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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended September 30, 2023
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ____ to ____
Commission file number 1-10356
CRAWFORD & COMPANY
(Exact name of Registrant as specified in its charter)
Georgia |
|
58-0506554 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
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5335 Triangle Parkway |
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Peachtree Corners, Georgia |
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30092 |
(Address of principal executive offices) |
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(Zip Code) |
(404) 300-1000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Class A Common Stock — $1.00 Par Value |
CRD-A |
New York Stock Exchange |
Class B Common Stock — $1.00 Par Value |
CRD-B |
New York Stock Exchange |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☑ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares outstanding of each class of the Registrant's common stock, as of October 30, 2023, was as follows:
Class A Common Stock, $1.00 par value: 29,147,974
Class B Common Stock, $1.00 par value: 19,738,886
CRAWFORD & COMPANY
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2023
Table of Contents
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022 |
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6 |
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8 |
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9 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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11 |
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25 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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Item 3. |
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48 |
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Item 4. |
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48 |
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Item 5. |
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49 |
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Item 1A. |
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50 |
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Item 2. |
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50 |
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Item 6. |
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51 |
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52 |
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2
Part I — Financial Information
Item 1. Financial Statements
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
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Three Months Ended September 30, |
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(In thousands, except per share amounts) |
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2023 |
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2022 |
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Revenues: |
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Revenues before reimbursements |
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$ |
325,594 |
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$ |
294,924 |
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Reimbursements |
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12,066 |
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11,493 |
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Total Revenues |
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337,660 |
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306,417 |
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Costs and Expenses: |
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Costs of services provided, before reimbursements |
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229,969 |
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221,233 |
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Reimbursements |
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12,066 |
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11,493 |
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Total costs of services |
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242,035 |
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232,726 |
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Selling, general, and administrative expenses |
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69,920 |
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62,983 |
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Corporate interest expense, net of interest income of $734 and $191, respectively |
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4,556 |
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2,903 |
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Goodwill impairment |
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— |
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36,808 |
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Total Costs and Expenses |
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316,511 |
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335,420 |
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Other (Loss) Income, net |
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(2,194 |
) |
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465 |
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Income (Loss) Before Income Taxes |
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18,955 |
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(28,538 |
) |
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Provision (Benefit) for Income Taxes |
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6,781 |
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(13,286 |
) |
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Net Income (Loss) |
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12,174 |
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(15,252 |
) |
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Net Loss Attributable to Noncontrolling Interests |
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145 |
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108 |
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Net Income (Loss) Attributable to Shareholders of Crawford & Company |
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$ |
12,319 |
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$ |
(15,144 |
) |
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Earnings (Loss) Per Share - Basic: |
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Class A Common Stock |
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$ |
0.25 |
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$ |
(0.31 |
) |
Class B Common Stock |
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$ |
0.25 |
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$ |
(0.31 |
) |
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Earnings (Loss) Per Share - Diluted: |
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Class A Common Stock |
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$ |
0.25 |
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$ |
(0.31 |
) |
Class B Common Stock |
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$ |
0.25 |
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$ |
(0.31 |
) |
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Weighted-Average Shares Used to Compute Basic Earnings Per Share: |
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Class A Common Stock |
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29,140 |
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28,553 |
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Class B Common Stock |
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19,837 |
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19,848 |
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Weighted-Average Shares Used to Compute Diluted Earnings Per Share: |
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Class A Common Stock |
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30,063 |
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28,553 |
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Class B Common Stock |
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19,837 |
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19,848 |
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(See accompanying notes to condensed consolidated financial statements)
3
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
|
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Nine Months Ended September 30, |
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(In thousands, except per share amounts) |
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2023 |
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2022 |
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Revenues: |
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Revenues before reimbursements |
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$ |
959,251 |
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$ |
867,294 |
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Reimbursements |
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36,743 |
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30,564 |
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Total Revenues |
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995,994 |
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897,858 |
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Costs and Expenses: |
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Costs of services provided, before reimbursements |
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691,078 |
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644,948 |
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Reimbursements |
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36,743 |
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30,564 |
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Total costs of services |
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727,821 |
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675,512 |
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Selling, general, and administrative expenses |
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199,871 |
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193,222 |
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Corporate interest expense, net of interest income of $1,670 and $549, respectively |
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13,264 |
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6,201 |
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Goodwill impairment |
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— |
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36,808 |
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Total Costs and Expenses |
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940,956 |
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911,743 |
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Other (Loss) Income, net |
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(6,531 |
) |
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1,534 |
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Income (Loss) Before Income Taxes |
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48,507 |
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(12,351 |
) |
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Provision (Benefit) for Income Taxes |
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17,258 |
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(8,092 |
) |
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Net Income (Loss) |
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31,249 |
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(4,259 |
) |
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Net Loss Attributable to Noncontrolling Interests |
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178 |
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41 |
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Net Income (Loss) Attributable to Shareholders of Crawford & Company |
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$ |
31,427 |
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$ |
(4,218 |
) |
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Earnings (Loss) Per Share - Basic: |
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Class A Common Stock |
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$ |
0.64 |
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$ |
(0.08 |
) |
Class B Common Stock |
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$ |
0.64 |
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$ |
(0.09 |
) |
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Earnings (Loss) Per Share - Diluted: |
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Class A Common Stock |
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$ |
0.63 |
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$ |
(0.08 |
) |
Class B Common Stock |
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$ |
0.64 |
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$ |
(0.09 |
) |
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Weighted-Average Shares Used to Compute Basic Earnings Per Share: |
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Class A Common Stock |
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28,980 |
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29,397 |
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Class B Common Stock |
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19,845 |
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20,202 |
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Weighted-Average Shares Used to Compute Diluted Earnings Per Share: |
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Class A Common Stock |
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29,659 |
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29,397 |
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Class B Common Stock |
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19,845 |
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20,202 |
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(See accompanying notes to condensed consolidated financial statements)
4
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
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Three Months Ended September 30, |
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|||||
(In thousands) |
|
2023 |
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2022 |
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||
Net Income (Loss) |
|
$ |
12,174 |
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$ |
(15,252 |
) |
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Other Comprehensive Income (Loss): |
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Net foreign currency translation loss, net of tax of $0 and $0, respectively |
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(180 |
) |
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(7,421 |
) |
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Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $680 and $623, respectively |
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2,399 |
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1,838 |
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Other Comprehensive Income (Loss) |
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2,219 |
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(5,583 |
) |
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Comprehensive Income (Loss) |
|
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14,393 |
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(20,835 |
) |
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Comprehensive loss attributable to noncontrolling interests |
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189 |
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292 |
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Comprehensive Income (Loss) Attributable to Shareholders of Crawford & Company |
|
$ |
14,582 |
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$ |
(20,543 |
) |
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Nine Months Ended September 30, |
|
|||||
(In thousands) |
|
2023 |
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2022 |
|
||
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||
Net Income (Loss) |
|
$ |
31,249 |
|
|
$ |
(4,259 |
) |
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||
Other Comprehensive Income (Loss): |
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Net foreign currency translation gain (loss), net of tax of $0 and $0, respectively |
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|
5,526 |
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(19,365 |
) |
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Amortization of actuarial losses for retirement plans included in net periodic pension cost, net of tax of $2,020 and $1,895, respectively |
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7,138 |
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5,531 |
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Other Comprehensive Income (Loss) |
|
|
12,664 |
|
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|
(13,834 |
) |
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Comprehensive Income (Loss) |
|
|
43,913 |
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|
|
(18,093 |
) |
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Comprehensive loss attributable to noncontrolling interests |
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|
258 |
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|
345 |
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Comprehensive Income (Loss) Attributable to Shareholders of Crawford & Company |
|
$ |
44,171 |
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$ |
(17,748 |
) |
(See accompanying notes to condensed consolidated financial statements)
5
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
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* |
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(In thousands) |
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September 30, |
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December 31, |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
49,208 |
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$ |
46,007 |
|
Accounts receivable, less allowance for expected credit losses of $10,518 and $9,322, respectively |
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151,142 |
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|
141,106 |
|
Unbilled revenues, at estimated billable amounts |
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131,251 |
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|
126,274 |
|
Income taxes receivable |
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|
4,245 |
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|
9,098 |
|
Prepaid expenses and other current assets |
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|
44,145 |
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|
28,782 |
|
Total Current Assets |
|
|
379,991 |
|
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|
351,267 |
|
Net Property and Equipment |
|
|
24,322 |
|
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|
27,809 |
|
Other Assets: |
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Operating lease right-of-use assets, net |
|
|
91,364 |
|
|
|
93,334 |
|
Goodwill |
|
|
76,637 |
|
|
|
76,622 |
|
Intangible assets arising from business acquisitions, net |
|
|
84,960 |
|
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|
88,039 |
|
Capitalized software costs, net |
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|
93,370 |
|
|
|
82,975 |
|
Deferred income tax assets |
|
|
18,142 |
|
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|
19,573 |
|
Other noncurrent assets |
|
|
58,405 |
|
|
|
51,888 |
|
Total Other Assets |
|
|
422,878 |
|
|
|
412,431 |
|
TOTAL ASSETS |
|
$ |
827,191 |
|
|
$ |
791,507 |
|
* Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)
6
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
Unaudited
|
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|
|
|
* |
|
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(In thousands, except par value amounts) |
|
September 30, |
|
|
December 31, |
|
||
LIABILITIES AND SHAREHOLDERS' INVESTMENT |
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|
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Current Liabilities: |
|
|
|
|
|
|
||
Short-term borrowings |
|
$ |
16,955 |
|
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$ |
27,048 |
|
Accounts payable |
|
|
44,473 |
|
|
|
50,847 |
|
Accrued compensation and related costs |
|
|
81,579 |
|
|
|
79,285 |
|
Self-insured risks |
|
|
22,545 |
|
|
|
12,614 |
|
Income taxes payable |
|
|
632 |
|
|
|
1,208 |
|
Operating lease liability |
|
|
24,766 |
|
|
|
22,910 |
|
Other accrued liabilities |
|
|
65,219 |
|
|
|
56,293 |
|
Deferred revenues |
|
|
34,512 |
|
|
|
29,282 |
|
Total Current Liabilities |
|
|
290,681 |
|
|
|
279,487 |
|
Noncurrent Liabilities: |
|
|
|
|
|
|
||
Long-term debt and finance leases, less current installments |
|
|
201,487 |
|
|
|
211,810 |
|
Operating lease liability |
|
|
80,411 |
|
|
|
84,628 |
|
Deferred revenues |
|
|
25,535 |
|
|
|
24,737 |
|
Accrued pension liabilities |
|
|
24,969 |
|
|
|
25,914 |
|
Other noncurrent liabilities |
|
|
41,138 |
|
|
|
41,553 |
|
Total Noncurrent Liabilities |
|
|
373,540 |
|
|
|
388,642 |
|
Shareholders' Investment: |
|
|
|
|
|
|
||
Class A common stock, $1.00 par value; 50,000 shares authorized; 29,148 and 28,764 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
|
29,148 |
|
|
|
28,764 |
|
Class B common stock, $1.00 par value; 50,000 shares authorized; 19,785 and 19,848 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
|
19,785 |
|
|
|
19,848 |
|
Additional paid-in capital |
|
|
83,548 |
|
|
|
78,158 |
|
Retained earnings |
|
|
234,718 |
|
|
|
213,094 |
|
Accumulated other comprehensive loss |
|
|
(202,577 |
) |
|
|
(215,321 |
) |
Shareholders' Investment Attributable to Shareholders of Crawford & Company |
|
|
164,622 |
|
|
|
124,543 |
|
Noncontrolling interests |
|
|
(1,652 |
) |
|
|
(1,165 |
) |
Total Shareholders' Investment |
|
|
162,970 |
|
|
|
123,378 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT |
|
$ |
827,191 |
|
|
$ |
791,507 |
|
* Derived from the audited Consolidated Balance Sheet
(See accompanying notes to condensed consolidated financial statements)
7
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
|
|
Nine Months Ended September 30, |
|
|||||
(In thousands) |
|
2023 |
|
|
2022 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
31,249 |
|
|
$ |
(4,259 |
) |
Reconciliation of net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
27,355 |
|
|
|
27,379 |
|
Goodwill impairment |
|
|
— |
|
|
|
36,808 |
|
Stock-based compensation |
|
|
4,183 |
|
|
|
4,218 |
|
Loss (gain) on disposal of property and equipment |
|
|
96 |
|
|
|
(1,562 |
) |
Contingent earnout adjustments |
|
|
3,100 |
|
|
|
3,246 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
(6,309 |
) |
|
|
(9,329 |
) |
Unbilled revenues, net |
|
|
419 |
|
|
|
(23,537 |
) |
Accrued or prepaid income taxes |
|
|
5,306 |
|
|
|
(23,162 |
) |
Accounts payable and accrued liabilities |
|
|
(1,437 |
) |
|
|
(20,612 |
) |
Deferred revenues |
|
|
4,869 |
|
|
|
(191 |
) |
Accrued retirement costs |
|
|
4,818 |
|
|
|
(1,684 |
) |
Prepaid expenses and other operating activities |
|
|
(5,572 |
) |
|
|
(3,510 |
) |
Net cash provided by (used in) operating activities |
|
|
68,077 |
|
|
|
(16,195 |
) |
|
|
|
|
|
|
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Acquisitions of property and equipment |
|
|
(3,360 |
) |
|
|
(4,983 |
) |
Capitalization of computer software costs |
|
|
(24,323 |
) |
|
|
(19,933 |
) |
Payments for business acquisitions, net of cash acquired |
|
|
— |
|
|
|
(26,309 |
) |
Cash proceeds from sale of property and equipment |
|
|
— |
|
|
|
3,032 |
|
Net cash used in investing activities |
|
|
(27,683 |
) |
|
|
(48,193 |
) |
|
|
|
|
|
|
|
||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
||
Cash dividends paid |
|
|
(9,284 |
) |
|
|
(8,938 |
) |
Repurchases of common stock |
|
|
(582 |
) |
|
|
(26,749 |
) |
Increases in revolving credit facility borrowings |
|
|
20,958 |
|
|
|
99,952 |
|
Payments on revolving credit facility borrowings |
|
|
(43,719 |
) |
|
|
(15,129 |
) |
Payments of contingent consideration on acquisitions |
|
|
(6,760 |
) |
|
|
(2,118 |
) |
Other financing activities |
|
|
1,317 |
|
|
|
(87 |
) |
Net cash (used in) provided by financing activities |
|
|
(38,070 |
) |
|
|
46,931 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
1,313 |
|
|
|
(2,351 |
) |
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash |
|
|
3,637 |
|
|
|
(19,808 |
) |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Year |
|
|
46,645 |
|
|
|
53,689 |
|
Cash, Cash Equivalents, and Restricted Cash at End of Period |
|
$ |
50,282 |
|
|
$ |
33,881 |
|
(See accompanying notes to condensed consolidated financial statements)
8
CRAWFORD & COMPANY
Unaudited
(In thousands, except per share amounts)
|
|
Common Stock |
|
|
|
|
|
|
|
|
Accumulated |
|
|
Shareholders' |
|
|
|
|
|
|
|
|||||||||||
2023 |
|
Class A |
|
|
Class B |
|
|
Additional |
|
|
Retained |
|
|
Other |
|
|
Shareholders |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
Balance at January 1, 2023 |
|
$ |
28,764 |
|
|
$ |
19,848 |
|
|
$ |
78,158 |
|
|
$ |
213,094 |
|
|
$ |
(215,321 |
) |
|
$ |
124,543 |
|
|
$ |
(1,165 |
) |
|
$ |
123,378 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,681 |
|
|
|
— |
|
|
|
10,681 |
|
|
|
49 |
|
|
|
10,730 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,818 |
|
|
|
9,818 |
|
|
|
(42 |
) |
|
|
9,776 |
|
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,925 |
) |
|
|
— |
|
|
|
(2,925 |
) |
|
|
— |
|
|
|
(2,925 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,023 |
|
|
|
— |
|
|
|
— |
|
|
|
1,023 |
|
|
|
— |
|
|
|
1,023 |
|
Shares issued in connection with stock-based compensation plans, net |
|
|
161 |
|
|
|
— |
|
|
|
(87 |
) |
|
|
— |
|
|
|
— |
|
|
|
74 |
|
|
|
— |
|
|
|
74 |
|
Dividends paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(229 |
) |
|
|
(229 |
) |
Balance at March 31, 2023 |
|
$ |
28,925 |
|
|
$ |
19,848 |
|
|
$ |
79,094 |
|
|
$ |
220,850 |
|
|
$ |
(205,503 |
) |
|
$ |
143,214 |
|
|
$ |
(1,387 |
) |
|
$ |
141,827 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,427 |
|
|
|
— |
|
|
|
8,427 |
|
|
|
(82 |
) |
|
|
8,345 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
663 |
|
|
|
663 |
|
|
|
6 |
|
|
|
669 |
|
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,929 |
) |
|
|
— |
|
|
|
(2,929 |
) |
|
|
— |
|
|
|
(2,929 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,586 |
|
|
|
— |
|
|
|
— |
|
|
|
1,586 |
|
|
|
— |
|
|
|
1,586 |
|
Shares issued in connection with stock-based compensation plans, net |
|
|
52 |
|
|
|
— |
|
|
|
345 |
|
|
|
— |
|
|
|
— |
|
|
|
397 |
|
|
|
— |
|
|
|
397 |
|
Balance at June 30, 2023 |
|
$ |
28,977 |
|
|
$ |
19,848 |
|
|
$ |
81,025 |
|
|
$ |
226,348 |
|
|
$ |
(204,840 |
) |
|
$ |
151,358 |
|
|
$ |
(1,463 |
) |
|
$ |
149,895 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,319 |
|
|
|
— |
|
|
|
12,319 |
|
|
|
(145 |
) |
|
|
12,174 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,263 |
|
|
|
2,263 |
|
|
|
(44 |
) |
|
|
2,219 |
|
Cash dividends paid (Class A - $0.07 per share, Class B - $0.07 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,430 |
) |
|
|
— |
|
|
|
(3,430 |
) |
|
|
— |
|
|
|
(3,430 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,574 |
|
|
|
— |
|
|
|
— |
|
|
|
1,574 |
|
|
|
— |
|
|
|
1,574 |
|
Repurchases of common stock |
|
|
|
|
|
(63 |
) |
|
|
— |
|
|
|
(519 |
) |
|
|
— |
|
|
|
(582 |
) |
|
|
— |
|
|
|
(582 |
) |
|
Shares issued in connection with stock-based compensation plans, net |
|
|
171 |
|
|
|
— |
|
|
|
949 |
|
|
|
— |
|
|
|
— |
|
|
|
1,120 |
|
|
|
— |
|
|
|
1,120 |
|
Balance at September 30, 2023 |
|
$ |
29,148 |
|
|
$ |
19,785 |
|
|
$ |
83,548 |
|
|
$ |
234,718 |
|
|
$ |
(202,577 |
) |
|
$ |
164,622 |
|
|
$ |
(1,652 |
) |
|
$ |
162,970 |
|
9
|
|
Common Stock |
|
|
|
|
|
|
|
|
Accumulated |
|
|
Shareholders' |
|
|
|
|
|
|
|
|||||||||||
2022 |
|
Class A |
|
|
Class B |
|
|
Additional |
|
|
Retained |
|
|
Other |
|
|
Shareholders |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
Balance at January 1, 2022 |
|
$ |
30,996 |
|
|
$ |
20,812 |
|
|
$ |
74,229 |
|
|
$ |
266,369 |
|
|
$ |
(180,441 |
) |
|
$ |
211,965 |
|
|
$ |
(568 |
) |
|
$ |
211,397 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,096 |
|
|
|
— |
|
|
|
5,096 |
|
|
|
60 |
|
|
|
5,156 |
|
Other comprehensive (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,290 |
) |
|
|
(3,290 |
) |
|
|
14 |
|
|
|
(3,276 |
) |
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,114 |
) |
|
|
— |
|
|
|
(3,114 |
) |
|
|
— |
|
|
|
(3,114 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,660 |
|
|
|
— |
|
|
|
— |
|
|
|
1,660 |
|
|
|
— |
|
|
|
1,660 |
|
Repurchases of common stock |
|
|
(1,498 |
) |
|
|
(720 |
) |
|
|
— |
|
|
|
(13,871 |
) |
|
|
— |
|
|
|
(16,089 |
) |
|
|
— |
|
|
|
(16,089 |
) |
Shares issued in connection with stock-based compensation plans, net |
|
|
89 |
|
|
|
— |
|
|
|
(89 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dividends paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(258 |
) |
|
|
(258 |
) |
Balance at March 31, 2022 |
|
$ |
29,587 |
|
|
$ |
20,092 |
|
|
$ |
75,800 |
|
|
$ |
254,480 |
|
|
$ |
(183,731 |
) |
|
$ |
196,228 |
|
|
$ |
(752 |
) |
|
$ |
195,476 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,830 |
|
|
|
— |
|
|
|
5,830 |
|
|
|
7 |
|
|
|
5,837 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,841 |
) |
|
|
(4,841 |
) |
|
|
(134 |
) |
|
|
(4,975 |
) |
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,920 |
) |
|
|
— |
|
|
|
(2,920 |
) |
|
|
— |
|
|
|
(2,920 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,750 |
|
|
|
— |
|
|
|
— |
|
|
|
1,750 |
|
|
|
— |
|
|
|
1,750 |
|
Repurchases of common stock |
|
|
(1,159 |
) |
|
|
(244 |
) |
|
|
— |
|
|
|
(9,257 |
) |
|
|
— |
|
|
|
(10,660 |
) |
|
|
— |
|
|
|
(10,660 |
) |
Balance at June 30, 2022 |
|
$ |
28,428 |
|
|
$ |
19,848 |
|
|
$ |
77,550 |
|
|
$ |
248,133 |
|
|
$ |
(188,572 |
) |
|
$ |
185,387 |
|
|
$ |
(879 |
) |
|
$ |
184,508 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,144 |
) |
|
|
— |
|
|
|
(15,144 |
) |
|
|
(108 |
) |
|
|
(15,252 |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,399 |
) |
|
|
(5,399 |
) |
|
|
(184 |
) |
|
|
(5,583 |
) |
Cash dividends paid (Class A - $0.06 per share, Class B - $0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,904 |
) |
|
|
— |
|
|
|
(2,904 |
) |
|
|
— |
|
|
|
(2,904 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
808 |
|
|
|
— |
|
|
|
— |
|
|
|
808 |
|
|
|
— |
|
|
|
808 |
|
Decrease in value of noncontrolling interest due to acquisitions |
|
|
— |
|
|
|
— |
|
|
|
(686 |
) |
|
|
— |
|
|
|
— |
|
|
|
(686 |
) |
|
|
(379 |
) |
|
|
(1,065 |
) |
Shares issued in connection with stock-based compensation plans, net |
|
|
129 |
|
|
|
— |
|
|
|
692 |
|
|
|
— |
|
|
|
— |
|
|
|
821 |
|
|
|
— |
|
|
|
821 |
|
Balance at September 30, 2022 |
|
$ |
28,557 |
|
|
$ |
19,848 |
|
|
$ |
78,364 |
|
|
$ |
230,085 |
|
|
$ |
(193,971 |
) |
|
$ |
162,883 |
|
|
$ |
(1,550 |
) |
|
$ |
161,333 |
|
(See accompanying notes to condensed consolidated financial statements)
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Based in Atlanta, Georgia, Crawford & Company ("Crawford" or "the Company") is a leading provider of claims management and outsourcing solutions to insurance companies and self-insured entities with an expansive global network serving clients in more than 70 countries.
