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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
March 31,
2024
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 & CO
MPANY
(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.)
5335 Triangle Parkway
Peachtree Corners 30092
,
Georgia
(Address of principal executive offices) (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
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 April 24, 2024, was as follows:
Class A Common Stock, $1.00 par value:
29,727,220
Class B Common Stock, $1.00 par value:
19,468,906
-------------------------------------------------------------------------------
CRAWFORD & COMPANY
Quarterly Report on Form 10-Q
Quarter Ended March 31, 2024
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements: 3
Condensed Consolidated Statements of Operations (unaudited) 3
for the three months ended March 31, 2024 and 2023
Condensed Consolidated Statements of Comprehensive Income 4
(unaudited) for the three months ended March 31, 2024 and 2023
Condensed Consolidated Balance Sheets (unaudited) 5
as of March 31, 2024 and December 31, 2023
Condensed Consolidated Statements of Cash Flows (unaudited) 7
for the three months ended March 31, 2024 and 2023
Condensed Consolidated Statements of Shareholders' Investment (unaudited) 8
as of and for the three months ended March 31, 2024 and 2023
Notes to Condensed Consolidated 9
Financial Statements (unaudited)
Report of Independent Registered 21
Public Accounting Firm
Item 2. Management's Discussion and Analysis of 22
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 37
Disclosures About Market Risk
Item 4. Controls and Procedures 37
Part II. Other Information
Item 1A. Risk Factors 38
Item 2. Unregistered Sales of Equity 38
Securities and Use of Proceeds
Item 5. Other Information 38
Item 6. Exhibits 39
Signatures 40
2
-------------------------------------------------------------------------------
Part I - Financ
ial Information
Item 1. Financ
ial Statements
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED S
TATEMENTS OF OPERATIONS
Unaudited
Three Months Ended March 31,
(In thousands, except per share amounts) 2024 2023
Revenues:
Revenues before reimbursements $ 301,654 $ 316,334
Reimbursements 11,419 11,604
Total Revenues 313,073 327,938
Costs and Expenses:
Costs of services provided, before reimbursements 214,389 227,078
Reimbursements 11,419 11,604
Total costs of services 225,808 238,682
Selling, general, and administrative expenses 77,320 66,711
Corporate interest expense, net of interest income of $ 3,596 4,399
901
and $
276
, respectively
Total Costs and Expenses 306,724 309,792
Other Loss, net ( ) ( )
2,523 2,145
Income Before Income Taxes 3,826 16,001
Provision for Income Taxes 1,047 5,271
Net Income 2,779 10,730
Net Loss (Income) Attributable to Noncontrolling Interests 58 ( )
49
Net Income Attributable to Shareholders of Crawford & Company $ 2,837 $ 10,681
Earnings Per Share - Basic:
Class A Common Stock $ 0.06 $ 0.22
Class B Common Stock $ 0.06 $ 0.22
Earnings Per Share - Diluted:
Class A Common Stock $ 0.06 $ 0.22
Class B Common Stock $ 0.06 $ 0.22
Weighted-Average Shares Used to Compute Basic Earnings Per Share:
Class A Common Stock 29,586 28,841
Class B Common Stock 19,542 19,848
Weighted-Average Shares Used to Compute Diluted Earnings Per Share:
Class A Common Stock 30,279 29,141
Class B Common Stock 19,542 19,848
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
3
-------------------------------------------------------------------------------
CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
Unaudited
Three Months Ended March 31,
(In thousands) 2024 2023
Net Income $ 2,779 $ 10,730
Other Comprehensive
Income:
Net foreign currency translation 1,199 7,690
gain, net of tax of $
0
and $
0
, respectively
Amortization of actuarial losses for retirement plans 2,559 2,086
included in net periodic pension cost, net of tax of $
643
and $
731
, respectively
Other Comprehensive 3,758 9,776
Income
Comprehensive 6,537 20,506
Income
Comprehensive loss (income) attributable 123 ( )
to noncontrolling interests 7
Comprehensive Income Attributable to $ 6,660 $ 20,499
Shareholders of Crawford & Company
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
4
-------------------------------------------------------------------------------
CRAWFORD & COMPANY
CONDENSED CONSOLIDA
TED BALANCE SHEETS
Unaudited
*
(In thousands) March 31, December 31,
2024 2023
ASSETS
Current Assets:
Cash and cash equivalents $ 45,196 $ 58,363
Accounts receivable, less allowance for expected credit losses of $ 125,985 131,362
8,539
and $
8,599
, respectively
Unbilled revenues, at estimated billable amounts 127,597 116,611
Income taxes receivable 2,586 4,842
Prepaid expenses and other current assets 44,460 58,168
Total Current Assets 345,824 369,346
Net Property and Equipment 21,597 22,742
Other Assets:
Operating lease right-of-use assets, net 86,141 88,615
Goodwill 76,621 76,724
Intangible assets arising from business acquisitions, net 80,341 81,786
Capitalized software costs, net 99,942 96,770
Deferred income tax assets 26,162 26,247
Other noncurrent assets 39,649 36,969
Total Other Assets 408,856 407,111
TOTAL ASSETS $ 776,277 $ 799,199
* Derived from the audited Consolidated Balance Sheet
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
5
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
Unaudited
*
(In thousands, except par value amounts) March 31, December 31,
2024 2023
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings $ 19,354 $ 14,813
Accounts payable 45,232 45,107
Accrued compensation and related costs 64,256 97,842
Self-insured risks 20,188 33,238
Income taxes payable 5,334 6,130
Operating lease liability 24,438 24,351
Other accrued liabilities 48,108 42,271
Deferred revenues 37,224 35,540
Total Current Liabilities 264,134 299,292
Noncurrent Liabilities:
Long-term debt and finance leases, less current installments 210,823 194,335
Operating lease liability 74,295 78,029
Deferred revenues 23,807 24,871
Accrued pension liabilities 23,440 24,006
Other noncurrent liabilities 36,540 38,835
Total Noncurrent Liabilities 368,905 360,076
Shareholders' Investment:
Class A common stock, $ 29,628 29,525
1.00
par value;
50,000
shares authorized;
29,628
and
29,525
shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Class B common stock, $ 19,469 19,555
1.00
par value;
50,000
shares authorized;
19,469
and
19,555
shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively
Additional paid-in capital 83,104 82,589
Retained earnings 227,311 228,564
Accumulated other comprehensive loss ( ) ( )
214,792 218,615
Shareholders' Investment Attributable to Shareholders of Crawford & Company 144,720 141,618
Noncontrolling interests ( ) ( )
1,482 1,787
Total Shareholders' Investment 143,238 139,831
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 776,277 $ 799,199
*
Derived from the audited Consolidated Balance Sheet
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
6
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED S
TATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended March 31,
(In thousands) 2024 2023
Cash Flows from Operating Activities:
Net income $ 2,779 $ 10,730
Reconciliation of net income to net cash used in operating activities:
Depreciation and amortization 9,299 9,050
Stock-based compensation 1,218 1,023
(Gain) loss on disposal of property and equipment ( ) 20
81
Contingent earnout adjustments 151 248
Changes in operating assets and liabilities:
Accounts receivable, net 6,312 ( )
17
Unbilled revenues, net ( ) ( )
9,511 6,333
Accrued or prepaid income taxes 942 3,895
Accounts payable and accrued liabilities ( ) ( )
25,837 15,818
Deferred revenues 116 2,841
Accrued retirement costs ( ) ( )
3,546 2,887
Prepaid expenses and other operating activities ( ) ( )
1,645 3,197
Net cash used in operating activities ( ) ( )
19,803 445
Cash Flows from Investing Activities:
Acquisitions of property and equipment ( ) ( )
1,541 1,031
Capitalization of computer software costs ( ) ( )
8,009 7,610
Net cash used in investing activities ( ) ( )
9,550 8,641
Cash Flows from Financing Activities:
Cash dividends paid ( ) ( )
3,443 2,925
Repurchases of common stock ( ) -
733
Increases in revolving credit facility borrowings 35,807 19,394
Payments on revolving credit facility borrowings ( ) ( )
14,794 10,265
Payments of contingent consideration on acquisitions ( ) ( )
579 848
Other financing activities ( ) ( )
185 169
Net cash provided by financing activities 16,073 5,187
Effects of exchange rate changes on cash and cash equivalents 394 1,195
Decrease in Cash, Cash Equivalents, and Restricted Cash ( ) ( )
12,886 2,704
Cash, Cash Equivalents, and Restricted Cash at Beginning of Year 59,545 46,645
Cash, Cash Equivalents, and Restricted Cash at End of Period $ 46,659 $ 43,941
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
7
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CRAWFORD & COMPANY
CONDENSED CONSOLIDATED STATEMEN
TS OF SHAREHOLDERS' INVESTMENT
Unaudited
(In thousands, except per share amounts)
Common Accumulated Shareholders'
Stock Investment
Attributable
to
2024 Class Class Additional Retained Other Shareholders Noncontrolling Tot
A B Paid-In Earnings Comprehensive of Interests Shareh
Non-Voting Voting Capital Loss Crawford Inves
&
Company
Balance $ 29,525 $ 19,555 $ 82,589 $ 228,564 $ ( ) $ 141,618 $ ( ) $
at 218,615 1,787
January
1,
2024
Net - - - 2,837 - 2,837 ( )
