Atlanta, GA – Crawford & Company (NYSE: CRDA and CRDB), the world’s largest independent provider of claims management solutions to insurance companies and self-insured entities, recently announced its financial results for the fourth quarter and year ended December 31, 2014.
The Company’s two classes of stock are substantially identical, except with respect to voting rights and the Company’s ability to pay greater cash dividends on the non-voting Class A Common Stock (CRDA) than on the voting Class B Common Stock (CRDB), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRDA must receive the same type and amount of consideration as holders of CRDB, unless different consideration is approved by the holders of 75% of CRDA, voting as a class.
Full year consolidated revenues before reimbursements totaled $1.143 billion for 2014, compared with $1.163 billion for 2013. Net income attributable to shareholders of Crawford & Company in 2014 was $30.6 million, compared with net income in 2013 of $51.0 million. Full year 2014 diluted earnings per share were
$0.57 for CRDA and $0.52 for CRDB, compared with diluted earnings per share of $0.93 for CRDA and $0.90 for CRDB in the prior year.
Fourth quarter 2014 consolidated revenues before reimbursements totaled $285.5 million, compared with $284.9 million for 2013. Fourth quarter 2014 net income attributable to shareholders of Crawford & Company was $3.3 million, compared with net income of $10.8 million in the fourth quarter of 2013. Fourth quarter
2014 diluted earnings per share were $0.07 for CRDAand $0.05 for CRDB, compared with diluted earnings per share of $0.20 for CRDA and $0.19 for CRDB in the prior year quarter.
Consolidated operating earnings, a non-GAAP financial measure, were $73.1 million in 2014, compared with $94.9 million in 2013. For the 2014 fourth quarter, consolidated operating earnings totaled $15.3 million, compared with $20.2 million in the 2013 fourth quarter.
Balance Sheet and Cash Flow
Crawford & Company’s consolidated cash and cash equivalents position as of December 31, 2014 totaled $52.5 million compared with $76.0 million at December 31, 2013.
The Company generated $6.6 million of cash from operations during 2014, compared with $77.8 million during 2013. The decrease in cash provided by operating activities in 2014 compared with 2013 was primarily due to lower net income, increased accounts receivable, and an increase in other working capital components
in 2014 compared with 2013.
Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company, stated, “Overall our financial performance for 2014 reflected declines in revenues, net income, and diluted earnings per share on a consolidated basis. Likewise, our fourth quarter 2014 consolidated earnings reflected a decline from the 2013 period’s operating results. This fourth quarter decline was primarily attributable to lower earnings in our Legal Settlement Administration and EMEA/APsegments and an increase in administrative costs related to our recently completed acquisition of GAB Robins Holdings UK Limited. Fourth quarter 2014 net income was further impacted by a higher effective tax rate resulting from changes in the mix of income, losses in certain countries, and other tax adjustments in the current quarter.
“In the Broadspire segment, we saw a steady and significant improvement in both revenue and operating profitability throughout 2014, and we were pleased with the improved performance we accomplished in this business. For the year, Broadspire’s operating earnings were up nearly 90% as compared to 2013. This improvement carried into the 2014 fourth quarter results with strong growth in revenues and operating earnings. We believe these trends in Broadspire are sustainable and expect continued growth in the coming year.
“As we indicated at the beginning of the year, our expectation was that our EMEA/AP segment results would show a decline compared to 2013, when we substantially completed claims arising from the 2011 catastrophic flood losses in Thailand. For the 2014 fourth quarter, our EMEA/AP segment operating results reflected a lower level of activity both due to the absence of Thai flood-related claims and a relatively benign global claims environment as a result of fewer weather-related events. In addition, during the 2014 quarter we continued to invest in our specialty markets operations across this business, which further affected profitability.
“The Americas segment grew year-over-year in 2014 as a result of improvements in our Canadian operating results and continued growth in our North American Contractor Connection managed repair network. This performance came despite an absence of major weather events in this region over the past year and particularly during the 2014 fourth quarter.