Shares of the Company's two classes of common stock are traded on the New York Stock Exchange ("NYSE") under the symbols CRD-A and CRD-B, respectively. The Company's two classes of stock are substantially identical, except with respect to voting rights for the Class B Common Stock (CRD-B), and protections for the non-voting Class A Common Stock (CRD-A). More information is available on the Company's website www.crawco.com. The information contained on, or hyperlinked from, the Company's website is not a part of, and is not incorporated by reference into, this report.
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the "SEC"). Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Due to the impact of weather activity and other macroeconomic uncertainties, the Company's operating results for the three and nine months ended September 30, 2023 and financial position as of September 30, 2023 are not necessarily indicative of the results or financial position that may be expected for the year ending December 31, 2023 or for other future periods. The financial results from the Company's operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines, are reported and consolidated on a two-month delayed basis (fiscal year-end of October 31) as permitted by GAAP in order to provide sufficient time for accumulation of their results.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments (consisting only of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. There have been no material changes to our significant accounting policies and estimates from those disclosed in the Company's financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 other than as disclosed herein.
The Company has four reportable segments consisting of North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. Significant intercompany transactions have been eliminated in consolidation.
The Condensed Consolidated Balance Sheet information presented herein as of December 31, 2022 has been derived from the audited consolidated financial statements as of that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
The Company consolidates the liabilities of its deferred compensation plan and the related assets, which are held in a rabbi trust and also considered a variable interest entity ("VIE") of the Company. The rabbi trust was created to fund the liabilities of the Company's deferred compensation plan. The Company is considered the primary beneficiary of the rabbi trust because the Company directs the activities of the trust and can use the assets of the trust to satisfy the liabilities of the Company's deferred compensation plan. At September 30, 2023 and December 31, 2022, the liabilities of the deferred compensation plan were $6,135,000 and $6,395,000, respectively, which represented obligations of the Company rather than of the rabbi trust, and the values of the assets held in the related rabbi trust were $10,177,000 and $10,083,000, respectively. These liabilities and assets are included in "Other noncurrent liabilities" and "Other noncurrent assets," respectively, on the Company's unaudited Condensed Consolidated Balance Sheets.
Noncontrolling interests represent the minority shareholders' share of the net income or loss and shareholders' investment in consolidated subsidiaries. Noncontrolling interests are presented as a component of shareholders' investment in the unaudited Condensed Consolidated Balance Sheets and reflect the initial fair value of these investments by noncontrolling shareholders, along with their proportionate share of the income or loss of the subsidiaries, less any dividends or distributions.
11
2. Recently Issued Accounting Standards
No new accounting standards have been issued impacting the Company.
Adoption of New Accounting Standards
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. ASU 2021-08 was effective for fiscal years beginning after December 15, 2022. The adoption of this guidance did not have a material effect on the Company's results of operations, financial condition, or cash flows.
3. Revenue Recognition
Revenue from Contracts with Customers
Revenues are recognized when control of the promised services is transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues are recognized net of any sales, use or value added taxes collected from customers, which are subsequently remitted to governmental authorities. As the Company completes its performance obligations which are identified below, it has an unconditional right to consideration as outlined in the Company's contracts. Generally, the Company's accounts receivable are expected to be collected in less than two months.
The Company's North America Loss Adjusting and International Operations segments generate revenue for adjusting services provided to insurance companies and self-insured entities related to property and casualty losses caused by physical damage to commercial and residential real property and certain types of personal property. These segments also generate revenues for claims management services provided to insurance companies and self-insured entities related to large, complex losses with technical adjusting and industry experts servicing a broad range of industries. The Company charges on a fee-per-claim basis for each optional purchase of the claims management services exercised by its customer. The Company also performs Legal Services within its International Operations segment. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services is transferred to the customer. Revenue is recognized based on the claim type for fixed fee claims applied utilizing a portfolio approach based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer. Task assignment services are single optional purchase performance obligations which are generally satisfied at a point in time when the control of the service is transferred to the customer. Therefore, revenue is recognized when the customer receives the service requested.
The following table presents North America Loss Adjusting revenues before reimbursements disaggregated by geography for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
U.S. |
|
$ |
55,202 |
|
|
$ |
41,161 |
|
|
$ |
159,688 |
|
|
$ |
122,438 |
|
Canada |
|
|
24,188 |
|
|
|
25,661 |
|
|
|
72,656 |
|
|
|
74,597 |
|
Total North America Loss Adjusting Revenues before Reimbursements |
|
$ |
79,390 |
|
|
$ |
66,822 |
|
|
$ |
232,344 |
|
|
$ |
197,035 |
|
12
The following table presents International Operations revenues before reimbursements disaggregated by geography and service line for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
U.K. |
|
$ |
35,688 |
|
|
$ |
25,547 |
|
|
$ |
98,693 |
|
|
$ |
86,773 |
|
Europe |
|
|
22,331 |
|
|
|
20,535 |
|
|
|
68,255 |
|
|
|
68,217 |
|
Australia |
|
|
19,953 |
|
|
|
24,602 |
|
|
|
61,112 |
|
|
|
63,052 |
|
Asia |
|
|
5,601 |
|
|
|
5,196 |
|
|
|
17,116 |
|
|
|
16,376 |
|
Latin America |
|
|
7,841 |
|
|
|
6,277 |
|
|
|
21,532 |
|
|
|
17,674 |
|
International Loss Adjusting |
|
$ |
91,414 |
|
|
$ |
82,157 |
|
|
$ |
266,708 |
|
|
$ |
252,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Crawford Legal Services |
|
$ |
6,652 |
|
|
$ |
3,909 |
|
|
$ |
18,533 |
|
|
$ |
16,956 |
|
Total International Operations Revenues before Reimbursements |
|
$ |
98,066 |
|
|
$ |
86,066 |
|
|
$ |
285,241 |
|
|
$ |
269,048 |
|
The Company’s Broadspire segment is a third party administrator that generates revenue through its Claims Management and Medical Management service lines.
The Claims Management service line includes Workers' Compensation, Liability, Property and Disability Claims Management. This service line also performs additional services such as Accident & Health claims programs, including Affinity type claims, and Disability and Leave Management services. Each claim referred by the customer is considered an additional optional purchase of claims management services under the agreement with the customer. The transaction price is specified in the contract and is fixed for each service. Revenue is recognized over time as services are provided as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document, and report the claim and control of these services is transferred to the customer. Revenue is recognized based on historical claim closure rates and claim type applied utilizing a portfolio approach based on time elapsed for these claims as the Company believes this is the most accurate depiction of the transfer of claims management services to its customer. Broadspire also provides claims management services on a monthly basis for which revenue is recognized over time monthly based on claims received and staff required to complete our claim handling obligations. Broadspire also provides Risk Management Information Services and Account Administration services. For non-claim services provided in our Claims Management service line, revenue is recognized over time as services are provided and control of these services is transferred to the customer. Revenue is recognized as time elapses as this is the most accurate depiction of the transfer of the service to the customer.
The Company's obligation to manage claims under the Claims Management service line can range from less than one year, on a one- or two-year basis or for the lifetime of the claim. Under certain claims management agreements, the Company receives consideration from a customer at contract inception prior to transferring services to the customer, however, it would begin performing services immediately. The period between a customer’s payment of consideration and the completion of the promised services could be greater than one year. There is no difference between the amount of promised consideration and the cash selling price of the promised services. The fee is billed upfront by the Company in order to provide customers with simplified and predictable ways of purchasing its services and it is customary to invoice service fees when the claim is assigned. The Company considered whether a significant financing component exists and determined that there is not a significant financing component at the contract level.
The Medical Management service line offers case managers who provide administration services by proactively managing medical treatment plans for claimants while facilitating an understanding of and participation in their rehabilitation process. Revenue for Medical Management services is recognized over time as the performance obligations are satisfied through the effort expended to manage the medical treatment for claimants and control of these services is transferred to the customer. Medical Management services are generally billed based on time incurred, are considered variable consideration, and revenue is recognized at the amount in which the Company has the right to invoice for services performed. This method of revenue recognition is the most accurate depiction of the transfer of the Medical Management services to the customer. The Company also performs medical bill review services. Medical bill review services provide an analysis of medical charges for clients’ claims to identify opportunities for savings. Medical bill review services revenues are recognized over time as control of the service is transferred to the customer. Revenue is recognized based upon the transfer of the results of the medical bill review service to the customer as this is the most accurate depiction of the transfer of the service to the customer.
13
The following table presents Broadspire revenues before reimbursements disaggregated by service line for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Claims Management |
|
$ |
43,989 |
|
|
$ |
40,275 |
|
|
$ |
125,620 |
|
|
$ |
120,252 |
|
Medical Management |
|
|
44,310 |
|
|
|
38,106 |
|
|
|
127,749 |
|
|
|
114,697 |
|
Total Broadspire Revenues before Reimbursements |
|
$ |
88,299 |
|
|
$ |
78,381 |
|
|
$ |
253,369 |
|
|
$ |
234,949 |
|
The Company's Crawford Platform Solutions segment principally generates revenues through its Contractor Connection, Networks and Subrogation service lines.
The Contractor Connection service line generates revenue through its independently managed contractor network. Contractor Connection primarily generates revenue by receiving a fee for each project that is sold by its network of contractors. Revenue is recognized at a point in time once the consumer accepts the contractor's proposal as Contractor Connection’s performance obligation of referring projects to its contractors has been completed and the Company is entitled to consideration at that time. The contractor takes control of the service upon the consumer’s acceptance of the contractor’s proposal.
The Networks service line generates revenues for claims management services provided to insurance companies and self-insured entities related to property, casualty and catastrophic losses. Networks also generates revenue by providing on-demand inspection, verification and other task specific field services for businesses and consumers. Revenue is recognized over time as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document and report the claim and control of these services is transferred to the customer. Revenue is recognized based on the claim type for fixed fee claims, applied based on time elapsed for these claims. For claims billed on a time and expense incurred basis, which are considered variable consideration, the Company recognizes revenue at the amount in which it has the right to invoice for services performed. These methods of revenue recognition are the most accurate depiction of the transfer of the claims management services to the customer.
The Subrogation service line provides subrogation recovery and consultative services for the property and casualty insurance industry. Revenue is recognized at a point in time when the subrogation is successful and cash consideration is received.
The following table presents Platform Solutions revenues before reimbursements disaggregated by service line for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Contractor Connection |
|
$ |
19,013 |
|
|
$ |
17,453 |
|
|
$ |
58,110 |
|
|
$ |
50,112 |
|
Networks |
|
|
34,160 |
|
|
|
40,809 |
|
|
|
110,027 |
|
|
|
100,840 |
|
Subrogation |
|
|
6,666 |
|
|
|
5,393 |
|
|
|
20,160 |
|
|
|
15,310 |
|
Total Platform Solutions Revenues before Reimbursements |
|
$ |
59,839 |
|
|
$ |
63,655 |
|
|
$ |
188,297 |
|
|
$ |
166,262 |
|
In the normal course of business, the Company's segments incur certain out-of-pocket expenses that are thereafter reimbursed by its customers. The Company controls the promised good or service before it is transferred to its customer, therefore it is a principal in the transaction. These out-of-pocket expenses and associated reimbursements are reported on a gross basis within expenses and revenues, respectively, in the Company's unaudited Condensed Consolidated Statements of Operations.
Claims Management Performance Obligations
For claims management services, the Company typically has one performance obligation; however, it also provides the customer with an option to acquire additional services. The Company sells multiple lines of claims processing and different levels of processing depending on the complexity of the claims. The Company typically provides a menu of offerings from which the customer chooses to purchase at its option. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is consistent for each service irrespective of the other services or quantities requested by the customer. For example, if the Company provides claims processing for both auto and general liability, those services are priced and delivered independently. These additional services represent optional purchases of additional claims management services and do not represent arrangements with multiple performance obligations.
14
Performance-based fees
The Company has contracts with certain clients within its International Operations that provide for additional fee revenues or revenue reductions based on its efficiency in managing claim portfolios and on the basis of claim outcomes and the resulting average claim costs for the respective portfolios. These amounts are in addition to, or a reduction of, the fee revenues discussed above. These performance-based revenues, which represent variable consideration, are based on performance metrics set forth in the underlying contracts. These are generally under multi-year contracts but with discrete individual contract year measurement periods that remain subject to adjustment until claim closure. Variable consideration is recognized when the Company concludes, based on all the facts and information available at the reporting date, that it is not probable that a significant revenue reversal will occur in future periods. Each period, the Company bases its estimates of performance-based revenues on an individual contract year basis, which are subject to adjustment in future years based on changes in average claim costs. Accordingly, the amounts represent the Company's best estimate of amounts earned using historical averages and other factors. Because the expectation of the ultimate contingent revenue amounts to be earned can vary from period to period, these estimates might change materially from quarter to quarter, and such adjustments may occur in future periods until the individual contract year measurement period is closed.
Contract Balances
The timing of revenue recognition, billings and cash collections result in billed accounts receivables, contract assets (reported as "Unbilled revenues at estimated billable amounts") and contract liabilities (reported as "Deferred revenues") on the Company’s unaudited Condensed Consolidated Balance Sheets. Unbilled revenues is a contract asset for revenue that has been recognized in advance of billing the customer, resulting from professional services delivered that the Company expects and is entitled to receive as consideration under certain contracts. Billing requirements vary by contract but substantially, all unbilled revenues are billed within one year.
When the Company receives consideration from a customer prior to transferring services to the customer under the terms of certain claims management agreements, it records Deferred revenues on the Company’s unaudited Condensed Consolidated Balance Sheets, which represents a contract liability. These fixed-fee service agreements typically result from the Broadspire segment and require the Company to handle claims on either a one- or two-year basis, or for the lifetime of the claim. In cases where it handles a claim on a non-lifetime basis, the Company typically receives an additional fee on each anniversary date that the claim remains open. For service agreements where it provides services for the life of the claim, the Company is paid one upfront fee regardless of the duration of the claim. The Company recognizes deferred revenues as revenues as it performs services and transfers control of the services to the customer and satisfies the performance obligation which it determines utilizing a portfolio approach.
The Company's deferred revenues for claims handled for one or two years are not as sensitive to changes in claim closing rates since the performance obligations are satisfied within a fixed length of time. Deferred revenues for lifetime claim handling are more sensitive to changes in claim closing rates since the Company is obligated to handle these claims to conclusion with no additional fees received for long-lived claims. For all fixed fee service agreements, revenues are recognized over the expected service periods by type of claim. Based upon its historical averages, the Company closes approximately 99% of all cases referred to it under lifetime claim service agreements within five years from the date of referral. Also, within that five-year period, the percentage of cases remaining open in any one particular year has remained relatively consistent from period to period. Each quarter the Company evaluates its historical case closing rates by type of claim utilizing a portfolio approach and adjusts deferred revenues as necessary. As a portfolio approach is utilized to recognize deferred revenues, any changes in estimates will impact the timing of revenue recognition and any changes in estimates are recognized in the period in which they are determined.
15
The table below presents the deferred revenues balance as of January 1, 2023 and the significant activity affecting deferred revenues during the nine months ended September 30, 2023:
(In Thousands) |
|
|
|
|
Customer Contract Liabilities |
|
Deferred |
|
|
Balance at January 1, 2023 |
|
$ |
54,019 |
|
Quarterly additions |
|
|
21,252 |
|
Revenue recognized from the prior periods |
|
|
(12,142 |
) |
Revenue recognized from current quarter additions |
|
|
(5,583 |
) |
Balance as of March 31, 2023 |
|
$ |
57,546 |
|
Quarterly additions |
|
|
28,734 |
|
Revenue recognized from the prior periods |
|
|
(16,250 |
) |
Revenue recognized from current quarter additions |
|
|
(10,608 |
) |
Balance as of June 30, 2023 |
|
$ |
59,422 |
|
Quarterly additions |
|
|
26,792 |
|
Revenue recognized from the prior periods |
|
|
(16,145 |
) |
Revenue recognized from current quarter additions |
|
|
(10,022 |
) |
Balance as of September 30, 2023 |
|
$ |
60,047 |
|
Remaining Performance Obligations
As of September 30, 2023, the Company had $103,400,000 of remaining performance obligations related to claims and non-claims services in which the price is fixed. Remaining performance obligations consist of deferred revenues as well as certain unbilled receivables where the claims processing has not yet occurred. The Company expects to recognize approximately 70% of its remaining performance obligations as revenues within one year and the remaining balance thereafter.
