Crawford & Company — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Crawford provides claims management and outsourcing services in more than 70 countries through Crawford Loss Adjusting, Crawford TPA Solutions, and Crawford Platform Solutions. Financial statements are unaudited; the independent accountant performed an interim review, not an audit.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue before reimbursements | $288.5 million | $253.1 million | $809.1 million | $725.1 million |
| Total revenue | $297.6 million | $261.7 million | $836.3 million | $750.6 million |
| Income before income taxes | $16.0 million | $36.4 million | $39.9 million | $27.2 million |
| Net income | $11.1 million | $24.7 million | $28.9 million | $17.7 million |
| Net income attributable to Crawford shareholders | $11.2 million | $24.4 million | $29.0 million | $18.9 million |
| Diluted EPS, Class A / Class B | $0.20 / $0.21 | $0.46 / $0.46 | $0.53 / $0.54 | $0.36 / $0.34 |
- Q3 revenue before reimbursements rose 14.0% year over year; at constant exchange rates, it increased 10.3%. Nine-month growth was 11.6% reported and 7.9% at constant exchange rates. Management attributed growth principally to Hurricane Ida activity, new client growth, acquisitions, and recovery from prior-year COVID-19 impacts.
- Q3 segment operating earnings were $7.1 million for Loss Adjusting, $5.0 million for TPA Solutions, and $11.0 million for Platform Solutions. Loss Adjusting earnings fell from $14.1 million as compensation costs and weaker profitability in certain international operations pressured margins. TPA earnings increased from $4.3 million; Platform earnings rose from $10.7 million, although both segments’ margins were lower year over year.
- For the first nine months, segment operating earnings were $18.1 million for Loss Adjusting, $14.5 million for TPA Solutions, and $25.9 million for Platform Solutions. Loss Adjusting declined from $24.9 million; TPA and Platform increased from $13.7 million and $20.9 million, respectively.
- Operating cash flow was $20.0 million for the nine months, down from $57.3 million. Investing activities used $38.8 million, including $23.1 million for acquisitions; financing activities provided $9.9 million. Cash declined to $36.9 million from $44.7 million at year-end 2020.
- At September 30, working capital was $91.2 million. Short-term borrowings were $1.6 million; long-term debt and finance leases were $139.0 million, for total borrowings including current installments of approximately $140.6 million. Reported liquidity was $234.1 million: $36.9 million cash plus $197.2 million of available borrowing capacity under the then-existing facility. The company also reported $287.7 million available under that facility including undrawn letters of credit; these are different disclosed capacity measures.
- Cash dividends paid totaled $9.6 million in the first nine months; share repurchases totaled $6.1 million. The quarterly dividend was $0.06 per share for each class.
Material changes and notable items
- Q3 shareholder-attributable income fell to $11.2 million from $24.4 million, largely reflecting the absence of the prior-year $14.1 million pretax business-disposition gain. Prior-year results also included goodwill impairment and restructuring costs, which contributed to stronger nine-month 2021 net income versus 2020 despite lower nine-month segment operating earnings overall.
- Revenue growth was strongest in Platform Solutions, up 20.7% in Q3 and 29.0% year to date. Hurricane Ida increased claim activity in Loss Adjusting and Platform Solutions. Total cases received increased 3.1% in Q3 and 5.3% year to date; TPA case volumes declined 1.7% and 2.1%, respectively.
- Q3 costs of services before reimbursements increased 19.2%, faster than revenue-before-reimbursements growth of 14.0%; SG&A increased 16.7%. Management cited compensation and incentive compensation, foreign exchange, acquisitions, and higher data-processing costs.
- Cash from operations was affected by higher receivables associated with Hurricane Ida, increased pension contributions, and the year-over-year impact of CARES Act payroll-tax deferrals and Canadian wage subsidies. Nine-month U.S. and U.K. pension contributions were $9.0 million and $0.5 million; management did not expect further discretionary contributions to those plans during the remainder of 2021.
- Acquisitions included edjuster, acquired in August for an initial $21.0 million cash payment, plus an earn-out of up to $14.0 million; acquisition accounting remained preliminary. HBA Group was also reflected in the 2021 results. After quarter-end, Crawford acquired Praxis and BosBoon.
Outlook, risks, and contingencies
- The filing provides no consolidated revenue or earnings guidance. Management estimated a 2021 effective tax rate of approximately 28%–30%. It expected only minimal Canadian wage subsidy benefits after Q3.
- Management said recovery from COVID-19 had continued, particularly in the U.S., but its durability was uncertain. Future claim referrals and results may be affected by the pandemic, economic conditions, weather and catastrophe frequency, outsourcing decisions, client retention, labor availability and costs, foreign exchange, and competition.
- Other disclosed risks include pension funding obligations, acquisition integration, client credit and receivable collection, cybersecurity, technology integration, regulatory matters, and compliance with financing covenants. The company stated it had made adequate provisions for known and foreseeable litigation and other claims; most claims of this type are covered by insurance, subject to deductibles and self-insured retentions.
- On November 5, 2021, after the reporting date, the company entered a new $450 million multicurrency revolving credit facility maturing in November 2026, replacing its prior facility. It includes maximum leverage and minimum interest-coverage covenants of 4.50-to-1.00 and 2.50-to-1.00, respectively. On November 4, the board authorized repurchases of up to 2 million shares through December 31, 2023.
- Management concluded disclosure controls were effective as of quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Hurricane Ida-related revenue and receivables convert to cash promptly, and how catastrophe-driven activity affects future revenue and margins.
- Whether Loss Adjusting’s lower operating margin improves, and whether compensation and SG&A growth remain ahead of revenue growth.
- Cash conversion, acquisition-related borrowing, and the preliminary purchase accounting and earn-outs for edjuster and other acquisitions.
- Compliance with the new credit facility’s leverage and interest-coverage covenants, alongside pension funding and dividend commitments.
- The extent to which COVID-19 recovery, government subsidies, and claim volumes in Canada and Europe affect operating performance.