Crawford & Company — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 4, 2024. Crawford provides claims management and outsourcing services in more than 70 countries across North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. Some international subsidiaries report on a two-month delay.
Financial results and liquidity
- Revenue: Revenue before reimbursements was $1.267 billion, up 6.5% from $1.189 billion in 2022 (up 7.6% at constant exchange rates). GAAP total revenue, including reimbursed expenses, was $1.317 billion, up 7.0%.
- Earnings: Net income attributable to Crawford shareholders was $30.6 million, or $0.63 basic EPS for each share class, versus a net loss of $18.3 million, or $0.37 per share, in 2022. Income before income taxes was $47.4 million; the effective tax rate was 36.1%.
- Segment performance: Segment operating earnings rose to $104.8 million from $68.9 million. Broadspire earned $41.9 million (11.8% operating margin), North America Loss Adjusting $23.2 million (7.6%), International Operations $11.2 million (2.9%), and Platform Solutions $28.5 million (12.7%). These segment measures exclude specified corporate and other costs and are not GAAP net income.
- Cash flow and investment: Operating cash flow was $103.8 million, versus $27.6 million in 2022. Investing activities used $36.6 million, including $4.9 million for property and equipment and $31.7 million for capitalized software. Operating cash flow less these outlays was approximately $67.2 million. Financing activities used $54.7 million.
- Debt and liquidity: Debt and finance lease obligations totaled $209.1 million at year-end, including $14.8 million classified as short-term; cash was $58.4 million. Approximate net debt was $150.8 million. Available credit capacity was $232.1 million, and reported total liquidity was $290.5 million. Working capital was $70.1 million, compared with $71.8 million in 2022.
- Interest and distributions: Net corporate interest expense increased to $17.0 million from $10.3 million; the credit facility’s weighted-average interest rate rose to 6.6% from 3.3%. Dividends paid totaled $12.7 million; share repurchases were $2.7 million.
Material changes versus 2022
- Revenue growth came from North America Loss Adjusting, International Operations, and Broadspire, supported by new-client growth and pricing; Platform Solutions revenue fell 7.5%, mainly because of lower Networks activity and staff-augmentation revenue.
- Total cases received declined 5.0%. Management attributed this largely to fewer high-frequency, low-severity cases that had generated minimal revenue in 2022; case counts therefore did not track revenue growth directly.
- International Operations returned to operating profit from a $12.9 million loss, reflecting higher revenue and cost reductions. Broadspire operating earnings increased 55.0%; North America Loss Adjusting earnings increased 21.3%. Platform Solutions operating earnings declined 20.2%.
- The 2022 comparison included a $36.8 million non-cash goodwill impairment and $11.8 million of income-tax reserves; neither goodwill impairment nor that reserve item was recorded in 2023. Higher 2023 interest and non-service pension costs, and higher unallocated corporate costs, partly offset segment improvement.
Outlook, risks, and unusual items
- Outlook: Management expects a 2024 effective tax rate of 33%–35%, before discrete items and assuming no material tax-law changes, and property, equipment, and capitalized software additions of approximately $40 million. It expects sufficient resources to maintain operations for the next 12 months and expects covenant compliance through 2024; these are forward-looking estimates, not revenue or earnings guidance.
- Debt covenants: The company was compliant at year-end: leverage ratio 1.60 against a maximum of 4.50 and interest coverage 5.99 against a minimum of 2.50. Borrowings bear variable rates, and covenant compliance is sensitive to EBITDA, debt, and interest rates.
- Pensions: The frozen U.S. qualified plan was underfunded by $22.3 million. Crawford made no U.S. plan contribution in 2023 and does not expect discretionary contributions in 2024; future required funding could use operating cash and constrain liquidity.
- Business and financial risks: Results depend on unpredictable claim volumes, catastrophe activity, outsourcing decisions, pricing, and the ability to retain clients and qualified adjusters. No customer represented at least 10% of consolidated revenue, but three Platform Solutions customers each exceeded 10% of that segment’s revenue; one International Operations customer exceeded 10% in 2023 and 2022. Foreign exchange reduced 2023 revenue, and the company does not hedge its foreign subsidiary exposure.
- Other risks and contingencies: The company handles sensitive personal, medical, and financial data. It reported no material cybersecurity incidents in the last three fiscal years, though it disclosed that some attacks were successful but immaterial. Legal claims arise in the ordinary course; management considers provisions adequate for known probable risks, but cannot rule out a material adverse outcome. A principal shareholder’s ownership gives him substantial control over voting matters.
- Accounting and controls: The 2022 U.K. IT general-control material weakness was remediated in 2023; management and the auditor concluded internal control over financial reporting was effective at year-end. The auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified lifetime-claim deferred revenue estimates and edjuster goodwill valuation as critical audit matters.
Investor verification priorities
- Reconcile segment operating earnings to GAAP pretax income and assess the effect of unallocated costs, interest, taxes, and pension items on recurring earnings.
- Track Broadspire growth and margins against declining case volumes overall, and evaluate whether Platform Solutions’ Networks revenue stabilizes.
- Monitor operating cash conversion, receivable and unbilled-revenue collections, variable-rate interest expense, and credit-covenant headroom.
- Review pension funding requirements, self-insured liabilities and recoveries, and the assumptions underlying lifetime-claim deferred revenue and goodwill valuations.
- Assess customer concentration within Platform Solutions and International Operations, foreign-exchange exposure, and the stated 2024 tax-rate and capital-spending expectations.