Costs to Obtain a Contract
The Company has a sales incentive compensation program where remuneration is based on the revenues recognized in the period. The remuneration does not represent an incremental cost to the Company that provides a future benefit expected to be longer than one year and would meet the criteria to be capitalized and presented as a contract asset on the Company's unaudited Condensed Consolidated Balance Sheets.
Practical Expedients Elected
As a practical expedient, the Company does not adjust the consideration in a contract for the effects of a significant financing component, when the period between a customer’s payment of consideration and the transfer of promised services to the customer is expected to be one year or less at contract inception.
For claims management services that are billed on a time and expense incurred or per unit basis, the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company does not disclose the value of remaining performance obligations for (i) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed, or (ii) contracts with variable consideration allocated entirely to a single performance obligation.
4. Credit Losses
The Company maintains an allowance for expected credit losses resulting primarily from the inability of clients to make payments on short-term account receivables, which are typically due upon receipt of an invoice. Such losses are accounted for as bad debt expense. These allowances are established using historical write-off or adjustment information to project future experience and by considering the current creditworthiness of clients, any known specific collection problems, and an assessment of current industry and economic conditions. We evaluate the risks related to our trade receivables and contract assets by considering customer type, geography, and aging. Actual experience may differ significantly from historical or expected loss results. The Company writes off account receivables when they become uncollectible, and any payments subsequently received are accounted for as recoveries.
16
5. Income Taxes
The Company's consolidated effective income tax rate may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from the Company's various domestic and international operations, which are subject to income taxes at different rates, the Company's ability to utilize net operating loss and tax credit carryforwards, amounts related to uncertain income tax positions and goodwill impairments.
The provision (benefit) for income taxes on consolidated income before income taxes totaled a provision of $6,781,000 and a benefit of $(13,286,000) for the three months ended September 30, 2023 and 2022, respectively. The overall effective tax rate decreased to 35.8% for the three months ended September 30, 2023 compared with 46.6% for the 2022 period primarily due to the impact of a partially non-deductible goodwill impairment in 2022.
The provision (benefit) for income taxes on consolidated income before income taxes totaled a provision of $17,258,000 and a benefit of $(8,092,000) for the nine months ended September 30, 2023 and 2022, respectively. The overall effective tax rate decreased to 35.6% for the nine months ended September 30, 2023 compared with 65.5% for the 2022 period primarily due to the impact of a partially non-deductible goodwill impairment in 2022.
6. Defined Benefit Pension Plans
Net periodic cost (benefit) related to all of the Company's defined benefit pension plans recognized in the Company's unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 included the following components:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Service cost |
|
$ |
362 |
|
|
$ |
315 |
|
|
$ |
1,075 |
|
|
$ |
1,006 |
|
Interest cost |
|
|
6,069 |
|
|
|
3,284 |
|
|
|
17,991 |
|
|
|
10,079 |
|
Expected return on assets |
|
|
(6,900 |
) |
|
|
(6,250 |
) |
|
|
(20,468 |
) |
|
|
(19,090 |
) |
Amortization of actuarial loss |
|
|
3,025 |
|
|
|
2,501 |
|
|
|
9,008 |
|
|
|
7,533 |
|
Net periodic cost (benefit) |
|
$ |
2,556 |
|
|
$ |
(150 |
) |
|
$ |
7,606 |
|
|
$ |
(472 |
) |
For the three months ended September 30, 2023 and 2022, the non-service components of net periodic pension expense (benefit) of $2,194,000 and $(465,000), respectively, are included in "Other (Loss) Income, net" on the unaudited Condensed Consolidated Statement of Operations.
For the nine months ended September 30, 2023 and 2022, the non-service components of net periodic pension expense (benefit) of $6,531,000 and $(1,478,000), respectively, are included in "Other (Loss) Income, net" on the unaudited Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2023, the Company made no contributions to the U.S. defined benefit pension plan and $1,795,000 to the U.K. defined benefit pension plans, as compared with no contributions to the U.S. defined benefit pension plan and $487,000 to the U.K. defined benefit pension plans during the nine months ended September 30, 2022, respectively.
7. Net Income Attributable to Shareholders of Crawford & Company per Common Share
The Company computes earnings per share of its non-voting Class A Common Stock ("CRD-A") and voting Class B Common Stock ("CRD-B") using the two-class method, which allocates the undistributed earnings in each period to each class on a proportionate basis. The Company's Board of Directors has the right, but not the obligation, to declare higher dividends on the CRD-A shares than on the CRD-B shares, subject to certain limitations. In periods when the dividend is the same for CRD-A and CRD-B or when no dividends are declared or paid to either class, the two-class method generally will yield the same earnings per share for CRD-A and CRD-B. During 2022 and 2023, the Board of Directors has declared the same dividend on CRD-A and CRD-B.
17
The computations of basic net income attributable to shareholders of Crawford & Company per common share were as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
||||||||
(in thousands, except per share amounts) |
|
CRD-A |
|
CRD-B |
|
CRD-A |
|
CRD-B |
|
CRD-A |
|
CRD-B |
|
CRD-A |
|
CRD-B |
Earnings (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings |
|
$5,288 |
|
$3,601 |
|
$(10,647) |
|
$(7,401) |
|
$13,143 |
|
$9,000 |
|
$(7,797) |
|
$(5,359) |
Dividends paid |
|
2,041 |
|
1,389 |
|
1,713 |
|
1,191 |
|
5,513 |
|
3,771 |
|
5,299 |
|
3,639 |
Net income (loss) attributable to common shareholders, basic |
|
$7,329 |
|
$4,990 |
|
$(8,934) |
|
$(6,210) |
|
$18,656 |
|
$12,771 |
|
$(2,498) |
|
$(1,720) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
29,140 |
|
19,837 |
|
28,553 |
|
19,848 |
|
28,980 |
|
19,845 |
|
29,397 |
|
20,202 |
Earnings (loss) per share - basic |
|
$0.25 |
|
$0.25 |
|
$(0.31) |
|
$(0.31) |
|
$0.64 |
|
$0.64 |
|
$(0.08) |
|
$(0.09) |
The computations of diluted net income attributable to shareholders of Crawford & Company per common share were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||
(in thousands, except per share amounts) |
|
CRD-A |
|
|
CRD-B |
|
|
CRD-A |
|
|
CRD-B |
|
|
CRD-A |
|
|
CRD-B |
|
|
CRD-A |
|
|
CRD-B |
|
||||||||
Earnings (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Allocation of undistributed earnings |
|
$ |
5,355 |
|
|
$ |
3,534 |
|
|
$ |
(10,647 |
) |
|
$ |
(7,401 |
) |
|
$ |
13,266 |
|
|
$ |
8,877 |
|
|
$ |
(7,797 |
) |
|
$ |
(5,359 |
) |
Dividends paid |
|
|
2,041 |
|
|
|
1,389 |
|
|
|
1,713 |
|
|
|
1,191 |
|
|
|
5,513 |
|
|
|
3,771 |
|
|
|
5,299 |
|
|
|
3,639 |
|
Net income (loss) attributable to common shareholders, diluted |
|
$ |
7,396 |
|
|
$ |
4,923 |
|
|
$ |
(8,934 |
) |
|
$ |
(6,210 |
) |
|
$ |
18,779 |
|
|
$ |
12,648 |
|
|
$ |
(2,498 |
) |
|
$ |
(1,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding, basic |
|
|
29,140 |
|
|
|
19,837 |
|
|
|
28,553 |
|
|
|
19,848 |
|
|
|
28,980 |
|
|
|
19,845 |
|
|
|
29,397 |
|
|
|
20,202 |
|
Weighted-average effect of dilutive securities |
|
|
923 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
679 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted-average common shares outstanding, diluted |
|
|
30,063 |
|
|
|
19,837 |
|
|
|
28,553 |
|
|
|
19,848 |
|
|
|
29,659 |
|
|
|
19,845 |
|
|
|
29,397 |
|
|
|
20,202 |
|
Earnings (loss) per share - diluted |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.31 |
) |
|
$ |
0.63 |
|
|
$ |
0.64 |
|
|
$ |
(0.08 |
) |
|
$ |
(0.09 |
) |
Listed below are the shares excluded from the denominator in the preceding computation of diluted earnings per share for CRD-A because their inclusion would have been antidilutive:
|
|
Three Months Ended |
|
Nine Months Ended |
||||
(in thousands) |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
Shares underlying stock options excluded |
|
100 |
|
1,542 |
|
1,171 |
|
1,542 |
Performance stock grants excluded because performance conditions have not been met (1) |
|
1,047 |
|
816 |
|
955 |
|
759 |
(1) Compensation cost is recognized for these performance stock grants based on expected achievement rates; however, no consideration is given to these performance stock grants when calculating diluted earnings per share until the performance measurements have been achieved.
18
The following table details shares issued during the three and nine months ended September 30, 2023 and 2022, including restricted shares that were returned prior to vesting. These shares are included from their dates of issuance in the weighted-average common shares used to compute basic and diluted earnings per share for CRD-A in the table above. There were no shares of CRD-B issued during any of these periods.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
CRD-A issued under the Non-Employee Director Stock Plan |
|
|
— |
|
|
|
5 |
|
|
|
134 |
|
|
|
99 |
|
CRD-A issued under the U.K. ShareSave Scheme |
|
|
17 |
|
|
|
— |
|
|
|
69 |
|
|
|
— |
|
CRD-A issued under the Employee Stock Purchase Plan |
|
|
154 |
|
|
|
124 |
|
|
|
181 |
|
|
|
124 |
|
CRD-A issued under the 2016 Omnibus Stock and Incentive Plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
Effective November 4, 2021, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of CRD-A or CRD-B (or a combination of the two) through December 31, 2023 (the “2021 Repurchase Authorization”). On February 10, 2022, the Company's Board of Directors authorized the addition of 5,000,000 shares of CRD-A or CRD-B (or a combination of the two) to its 2021 Repurchase Authorization which had a remaining authorization to purchase 413,317 shares on December 31, 2021. The Company's Board of Directors subsequently amended this authorization to allow for repurchases through December 31, 2024. Under the repurchase program, repurchases may be made through December 31, 2024 in the open market or privately negotiated transactions at such times and for such prices as management deems appropriate, subject to applicable regulatory guidelines. The authorization does not obligate Crawford to acquire any stock, and purchases may be commenced or suspended at any time based on market conditions and other factors that the Company deems appropriate. At September 30, 2023, there were 1,730,268 remaining shares authorized to repurchase under the 2021 Repurchase Authorization.
During the nine months ended September 30, 2023, the Company did not repurchase any shares of CRD-A and repurchased 63,103 shares of CRD-B at an average cost of $9.24. During the nine months ended September 30, 2022, the Company repurchased 2,656,474 shares of CRD-A and 963,472 shares of CRD-B at an average cost of $7.41 and $7.32, respectively.
8. Accumulated Other Comprehensive Loss
Comprehensive (loss) income for the Company consists of the total of net income, foreign currency translation adjustments, and accrued pension and retiree medical liability adjustments. Foreign currency translation adjustments include the net realized gains from intra-entity loans that are long-term in nature of $1,100,000 and $2,274,000 for the three and nine months ended September 30, 2023, respectively. The changes in components of "Accumulated other comprehensive loss" ("AOCL"), net of taxes and noncontrolling interests, included in the Company's unaudited condensed consolidated financial statements were as follows:
|
|
Three Months Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
(in thousands) |
|
Foreign |
|
|
Retirement |
|
|
AOCL |
|
|
Foreign |
|
|
Retirement |
|
|
AOCL |
|
||||||
Beginning balance |
|
$ |
(46,839 |
) |
|
$ |
(158,001 |
) |
|
$ |
(204,840 |
) |
|
$ |
(52,581 |
) |
|
$ |
(162,740 |
) |
|
$ |
(215,321 |
) |
Other comprehensive (loss) income before reclassifications |
|
|
(136 |
) |
|
|
— |
|
|
|
(136 |
) |
|
|
5,606 |
|
|
|
— |
|
|
|
5,606 |
|
Amounts reclassified from accumulated other comprehensive income to net income |
|
|
— |
|
|
|
2,399 |
|
|
|
2,399 |
|
|
|
— |
|
|
|
7,138 |
|
|
|
7,138 |
|
Net current period other comprehensive (loss) income |
|
|
(136 |
) |
|
|
2,399 |
|
|
|
2,263 |
|
|
|
5,606 |
|
|
|
7,138 |
|
|
|
12,744 |
|
Ending balance |
|
$ |
(46,975 |
) |
|
$ |
(155,602 |
) |
|
$ |
(202,577 |
) |
|
$ |
(46,975 |
) |
|
$ |
(155,602 |
) |
|
$ |
(202,577 |
) |
19
|
|
Three Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2022 |
|
||||||||||||||||||
(in thousands) |
|
Foreign |
|
|
Retirement |
|
|
AOCL |
|
|
Foreign |
|
|
Retirement |
|
|
AOCL |
|
||||||
Beginning balance |
|
$ |
(33,584 |
) |
|
$ |
(154,988 |
) |
|
$ |
(188,572 |
) |
|
$ |
(21,760 |
) |
|
$ |
(158,681 |
) |
|
$ |
(180,441 |
) |
Other comprehensive loss before reclassifications |
|
|
(7,237 |
) |
|
|
— |
|
|
|
(7,237 |
) |
|
|
(19,061 |
) |
|
|
— |
|
|
|
(19,061 |
) |
Amounts reclassified from accumulated other comprehensive income to net income |
|
|
— |
|
|
|
1,838 |
|
|
|
1,838 |
|
|
|
— |
|
|
|
5,531 |
|
|
|
5,531 |
|
Net current period other comprehensive (loss) income |
|
|
(7,237 |
) |
|
|
1,838 |
|
|
|
(5,399 |
) |
|
|
(19,061 |
) |
|
|
5,531 |
|
|
|
(13,530 |
) |
Ending balance |
|
$ |
(40,821 |
) |
|
$ |
(153,150 |
) |
|
$ |
(193,971 |
) |
|
$ |
(40,821 |
) |
|
$ |
(153,150 |
) |
|
$ |
(193,971 |
) |
(1) Retirement liabilities reclassified to net income are related to the amortization of actuarial losses and are included in "Other Income, net" in the Company's unaudited Condensed Consolidated Statements of Operations. See Note 6, "Defined Benefit Pension Plans" for additional details.
The other comprehensive loss amounts attributable to noncontrolling interests presented in the Company's unaudited Condensed Consolidated Statements of Shareholders' Investment are foreign currency translation adjustments.
9. Fair Value Measurements
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
|
|
|
|
|
Fair Value Measurements at September 30, 2023 |
|
||||||||||
|
|
|
|
|
|
|
|
Significant Other |
|
|
Significant |
|
||||
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
||||
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
(in thousands) |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds (1) |
|
$ |
10,553 |
|
|
$ |
10,553 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent earnout liability (2) |
|
$ |
12,236 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,236 |
|
(1) The fair values of the money market funds were based on recently quoted market prices and reported transactions in an active marketplace. Money market funds are included in the Company's unaudited Condensed Consolidated Balance Sheets as "Cash and cash equivalents."
(2) The contingent earnout liability relates to businesses acquired since 2020. See Note 12, "Business Acquisitions" for more information. The Level 3 fair value of the contingent earnout liability was estimated using internally-prepared revenue and EBITDA projections, and discount rates determined using a combination of observable and unobservable market data. The Company recognized a pretax contingent earnout expense totaling $2,127,000 and $3,100,000 in the three and nine months ended September 30, 2023 related to the fair value adjustment of earnout liabilities. The fair value adjustment is based on changes to projections of acquired entities over the respective earnout periods, which span multiple years. The fair value of the contingent earnout liability is included in "Other accrued liabilities" and "Other noncurrent liabilities" on the Company's Consolidated Balance Sheets, based upon the term of the contingent earnout agreement.
Fair Value Disclosures
There were no transfers of assets between fair value levels during the three and nine months ended September 30, 2023. The categorization of assets and liabilities within the fair value hierarchy and the measurement techniques are reviewed quarterly. Any transfers between levels are deemed to have occurred at the end of the quarter.
The fair values of accounts receivable, unbilled revenues, accounts payable and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The interest rate on the Company's variable rate long-term debt resets at least every 90 days; therefore, the recorded value approximates fair value.
20
Nonrecurring Fair Value Disclosures
Goodwill is an asset that represents the excess of the purchase price over the fair value of the separately identifiable net assets (tangible and intangible) acquired in certain business combinations. Indefinite-lived intangible assets consist of trade names associated with acquired businesses. Goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing at least annually. Other long-lived assets consist primarily of property and equipment, capitalized software, and amortizable intangible assets related to customer relationships, technology, and trade names with finite lives. Other long-lived assets are evaluated for impairment when impairment indicators are identified.
Goodwill is tested for impairment on October 1st of each year, or between annual impairment tests, if events or circumstances have occurred which indicate potential impairment of goodwill. When testing for impairment, the carrying value of each reporting unit, including goodwill, is compared with the estimated fair value of the respective reporting unit as determined utilizing a combination of the income and market approaches and is classified in Level 3 ot the fair value hierarchy.
During the third quarter of 2022, the Company identified goodwill impairment indicators in our International Operations reporting unit and Crawford Legal Services reporting unit, which are reflected in our International Operations reportable segment, as a result of a reduction in forecasted revenue and earnings, higher interest rates, and a lower Crawford & Company stock price. The Company also identified goodwill impairment indicators in its North America Loss Adjusting and Platform Solutions reportable segments related to the edjuster Inc. and Praxis Consulting Inc. reporting units, respectively, as these reporting units had minimal historical excess of fair value over the carrying value due to being recent acquisitions, given higher interest rates and a lower Crawford & Company stock price. As a result of these indicators, the Company performed an interim quantitative goodwill impairment test as of August 31, 2022 and recognized a pretax goodwill impairment of $36,808,000. The goodwill impairment charge reduced the carrying value of goodwill in the Company's edjuster Inc. and Praxis Consulting Inc. reporting units by $3,366,000 and $10,650,000, respectively. Goodwill related to the Company's International Operations and Crawford Legal Services reporting units was fully impaired with a charge of $19,640,000 and $3,152,000, respectively.
The key assumptions used in estimating the fair value of the Company's reporting units as of August 31, 2022 utilizing the income approach include the discount rate and the terminal growth rate. The discount rates utilized in estimating the fair value of the Company's reporting units as of August 31, 2022 ranged between 15.5% and 18.0%, reflecting its assessment of a market participant's view of the risks associated with the projected cash flows. The terminal growth rate used in the analysis was 2.0%. The assumptions used in estimating the fair values are based on currently available data and management's best estimate of revenues, EBITDA margin, and cash flows and, accordingly, a change in market conditions or other factors could have a material effect on the estimated values. There are inherent uncertainties related to the assumptions used and to management's application of these assumptions.
The Company did not identify any impairment indicators year to date 2023.