income 58
Other - - - - 3,823 3,823 ( )
comprehensive 65
income
(loss)
Cash - - - ( ) - ( ) -
dividends 3,443 3,443
paid
(Class
A -
$
0.07
per
share,
Class
B -
$
0.07
per
share)
Stock-based - - 1,218 - - 1,218 -
compensation
Repurchases - ( ) - ( ) - ( ) -
of 86 647 733
common
stock
Decrease - - ( ) - - ( ) 550
in 550 550
value
of
noncontrolling
interest
due
to
acquisition
Shares 103 - ( ) - - ( ) -
issued 153 50
in
connection
with
stock-based
compensation
plans,
net
Dividends - - - - - - ( )
paid 122
to
noncontrolling
interests
Balance $ 29,628 $ 19,469 $ 83,104 $ 227,311 $ ( ) $ 144,720 $ ( ) $
at 214,792 1,482
March
31,
2024
al
olders'
tment
139,831
2,779
3,758
( )
3,443
1,218
( )
733
-
( )
50
( )
122
143,238
Common Accumulated Shareholders'
Stock Investment
Attributable
to
2023 Class Class Additional Retained Other Shareholders Noncontrolling Tota
A B Paid-In Earnings Comprehensive of Interests Shareho
Non-Voting Voting Capital Loss Crawford Invest
&
Company
Balance $ 28,764 $ 19,848 $ 78,158 $ 213,094 $ ( ) $ 124,543 $ ( ) $ 1
at 215,321 1,165
January
1,
2023
Net - - - 10,681 - 10,681 49
income
Other - - - - 9,818 9,818 ( )
comprehensive 42
income
(loss)
Cash - - - ( ) - ( ) -
dividends 2,925 2,925
paid
(Class
A -
$
0.06
per
share,
Class
B -
$
0.06
per
share)
Stock-based - - 1,023 - - 1,023 -
compensation
Shares 161 - ( ) - - 74 -
issued 87
in
connection
with
stock-based
compensation
plans,
net
Dividends - - - - - - ( )
paid 229
to
noncontrolling
interests
Balance $ 28,925 $ 19,848 $ 79,094 $ 220,850 $ ( ) $ 143,214 $ ( ) $ 1
at 205,503 1,387
March
31,
2023
l
lders'
ment
23,378
10,730
9,776
( )
2,925
1,023
74
( )
229
41,827
(The accompanying notes are an integral part of these condensed consolidated
financial statements)
8
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NOTES TO CONDENSED CONSOLID
ATED 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 of the United
States Securities and Exchange Commission (the "SEC"). These unaudited
condensed consolidated financial statements omit certain notes and other
financial information. Therefore, should be read in conjunction with the 2023
Form 10-K. The Condensed Consolidated Balance Sheet information presented
herein as of December 31, 2023 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 Form 10-K for the year ended December 31, 2023.
Due to the impact of weather activity and other macroeconomic uncertainties,
the Company's operating results for the three months ended March 31, 2024 and
financial position as of March 31, 2024 are not necessarily indicative of the
results or financial position that may be expected for the year ending
December 31, 2024
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 Form
10-K for the year ended
December 31, 2023
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 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
March 31, 2024 and December 31, 2023
, the liabilities of the deferred compensation plan were $
6,439,000
and $
6,261,000
, 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 $
10,256,000
and $
10,237,000
, respectively. These liabilities and assets are included in "Other noncurrent
liabilities" and "Other noncurrent assets," respectively, on the Company's
unaudited Condens
ed Consolidated Balance Sheets.
Noncontrolling interests represent the minority shareholders' share of the net
income or loss and share
holders' 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.
9
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2. Recently Issued Accounting Standards
Improvements to Reportable Segment Disclosures (ASU 2023-07)
In November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which requires more detailed information about a reportable segment's
expenses. The new standard is effective for fiscal years beginning after
December 15, 2023 and interim periods beginning after December 15, 2024, with
retrospective application required. The Company is currently evaluating the
impact of this guidance on its consolidated financial statements.
Improvements to Income Tax Disclosures (ASU 2023-09)
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
, a new accounting standard to enhance the transparency and decision
usefulness of income tax disclosures. The new standard is effective for fiscal
years beginning after December 15, 2024, with retrospective application
permitted. The Company is currently evaluating the impact of this guidance on
its consolidated financial statements.
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 receivables 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 months ended March 31, 2024 and 2023:
Three Months Ended
(in thousands) March 31, March 31,
2024 2023
U.S. $ 53,524 $ 52,983
Canada 23,841 24,614
Total North America Loss Adjusting Revenues before Reimbursements $ 77,365 $ 77,597
10
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The following table presents International Operations revenues before
reimbursements disaggregated by geography and service line for the three
months ended March 31, 2024 and 2023:
Three Months Ended
(in thousands) March 31, March 31,
2024 2023
U.K. $ 37,899 $ 30,732
Europe 23,621 22,764
Australia 17,280 20,636
Asia 5,369 5,627
Latin America 8,196 6,235
International Loss Adjusting $ 92,365 $ 85,994
Crawford Legal Services $ 5,727 $ 5,869
Total International Operations Revenues before Reimbursements $ 98,092 $ 91,863
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 and generates revenues from income earned for managing
funds maintained to administer claims for its customers. 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.
11
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The following table presents Broadspire revenues before reimbursements
disaggregated by service line for the
three months ended March 31, 2024 and 2023:
Three Months Ended
(in thousands) March 31, March 31,
2024 2023
Claims Management $ 48,398 $ 43,108
Medical Management 45,900 40,946
Total Broadspire Revenues before Reimbursements $ 94,298 $ 84,054
The Company's 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 months ended March 31, 2024 and 2023:
Three Months Ended
(in thousands) March 31, March 31,
2024 2023
Contractor Connection $ 16,945 $ 19,301
Networks 7,743 37,403
Subrogation 7,211 6,116
Total Platform Solutions Revenues before Reimbursements $ 31,899 $ 62,820
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.
12
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Performance-based fees
The Company, from time-to-time, entered into contracts with certain clients
within its International Operations that provided 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 were in addition to, or a reduction of,
the fee revenues discussed above. These performance-based revenues, which
represent variable consideration, were based on performance metrics set forth
in the underlying contracts. These were generally under multi-year contracts
but with discrete individual contract year measurement periods that remained
subject to adjustment until claim closure. Each period, the Company based its
estimates of performance-based revenues on an individual contract year basis,
which were subject to adjustment in future years based on changes in average
claim costs. Accordingly, the amounts represented 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 could vary
from period to period, these estimates could change significantly from quarter
to quarter, and such adjustments could occur in future periods until the
individual contract year measurement period was closed. Variable consideration
was recognized when the Company concluded, based on all the facts and
information available at the reporting date, that it was probable that a
significant revenue reversal would not occur in future periods. During 2023,
the Company completed its obligations for performance-based revenues under
these contracts.
Contract Balances
The timing of revenue recognition, billings and cash collections result in
billed accounts receivables, unbilled accounts receivable reported as
"Unbilled revenues, at estimated billable amounts," and "Deferred revenues" on
the Company's unaudited Condensed Consolidated Balance Sheets. Unbilled
revenues is recorded 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 its 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
. De
ferred 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. Deferred
revenues related to lifetime claim handling arrangements approximated $
40,121,000
and $
39,800,000
as of March 31, 2024 and December 31, 2023, respectively. 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.
The table below presents the deferred revenues balance as of January 1, 2024
and the significant activity affecting deferred revenues during the
three months ended March 31, 2024:
(In Thousands)
Customer Contract Liabilities Deferred
Revenue
Balance at January 1, 2024 $ 60,411
Quarterly additions 24,919
Revenue recognized from the prior periods ( )
15,358
Revenue recognized from current quarter additions ( )
8,941
Balance as of March 31, 2024 $ 61,031
Remaining Performance Obligations
As of March 31, 2024, the Company had
$
104,300,000
of remaining performance obligations related to claims and non-claims services
in which the price is fixed. Remai
ning 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
72
% of its remaining performance obligations as revenues within
one year
and the remaining balance thereafter.
