by our senior management and CODM. Segment operating earnings representrepresents 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-relationshipacquisition-related intangible assets, restructuring and special charges,contingent earnout adjustments, non-service pension costs, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Administrative functions such as finance, human resources, information technology, quality and compliance, are embeddedexist both in those locations and are considered direct costs of those operations. For our domestic operations (primarily Broadspire and the U.S. Services segments), we have a centralized shared-servicesshared-service arrangement for mostand within certain operations. Each of these administrative functions is managed by centralized management and we allocate the costs of those services is allocated to the segments as indirect costs based on usage. Although some of the
Gross profit is defined as segment revenues, less segment direct costs, which exclude centralized indirect administrative services in our shared-services center benefit, and aresupport costs allocated to the other operating segments, the majority of these shared services are allocated to the Broadspire and U.S. Services segments.
Income taxes, net corporate interest expense, stock option expense, and amortization of customer-relationshipacquisition-related intangible assets, contingent earnout adjustments, and non-service pension costs are recurring components of our net income, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income taxes are calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Contingent earnout adjustments represent fair value adjustments of earnout liabilities arising from recent acquisitions. Amortization expense is a non-cash expense for finite-lived customer-relationshipacquisition-related and trade name intangible assets acquired in business combinations. Non-service pension costs represent the U.S. and U.K. non-service defined benefit pension costs, which are non-operating in nature as the U.S. plan is frozen and the U.K. plans are closed to new participants. The service cost component of the U.K. plans remains in compensation expense. The exclusion of this measurement is intended to exclude market volatility related to an expense that is non-operating in nature and not related to business performance. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
24
Unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, defined benefit pension costs or credits for our frozen U.S. pension plan, certain unallocated professional fees, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
Additional discussion and analysis of our income taxes, net corporate interest expense, stock option expense, amortization of customer-relationshipacquisition-related intangible assets, contingent earnout adjustments, non-service pension costs, and unallocated corporate and shared costs, and credits, and restructuring and special chargesnet follows the discussion and analysis of the results of operations of our four operating segments.
Segment Revenues
In the normal course of 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 includedreported on a gross basis when reporting revenues and expenses, respectively, in our consolidated resultsunaudited Condensed Consolidated Statements of operations.Operations. In the discussion and analysis of results of operations which follows, we do not include a gross up of expenses and revenues for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings. A reconciliation of revenues before reimbursements to consolidatedtotal revenues determined in accordance with GAAP is self-evident frompresented on the face of the accompanying unaudited Condensed Consolidated Statements of Operations.
Our International segment results are impacted by changes in foreign exchange rates. We believe that a non-GAAP discussion and analysis of segment revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, is helpful in understanding the results of our operations in this segment.
Segment Operating Expenses
Our discussion and analysis of segment operating expenses is comprised of two components: "Direct Compensation, Fringe Benefits & Non-Employee Labor" and "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor."
"Direct Compensation, Fringe Benefits & Non-Employee Labor" includes direct compensation, payroll taxes, and benefits provided to the employees of each segment, as well as payments to outsourced service providers that augment our staff in each segment. As a service company, these costs represent our most significant and variable operating expenses. As noted above, in our International and Garden City Group segments, these costs include
Costs of administrative functions, including direct compensation, payroll taxes, and benefits, of certain administrative functions that are embedded in those locationsmanaged centrally and are considered direct operatingindirect costs. The allocated indirect costs of those locations. In our U.S. Servicesshared-services infrastructure are allocated to each segment based on usage and Broadspire operations, certain administrative functions are performed by centralized shared-services staff. These costs are considered indirect and are not included in "Direct Compensation, Fringe Benefits & Non-Employee Labor." Accordingly, the "Direct Compensation, Fringe Benefits & Non-Employee Labor" andreflected within "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" components are not comparable across segments, but are comparable withinof each segment across periods.
In addition to allocated corporate and shared costs, "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" includes travel and entertainment, office rent and occupancy costs, automobile expenses, office operating expenses, data processing costs, cost of risk, professional fees, and amortization and depreciation expense other than amortization of customer-relationshipacquisition-related intangible assets.
In addition, we believe that a non-GAAP discussion and analysis of segment gross profit is helpful in understanding the results of our segment operations, excluding indirect centralized administrative support costs. Our discussion and analysis of segment gross profit includes the revenues and direct expenses of each segment.
Unless noted in the following discussion and analysis, revenue amounts exclude reimbursements for out-of-pocket expenses and expense amounts exclude reimbursed out-of-pocket expenses.
Segment Performance Indicators
We typically earn our revenues on an individual fee-per-claim basis for claims management services we provide to carriers, brokers and corporates. Accordingly, the volume of claim referrals to us is a key driver of our revenues. We believe that a discussion and analysis of the segment unit volumes, as measured by cases received, is helpful in understanding the results of our operations.
25
Operating results for our U.S. Services,North America Loss Adjusting, International Operations, Broadspire, and Garden City GroupPlatform Solutions segments reconciled to net income before income taxes and net income attributable to shareholders of Crawford & Company were as follows:
|
| Three Months Ended |
| |||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
| ||
Revenues: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 77,365 |
|
| $ | 77,597 |
|
International Operations |
|
| 98,092 |
|
|
| 91,863 |
|
Broadspire |
|
| 94,298 |
|
|
| 84,054 |
|
Platform Solutions |
|
| 31,899 |
|
|
| 62,820 |
|
Total Revenues before reimbursements |
|
| 301,654 |
|
|
| 316,334 |
|
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
Total Revenues |
| $ | 313,073 |
|
| $ | 327,938 |
|
Direct Compensation, Fringe Benefits & Non-Employee Labor: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 55,467 |
|
| $ | 54,164 |
|
% of related revenues before reimbursements |
|
| 71.7 | % |
|
| 69.8 | % |
International Operations |
|
| 64,979 |
|
|
| 61,421 |
|
% of related revenues before reimbursements |
|
| 66.2 | % |
|
| 66.9 | % |
Broadspire |
|
| 57,257 |
|
|
| 52,641 |
|
% of related revenues before reimbursements |
|
| 60.7 | % |
|
| 62.6 | % |
Platform Solutions |
|
| 18,930 |
|
|
| 40,911 |
|
% of related revenues before reimbursements |
|
| 59.3 | % |
|
| 65.1 | % |
Total |
| $ | 196,633 |
|
| $ | 209,137 |
|
% of Revenues before reimbursements |
|
| 65.2 | % |
|
| 66.1 | % |
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 17,419 |
|
| $ | 15,368 |
|
% of related revenues before reimbursements |
|
| 22.5 | % |
|
| 19.8 | % |
International Operations |
|
| 31,423 |
|
|
| 27,407 |
|
% of related revenues before reimbursements |
|
| 32.0 | % |
|
| 29.8 | % |
Broadspire |
|
| 24,237 |
|
|
| 23,486 |
|
% of related revenues before reimbursements |
