Crawford & Company Reports 2016 Third Quarter Results, Increases and Updates 2016 Guidance

ATLANTA, Nov. 07, 2016 (GLOBE NEWSWIRE) -- Crawford & Company (www.crawfordandcompany.com) (NYSE:  CRD-A  and CRD-B), one of the world's largest independent providers of claims management solutions to insurance companies and self-insured entities, today announced its financial results for the third quarter ended September 30, 2016, and increased and updated its full year 2016 guidance.

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 (CRD-A) than on the voting Class B Common Stock (CRD-B), subject to certain limitations. In addition, with respect to mergers or similar transactions, holders of CRD-A must receive the same type and amount of consideration as holders of CRD-B, unless different consideration is approved by the holders of 75% of CRD-A, voting as a class.

Third Quarter 2016 Summary

• Revenues before reimbursements of $277.3 million, compared with $293.3 million for the third quarter of 2015
• Net income attributable to shareholders of $10.9 million compared to a net loss of $(0.9) million in the same period last year
• Diluted earnings per share of $0.20 for CRD-A and $0.18 for CRD-B, compared with $(0.01) for CRD-A and $(0.03) for CRD-B in the prior year quarter
• Diluted earnings per share of $0.22 for CRD-A and $0.20 for CRD-B on a non-GAAP basis in the 2016 quarter, before restructuring and special charges, compared to $0.14 for CRD-A and $0.12 for CRD-B in the prior year quarter
• All four business segments achieved double digit operating margins this quarter
• Consolidated operating earnings, a non-GAAP financial measure, were $26.3 million in the 2016 third quarter, compared with $23.1 million in the 2015 period
• Consolidated adjusted EBITDA, a non-GAAP financial measure, was $34.7 million in the 2016 third quarter, compared with $32.8 million in the 2015 period.

Mr. Harsha V. Agadi, chief executive officer of Crawford & Company, stated, "Our third quarter results are a clear indication that the strategic initiatives implemented beginning over a year ago are unlocking the potential that exists at Crawford as we strive to deliver more predictable financial results regardless of the market backdrop. While the environment remained challenging once again this quarter, we achieved our best performance of the year as operating earnings grew 14%, year over year, driven by 160 basis points of margin expansion. Importantly, all four of our business segments generated double digit operating margins this quarter.

"Looking at our 2016 third quarter results in more detail, our International segment showed significant improvement, as operating earnings in all of our major operating regions were up over the prior year. Broadspire delivered another strong quarter with growing operating margins and steady, consistent operating performance. The U.S. Services segment saw revenue declines related to a large outsourced services project that is transitioning down this year, partially offset by continued growth in our Contractor Connection service line. Lastly, the new GCG leadership team is delivering strong results as operating earnings doubled year over year, and new business win rates remained robust."

Mr. Agadi concluded, "While our operating earnings have expanded by 40% year to date, we believe significant untapped potential remains across our global operations. We will continue to evaluate our business segments as we strive to deliver revenue growth and further operational improvements in order to remain competitive and relevant in this ever changing world. To that end, it is critical that we continue to transform our business as we must move faster than our competitors, new market entrants and clients to ensure that we deliver results for all of our stakeholders not only today but also in the future."

Segment Results for the Third Quarter

U.S. Services

U.S. Services revenues before reimbursements were $56.5 million in the third quarter of 2016, decreasing 9% from $62.1 million in the third quarter of 2015. The revenue decrease was primarily due to a reduction in U.S. Catastrophe Services, partially offset by an increase in U.S. Contractor Connection revenues. Operating earnings were $9.4 million in the 2016 third quarter, compared with $10.8 million in the third quarter of 2015, representing operating margins of 17% in both the 2016 and 2015 periods.

International

Third quarter 2016 revenues before reimbursements for the International segment totaled $121.6 million, compared with $128.2 million in the 2015 third 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 third quarter compared with the prior year period. International segment operating earnings were $13.2 million in the 2016 third quarter, compared with $8.0 million in the 2015 third quarter. The segment's operating margin was 11% in the 2016 period as compared to 6% in the 2015 period. The increase in operating margin for the 2016 quarter was a result of improvements in all of our major operating regions and the benefits of cost reduction initiatives implemented in 2015.