13
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Costs to Obtain a Contract
The Company has a sales incentive compensation program where payment is based
on the revenues recognized in the period. The payment 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 it expects, at
contract inception, when the period between a customer's payment of
consideration and the transfer of promised services to the customer will be
one year
or less. 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 required payments. 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. The Company evaluates the risks related to its 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 and unbilled revenues when they
become uncollectible, and any payments subsequently received are accounted for
as recoveries.
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 for income taxes on consolidated income before income taxes
totaled a provision of
$
1,047,000
and
$
5,271,000
for the three months ended March 31, 2024 and 2023
, respectively. The overall effective tax rate decreased to
27.4
% for the
three months ended March 31, 2024
compared with
32.9
% for the
2023
period primarily due to a larger impact of discrete tax items resulting from
lower year-over-year earnings.
6. Defined Benefit Pension Plans
Net periodic cost 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 months ended March 31, 2024 and 2023 included the following components:
Three Months Ended
(in thousands) March 31, March 31,
2024 2023
Service cost $ 384 $ 357
Interest cost 5,746 5,939
Expected return on assets ( ) ( )
6,409 6,773
Amortization of actuarial loss 3,186 2,978
Net periodic cost $ 2,907 $ 2,502
For the three months ended March 31, 2024 and 2023, the non-service components
of net periodic pension expense of
$
2,523,000
and
$
2,145,000
, respectively, are included in "Other Loss, net" on the unaudited Condensed
Consolidated Statements of Operations. For the three months ended March 31,
2024
, the Company made
no
contributions to the U.S. defined benefit pension plan and $
602,000
to the U.K. defined benefit pension plans, as compared with
no
contributions to the U.S. defined benefit pension plan and $
502,000
to the U.K. defined benefit pension plans during the
three months ended March 31, 2023
.
14
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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 2024 and 2023, the Board of
Directors has declared the same dividend on CRD-A and CRD-B.
The computations of basic net income attributable to shareholders of Crawford
& Company per common share were as follows:
Three Months Ended
March 31, March 31,
2024 2023
(in thousands, except per share amounts) CRD-A CRD-B CRD-A CRD-B
Earnings per share - basic:
Numerator:
Allocation of undistributed earnings $( $( $ $
365 241 4,595 3,161
) )
Dividends paid 2,074 1,369 1,734 1,191
Net income attributable to common shareholders, basic $ $ $ $
1,709 1,128 6,329 4,352
Denominator:
Weighted-average common shares outstanding, basic 29,586 19,542 28,841 19,848
Earnings per share - basic $ $ $ $
0.06 0.06 0.22 0.22
The computations of diluted net income attributable to shareholders of
Crawford & Company per common share were as follows:
Three Months Ended
March 31, March 31,
2024 2023
(in thousands, except per share amounts) CRD-A CRD-B CRD-A CRD-B
Earnings per share - diluted:
Numerator:
Allocation of undistributed earnings $ ( ) $ ( ) $ 4,614 $ 3,142
368 238
Dividends paid 2,074 1,369 1,734 1,191
Net income attributable to common shareholders, diluted $ 1,706 $ 1,131 $ 6,348 $ 4,333
Denominator:
Weighted-average common shares outstanding, basic 29,586 19,542 28,841 19,848
Weighted-average effect of dilutive securities 693 - 300 -
Weighted-average common shares outstanding, diluted 30,279 19,542 29,141 19,848
Earnings per share - diluted $ 0.06 $ 0.06 $ 0.22 $ 0.22
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
(in thousands) March 31, March 31,
2024 2023
Shares underlying stock options excluded - 1,532
Performance stock grants excluded because performance conditions have not been met 1,100 758
(1)
(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.
15
-------------------------------------------------------------------------------
The following table details shares issued during the
three months ended March 31, 2024 and 2023, 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
(in thousands) March 31, March 31,
2024 2023
CRD-A issued under the Non-Employee Director Stock Plan 71 134
CRD-A issued under the Employee Stock Purchase Plan 32 27
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 Re
purchase 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.
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 March 31, 2024, there were
1,413,787
remaining shares authorized to repurchase under the 2021 Repurchase
Authorization.
During the three months ended March 31, 2024
, the Company did
no
t repurchase any shares of CRD-A and repurchased
85,632
shares of CRD-B at an average cost of $
8.56
. During the
three months ended March 31, 2023
, the Company did
no
t repurchase any shares of CRD-A or CRD-B.
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
$
822,000
for the three months ended March 31, 2024
.
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 March 31, 2024
(in thousands) Foreign Retirement AOCL
currency liabilities attributable
translation (1) to shareholders
adjustments of Crawford &
Company
Beginning balance $ ( ) $ ( ) $ ( )
49,486 169,129 218,615
Other comprehensive income before reclassifications 1,264 - 1,264
Amounts reclassified from accumulated other comprehensive income to net income - 2,559 2,559
Net current period other comprehensive income 1,264 2,559 3,823
Ending balance $ ( ) $ ( ) $ ( )
48,222 166,570 214,792
Three Months Ended March 31, 2023
(in thousands) Foreign Retirement AOCL
currency liabilities attributable
translation (1) to shareholders
adjustments of Crawford &
Company
Beginning balance $ ( ) $ ( ) $ ( )
52,581 162,740 215,321
Other comprehensive income before reclassifications 7,732 - 7,732
Amounts reclassified from accumulated other comprehensive income to net income - 2,086 2,086
Net current period other comprehensive income 7,732 2,086 9,818
Ending balance $ ( ) $ ( ) $ ( )
44,849 160,654 205,503
(1)
Retirement liabilities reclassified to net income are related to the
amortization of actuarial losses and are included in "Other Loss, net" in the
Company's unaudited Condensed Consolidated Statements of Operations. See Note
6, "Defined Benefit Pension Plans" for additional details.
16
-------------------------------------------------------------------------------
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 March 31, 2024
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 $ 10,842 $ 10,842 $ - $ -
(1)
Liabilities:
Contingent earnout liability $ 5,917 $ - $ - $ 5,917
(2)
(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 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
updated quarterly based on changes to projections of acquired entities over
the respective earnout periods, which span multiple years. The Company
recognized a pretax contingent earnout expense totaling $
151,000
and $
248,000
in the three months ended March 31, 2024 and March 31, 2023, respectively,
related to the fair value adjustment of earnout liabilities. The fair value of
the contingent earnout liability is included in "Other accrued liabilities"
and "Other noncurrent liabilities" on the Company's unaudited Condensed
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 months ended March 31, 2024. 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.
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 of the fair value hierarchy.
There were no goodwill impairments in 2023. The Company did not identify any
impairment indicators during the three months ended March 31, 2024.
17
-------------------------------------------------------------------------------
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:
.
North America Loss Adjusting, which services the North American property and
casualty market. This is comprised of Loss Adjusting operations in the U.S.
and Canada, including Global Technical Services and edjuster. The Canadian
operations include all operations within that country including third party
administration and Contractor Connection.
.
International Operations, which services the global property and casualty
market outside North America. This is comprised of Loss Adjusting operations
in the U.K., Europe, Australia, Asia and Latin America, and includes Crawford
Legal Services. The International Operations include all operations within the
respective countries, including Loss Adjusting, Global Technical Services,
Legal Services, third party administration, and where applicable, Contractor
Connection services.
.
Broadspire, which provides third party administration for workers'
compensation, auto and liability, disability absence management, medical
management, and accident and health to corporations, brokers and insurers in
the U.S.
.
Platform Solutions, which consists of the Contractor Connection, Networks, and
Subrogation service lines in the U.S. The Networks service line includes
Catastrophe operations.
The Platform Solutions reportable segment represents the aggregation of
certain service line operating segments.
Effective January 1, 2024, the Company combined the operating segments within
North America Loss Adjusting and International Operations, and accordingly,
there are no operating segments within these reportable segments to aggregate.
Financial information for the
three months ended March 31, 2024 and 2023 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
(in thousands) March 31, March 31,
2024 2023
Revenues:
North America Loss Adjusting $ 77,365 $ 77,597
International Operations 98,092 91,863
Broadspire 94,298 84,054
Platform Solutions 31,899 62,820
Total segment revenues before reimbursements 301,654 316,334
Reimbursements 11,419 11,604
Total revenues $ 313,073 $ 327,938
Segment Operating Earnings:
North America Loss Adjusting $ 4,479 $ 8,065
International Operations 1,690 3,035
Broadspire 12,804 7,927
Platform Solutions 1,115 9,966
Total segment operating earnings 20,088 28,993
Deduct:
Unallocated corporate and shared costs, net ( ) ( )
8,007 4,119
Net corporate interest expense ( ) ( )
3,596 4,399
Stock option expense ( ) ( )
167 156
Amortization of acquisition-related intangible assets ( ) ( )
1,868 1,899
Contingent earnout adjustments ( ) ( )
151 248
Non-service pension costs ( ) ( )
2,473 2,171
Income before income taxes $ 3,826 $ 16,001
18
-------------------------------------------------------------------------------
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
acquisition-related intangible assets, contingent earnout adjustments,
non-service pension costs, 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.