|
| 25.7 | % |
|
| 27.9 | % |
Platform Solutions |
|
| 11,854 |
|
|
| 11,943 |
|
% of related revenues before reimbursements |
|
| 37.2 | % |
|
| 19.0 | % |
Total before reimbursements |
|
| 84,933 |
|
|
| 78,204 |
|
% of Revenues before reimbursements |
|
| 28.2 | % |
|
| 24.7 | % |
Reimbursements |
|
| 11,419 |
|
|
| 11,604 |
|
Total |
| $ | 96,352 |
|
| $ | 89,808 |
|
% of Revenues |
|
| 30.8 | % |
|
| 27.4 | % |
Segment Operating Earnings: |
|
|
|
|
|
| ||
North America Loss Adjusting |
| $ | 4,479 |
|
| $ | 8,065 |
|
% of related revenues before reimbursements |
|
| 5.8 | % |
|
| 10.4 | % |
International Operations |
|
| 1,690 |
|
|
| 3,035 |
|
% of related revenues before reimbursements |
|
| 1.7 | % |
|
| 3.3 | % |
Broadspire |
|
| 12,804 |
|
|
| 7,927 |
|
% of related revenues before reimbursements |
|
| 13.6 | % |
|
| 9.4 | % |
Platform Solutions |
|
| 1,115 |
|
|
| 9,966 |
|
% of related revenues before reimbursements |
|
| 3.5 | % |
|
| 15.9 | % |
Deduct: |
|
|
|
|
|
| ||
Unallocated corporate and shared costs, net |
|
| (8,007 | ) |
|
| (4,119 | ) |
Net corporate interest expense |
|
| (3,596 | ) |
|
| (4,399 | ) |
Stock option expense |
|
| (167 | ) |
|
| (156 | ) |
Amortization of acquisition-related intangible assets |
|
| (1,868 | ) |
|
| (1,899 | ) |
Contingent earnout adjustments |
|
| (151 | ) |
|
| (248 | ) |
Non-service pension costs |
|
| (2,473 | ) |
|
| (2,171 | ) |
Income before income taxes |
|
| 3,826 |
|
|
| 16,001 |
|
Provision for income taxes |
|
| (1,047 | ) |
|
| (5,271 | ) |
Net income |
|
| 2,779 |
|
|
| 10,730 |
|
Net loss (income) attributable to noncontrolling interests |
|
| 58 |
|
|
| (49 | ) |
Net income attributable to shareholders of Crawford & Company |
| $ | 2,837 |
|
| $ | 10,681 |
|
26
Three months ended | Nine months ended | ||||||||||||||
(in thousands, except percentages) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Revenues: | |||||||||||||||
U.S. Services | $ | 63,052 | $ | 56,530 | $ | 184,843 | $ | 173,969 | |||||||
International | 110,784 | 120,950 | 331,019 | 360,425 | |||||||||||
Broadspire | 76,683 | 76,676 | 231,544 | 227,975 | |||||||||||
Garden City Group | 20,032 | 23,130 | 59,659 | 74,494 | |||||||||||
Total revenues, before reimbursements | 270,551 | 277,286 | 807,065 | 836,863 | |||||||||||
Reimbursements | 16,115 | 18,101 | 43,103 | 47,101 | |||||||||||
Total Revenues | $ | 286,666 | $ | 295,387 | $ | 850,168 | $ | 883,964 | |||||||
Direct Compensation, Fringe Benefits & Non-Employee Labor: | |||||||||||||||
U.S. Services | $ | 39,051 | $ | 32,608 | $ | 111,352 | $ | 100,613 | |||||||
% of related revenues before reimbursements | 61.9 | % | 57.7 | % | 60.1 | % | 57.8 | % | |||||||
International | 72,472 | 75,829 | 215,049 | 229,396 | |||||||||||
% of related revenues before reimbursements | 65.5 | % | 62.7 | % | 65.0 | % | 63.6 | % | |||||||
Broadspire | 42,061 | 41,891 | 128,314 | 125,753 | |||||||||||
% of related revenues before reimbursements | 54.9 | % | 54.6 | % | 55.4 | % | 55.2 | % | |||||||
Garden City Group | 14,003 | 14,975 | 41,830 | 48,795 | |||||||||||
% of related revenues before reimbursements | 69.9 | % | 64.7 | % | 70.1 | % | 65.5 | % | |||||||
Total | $ | 167,587 | $ | 165,303 | $ | 496,545 | $ | 504,557 | |||||||
% of Revenues before reimbursements | 61.9 | % | 59.6 | % | 61.5 | % | 60.3 | % | |||||||
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor: | |||||||||||||||
U.S. Services | $ | 14,464 | $ | 14,568 | $ | 47,304 | $ | 45,413 | |||||||
% of related revenues before reimbursements | 23.0 | % | 25.8 | % | 25.7 | % | 26.1 | % | |||||||
International | 28,147 | 31,661 | 86,288 | 99,162 | |||||||||||
% of related revenues before reimbursements | 25.3 | % | 26.2 | % | 26.0 | % | 27.6 | % | |||||||
Broadspire | 26,382 | 26,522 | 78,995 | 78,725 | |||||||||||
% of related revenues before reimbursements | 34.4 | % | 34.6 | % | 34.1 | % | 34.5 | % | |||||||
Garden City Group | 5,841 | 6,003 | 20,096 | 19,717 | |||||||||||
% of related revenues before reimbursements | 29.2 | % | 26.0 | % | 33.7 | % | 26.5 | % | |||||||
Total before reimbursements | 74,834 | 78,754 | 232,683 | 243,017 | |||||||||||
% of Revenues before reimbursements | 27.7 | % | 28.4 | % | 28.8 | % | 29.0 | % | |||||||
Reimbursements | 16,115 | 18,101 | 43,103 | 47,101 | |||||||||||
Total | $ | 90,949 | $ | 96,855 | $ | 275,786 | $ | 290,118 | |||||||
% of Revenues | 31.7 | % | 32.8 | % | 32.4 | % | 32.8 | % | |||||||
Operating Earnings (Loss): | |||||||||||||||
U.S. Services | $ | 9,537 | $ | 9,354 | $ | 26,187 | $ | 27,943 | |||||||
% of related revenues before reimbursements | 15.1 | % | 16.5 | % | 14.2 | % | 16.1 | % | |||||||
International | 10,165 | 13,460 | 29,682 | 31,867 | |||||||||||
% of related revenues before reimbursements | 9.2 | % | 11.1 | % | 9.0 | % | 8.8 | % | |||||||
Broadspire | 8,240 | 8,263 | 24,235 | 23,497 | |||||||||||
% of related revenues before reimbursements | 10.7 | % | 10.8 | % | 10.5 | % | 10.3 | % | |||||||
Garden City Group | 188 | 2,152 | (2,267 | ) | 5,982 | ||||||||||
% of related revenues before reimbursements | 0.9 | % | 9.3 | % | (3.8 | )% | 8.0 | % | |||||||
Add (Deduct): | |||||||||||||||
Unallocated corporate and shared (costs) and credits, net | (4,078 | ) | (6,947 | ) | (6,333 | ) | (17,454 | ) | |||||||
Net corporate interest expense | (2,524 | ) | (2,262 | ) | (6,674 | ) | (7,553 | ) | |||||||
Stock option expense | (468 | ) | (176 | ) | (1,342 | ) | (403 | ) | |||||||
Amortization of customer-relationship intangible assets | (2,737 | ) | (2,401 | ) | (8,235 | ) | (7,280 | ) | |||||||
Restructuring and special charges | (1,431 | ) | (1,488 | ) | (8,818 | ) | (7,431 | ) | |||||||
Income before income taxes | 16,892 | 19,955 | 46,435 | 49,168 | |||||||||||
Provision for income taxes | (4,922 | ) | (8,606 | ) | (16,569 | ) | (20,029 | ) | |||||||
Net income | 11,970 | 11,349 | 29,866 | 29,139 | |||||||||||
Net income attributable to noncontrolling interests and redeemable noncontrolling interests | (157 | ) | (404 | ) | (188 | ) | (937 | ) | |||||||
Net income attributable to shareholders of Crawford & Company | $ | 11,813 | $ | 10,945 | $ | 29,678 | $ | 28,202 |
NORTH AMERICA LOSS ADJUSTING SEGMENT
Three months ended | Nine months ended | ||||||||||||||||||||
(in thousands, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | |||||||||||||||
Claims Field Operations | $ | 22,596 | $ | 21,657 | 4.3 | % | $ | 65,965 | $ | 62,363 | 5.8 | % | |||||||||
Technical Services | 7,990 | 7,127 | 12.1 | % | 22,123 | 21,056 | 5.1 | % | |||||||||||||
Catastrophe Services | 12,016 | 9,198 | 30.6 | % | 33,806 | 35,153 | (3.8 | )% | |||||||||||||
Subtotal U.S. Claims Services | 42,602 | 37,982 | 12.2 | % | 121,894 | 118,572 | 2.8 | % | |||||||||||||
Contractor Connection | 18,270 | 18,548 | (1.5 | )% | 56,611 | 55,397 | 2.2 | % | |||||||||||||
WeGoLook | 2,180 | — | nm | 6,338 | — | nm | |||||||||||||||
Total U.S. Services Revenues before Reimbursements | $ | 63,052 | $ | 56,530 | 11.5 | % | $ | 184,843 | $ | 173,969 | 6.3 | % |
Three months ended | Nine months ended | ||||||||||||||||
(whole numbers, except percentages ) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | |||||||||||
Claims Field Operations | 43,538 | 39,279 | 10.8 | % | 122,452 | 116,571 | 5.0 | % | |||||||||
Technical Services | 2,864 | 2,410 | 18.8 | % | 7,622 | 6,766 | 12.7 | % | |||||||||
Catastrophe Services | 18,643 | 2,927 | 536.9 | % | 26,089 | 13,221 | 97.3 | % | |||||||||
Subtotal U.S. Claims Services | 65,045 | 44,616 | 45.8 | % | 156,163 | 136,558 | 14.4 | % | |||||||||
Contractor Connection | 55,831 | 54,660 | 2.1 | % | 167,685 | 157,327 | 6.6 | % | |||||||||
WeGoLook | 28,234 | — | nm | 84,015 | — | nm | |||||||||||
Total U.S. Services Cases Received | 149,110 | 99,276 | 50.2 | % | 407,863 | 293,885 | 38.8 | % |
Operating earnings in our InternationalNorth America Loss Adjusting segment decreased to $10.2totaled $4.5 million, or 9.2%5.8% of revenues before reimbursements, for the three months ended September 30, 2017March 31, 2024, compared with 2016 third quarter2023 operating earnings of $13.5$8.1 million, or 11.1%10.4% of revenues before reimbursements. Operating earnings in our International segment decreased to $29.7 million, or 9.0% of revenues before reimbursements for the nine months ended September 30, 2017, compared with operating earnings of $31.9 million, or 8.8% of revenues before reimbursements, for the nine months ended September 30, 2016. The decreasesdecrease in operating earnings in the 2017 third2024 first quarter and nine-month periods resulted from lower revenues and associated earnings in the U.K., Canada and Asiawas primarily due to flooding activitythe decrease in revenues in Canada and U.S. Field Operations and reduced staff utilization related to the decrease in weather-related activity.
