Crawford & Company

Good morning. My name is Sylvie, and I will be your conference solicitor today. At this time, I would like to welcome everyone to the Crawford & Company 4th Quarter and Full Year 2024 Earnings Release Conference Call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawco.com under the Investor Relations section. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Instructions will follow at that time. Should anyone need assistance at any time during the conference, please press star zero for an operator who will assist you. As a reminder, today, ladies and gentlemen, this call is being recorded and it is March 4th, 2025. I would now like to introduce Tammy Stevenson, Crawford & Company's General Counsel. Please go ahead.

Thank you, Sylvie. Some of the matters to be discussed in this conference call and this supplementary financial presentation may include forward-looking statements that involve risks and uncertainties. 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, our long-term capital resource and liquidity requirements, and our ability to pay dividends in the future. The company's actual results achieved in future quarters could differ materially from the results that may be implied by such forward-looking statements. The company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events. In addition, you are reminded that the operating results for any historical period are not necessarily indicative of the results to be expected for any future period. For a complete discussion regarding factors which could affect the company's financial performance, please refer to the company's Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission, particularly the information under the headings BRICS Factors and Management's Discussion and Announcement of Financial Condition and Results of Operation, as well as subsequent company filings with the SEC. This presentation also includes certain non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most directly comparable GAAP measures. I would now like to introduce Mr. Rohit Verma, Chief Executive Officer of Crawford & Company. Rohit.

Thank you, Tammy. Good morning and welcome to our fourth quarter and full year 2024 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer, and Tammy Stevenson, our General Counsel. After our prepared remarks, we will open the call for your questions. We closed out 2024 with a strong fourth quarter. This reflected the continued strength of our core businesses, Broad Spire, and international operations. Our North America loss adjusting and platform solution segments, which are largely weather dependent, also delivered a solid quarter, following claims activity from Hurricane Helene and Milton. This morning, I'll highlight the key takeaways from the fourth quarter before handing it over to Bruce for a deeper dive into our segment financial performance. On this slide, you'll see some of the top clients we proudly serve. Crawford manages over $20 billion in claims annually across 70 countries, making us the largest publicly traded claims management provider worldwide. Our global scale and reputation for excellence set us apart in a fragmented market. And with a team of 10,000 skilled professionals, we continue to be trusted partner of choice for our clients. Crawford is uniquely positioned to capitalize on long-term industry trends, with technology at the core of our strategy to enhance claims management and deliver superior service to our clients. Though we may see quarter-to-quarter variations in catastrophic events, we continue to see an overall increase in the severity and frequency of extreme weather events. As the demand for advanced claims solutions continues to grow, our technology-enabled response capabilities allow us to quickly scale and support clients through these events. Beyond weather-related claims, the insurance industry is seeing a rapid shift towards outsourced claims activity. Crawford's global scale and deep carrier relationships allow us to efficiently handle complex claims, reducing costs and improving outcomes for clients. We are also well positioned for growth in the PNC insurance markets, gaining market share in the fragmented U.S. independent loss adjusting sector, and strengthening our partnerships across all business segments. By integrating automation and digital workflow enhancements, we continue to optimize claims handling, positioning Crawford as the partner of choice in an evolving industry. Our commitment to innovation ensures we remain at the forefront of claims management. By leveraging cutting edge technology, enhancing operational efficiency, and delivering market leading solutions, we are well positioned to drive sustainable growth and reinforce our leadership in the industry. Turning to our fourth quarter performance, we delivered 17% year-over-year revenue growth driven by strong performance in our non-weather core businesses, plus the return of weather-related claims activity. Hurricanes Helene and Milton were significant events that contributed to this increase. And our strong client relationships positioned us as a key partner for outsourced claims processing, reinforcing Crawford's role as a trusted provider in catastrophe response. Importantly, we saw revenue growth across all segments, highlighting the strength and resilience of our diversified business model. North America loss adjusting, international operations, and platform solutions all delivered margin expansion and improved profitability, reflecting disciplined execution and continued demand for our services. Our operating earnings increased 140% year-over-year, primarily reflecting high revenues from catastrophe-related claims. While weather remains a variable factor in our business, this quarter's results demonstrate that when storm activity occurs, we are well positioned to respond and support our clients effectively. We paid a quarterly dividend of $0.07 per share for CRDA and CRDB, underscoring our commitment to returning capital to shareholders. Additionally, our balance sheet remains strong, with ample liquidity providing us the financial flexibility to invest in growth opportunities. Throughout 2024, we have consistently highlighted the decline in storm activity compared to the historical levels. While on a full year basis, severe storm activity was down. Hurricanes Helene and Milton impacted the fourth quarter and preliminary strong data from NOAA indicates that storm activity increased 52% year over year in the fourth quarter of 2024, following a particularly quiet Q4 in 2023. This uptick in severe weather had a clear impact on our financial performance. Our core non-weather segments grew 7%, demonstrating the strength of our diversified business model. At the same time, weather-related revenue increased 45%, driven by the return of outsourced claims activity in our weather-dependent businesses. Looking deeper, our network segment, closely tied to catastrophe response, saw a 154% revenue increase. reinforcing Crawford's role as a trusted partner when severe weather strikes. As we enter the first quarter, weather conditions have remained relatively quiet. Our thoughts are with all those impacted by the California fires at the beginning of this year, and our teams are working to assist the recovery efforts where they are needed. We do not anticipate a significant revenue impact from wildfires as wildfire related claims are typically characterized as total loss. and the outsourcing of claims is in turn lower. Our capital strategy is centered on driving sustainable growth while maintaining financial flexibility. We prioritize investments in innovation and technology to enhance our service capabilities and efficiency. Additionally, we continue to pursue strategic acqui-hires that expand our expertise and market reach, including the addition of three teams in Spain during the fourth quarter. At the same time, we remain committed to returning capital to shareholders, as reflected in our full-year dividend payment, totaling $0.28 per share. Our conservative approach to leverage, which was at 1.85 times EBITDA, ensures we have ample liquidity to execute our strategy while delivering consistent, long-term value to shareholders. With that, let me turn over the call to Bruce for a deeper look at our operational and financial performance.

