Crawford & Company — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Crawford provides claims management and outsourcing services across four segments: North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. Unless noted, amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue before reimbursements | $325.6 million | $294.9 million | $959.3 million | $867.3 million |
| Total revenue | $337.7 million | $306.4 million | $996.0 million | $897.9 million |
| Income (loss) before tax | $19.0 million | $(28.5) million | $48.5 million | $(12.4) million |
| Net income (loss) attributable to Crawford shareholders | $12.3 million | $(15.1) million | $31.4 million | $(4.2) million |
| Diluted EPS, Class A / Class B | $0.25 / $0.25 | $(0.31) / $(0.31) | $0.63 / $0.64 | $(0.08) / $(0.09) |
- Revenue before reimbursements rose 10.4% in Q3 and 10.6% year to date. Foreign exchange added approximately $0.6 million to Q3 revenue before reimbursements but reduced year-to-date revenue by approximately $16.3 million.
- Q3 segment operating earnings were $10.5 million for North America Loss Adjusting, $2.2 million for International Operations, $13.5 million for Broadspire, and $8.5 million for Platform Solutions. Segment operating margins were 13.2%, 2.2%, 15.3%, and 14.2%, respectively.
- Q3 revenue before reimbursements grew in North America Loss Adjusting (+18.8%), International Operations (+13.9%) and Broadspire (+12.7%); Platform Solutions declined 6.0%, mainly reflecting lower Networks revenue. Year-to-date, revenue increased in all four segments.
- Operating cash flow was $68.1 million for the first nine months, versus cash used of $16.2 million in 2022. Investing activities used $27.7 million and financing activities used $38.1 million. Cash, cash equivalents and restricted cash ended at $50.3 million.
- Working capital was $89.3 million, up $17.5 million from year-end 2022. Total short- and long-term borrowings, including finance leases and current installments, were $218.4 million, down from $238.9 million. Reported available borrowing capacity was $232.0 million; together with $49.2 million cash on hand, reported total liquidity was $281.2 million.
- Nine-month capital expenditures, including capitalized software, were $27.7 million. Dividends paid were $9.3 million; share repurchases were $0.6 million.
Changes, outlook and key commentary
- Profitability improved substantially versus 2022, when Crawford recorded a $36.8 million goodwill impairment. There was no goodwill impairment in 2023; the company reported no impairment indicators year to date.
- Management attributed stronger segment results primarily to revenue growth, improved staff utilization and, in International Operations, cost reductions. Broadspire benefited from new client programs, higher medical management usage and pricing improvements.
- Overall cases received declined 1.6% in Q3 and 5.1% year to date. Management said comparisons were affected by prior-year high-frequency, low-severity cases that generated minimal revenue and by Australian catastrophe claims received in 2022. Platform Solutions cases fell 9.0% in Q3, despite year-to-date revenue growth.
- Corporate interest expense, net, increased to $4.6 million in Q3 and $13.3 million year to date, primarily due to higher interest rates. The company’s debt includes variable-rate borrowings.
- Management estimated a 2023 effective income tax rate of approximately 36%–38%, after known discrete items as of September 30. No specific revenue or earnings guidance was provided. Management cautioned that weather activity and macroeconomic uncertainty make interim results an imperfect guide to full-year or future performance.
- Unusual items include $3.1 million of year-to-date contingent earnout expense and $6.4 million of non-service pension cost, compared with a pension credit in 2022. The company also disclosed litigation, indemnification claims, employment and regulatory matters; management said provisions were made for probable and reasonably estimable items, while noting an uninsured adverse outcome could materially affect results, financial position or cash flows.
- Disclosure controls and procedures were concluded to be ineffective at September 30, 2023 because of a material weakness in U.K. IT general controls over change management and logical access, and related business-process controls. No financial-statement misstatement was identified. Remediation was ongoing, and management expected completion during fiscal 2023; effectiveness had not yet been established through sufficient testing.
- Other stated risks include case referral and catastrophe-volume changes, foreign exchange, inflation and interest rates, client retention and collections, pension obligations, acquisition integration, cybersecurity, personnel retention, financing covenant compliance and potential goodwill or intangible-asset impairment.
Important facts for investors to verify
- Whether the U.K. IT-control material weakness was fully remediated and controls operated effectively after the reporting date.
- Debt terms, floating-rate exposure, covenant compliance and the availability of reported borrowing capacity.
- Underlying case volumes and revenue mix, particularly the sustainability of pricing and staff utilization gains and the Q3 decline in Platform Solutions.
- Receivables, unbilled revenue and cash conversion, alongside pension funding needs and contingent earnout estimates.
- Developments in litigation, indemnification matters and other contingencies that could exceed recorded provisions or insurance coverage.
Ernst & Young LLP conducted an interim review and reported that it was not aware of material modifications needed for the interim financial statements to conform with U.S. GAAP; this was a review, not an audit.