Mr. Agadi concluded, "Our second quarter results clearly demonstrate that we are on the road to significant improvement given the great progress that we have made streamlining our operations as we prepare Crawford for both the opportunities and challenges that lie ahead. We plan on building upon this momentum as we focus our team on delivering top line growth while remaining vigilant on cost containment. The management team and I remain focused on driving a culture of growth within the Company and are excited by the opportunities in front of us and optimistic about where Crawford is heading. Looking forward, we are positioning our Company to create further long-term shareholder value by focusing on profitable growth and leveraging the Company`s numerous global resources."
U.S. Services
U.S. Services revenues before reimbursements were $58.8 million in the second quarter of 2016, decreasing 12% from $66.9 million in the second quarter of 2015. The revenue decrease was primarily due to a reduction in U.S. Catastrophe Services and a reduction of weather-related case volumes in U.S. Claims Field Operations partially offset by an increase in U.S. Contractor Connection revenues. Operating earnings were $9.6 million in the 2016 second quarter, compared with $9.8 million in the second quarter of 2015, representing operating margins of 16% and 15% in the 2016 and 2015 periods, respectively.
International
Second quarter 2016 revenues before reimbursements for the International segment totaled $123.2 million, compared with $129.5 million in the 2015 second quarter. This decrease was primarily due to changes in foreign exchange rates which negatively impacted revenues by approximately 5%, or $6.1 million, in the second quarter compared with the prior year period. International segment operating earnings were $11.0 million in the 2016 second quarter, compared with $1.2 million in the 2015 second quarter. The segment`s operating margin was 9% in the 2016 period as compared to 1% in the 2015 period. The increase in operating margin for the 2016 quarter was a result of an improvement in U.K. operating results and the benefits of cost reduction initiatives implemented in 2015.
Broadspire
Broadspire segment revenues before reimbursements were $75.1 million in the 2016 second quarter, up from $73.7 million in the 2015 second quarter. The revenue increase was due to increased claims management revenues and higher average case values when compared with the 2015 period. Broadspire recorded operating earnings of $6.5 million in the second quarter of 2016, representing an operating margin of 9%, compared with $6.0 million, or 8% of revenues, in the 2015 second quarter.
Garden City Group
Garden City Group revenues before reimbursements were $25.2 million in the second quarter of 2016, compared with $34.3 million in the same period of 2015. The expected decrease in revenues was primarily due to declines in volumes associated with certain large ongoing cases. Operating earnings were $2.7 million in the 2016 second quarter as compared to $3.7 million in the 2015 period, with the related operating margin flat at 11% for both periods. At June 30, 2016 there was a backlog of projects awarded totaling approximately $94.1 million as compared to $88.0 million at June 30, 2015.
Unallocated Corporate and Shared Costs, Net
Unallocated corporate costs were $5.9 million in the second quarter of 2016, compared with $3.0 million in the same period of 2015. The increased costs for the three months of 2016 were due to an increase in defined benefit pension expense and incentive compensation, partially offset by a decrease in unallocated professional fees.
The Company recorded restructuring and special charges of $3.5 million and $4.2 million in the 2016 and 2015 second quarters, respectively. Restructuring costs of $3.0 million in the 2016 quarter were comprised of costs associated with the ongoing implementation of the Global Business Services Center and the Global Technology Services Center (the "Centers"), integration costs related to the GAB Robins acquisition, and other restructuring costs in our operating segments and administrative areas. Special charges of $0.5 million in 2016 were for certain legal and professional fees. There were no special charges in the 2015 second quarter.
Crawford & Company`s consolidated cash and cash equivalents position as of June 30, 2016 totaled $59.4 million compared with $76.1 million at December 31, 2015.
The Company`s operations provided $11.5 million of cash during the first half of 2016, compared with $10.2 million in the 2015 period. The improvement in cash provided by operating activities in the first half of 2016 compared with 2015 was primarily due to improved net income partially offset by an increase in working capital.
Crawford & Company is reaffirming guidance for 2016 as follows:
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Consolidated revenues before reimbursements between $1.05 and $1.10 billion;
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After expected restructuring and special charges, net income attributable to shareholders of Crawford & Company between $24.0 and $30.0 million, or $0.48 to $0.58 diluted earnings per CRDA share, and $0.40 to $0.50 diluted earnings per CRDB share;
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Consolidated operating earnings between $80.0 and $90.0 million;
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Consolidated adjusted EBITDA between $120.0 and $130.0 million;
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Before expected restructuring and special charges, net income attributable to shareholders of Crawford & Company on a non-GAAP basis between $36.0 and $42.0 million, or $0.67 to $0.77 diluted earnings per CRDA share, and $0.59 to $0.69 diluted earnings per CRDB share.