“Results from our Legal Settlement Administration segment during 2014 continued to include activity from the Deepwater Horizon class action settlement, as well as a number of other meaningful class action and bankruptcy matters. However, anticipated declines in volumes associated with these large projects negatively
impacted results in the 2014 fourth quarter. These trends are expected to continue into 2015, although at a slower level of decline.”
Mr. Bowman concluded, “Although a relatively benign global claim environment weighed on results in 2014, Crawford made significant progress on many fronts. We saw improved performance in our Broadspire and Americas segments. We grew our existing market share through acquisitions and entered new markets, which greatly expanded our global capabilities. We continued to build on our ability to serve clients by establishing a global business services center, enabling consistent response for our clients and producing expected long term cost savings for the corporation. Looking forward, we continue to foster a supportive corporate culture that is results-oriented and focused on creating long-term shareholder value.”
Segment Results for the Fourth Quarter and Full Year
Americas revenues before reimbursements were $85.6 million in the fourth quarter of 2014, increasing from $79.5 million in the 2013 fourth quarter. In the fourth quarter of 2014, the U.S. dollar strengthened against most foreign currencies in the segment, resulting in a negative exchange rate impact on segment revenues
of approximately 3%. Operating earnings were $1.6 million in the 2014 fourth quarter, compared with $1.2 million in the 2013 fourth quarter, representing an operating margin of 2% and 1% in the 2014 and 2013 periods, respectively.
For the year, Americas revenues before reimbursements increased 5% to $359.3 million compared with $342.2 million in 2013. During 2014, the U.S. dollar strengthened against most foreign currencies in the segment, resulting in a negative exchange rate impact on segment revenues of approximately 3% from 2013 to 2014. Operating earnings increased from $18.5 million in 2013 to $23.7 million in 2014, representing an operating margin of 5% and 7% in 2013 and 2014, respectively.
Fourth quarter 2014 revenues before reimbursements for the EMEA/AP segment totaled $90.6 million, compared with $91.0 million in the 2013 fourth quarter. Changes in foreign exchange rates negatively impacted revenues in this segment by approximately 1% in the fourth quarter of 2014 compared with the prior year period. EMEA/AP operating earnings were $9.3 million in the 2014 fourth quarter, compared with 2013 fourth quarter operating earnings of $12.7 million. The segment operating margin was 10% in the 2014 fourth quarter and 14% in the 2013 fourth quarter.
For the year, revenues before reimbursements in our EMEA/AP segment totaled $344.4 million, compared with $350.2 million in 2013. Foreign exchange rates had a negligible positive impact on this segment for the 2014 full-year period compared with the 2013 full-year period. EMEA/AP operating earnings were $19.7 million in 2014, compared with $32.2 million in 2013, representing operating margins of 6% in 2014 compared with 9% in 2013.
Broadspire segment revenues before reimbursements were $69.2 million in the 2014 fourth quarter, up from $65.4 million in the 2013 fourth quarter. Broadspire recorded operating earnings of $6.3 million in the 2014 fourth quarter, representing an operating margin of 9%, compared with $3.8 million, or 6% of revenues, in
the 2013 fourth quarter.
For the year, Broadspire segment revenues before reimbursements increased 7%to $268.9 million compared with $252.2 million in 2013. Broadspire recorded operating earnings of $15.5 million for the year, or 6% of revenues, compared with $8.2 million, or 3% of revenues, for 2013.
Legal Settlement Administration
Legal Settlement Administration revenues before reimbursements were $40.0 million in the 2014 fourth quarter, compared with $49.1 million in the 2013 fourth quarter. Operating earnings were $4.5 million in the 2014 fourth quarter, compared with $8.0 million in the 2013 fourth quarter, with the related operating margin decreasing from 16% in the 2013 period to 11% in the 2014 period.