Excluding centralized indirect support costs, gross profit decreased from $17.3 million, or 22.4% of revenues before reimbursements in 2023, to $14.5 million, or 18.8% of revenues before reimbursements, in the U.K.three months ended March 31, 2024 due primarily to the decrease in revenues due to mild weather events.
Operating results for our North America Loss Adjusting segment, including gross profit, for the three months ended March 31, 2024 and Australia, and Ft. McMurray wildfire activity in Canada in the 2016 third quarter.
|
| In thousands (except percentages) | ||||||||
|
| Based on actual exchange rates |
| Based on exchange rates | ||||||
Three Months Ended March 31, |
| 2024 |
| 2023 |
| Variance |
| 2024 |
| Variance |
Revenues |
| $77,365 |
| $77,597 |
| (0.3)% |
| $77,330 |
| (0.3)% |
Direct expenses |
| 62,853 |
| 60,253 |
| 4.3% |
| 62,790 |
| 4.2% |
Gross profit |
| 14,512 |
| 17,344 |
| (16.3)% |
| 14,540 |
| (16.2)% |
Indirect expenses |
| 10,033 |
| 9,279 |
| 8.1% |
| 10,023 |
| 8.0% |
Total North America Loss Adjusting Operating Earnings |
| $4,479 |
| $8,065 |
| (44.5)% |
| $4,517 |
| (44.0)% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
| 18.8% |
| 22.4% |
| (3.6)% |
| 18.8% |
| (3.6)% |
Operating margin |
| 5.8% |
| 10.4% |
| (4.6)% |
| 5.8% |
| (4.6)% |
Revenues before Reimbursements
North America Loss Adjusting segment revenues are primarily derived from the property and casualty insurance company market, with additional revenues from the self-insured markets in the U.K., Canada, Asia-Pacific (which includes AustraliaU.S. and New Zealand, as well as the Middle East and Africa) and Europe and Rest of World (which together consist of continental Europe and Latin America).Canada. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three months ended March 31, 2024 and nine months ended September 30, 2017 and 20162023 were as follows:
Three months ended | |||||||||||||||||
Based on actual exchange rates | Based on exchange rates for three months ended September 30, 2016 | ||||||||||||||||
(in thousands, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | Variance | ||||||||||||
U.K. | $ | 31,944 | $ | 43,160 | (26.0 | )% | $ | 34,443 | (20.2 | )% | |||||||
Canada | 27,292 | 27,446 | (0.6 | )% | 26,188 | (4.6 | )% | ||||||||||
Asia-Pacific | 29,174 | 27,350 | 6.7 | % | 28,880 | 5.6 | % | ||||||||||
Europe and Rest of World | 22,374 | 22,994 | (2.7 | )% | 22,280 | (3.1 | )% | ||||||||||
Total International Revenues before Reimbursements | $ | 110,784 | $ | 120,950 | (8.4 | )% | $ | 111,791 | (7.6 | )% |
Nine months ended | |||||||||||||||||
Based on actual exchange rates | Based on exchange rates for nine months ended September 30, 2016 | ||||||||||||||||
(in thousands, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | Variance | ||||||||||||
U.K. | $ | 105,236 | $ | 134,134 | (21.5 | )% | $ | 119,229 | (11.1 | )% | |||||||
Canada | 79,466 | 78,484 | 1.3 | % | 78,836 | 0.4 | % | ||||||||||
Asia-Pacific | 79,417 | 78,739 | 0.9 | % | 78,339 | (0.5 | )% | ||||||||||
Europe and Rest of World | 66,900 | 69,068 | (3.1 | )% | 67,309 | (2.5 | )% | ||||||||||
Total International Revenues before Reimbursements | $ | 331,019 | $ | 360,425 | (8.2 | )% | $ | 343,713 | (4.6 | )% |
|
| Three Months Ended |
| |||||||||||||||||
|
| Based on actual exchange rates |
|
| Based on exchange rates |
| ||||||||||||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
|
| March 31, |
|
| Variance |
| |||||
U.S. |
| $ | 53,524 |
|
| $ | 52,983 |
|
|
| 1.0 | % |
| $ | 53,524 |
|
|
| 1.0 | % |
Canada |
|
| 23,841 |
|
|
| 24,614 |
|
|
| (3.1 | )% |
|
| 23,806 |
|
|
| (3.3 | )% |
Total North America Loss Adjusting Revenues before Reimbursements |
| $ | 77,365 |
|
| $ | 77,597 |
|
|
| (0.3 | )% |
| $ | 77,330 |
|
|
| (0.3 | )% |
Revenues before reimbursements from our InternationalNorth America Loss Adjusting segment totaled $110.8$77.4 million in the three months ended September 30, 2017March 31, 2024, compared with $121.0$77.6 million in the 20162023 period. Changes in foreign exchange rates resulted inThis slight decrease was due to a decrease in Canada and U.S. Field Operations, partially offset by an increase in U.S. Global Technical Services revenues. There was a decrease in segment unit volume, measured principally by cases received, of our International segment revenues by approximately 0.8%, or $1.0 million(15.2)% for the three months ended September 30, 2017 asMarch 31, 2024, compared with the 20162023 period. Absent foreign exchange rate fluctuations, International segment revenues would have been $111.8 million for the three months ended September 30, 2017. Overall case volumes decreased 8.6% for the three months ended September 30, 2017 compared with the same periodThis was partially offset by a decrease in high-frequency, low-severity cases received in Contractor Connection in Canada of 2016. The change in U.K. contractor repair business operating model accounted for a 4.9% decrease, and changes10,300 or 14.2%. Changes in product mix and in the rates charged for those services accounted for a 5.9%0.7% revenue increase for the three months ended September 30, 2017March 31, 2024 compared with the same period in 2016
The change in U.K. contractor repair business operating model accounted for a 2.9% decrease, and changes in product mix and in the rates charged for those services accounted for a 1.0% revenue increase for the nine months ended September 30, 2017 compared with the same period in 2016.
27
Revenue variance components for our North America Loss Adjusting segment, for the three months ended September 30, 2017 compared with the same period in 2016 was due to a change in the mix of services provided in Scandinavia, partially offset by an increase in weather-related cases in Peru.
2024 Period compared to 2023 Period Ending: | For the Three Months | |
Decrease in cases received | (15.2)% | |
Contractor Connection Canada high-frequency, low-severity case reduction due to loss of client | 14.2% | |
Change in product mix and rates | 0.7% | |
Decrease in Revenues before Reimbursements | (0.3)% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our InternationalNorth America Loss Adjusting segment, decreased to $9.1which are included in total Company revenues, were $1.9 million and $23.7$2.9 million for the three months ended March 31, 2024 and nine months ended September 30, 2017, respectively, from $10.3 million and $24.0 million in the comparable 2016 periods. These decreases were the result of the lower revenues in the 2017 periods.