The Company expects to incur restructuring and special charges in 2016 totaling $15.6 million pretax. This is comprised of approximately $5.1 million related to the Centers and $10.5 million related to previously announced restructuring plans and other special charges. As a result of restructuring charges incurred for the Centers in 2015 and 2016, the Company expects to achieve $10.7 million in savings in 2016.
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.
As previously announced, Crawford & Company will host a conference call today, August 8, 2016 at 3:00 p.m. Eastern Time to discuss its second quarter 2016 results. The conference call can be accessed live by dialing 1-800-374-2518 using passcode 90682749. A presentation for today`s call can also be found on the investor relations portion of the Company`s website, http://www.crawfordandcompany.com. The call will be recorded and available for replay through September 8, 2016. You may dial 1-855-859-2056 to listen to the replay. The access code is 90682749.
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 required to be included when reporting expenses and revenues, respectively, in our consolidated results of operations. In the foregoing discussion and analysis of segment results of operations, we do not include a gross up of segment 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 consolidated revenues determined in accordance with GAAP is self-evident from the face of the accompanying unaudited condensed consolidated statements of operations.
Operating earnings is the primary financial performance measure used by our senior management and chief operating decision maker ("CODM") to evaluate the financial performance of our Company and operating segments, and make resource allocation and certain compensation decisions. Unlike net income, segment operating earnings is not a standard performance measure found in GAAP. We believe this measure is useful to others in that it allows them to evaluate segment and consolidated operating performance using the same criteria used by our senior management and CODM. Consolidated operating earnings represent segment earnings including certain unallocated corporate and shared costs, but before net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, restructuring and special charges, income taxes, and net income or loss attributable to noncontrolling interests. The reconciliation of operating earnings to net income attributable to shareholders of Crawford & Company on a GAAP basis is presented below.
Adjusted EBITDA is not a term defined by GAAP and as a result our measure of adjusted EBITDA might not be comparable to similarly titled measures used by other companies. However, adjusted EBITDA is used by management to evaluate, assess and benchmark our operational results and the Company believes that adjusted EBITDA is relevant and useful information widely used by analysts, investors and other interested parties. Adjusted EBITDA is defined as net income attributable to shareholders of Crawford & Company with adjustments for depreciation and amortization, net corporate interest expense, income taxes, restructuring and special charges, and stock-based compensation expense.
Unallocated corporate and shared costs represent expenses 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, defined benefit pension costs or credits for our frozen U.S. pension plan, certain self-insurance costs and recoveries, and professional fees for corporate level projects that are not allocated to our individual operating segments but are included in our financial performance measure of consolidated operating earnings. Restructuring and special charges are non-core items not directly related to our normal business or operations, or our future performance.
Income taxes, net corporate interest expense, stock option expense, and amortization of customer-relationship intangible assets are recurring components of our net income, but they are not considered part of our consolidated or 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 varies significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors and 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. Amortization expense is a non-cash expense for finite-lived customer-relationship and trade name intangible assets acquired in business combinations. 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.
Income taxes are calculated for the non-GAAP presentation of net income before restructuring and special charges based on statutory rates in effect in the various jurisdictions in which charges exist, and vary by jurisdiction.
Following is a reconciliation of segment and consolidated operating earnings to net income attributable to shareholders of Crawford & Company on a GAAP basis. The reconciliation of 2016 guidance is to the midpoint of the guidance range.