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
(in thousands) March 31, March 31,
2024 2023
International Operations
International Loss Adjusting $ 92,365 $ 85,994
Crawford Legal Services 5,727 5,869
Total Revenues before Reimbursements--International Operations $ 98,092 $ 91,863
Broadspire
Claims Management $ 48,398 $ 43,108
Medical Management 45,900 40,946
Total Revenues before Reimbursements--Broadspire $ 94,298 $ 84,054
Platform Solutions
Contractor Connection $ 16,945 $ 19,301
Networks 7,743 37,403
Subrogation 7,211 6,116
Total Revenues before Reimbursements--Platform Solutions $ 31,899 $ 62,820
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 March 31,
2024
, 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.
19
-------------------------------------------------------------------------------
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. 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 Statements of Cash Flows:
(In March 31, December March 31, December
thousands) 2024 31, 2023 2023 31, 2022
Cash and cash $ 45,196 $ 58,363 $ 43,304 $ 46,007
equivalents
Restricted cash within prepaid 1,463 1,182 637 638
expenses and other current assets
Total cash, cash equivalents $ 46,659 $ 59,545 $ 43,941 $ 46,645
and restricted cash
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.
13. Client Funds
Th
e Company maintains funds in custodial accounts at financial institutions to
administer claims for certain clients. These funds are not available for the
Company's general operating activities and, as such, have not been re
corded in the accompanying unaudited Condensed Consolidated Balance Sheets.
The amount of these funds totaled $
508,474,000
and $
494,329,000
at March 31, 2024 and December 31, 2023, respectively.
20
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Report of Independent Regis
tered 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 March 31, 2024, the related condensed
consolidated statements of operations and comprehensive income, shareholders'
investment and cash flows for the three-month periods ended March 31, 2024 and
2023, 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, 2023, the related consolidated
statements of operations, comprehensive income, shareholders' investment and
cash flows for the year then ended, and the related notes (not presented
herein); and in our report dated March 4, 2024, 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, 2023, 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
May 1, 2024
Atlanta, Georgia
21
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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:
.
a decline in cases referred to us for any reason, including changes in the
degree to which property and casualty insurance carriers outsource their
claims handling functions,
.
changes in global economic conditions,
.
changes in interest rates,
.
changes in foreign currency exchange rates,
.
changes in regulations and practices of various governmental authorities,
.
changes in our competitive environment,
.
changes in the financial condition of our clients,
.
changes in the rate of inflation and our ability to recover increased
operating costs,
.
the loss of any material customer,
.
our ability to successfully integrate the operations of acquired businesses,
.
our ability to timely identify and effectively remediate material weaknesses
in internal control over financial reporting,
.
regulatory changes related to funding of defined benefit pension plans,
.
our U.S., U.K. and other international defined benefit pension plans and our
future funding obligations thereunder,
.
our ability to complete any transaction involving the acquisition or
disposition of assets on terms and at times acceptable to us,
.
our ability to identify new revenue sources not tied to the insurance
underwriting cycle,
.
our ability to develop or acquire information technology resources to support
and grow our business,
.
our ability to attract and retain qualified personnel,
.
our ability to renew existing contracts with clients on satisfactory terms,
.
our ability to collect amounts due from our clients and others,
.
continued availability of funding under our financing agreements,
.
general risks associated with doing business outside the U.S., including
changes in tax rates,
.
our ability to comply with the covenants in our financing or other agreements,
.
changes in the frequency or severity of man-made or natural disasters,
.
the ability of our third-party service providers, used for certain aspects of
our internal business functions, to meet expected service levels,
.
our ability to prevent or detect cybersecurity breaches and cyber incidents,
.
our ability to achieve targeted integration goals with the consolidation and
migration of multiple software platforms,
.
proliferation and escalation of international hostilities and geopolitical
events, such as the ongoing conflicts in Russia/Ukraine and Israel,
.
risks associated with our having a controlling shareholder, and
.
impairments of goodwill or our other indefinite-lived intangible assets.
22
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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.
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 months ended March 31, 2024 and 2023, and as of March
31, 2024, and December 31, 2023, 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, 2023. 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.
Results of Operations
Consolidated revenues before reimbursements decreased $14.7 million, or
(4.6)%, for the three months ended March 31, 2024, compared with the same
period of 2023. The decrease in the 2024 first quarter was primarily due to
decreases in our Platform Solutions operating segment. Changes in foreign
exchange rates increased our consolidated revenues before reimbursements by
$0.9 million, or 0.3%, for the three months ended March 31, 2024 as compared
with the prior year period. To illustrate this impact, segment revenues are
presented below, using a constant exchange rate, for the three months ended
March 31, 2024.
Three Months Ended Three Months Ended
Based on exchange rates for the
three months ended March 31, 2023
(in thousands, March March Variance March %
except percentages) 31, 31, 31, Variance
2024 2023 2024
Revenues:
North America $ 77,365 $ 77,597 (0.3 )% $ 77,330 (0.3 )%
Loss Adjusting
International 98,092 91,863 6.8 % 97,208 5.8 %
Operations
Broadspire 94,298 84,054 12.2 % 94,298 12.2 %
Platform 31,899 62,820 (49.2 )% 31,899 (49.2 )%
Solutions
Total revenues before 301,654 316,334 (4.6 )% 300,735 (4.9 )%
reimbursements
Reimbursements 11,419 11,604 (1.6 )% 11,309 (2.5 )%
Total $ 313,073 $ 327,938 (4.5 )% $ 312,044 (4.8 )%
Revenues
Excluding foreign currency impacts, consolidated revenues before reimbursements
decreased $15.6 million, or (4.9)%, for the three months ended March 31, 2024
compared to the prior year first quarter. Revenues from the North America Loss
Adjusting segment decreased slightly in the 2024 first quarter due to a
decrease in weather-related activity. Revenues from the International
Operations segment increased in the 2024 first quarter primarily due to
increases in the U.K., Europe, and Latin America, partially offset by a
reduction in Australia. Revenues from the Broadspire segment increased for the
quarter due to an increase in Claims and Medical Management revenues. Revenues
from the Platform Solutions segment decreased in the first quarter primarily
due to a reduction in our Networks service line as we were completing claims
related to Hurricane Ian in the 2023 period.
Overall, there was a decrease in cases received of (4.0)% for the three months
ended March 31, 2024 due to a reduction of approximately 22,100 high-frequency,
low-severity cases in our North America Loss Adjusting and Platform Solutions
operating segments that were present in the 2023 first quarter that generated
minimal revenues in the 2023 period. This includes 10,300 cases received in
our North America Loss Adjusting segment in the 2023 first quarter related to
Contractor Connection in Canada, as well as 11,800 cases received in our
Platform Solutions segment in the 2023 first quarter related to the Networks
service line.
Cases received are presented below by segment for the three months ended March
31, 2024 and 2023:
Three Months Ended
(whole numbers, except percentages) March 31, March 31, Variance
2024 2023
North America Loss Adjusting 61,937 73,002 (15.2)%
International Operations 135,652 126,483 7.2%
Broadspire 135,698 128,722 5.4%
Platform Solutions 76,270 98,490 (22.6)%
Total Crawford Cases Received 409,557 426,697 (4.0)%
23
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To illustrate exposure to the impact of changes in foreign currencies,
revenues before reimbursements are presented below by denominated currency for
the three months ended March 31, 2024:
Three Months Ended
March 31, 2024 March 31, 2023
(in thousands) USD equivalent % of total USD equivalent % of total
U.S. USD $179,721 59.6% $199,857 63.2%
U.K. GBP 40,255 13.4% 33,124 10.5%
Canada CAD 23,841 7.9% 24,614 7.8%
Australia AUD 19,661 6.5% 22,994 7.2%
Europe EUR 14,885 4.9% 14,038 4.4%
Rest of World 23,291 7.7% 21,707 6.9%
Total Revenues, before reimbursements $301,654 $316,334
Costs of services provided, before reimbursements, decreased $12.7 million, or
5.6%, for the three months ended March 31, 2024 as compared with the 2023
period. This decrease was primarily due to a decrease in compensation expense
and other costs in the Platform Solutions segment resulting from the lower
revenues, partially offset by increases in compensation expense and other
costs in our three other operating segments.