Case Volume Analysis
North America Loss Adjusting segment unit volumes by geographic region, measured by cases received, for the three months ended March 31, 2024 and nine months ended September 30, 2017 and
Three months ended | Nine months ended | ||||||||||||||||
(whole numbers, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | |||||||||||
U.K. | 28,027 | 32,004 | (12.4 | )% | 86,526 | 102,032 | (15.2 | )% | |||||||||
Canada | 43,419 | 46,621 | (6.9 | )% | 130,873 | 125,709 | 4.1 | % | |||||||||
Asia-Pacific | 18,718 | 26,151 | (28.4 | )% | 66,066 | 74,519 | (11.3 | )% | |||||||||
Europe and Rest of World | 69,051 | 69,433 | (0.6 | )% | 214,620 | 209,877 | 2.3 | % | |||||||||
Total International Cases Received | 159,215 | 174,209 | (8.6 | )% | 498,085 | 512,137 | (2.7 | )% |
|
| Three Months Ended |
| |||||||||
(whole numbers, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
U.S. |
|
| 36,350 |
|
|
| 37,076 |
|
|
| (2.0 | )% |
Canada |
|
| 25,587 |
|
|
| 35,926 |
|
|
| (28.8 | )% |
Total North America Loss Adjusting Cases Received |
|
| 61,937 |
|
|
| 73,002 |
|
|
| (15.2 | )% |
Overall, case volumes were 8.6% lowerthere was a decrease in cases of (15.2)% in the three months ended September 30, 2017March 31, 2024, compared withto the same period in 2016. The U.K. case volumes were lower in the third quarter 2017 due to a reduction in weather-related cases received in 2016.2023. The decrease in CanadaU.S. case volumes in the 2024 first quarter was due to less weather-related activity partially offset by an increase in cases received in the 2016 third quarter from the Fort McMurray wildfires. The decrease in Asia-Pacific cases in the third quarterGlobal Technical Services. There was due primarily to a decrease in cases received in AustraliaCanada in the quarter. There was a slight decrease in cases in Europe and Rest of World2024 first quarter due to 10,300 less high-frequency, low-severity Contractor Connection cases related to the loss of a decrease in high-frequency, low-complexity cases in Spain.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our InternationalNorth America Loss Adjusting segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses were 65.5%71.7% for the three months ended September 30, 2017March 31, 2024 compared with 62.7%69.8% for the 2023 period. The total dollar amount of these expenses increased to $55.5 million for the three months ended March 31, 2024 from $54.2 million for the comparable period2023 period. The increase was due to an increase in 2016, and were 65.0% foremployees in Global Technical Services. The increase in the nine months ended September 30, 2017 compared with 63.6% for the comparable period in 2016. These increases in expenses as a percentpercentage of revenues werebefore reimbursements is due to lowerthe reduced revenues and lower staff utilization in the 2017 periods. The dollar amount of these expenses decreased to $72.5 million for the three months ended September 30, 2017 from $75.8 million for the comparable 2016 period,U.S. Field Operations and $215.0 million for the nine months ended September 30, 2017 from $229.4 million for the comparable 2016 period. These decreases were dueCanada, compared to the impact of cost reduction initiatives, a reduction in employees, and the impact of foreign exchange rates.2023 period. There was an average of
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
North America Loss Adjusting expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $17.4 million for the three months ended March 31, 2024 compared with $15.4 million for the 2023 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 25.3%22.5% for the three months ended March 31, 2024 compared with 19.8% for the 2023 period. The increase in the current year amounts was due to higher technology investments, auto expenses, and self-insurance costs. The increase in the expense as a percentage of revenues before reimbursements is due to decreased revenues.
INTERNATIONAL OPERATIONS SEGMENT
Operating earnings in our International Operations segment were $1.7 million, or 1.7% of revenues before reimbursements, for the three months ended September 30, 2017March 31, 2024, compared with 26.2% for the comparable period in 2016, and were 26.0%$3.0 million, or 3.3% of International segment revenues before reimbursements, in the 2023 period. The decrease in operating earnings in the 2024 period was primarily due to Australia flood activity in the prior year first quarter and reductions in Legal Services productivity levels, partially offset by increases in Latin America and the U.K.
28
Excluding centralized indirect support costs, gross profit slightly increased from $15.7 million, or 17.1% of revenues before reimbursements in 2023, to $16.0 million, or 16.3% of revenues before reimbursements, in the three months ended March 31, 2024. The increase in gross profit was driven by the $6.2 million increase in revenues, and the decrease in gross profit percentage was primarily due to the growth in direct expenses exceeding the increase in revenues.
Operating results for our International Operations segment, including gross profit, for the ninethree months ended September 30, 2017March 31, 2024 and 2023 were as follows:
|
| In thousands (except percentages) | ||||||||
|
| Based on actual exchange rates |
| Based on exchange rates | ||||||
Three Months Ended March 31, |
| 2024 |
| 2023 |
| Variance |
| 2024 |
| Variance |
Revenues |
| $98,092 |
| $91,863 |
| 6.8% |
| $97,208 |
| 5.8% |
Direct expenses |
| 82,111 |
| 76,159 |
| 7.8% |
| 80,799 |
| 6.1% |
Gross profit |
| 15,981 |
| 15,704 |
| 1.8% |
| 16,409 |
| 4.5% |
Indirect expenses |
| 14,291 |
| 12,669 |
| 12.8% |
| 14,218 |
| 12.2% |
Total International Operations Operating Earnings |
| $1,690 |
| $3,035 |
| (44.3)% |
| $2,191 |
| (27.8)% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
| 16.3% |
| 17.1% |
| (0.8)% |
| 16.9% |
| (0.2)% |
Operating margin |
| 1.7% |
| 3.3% |
| (1.6)% |
| 2.3% |
| (1.0)% |
Revenues before Reimbursements
International Operations segment revenues are primarily derived from the global property and casualty insurance company markets in the U.K, Europe, Australia, Asia and Latin America. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three months ended March 31, 2024 and 2023 were as follows:
|
| Three Months Ended |
| |||||||||||||||||
|
| Based on actual exchange rates |
|
| Based on exchange rates |
| ||||||||||||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
|
| March 31, |
|
| Variance |
| |||||
U.K. |
| $ | 40,255 |
|
| $ | 33,124 |
|
|
| 21.5 | % |
| $ | 38,518 |
|
|
| 16.3 | % |
Europe |
|
| 23,621 |
|
|
| 22,764 |
|
|
| 3.8 | % |
|
| 23,319 |
|
|
| 2.4 | % |
Australia |
|
| 19,661 |
|
|
| 22,994 |
|
|
| (14.5 | )% |
|
| 20,121 |
|
|
| (12.5 | )% |
Asia |
|
| 5,369 |
|
|
| 5,627 |
|
|
| (4.6 | )% |
|
| 5,464 |
|
|
| (2.9 | )% |
Latin America |
|
| 9,186 |
|
|
| 7,354 |
|
|
| 24.9 | % |
|
| 9,786 |
|
|
| 33.1 | % |
Total International Operations Revenues before Reimbursements |
| $ | 98,092 |
|
| $ | 91,863 |
|
|
| 6.8 | % |
| $ | 97,208 |
|
|
| 5.8 | % |
Revenues before reimbursements from our International Operations segment totaled $98.1 million in the three months ended March 31, 2024, compared with 27.6% for$91.9 million in the comparable period2023 period. This increase was due to an increase in 2016.the U.K., Europe, and Latin America. The amount of these expenses decreased to $28.1change in exchange rates increased our International Operations segment revenues by approximately 1.0%, or $0.9 million, for the three months ended September 30, 2017,March 31, 2024 as compared with $31.7 million in the comparable 2016 period, and to $86.3 million for the nine months ended September 30, 2017, decreasing from $99.2 million in the comparable 20162023 period. The decrease in amounts was due to the impact of cost reduction initiatives and changes inAbsent foreign exchange rates. The decrease in expenses as a percent of revenues was primarily due to the impact of cost reduction initiatives.
Three months ended | Nine months ended | ||||||||||||||||||||
(in thousands, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | |||||||||||||||
Medical Management Services | $ | 40,395 | $ | 41,149 | (1.8 | )% | $ | 121,754 | $ | 121,433 | 0.3 | % | |||||||||
Workers' Compensation, Disability and Liability Claims Management | 32,656 | 32,028 | 2.0 | % | 99,245 | 95,910 | 3.5 | % | |||||||||||||
Risk Management Information Services | 3,632 | 3,499 | 3.8 | % | 10,545 | 10,632 | (0.8 | )% | |||||||||||||
Total Broadspire Revenues before Reimbursements | $ | 76,683 | $ | 76,676 | — | % | $ | 231,544 | $ | 227,975 | 1.6 | % |
Based on constant foreign exchange rates, the increase in revenues in the U.K. for the 2024 first quarter period was due to an increase in casesproperty and third party administration revenues driven by higher value claims. There was an increase in revenues in Europe in the Disability service line which has lower average2024 period, compared with 2023, due to increases in Spain and Norway. There was a decrease in revenues in Australia in the quarter due to the continued handling of weather-related case values than Workers' Compensationactivity during the first quarter of 2023 from the 2022 flooding catastrophe. There was a decrease in revenues in Asia in the 2024 first quarter, compared with 2023, due to decreased large loss claims in Thailand and Liability cases.reduced weather-related activity in the Philippines. The increase in revenues in Latin America in the 2024 first quarter was primarily driven by increased volumes across third-party administration and loss adjusting.