| | Three months ended | | Six months ended | | Full Year |
| (in thousands) | June 30, 2016 | June 30, 2015 | | June 30, 2016 | June 30, 2015 | | Guidance 2016 |
| Operating earnings: | | | | | | | |
| U.S. Services | $ | 9,579 | | $ | 9,835 | | | $ | 18,633 | | $ | 13,996 | | | |
| International | 10,973 | | 1,167 | | | 18,007 | | 3,510 | | | |
| Broadspire | 6,529 | | 6,003 | | | 15,234 | | 9,546 | | | |
| Garden City Group | 2,691 | | 3,721 | | | 4,186 | | 8,672 | | | |
| Unallocated corporate and shared costs, net | (5,889 | ) | (3,043 | ) | | (10,507 | ) | (7,345 | ) | | |
| Consolidated operating earnings | 23,883 | | 17,683 | | | 45,553 | | 28,379 | | | $ | 85,000 | |
| (Deduct) add: | | | | | | | |
| Net corporate interest expense | (2,523 | ) | (2,042 | ) | | (5,291 | ) | (3,906 | ) | | (10,700 | ) |
| Stock option expense | (137 | ) | (178 | ) | | (227 | ) | (327 | ) | | (500 | ) |
| Amortization expense | (2,420 | ) | (2,334 | ) | | (4,879 | ) | (4,432 | ) | | (9,200 | ) |
| Restructuring and special charges | (3,526 | ) | (4,242 | ) | | (5,943 | ) | (5,305 | ) | | (15,600 | ) |
| Income taxes | (6,116 | ) | (4,709 | ) | | (11,423 | ) | (6,950 | ) | | (22,700 | ) |
| Net (income) loss attributable to non-controlling interests | (534 | ) | (124 | ) | | (533 | ) | (419 | ) | | 700 | |
| Net income attributable to shareholders of Crawford & Company | $ | 8,627 | | $ | 4,054 | | | $ | 17,257 | | $ | 7,040 | | | $ | 27,000 | |
| | | | | | | | |
Following is a reconciliation of net income attributable to shareholders of Crawford & Company on a GAAP basis to adjusted EBITDA. The reconciliation of 2016 guidance is to the midpoint of the guidance range.
| | Three months ended | | Six months ended | | Full Year |
| (in thousands) | June 30, 2016 | June 30, 2015 | | June 30, 2016 | June 30, 2015 | | Guidance 2016 |
| Net income attributable to shareholders of Crawford & Company | $ | 8,627 | | $ | 4,054 | | | $ | 17,257 | | $ | 7,040 | | | $ | 27,000 | |
| Add: | | | | | | | |
| Depreciation and amortization | 10,264 | | 10,592 | | | 20,558 | | 21,407 | | | 45,000 | |
| Stock-based compensation | 1,228 | | 876 | | | 1,957 | | 1,280 | | | 4,000 | |
| Net corporate interest expense | 2,523 | | 2,042 | | | 5,291 | | 3,906 | | | 10,700 | |
| Restructuring and special charges | 3,526 | | 4,242 | | | 5,943 | | 5,305 | | | 15,600 | |
| Income taxes | 6,116 | | 4,709 | | | 11,423 | | 6,950 | | | 22,700 | |
| Adjusted EBITDA | $ | 32,284 | | $ | 26,515 | | | $ | 62,429 | | $ | 45,888 | | | $ | 125,000 | |
| | | | | | | | |
Further information regarding the Company`s operating results for the three months and six months ended June 30, 2016, financial position as of June 30, 2016, and cash flows for the six months ended June 30, 2016 is shown on the attached unaudited condensed consolidated financial statements.
Based in Atlanta, Georgia, Crawford & Company (www.crawfordandcompany.com) is one of the world`s largest independent providers of claims management solutions to the risk management and insurance industry, as well as to self-insured entities, with an expansive global network serving clients in more than 70 countries. The Crawford SolutionTM offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management, workers` compensation claims and medical management, and legal settlement administration.
The Company`s shares are traded on the NYSE under the symbols CRDA and CRDB. 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 than on the voting Class B Common Stock, subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of Class A Common Stock must receive the same type and amount of consideration as holders of Class B Common Stock, unless different consideration is approved by the holders of 75% of the Class A Common Stock, voting as a class.
Earnings per share may be different between CRDA and CRDB due to the payment of a higher per share dividend on CRDA than CRDB, and the impact that has on the earnings per share calculation according to generally accepted accounting principles.
FOR FURTHER INFORMATION REGARDING THIS PRESS RELEASE, PLEASE CALL BRUCE SWAIN AT (404) 300-1051.
| This press release contains forward-looking statements, including statements about the expected future financial condition, results of operations and earnings outlook of Crawford & Company. Statements, both qualitative and quantitative, that are not historical facts may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from historical experience or Crawford & Company`s present expectations. Accordingly, no one should place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Crawford & Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise or not arise after the date the forward-looking statements are made. For further information regarding Crawford & Company, including factors that could cause our actual financial condition, results or earnings to differ from those described in any forward-looking statements, please read Crawford & Company`s reports filed with the SEC and available at www.sec.gov or in the Investor Relations section of Crawford & Company`s website at www.crawfordandcompany.com. |
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Source: Crawford & Company via GlobeNewswire
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