10. Segment Information
The Company has four reportable segments consisting of North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. The Company's reportable segments are comprised of the following:
21
Financial information for the three and nine months ended September 30, 2023 and 2022 related to the Company's reportable segments, including a reconciliation from segment operating earnings to income before income taxes, the most directly comparable GAAP financial measure, is presented below:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
79,390 |
|
|
$ |
66,822 |
|
|
$ |
232,344 |
|
|
$ |
197,035 |
|
International Operations |
|
|
98,066 |
|
|
|
86,066 |
|
|
|
285,241 |
|
|
|
269,048 |
|
Broadspire |
|
|
88,299 |
|
|
|
78,381 |
|
|
|
253,369 |
|
|
|
234,949 |
|
Platform Solutions |
|
|
59,839 |
|
|
|
63,655 |
|
|
|
188,297 |
|
|
|
166,262 |
|
Total segment revenues before reimbursements |
|
|
325,594 |
|
|
|
294,924 |
|
|
|
959,251 |
|
|
|
867,294 |
|
Reimbursements |
|
|
12,066 |
|
|
|
11,493 |
|
|
|
36,743 |
|
|
|
30,564 |
|
Total revenues |
|
$ |
337,660 |
|
|
$ |
306,417 |
|
|
$ |
995,994 |
|
|
$ |
897,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment Operating Earnings (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
10,468 |
|
|
$ |
3,750 |
|
|
$ |
22,433 |
|
|
$ |
10,533 |
|
International Operations |
|
|
2,197 |
|
|
|
(3,922 |
) |
|
|
8,974 |
|
|
|
(7,648 |
) |
Broadspire |
|
|
13,532 |
|
|
|
6,198 |
|
|
|
29,607 |
|
|
|
20,299 |
|
Platform Solutions |
|
|
8,523 |
|
|
|
10,080 |
|
|
|
26,595 |
|
|
|
22,714 |
|
Total segment operating earnings |
|
|
34,720 |
|
|
|
16,106 |
|
|
|
87,609 |
|
|
|
45,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Deduct) Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated corporate and shared costs, net |
|
|
(4,781 |
) |
|
|
(2,438 |
) |
|
|
(9,998 |
) |
|
|
(7,378 |
) |
Net corporate interest expense |
|
|
(4,556 |
) |
|
|
(2,903 |
) |
|
|
(13,264 |
) |
|
|
(6,201 |
) |
Stock option expense |
|
|
(145 |
) |
|
|
(142 |
) |
|
|
(440 |
) |
|
|
(478 |
) |
Amortization of customer-relationship intangible assets |
|
|
(1,986 |
) |
|
|
(1,998 |
) |
|
|
(5,864 |
) |
|
|
(5,784 |
) |
Contingent earnout adjustments |
|
|
(2,127 |
) |
|
|
(887 |
) |
|
|
(3,100 |
) |
|
|
(3,246 |
) |
Non-service pension (costs) credits |
|
|
(2,170 |
) |
|
|
532 |
|
|
|
(6,436 |
) |
|
|
1,646 |
|
Goodwill impairment |
|
|
— |
|
|
|
(36,808 |
) |
|
|
— |
|
|
|
(36,808 |
) |
Income (loss) before income taxes |
|
$ |
18,955 |
|
|
$ |
(28,538 |
) |
|
$ |
48,507 |
|
|
$ |
(12,351 |
) |
Operating earnings is the primary financial performance measure used by the Company's senior management and chief operating decision maker ("CODM") to evaluate the financial performance of the Company's operating segments and make resource allocation and certain compensation decisions. The Company believes this measure is useful to investors in that it allows them to evaluate segment operating performance using the same criteria used by the Company's senior management and CODM. Operating earnings will differ from net income computed in accordance with GAAP since operating earnings represents segment earnings before certain unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, contingent earnout adjustments, goodwill impairments, non-service pension costs and credits, income taxes, and net income or loss attributable to noncontrolling interests.
Segment operating earnings includes allocations of certain corporate and shared costs. If the Company changes its allocation methods or changes the types of costs that are allocated to its four operating segments, prior period amounts presented in the current period financial statements are adjusted to conform to the current allocation process.
Intersegment transactions are not material for any period presented. Certain of the Company’s reportable segments represent the aggregation of certain business units which represent separate operating segments.
22
Revenues before reimbursements by major service line in the International Operations, Broadspire and Platform Solutions segments are shown in the following table. The Company considers all North America Loss Adjusting revenues to be primarily derived from one service line.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
International Operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
International Loss Adjusting |
|
$ |
91,414 |
|
|
$ |
82,157 |
|
|
$ |
266,708 |
|
|
$ |
252,092 |
|
Crawford Legal Services |
|
|
6,652 |
|
|
|
3,909 |
|
|
|
18,533 |
|
|
|
16,956 |
|
Total Revenues before Reimbursements--International Operations |
|
$ |
98,066 |
|
|
$ |
86,066 |
|
|
$ |
285,241 |
|
|
$ |
269,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Broadspire |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Claims Management |
|
$ |
43,989 |
|
|
$ |
40,275 |
|
|
$ |
125,620 |
|
|
$ |
120,252 |
|
Medical Management |
|
|
44,310 |
|
|
|
38,106 |
|
|
|
127,749 |
|
|
|
114,697 |
|
Total Revenues before Reimbursements--Broadspire |
|
$ |
88,299 |
|
|
$ |
78,381 |
|
|
$ |
253,369 |
|
|
$ |
234,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Platform Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contractor Connection |
|
$ |
19,013 |
|
|
$ |
17,453 |
|
|
$ |
58,110 |
|
|
$ |
50,112 |
|
Networks |
|
|
34,160 |
|
|
|
40,809 |
|
|
|
110,027 |
|
|
|
100,840 |
|
Subrogation |
|
|
6,666 |
|
|
|
5,393 |
|
|
|
20,160 |
|
|
|
15,310 |
|
Total Revenues before Reimbursements--Platform Solutions |
|
$ |
59,839 |
|
|
$ |
63,655 |
|
|
$ |
188,297 |
|
|
$ |
166,262 |
|
11. Commitments and Contingencies
As part of the Company's credit facility, the Company maintains a letter of credit to satisfy certain of its own contractual requirements. On September 30, 2023, the aggregate committed amount of letters of credit outstanding under the credit facility was $8,852,000.
In the normal course of its business, the Company is sometimes named as a defendant or responsible party in suits or other actions by insureds or claimants contesting decisions made by the Company or its clients with respect to the settlement of claims. Additionally, certain clients of the Company have in the past brought, and may, in the future bring, claims for indemnification on the basis of alleged actions by the Company, its agents, or its employees in rendering services to clients. The majority of these claims are of the type covered by insurance maintained by the Company. However, the Company is responsible for the deductibles and self-insured retentions under various insurance coverages. In the opinion of Company management, adequate provisions have been made for such known and foreseeable risks. However, given the inherent unpredictability of litigation and disputes related to these matters, it is possible an adverse outcome or settlement, if not covered by insurance, could have a material effect on the Company's results of operations, financial position, or cash flows.
The Company is subject to numerous federal, state, and foreign labor, employment, worker health and safety, antitrust and competition, environmental and consumer protection, import/export, anti-corruption, and other laws. From time to time the Company faces claims and investigations by employees, former employees, and governmental entities under such laws or employment contracts with such employees or former employees. In addition, the Company may on occasion be engaged in disputes with certain of its clients, vendors or other trading partners. Such claims, investigations, negotiations, and any litigation involving the Company could divert management's time and attention from the Company's business operations and could potentially result in substantial costs of defense, settlement or other disposition, which could have a material adverse effect on the Company's results of operations, financial position, and cash flows. In the opinion of Company management, adequate provisions have been made for any items that are probable and reasonably estimable.
12. Business Acquisitions
R.P. van Dijk B.V. Acquisition
On April 1, 2022, the Company purchased assets associated with R.P. van Dijk B.V. ("Van Dijk"), a bodily injury loss adjusting company based in the Netherlands. The acquisition was funded primarily through additional borrowings under the Company’s credit facility. The purchase price included an initial cash consideration of $4,313,000, and an earn-out potential up to $2,200,000 payable over the next two years based on the achievement of revenue performance goals and other nonfinancial milestones over two one-year periods, beginning April 2022.
23
This acquisition expanded the Company's network in the Netherlands and strengthens its bodily injury loss adjusting service offering by adding a highly qualified team of adjusters experienced in managing complex loss events resulting in injury or death, as well as handling medical liability claims. The acquisition supports the Company's strategic aim of strengthening its expertise in all key territories in which it operates.
The acquisition accounting was based on the fair value of the acquisition consideration transferred to the sellers, assets acquired and liabilities assumed as of the acquisition date. At the acquisition date, the fair value of the contingent consideration payable was estimated to be $1,342,000. There have been no material changes to the fair value of the contingent consideration payable. Significant assumptions and estimates used in the valuation of intangible assets and contingent consideration included, but were not limited to future expected cash flows, including projected revenues and expenses, estimated customer attrition rates, and the applicable discount rates. These assumptions and estimates were level 3 inputs and based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
Final acquisition accounting for this acquisition was complete as of June 30, 2023.
13. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. The fair value of cash and cash equivalents approximates carrying value due to their short-term nature. Cash balances that are legally restricted as to usage or withdrawal are separately included in "Prepaid expenses and other current assets" within the Company's unaudited Condensed Consolidated Balance Sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company's unaudited Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown within the Company's unaudited Condensed Consolidated Statement of Cash Flows:
(In thousands) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||
Cash and cash equivalents |
|
$ |
49,208 |
|
|
$ |
46,007 |
|
|
$ |
33,099 |
|
|
$ |
53,228 |
|
Restricted cash within prepaid expenses and other current assets |
|
|
1,074 |
|
|
|
638 |
|
|
|
782 |
|
|
|
461 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
50,282 |
|
|
$ |
46,645 |
|
|
$ |
33,881 |
|
|
$ |
53,689 |
|
The Company also maintains funds in various trust accounts to administer claims for certain clients. These funds are not available for our general operating activities and, as such, have not been recorded in the accompanying unaudited Condensed Consolidated Balance Sheets.
24
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Crawford & Company
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Crawford & Company (the Company) as of September 30, 2023, the related condensed consolidated statements of operations and comprehensive income (loss) for the three and nine-month periods ended September 30, 2023 and 2022, the condensed consolidated statements of shareholders' investment for the three-month periods ended March 31, June 30 and September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations, comprehensive (loss) income, cash flows, and shareholders’ investment for the year then ended, and the related notes (not presented herein); and in our report dated March 6, 2023, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
November 6, 2023
Atlanta, Georgia
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Statements contained in this report that are not statements of historical fact are forward-looking statements made pursuant to the "safe harbor" provisions thereof. These statements may relate to, among other things, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses, expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectability of our billed and unbilled accounts receivable, financial results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, and our other long-term capital resource and liquidity requirements. These statements may also relate to our business strategies, goals and expectations concerning our market position, future operations, margins, case and project volumes, profitability, contingencies, liquidity position, and capital resources. The words "anticipate", "believe", "could", "would", "should", "estimate", "expect", "intend", "may", "plan", "goal", "strategy", "predict", "project", "will" and similar terms and phrases, or the negatives thereof, identify forward-looking statements contained in this report.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations and the forward-looking statements related to our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially adversely affect our financial condition and results of operations, and whether the forward-looking statements ultimately prove to be correct. Included among the risks and uncertainties we face are risks related to the following:
As a result, undue reliance should not be placed on any forward-looking statements. Actual results and trends in the future may differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements speak only as of the date they are made and we undertake no obligation to publicly update any of these forward-looking statements in light of new information or future events.
26
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with (i) our unaudited condensed consolidated financial statements and accompanying notes thereto for the three and nine months ended September 30, 2023 and 2022, and as of September 30, 2023, and December 31, 2022, contained in Item 1 of this Quarterly Report on Form 10-Q, and (ii) our Annual Report on Form 10-K for the year ended December 31, 2022. As described in Note 1, "Basis of Presentation," the financial results of our operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines are included in our consolidated financial statements on a two-month delayed basis (fiscal year-end of October 31) as permitted by U.S. generally accepted accounting principles ("GAAP") in order to provide sufficient time for accumulation of their results.
Business Overview
Based in Atlanta, Georgia, Crawford & Company (www.crawco.com) is a leading global provider of claims management and outsourcing solutions to insurance companies and self-insured entities with an expansive global network serving clients in more than 70 countries. The Company's two classes of stock are substantially identical, except with respect to voting rights for the Class B Common Stock (CRD-B), and protections for the non-voting Class A Common Stock (CRD-A). More information is available on the Company's website. The information contained on, or hyperlinked from, the Company's website is not a part of, and is not incorporated by reference into, this report.
We have a geographic reporting structure consisting of North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions. Our four reportable segments are comprised of the following:
As discussed in more detail in subsequent sections of this MD&A, our four reportable segments represent components of our Company for which separate financial information is available, and which is evaluated regularly by our chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing operating performance.
Insurance companies rely on us for certain services such as field investigation and the evaluation of property and casualty insurance claims. Self-insured entities typically rely on us for a broader range of services. In addition to field investigation and claims evaluation, we may also provide initial loss reporting services for their claimants, loss mitigation services such as medical bill review, medical case management and vocational rehabilitation, risk management information services, and loss fund administration to pay their claims. Our Contractor Connection service line provides a managed contractor network to insurance carriers and consumer markets.
The global claims management services market is highly competitive and comprised of a large number of companies that vary in size and that offer a varied scope of services. The demand from insurance companies and self-insured entities for services provided by independent claims service firms like us is largely dependent on industry-wide claims volumes, which are affected by, among other things, the insurance underwriting cycle, weather-related events, general economic activity, overall employment levels and workplace injury rates. Demand is also impacted by decisions insurance companies and self-insured entities make with respect to the level of claims outsourced to independent claim service firms as opposed to those handled by their own in-house claims adjusters. In addition, our ability to retain clients and maintain or increase case referrals is also dependent in part on our ability to continue to provide high-quality, competitively priced services and effective sales efforts.
We typically earn our revenues on an individual fee-per-claim basis for claims management services that we provide to insurance companies and self-insured entities. Accordingly, the volume of claim referrals to us is a key driver of our revenues. We cannot predict the future trend of case volumes for a number of reasons, including the frequency and severity of weather-related cases and the occurrence of natural and man-made disasters, which are a significant source of cases for us and are not subject to accurate forecasting.
27
Results of Operations
Executive Summary
Consolidated revenues before reimbursements increased $30.7 million, or 10.4%, for the three months ended September 30, 2023 and $92.0 million, or 10.6% for the nine months ended September 30, 2023, compared with the same periods of 2022. The increase in the 2023 third quarter was due to increases in our North America Loss Adjusting, International, and Broadspire operating segments. The increase in the year-to-date period was due to increases in all of our operating segments. Changes in foreign exchange rates increased our consolidated revenues before reimbursements by $0.6 million, or 0.2%, for the three months ended September 30, 2023 while reducing our consolidated revenues before reimbursements by $16.3 million, or 1.9% for the nine months ended September 30, 2023 as compared with the prior year periods. To illustrate this impact, segment revenues are presented below, using a constant exchange rate, for the three and nine months ended September 30, 2023.
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||||||
|
|
|
|
|
Based on exchange rates for the three months ended September 30, 2022 |
|
||||||||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
% Variance |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America Loss Adjusting |
|
$ |
79,390 |
|
|
$ |
66,822 |
|
|
|
18.8 |
% |
|
$ |
80,059 |
|
|
|
19.8 |
% |
International Operations |
|
|
98,066 |
|
|
|
86,066 |
|
|
|
13.9 |
% |
|
|
96,784 |
|
|
|
12.5 |
% |
Broadspire |
|
|
88,299 |
|
|
|
78,381 |
|
|
|
12.7 |
% |
|
|
88,299 |
|
|
|
12.7 |
% |
Platform Solutions |
|
|
59,839 |
|
|
|
63,655 |
|
|
|
(6.0 |
)% |
|
|
59,839 |
|
|
|
(6.0 |
)% |
Total revenues before reimbursements |
|
|
325,594 |
|
|
|
294,924 |
|
|
|
10.4 |
% |
|
|
324,981 |
|
|
|
10.2 |
% |
Reimbursements |
|
|
12,066 |
|
|
|
11,493 |
|
|
|
5.0 |
% |
|
|
12,584 |
|
|
|
9.5 |
% |
Total Revenues |
|
$ |
337,660 |
|
|
$ |
306,417 |
|
|
|
10.2 |
% |
|
$ |
337,565 |
|
|
|
10.2 |
% |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||
|
|
|
|
Based on exchange rates for the nine months ended September 30, 2022 |
|
||||||||||||||
(in thousands, except percentages) |
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
% Variance |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America Loss Adjusting |
$ |
232,344 |
|
|
$ |
197,035 |
|
|
|
17.9 |
% |
|
$ |
235,917 |
|
|
|
19.7 |
% |
International Operations |
|
285,241 |
|
|
|
269,048 |
|
|
|
6.0 |
% |
|
|
297,918 |
|
|
|
10.7 |
% |
Broadspire |
|
253,369 |
|
|
|
234,949 |
|
|
|
7.8 |
% |
|
|
253,369 |
|
|
|
7.8 |
% |
Platform Solutions |
|
188,297 |
|
|
|
166,262 |
|
|
|
13.3 |
% |
|
|
188,297 |
|
|
|
13.3 |
% |
Total revenues before reimbursements |
|
959,251 |
|
|
|
867,294 |
|
|
|
10.6 |
% |
|
|
975,501 |
|
|
|
12.5 |
% |
Reimbursements |
|
36,743 |
|
|
|
30,564 |
|
|
|
20.2 |
% |
|
|
38,704 |
|
|
|
26.6 |
% |
Total Revenues |
$ |
995,994 |
|
|
$ |
897,858 |
|
|
|
10.9 |
% |
|
$ |
1,014,205 |
|
|
|
13.0 |
% |
Excluding foreign currency impacts, consolidated revenues before reimbursements increased $30.1 million, or 10.2%, for the three months ended September 30, 2023, and increased $108.2 million, or 12.5% for the nine months ended September 30, 2023 compared with the same periods of 2022. Revenues from the North America Loss Adjusting segment increased in the 2023 third quarter and year-to-date periods due to an increase in new business in the U.S. Revenues from the International Operations segment increased in the 2023 third quarter and year-to-date periods primarily due to increases in the U.K., Europe, Asia, and Latin America. Revenues from the Broadspire segment increased for the quarter and year-to-date due to an increase in Claims and Medical Management revenues. Revenues from the Platform Solutions segment decreased in the third quarter due to a reduction in our Networks service line, although there is an increase in the current year-to-date period in all service lines. There was a $0.1 million increase in total company revenues in the 2023 third quarter and $1.4 million increase in the year-to-date period as a result of the 2022 Van Dijk acquisition. See Note 12, “Business Acquisitions” of our accompanying consolidated financial statements for more details of this activity.
Overall, there was a decrease in cases received of (1.6)% for the three months ended September 30, 2023 and a decrease of (5.1)% for the nine months ended September 30, 2023 due to a reduction of approximately 24,000 and 65,000 high-frequency, low-severity cases in our four operating segments that were present in the 2022 third quarter and year-to-date period, respectively, that generated minimal revenues in the comparable 2022 periods. This includes 5,000 and 17,000 cases received in our International Operations segment in the 2022 third quarter and year-to-date periods, respectively, as a result of a weather-related catastrophe in Australia for which revenues were recognized across several quarters as services were performed. In addition, our Platforms Solution segment generated a decrease in revenues of approximately $(4.9) million in the 2023 third quarter and an increase in revenues of $13.1 million in the 2023 year-to-date period not measured by cases where we provided dedicated employees to the clients. Accordingly, the overall increase in revenues in the 2023 periods does not necessarily correlate to the change in case volumes.