Thank you, Rohit. Crawford operates a diversified business model across four key segments, promoting a balanced revenue mix, enabling us to navigate market fluctuations while capitalizing on opportunities across our business lines. North America loss adjusting, which includes our loss adjusting operations in the U.S. and Canada, accounted for 24% of 2024 revenues. International operations, covering all service lines outside North America, contributed 32% of total revenues. reflecting our strong global presence. Broad Spire, our U.S.-based third-party administration business, represents 30% of total revenues. Platform Solutions, which includes contractor connection, networks, and subrogation services, accounted for 14% of revenues, supporting our strategy of offering end-to-end claims management solutions. North America loss adjusting saw strong growth in the fourth quarter of 2024, with revenues increasing 14% year-over-year to $79.4 million. Operating earnings improved substantially from the prior year quarter to $3.4 million, reflecting increased storm activity and the benefit of our continued investment in talent. Within the segment, GTS delivered another record-breaking quarter, with revenues reaching $29.2 million. up 37% year-over-year. Additionally, U.S. field operations grew 13% year-over-year to $27.6 million, further demonstrating the strength of our client relationships and our ability to support carriers during periods of heightened claims activity. A key growth driver for this segment is our strategic investments in talent, expanding our roster of highly skilled adjusters which continues to position us for growth as demand increases for our specialized expertise in complex claims. Our international operations segment continued its strong momentum in the fourth quarter, delivering revenues of $112.5 million, growing 16% year over year, or 13% on a constant currency basis. This growth was driven by strong performances across Europe, Australia and Asia, supported by weather-related claims and large loss activity. Operating earnings of $8.5 million more than tripled compared to the prior year quarter, and operating margin expanded by 526 basis points, reflecting the success of our strategic efforts to enhance pricing, improve productivity, and drive new business growth. While we expect to see a quarter-to-quarter variation in international margins, With the presence of some one-time benefits in the fourth quarter, the overall trajectory remains positive. Our focus on operational efficiencies and disciplined execution is delivering results, and we look forward to seeing continued improvement in 2025. Our Broad Spire business delivered fourth quarter revenue of $97.7 million, a 6% increase over the prior year, driven by higher utilization of medical management services. Operating earnings were 10.1 million, with an operating margin of 10.4%. During the quarter, we proactively invested in staffing to ensure we have the capacity and expertise to support future growth, and the additional expense impacted our operating margin in the quarter. Our platform solution segment saw a significant increase in revenue in the fourth quarter, growing 55% year-over-year, to $57.6 million, primarily due to claims activity from Hurricanes Helene and Milton. Operating earnings also rose 144% year-over-year, reflecting the impact of increased storm-related claims volume. As Roeth mentioned, Network's revenues were a key growth driver, increasing 154% year-over-year. Underscoring our strong carrier relationships and ability to support clients, when severe weather occurs. Subrogation also saw a 4% year-over-year revenue increase, contributing to overall segment performance. While these results highlight the value of our capabilities and catastrophe response, it's important to note that weather-driven claims volumes can fluctuate. As we move into 2025, we remain focused on strengthening our client partnerships and expanding our capabilities to drive long-term, sustainable growth. And now let's take a look at our consolidated financials. In the fourth quarter of 2024, company-wide revenues before reimbursements were $347.3 million, an increase of 17% compared to the prior year period. Foreign exchange rates increased revenues by $2.4 million, or less than 1%. GAAP net income attributable to shareholders totaled $5.7 million compared to a net loss of $818,000 in the same period of 2023. GAAP diluted EPS in the 2024 fourth quarter was 11 cents for CRDA and 12 cents for CRDB, increasing from a loss of 2 cents for both share classes in the 2023 period. On a non-GAAP basis, diluted EPS was 19 cents for both CRDA and CRDB, compared to $0.06 for CRDA and $0.07 for CRDB in the prior year period. The company's non-GAAP operating earnings totaled $18.7 million in the 2024 fourth quarter, or 5.4% of revenues, increasing 140% from $7.8 million or 2.6% of revenues in the prior year period. Consolidated adjusted EBITDA was $27.9 million in the 2024 fourth quarter, or 8% of revenues, increasing 78% from $15.7 million, or 5.3% of revenues in the 2023 quarter. The company's cash and cash equivalent position as of December 31, 2024, totaled $55.4 million, compared to $58.4 million at the 2023 year end. Our total receivables were up $25.2 million from the 2023 year end, primarily due to an increase in weather-related claims that we expect to unwind in the coming year. The company's total debt outstanding as of December 31, 2024, totaled $218.1 million, up from $209.1 million as of December 31, 2023. Net debt stood at $162.7 million as of December 31, 2024, while our U.S. pension liability was $21.1 million at the end of the year. reflecting a funded ratio of 92.4%. We made no discretionary contributions to our U.S. defined benefit pension plan during 2024, and we do not intend to make contributions during the coming year. Cash provided by operating activities for 2024 was 51.6 million, with free cash flow of 10 million. This compares to cash flow from operations last year of $103.8 million and free cash flow of $67.2 million. This decrease in free cash flow in 2024 was primarily due to the $48 million impact from the change in billed and unbilled accounts receivable. This decrease in our free cash flow is the result of timing-related variations, and it is not uncommon for us to see such fluctuations. The decrease in free cash flow in 2024 is not a reflection of the company's long-term cash-generating capabilities. Unallocated corporate costs were $8 million in the 2024 fourth quarter compared to costs of $9.4 million in the same period of 2023. The increase was primarily due to increases in self-insured expense and professional fees. During the 2024 fourth quarter, non-service pension costs were $2.5 million compared to $2.2 million in the 2023 period. We recognized pre-tax contingent earn-out costs of $448,000 in the 2024 fourth quarter compared to costs of $925,000 in the 2023 period. As Rose mentioned earlier, we paid a $0.07 dividend per share for both CRDA and CRDB in the fourth quarter. During the fourth quarter of 2024, the company did not repurchase any shares of CRDA, but repurchased approximately 24,000 shares of CRDB at an average share cost of $10.94. As a reminder, approximately 1.1 million shares are eligible to be repurchased under our 2021 share repurchase authorization. With that, I'll turn the call back over to Rohith for concluding remarks. Thank you, Bruce.