29
Revenue variance components for our International Operations segment, for the three months ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: | For the Three Months | |
Increase in cases received | 7.2% | |
Increase due to foreign currency exchange rates | 1.0% | |
Reduction in high-frequency, low-severity cases received in U.K. in 2024 with minimal 2024 revenues | 2.8% | |
High-frequency, low-severity cases received in Australia in 2024 with minimal 2024 revenues | (7.1)% | |
Change in product mix and rates | 2.9% | |
Increase in Revenues before Reimbursements | 6.8% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our International Operations segment, which are included in total Company revenues, were $8.5 million and $7.5 million for the three months ended March 31, 2024 and 2023, respectively. The increase in the quarter was due to increased use of third parties in the current year first quarter.
Case Volume Analysis
International Operations segment unit volumes by geographic region, measured by cases received, for the three months ended March 31, 2024 and 2023 were as follows:
|
| Three Months Ended |
| |||||||||
(whole numbers, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
U.K. |
|
| 39,988 |
|
|
| 44,952 |
|
|
| (11.0 | )% |
Europe |
|
| 42,689 |
|
|
| 43,492 |
|
|
| (1.8 | )% |
Australia |
|
| 20,321 |
|
|
| 9,993 |
|
|
| 103.4 | % |
Asia |
|
| 6,304 |
|
|
| 5,188 |
|
|
| 21.5 | % |
Latin America |
|
| 26,350 |
|
|
| 22,858 |
|
|
| 15.3 | % |
Total International Operations Cases Received |
|
| 135,652 |
|
|
| 126,483 |
|
|
| 7.2 | % |
Overall, there was an increase in cases received of 7.2% for the three months ended March 31, 2024, compared with the 2023 period. There was a decrease in the U.K. in the first quarter due to decreases in high-frequency, low-severity cases in third party administration. Cases declined slightly in Europe due to a decrease in claims in Sweden. There was an increase of 9,000 high-frequency, low-severity weather-related cases in Australia, although revenues are expected to be recognized across multiple quarters as services are performed. The increase in cases received in Asia was due to an increase in high-frequency, low-severity activity in Singapore. Latin America experienced an increase in cases received in Chile.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our International Operations segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses was 66.2% for the three months ended March 31, 2024 compared with 66.9% for the 2023 period. The total dollar amount of these expenses was $65.0 million for the three months ended March 31, 2024, compared to $61.4 million for the 2023 period. The increase was due to increases in compensation expense, including incentive compensation. The decrease in the percentage of revenues before reimbursements is due to higher revenues in the 2024 first quarter and improved staff utilization. There was an average of 3,611 full-time equivalent employees in this segment in the three months ended March 31, 2024, compared with an average of 3,693 in the comparable 2023 period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
International Operations expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $31.4 million for the three months ended March 31, 2024 compared with $27.4 million for the 2023 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 32.0% for the three months ended March 31, 2024 compared with 29.8% for the 2023 period. The increase in the first quarter expense and percent of revenues before reimbursements was due to increased IT application costs.
30
BROADSPIRE SEGMENT
Our Broadspire segment reported operating earnings of $12.8 million, or 13.6% of revenues before reimbursements, for the three months ended March 31, 2024 as compared with $7.9 million, or 9.4% of revenues before reimbursements, for the first quarter of 2023. The increase in the 2024 first quarter was due to an increase in revenues resulting from new client programs, increased medical management usage, and pricing improvements.
Excluding centralized indirect support costs, first quarter gross profit increased from $19.2 million, or 22.9% of revenues before reimbursements, in 2023 to $24.3 million, or 25.8% of revenues before reimbursements in 2024. This increase was due to the increased revenues and improved staff utilization.
Operating results for our Broadspire segment, including gross profit, for the three months ended March 31, 2024 and 2023 were as follows:
|
| In thousands (except percentages) |
| |||||||||
Three Months Ended March 31, |
| 2024 |
|
| 2023 |
|
| Variance |
| |||
Revenues |
| $ | 94,298 |
|
| $ | 84,054 |
|
|
| 12.2 | % |
Direct expenses |
|
| 69,993 |
|
|
| 64,805 |
|
|
| 8.0 | % |
Gross profit |
|
| 24,305 |
|
|
| 19,249 |
|
|
| 26.3 | % |
Indirect expenses |
|
| 11,501 |
|
|
| 11,322 |
|
|
| 1.6 | % |
Total Broadspire Operating Earnings |
| $ | 12,804 |
|
| $ | 7,927 |
|
|
| 61.5 | % |
|
|
|
|
|
|
|
|
|
| |||
Gross profit margin |
|
| 25.8 | % |
|
| 22.9 | % |
|
| 2.9 | % |
Operating margin |
|
| 13.6 | % |
|
| 9.4 | % |
|
| 4.2 | % |
Revenues before Reimbursements
Broadspire revenues are derived from the casualty and disability insurance and self-insured markets in the U.S. Revenues before reimbursements by service line for the three months ended March 31, 2024 and 2023 were as follows:
|
| Three Months Ended |
| |||||||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
Claims Management |
| $ | 48,398 |
|
| $ | 43,108 |
|
|
| 12.3 | % |
Medical Management |
|
| 45,900 |
|
|
| 40,946 |
|
|
| 12.1 | % |
Total Broadspire Revenues before Reimbursements |
| $ | 94,298 |
|
| $ | 84,054 |
|
|
| 12.2 | % |
Revenues before reimbursements from our Broadspire segment totaled $94.3 million in the three months ended March 31, 2024 compared with $84.1 million in the 2023 period. This increase was primarily due to an increase in new client growth and an increase in average fees across both service lines. Revenues were positively impacted by an increase in unit volumes, measured principally by cases received, of 5.4% for the three months ended March 31, 2024 compared with the same period of 2023. This is partly due to a $2.8 million increase in revenues within our Medical Management service line for which no cases are received, or 3.3% of the increase in revenues. There was also a $1.2 million increase in revenues within our Claims Management service line related to income earned which offsets the costs of managing the funds maintained to administer claims for our customers, for which no cases are received, or 1.4% of the increase in revenues. Changes in product mix and in the rates charged for those services accounted for a 2.1% revenue increase for the 2024 first quarter compared with the 2023 period, primarily due to an increase in workers compensation cases and an increase in the average fee per case.
Revenue variance components for our Broadspire segment, for the three months ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: | For the Three Months | |
Increase in cases received | 5.4% | |
Increase in claims management revenues with no cases received | 1.4% | |
Increase in medical management revenues with no cases received | 3.3% | |
Change in product mix and rates | 2.1% | |
Increase in Revenues before Reimbursements | 12.2% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Broadspire segment were $1.0$0.9 million and $3.1$0.7 million for the three months ended March 31, 2024 and nine months ended September 30, 2017 compared with $1.1 million and $3.3 million2023, respectively. The increase in the 2016 periods.2024 period was primarily due to the increased revenues in the current period.
