Crawford & Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results. Certain international subsidiaries report on a two-month lag. Crawford provides claims management and outsourcing services through Claims Solutions, TPA Solutions (Broadspire), and Specialty Solutions, serving clients in more than 70 countries.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue before reimbursements | $982.5 million | $1,005.8 million |
| Total revenue | $1,016.2 million | $1,047.6 million |
| Net income attributable to Crawford shareholders | $28.3 million | $12.5 million |
| Diluted EPS, Class A / Class B | $0.54 / $0.52 | $0.26 / $0.19 |
| Cash from operating activities | $93.2 million | $75.2 million |
| Cash from investing activities | $(27.0) million | $(23.4) million |
| Cash from financing activities | $(74.4) million | $(53.4) million |
Revenue before reimbursements fell 2.3%; management estimated COVID-19 reduced 2020 revenue by $45–$55 million. Net income increased despite lower revenue, with results including a $13.8 million net disposal gain, a $17.7 million non-cash goodwill impairment, and $8.1 million of restructuring and other costs. The effective tax rate was 30.7%, versus 59.7% in 2019.
Segment operating earnings were $14.4 million for Claims Solutions (4.0% margin), $21.5 million for TPA Solutions (5.9%), and $52.6 million for Specialty Solutions (20.1%). Claims and Specialty earnings improved; TPA earnings declined. The filing’s segment operating earnings are a non-GAAP-to-consolidated-results measure and exclude specified corporate and other items.
At year-end, cash and cash equivalents were $44.7 million, total debt including finance leases was $113.6 million, and current assets/current liabilities were $302.0 million/$242.8 million (current ratio 1.2). Working capital was $59.2 million, down from $78.9 million. The company reported $251.0 million of liquidity under its stated definition and $325.7 million of available borrowing capacity under its $450 million revolving facility. It was compliant with debt covenants; leverage and fixed-charge coverage ratios were 1.11 and 2.79, respectively. The facility matures November 2022.
The U.S. Qualified Plan was underfunded by $51.6 million; Crawford expects to contribute $9.0 million annually for five years. Capital expenditures, including capitalized software, were $37.4 million in 2020; management forecast approximately $30 million for 2021.
Fourth quarter: Revenue before reimbursements was $257.4 million versus $247.2 million in Q4 2019. Net income attributable to shareholders was $9.4 million, compared with a $7.3 million loss a year earlier.
Material changes and notable items
- Claims Solutions revenue rose 4.9%, supported by U.S. hurricane activity and new-client growth; TPA revenue fell 7.3% and Specialty revenue fell 4.1%, primarily amid pandemic-related economic effects.
- Total cases received declined 2.4% year over year. Claims cases rose 5.4%, while TPA cases fell 5.8% and Specialty cases fell 5.0%.
- Operating cash flow increased by $18.0 million. Management cited $13.0 million of U.S. payroll tax deferrals and $11.8 million of cash inflows from Canada’s wage subsidy, among other factors. Deferred payroll taxes are payable in 2021 and 2022.
- Debt declined from $177.0 million to $113.6 million, primarily reflecting repayments funded in part by the LWI sale proceeds. The company paid $9.6 million in dividends and repurchased $2.7 million of shares in 2020.
- The company sold its interest in Lloyd Warwick International (LWI), recording a $14.7 million gain, and acquired most of the remaining interest in Chilean business Crawford Carvallo for an initial $11.6 million, with up to $11.7 million in contingent payments. It also acquired HBA Group in Australia after year-end; purchase accounting was incomplete at filing.
Outlook, risks, and contingencies
- No consolidated revenue or earnings guidance was provided. Management expected resources to support operations for the next 12 months and expected covenant compliance through 2021, while noting covenant capacity is sensitive to EBITDA, debt, capital spending, and restricted payments.
- Management projected a 2021 effective tax rate of 30%–32%, before discrete items, and approximately $30 million of 2021 capital expenditures including software.
- COVID-19-related economic weakness could further reduce referrals and revenue, especially in TPA and other employment-sensitive claims. Management warned future case volumes and results could be materially affected.
- Other principal risks include unpredictable catastrophe and claims volumes, client concentration (one customer contributed more than 10% of Specialty segment revenue), competition and talent availability, cybersecurity and privacy exposure, international and foreign-exchange risks, and possible litigation or regulatory claims.
- Further goodwill impairment is possible if reporting-unit performance or valuation assumptions weaken. The Claims Solutions reporting unit’s goodwill was reduced to zero following the 2020 impairment.
- Defined-benefit pension funding, variable-rate debt, and covenant compliance may constrain liquidity. The company also faces ordinary-course claims and legal matters; management said provisions were adequate for known and foreseeable risks but outcomes cannot be assured.
- Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting. Crawford Carvallo’s internal controls were excluded from the company’s and auditor’s control assessment.
Important facts for investors to verify
- Whether COVID-19 recovery, client demand, and case referrals support revenue stabilization, particularly in TPA Solutions.
- How much of 2020 operating cash flow reflected temporary payroll-tax deferrals and wage subsidies, and the timing of deferred-tax repayments.
- Debt repayment and refinancing plans ahead of the November 2022 credit-facility maturity, including covenant headroom under weaker operating scenarios.
- Actual pension contributions and funded-status changes versus the planned $9.0 million annual U.S. plan contributions.
- Performance of Crawford Carvallo and HBA Group, contingent purchase payments, and effects of the post-year-end segment realignment.
- Whether assumptions underlying lifetime-claim revenue recognition and goodwill valuations remain supportable; these were identified as critical audit matters.