28
Cases received are presented below by segment for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
(whole numbers, except percentages) |
|
September 30, |
|
September 30, |
|
Variance |
|
September 30, |
|
September 30, |
|
Variance |
North America Loss Adjusting |
|
78,434 |
|
72,112 |
|
8.8% |
|
225,121 |
|
225,524 |
|
(0.2)% |
International Operations |
|
121,074 |
|
123,270 |
|
(1.8)% |
|
361,630 |
|
407,657 |
|
(11.3)% |
Broadspire |
|
143,173 |
|
141,658 |
|
1.1% |
|
415,343 |
|
414,503 |
|
0.2% |
Platform Solutions |
|
136,663 |
|
150,192 |
|
(9.0)% |
|
351,284 |
|
378,051 |
|
(7.1)% |
Total Crawford Cases Received |
|
479,344 |
|
487,232 |
|
(1.6)% |
|
1,353,378 |
|
1,425,735 |
|
(5.1)% |
To illustrate exposure to the impact of changes in foreign currencies, revenues before reimbursements are presented below by denominated currency for the three and nine months ended September 30, 2023:
|
|
|
|
Three Months Ended |
||||||
|
|
|
|
September 30, 2023 |
|
September 30, 2022 |
||||
(in thousands) |
|
|
|
USD equivalent |
|
% of total |
|
USD equivalent |
|
% of total |
U.S. |
|
USD |
|
$203,340 |
|
62.5% |
|
$183,197 |
|
62.1% |
U.K. |
|
GBP |
|
38,290 |
|
11.8% |
|
25,352 |
|
8.6% |
Canada |
|
CAD |
|
24,188 |
|
7.4% |
|
25,661 |
|
8.7% |
Australia |
|
AUD |
|
22,867 |
|
7.0% |
|
27,434 |
|
9.3% |
Europe |
|
EUR |
|
14,629 |
|
4.5% |
|
13,063 |
|
4.4% |
Rest of World |
|
|
|
22,280 |
|
6.8% |
|
20,217 |
|
6.9% |
Total Revenues, before reimbursements |
|
|
|
$325,594 |
|
|
|
$294,924 |
|
|
|
|
|
|
Nine Months Ended |
||||||
|
|
|
|
September 30, 2023 |
|
September 30, 2022 |
||||
(in thousands) |
|
|
|
USD equivalent |
|
% of total |
|
USD equivalent |
|
% of total |
U.S. |
|
USD |
|
$601,354 |
|
62.7% |
|
$523,650 |
|
60.4% |
U.K. |
|
GBP |
|
106,139 |
|
11.0% |
|
92,837 |
|
10.7% |
Canada |
|
CAD |
|
72,656 |
|
7.6% |
|
74,597 |
|
8.6% |
Australia |
|
AUD |
|
68,787 |
|
7.2% |
|
69,794 |
|
8.1% |
Europe |
|
EUR |
|
42,968 |
|
4.5% |
|
41,973 |
|
4.8% |
Rest of World |
|
|
|
67,347 |
|
7.0% |
|
64,443 |
|
7.4% |
Total Revenues, before reimbursements |
|
|
|
$959,251 |
|
|
|
$867,294 |
|
|
Costs of services provided, before reimbursements, increased $8.7 million, or 3.9%, for the three months ended September 30, 2023, and increased $46.1 million, or 7.2% for the nine months ended September 30, 2023 as compared with the 2022 periods. These increases were primarily due to an increase in compensation expense and other costs in each of our operating segments resulting from the higher revenues, partially offset by the change in exchange rates.
Selling, general, and administrative ("SG&A") expenses increased $6.9 million, or 11.0%, in the three months ended September 30, 2023 due to an increase in compensation expense, including incentive compensation and an increase in unallocated payroll tax and benefits costs. SG&A expenses increased $6.6 million, or 3.4%, in the nine months ended September 30, 2023 as compared with the 2022 period, primarily due to an increase in incentive compensation expense, payroll tax and benefits, and the $1.8 million gain on the sale of our Canadian head office building which occurred in the 2022 first quarter described below.
We recognized a pretax non-cash goodwill impairment in the three months ended September 30, 2022 totaling $36.8 million related to the North America Loss Adjusting ($3.4 million), International Operations ($22.7 million), and Platform Solutions ($10.7 million) reportable segments.
We sold our Canadian head office building in Kitchener, Ontario Canada in the first quarter of 2022 for $3.1 million and recognized a pretax gain on disposal of $1.8 million. This gain is recorded as a credit within Unallocated Corporate and Shared Costs and is included in “Selling, general, and administrative expenses” on the Company's unaudited Condensed Consolidated Statements of Operations.
Operating Earnings of our Operating Segments
We believe that a discussion and analysis of the segment operating earnings of our operating segments is helpful in understanding the results of our operations. Operating earnings is our segment measure of profitability presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting." Operating earnings is the primary financial performance measure used by our senior management and CODM to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions.
29
We believe operating earnings is a measure that is useful for others to evaluate segment operating performance using the same criteria used by our senior management and CODM. Segment operating earnings represents segment earnings, including the direct and indirect costs of certain administrative functions required to operate our business, but excludes unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, contingent earnout adjustments, goodwill impairments, non-service pension costs and credits, income taxes, and net income or loss attributable to noncontrolling interests.
Administrative functions such as finance, human resources, information technology, quality and compliance, exist both in a centralized shared-service arrangement and within certain operations. Each of these functions is managed by centralized management and the costs of those services is allocated to the segments as indirect costs based on usage.
Gross profit is defined as segment revenues, less segment direct costs, which exclude centralized indirect administrative support costs allocated to the business.
Income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, contingent earnout adjustments, and non-service pension costs and credits are recurring components of our net income, but they are not considered part of our segment operating earnings because they are managed on a corporate-wide basis. Income taxes are calculated for the Company on a consolidated basis based on statutory rates in effect in the various jurisdictions in which we provide services, and vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, affecting the Company as a whole. Stock option expense represents the non-cash costs generally related to stock options and employee stock purchase plan expenses which are not allocated to our operating segments. Contingent earnout adjustments represent fair value adjustments of earnout liabilities arising from recent acquisitions. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. Non-service pension costs and credits represent the U.S. and U.K. non-service defined benefit pension costs and credits, which are non-operating in nature as the U.S. plan is frozen and the U.K. plans are closed to new participants. The service cost component of the U.K. plans remains in compensation expense. The exclusion of this measurement is intended to exclude market volatility related to an expense that is non-operating in nature and not related to business performance. None of these costs relate directly to the performance of our services or operating activities and, therefore, are excluded from segment operating earnings in order to better assess the results of each segment's operating activities on a consistent basis.
Goodwill impairments arise from time to time due to various factors, but are not allocated to our operating segments since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.
Unallocated corporate and shared costs and credits include expenses and credits related to our chief executive officer and Board of Directors, certain provisions for bad debt allowances or subsequent recoveries such as those related to bankrupt clients, certain unallocated professional fees, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
Additional discussion and analysis of our income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, contingent earnout adjustments, goodwill impairments, non-service pension costs and credits, and unallocated corporate and shared costs and credits follows the discussion and analysis of the results of operations of our four operating segments.
Segment Revenues
In the normal course of business, our operating segments incur certain out-of-pocket expenses that are thereafter reimbursed by our clients. Under GAAP, these out-of-pocket expenses and associated reimbursements are reported on a gross basis when reporting revenues and expenses, respectively, in our unaudited Condensed Consolidated Statements of Operations. In the discussion and analysis of results of operations which follows, we do not include a gross up of expenses and revenues for these pass-through reimbursed expenses. The amounts of reimbursed expenses and related revenues offset each other in our results of operations with no impact to our net income or operating earnings. A reconciliation of revenues before reimbursements to total revenues determined in accordance with GAAP is presented on the face of the accompanying unaudited Condensed Consolidated Statements of Operations.
Our segment results are impacted by changes in foreign exchange rates. We believe that a non-GAAP discussion and analysis of segment revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, is helpful in understanding the results of our segment operations.
Segment Expenses
Our discussion and analysis of segment operating expenses is comprised of two components: "Direct Compensation, Fringe Benefits & Non-Employee Labor" and "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor."
"Direct Compensation, Fringe Benefits & Non-Employee Labor" includes direct compensation, payroll taxes, and benefits provided to the employees of each segment, as well as payments to outsourced service providers that augment our staff in each segment. As a service company, these costs represent our most significant and variable operating expenses.
30
Costs of administrative functions, including direct compensation, payroll taxes, and benefits, are managed centrally and considered indirect costs. The allocated indirect costs of our shared-services infrastructure are allocated to each segment based on usage and reflected within "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" of each segment.
In addition to allocated corporate and shared costs, "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" includes travel and entertainment, office rent and occupancy costs, automobile expenses, office operating expenses, data processing costs, cost of risk, professional fees, and amortization and depreciation expense other than amortization of customer-relationship intangible assets.
In addition, we believe that a non-GAAP discussion and analysis of segment gross profit is helpful in understanding the results of our segment operations, excluding indirect centralized administrative support costs. Our discussion and analysis of segment gross profit includes the revenues and direct expenses of each segment.
Unless noted in the following discussion and analysis, revenue amounts exclude reimbursements for out-of-pocket expenses and expense amounts exclude reimbursed out-of-pocket expenses.
Segment Performance Indicators
We typically earn our revenues on an individual fee-per-claim basis for claims management services we provide to carriers, brokers and corporates. Accordingly, the volume of claim referrals to us is a key driver of our revenues. We believe that a discussion and analysis of the segment unit volumes, as measured by cases received, is helpful in understanding the results of our operations.
31
Operating results for our North America Loss Adjusting, International Operations, Broadspire, and Platform Solutions segments reconciled to net income (loss) before income taxes and net income (loss) attributable to shareholders of Crawford & Company were follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
79,390 |
|
|
$ |
66,822 |
|
|
$ |
232,344 |
|
|
$ |
197,035 |
|
International Operations |
|
|
98,066 |
|
|
|
86,066 |
|
|
|
285,241 |
|
|
|
269,048 |
|
Broadspire |
|
|
88,299 |
|
|
|
78,381 |
|
|
|
253,369 |
|
|
|
234,949 |
|
Platform Solutions |
|
|
59,839 |
|
|
|
63,655 |
|
|
|
188,297 |
|
|
|
166,262 |
|
Total Revenues before reimbursements |
|
|
325,594 |
|
|
|
294,924 |
|
|
|
959,251 |
|
|
|
867,294 |
|
Reimbursements |
|
|
12,066 |
|
|
|
11,493 |
|
|
|
36,743 |
|
|
|
30,564 |
|
Total Revenues |
|
$ |
337,660 |
|
|
$ |
306,417 |
|
|
$ |
995,994 |
|
|
$ |
897,858 |
|
Direct Compensation, Fringe Benefits & Non-Employee Labor: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
53,635 |
|
|
$ |
48,331 |
|
|
$ |
162,418 |
|
|
$ |
142,937 |
|
% of related revenues before reimbursements |
|
|
67.6 |
% |
|
|
72.3 |
% |
|
|
69.9 |
% |
|
|
72.5 |
% |
International Operations |
|
|
66,426 |
|
|
|
61,666 |
|
|
|
190,178 |
|
|
|
190,273 |
|
% of related revenues before reimbursements |
|
|
67.7 |
% |
|
|
71.6 |
% |
|
|
66.7 |
% |
|
|
70.7 |
% |
Broadspire |
|
|
54,310 |
|
|
|
49,863 |
|
|
|
161,451 |
|
|
|
147,611 |
|
% of related revenues before reimbursements |
|
|
61.5 |
% |
|
|
63.6 |
% |
|
|
63.7 |
% |
|
|
62.8 |
% |
Platform Solutions |
|
|
39,638 |
|
|
|
42,106 |
|
|
|
124,238 |
|
|
|
110,424 |
|
% of related revenues before reimbursements |
|
|
66.2 |
% |
|
|
66.1 |
% |
|
|
66.0 |
% |
|
|
66.4 |
% |
Total |
|
$ |
214,009 |
|
|
$ |
201,966 |
|
|
$ |
638,285 |
|
|
$ |
591,245 |
|
% of Revenues before reimbursements |
|
|
65.7 |
% |
|
|
68.5 |
% |
|
|
66.5 |
% |
|
|
68.2 |
% |
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
15,287 |
|
|
$ |
14,741 |
|
|
$ |
47,493 |
|
|
$ |
43,565 |
|
% of related revenues before reimbursements |
|
|
19.3 |
% |
|
|
22.1 |
% |
|
|
20.4 |
% |
|
|
22.1 |
% |
International Operations |
|
|
29,443 |
|
|
|
28,322 |
|
|
|
86,089 |
|
|
|
86,423 |
|
% of related revenues before reimbursements |
|
|
30.0 |
% |
|
|
32.9 |
% |
|
|
30.2 |
% |
|
|
32.1 |
% |
Broadspire |
|
|
20,457 |
|
|
|
22,320 |
|
|
|
62,311 |
|
|
|
67,039 |
|
% of related revenues before reimbursements |
|
|
23.2 |
% |
|
|
28.5 |
% |
|
|
24.6 |
% |
|
|
28.5 |
% |
Platform Solutions |
|
|
11,678 |
|
|
|
11,469 |
|
|
|
37,464 |
|
|
|
33,124 |
|
% of related revenues before reimbursements |
|
|
19.5 |
% |
|
|
18.0 |
% |
|
|
19.9 |
% |
|
|
19.9 |
% |
Total before reimbursements |
|
|
76,865 |
|
|
|
76,852 |
|
|
|
233,357 |
|
|
|
230,151 |
|
% of Revenues before reimbursements |
|
|
23.6 |
% |
|
|
26.1 |
% |
|
|
24.3 |
% |
|
|
26.5 |
% |
Reimbursements |
|
|
12,066 |
|
|
|
11,493 |
|
|
|
36,743 |
|
|
|
30,564 |
|
Total |
|
$ |
88,931 |
|
|
$ |
88,345 |
|
|
$ |
270,100 |
|
|
$ |
260,715 |
|
% of Revenues |
|
|
26.3 |
% |
|
|
28.8 |
% |
|
|
27.1 |
% |
|
|
29.0 |
% |
Segment Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America Loss Adjusting |
|
$ |
10,468 |
|
|
$ |
3,750 |
|
|
$ |
22,433 |
|
|
$ |
10,533 |
|
% of related revenues before reimbursements |
|
|
13.2 |
% |
|
|
5.6 |
% |
|
|
9.7 |
% |
|
|
5.3 |
% |
International Operations |
|
|
2,197 |
|
|
|
(3,922 |
) |
|
|
8,974 |
|
|
|
(7,648 |
) |
% of related revenues before reimbursements |
|
|
2.2 |
% |
|
|
(4.6 |
)% |
|
|
3.1 |
% |
|
|
(2.8 |
)% |
Broadspire |
|
|
13,532 |
|
|
|
6,198 |
|
|
|
29,607 |
|
|
|
20,299 |
|
% of related revenues before reimbursements |
|
|
15.3 |
% |
|
|
7.9 |
% |
|
|
11.7 |
% |
|
|
8.6 |
% |
Platform Solutions |
|
|
8,523 |
|
|
|
10,080 |
|
|
|
26,595 |
|
|
|
22,714 |
|
% of related revenues before reimbursements |
|
|
14.2 |
% |
|
|
15.8 |
% |
|
|
14.1 |
% |
|
|
13.7 |
% |
Deduct (Add): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated corporate and shared costs, net |
|
|
(4,781 |
) |
|
|
(2,438 |
) |
|
|
(9,998 |
) |
|
|
(7,378 |
) |
Net corporate interest expense |
|
|
(4,556 |
) |
|
|
(2,903 |
) |
|
|
(13,264 |
) |
|
|
(6,201 |
) |
Stock option expense |
|
|
(145 |
) |
|
|
(142 |
) |
|
|
(440 |
) |
|
|
(478 |
) |
Amortization of customer-relationship intangible assets |
|
|
(1,986 |
) |
|
|
(1,998 |
) |
|
|
(5,864 |
) |
|
|
(5,784 |
) |
Contingent earnout adjustments |
|
|
(2,127 |
) |
|
|
(887 |
) |
|
|
(3,100 |
) |
|
|
(3,246 |
) |
Non-service pension (costs) credits |
|
|
(2,170 |
) |
|
|
532 |
|
|
|
(6,436 |
) |
|
|
1,646 |
|
Goodwill impairment |
|
|
— |
|
|
|
(36,808 |
) |
|
|
— |
|
|
|
(36,808 |
) |
Income (loss) before income taxes |
|
|
18,955 |
|
|
|
(28,538 |
) |
|
|
48,507 |
|
|
|
(12,351 |
) |
(Provision) benefit for income taxes |
|
|
(6,781 |
) |
|
|
13,286 |
|
|
|
(17,258 |
) |
|
|
8,092 |
|
Net income (loss) |
|
|
12,174 |
|
|
|
(15,252 |
) |
|
|
31,249 |
|
|
|
(4,259 |
) |
Net loss attributable to noncontrolling interests |
|
|
145 |
|
|
|
108 |
|
|
|
178 |
|
|
|
41 |
|
Net income (loss) attributable to shareholders of Crawford & Company |
|
$ |
12,319 |
|
|
$ |
(15,144 |
) |
|
$ |
31,427 |
|
|
$ |
(4,218 |
) |
32
NORTH AMERICA LOSS ADJUSTING SEGMENT
Operating earnings in our North America Loss Adjusting segment totaled $10.5 million, or 13.2% of revenues before reimbursements, for the three months ended September 30, 2023, compared with 2022 operating earnings of $3.8 million, or 5.6% of revenues before reimbursements. For the nine months ended September 30, 2023, our North American Loss Adjusting segment reported operating earnings of $22.4 million, or 9.7% of revenues before reimbursements, compared with 2022 operating earnings of $10.5 million, or 5.3% of revenues before reimbursements. The increase in operating earnings in the 2023 third quarter and year-to-date periods were primarily due to the increase in revenues in the U.S. and improved staff utilization.
Excluding centralized indirect support costs, gross profit increased from $12.4 million, or 18.5% of revenues before reimbursements in 2022, to $19.7 million, or 24.9% of revenues before reimbursements, in the three months ended September 30, 2023. For the nine months ended September 30, 2023, gross profit increased from $35.0 million, or 17.8% of revenues before reimbursements in 2022, to $50.4 million, or 21.7% of revenues before reimbursements, due primarily to the increase in revenues in the U.S. and improved staff utilization.