31
Case Volume Analysis
Broadspire unit volumes by major underlying case category,service line, as measured by cases received, for the three months ended March 31, 2024 and nine months ended September 30, 2017 and
Three months ended | Nine months ended | ||||||||||||||||
(whole numbers, except percentages) | September 30, 2017 | September 30, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | |||||||||||
Workers' Compensation | 44,778 | 46,378 | (3.4 | )% | 131,848 | 136,281 | (3.3 | )% | |||||||||
Casualty | 31,580 | 40,347 | (21.7 | )% | 96,175 | 112,596 | (14.6 | )% | |||||||||
Medical Management, Disability and Other | 47,868 | 25,819 | 85.4 | % | 123,133 | 81,113 | 51.8 | % | |||||||||
Total Broadspire Cases Received | 124,226 | 112,544 | 10.4 | % | 351,156 | 329,990 | 6.4 | % |
|
| Three Months Ended |
| |||||||||
(whole numbers, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
Claims Management |
|
| 94,265 |
|
|
| 95,807 |
|
|
| (1.6 | )% |
Medical Management |
|
| 41,433 |
|
|
| 32,915 |
|
|
| 25.9 | % |
Total Broadspire Cases Received |
|
| 135,698 |
|
|
| 128,722 |
|
|
| 5.4 | % |
Overall case volumes were 10.4%5.4% higher infor the three months ended September 30, 2017 compared with the same period in 2016. This wasMarch 31, 2024 due primarily to an increase in Medical Management and Disability cases resulting from new clients, partially offset by declines in Workers' Compensation and Casualty cases from existing clients.referrals. There was a 6.4% increasedecrease in case volumes forClaims Management cases due to a reduction in accident and health cases that impacted the nine months ended September 30, 2017 compared with the same periodmix of cases received resulting in 2016. This was also due to an increase in Medical Management and Disability cases, partially offset by a decrease in Workers' Compensation and Casualty cases from existing clients. The reduction in Casualty cases was due to a decrease in high-frequency, low-complexity affinity claims.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our Broadspire segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. ForDirect compensation, fringe benefits, and non-employee labor totaled $57.3 million for the three months ended September 30, directMarch 31, 2024, compared to $52.6 million for the comparable 2023 period. Direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, increaseddecreased from 54.6%62.6% in 2016the 2023 first quarter to 54.9%60.7% in 2017. The amount of these expenses increased from $41.9 million for the three months ended September 30, 2016 to $42.1 million for the 2017 comparable period. The increase in both the amounts and the percent of revenues was2024 first quarter, primarily due to an increase in compensation and related benefits, and the increase in employees in 2017.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Broadspire segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percent of revenues before reimbursements were 34.4% and 34.1%25.7% for the three months and nine months ended September 30, 2017,March 31, 2024, compared with 34.6% and 34.5%27.9% in the comparable 2016 periods, respectively. The decrease in expenses as a percentage of revenues in the 2017 periods was due to operational efficiency gains and reductions in administrative support costs in 2017. The amount of these expenses were $26.5 million in the three months ended September 30, 2016 and $26.4 million for the comparable 20172023 period. The amount of these expenses increased slightly from $78.7 million in the nine months ended September 30, 2016 to $79.0 million for the 2017 comparable period, due to the increased revenues.
PLATFORM SOLUTIONS SEGMENT
Our Platform Solutions segment reported operating lossearnings of $(2.3)$1.1 million for the ninethree months ended September 30, 2017,March 31, 2024, compared with operating earnings of $2.2 million and $6.0$10.0 million in the comparable 2016 periods, respectively.2023 period. The related segment operating margin decreased from 9.3% for the quarter ended September 30, 2016 to 0.9% in the comparable 2017 period, and from 8.0% for the nine months ended September 30, 2016 to (3.8)% in the comparable 2017 period. Operating earnings decreased15.9% for the three months and nine months ended September 30, 2017 comparedMarch 31, 2023, to 3.5% in the 2016 periodscomparable 2024 period. This decrease was primarily due to the continued winding down of the Deepwater Horizon class action settlement project and a reduction in employee utilization.revenues in our Networks service line as we were completing claims related to Hurricane Ian in the 2023 period.
Excluding indirect support costs, gross profit in the first quarter decreased from $15.5 million, or 24.7% of revenues before reimbursements in 2023, to $7.2 million, or 22.7% of revenues before reimbursements, in 2024. This decrease was primarily due to a reduction in revenues in our Networks service line.
Operating results for our Platform Solutions segment, including gross profit, for the three months ended March 31, 2024 and 2023 were as follows:
|
| In thousands (except percentages) |
| |||||||||
Three Months Ended March 31, |
| 2024 |
|
| 2023 |
|
| Variance |
| |||
Revenues |
| $ | 31,899 |
|
| $ | 62,820 |
|
|
| (49.2 | )% |
Direct expenses |
|
| 24,668 |
|
|
| 47,285 |
|
|
| (47.8 | )% |
Gross profit |
|
| 7,231 |
|
|
| 15,535 |
|
|
| (53.5 | )% |
Indirect expenses |
|
| 6,116 |
|
|
| 5,569 |
|
|
| 9.8 | % |
Total Platform Solutions Operating Earnings |
| $ | 1,115 |
|
| $ | 9,966 |
|
|
| (88.8 | )% |
|
|
|
|
|
|
|
|
|
| |||
Gross profit margin |
|
| 22.7 | % |
|
| 24.7 | % |
|
| (2.0 | )% |
Operating margin |
|
| 3.5 | % |
|
| 15.9 | % |
|
| (12.4 | )% |
32
Revenues before Reimbursements
Platform Solutions segment revenues are primarily derived from legal settlement administration services related to class action settlements, mass tort,the property and bankruptcies, primarilycasualty insurance company markets in the U.S. Garden City Group revenuesRevenues before reimbursements decreased 13.4% to $20.0 million in the third quarter of 2017, compared with $23.1 millionby service line for the same period in 2016. For the nine-month periodthree months ended September 30, 2017, Garden City Group revenuesMarch 31, 2024 and 2023 were as follows:
|
| Three Months Ended |
| |||||||||
(in thousands, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
Contractor Connection |
| $ | 16,945 |
|
| $ | 19,301 |
|
|
| (12.2 | )% |
Networks |
|
| 7,743 |
|
|
| 37,403 |
|
|
| (79.3 | )% |
Subrogation |
|
| 7,211 |
|
|
| 6,116 |
|
|
| 17.9 | % |
Total Platform Solutions Revenues before Reimbursements |
| $ | 31,899 |
|
| $ | 62,820 |
|
|
| (49.2 | )% |
Revenues before reimbursements decreased 19.9% to $59.7from our Platform Solutions segment totaled $31.9 million compared with $74.5 million for the same period in 2016.
Revenue variance components for our Platform Solutions segment, for the timing of projects awarded.
2024 Period compared to 2023 Period Ending: | For the Three Months | |
Decrease in cases received | (22.6)% | |
Reduction in high-frequency, low-severity Networks cases | 12.0% | |
Reduction in revenues from staff augmentation for which no cases are received | (46.3)% | |
Change in product mix and rates | 7.7% | |
Decrease in Revenues before Reimbursements | (49.2)% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Garden City GroupPlatform Solutions segment can vary materially from period to period depending onwere $0.1 million for the amount and types of projects and were $3.2three months ended March 31, 2024 compared with $0.4 million in the 2017 third quarter2023 period. The decrease was due the reduced Networks revenues in the 2024 period.
Case Volume Analysis
Platform Solutions unit volumes by service line, as measured by cases received, for the three months ended March 31, 2024 and 2023 were as follows:
|
| Three Months Ended |
| |||||||||
(whole numbers, except percentages) |
| March 31, |
|
| March 31, |
|
| Variance |
| |||
Contractor Connection |
|
| 33,629 |
|
|
| 39,317 |
|
|
| (14.5 | )% |
Networks |
|
| 32,752 |
|
|
| 51,616 |
|
|
| (36.5 | )% |
Subrogation |
|
| 9,889 |
|
|
| 7,557 |
|
|
| 30.9 | % |
Total Platform Solutions Cases Received |
|
| 76,270 |
|
|
| 98,490 |
|
|
| (22.6 | )% |
33
Overall case volumes were (22.6)% lower in the three months ended March 31, 2024, compared with $4.5 millionthe 2023 period, due to decreases in Contractor Connection and Networks from less weather-related activity. There was a decrease in high-frequency, low-severity cases in our Networks service line of 11,800 cases in the comparablethree months ended March 31, 2024, compared to 2023. A portion of the decrease in revenues in our Networks service line is the result of revenues generated which consists of us providing dedicated employees to clients. This revenue is not based on fees per case, and accordingly there is no change in cases received to match the change in revenues. There was a decrease in cases received in our Contractor Connection service line in the 2024 period due to less weather-related activity. The increase in 2016. Forcases in our Subrogation service line in the nine-monthyear-to-date period ended September 30, 2017, Garden City Group reimbursements decreased to $9.7 million compared with $13.6 million for the comparable period in 2016. The decreases werewas due to a lower volume of case administration work on specific projectsfavorable change in the 2017 periods.
