Crawford & Company — 2022 Form 10-K Summary
Business context and reporting period
Crawford provides claims management and outsourcing services to insurers, brokers and corporations in more than 70 countries. This filing covers the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter report. In January 2022, the company reorganized reporting into North America Loss Adjusting, International Operations, Broadspire and Platform Solutions. Certain international results are consolidated on a two-month lag.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue before reimbursements | $1.189 billion | $1.102 billion |
| Total revenue, including reimbursements | $1.231 billion | $1.139 billion |
| Income before income taxes | $5.0 million | $43.9 million |
| Net income (loss) attributable to Crawford shareholders | $(18.3) million | $30.7 million |
| Operating cash flow | $27.6 million | $54.3 million |
| Cash and cash equivalents at year-end | $46.0 million | $53.2 million |
| Working capital | $71.8 million | $42.1 million |
Revenue before reimbursements grew 7.9% as reported and 11.1% at constant exchange rates. Cases received rose 12.0%. The company reported a net loss despite growth, reflecting a $36.8 million noncash goodwill impairment, $11.8 million of reserves on certain international tax assets, higher interest expense and a sharply higher tax provision. The effective tax rate was 467.2%, affected by impairment and valuation allowances; management’s 2023 estimate is 33%–35% before discrete items.
Segment operating results: North America Loss Adjusting earned $19.4 million (7.1% margin); International Operations lost $13.3 million (negative 3.7%); Broadspire earned $27.0 million (8.6%); and Platform Solutions earned $35.7 million (14.7%). These segment measures exclude various corporate and other items and are not consolidated GAAP earnings.
Cash used in investing was $57.9 million, including acquisitions and $34.6 million for property, equipment and capitalized software. Cash provided by financing was $25.9 million. The company repurchased $26.7 million of shares and paid $11.8 million in dividends during 2022.
Year-end debt under the credit facility was $238.6 million, plus $0.3 million of finance lease and other obligations. The $450 million revolving facility had $205.2 million of available borrowing capacity, including the effect of letters of credit; reported total liquidity was $251.2 million. The facility matures November 5, 2026. The company was in compliance with covenants: leverage ratio 2.16 versus a 4.50 maximum and interest coverage 9.70 versus a 2.50 minimum.
Material changes versus 2021
- Revenue before reimbursements increased $87.5 million, supported by new-client growth, acquisitions and higher case activity; unfavorable foreign exchange reduced reported revenue by $34.6 million.
- Net income attributable to shareholders swung from $30.7 million income to an $18.3 million loss. Goodwill impairment was $36.8 million in 2022 versus none in 2021; income before tax fell to $5.0 million.
- International Operations deteriorated from $4.9 million of segment operating earnings to a $13.3 million loss, driven by weaker profitability in certain markets, especially the U.K. and Legal Services, higher compensation and support costs, including $4.1 million severance.
- North America Loss Adjusting, Broadspire and Platform Solutions each increased segment operating earnings. Platform Solutions revenue grew 22.3%, including Praxis; Contractor Connection revenue declined 5.7%.
- Operating cash flow decreased by $26.7 million, mainly due to increased billed and unbilled receivables, incentive compensation and the absence of Canadian wage subsidies.
- Debt outstanding increased, and year-end cash declined. The company also repurchased more shares than in 2021.
Outlook, risks and unusual items
- Management expects available resources, operating cash flow and borrowing capacity to support operations for the next 12 months and expects covenant compliance through 2023, subject to operating performance. No specific revenue or earnings guidance is provided.
- Management forecasts approximately $35 million of property and equipment additions, including capitalized software, in 2023, and no discretionary U.S. qualified pension contribution.
- The U.S. qualified defined-benefit plan was underfunded by $24.3 million at year-end. The broader defined-benefit plans had a $25.9 million aggregate deficit; pension funding and market volatility could affect liquidity.
- A material weakness in U.K. IT general controls over change management and logical access made internal control over financial reporting ineffective at year-end. Management reported no resulting financial-statement misstatement and expects remediation during 2023. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the financial statements.
- Key business risks include unpredictable claim volumes and catastrophe activity, client concentration within certain segments, competition and labor costs, foreign exchange and variable interest rates, cybersecurity and privacy exposure, and litigation or regulatory claims. The company has no current currency hedges.
- Other notable items: goodwill impairment followed lower forecasts, higher interest rates and a lower share price; the U.K. and Crawford Legal Services reporting units were fully impaired. The company also recorded $2.9 million of contingent earnout expense, including a remeasurement related to Praxis, and recognized a $1.8 million gain on sale of its Canadian head office.
Important facts for investors to verify
- Whether International Operations improves profitability and whether acquired businesses meet revenue and earnout expectations.
- Progress and independent testing of the U.K. IT-control remediation plan, given the adverse internal-control audit opinion.
- Receivables and unbilled revenue collection and conversion: both increased, contributing to weaker operating cash flow.
- Debt, interest expense and covenant headroom under the variable-rate credit facility, particularly if EBITDA declines or rates rise.
- Assumptions behind goodwill valuations, pension funding and deferred tax asset realizability, including the U.K. valuation allowance.
- Retention of significant Platform Solutions and International Operations clients, and the effect of claim volume, catastrophe activity and foreign exchange on results.