Selling, general, and administrative expenses increased $10.6 million, or
15.9%, in the three months ended March 31, 2024 as compared with the 2023
period. The increase was primarily due to professional fees, IT costs, bad
debt expense, and compensation expense, including taxes and benefits.
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.
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 acquisition-related intangible assets, contingent
earnout adjustments, non-service pension costs, 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 acquisition-related intangible assets, contingent earnout
adjustments, and non-service pension costs 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 acquisition-related and trade name
intangible assets acquired in business combinations. Non-service pension costs
represent 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. 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.
24
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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 acquisition-related intangible
assets, contingent earnout adjustments, non-service pension costs, and
unallocated corporate and shared costs, net 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.
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
acquisition-related 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.
25
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Operating results for our North America Loss Adjusting, International
Operations, Broadspire, and Platform Solutions segments reconciled to net
income before income taxes and net income attributable to shareholders of
Crawford & Company were follows:
Three Months Ended
(in thousands, except percentages) March 31, March 31,
2024 2023
Revenues:
North America Loss Adjusting $ 77,365 $ 77,597
International Operations 98,092 91,863
Broadspire 94,298 84,054
Platform Solutions 31,899 62,820
Total Revenues before reimbursements 301,654 316,334
Reimbursements 11,419 11,604
Total Revenues $ 313,073 $ 327,938
Direct Compensation, Fringe Benefits & Non-Employee Labor:
North America Loss Adjusting $ 55,467 $ 54,164
% of related revenues before reimbursements 71.7 % 69.8 %
International Operations 64,979 61,421
% of related revenues before reimbursements 66.2 % 66.9 %
Broadspire 57,257 52,641
% of related revenues before reimbursements 60.7 % 62.6 %
Platform Solutions 18,930 40,911
% of related revenues before reimbursements 59.3 % 65.1 %
Total $ 196,633 $ 209,137
% of Revenues before reimbursements 65.2 % 66.1 %
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor:
North America Loss Adjusting $ 17,419 $ 15,368
% of related revenues before reimbursements 22.5 % 19.8 %
International Operations 31,423 27,407
% of related revenues before reimbursements 32.0 % 29.8 %
Broadspire 24,237 23,486
% of related revenues before reimbursements 25.7 % 27.9 %
Platform Solutions 11,854 11,943
% of related revenues before reimbursements 37.2 % 19.0 %
Total before reimbursements 84,933 78,204
% of Revenues before reimbursements 28.2 % 24.7 %
Reimbursements 11,419 11,604
Total $ 96,352 $ 89,808
% of Revenues 30.8 % 27.4 %
Segment Operating Earnings:
North America Loss Adjusting $ 4,479 $ 8,065
% of related revenues before reimbursements 5.8 % 10.4 %
International Operations 1,690 3,035
% of related revenues before reimbursements 1.7 % 3.3 %
Broadspire 12,804 7,927
% of related revenues before reimbursements 13.6 % 9.4 %
Platform Solutions 1,115 9,966
% of related revenues before reimbursements 3.5 % 15.9 %
Deduct:
Unallocated corporate and shared costs, net (8,007 ) (4,119 )
Net corporate interest expense (3,596 ) (4,399 )
Stock option expense (167 ) (156 )
Amortization of acquisition-related intangible assets (1,868 ) (1,899 )
Contingent earnout adjustments (151 ) (248 )
Non-service pension costs (2,473 ) (2,171 )
Income before income taxes 3,826 16,001
Provision for income taxes (1,047 ) (5,271 )
Net income 2,779 10,730
Net loss (income) attributable to noncontrolling interests 58 (49 )
Net income attributable to shareholders of Crawford & Company $ 2,837 $ 10,681
26
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NORTH AMERICA LOSS ADJUSTING SEGMENT
Operating earnings in our North America Loss Adjusting segment totaled $4.5
million, or 5.8% of revenues before reimbursements, for the three months ended
March 31, 2024, compared with 2023 operating earnings of $8.1 million, or
10.4% of revenues before reimbursements. The decrease in operating earnings in
the 2024 first quarter was primarily due to the decrease in revenues in Canada
and U.S. Field Operations and reduced staff utilization related to the
decrease in weather-related activity.
Excluding centralized indirect support costs, gross profit decreased from
$17.3 million, or 22.4% of revenues before reimbursements in 2023, to $14.5
million, or 18.8% of revenues before reimbursements, in the three months ended
March 31, 2024 due primarily to the decrease in revenues due to mild weather
events.
Operating results for our North America Loss Adjusting segment, including
gross profit, for the three months ended March 31, 2024 and 2023 were as
follows:
In thousands (except percentages)
Based on actual exchange rates Based on exchange rates
for the three months ended
March 31, 2023
Three Months Ended March 31, 2024 2023 Variance 2024 Variance
Revenues $77,365 $77,597 (0.3)% $77,330 (0.3)%
Direct expenses 62,853 60,253 4.3% 62,790 4.2%
Gross profit 14,512 17,344 (16.3)% 14,540 (16.2)%
Indirect expenses 10,033 9,279 8.1% 10,023 8.0%
Total North America Loss Adjusting Operating Earnings $4,479 $8,065 (44.5)% $4,517 (44.0)%
Gross profit margin 18.8% 22.4% (3.6)% 18.8% (3.6)%
Operating margin 5.8% 10.4% (4.6)% 5.8% (4.6)%
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 months ended March 31, 2024
and 2023 were as follows:
Three Months Ended
Based on actual Based on
exchange rates exchange rates
for the three
months ended
March 31, 2023
(in thousands, March March Variance March Variance
except percentages) 31, 31, 31,
2024 2023 2024
U.S. $ 53,524 $ 52,983 1.0 % $ 53,524 1.0 %
Canada 23,841 24,614 (3.1 )% 23,806 (3.3 )%
Total North America Loss Adjusting $ 77,365 $ 77,597 (0.3 )% $ 77,330 (0.3 )%
Revenues before Reimbursements
Revenues before reimbursements from our North America Loss Adjusting segment
totaled $77.4 million in the three months ended March 31, 2024, compared with
$77.6 million in the 2023 period. This slight decrease was due to a decrease
in Canada and U.S. Field Operations, partially offset by an increase in U.S.
Global Technical Services revenues. There was a decrease in segment unit
volume, measured principally by cases received, of (15.2)% for the three
months ended March 31, 2024, compared with the 2023 period. This was partially
offset by a decrease in high-frequency, low-severity cases received in
Contractor Connection in Canada of 10,300 or 14.2%. Changes in product mix and
in the rates charged for those services accounted for a 0.7% revenue increase
for the three months ended March 31, 2024 compared with the same period in
2023, due to increases in pricing and average fee per case.
The increase in revenues in the U.S. for the three months ended March 31, 2024
was due to an increase in in Global Technical Services revenues from an
increase in expert adjusting staff and increased business from new and
existing clients offset by a decrease in U.S. Field Operations as a result of
a decrease in weather-related activity.
27
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Revenue variance components for our North America Loss Adjusting segment, for
the three months ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: For the Three Months
Ended March 31,
Decrease in cases received (15.2)%
Contractor Connection Canada high-frequency, low-severity case reduction due to loss of client 14.2%
Change in product mix and rates 0.7%
Decrease in Revenues before Reimbursements (0.3)%
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 $1.9
million and $2.9 million for the three months ended March 31, 2024 and 2023,
respectively.
Case Volume Analysis
North America Loss Adjusting segment unit volumes by geographic region,
measured by cases received, for the three months ended March 31, 2024 and 2023
were as follows:
Three Months Ended
(whole numbers, except percentages) March 31, March 31, Variance
2024 2023
U.S. 36,350 37,076 (2.0 )%
Canada 25,587 35,926 (28.8 )%
Total North America Loss Adjusting Cases Received 61,937 73,002 (15.2 )%
Overall, there was a decrease in cases of (15.2)% in the three months ended
March 31, 2024, compared to the same period in 2023. The decrease in U.S. case
volumes in the 2024 first quarter was due to less weather-related activity
partially offset by an increase in Global Technical Services. There was a
decrease in cases in Canada in the 2024 first quarter due to 10,300 less
high-frequency, low-severity Contractor Connection cases related to the loss
of a customer, as compared with the 2023 period.
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 71.7% for the three months ended March 31, 2024 compared with
69.8% for the 2023 period. The total dollar amount of these expenses increased
to $55.5 million for the three months ended March 31, 2024 from $54.2 million
for the comparable 2023 period. The increase was due to an increase in
employees in Global Technical Services. The increase in the percentage of
revenues before reimbursements is due to the reduced revenues and lower staff
utilization in U.S. Field Operations and Canada, compared to the 2023 period.