Operating results for our North America Loss Adjusting segment, including gross profit, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
In thousands (except percentages) |
||||||||
|
|
Based on actual exchange rates |
|
Based on exchange rates |
||||||
Three Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
|
2023 |
|
Variance |
Revenues |
|
$79,390 |
|
$66,822 |
|
18.8% |
|
$80,059 |
|
19.8% |
Direct expenses |
|
59,653 |
|
54,428 |
|
9.6% |
|
60,196 |
|
10.6% |
Gross profit |
|
19,737 |
|
12,394 |
|
59.2% |
|
19,863 |
|
60.3% |
Indirect expenses |
|
9,269 |
|
8,644 |
|
7.2% |
|
9,370 |
|
8.4% |
Total North America Loss Adjusting Operating Earnings |
|
$10,468 |
|
$3,750 |
|
179.1% |
|
$10,493 |
|
179.8% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
24.9% |
|
18.5% |
|
6.4% |
|
24.8% |
|
6.3% |
Operating margin |
|
13.2% |
|
5.6% |
|
7.6% |
|
13.1% |
|
7.5% |
|
|
In thousands (except percentages) |
||||||||
|
|
Based on actual exchange rates |
|
Based on exchange rates |
||||||
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
|
2023 |
|
Variance |
Revenues |
|
$232,344 |
|
$197,035 |
|
17.9% |
|
$235,917 |
|
19.7% |
Direct expenses |
|
181,905 |
|
161,997 |
|
12.3% |
|
184,920 |
|
14.2% |
Gross profit |
|
50,439 |
|
35,038 |
|
44.0% |
|
50,997 |
|
45.5% |
Indirect expenses |
|
28,006 |
|
24,505 |
|
14.3% |
|
28,626 |
|
16.8% |
Total North America Loss Adjusting Operating Earnings |
|
$22,433 |
|
$10,533 |
|
113.0% |
|
$22,371 |
|
112.4% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
21.7% |
|
17.8% |
|
3.9% |
|
21.6% |
|
3.8% |
Operating margin |
|
9.7% |
|
5.3% |
|
4.4% |
|
9.5% |
|
4.2% |
33
Revenues before Reimbursements
North America Loss Adjusting segment revenues are primarily derived from the property and casualty insurance company markets in the U.S. and Canada. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
Based on actual exchange rates |
|
|
Based on exchange rates |
|
||||||||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
Variance |
|
|||||
U.S. |
|
$ |
55,202 |
|
|
$ |
41,161 |
|
|
|
34.1 |
% |
|
$ |
55,202 |
|
|
|
34.1 |
% |
Canada |
|
|
24,188 |
|
|
|
25,661 |
|
|
|
(5.7 |
)% |
|
|
24,857 |
|
|
|
(3.1 |
)% |
Total North America Loss Adjusting Revenues before Reimbursements |
|
$ |
79,390 |
|
|
$ |
66,822 |
|
|
|
18.8 |
% |
|
$ |
80,059 |
|
|
|
19.8 |
% |
|
|
Nine Months Ended |
|
|||||||||||||||||
|
|
Based on actual exchange rates |
|
|
Based on exchange rates |
|
||||||||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
Variance |
|
|||||
U.S. |
|
$ |
159,688 |
|
|
$ |
122,438 |
|
|
|
30.4 |
% |
|
$ |
159,688 |
|
|
|
30.4 |
% |
Canada |
|
|
72,656 |
|
|
|
74,597 |
|
|
|
(2.6 |
)% |
|
|
76,229 |
|
|
|
2.2 |
% |
Total North America Loss Adjusting Revenues before Reimbursements |
|
$ |
232,344 |
|
|
$ |
197,035 |
|
|
|
17.9 |
% |
|
$ |
235,917 |
|
|
|
19.7 |
% |
Revenues before reimbursements from our North America Loss Adjusting segment totaled $79.4 million in the three months ended September 30, 2023, compared with $66.8 million in the 2022 period. This increase was due to increased business in the U.S. from both new and existing clients and increased utilization. The change in exchange rates decreased our North America Loss Adjusting segment revenues by approximately 1.0%, or $0.7 million, for the three months ended September 30, 2023 as compared with the 2022 period. Absent foreign exchange rate fluctuations, North America Loss Adjusting segment revenues would have been $80.1 million for the three months ended September 30, 2023. There was an increase in segment unit volume, measured principally by cases received, of 8.8% for the three months ended September 30, 2023, compared with the 2022 period, due to an increase in clients and associated staff in the U.S., partially offset by reduction in Canada. Changes in product mix and in the rates charged for those services accounted for an 11.0% revenue increase for the three months ended September 30, 2023 compared with the same period in 2022, due to increases in pricing and average fee per case.
Revenues before reimbursements from our North America Loss Adjusting segment totaled $232.3 million in the nine months ended September 30, 2023, compared with $197.0 million in the 2022 period. This increase was due to increased business in the U.S. from both new and existing clients, and an increase in weather-related cases. The change in exchange rates decreased our North America Loss Adjusting segment revenues by approximately 1.8%, or $3.6 million, for the nine months ended September 30, 2023 as compared with the 2022 period. Absent foreign exchange rate fluctuations, North America Loss Adjusting segment revenues would have been $235.9 million for the nine months ended September 30, 2023. There was a slight decrease in segment unit volume, measured principally by cases received, of (0.2)% for the nine months ended September 30, 2023, compared with the 2022 period, due to a change in the mix of services provided and reduction in high-frequency, low-severity cases that were present in the prior year. Excluding 17,400 high-frequency, low-severity cases received in the 2022 period for which minimal revenues were recognized, cases received would have increased by 8.2% in the 2023 year-to-date period compared with 2022. Revenues from these cases were recognized across several quarters as services were performed. Changes in product mix and in the rates charged for those services accounted for an 11.5% revenue increase for the nine months ended September 30, 2023 compared with the same period in 2022, due to increases in pricing and average fee per case.
The increase in revenues in the U.S. for the three and nine months ended September 30, 2023 was due to an increase in both Field Operations and Global Technical Services revenues in the current year, as a result of an increase in expert adjusting staff and increased business from new and existing clients. Based on constant foreign exchange rates, there was a slight decrease in revenues in Canada in the 2023 third quarter, although an increase in the 2023 year-to-date period, compared with 2022, partially offset by a reduction in high-frequency, low-severity cases in 2023.
34
Revenue variance components for our North America Loss Adjusting segment, for the three and nine months ended September 30, 2023 are summarized as follows:
2023 Period compared to 2022 Period Ending: |
|
For the Three Months |
|
For the Nine Months |
Increase (decrease) in cases received |
|
8.8% |
|
(0.2)% |
Decrease due to foreign currency exchange rates |
|
(1.0)% |
|
(1.8)% |
High-frequency, low-severity cases received in 2022 with minimal 2022 revenues |
|
— |
|
8.4% |
Change in product mix and rates |
|
11.0% |
|
11.5% |
Increase in Revenues before Reimbursements |
|
18.8% |
|
17.9% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our North America Loss Adjusting segment, which are included in total Company revenues, were $2.5 million and $2.2 million for the three months ended September 30, 2023 and 2022, respectively. Reimbursements were $7.8 million and $6.2 million for the nine months ended September 30, 2023 and 2022, respectively. These increases were due to the increase in revenues, partially offset by a change in the mix of claims handled in Canada.
Case Volume Analysis
North America Loss Adjusting segment unit volumes by geographic region, measured by cases received, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
(whole numbers, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
||||||
U.S. |
|
|
41,624 |
|
|
|
32,279 |
|
|
|
29.0 |
% |
|
|
115,398 |
|
|
|
100,694 |
|
|
|
14.6 |
% |
Canada |
|
|
36,810 |
|
|
|
39,833 |
|
|
|
(7.6 |
)% |
|
|
109,723 |
|
|
|
124,830 |
|
|
|
(12.1 |
)% |
Total North America Loss Adjusting Cases Received |
|
|
78,434 |
|
|
|
72,112 |
|
|
|
8.8 |
% |
|
|
225,121 |
|
|
|
225,524 |
|
|
|
(0.2 |
)% |
Overall, there was an increase in cases of 8.8% in the three months ended September 30, 2023, compared to the same period in 2022. The increase in U.S. case volumes in the 2023 third quarter was due to an increase in cases from both new and existing clients. There was a decrease in cases in Canada in the 2023 third quarter due to a change in the mix of services provided resulting from fewer high-frequency, low-severity cases, compared with the 2022 period.
There was a slight decrease in cases of (0.2)% in the nine months ended September 30, 2023, compared to the same period in 2022. There was an increase in U.S. case volumes in the year-to-date period due to an increase from both new and existing clients and an increase in weather-related activity. There was a decrease in cases in Canada in the nine-month period due to a change in the mix of services provided resulting from fewer high-frequency, low-severity cases in the 2023 year-to-date period. There were approximately 12,200 high-frequency, low-severity Contractor Connection and automobile cases received in Canada in the 2022 year-to-date period, and 5,200 high-frequency, low-severity cases received in the U.S. for which minimal revenues were recognized. Excluding these cases, North America Loss Adjusting cases would have increased by 17,000, or 8.2%, in the 2023 year-to-date period, compared to 2022.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our North America Loss Adjusting segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses were 67.6% for the three months ended September 30, 2023 compared with 72.3% for the 2022 period. For the nine months ended September 30, 2023, direct compensation, fringe benefits, and non-employee labor expenses were 69.9% compared with 72.5% for the 2022 period. The total dollar amount of these expenses increased to $53.6 million for the three months ended September 30, 2023 from $48.3 million for the comparable 2022 period, and were $162.4 million for the nine months ended September 30, 2023 compared to $142.9 million in 2022. The increase in amounts was due to an increase in employees required to handle the increased cases. The decrease in the percentage of revenues before reimbursements is due to the increased revenues and improved staff utilization, compared to the 2022 periods. There was an average of 2,058 full-time equivalent employees in this segment in the nine months ended September 30, 2023 compared with an average of 1,997 in the 2022 period.
35
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
North America Loss Adjusting expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $15.3 million for the three months ended September 30, 2023 compared with $14.7 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 19.3% for the three months ended September 30, 2023 compared with 22.1% for the 2022 period. For the nine months ended September 30, 2023, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $47.5 million, compared with $43.6 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 20.4% for the nine months ended September 30, 2023, compared with 22.1% for the 2022 period. The increase in the current year amounts was due to the higher revenues and technology investments, and an increase in the allowance for estimated credit losses. The decrease in the expense as a percentage of revenues before reimbursements is due to operating leverage from the increased revenues.
INTERNATIONAL OPERATIONS SEGMENT
Operating earnings in our International Operations segment were $2.2 million, or 2.2% of revenues before reimbursements, for the three months ended September 30, 2023, compared with an operating loss of $(3.9) million, or (4.6)% of revenues before reimbursements, in the 2022 period. For the nine months ended September 30, 2023, our International Operations segment reported operating earnings of $9.0 million, or 3.1% of revenues before reimbursements, compared with an operating loss in 2022 of $(7.6) million, or (2.8)% of revenues before reimbursements. The increase in operating earnings in the 2023 periods was primarily due to increased revenues in the U.K., Europe, Asia, and Latin America, and cost reductions in various international operations.
Excluding centralized indirect support costs, gross profit increased from $9.4 million, or 10.9% of revenues before reimbursements in 2022, to $14.5 million, or 14.8% of revenues before reimbursements, in the three months ended September 30, 2023. For the nine months ended September 30, 2023, gross profit increased from $32.4 million, or 12.1% of revenues before reimbursements in 2022, to $47.2 million, or 16.6% of revenues before reimbursements. These increases were primarily due to increased revenues and cost reductions in various operations.
Operating results for our International Operations segment, including gross profit, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
In thousands (except percentages) |
||||||||
|
|
Based on actual exchange rates |
|
Based on exchange rates |
||||||
Three Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
|
2023 |
|
Variance |
Revenues |
|
$98,066 |
|
$86,066 |
|
13.9% |
|
$96,784 |
|
12.5% |
Direct expenses |
|
83,592 |
|
76,677 |
|
9.0% |
|
82,331 |
|
7.4% |
Gross profit |
|
14,474 |
|
9,389 |
|
54.2% |
|
14,453 |
|
53.9% |
Indirect expenses |
|
12,277 |
|
13,311 |
|
(7.8)% |
|
12,070 |
|
(9.3)% |
Total International Operations Operating Earnings (Loss) |
|
$2,197 |
|
$(3,922) |
|
156.0% |
|
$2,383 |
|
(160.8)% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
14.8% |
|
10.9% |
|
3.9% |
|
14.9% |
|
4.0% |
Operating margin |
|
2.2% |
|
(4.6)% |
|
6.8% |
|
2.5% |
|
7.1% |
|
|
In thousands (except percentages) |
||||||||
|
|
Based on actual exchange rates |
|
Based on exchange rates |
||||||
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
|
2023 |
|
Variance |
Revenues |
|
$285,241 |
|
$269,048 |
|
6.0% |
|
$297,918 |
|
10.7% |
Direct expenses |
|
238,032 |
|
236,602 |
|
0.6% |
|
248,225 |
|
4.9% |
Gross profit |
|
47,209 |
|
32,446 |
|
45.5% |
|
49,693 |
|
53.2% |
Indirect expenses |
|
38,235 |
|
40,094 |
|
(4.6)% |
|
39,942 |
|
(0.4)% |
Total International Operations Operating Earnings (Loss) |
|
$8,974 |
|
$(7,648) |
|
217.3% |
|
$9,751 |
|
(227.5)% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
16.6% |
|
12.1% |
|
4.5% |
|
16.7% |
|
4.6% |
Operating margin |
|
3.1% |
|
(2.8)% |
|
5.9% |
|
3.3% |
|
6.1% |
36
Revenues before Reimbursements
International Operations segment revenues are primarily derived from the global property and casualty insurance company markets in the U.K, Europe, Australia, Asia and Latin America. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||||||||||||||
|
|
Based on actual exchange rates |
|
|
Based on exchange rates |
|
||||||||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
Variance |
|
|||||
U.K. |
|
$ |
38,290 |
|
|
$ |
25,352 |
|
|
|
51.0 |
% |
|
$ |
37,035 |
|
|
|
46.1 |
% |
Europe |
|
|
22,331 |
|
|
|
20,535 |
|
|
|
8.7 |
% |
|
|
21,814 |
|
|
|
6.2 |
% |
Australia |
|
|
22,867 |
|
|
|
27,434 |
|
|
|
(16.6 |
)% |
|
|
23,819 |
|
|
|
(13.2 |
)% |
Asia |
|
|
5,601 |
|
|
|
5,196 |
|
|
|
7.8 |
% |
|
|
5,589 |
|
|
|
7.6 |
% |
Latin America |
|
|
8,977 |
|
|
|
7,549 |
|
|
|
18.9 |
% |
|
|
8,527 |
|
|
|
13.0 |
% |
Total International Operations Revenues before Reimbursements |
|
$ |
98,066 |
|
|
$ |
86,066 |
|
|
|
13.9 |
% |
|
$ |
96,784 |
|
|
|
12.5 |
% |
|
|
Nine Months Ended |
||||||||
|
|
Based on actual exchange rates |
|
Based on exchange rates |
||||||
(in thousands, except percentages) |
|
September 30, |
|
September 30, |
|
Variance |
|
September 30, |
|
Variance |
U.K. |
|
$106,139 |
|
$92,837 |
|
14.3% |
|
$111,563 |
|
20.2% |
Europe |
|
68,255 |
|
68,217 |
|
0.1% |
|
70,805 |
|
3.8% |
Australia |
|
68,787 |
|
69,794 |
|
(1.4)% |
|
73,107 |
|
4.7% |
Asia |
|
17,116 |
|
16,376 |
|
4.5% |
|
17,590 |
|
7.4% |
Latin America |
|
24,944 |
|
21,824 |
|
14.3% |
|
24,853 |
|
13.9% |
Total International Operations Revenues before Reimbursements |
|
$285,241 |
|
$269,048 |
|
6.0% |
|
$297,918 |
|
10.7% |
Revenues before reimbursements from our International Operations segment totaled $98.1 million in the three months ended September 30, 2023, compared with $86.1 million in the 2022 period. This increase was primarily due to an increase in the U.K., Europe and Latin America. The change in exchange rates increased our International Operations segment revenues by approximately 1.4%, or $1.3 million, for the three months ended September 30, 2023 as compared with the 2022 period. Absent foreign exchange rate fluctuations, International Operations segment revenues would have been $96.8 million for the three months ended September 30, 2023. There was a $0.1 million increase, or 0.1% increase in International Operations revenues in the quarter as a result of the 2022 Van Dijk acquisition in Europe. There was a decrease in segment unit volume, measured principally by cases received, of (1.8)% for the three months ended September 30, 2023, compared with the 2022 period, due to a change in the mix of services provided between quarters. There were 5,000 cases received in Australia in the 2022 third quarter as a result of a weather-related catastrophe for which revenues were recognized across several quarters as services were performed. In addition, cases declined 5.2% due to a decrease of 6,500 high-frequency, low-severity cases received in Europe in the 2022 third quarter for which only minimal revenues were recognized. Changes in product mix and in the rates charged for those services accounted for a 4.9% revenue increase for the three months ended September 30, 2023 compared with the same period in 2022.
Revenues before reimbursements from our International Operations segment totaled $285.2 million in the nine months ended September 30, 2023, compared with $269.0 million in the 2022 period. This increase was primarily due to increases in the U.K. and Latin America. The change in exchange rates decreased our International Operations segment revenues by approximately 4.7%, or $12.7 million, for the nine months ended September 30, 2023 as compared with 2022. Absent foreign exchange rate fluctuations, International Operations segment revenues would have been $297.9 million for the nine months ended September 30, 2023. There was a $1.4 million increase, or 0.5% increase in International Operations revenues in the year-to-date period as a result of the Van Dijk acquisition in Europe. There was a decrease in segment unit volume, measured principally by cases received, of (11.3)% for the nine months ended September 30, 2023, compared with the 2022 period, due to a change in the mix of services provided between periods. There were 17,000 cases received in Australia in the 2022 period as a result of a weather-related catastrophe for which revenues were recognized across several quarters as services were performed. In addition, cases declined 5.2% due to a decrease of 21,100 high-frequency, low-severity cases received in Europe in the 2022 year-to-date period for which only minimal revenues were recognized. Changes in product mix and in the rates charged for those services accounted for a 12.1% revenue increase for the nine months ended September 30, 2023 compared with the same period in 2022.
37
Based on constant foreign exchange rates, the increase in revenues in the U.K. for the 2023 third quarter and year-to-date periods was due to an increase in case volumes from both new and existing clients. There was an increase in revenues in Europe in the 2023 periods, compared with 2022, due to increases in the Netherlands, including the benefit of the Van Dijk acquisition, partially offset by a decrease in high-frequency, low-severity case volume increases in Scandinavia. There was a decrease in revenues in Australia in the quarter, although an increase in the year-to-date period due to the continued handling of weather-related case activity from the 2022 flooding catastrophe. There was an increase in revenues in Asia in the 2023 third quarter, compared with 2022, due to an increase in high-frequency, low-severity activity in Singapore, and an increase in weather-related claim activity in the year-to-date period. The increase in revenues in Latin America in 2023 was due to an increase in cases with higher average fees in Chile, partially offset by a decrease in high-frequency, low-severity cases in Brazil and Colombia in the third quarter.
Revenue variance components for our International Operations segment, for the three and nine months ended September 30, 2023 are summarized as follows:
2023 Period compared to 2022 Period Ending: |
|
For the Three Months |
|
For the Nine Months |
Decrease in cases received |
|
(1.8)% |
|
(11.3)% |
Increase (decrease) due to foreign currency exchange rates |
|
1.4% |
|
(4.7)% |
Australia 2022 catastrophe cases |
|
4.1% |
|
4.2% |
High-frequency, low-severity cases received in Europe in 2022 with minimal 2022 revenues |
|
5.2% |
|
5.2% |
Change in product mix and rates |
|
4.9% |
|
12.1% |
Acquisitions |
|
0.1% |
|
0.5% |
Increase in Revenues before Reimbursements |
|
13.9% |
|
6.0% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our International Operations segment, which are included in total Company revenues, were $7.7 million and $8.1 million for the three months ended September 30, 2023 and 2022, respectively. Reimbursements were $24.4 million and $21.2 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in reimbursed expenses in the year-to-date period was due to the increase in revenues, although there was a decreased use of third parties in the current year third quarter.