Direct Compensation, Fringe Benefits & Non-Employee Labor
Platform Solutions direct compensation, fringe benefits, and non-employee labor expenses as a percent of revenues before reimbursements were 69.9%59.3% in the 2017 third2024 first quarter compared with 64.7%65.1% in the 2016 third2023 quarter. The dollar amount of these expenses was $14.0$18.9 million for the 2017 third2024 first quarter and $15.0$40.9 million forin the comparable 2016 period. For2023 quarter. The decrease in costs in the nine-months ended September 30, these expenses as a percent of revenues before reimbursements were 70.1% for 2017 compared with 65.5% for 2016. The dollar amount of these expensesfirst quarter was $41.8 million for the 2017 nine-month period compared to $48.8 million for the comparable 2016 period. The declines in dollar values were primarily due to the winding down of the Deepwater Horizon special project. The increasesreduction in direct compensation, fringe benefits, and non-employee labor expense as a percent of revenues before reimbursements were due to excess capacity resulting from a decrease in employee utilization in the 2017 periods.revenues. There was an average of 478842 full-time equivalent employees in the 2017 nine-monthPlatform Solutions segment in the 2024 three-month period, compared with an average of 525 in1,445 for the 2016 period, decreasing as a result of decreased activity from the special project referenced above.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percentwere 37.2% of relatedPlatform Solutions revenues before reimbursements were 29.2% and 33.7% for the three months and nine months ended September 30, 2017, respectively,March 31, 2024 compared with 26.0% and 26.5%19.0% for the comparable
EXPENSES AND CREDITS EXCLUDED FROM SEGMENT OPERATING EARNINGS
Income Taxes
Our consolidated effective income tax rate for financial reporting purposes changesmay change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from our various domestic and international operations which are subject to income taxes at varieddifferent rates, our ability to utilize net operating loss and tax credit carryforwards, changes inamounts related to uncertain income tax positions, and changes in enacted tax rates.goodwill impairments. We estimate that our effective income tax rate for 20172024 will be approximately 30% to 32% after considering known discrete items. The decrease in rate is due to certain non-recurring benefits in 2017 and changes in the mixitems as of income. March 31, 2024.
The provision for income taxes on consolidated income before income tax totaled $4.9$1.0 million and $8.6$5.3 million for the three months ended September 30, 2017March 31, 2024 and 2016, respectively. The provision for income taxes on consolidated income totaled $16.6 million and $20.0 million for the nine months ended September 30, 2017 and 2016,2023, respectively. The overall effective tax rate decreased to 35.7%27.4% for the ninethree months ended September 30, 2017March 31, 2024 compared with 40.7%32.9% for the 20162023 period primarily due to changes in non-recurringa larger impact of discrete tax items and mix of income year over year.
Net Corporate Interest Expense
Net corporate interest expense consists of interest expense that we incur on our short- and long-term borrowings, partially offset by any interest income we earn on available cash balances and short-term investments. These amounts vary based on interest rates, borrowings outstanding and the amounts of invested cash. Corporate interest expense totaled $2.7$4.5 million and $2.5$4.7 million for the three months ended September 30, 2017March 31, 2024 and 2016,2023, respectively. Interest income totaled $174,000was $0.9 million and $278,000$0.3 million for the three months ended September 30, 2017March 31, 2024 and 2016,2023, respectively. Corporate interest expense totaled $7.3 million and $8.1 million for the nine months ended September 30, 2017 and 2016, respectively. Interest income totaled $581,000 and $498,000 for the nine months ended September 30, 2017 and 2016, respectively. The decrease in interest expense in 2017 compared with the 2016 period was due to the exchange rate impact on the U.K borrowings and lower average borrowing rates.
Stock Option Expense
Stock option expense, a component of stock-based compensation, is comprised of non-cash expenses related to stock options granted under our various stock option and employee stock purchase plans. Stock option expense is not allocated to our operating segments. Stock option expense totaled $0.2 million for each of $468,000 was recognized during the three months ended September 30, 2017, compared with $176,000 for the comparable period in 2016. Stock option expense of $1,342,000 was recognized during the nine months ended September 30, 2017, compared with $403,000 for the comparable period in 2016. The increase in the 2017 periods was due to a higher proportion of options having been granted in 2017 as a component of our Long Term Incentive Plans.
Amortization of Customer-RelationshipAcquisition-Related Intangible Assets
Amortization of customer-relationshipacquisition-related intangible assets represents the non-cash amortization expense for finite-lived customer-relationship and trade name intangible assets. Amortization expense associated with these intangible assets totaled $2.7$1.9 million for each of the three months ended September 30, 2017March 31, 2024 and $2.4 million for the three months ended September 30, 2016, and $8.2 million for the nine months ended September 30, 2017 and $7.3 million for the nine months ended September 30, 2016. The increases in the 2017 periods over 2016 were due to the acquisition of WeGoLook discussed in Note 2, "Business Acquisition."2023. This amortization expense is included in "Selling, general, and administrative expenses" in our unaudited Condensed Consolidated Statements of Operations.
34
Unallocated Corporate and Shared Costs, and Credits, Net
Certain unallocated corporate and shared costs are excluded from the determination of segment operating earnings. For the three months ended March 31, 2024 and nine months ended September 30, 2017 and 2016,2023, unallocated corporate and shared costs and credits represented costs of our frozen U.S. defined benefit pension plan, expenses for our chief executive officer and our Board of Directors, certain adjustments to our self-insured liabilities, certain unallocated legal costs and professional fees, costs of our cross currency swap in 2016, and certain adjustments and recoveries to our allowances for doubtful accounts receivable.
Unallocated corporate and shared costs were $4.1$8.0 million and $6.9$4.1 million for the three months ended September 30, 2017March 31, 2024 and 2016,2023, respectively. The decreaseincrease in the 2024 first quarter was primarily due to an increase in professional fees, compensation-related costs, and other reserves.
Contingent Earnout Adjustments
Contingent earnout expense represents the fair value adjustment of earnout liabilities arising from recent acquisitions. This expense totaled $0.2 million for each of the three months ended March 31, 2024 and 2023. The fair value adjustment is based on changes to projections of acquired entities over the respective earnout periods, which span multiple years.
Non-Service Pension Costs
Non-service pension costs totaled $2.5 million for the three months ended September 30, 2017 was dueMarch 31, 2024, compared to a decrease in defined benefit pension expense and professional fees. Unallocated corporate and shared costs were $6.3$2.2 million and $17.5 million for the nine months ended September 30, 2017 and 2016. The decrease for the nine months ended September 30, 2017 was due to a reduction in defined benefit pension expense, self-insured expenses, and unallocated professional fees.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
At September 30, 2017,March 31, 2024, our working capital balance (current assets less current liabilities) was approximately $158.3$81.7 million, an increase of $23.9$11.6 million from the working capital balance at December 31, 2016.2023. Our cash and cash equivalents were $73.3$45.2 million at September 30, 2017,March 31, 2024, compared with $81.6$58.4 million at December 31, 2016.
Cash and cash equivalents as of September 30, 2017March 31, 2024 consisted of $19.0$16.3 million held in the U.S. and $54.3$28.9 million held in our foreign subsidiaries. All of the cash and cash equivalents held by our foreign subsidiaries is available for general corporate purposes. The Company generally does not provide for additional U.S. and foreign income taxes on undistributed earnings of foreign subsidiaries because they are considered to be indefinitely reinvested. The Company's current expectation is that suchCompany maintained its permanent reinvestment assertion on a portion of prior year undistributed earnings will be reinvested byfor certain foreign operations and accrued deferred taxes attributable to these earnings. The majority of the subsidiaries or will be repatriated only when it would be tax effective or otherwise strategically beneficial to the Company such as if a very unusual event or project generated profits significantly in excess of ongoing business reinvestment needs. If such an event were to occur, we would analyze the potential tax impact and our anticipated investment needs in that region and provide for U.S. taxes for earnings that are not expected to be indefinitely reinvested. Otherremaining historical earnings and future foreign earnings necessary for business reinvestment are expected to remain indefinitelypermanently reinvested and will be used to provide working capital for these operations, fund defined benefit pension plan obligations, repay non-U.S. debt, fund capital improvements, and fund future acquisitions. We currently believe that funds expected to be generated from our U.S. operations, along with potential borrowing capabilities in the U.S., will be sufficient to fund our U.S. operations and other obligations, including our funding obligations under our U.S. defined benefit pension plan, for the foreseeable future and, therefore, except in limited circumstances such as those described above, do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations.
However, if at a future date or time these funds that remain permanently reinvested are necessary for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto, or the ultimate impact any such action may have on our results of operations or financial condition.