Broadspire

Broadspire segment revenues before reimbursements were $76.7 million in the 2016 third quarter, up from $74.2 million in the 2015 third quarter. The revenue increase was due to increased claims and medical management revenues and higher average case values when compared with the 2015 period. Broadspire recorded operating earnings of $8.3 million in the third quarter of 2016, representing an operating margin of 11%, compared with $7.4 million, or 10% of revenues, in the 2015 third quarter.

Garden City Group

Garden City Group revenues before reimbursements were $22.5 million in the third quarter of 2016, compared with $28.8 million in the same period of 2015. The expected decrease in revenues was primarily due to declines in volumes associated with certain large cases which are transitioning to conclusion. Operating earnings were $2.4 million in the 2016 third quarter as compared to $1.1 million in the 2015 period. The segment's operating margin for the 2016 quarter was 10% as compared to 4% for the 2015 period as a result of the impact of cost reduction initiatives implemented earlier in 2016. At September 30, 2016 there was a backlog of projects awarded totaling approximately $94.0 million as compared to $76.0 million at September 30, 2015.

Unallocated Corporate and Shared Costs, Net

Unallocated corporate costs were $6.9 million in the third quarter of 2016, compared with $4.3 million in the same period of 2015. The increased costs for the three months of 2016 were due to an increase in professional fees and defined benefit pension expense, partially offset by a decrease in self-insured expenses.

Restructuring and Special Charges

The Company recorded restructuring and special charges of $1.5 million and $11.1 million in the 2016 and 2015 third quarters, respectively. Restructuring costs of $1.4 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 $0.1 million in 2016 were for certain legal and professional fees. Restructuring costs of $6.1 million in the third quarter of 2015 were for similar matters as in the 2016 period. Special charges of $5.0 million in 2015 were recorded for certain legal and professional fees and employee separation costs.

Balance Sheet and Cash Flow

Crawford & Company's consolidated cash and cash equivalents position as of September 30, 2016 totaled $71.7 million compared with $76.1 million at December 31, 2015.

The Company's operations provided $50.1 million of cash during the first nine months of 2016, compared with $21.1 million in the 2015 period. The improvement in cash provided by operating activities in the first nine months of 2016 compared with the 2015 period was primarily due to increased net income and a decrease in working capital requirements.

2016 Guidance

Crawford & Company is increasing and updating its guidance for 2016 as follows:

• Consolidated revenues before reimbursements between $1.08 and $1.10 billion;
• After expected restructuring and special charges, net income attributable to shareholders of Crawford & Company between $31.0 and $34.0 million, or $0.58 to $0.63 diluted earnings per CRD-A share, and $0.50 to $0.55 diluted earnings per CRD-B share;
• Consolidated operating earnings between $85.0 and $90.0 million;
• Consolidated adjusted EBITDA between $125.0 and $130.0 million;
• Before expected restructuring and special charges, net income attributable to shareholders of Crawford & Company on a non-GAAP basis between $39.0 and $42.0 million, or $0.73 to $0.78 diluted earnings per CRD-A share, and $0.65 to $0.70 diluted earnings per CRD-B share.

The Company expects to incur restructuring and special charges in 2016 totaling $11.0 million pretax. This is expected to be comprised of $4.4 million related to the Centers and $6.6 million related to previously announced restructuring plans and other special charges. As a result of restructuring charges incurred related to the Centers in 2015 and 2016, the Company expects to achieve $10.3 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.

Conference Call

As previously announced, Crawford & Company will host a conference call today, November 7, 2016 at 3:00 p.m. Eastern Time to discuss its third quarter 2016 results. The conference call can be accessed live by dialing 1-800-374-2518 using passcode 90684611. 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 December 7, 2016. You may dial 1-855-859-2056 to listen to the replay. The access code is 90684611.

Non-GAAP Presentation

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.

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.

Further information regarding the Company's operating results for the three months and nine months ended September 30, 2016, financial position as of September 30, 2016, and cash flows for the nine months ended September 30, 2016 is shown on the attached unaudited condensed consolidated financial statements.

About Crawford & Company

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 Solution^® 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 CRD-A and CRD-B. 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 CRD-A and CRD-B due to the payment of a higher per share dividend on CRD-A than CRD-B, 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.

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