For the year, Legal Settlement Administration revenues before reimbursements were $170.3 million, compared with $218.8 million in 2013. Operating earnings were $22.8 million, compared with $46.8 million in 2013, with the related operating margin decreasing from 21% in 2013 to 13% in 2014. At December 31, 2014 there was a backlog of projects awarded totaling approximately $102.0 million, compared with $108.2 million at December 31, 2013.
On December 1, 2014, the Company borrowed $78.4 million under its Credit Facility to acquire 100% of the capital stock of GAB Robins Holdings UK Limited (“GAB Robins”), a loss adjusting and claims management provider headquartered in the U.K. which will report through the EMEA/AP segment. Because the financial results of certain of the Company’s international subsidiaries, including those in the U.K. through which GAB Robins will report, are included in the Company’s consolidated financial statements on a two-month delayed basis as permitted by ASC 810, “Consolidation,” the results of GAB Robins’ business since the acquisition date have not been included in the Company’s consolidated results of operations. In addition, the Credit Facility borrowings used to complete the GAB Robins acquisition are not included in outstanding borrowings on the Company’s Consolidated Balance Sheet at December 31, 2014, because the U.K.-based borrowing
entity has an October 31 fiscal year end, and the balance sheet of that entity was consolidated as of October 31, 2014.
On January 22, 2015, the Company announced the establishment of a wholly-owned global business services center (the “Center”) in Manila, Philippines. The Center provides the Company a venue for global consolidation of certain business functions, shared services, and currently outsourced processes. The Center, which is expected to be phased in through 2018, is expected to allow the Company to continue to strengthen its client service, realize additional operational efficiencies, and invest in new capabilities for growth.
The Company expects to incur pretax special charges in 2015, currently estimated at approximately $7.0 million for the integration of GAB Robins and $9.0 million related to the establishment of a global business services center in Manila, Philippines. Crawford & Company is providing a guidance range for 2015 as follows:
- Consolidated revenues before reimbursements between $1.16 and $1.19 billion;
- Consolidated operating earnings between $85.5 and $95.0 million;
- Consolidated cash provided by operating activities between $40.0 and $50.0 million;
- After special charges, net income attributable to shareholders of Crawford & Company between $29.5 and $35.0 million, or $0.57 to $0.67 diluted earnings per CRDAshare, or $0.50 to $0.60 diluted earnings per CRDB share;
- Before special charges, net income attributable to shareholders of Crawford & Company between $39.0 and $44.5 million, or $0.75 to $0.85 diluted earnings per CRDAshare, or $0.68 to $0.78 diluted earnings per CRDB share.
To a significant extent, Crawford’s business depends on case volumes. The Company cannot predict the future trend of case volumes for a number of reasons, including the fact that the frequency and severity of weather-related claims and the occurrence of natural and man-made disasters, which are a significant source
of claims and revenue for the Company, are generally not subject to accurate forecasting.
In recent periods the Company has derived a material portion of its revenues and operating earnings from a limited number of client engagements and special projects within its EMEA/AP and Legal Settlement Administration segments, specifically their work on the Thailand flooding claims and the gulf-related class
action settlement, respectively. The Thailand flooding claims project within the EMEA/AP segment was substantially completed in 2013. Although the Company continued to earn revenues from the Legal Settlement Administration projects in 2014, these revenues, and related operating earnings, were at a reduced rate as compared to 2013. The projects continue to wind down, and the Company expects these revenues, and related operating earnings, to be at a reduced rate in all future periods, as compared to 2014.
No assurances of timing of the project end dates and, therefore, continued revenues or operating earnings, can be provided. In the event the Company is unable to replace revenues and related operating earnings from these projects as they wind down, or upon the termination or other expiration thereof, with revenues
and operating earnings from new projects and customers within this or other segments, there could be a material adverse effect on the Company’s results of operations.
The complete earnings release is available here: Crawford & Company 2014 Q4 and Annual Results, Issues 2015 Guidance (PDF)
Source: Crawford & Co