Crawford & Company (CRDA/CRDB) - Q3 2008 10-Q Summary
Business Context and Reporting Period
Crawford & Company is the world's largest independent provider of claims management solutions to insurance companies and self-insured entities, operating globally with over 700 locations. This report covers the quarterly period ended September 30, 2008. The company operates through four segments: U.S. Property & Casualty, International Operations, Broadspire, and Legal Settlement Administration.
Key Financial Metrics (Nine Months Ended Sept 30, 2008)
| Metric | 2008 (YTD) | 2007 (YTD) | Variance |
|---|---|---|---|
| Total Revenues | $855.3 million | $784.8 million | +9.0% |
| Revenues (Excl. Reimbursements) | $785.7 million | $729.9 million | +7.6% |
| Net Income | $23.9 million | $12.8 million | +86.7% |
| Earnings Per Share (Diluted) | $0.47 | $0.25 | +88.0% |
| Operating Cash Flow | $33.1 million | $3.9 million | +748.7% |
| Cash and Equivalents | $56.8 million | $50.9 million (Dec 31, 2007) | +11.6% |
| Total Debt (Short + Long Term) | $212.0 million | $215.3 million (Dec 31, 2007) | -1.5% |
| Working Capital | $91.7 million | $91.2 million (Dec 31, 2007) | +0.5% |
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 19.3% increase in International Operations revenue and a 12.5% increase in U.S. Property & Casualty revenue (largely due to catastrophe-related claims from Hurricanes Dolly, Gustav, and Ike). These gains offset declines in Broadspire (-1.9%) and Legal Settlement Administration (-10.7%).
- Profitability: Net income surged primarily due to higher operating margins across segments and the absence of one-time gains in the 2007 comparison period (2007 included $4.8M gain on headquarters sale and $4.0M gain on subrogation business sale).
- Cost Management: Selling, General, and Administrative (SG&A) expenses decreased as a percentage of revenue (20.6% in 2008 vs. 22.1% in 2007) due to cost controls and synergies from the Broadspire integration.
- Cash Flow: Operating cash flow improved significantly ($33.1M vs. $3.9M) due to better working capital management (7-day reduction in days sales outstanding) despite higher pension contributions ($19.9M).
Guidance, Outlook, and Risks
- Outlook: Management expects an estimated $900,000 income tax benefit in Q4 2008 due to recent tax legislation. A restructuring expense of approximately $3.0 million is anticipated in Q4 2008.
- Subsequent Event: A sale of a Netherlands subsidiary occurred in September 2008, expected to generate a $2.6 million pre-tax gain, to be recorded in Q4 2008.
- Pension Obligations: U.S. and U.K. defined benefit plans are significantly underfunded. Market declines in 2008 are expected to result in a material increase in pension expense and higher contribution requirements in 2009.
- Risks:
- Financial Crisis: Potential impact of the global credit crisis on client solvency and ability to pay.
- Currency: A strengthening U.S. dollar may negatively impact reported revenue growth in 2009.
- Employment Litigation: Exposure to wage and hour claims and other employment-related lawsuits.
- Asset Impairment: Annual goodwill and intangible asset testing scheduled for Q4 2008.
Investor Verification Checklist
- Verify the impact of the strengthening U.S. dollar on 2009 International Operations revenue guidance.
- Monitor Q4 2008 financial statements for the recognition of the $2.6M gain from the Netherlands subsidiary sale and the $3.0M restructuring charge.
- Review Q4 2008 pension plan remeasurement results to assess the magnitude of increased 2009 funding obligations.
- Confirm compliance with debt covenants given the current credit market environment.
- Assess the sustainability of the 7-day improvement in days sales outstanding (DSO) in future quarters.