There was an average of 2,046 full-time equivalent employees in this segment
in the three months ended March 31, 2024 compared with an average of 2,091 in
the 2023 period.
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 $17.4 million for
the three months ended March 31, 2024 compared with $15.4 million for the 2023
period. As a percentage of revenues before reimbursements, expenses other than
direct compensation, fringe benefits, and non-employee labor expenses were
22.5% for the three months ended March 31, 2024 compared with 19.8% for the
2023 period. The increase in the current year amounts was due to higher
technology investments, auto expenses, and self-insurance costs. The increase
in the expense as a percentage of revenues before reimbursements is due to
decreased revenues.
INTERNATIONAL OPERATIONS SEGMENT
Operating earnings in our International Operations segment were $1.7 million,
or 1.7% of revenues before reimbursements, for the three months ended March
31, 2024, compared with $3.0 million, or 3.3% of revenues before reimbursements,
in the 2023 period. The decrease in operating earnings in the 2024 period was
primarily due to Australia flood activity in the prior year first quarter and
reductions in Legal Services productivity levels, partially offset by
increases in Latin America and the U.K.
28
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Excluding centralized indirect support costs, gross profit slightly increased
from $15.7 million, or 17.1% of revenues before reimbursements in 2023, to
$16.0 million, or 16.3% of revenues before reimbursements, in the three months
ended March 31, 2024. The increase in gross profit was driven by the $6.2
million increase in revenues, and the decrease in gross profit percentage was
primarily due to the growth in direct expenses exceeding the increase in
revenues.
Operating results for our International Operations segment, including gross
profit, for the three months ended March 31, 2024 and 2023 were as follows:
In thousands (except percentages)
Based on actual exchange rates Based on exchange rates
for the three months ended
March 31, 2023
Three Months Ended March 31, 2024 2023 Variance 2024 Variance
Revenues $98,092 $91,863 6.8% $97,208 5.8%
Direct expenses 82,111 76,159 7.8% 80,799 6.1%
Gross profit 15,981 15,704 1.8% 16,409 4.5%
Indirect expenses 14,291 12,669 12.8% 14,218 12.2%
Total International Operations Operating Earnings $1,690 $3,035 (44.3)% $2,191 (27.8)%
Gross profit margin 16.3% 17.1% (0.8)% 16.9% (0.2)%
Operating margin 1.7% 3.3% (1.6)% 2.3% (1.0)%
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 months ended March 31, 2024 and 2023 were as follows:
Three Months Ended
Based on actual Based on
exchange rates exchange rates
for the three
months ended
March 31, 2023
(in thousands, March March Variance March Variance
except percentages) 31, 31, 31,
2024 2023 2024
U.K. $ 40,255 $ 33,124 21.5 % $ 38,518 16.3 %
Europe 23,621 22,764 3.8 % 23,319 2.4 %
Australia 19,661 22,994 (14.5 )% 20,121 (12.5 )%
Asia 5,369 5,627 (4.6 )% 5,464 (2.9 )%
Latin 9,186 7,354 24.9 % 9,786 33.1 %
America
Total International Operations $ 98,092 $ 91,863 6.8 % $ 97,208 5.8 %
Revenues before Reimbursements
Revenues before reimbursements from our International Operations segment
totaled $98.1 million in the three months ended March 31, 2024, compared with
$91.9 million in the 2023 period. This increase was 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 1.0%, or $0.9
million, for the three months ended March 31, 2024 as compared with the 2023
period. Absent foreign exchange rate fluctuations, International Operations
segment revenues would have been $97.2 million for the three months ended
March 31, 2024. There was an increase in segment unit volume, measured
principally by cases received, of 7.2% for the three months ended March 31,
2024, compared with the 2023 period. Cases received increased by 9,000 or 7.1%
in the three months ended March 31, 2024, driven by severe storms in
Australia, for which revenues are expected to be recognized primarily in
future quarters. This was partially offset by a decrease in high-frequency,
low-severity cases received in the U.K. of 3,500 or (2.8%). Changes in product
mix and in the rates charged for those services accounted for a 2.9% revenue
increase for the three months ended March 31, 2024 compared with the same
period in 2023.
Based on constant foreign exchange rates, the increase in revenues in the U.K.
for the 2024 first quarter period was due to an increase in property and third
party administration revenues driven by higher value claims. There was an
increase in revenues in Europe in the 2024 period, compared with 2023, due to
increases in Spain and Norway. There was a decrease in revenues in Australia
in the quarter due to the continued handling of weather-related case activity
during the first quarter of 2023 from the 2022 flooding catastrophe. There was
a decrease in revenues in Asia in the 2024 first quarter, compared with 2023,
due to decreased large loss claims in Thailand and reduced weather-related
activity in the Philippines. The increase in revenues in Latin America in the
2024 first quarter was primarily driven by increased volumes across
third-party administration and loss adjusting.
29
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Revenue variance components for our International Operations segment, for the
three months ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: For the Three Months
Ended March 31,
Increase in cases received 7.2%
Increase due to foreign currency exchange rates 1.0%
Reduction in high-frequency, low-severity cases received in U.K. in 2024 with minimal 2024 revenues 2.8%
High-frequency, low-severity cases received in Australia in 2024 with minimal 2024 revenues (7.1)%
Change in product mix and rates 2.9%
Increase in Revenues before Reimbursements 6.8%
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 $8.5
million and $7.5 million for the three months ended March 31, 2024 and 2023,
respectively. The increase in the quarter was due to increased use of third
parties in the current year first quarter.
Case Volume Analysis
International Operations segment unit volumes by geographic region, measured
by cases received, for the three months ended March 31, 2024 and 2023 were as
follows:
Three Months Ended
(whole numbers, except percentages) March 31, March 31, Variance
2024 2023
U.K. 39,988 44,952 (11.0 )%
Europe 42,689 43,492 (1.8 )%
Australia 20,321 9,993 103.4 %
Asia 6,304 5,188 21.5 %
Latin America 26,350 22,858 15.3 %
Total International Operations Cases Received 135,652 126,483 7.2 %
Overall, there was an increase in cases received of 7.2% for the three months
ended March 31, 2024, compared with the 2023 period. There was a decrease in
the U.K. in the first quarter due to decreases in high-frequency, low-severity
cases in third party administration. Cases declined slightly in Europe due to
a decrease in claims in Sweden. There was an increase of 9,000 high-frequency,
low-severity weather-related cases in Australia, although revenues are
expected to be 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 experienced an increase in
cases received in Chile.
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 66.2% for the three months ended March 31, 2024 compared with
66.9% for the 2023 period. The total dollar amount of these expenses was $65.0
million for the three months ended March 31, 2024, compared to $61.4 million
for the 2023 period. The increase was due to increases in compensation
expense, including incentive compensation. The decrease in the percentage of
revenues before reimbursements is due to higher revenues in the 2024 first
quarter and improved staff utilization. There was an average of 3,611
full-time equivalent employees in this segment in the three months ended March
31, 2024, compared with an average of 3,693 in the comparable 2023 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 $31.4 million for
the three months ended March 31, 2024 compared with $27.4 million for the 2023
period. As a percentage of revenues before reimbursements, expenses other than
direct compensation, fringe benefits, and non-employee labor expenses were
32.0% for the three months ended March 31, 2024 compared with 29.8% for the
2023 period. The increase in the first quarter expense and percent of revenues
before reimbursements was due to increased IT application costs.
30
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BROADSPIRE SEGMENT
Our Broadspire segment reported operating earnings of $12.8 million, or 13.6%
of revenues before reimbursements, for the three months ended March 31, 2024
as compared with $7.9 million, or 9.4% of revenues before reimbursements, for
the first quarter of 2023. The increase in the 2024 first quarter was due to
an increase in revenues resulting from new client programs, increased medical
management usage, and pricing improvements.
Excluding centralized indirect support costs, first quarter gross profit
increased from $19.2 million, or 22.9% of revenues before reimbursements, in
2023 to $24.3 million, or 25.8% of revenues before reimbursements in 2024.
This increase was due to the increased revenues and improved staff utilization.