Cash Provided byUsed in Operating Activities
Cash provided byused in operating activities was
Cash Used in Investing Activities
Cash used in investing activities primarily for acquisitions of businesses, property and equipment, and capitalized software, was
Cash Provided by/Used inby Financing Activities
Cash provided by financing activities was
35
Other Matters Concerning Liquidity and Capital Resources
As a component of our credit facility,Credit Facility with Bank of America (the "Credit Facility"), we maintain a letter of credit facility to satisfy certain contractual obligations. Including $14.5$8.9 million of undrawn letters of credit issued under the letter of credit facility, the available balance under our credit facility totaled $135.3$208.7 million at September 30, 2017.March 31, 2024. Our short-term debt obligations typically peak during the first half of each year due to the annual payment of incentive compensation, contributions to retirement plans, working capital fluctuations, and certain other recurring payments, and generally decline during the balance of the year. The balance of short-term borrowings represents amounts under our credit facility that we expect, but are not required, to repay in the next twelve months. Long- and short-term borrowings outstanding, including current installments and capitalfinance leases, totaled
Our liquidity is defined as cash on hand and borrowing capacity under our Credit Facility based on our trailing twelve month EBITDA, as defined in our Credit Facility. At March 31, 2024, we had $45.2 million of cash on hand and, based on trailing twelve month EBITDA and the Credit Facility limit, additional borrowing capacity of $208.7 million, resulting in total liquidity of $253.9 million at March 31, 2024.
Additionally, the Company expects to make payments totaling $8.5 million in the next twelve months for contingent earnouts related to previous business acquisitions.
Defined Benefit Pension Funding and Cost
We sponsor a qualified defined benefit pension plan in the U.S. (the "U.S. Qualified Plan"), three defined benefit pension plans in the U.K., and defined benefit pension plans in the Netherlands, Norway, Germany, and the Philippines. Effective December 31, 2002, we froze our U.S. Qualified Plan. Our frozen U.S. Qualified Plan and U.K. plans were underfunded by $103.5$22.3 million and overfunded by $21.6$10.9 million, respectively, at December 31, 20162023, based on accumulated benefit obligations of $479.2$285.3 million and $243.7$145.3 million for the U.S. Qualified Plan and the U.K. plans, respectively.
For the nine-month periodthree months ended September 30, 2017, the CompanyMarch 31, 2024 we made no contributions of $9.0 millionto our U.S. defined benefit pension plan and $4.0$0.6 million to its U.S. and U.K.our U.K defined benefit pension plans, respectively, compared with no contributions of $9.0to the U.S. plan and $0.5 million and $4.6 million, respectively, into the comparable periods of 2016. The Company isU.K. plans for the three months ended March 31, 2023. We do not requiredexpect to make any additional discretionary contributions to itsour U.S. or U.K. defined benefit pension plans for the remainder of 2017; however, the Company expects to make additional contributions of approximately $1.3 million to its U.K. plan during the remainder of 2017. No additional contributions are expected to be made2024. Anticipated funding for the U.S. plan during the remainder of 2017.
Dividend Payments
Our Board of Directors makes dividend decisions from time to time based in part on an assessment of current and projected earnings and cash flows. During the ninethree months ended September 30, 2017,March 31, 2024, we paid $10.3$3.4 million in dividends. Our ability to pay future dividends could be impacted by many factors including the funding requirements of our defined benefit pension plans, repayments of outstanding borrowings, levels of cash expected to be generated by our operating activities, and covenants and other restrictions contained in any credit facilities or other financing agreements. The covenants in our existing credit facility limit dividend payments to shareholders.
Financial Condition
Other significant changes on our unaudited Condensed Consolidated Balance SheetSheets as of September 30, 2017March 31, 2024, compared with our unaudited Condensed Consolidated Balance SheetSheets as of December 31, 20162023 were as follows:
At September 30, 2017,March 31, 2024, we were not a party to any off-balance sheet arrangements other than operating leases, which we believe could materially impact our operations, financial condition, or cash flows.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016,2023, we have certain material obligations under operating lease agreements to which we are a party. In accordance with GAAP, theseThe Company records operating lease obligationslease-related assets and the related leased assets are not reportedliabilities on our consolidated balance sheet.
We also maintain funds in various trust accounts to administer claims for certain clients. These funds are not available for our general operating activities and, as such, have not been recorded in the accompanying unaudited Condensed Consolidated Balance Sheets. We have concluded that we do not have a material off-balance sheet risk related to these funds.
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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
New Accounting Standards Adopted
No new accounting standard were adopted during the three months ended March 31, 2024.
Pending Adoption of New Accounting Standards
Additional information related to the pending adoption of new accounting standards is provided in Note 32 to the accompanying unaudited condensed consolidated financial statements contained in thisthe Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of quantitative and qualitative disclosures about the Company's market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended December 31, 2016.2023. Our exposures to market risk have not changed materially since December 31, 2016.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Registrant maintains a set of disclosure controls and procedures, that areas defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), designed to ensure that information required to be disclosed by the Registrant in ourreports that it files or submits under the Exchange Act reports is recorded, processed, summarized andor reported within the time periods specified in the Securities and Exchange Commission'sSEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. regulations.
Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives. The Company's management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that ourits disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. There are inherent limitations in all control systems, including the realities that judgmentsJudgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and while ourthe Company's disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.
The Registrant's management, with the participation of management, including the Chief Executive Officer and Chief Financial Officer, ofhas evaluated the effectiveness of the design and operations of ourRegistrant's disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b).as of March 31, 2024. Based uponon that evaluation, the foregoing, theRegistrant's Chief Executive Officer along with theand Chief Financial Officer concluded that as of the end of the period covered by this report, ourRegistrant's disclosure controls and procedures were effective at providing reasonable assurance that all information relating to the Company (including its consolidated subsidiaries) required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported in a timely manner.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting that occurred during the period covered by this reportquarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1A. Risk Factors
In addition to the other information set forth in this report, the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20162023 could materially affect our business, financial condition, or results of operations. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company's share repurchase authorization, approved in August 2014,on November 4, 2021 by the Company's Board of Directors, provided the Company with the ability to repurchase up to 2,000,000 shares of CRD-A or CRD-B (or both)a combination of the two) through July 28, 2017December 31, 2023 (the "2014"2021 Repurchase Authorization"). UnderOn February 11, 2022, the 2014 Repurchase Authorization, repurchases could be made in open market or privately negotiated transactions at such times and for such prices as management deems appropriate, subject to applicable contractual and regulatory restrictions. The 2014 Repurchase Authorization was terminated on July 28, 2017.
Period |
| Total |
|
| Average Price |
|
| Total Number |
|
| Maximum Number |
| ||||
Balance as of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| 1,499,419 |
| |||
January 1, 2024 - January 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CRD-A |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
| |
CRD-B |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
| |
Totals of January 31, 2024 |
|
|
|
|
|
|
|
|
|
|
| 1,499,419 |
| |||
February 1, 2024 - February 29, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CRD-A |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
| |
CRD-B |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
| |
Totals of February 29, 2024 |
|
|
|
|
|
|
|
|
|
|
| 1,499,419 |
| |||
March 1, 2024 - March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CRD-A |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
| |
CRD-B |
|
| 85,632 |
|
| $ | 8.56 |
|
|
| 85,632 |
|
|
|
| |
Totals as of March 31, 2024 |
|
| 85,632 |
|
|
|
|
|
| 85,632 |
|
|
| 1,413,787 |
|
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
38
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May be Purchased Under the Plans or Programs | ||||||||||
Balance as of June 30, 2017 | 1,050,492 | |||||||||||||
July 1, 2017 - July 31, 2017 | ||||||||||||||
CRD-A | 75,000 | $ | 7.46 | 75,000 | ||||||||||
CRD-B | 75,000 | $ | 8.90 | 75,000 | ||||||||||
Totals as of July 31, 2017 | 1,999,890 | |||||||||||||
August 1, 2017 - August 31, 2017 | ||||||||||||||
CRD-A | 75,000 | $ | 7.42 | 75,000 | ||||||||||
CRD-B | 52,100 | $ | 8.82 | 52,100 | ||||||||||
Totals as of August 31, 2017 | 1,872,790 | |||||||||||||
September 1, 2017 - September 30, 2017 | ||||||||||||||
CRD-A | 43,527 | $ | 8.92 | 43,527 | ||||||||||
CRD-B | — | — | ||||||||||||
Totals as of September 30, 2017 | 320,627 | 320,627 | 1,829,263 | |||||||||||
Item 6. Exhibits
Exhibit | ||
No. | Description | |
15 | ||
31.1 | ||
31.2 | ||
32.1# | ||
32.2# | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
# These certifications are deemed furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Crawford & Company | ||||||
(Registrant) | ||||||
Date: | May 1, 2024 | /s/ Rohit Verma | ||||
Rohit Verma | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: | May 1, 2024 | |||||
/s/ W. Bruce Swain | ||||||
W. Bruce Swain | ||||||
Executive Vice President and Chief Financial Officer | ||||||
(Principal Financial Officer) |
40