Case Volume Analysis
International Operations segment unit volumes by geographic region, measured by cases received, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
(whole numbers, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
||||||
U.K. |
|
|
37,872 |
|
|
|
33,785 |
|
|
|
12.1 |
% |
|
|
121,048 |
|
|
|
113,035 |
|
|
|
7.1 |
% |
Europe |
|
|
45,384 |
|
|
|
51,119 |
|
|
|
(11.2 |
)% |
|
|
132,285 |
|
|
|
165,093 |
|
|
|
(19.9 |
)% |
Australia |
|
|
8,631 |
|
|
|
14,461 |
|
|
|
(40.3 |
)% |
|
|
27,661 |
|
|
|
55,965 |
|
|
|
(50.6 |
)% |
Asia |
|
|
7,202 |
|
|
|
4,152 |
|
|
|
73.5 |
% |
|
|
19,417 |
|
|
|
16,293 |
|
|
|
19.2 |
% |
Latin America |
|
|
21,985 |
|
|
|
19,753 |
|
|
|
11.3 |
% |
|
|
61,219 |
|
|
|
57,271 |
|
|
|
6.9 |
% |
Total International Operations Cases Received |
|
|
121,074 |
|
|
|
123,270 |
|
|
|
(1.8 |
)% |
|
|
361,630 |
|
|
|
407,657 |
|
|
|
(11.3 |
)% |
Overall, there was a decrease in cases received of (1.8)% for the three months ended September 30, 2023, compared with the 2022 period. There was an increase in the U.K. in the third quarter due to increases from both new and existing clients. Cases declined in Europe due to a change in the mix of services provided between periods, including a reduction of 6,500 high-frequency, low-severity cases in Scandinavia. There was a decrease of 5,000 weather-related cases in Australia in the 2022 third quarter related to flooding catastrophe, although revenues are recognized across multiple quarters as services are performed. The increase in cases received in Asia was due to an increase in high-frequency, low-severity activity in Singapore. Latin America also experienced an increase in cases received in Chile, partially offset by a decrease in high-frequency, low-severity cases in Brazil and Colombia.
38
Overall, there was a decrease in cases received of (11.3)% for the nine months ended September 30, 2023, compared with the 2022 period. There was an increase in cases in the U.K., due to new business from both new and existing clients. Cases declined in Europe due to a change in the mix of services provided between periods, including a reduction of 21,100 high-frequency, low-severity cases in Scandinavia. There was a decrease in 17,000 weather-related cases in Australia related to flooding catastrophe in 2022 referenced above. There was an increase in cases received in Asia due to an increase in high-frequency, low-severity weather-related activity. Latin America experienced an increase in high-frequency, low-severity cases in Chile and Brazil, partially offset by a reduction in Colombia.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our International Operations segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses was 67.7% for the three months ended September 30, 2023 compared with 71.6% for the 2022 period. The total dollar amount of these expenses were $66.4 million for the three months ended September 30, 2023, compared to $61.7 million for the 2022 period. For the nine months ended September 30, 2023, direct compensation, fringe benefits, and non-employee labor expenses were 66.7%, compared with 70.7% in 2022, and were $190.2 million for the nine months ended September 30, 2023 compared to $190.3 million in 2022. The increase in the amounts was due to the higher revenues and an increase in incentive compensation, partially offset by cost reductions undertaken in 2022. The decrease in the percentage of revenues before reimbursements is due to improved staff utilization. There was an average of 3,660 full-time equivalent employees in this segment in the nine months ended September 30, 2023, including 15 from the Van Dijk acquisition, compared with an average of 3,650 in the comparable 2022 period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
International Operations expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $29.4 million for the three months ended September 30, 2023 compared with $28.3 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 30.0% for the three months ended September 30, 2023 compared with 32.9% for the 2022 period. For the nine months ended September 30, 2023, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $86.1 million, compared with $86.4 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 30.2% for the nine months ended September 30, 2023, compared with 32.1% for the 2022 period. The increase in the third quarter expense was due to the increased business activities, although there was a slight decrease in administrative costs in the year-to-date period. There was a decrease in the expense as a percent of revenues before reimbursements due to improved operating leverage.
BROADSPIRE SEGMENT
Our Broadspire segment reported operating earnings of $13.5 million, or 15.3% of revenues before reimbursements, for the three months ended September 30, 2023 as compared with $6.2 million, or 7.9% of revenues before reimbursements, for the third quarter of 2022. For the nine months ended September 30, 2023, our Broadspire segment reported operating earnings of $29.6 million, or 11.7% of revenues before reimbursements, compared with 2022 operating earnings of $20.3 million, or 8.6% of revenues before reimbursements. The increase in the 2023 third quarter and year-to-date period was due to an increase in revenues resulting from new client programs, increased medical management usage, and pricing improvements.
Excluding centralized indirect support costs, third quarter gross profit increased from $17.9 million, or 22.8% of revenues before reimbursements, in 2022 to $25.5 million, or 28.9% of revenues before reimbursements in 2023. For the nine months ended September 30, 2023, gross profit increased from $52.0 million, or 22.1% of revenues before reimbursements in 2022, to $64.5 million, or 25.5% of revenues before reimbursements. These increases were due to the increased revenues and improved staff utilization.
Operating results for our Broadspire segment, including gross profit, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
In thousands (except percentages) |
|
|||||||||
Three Months Ended September 30, |
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
Revenues |
|
$ |
88,299 |
|
|
$ |
78,381 |
|
|
|
12.7 |
% |
Direct expenses |
|
|
62,799 |
|
|
|
60,494 |
|
|
|
3.8 |
% |
Gross profit |
|
|
25,500 |
|
|
|
17,887 |
|
|
|
42.6 |
% |
Indirect expenses |
|
|
11,968 |
|
|
|
11,689 |
|
|
|
2.4 |
% |
Total Broadspire Operating Earnings |
|
$ |
13,532 |
|
|
$ |
6,198 |
|
|
|
118.3 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Gross profit margin |
|
|
28.9 |
% |
|
|
22.8 |
% |
|
|
6.1 |
% |
Operating margin |
|
|
15.3 |
% |
|
|
7.9 |
% |
|
|
7.4 |
% |
39
|
|
In thousands (except percentages) |
||||
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
Revenues |
|
$253,369 |
|
$234,949 |
|
7.8% |
Direct expenses |
|
188,861 |
|
182,914 |
|
3.3% |
Gross profit |
|
64,508 |
|
52,035 |
|
24.0% |
Indirect expenses |
|
34,901 |
|
31,736 |
|
10.0% |
Total Broadspire Operating Earnings |
|
$29,607 |
|
$20,299 |
|
45.9% |
|
|
|
|
|
|
|
Gross profit margin |
|
25.5% |
|
22.1% |
|
3.4% |
Operating margin |
|
11.7% |
|
8.6% |
|
3.1% |
Revenues before Reimbursements
Broadspire revenues are derived from the casualty and disability insurance and self-insured markets in the U.S. Revenues before reimbursements by service line for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|||
Claims Management |
|
$ |
43,989 |
|
|
$ |
40,275 |
|
|
|
9.2 |
% |
Medical Management |
|
|
44,310 |
|
|
|
38,106 |
|
|
|
16.3 |
% |
Total Broadspire Revenues before Reimbursements |
|
$ |
88,299 |
|
|
$ |
78,381 |
|
|
|
12.7 |
% |
|
|
Nine Months Ended |
||||
(in thousands, except percentages) |
|
September 30, |
|
September 30, |
|
Variance |
Claims Management |
|
$125,620 |
|
$120,252 |
|
4.5% |
Medical Management |
|
127,749 |
|
114,697 |
|
11.4% |
Total Broadspire Revenues before Reimbursements |
|
$253,369 |
|
$234,949 |
|
7.8% |
Revenues before reimbursements from our Broadspire segment totaled $88.3 million in the three months ended September 30, 2023 compared with $78.4 million in the 2022 period. This increase was primarily due to an increase in new client growth and an increase in average fees across both service lines. Revenues were positively impacted by an increase in unit volumes, measured principally by cases received, of 1.1% for the three months ended September 30, 2023 compared with the same period of 2022. This is partly due to a $3.2 million increase in revenues within our Medical Management service line for which no cases are received, or 3.6% of the increase in revenues. Changes in product mix and in the rates charged for those services accounted for a 8.0% revenue increase for the 2023 third quarter compared with the 2022 period, primarily due to an increase in workers compensation cases and an increase in the average fee per case.
For the nine months ended September 30, 2023, revenues before reimbursements from our Broadspire segment totaled $253.4 million compared with $234.9 million in the 2022 period. This increase was primarily due to an increase in new client growth and an increase in average fees across both service lines. Revenues were positively impacted by a slight increase in unit volumes, measured principally by cases received, of 0.2% for the nine months ended September 30, 2023 compared with the same period of 2022. This is partly due to a $5.3 million increase in revenues within our Medical Management service line for which no cases are received, or 2.2% of the increase in revenues. Changes in product mix and in the rates charged for those services accounted for a 5.4% revenue increase for the 2023 nine-month period compared with 2022, primarily due to an increase in workers compensation cases and an increase in the average fee per case.
Revenue variance components for our Broadspire segment, for the three and nine months ended September 30, 2023 are summarized as follows:
2023 Period compared to 2022 Period Ending: |
|
For the Three Months |
|
For the Nine Months |
Increase in cases received |
|
1.1% |
|
0.2% |
Revenue increase with no cases received |
|
3.6% |
|
2.2% |
Change in product mix and rates |
|
8.0% |
|
5.4% |
Increase in Revenues before Reimbursements |
|
12.7% |
|
7.8% |
40
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Broadspire segment were $0.7 million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively. Reimbursements were $2.4 million for both the nine months ended September 30, 2023 and 2022, respectively. Although revenues increased in the 2023 periods, there was not an associated increase in reimbursed expenses.
Case Volume Analysis
Broadspire unit volumes by service line, as measured by cases received, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
(whole numbers, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
||||||
Claims Management |
|
|
103,930 |
|
|
|
110,242 |
|
|
|
(5.7 |
)% |
|
|
306,467 |
|
|
|
315,636 |
|
|
|
(2.9 |
)% |
Medical Management |
|
|
39,243 |
|
|
|
31,416 |
|
|
|
24.9 |
% |
|
|
108,876 |
|
|
|
98,867 |
|
|
|
10.1 |
% |
Total Broadspire Cases Received |
|
|
143,173 |
|
|
|
141,658 |
|
|
|
1.1 |
% |
|
|
415,343 |
|
|
|
414,503 |
|
|
|
0.2 |
% |
Overall case volumes were 1.1% higher for the three months ended September 30, 2023 and 0.2% higher for the nine months ended September 30, 2023 due primarily to an increase in Medical Management referrals. There was a decrease in Claims Management cases due to a reduction in casualty cases, although there was a change in the mix of cases received which resulted in an increase in revenues and an increase in the average fee per case.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our Broadspire segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. Direct compensation, fringe benefits, and non-employee labor totaled $54.3 million for the three months ended September 30, 2023, compared to $49.9 million for the comparable 2022 period. Direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, decreased from 63.6% in the 2022 third quarter to 61.5% in 2023 third quarter, primarily due to the increased revenues. For the nine months ended September 30, 2023, direct compensation, fringe benefits, and non-employee labor totaled $161.5 million, compared to $147.6 million in 2022. For the nine months ended September 30, 2023, direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, increased from 62.8% in 2022 to 63.7% in 2023. The increase in the amounts was due to the increased revenues and an increase in average full-time equivalent employees in support of client requirements. The decrease in expense as a percent of revenues before reimbursements was due to the increased revenues and operating leverage in 2023. Average full-time equivalent employees in this segment totaled 2,601 in the first nine months ended September 30, 2023, compared with 2,473 in the comparable 2022 period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Broadspire segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percent of revenues before reimbursements were 23.2% for the three months ended September 30, 2023, compared with 28.5% in the 2022 period. The amount of these expenses decreased from $22.3 million for the three months ended September 30, 2022 to $20.5 million in 2023. For the nine months ended September 30, 2023, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $62.3 million, compared with $67.0 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than, direct compensation, fringe benefits, and non-employee labor expenses were 24.6% for the nine months ended September 30, 2023, compared with 28.5% for the 2022 period. The decrease in the overall expense and in expense as a percent of revenues before reimbursements was due to the increased revenues and lower non-compensation related costs.
PLATFORM SOLUTIONS SEGMENT
Our Platform Solutions segment reported operating earnings of $8.5 million for the three months ended September 30, 2023, compared with operating earnings of $10.1 million in the 2022 period. The segment operating margin decreased from 15.8% for the three months ended September 30, 2022, to 14.2% in the comparable 2023 period. This decrease was due to a reduction in revenues in our Networks service line. For the nine months ended September 30, 2023, our Platform Solutions segment reported operating earnings of $26.6 million, or 14.1% of revenues before reimbursements, compared with 2022 operating earnings of $22.7 million, or 13.7% of revenues before reimbursements. The increase in operating earnings was due to the increased revenues in each of our Networks, Contractor Connection and Subrogation service lines.
41
Excluding indirect support costs, gross profit in the third quarter decreased from $15.6 million, or 24.5% of revenues before reimbursements in 2022, to $14.1 million, or 23.5% of revenues before reimbursements, in 2023. This decrease was due to a reduction in revenues in our Networks service line. For the nine months ended September 30, 2023, gross profit increased from $38.0 million, or 22.8% of revenues before reimbursements in 2022, to $43.5 million, or 23.1% of revenues before reimbursements in 2023. The increase in gross profit in the 2023 year-to-date period is due to the increase in revenues in each of our service lines.
Operating results for our Platform Solutions segment, including gross profit, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
In thousands (except percentages) |
|
|||||||||
Three Months Ended September 30, |
|
2023 |
|
|
2022 |
|
|
Variance |
|
|||
Revenues |
|
$ |
59,839 |
|
|
$ |
63,655 |
|
|
|
(6.0 |
)% |
Direct expenses |
|
|
45,761 |
|
|
|
48,054 |
|
|
|
(4.8 |
)% |
Gross profit |
|
|
14,078 |
|
|
|
15,601 |
|
|
|
(9.8 |
)% |
Indirect expenses |
|
|
5,555 |
|
|
|
5,521 |
|
|
|
0.6 |
% |
Total Platform Solutions Operating Earnings |
|
$ |
8,523 |
|
|
$ |
10,080 |
|
|
|
(15.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Gross profit margin |
|
|
23.5 |
% |
|
|
24.5 |
% |
|
|
(1.0 |
)% |
Operating margin |
|
|
14.2 |
% |
|
|
15.8 |
% |
|
|
(1.6 |
)% |
|
|
In thousands (except percentages) |
||||
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
Variance |
Revenues |
|
$188,297 |
|
$166,262 |
|
13.3% |
Direct expenses |
|
144,773 |
|
128,279 |
|
12.9% |
Gross profit |
|
43,524 |
|
37,983 |
|
14.6% |
Indirect expenses |
|
16,929 |
|
15,269 |
|
10.9% |
Total Platform Solutions Operating Earnings |
|
$26,595 |
|
$22,714 |
|
17.1% |
|
|
|
|
|
|
|
Gross profit margin |
|
23.1% |
|
22.8% |
|
0.3% |
Operating margin |
|
14.1% |
|
13.7% |
|
0.4% |
Revenues before Reimbursements
Platform Solutions segment revenues are primarily derived from the property and casualty insurance company markets in the U.S. Revenues before reimbursements by service line for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||||||
(in thousands, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|||
Contractor Connection |
|
$ |
19,013 |
|
|
$ |
17,453 |
|
|
|
8.9 |
% |
Networks |
|
|
34,160 |
|
|
|
40,809 |
|
|
|
(16.3 |
)% |
Subrogation |
|
|
6,666 |
|
|
|
5,393 |
|
|
|
23.6 |
% |
Total Platform Solutions Revenues before Reimbursements |
|
$ |
59,839 |
|
|
$ |
63,655 |
|
|
|
(6.0 |
)% |
|
|
Nine Months Ended |
||||
(in thousands, except percentages) |
|
September 30, |
|
September 30, |
|
Variance |
Contractor Connection |
|
$58,110 |
|
$50,112 |
|
16.0% |
Networks |
|
110,027 |
|
100,840 |
|
9.1% |
Subrogation |
|
20,160 |
|
15,310 |
|
31.7% |
Total Platform Solutions Revenues before Reimbursements |
|
$188,297 |
|
$166,262 |
|
13.3% |
42
Revenues before reimbursements from our Platform Solutions segment totaled $59.8 million in the three months ended September 30, 2023, compared with $63.7 million in the 2022 period. This decrease was primarily due to a reduction in our Networks service line where we provide staff augmentation for our clients, partially offset by increases in our Contractor Connection and Subrogation service lines. There was a decrease in segment unit volume, measured principally by cases received, of (9.0)%, for the three months ended September 30, 2023, compared with the 2022 period. There was a decrease in high-frequency, low-severity cases in our Networks service line of 7,600 cases, or a 5.1% decrease in Platform Solutions cases received, in the 2023 third quarter. Revenues in our Platform Solutions segment include revenues from existing clients where we provide staff augmentation for our clients, which resulted in $(4.9) million of decreased revenues in the 2023 third quarter, or a (7.7)% decrease in Platform Solutions revenue. The revenues generated from these clients consist of providing dedicated employees to the clients which is not measured by cases, and accordingly there is no change in cases received to match the change in revenues. Changes in product mix and in the rates charged for those services accounted for a 5.6% revenue increase for the 2023 three-month period compared with 2022, due to increases in pricing and average case values.
For the nine months ended September 30, 2023, revenues before reimbursements from our Platform Solutions segment totaled $188.3 million, compared with $166.3 million in the 2022 period. This increase was primarily due to an increase in our Networks service line due to new client growth and increased utilization with existing clients, as well as increases in our Contractor Connection and Subrogation service lines. There was a decrease in segment unit volume, measured principally by cases received, of (7.1)%, compared with the 2022 period. There was a decrease in high-frequency, low-severity cases in our Networks service line of 16,000 cases, or a 4.2% decrease in Platform Solutions cases received, in the 2023 year-to-date period. Revenues in our Platform Solutions segment include revenues from existing clients where we provide staff augmentation for our clients, which resulted in $13.1 million of increased revenues in the 2023 nine-month period, or a 7.0% increase in Platform Solutions revenue. Changes in product mix and in the rates charged for those services accounted for a 9.2% revenue increase for the 2023 nine-month period compared with 2022, due to increases in pricing and average case values.
The decrease in revenues for the three months ended September 30, 2023 in our Networks service line was primarily due to a reduction where we provide staff augmentation for our clients. The increase in revenues in our Networks service line for the nine months ended September 30, 2023 was due to increased utilization with existing clients in our Catastrophe service line, partially offset by a reduction in WeGoLook. The increase in Contractor Connection was due to increases in pricing and the average case values. There was an increase in revenues in our Subrogation service line, in spite of a reduction in cases received, due to a special project in the 2022 year-to-date period that had a lower average fee per case.
Revenue variance components for our Platform Solutions segment, for the three and nine months ended September 30, 2023 are summarized as follows:
2023 Period compared to 2022 Period Ending: |
|
For the Three Months |
|
For the Nine Months |
Decrease in cases received |
|
(9.0)% |
|
(7.1)% |
Reduction in high-frequency, low-severity Networks cases received in 2022 with minimal revenues |
|
5.1% |
|
4.2% |
Revenues from staff augmentation for which no cases are received |
|
(7.7)% |
|
7.0% |
Change in product mix and rates |
|
5.6% |
|
9.2% |
(Decrease) Increase in Revenues before Reimbursements |
|
(6.0)% |
|
13.3% |
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Platform Solutions segment were $1.1 million for the three months ended September 30, 2023 compared with $0.4 million in the 2022 period. Reimbursements were $2.2 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively. These increases were due to the increased revenues and an increased use of third parties in the 2023 periods.