Operating results for our Broadspire segment, including gross profit, for the
three months ended March 31, 2024 and 2023 were as follows:
In thousands (except percentages)
Three Months Ended March 31, 2024 2023 Variance
Revenues $ 94,298 $ 84,054 12.2 %
Direct expenses 69,993 64,805 8.0 %
Gross profit 24,305 19,249 26.3 %
Indirect expenses 11,501 11,322 1.6 %
Total Broadspire Operating Earnings $ 12,804 $ 7,927 61.5 %
Gross profit margin 25.8 % 22.9 % 2.9 %
Operating margin 13.6 % 9.4 % 4.2 %
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 months ended March 31, 2024 and 2023 were as follows:
Three Months Ended
(in thousands, except percentages) March 31, March 31, Variance
2024 2023
Claims Management $ 48,398 $ 43,108 12.3 %
Medical Management 45,900 40,946 12.1 %
Total Broadspire Revenues before Reimbursements $ 94,298 $ 84,054 12.2 %
Revenues before reimbursements from our Broadspire segment totaled $94.3
million in the three months ended March 31, 2024 compared with $84.1 million
in the 2023 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 5.4% for the three months ended March 31,
2024 compared with the same period of 2023. This is partly due to a $2.8
million increase in revenues within our Medical Management service line for
which no cases are received, or 3.3% of the increase in revenues. There was
also a $1.2 million increase in revenues within our Claims Management service
line related to income earned which offsets the costs of managing the funds
maintained to administer claims for our customers, for which no cases are
received, or 1.4% of the increase in revenues. Changes in product mix and in
the rates charged for those services accounted for a 2.1% revenue increase for
the 2024 first quarter compared with the 2023 period, 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 months
ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: For the Three Months
Ended March 31,
Increase in cases received 5.4%
Increase in claims management revenues with no cases received 1.4%
Increase in medical management revenues with no cases received 3.3%
Change in product mix and rates 2.1%
Increase in Revenues before Reimbursements 12.2%
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Broadspire segment
were $0.9 million and $0.7 million for the three months ended March 31, 2024
and 2023, respectively. The increase in the 2024 period was primarily due to
the increased revenues in the current period.
31
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Case Volume Analysis
Broadspire unit volumes by service line, as measured by cases received, for
the three months ended March 31, 2024 and 2023 were as follows:
Three Months Ended
(whole numbers, except percentages) March 31, March 31, Variance
2024 2023
Claims Management 94,265 95,807 (1.6 )%
Medical Management 41,433 32,915 25.9 %
Total Broadspire Cases Received 135,698 128,722 5.4 %
Overall case volumes were 5.4% higher for the three months ended March 31,
2024 due primarily to an increase in Medical Management referrals. There was a
decrease in Claims Management cases due to a reduction in accident and health
cases that impacted the mix of cases received resulting in 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 $57.3 million for the three months ended March 31, 2024, compared to
$52.6 million for the comparable 2023 period. Direct compensation, fringe
benefits, and non-employee labor, as a percent of the related revenues before
reimbursements, decreased from 62.6% in the 2023 first quarter to 60.7% in
2024 first quarter, primarily due to the increased revenues. Average full-time
equivalent employees in this segment totaled 2,669 in the three months ended
March 31, 2024, compared with 2,591 in the 2023 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 25.7% for the three months ended March 31, 2024, compared
with 27.9% in the 2023 period. The amount of these expenses increased from
$23.5 million for the three months ended March 31, 2023 to $24.2 million in
2024 related to the increased business activity. The decrease in the expense
as a percent of revenues before reimbursements was due to the increased
revenues.
PLATFORM SOLUTIONS SEGMENT
Our Platform Solutions segment reported operating earnings of $1.1 million for
the three months ended March 31, 2024, compared with operating earnings of
$10.0 million in the 2023 period. The segment operating margin decreased from
15.9% for the three months ended March 31, 2023, to 3.5% in the comparable
2024 period. This decrease was primarily due to a reduction in revenues in our
Networks service line as we were completing claims related to Hurricane Ian in
the 2023 period.
Excluding indirect support costs, gross profit in the first quarter decreased
from $15.5 million, or 24.7% of revenues before reimbursements in 2023, to
$7.2 million, or 22.7% of revenues before reimbursements, in 2024. This
decrease was primarily due to a reduction in revenues in our Networks service
line.
Operating results for our Platform Solutions segment, including gross profit,
for the three months ended March 31, 2024 and 2023 were as follows:
In thousands (except percentages)
Three Months Ended March 31, 2024 2023 Variance
Revenues $ 31,899 $ 62,820 (49.2 )%
Direct expenses 24,668 47,285 (47.8 )%
Gross profit 7,231 15,535 (53.5 )%
Indirect expenses 6,116 5,569 9.8 %
Total Platform Solutions Operating Earnings $ 1,115 $ 9,966 (88.8 )%
Gross profit margin 22.7 % 24.7 % (2.0 )%
Operating margin 3.5 % 15.9 % (12.4 )%
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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 months ended March 31, 2024 and
2023 were as follows:
Three Months Ended
(in thousands, except percentages) March 31, March 31, Variance
2024 2023
Contractor Connection $ 16,945 $ 19,301 (12.2 )%
Networks 7,743 37,403 (79.3 )%
Subrogation 7,211 6,116 17.9 %
Total Platform Solutions Revenues before Reimbursements $ 31,899 $ 62,820 (49.2 )%
Revenues before reimbursements from our Platform Solutions segment totaled
$31.9 million in the three months ended March 31, 2024, compared with $62.8
million in the 2023 period. This decrease was primarily due to a reduction in
our Networks service line where we provide staff augmentation for our clients,
along with a decrease in our Contractor Connection service line related to
less weather-related activity in the first quarter of 2024, offset partially
by an increase in our Subrogation service line. During the 2023 first quarter
our Networks service line was completing claims related to Hurricane Ian.
There was a decrease in segment unit volume, measured principally by cases
received, of (22.6)%, for the three months ended March 31, 2024, compared with
the 2023 period. There was a decrease in high-frequency, low-severity cases in
our Networks service line of 11,800 cases, or 12.0% in the three months ended
March 31, 2024, compared to 2023. Revenues in our Networks service line
include revenues from existing clients where we provide staff augmentation for
our clients, which resulted in $(29.1) million or (46.3)% of decreased
revenues in the 2024 first quarter as we were completing Hurricane Ian related
claims in the 2023 period. Changes in product mix and in the rates charged for
those services accounted for a 7.7% revenue increase for the 2024 three-month
period compared with 2023, due to increases in average case values.
Revenue variance components for our Platform Solutions segment, for the three
months ended March 31, 2024 are summarized as follows:
2024 Period compared to 2023 Period Ending: For the Three Months
Ended March 31,
Decrease in cases received (22.6)%
Reduction in high-frequency, low-severity Networks cases 12.0%
Reduction in revenues from staff augmentation for which no cases are received (46.3)%
Change in product mix and rates 7.7%
Decrease in Revenues before Reimbursements (49.2)%
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Platform Solutions
segment were $0.1 million for the three months ended March 31, 2024 compared
with $0.4 million in the 2023 period. The decrease was due the reduced
Networks revenues in the 2024 period.
Case Volume Analysis
Platform Solutions unit volumes by service line, as measured by cases
received, for the three months ended March 31, 2024 and 2023 were as follows:
Three Months Ended
(whole numbers, except percentages) March 31, March 31, Variance
2024 2023
Contractor Connection 33,629 39,317 (14.5 )%
Networks 32,752 51,616 (36.5 )%
Subrogation 9,889 7,557 30.9 %
Total Platform Solutions Cases Received 76,270 98,490 (22.6 )%
33
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Overall case volumes were (22.6)% lower in the three months ended March 31,
2024, compared with the 2023 period, due to decreases in Contractor Connection
and Networks from less weather-related activity. There was a decrease in
high-frequency, low-severity cases in our Networks service line of 11,800
cases in the three months ended March 31, 2024, compared to 2023. A portion of
the decrease 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 change in cases received to match the change in revenues. There was a
decrease in cases received in our Contractor Connection service line in the
2024 period due to less weather-related activity. The increase in cases in our
Subrogation service line in the year-to-date period was due to a favorable
change in product mix.
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 59.3% in
the 2024 first quarter compared with 65.1% in the 2023 quarter. The dollar
amount of these expenses was $18.9 million for the 2024 first quarter and
$40.9 million in the 2023 quarter. The decrease in costs in the first quarter
was due to the reduction in revenues. There was an average of 842 full-time
equivalent employees in the Platform Solutions segment in the 2024 three-month
period, compared with an average of 1,445 for the comparable 2023 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 37.2% of Platform Solutions revenues before
reimbursements for the three months ended March 31, 2024 compared with 19.0%
for the comparable period in 2023. The dollar amount of these expenses
remained consistent in the 2024 first quarter as compared the 2023 period at
$11.9 million. The increase as a percent of revenues before reimbursements for
the first quarter is due to the lower revenues in the 2024 period.
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 2024
will be approximately 30% to 32% after considering known discrete items as of
March 31, 2024.
