Crawford & Company (CRD-A, CRD-B) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited; the auditor performed an interim review, not an audit. Amounts below are U.S. dollars unless stated otherwise.
Business context and reporting period
Crawford provides claims management and outsourcing services to insurers, brokers and corporations in more than 70 countries. In January 2022, it reorganized reporting into North America Loss Adjusting, International Operations, Broadspire and Platform Solutions; comparative segment figures were reclassified. Some international results are consolidated on a two-month lag.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue before reimbursements | $293.3m | $267.5m | $572.4m | $520.6m |
| Total revenue | $303.7m | $276.5m | $591.4m | $538.7m |
| Income before taxes | $8.6m | $15.4m | $16.2m | $23.9m |
| Net income attributable to Crawford shareholders | $5.8m | $11.8m | $10.9m | $17.8m |
| Diluted EPS, both share classes | $0.12 | $0.22 | $0.22 | $0.33 |
Revenue before reimbursements rose 9.7% in Q2 and 9.9% year to date; at constant exchange rates, growth was 12.0% and 11.7%, respectively. Case referrals rose 15.5% in Q2 and 16.4% year to date. Profit fell despite revenue growth: compensation and other operating costs increased, while 2021 included Canadian emergency wage subsidy benefits. Q2 effective tax rate was 32.2% (23.3% prior year); the six-month rate was 32.1% (25.4%).
Cash flow and liquidity: Operating activities used $12.8m in the first half, versus $10.5m provided in 2021. Investing activities used $38.6m, including acquisition payments; financing provided $46.1m. Cash and equivalents were $46.3m at June 30, down from $53.2m at year-end. Working capital was $64.9m. Total short- and long-term borrowings, including finance leases, were $254.2m, versus $175.0m at year-end. The company reported total liquidity of $207.9m, including $161.6m of borrowing capacity; $185.7m remained available under the credit facility after letters of credit.
Segment operating earnings: North America Loss Adjusting earned $2.7m in Q2 versus $3.1m; International Operations recorded a $0.7m loss versus $2.1m earnings; Broadspire earned $7.7m versus $6.6m; Platform Solutions earned $4.6m versus $9.1m. Platform Solutions’ Q2 operating margin declined to 8.6% from 20.6%; International Operations’ margin was negative 0.8% versus positive 2.3%.
Material changes and unusual items
- Growth was supported by new client activity, weather-related claims, and acquisitions, including edjuster and Praxis. Foreign exchange reduced reported revenue before reimbursements by $6.2m in Q2 and $9.1m in the first half.
- International Operations’ case volumes increased, but management cited lower profitability in some countries, compensation costs, and high-frequency, low-severity claims that generate less revenue per case.
- Platform Solutions’ Q2 revenue growth included a $3.9m Networks project that generated no cases; increased staffing and technology investment pressured margins. Contractor Connection revenue declined.
- The company recorded $2.4m of contingent earnout expense for the first half, including a revised Praxis earnout estimate. It also recognized a $1.8m pretax gain from selling its Canadian head-office building.
- First-half share repurchases totaled $26.7m; dividends paid were $6.0m. The company repurchased 3.62m shares and had authorization for 1.79m additional shares at June 30.
- Foreign currency translation contributed to a $8.3m first-half other comprehensive loss. Shareholders’ investment declined to $184.5m from $211.4m at year-end.
Outlook, risks and contingencies
Management estimated a 2022 effective tax rate of approximately 30%–32%; the filing provides no revenue or earnings guidance. Management cautioned that claim volumes, weather and catastrophe activity, economic conditions, inflation, interest and exchange rates, client outsourcing decisions, and acquisition integration can affect results. The company identified an impairment indicator in International Operations after results fell below forecast. No impairment was recorded, but the estimated fair value exceeded carrying value by only $2.3m, or 1.4%; a change in assumptions or further deterioration could lead to a potentially material impairment.
Contingencies include litigation and indemnification claims, generally insured subject to deductibles and self-insured retentions, as well as employment, regulatory and other disputes. Management said provisions were made for probable and reasonably estimable matters, while noting adverse uninsured outcomes could materially affect results, financial position or cash flows. The company also disclosed pension obligations, credit-facility covenants and $8.8m of outstanding letters of credit. It made no U.S. defined-benefit plan contributions in the first half and did not expect additional discretionary U.S. contributions during the rest of 2022.
Important facts for investors to verify
- Whether revenue growth converts into improved margins and earnings, particularly in International Operations and Platform Solutions.
- Cash conversion and collection of unbilled revenue, which rose $27.6m excluding foreign-exchange effects; Australian flood-related work was a key driver.
- Borrowing levels, credit-facility capacity and covenant compliance as acquisitions, repurchases and operating cash needs affect liquidity.
- International Operations’ performance and goodwill valuation, including the sensitivity of impairment assumptions.
- Acquisition integration and earnout estimates, and the sustainability of case growth, weather-related activity and client referrals.