43
Case Volume Analysis
Platform Solutions unit volumes by service line, as measured by cases received, for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
(whole numbers, except percentages) |
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
|
September 30, |
|
|
September 30, |
|
|
Variance |
|
||||||
Contractor Connection |
|
|
37,074 |
|
|
|
41,573 |
|
|
|
(10.8 |
)% |
|
|
111,470 |
|
|
|
117,801 |
|
|
|
(5.4 |
)% |
Networks |
|
|
88,988 |
|
|
|
99,606 |
|
|
|
(10.7 |
)% |
|
|
213,684 |
|
|
|
229,680 |
|
|
|
(7.0 |
)% |
Subrogation |
|
|
10,601 |
|
|
|
9,013 |
|
|
|
17.6 |
% |
|
|
26,130 |
|
|
|
30,570 |
|
|
|
(14.5 |
)% |
Total Platform Solutions Cases Received |
|
|
136,663 |
|
|
|
150,192 |
|
|
|
(9.0 |
)% |
|
|
351,284 |
|
|
|
378,051 |
|
|
|
(7.1 |
)% |
Overall case volumes were (9.0)% lower in the three months ended September 30, 2023, compared with the 2022 period, due to decreases in Contractor Connection and Networks. For the nine months ended September 30, 2023, overall case volumes were (7.1)% lower compared with 2022 due to decreases in each of our service lines. There was a decrease in high-frequency, low-severity cases in our Networks service line of 7,600 cases and 16,000 cases in the three months and nine months ended September 30, 2023, respectively, compared to 2022. This was due to a decrease in high-frequency, low-severity cases received in WeGoLook resulting from a special project in 2022, partially offset by an increase in Catastrophe. A portion of the increase in revenues in our Networks service line is the result of revenues generated which consists of us providing dedicated employees to clients. This revenue is not based on fees per case, and accordingly there is no increase in cases received to match the increase in revenues. There was a decrease in cases received in our Contractor Connection service line in the 2023 periods due to carrier clients experiencing decreased program utilization. The decrease in cases in our Subrogation service line in the year-to-date period was due to a special project in the 2022 period that had a lower average fee per case.
Direct Compensation, Fringe Benefits & Non-Employee Labor
Platform Solutions direct compensation, fringe benefits, and non-employee labor expenses as a percent of revenues before reimbursements were 66.2% in the 2023 third quarter compared with 66.1% in the 2022 quarter. For the nine months ended September 30, 2023, direct compensation, fringe benefits, and non-employee labor expenses were 66.0% compared with 66.4% in 2022. The dollar amount of these expenses was $39.6 million for the 2023 third quarter and $42.1 million in the 2022 quarter, and were $124.2 million for the nine months ended September 30, 2023 compared to $110.4 million in 2022. The decrease in costs in the third quarter was due to the reduction in revenues. The increase in costs in the year-to-date period was due to higher revenues in the current year and increased employees to support client growth. The decrease in the expense as a percentage of revenues before reimbursements in the current year was due to the increased revenues and improved staff utilization. There was an average of 1,417 full-time equivalent employees in the Platform Solutions segment in the 2023 nine-month period, compared with an average of 1,259 for the comparable 2022 period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were 19.5% of Platform Solutions revenues before reimbursements for the three months ended September 30, 2023 compared with 18.0% for the comparable period in 2022. The dollar amount of these expenses increased to $11.7 million in the 2023 third quarter as compared with $11.5 million in the 2022 period. For the nine months ended September 30, 2023, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $37.5 million, compared with $33.1 million for the 2022 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 19.9% for the nine months ended September 30, 2023, compared with 19.9% for the 2022 period. The increase in the operating expenses in the 2023 periods is due to additional expense needed to support the increased revenues, including the cost of technology investments. The increase as a percent of revenues before reimbursements for the third quarter is due to the lower revenues in the 2023 period, although the percent of revenues before reimbursements remained consistent in the year-to-date periods.
44
EXPENSES AND CREDITS EXCLUDED FROM SEGMENT OPERATING EARNINGS
Income Taxes
Our consolidated effective income tax rate may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from our various domestic and international operations which are subject to income taxes at different rates, our ability to utilize net operating loss and tax credit carryforwards, amounts related to uncertain income tax positions, and goodwill impairments. We estimate that our effective income tax rate for 2023 will be approximately 36% to 38% after considering known discrete items as of September 30, 2023.
The provision for income taxes on consolidated income before income tax totaled $6.8 million and a benefit of $(13.3) million for the three months ended September 30, 2023 and 2022, respectively. The overall effective tax rate decreased to 35.8% for the three months ended September 30, 2023 compared with 46.6% for the 2022 period primarily due to the impact of a partially non-deductible goodwill impairment in 2022.
The provision for income taxes on consolidated income before income tax totaled $17.3 million and a benefit of $(8.1) million for the nine months ended September 30, 2023 and 2022, respectively. The overall effective tax rate decreased to 35.6% for the nine months ended September 30, 2023 compared with 65.5% for the 2022 period primarily due to the impact of a partially non-deductible goodwill impairment in 2022.
Net Corporate Interest Expense
Net corporate interest expense consists of interest expense that we incur on our short- and long-term borrowings, partially offset by any interest income we earn on available cash balances and short-term investments. These amounts vary based on interest rates, borrowings outstanding and the amounts of invested cash. Corporate interest expense totaled $5.3 million and $3.1 million for the three months ended September 30, 2023 and 2022, respectively. Interest income was $0.7 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively. Corporate interest expense totaled $14.9 million and $6.8 million for the nine months ended September 30, 2023 and 2022, respectively. Interest income was $1.7 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in the 2023 periods is primarily due to higher interest cost in 2023 compared to 2022 as a result of increases in interest rates.
Stock Option Expense
Stock option expense, a component of stock-based compensation, is comprised of non-cash expenses related to stock options granted under our various stock option and employee stock purchase plans. Stock option expense is not allocated to our operating segments. Stock option expense totaled $0.1 million for each of the three months ended September 30, 2023 and 2022. Stock option expense totaled $0.4 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively.
Amortization of Customer-Relationship Intangible Assets
Amortization of customer-relationship intangible assets represents the non-cash amortization expense for finite-lived customer-relationship and trade name intangible assets. Amortization expense associated with these intangible assets totaled $2.0 million for each of the three months ended September 30, 2023 and 2022. Amortization expense associated with these intangible assets totaled $5.9 million for the nine months ended September 30, 2023 and $5.8 million for the 2022 period. This amortization expense is included in "Selling, general, and administrative expenses" in our unaudited Condensed Consolidated Statements of Operations.
Unallocated Corporate and Shared Costs, Net
Certain unallocated corporate and shared costs are excluded from the determination of segment operating earnings. For the three and nine months ended September 30, 2023 and 2022, unallocated corporate and shared costs and credits represented expenses for our chief executive officer and our Board of Directors, certain adjustments to our self-insured liabilities, certain unallocated legal costs and professional fees, and certain adjustments and recoveries to our allowances for estimated credit losses.
Unallocated corporate and shared costs were $4.8 million and $2.4 million for the three months ended September 30, 2023 and 2022, respectively. The increase in the 2023 third quarter was primarily due to an increase in incentive compensation and an increase in unallocated payroll tax and benefits costs. For the nine months ended September 30, 2023 and 2022, unallocated corporate and shared costs were $10.0 million and $7.4 million, respectively. The increase in the the year-to-date period was primarily due to a $1.8 million gain on sale of our Canadian head office building in the 2022 first quarter and a $1.2 million increase in self-insured costs, partially offset by other cost reductions.
Contingent Earnout Adjustments
Contingent earnout expense represents the fair value adjustment of earnout liabilities arising from recent acquisitions. This expense totaled $2.1 million and $3.1 million for the three and nine months ended September 30, 2023, respectively, compared to $0.9 million and $3.2 million for the three and nine months ended September 30, 2022, respectively. The fair value adjustment is based on changes to projections of acquired entities over the respective earnout periods, which span multiple years.
45
Non-Service Pension Cost and Credits
Non-service pension cost totaled $2.2 million and $6.4 million for the three and nine months ended September 30, 2023, respectively, compared to credits of ($0.5) million and ($1.6) million for the three and nine months ended September 30, 2022, respectively, primarily due to higher interest cost in 2023 compared to 2022 given changes in market rates. Non-service pension costs represents the U.S. and U.K. non-service defined benefit pension costs, which are non-operating in nature as the U.S. plan is frozen and the U.K. plans are closed to new participants. The service cost component of the U.K. plans remains in compensation expense.
Goodwill Impairment
The Company recognized a pretax non-cash goodwill impairment in the 2022 third quarter totaling $36.8 million. This impairment consisted of $3.4 million related to its North America Loss Adjusting reportable segment, $22.7 million related to its International Operations reportable segment, and $10.7 million related to its Platform Solutions reportable segment. There was no similar goodwill impairment in 2023.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
At September 30, 2023, our working capital balance (current assets less current liabilities) was approximately $89.3 million, an increase of $17.5 million from the working capital balance at December 31, 2022. Our cash and cash equivalents were $49.2 million at September 30, 2023, compared with $46.0 million at December 31, 2022.
Cash and cash equivalents as of September 30, 2023 consisted of $20.2 million held in the U.S. and $29.0 million held in our foreign subsidiaries. The Company generally does not provide for additional U.S. and foreign income taxes on undistributed earnings of foreign subsidiaries because they are considered to be indefinitely reinvested. The Company maintained its permanent reinvestment assertion on a portion of prior year undistributed earnings for certain foreign operations and accrued deferred taxes attributable to these earnings. The majority of the remaining historical earnings and future foreign earnings are expected to remain permanently reinvested and will be used to provide working capital for these operations, fund defined benefit pension plan obligations, repay non-U.S. debt, fund capital improvements, and fund future acquisitions.
However, if at a future date or time funds that remain permanently reinvested are necessary for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto, or the ultimate impact any such action may have on our results of operations or financial condition.
Cash Provided by (Used in) Operating Activities
Cash provided by operating activities was $68.1 million for the nine months ended September 30, 2023, compared with $16.2 million used in operating activities in the 2022 period. The increase in cash was primarily driven by higher earnings, an improvement in working capital, including a reduction in work in process, increases in accrued incentive compensation accruals as compared to payouts for prior year performance, and an increase in income tax refunds received.
Cash Used in Investing Activities
Cash used in investing activities was $27.7 million for the nine months ended September 30, 2023, compared with $48.2 million used in the first nine months of 2022. The decrease in use for 2023 was primarily due to $20.9 million in payments related to the Praxis acquisition in 2022. Capital expenditures were $27.7 million in 2023 compared to $24.9 million in 2022.
Cash (Used in) Provided by Financing Activities
Cash used in financing activities was $38.1 million for the nine months ended September 30, 2023, compared with $46.9 million provided in the 2022 period. During the first nine months of 2023, there was a decrease of $22.8 million of net borrowing from our revolving credit facility, compared with a net increase during the comparable 2022 period of $84.8 million. The decrease in borrowing in the 2023 period was primarily related to more positive cash flows from operations as well as 2023 requiring fewer funds for investing activities and share repurchases. Share repurchases totaled $0.6 million in the 2023 period, compared with $26.7 million for the first nine months of 2022. We paid $9.3 million in dividends in the nine months ended September 30, 2023 compared with $8.9 million in the 2022 period.
46
Other Matters Concerning Liquidity and Capital Resources
As a component of our Credit Facility with Bank of America (the "Credit Facility"), we maintain a letter of credit facility to satisfy certain contractual obligations. Including $8.9 million of undrawn letters of credit issued under the letter of credit facility, the available balance under our credit facility totaled $232.0 million at September 30, 2023. Our short-term debt obligations typically peak during the first half of each year due to the annual payment of incentive compensation, contributions to retirement plans, working capital fluctuations, and certain other recurring payments, and generally decline during the balance of the year. The balance of short-term borrowings represents amounts under our credit facility that we expect, but are not required, to repay in the next twelve months. Long- and short-term borrowings outstanding, including current installments and finance leases, totaled $218.4 million as of September 30, 2023 compared with $238.9 million at December 31, 2022.
Our liquidity is defined as cash on hand and borrowing capacity under our Credit Facility based on our trailing twelve month EBITDA, as defined in our Credit Facility. At September 30, 2023, we had $49.2 million of cash on hand and, based on trailing twelve month EBITDA and the Credit Facility limit, additional borrowing capacity of $232.0 million, resulting in total liquidity of $281.2 million at September 30, 2023.
On May 19, 2023, we amended the Credit Agreement. Pursuant to the amendment, London Interbank Offered Rate ("LIBOR") has been replaced with Term Secured Overnight Financing Rate ("Term SOFR") as the U.S. dollar reference rate.
Defined Benefit Pension Funding and Cost
We sponsor a qualified defined benefit pension plan in the U.S. (the "U.S. Qualified Plan"), three defined benefit pension plans in the U.K., and defined benefit pension plans in the Netherlands, Norway, Germany, and the Philippines. Effective December 31, 2002, we froze our U.S. Qualified Plan. Our frozen U.S. Qualified Plan and U.K. plans were underfunded by $24.3 million and overfunded by $20.4 million, respectively, at December 31, 2022, based on accumulated benefit obligations of $304.1 million and $154.5 million for the U.S. Qualified Plan and the U.K. plans, respectively.
For the nine months ended September 30, 2023 we made no contributions to our U.S. defined benefit pension plan and $1.8 million to our U.K defined benefit pension plans, compared with no contributions to the U.S. plan and $0.5 million to the U.K. plans for the nine months ended September 30, 2022. We do not expect to make any additional discretionary contributions to our U.S. defined benefit pension plan during the remainder of 2023. Anticipated funding for the other international plans is not significant.
Dividend Payments
Our Board of Directors makes dividend decisions from time to time based in part on an assessment of current and projected earnings and cash flows. During the nine months ended September 30, 2023, we paid $9.3 million in dividends. Our ability to pay future dividends could be impacted by many factors including the funding requirements of our defined benefit pension plans, repayments of outstanding borrowings, levels of cash expected to be generated by our operating activities, and covenants and other restrictions contained in any credit facilities or other financing agreements.
Financial Condition
Other significant changes on our unaudited Condensed Consolidated Balance Sheet as of September 30, 2023, compared with our unaudited Condensed Consolidated Balance Sheet as of December 31, 2022 were as follows:
At September 30, 2023, we were not a party to any off-balance sheet arrangements which we believe could materially impact our operations, financial condition, or cash flows.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, we have certain material obligations under operating lease agreements to which we are a party. The Company records operating lease-related assets and liabilities on our unaudited Condensed Consolidated Balance Sheets.
We also maintain funds in various trust accounts to administer claims for certain clients. These funds are not available for our general operating activities and, as such, have not been recorded in the accompanying unaudited Condensed Consolidated Balance Sheets. We have concluded that we do not have a material off-balance sheet risk related to these funds.
47
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Except as set forth below, there have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
New Accounting Standards Adopted
Additional information related to adoption of accounting standards is provided in Note 2 to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Pending Adoption of New Accounting Standards
No pending adoptions of issued accounting standards as of September 30, 2023 that are expected to be material to the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of quantitative and qualitative disclosures about the Company's market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended December 31, 2022. Our exposures to market risk have not changed materially since December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives. The Company's management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.
As of the end of the period covered by this report, we performed an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective as of September 30, 2023 because of the material weakness in internal control over financial reporting described below.
As discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, the Company’s operations in the U.K. did not have effective information technology general controls (ITGCs) in the areas of change management and logical access over certain information technology systems that supported its financial reporting processes. The Company's U.K. business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. The material weakness did not result in any identified misstatements in the Company’s financial statements.
Notwithstanding the identified material weaknesses, management has concluded that the condensed consolidated financial statements included in this quarterly report on Form 10-Q fairly present, in all material respects, the Company's financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. generally accepted accounting principles.
During the quarter ended September 30, 2023, the Company continued to improve the user access review procedures and change management protocols in Crawford U.K., implemented improved documentation and monitoring procedures, and improved training procedures that are being issued globally in 2023.
48
Management’s Remediation Plan
As discussed in the Company's Annual Report on form 10-K for the year ended December 31, 2022, to remediate the material weakness described above, the Company is implementing revised controls and processes in Crawford U.K. that include the following, among others: (1) improve the documentation of the user access review control activities and control activities over program change management to more clearly communicate management’s expectation of the required responsibilities for the control activities; (2) develop personnel by enhancing training for ITGC owners regarding their roles and responsibilities within the control objectives and activities; and (3) implement automated user access review and program change management tools to ensure compliance. The Audit Committee of the Board of Directors has reviewed and discussed these matters with management.
The material weakness will be considered remediated when management concludes that, through testing, the applicable remediated controls are designed, implemented and operating effectively for a sufficient period of time for our management to conclude that the material weakness has been remediated. The Company will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting. The Company expects remediation of this material weakness will be completed during fiscal year 2023.
Changes in Internal Control over Financial Reporting
Other than the ongoing remediation efforts described above, there were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
49
PART II — OTHER INFORMATION
Item 1A. Risk Factors
In addition to the other information set forth in this report, the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 could materially affect our business, financial condition, or results of operations. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company's share repurchase authorization, approved on November 4, 2021 by the Company's Board of Directors, provided the Company with the ability to repurchase up to 2,000,000 shares of CRD-A or CRD-B (or a combination of the two) through December 31, 2023 (the "2021 Repurchase Authorization"). On February 11, 2022, the Company’s Board of Directors added 5,000,000 shares to this authorization. The Company's Board of Directors subsequently amended this authorization to allow for repurchases through December 31, 2024. Under the 2021 Repurchase Authorization, repurchases may be made for cash, in the open market or privately negotiated transactions at such times and for such prices as management deems appropriate, subject to applicable contractual and regulatory restrictions. As of September 30, 2023 the Company was authorized to repurchase 1,730,268 shares under the 2021 Repurchase Authorization.
Period |
|
Total |
|
|
Average Price |
|
|
Total Number |
|
|
Maximum Number |
|
||||
Balance as of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
1,793,371 |
|
|||
July 1, 2023 - July 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRD-A |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
CRD-B |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
Totals of July 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
1,793,371 |
|
|||
August 1, 2023 - August 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRD-A |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
CRD-B |
|
|
9,637 |
|
|
$ |
9.14 |
|
|
|
9,637 |
|
|
|
|
|
Totals of August 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
1,783,734 |
|
|||
September 1, 2023 - September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRD-A |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
CRD-B |
|
|
53,466 |
|
|
$ |
9.25 |
|
|
|
53,466 |
|
|
|
|
|
Totals as of September 30, 2023 |
|
|
63,103 |
|
|
|
|
|
|
63,103 |
|
|
|
1,730,268 |
|
|
50
Item 6. Exhibits
Exhibit |
|
|
No. |
|
Description |
15 |
|
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Crawford & Company |
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date: |
November 6, 2023
|
|
/s/ Rohit Verma |
|
|
|
|
Rohit Verma |
|
|
|
|
Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: |
November 6, 2023
|
|
/s/ W. Bruce Swain |
|
|
|
|
W. Bruce Swain |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(Principal Financial Officer) |
|
52
Exhibit 15
November 6, 2023
Shareholders and Board of Directors
Crawford & Company
We are aware of the incorporation by reference in the Registration Statements (File Nos. 333-161278, 333-161279, 333-213010, 333-240324, and 333-266665) of Crawford & Company of our report dated November 6, 2023 relating to the unaudited condensed consolidated interim financial statements of Crawford & Company that are included in its Form 10-Q for the quarter ended September 30, 2023.
/s/ Ernst & Young LLP
Exhibit 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Rohit Verma, certify that:
Date: |
November 6, 2023 |
|
/s/ Rohit Verma |
|
|
|
Rohit Verma |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, W. Bruce Swain, certify that:
Date: |
November 6, 2023 |
|
/s/ W. Bruce Swain |
|
|
|
W. Bruce Swain |
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Crawford & Company (the "Company") on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rohit Verma, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: |
November 6, 2023 |
/s/ Rohit Verma |
|
|
Rohit Verma |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Crawford & Company (the "Company") on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Bruce Swain, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: |
November 6, 2023 |
/s/ W. Bruce Swain |
|
|
W. Bruce Swain |
|
|
Executive Vice President and Chief Financial Officer |
|
|
(Principal Financial Officer) |