The provision for income taxes on consolidated income before income tax
totaled $1.0 million and $5.3 million for the three months ended March 31,
2024 and 2023, respectively. The overall effective tax rate decreased to 27.4%
for the three months ended March 31, 2024 compared with 32.9% for the 2023
period primarily due to a larger impact of discrete tax items resulting from
lower year-over-year earnings.
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 $4.5 million and $4.7
million for the three months ended March 31, 2024 and 2023, respectively.
Interest income was $0.9 million and $0.3 million for the three months ended
March 31, 2024 and 2023, respectively.
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 $0.2 million
for each of the three months ended March 31, 2024 and 2023.
Amortization of Acquisition-Related Intangible Assets
Amortization of acquisition-related 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 $1.9 million for each of the three months ended March 31, 2024
and 2023. This amortization expense is included in "Selling, general, and
administrative expenses" in our unaudited Condensed Consolidated Statements of
Operations.
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Unallocated Corporate and Shared Costs, Net
Certain unallocated corporate and shared costs are excluded from the
determination of segment operating earnings. For the three months ended March
31, 2024 and 2023, 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 $8.0 million and $4.1 million for
the three months ended March 31, 2024 and 2023, respectively. The increase in
the 2024 first quarter was primarily due to an increase in professional fees,
compensation-related costs, and other reserves.
Contingent Earnout Adjustments
Contingent earnout expense represents the fair value adjustment of earnout
liabilities arising from recent acquisitions. This expense totaled $0.2
million for each of the three months ended March 31, 2024 and 2023. The fair
value adjustment is based on changes to projections of acquired entities over
the respective earnout periods, which span multiple years.
Non-Service Pension Costs
Non-service pension costs totaled $2.5 million for the three months ended
March 31, 2024, compared to $2.2 million for the three months ended March 31,
2023. 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.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
At March 31, 2024, our working capital balance (current assets less current
liabilities) was approximately $81.7 million, an increase of $11.6 million
from the working capital balance at December 31, 2023. Our cash and cash
equivalents were $45.2 million at March 31, 2024, compared with $58.4 million
at December 31, 2023.
Cash and cash equivalents as of March 31, 2024 consisted of $16.3 million held
in the U.S. and $28.9 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 Used in Operating Activities
Cash used in operating activities was $19.8 million for the three months ended
March 31, 2024, compared with $0.4 million used in operating activities in the
2023 period. The increase in cash used was primarily driven by lower earnings
and increases in incentive compensation payments as compared to prior year
payments.
Cash Used in Investing Activities
Cash used in investing activities was $9.6 million for the three months ended
March 31, 2024, compared with $8.6 million used in the first three months of
2023. The increase in cash used in 2024 was due to increases in capital
expenditures in 2024 compared to 2023.
Cash Provided by Financing Activities
Cash provided by financing activities was $16.1 million for the three months
ended March 31, 2024, compared with $5.2 million provided in the 2023 period.
During the first three months of 2024, there was an increase of $21.0 million
in net borrowing from our revolving credit facility, compared with a net
increase during the 2023 period of $9.1 million. The increase in borrowing in
the 2024 period was primarily related to lower cash flows from operations.
Share repurchases totaled $0.7 million in the 2024 period, while there were no
share repurchases in the 2023 period. We paid $3.4 million in dividends in the
three months ended March 31, 2024 compared with $2.9 million in the 2023
period.
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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 $208.7 million at March 31, 2024. 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 $230.2 million as of March 31, 2024 compared with $209.1 million at
December 31, 2023.
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 March 31, 2024, we had $45.2 million of cash on hand and,
based on trailing twelve month EBITDA and the Credit Facility limit,
additional borrowing capacity of $208.7 million, resulting in total liquidity
of $253.9 million at March 31, 2024.
Additionally, the Company expects to make payments totaling $8.5 million in
the next twelve months for contingent earnouts related to previous business
acquisitions.
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 $22.3
million and overfunded by $10.9 million, respectively, at December 31, 2023,
based on accumulated benefit obligations of $285.3 million and $145.3 million
for the U.S. Qualified Plan and the U.K. plans, respectively.
For the three months ended March 31, 2024 we made no contributions to our U.S.
defined benefit pension plan and $0.6 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 three months ended March 31, 2023. We do not
expect to make any additional discretionary contributions to our U.S. defined
benefit pension plan during the remainder of 2024. 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 three months ended March 31, 2024, we paid $3.4 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
Sheets as of March 31, 2024, compared with our unaudited Condensed
Consolidated Balance Sheets as of December 31, 2023 were as follows:
.
Accounts receivable decreased $6.3 million excluding foreign currency exchange
impacts. This decrease was primarily due to U.S. Field Operations and Canada
in the North America Loss Adjusting segment.
.
Unbilled revenues increased $9.5 million excluding foreign exchange impacts.
The increase is primarily attributable to the U.K. and Australia in the
International Operations segment and Global Technical Services in the North
America Loss Adjusting Segment.
.
Accounts payable and accrued liabilities decreased $25.8 million excluding
foreign currency exchange impacts. The decrease is primarily due to payments
for employee incentive compensation, 401(k) contributions, and timing of
accrued payroll.
At March 31, 2024, 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,
2023, 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.
36
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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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, 2023.
New Accounting Standards Adopted
No new accounting standard were adopted during the three months ended March
31, 2024.
Pending Adoption of New Accounting Standards
Additional information related to the pending adoption of new accounting
standards is provided in Note 2 to the accompanying unaudited condensed
consolidated financial statements in the Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitati
ve 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, 2023. Our exposures to market risk have not changed materially
since December 31, 2023.
Item 4. Controls
and Procedures
Evaluation of Disclosure Controls and Procedures
The Registrant maintains a set of disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934 (the "Exchange Act"), designed to ensure that information required to be
disclosed by the Registrant in reports that it files or submits under the
Exchange Act is recorded, processed, summarized or reported within the time
periods specified in SEC rules and regulations.
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 its 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.
Judgments in decision-making can be faulty and 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 the Company's 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.
The Registrant's management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Registrant's disclosure controls and procedures as of March 31, 2024. Based on
that evaluation, the Registrant's Chief Executive Officer and Chief Financial
Officer concluded that the Registrant's disclosure controls and procedures
were effective as of March 31, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that
occurred during the quarter ended March 31, 2024 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
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PART II - OTHE
R INFORMATION
Item 1A. Ri
sk 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, 2023 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 Equi
ty 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 March 31, 2024 the Company was authorized to
repurchase 1,413,787 shares under the 2021 Repurchase Authorization.
Period Total Average Price Total Number Maximum Number
Number of Paid of Shares of Shares That
Shares Per Share Purchased as May be Purchased
Purchased Part of Publicly Under the Plans
Announced Plans or Programs
or Programs
Balance as of December 31, 2023 1,499,419
January 1, 2024 - January 31, 2024
CRD-A - $ - -
CRD-B - $ - -
Totals of January 31, 2024 1,499,419
February 1, 2024 - February 29, 2024
CRD-A - $ - -
CRD-B - $ - -
Totals of February 29, 2024 1,499,419
March 1, 2024 - March 31, 2024
CRD-A - $ - -
CRD-B 85,632 $ 8.56 85,632
Totals as of March 31, 2024 85,632 85,632 1,413,787
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024
, 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.
38
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Item 6. Exhibits
Exhibit
No. Description
15 Letter of Ernst & Young LLP
31.1 Certification of principal executive officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of principal financial officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1# Certification of principal executive officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2# Certification of principal financial officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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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
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# These certifications are deemed furnished and not filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act),
or otherwise subject to the liability of that section, nor shall it be deemed
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act.
39
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SIGNAT
URES
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: May 1, 2024 /s/ Rohit Verma
Rohit Verma
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 1, 2024 /s/ W. Bruce Swain
W. Bruce Swain
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
40
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Exhibit 15
May 1, 2024
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 May 1, 2024 relating to the unaudited
condensed consolidated interim financial statements of Crawford & Company that
are included in its Form 10-Q for the quarter ended March 31, 2024.
/s/ Ernst & Young LLP
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Exhibit 31.1
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Rohit Verma, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Crawford & Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024 /s/ Rohit Verma
Rohit Verma
President and Chief Executive Officer
(Principal Executive Officer)
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Exhibit 31.2
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, W. Bruce Swain, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Crawford & Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024 /s/ W. Bruce Swain
W. Bruce Swain
Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
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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 March 31, 2024 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:
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 1, 2024 /s/ Rohit Verma
Rohit Verma
President and Chief Executive Officer
(Principal Executive Officer)
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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 March 31, 2024 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:
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 1, 2024 /s/ W. Bruce Swain
W. Bruce Swain
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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