We closed out 2024 with a strong fourth quarter, delivering revenue growth and improved profitability. This performance highlights the strength of our diversified business model and our ability to respond effectively when demand arises. Our deep client relationships and operational expertise continue to position us as a trusted partner in times of need. While weather remains unpredictable, our focus on innovation, efficiency, and client service ensures we are positioned to deliver value across market cycles. I want to thank our employees for their dedication and expertise, which continue to set Crawford apart as a leader in the industry. I also want to thank our clients, shareholders, and partners for their ongoing trust and support. Thank you for your time today. Sylvie, please open the call for questions.

Thank you. At this time, if you would like to ask a question, please press star then number one on your telephone keypad. To withdraw from the question queue, please press star then number two. And if you're using a speakerphone, please lift the handset before pressing any keys. We will pause a brief moment to compile the Q&A roster. And your first question will be from Maxwell Frichter at Tourist. Please go ahead.

Hi, good morning. I'm calling in for more Qs. Good morning. In Broad Spire, any observations about the underlying claims, specifically workers' comp? Are you seeing any material inflection in claims activity there?

Hi, Max. This is Royce. No, you know, we obviously saw changes emerge as we were just coming out of COVID. But in general, we've seen stabilization in the type of claims and the frequency of claims. So nothing really different this year or this quarter to report.

And then the operating margin there at Broad Spire, a little lower versus the mid-teens run rate for the year. Any observations there you can point to?

You know, in 2024, we wrote a lot of new business and we grew by about 9%. We had already planned that, you know, there'll be some increased expenses in the fourth quarter reflecting the increased hiring that we anticipate for the new business that we've written. So we're not really worried about the broad spot margin. I mean, we're still holding on overall in the mid-teens and that's what we expect to continue.

Okay. And another good result in international, and you had mentioned that it was partially driven by enhanced pricing. So how are you or how do you look at pricing going into 2025 in international?

In international, we had done some analysis, and we found that there were some accounts that we needed to adjust pricing on, and we've done that. We also believe that we have enforced pricing discipline, just not in international, but across the organization. But I think we've largely closed the pricing gap that we had. There might be still a handful of accounts here or there that might need that adjustment. But overall, we're feeling very good about our international trajectory.

Thank you. And then last one from me on capital allocation. Any expectations for share repurchases in 2025?

We have still over a million shares left in our authorization. And as you know, we've been disciplined buyers. We will continue to look for opportunities where there are blocks available for us to buy. But other than that, we'll continue the program. expect to sort of be at similar levels to what you've seen so far.

Great. Thanks for taking my questions. Thank you.

Once again, if you do have any questions, please press star followed by one on your touch-tone phone. Next question will be from Kevin Steinke at Barrington Research. Please go ahead.

Good morning.

Hi, Kevin. Hi, Kevin.

I wanted to start out by asking about just the share of weather-related claims. You know, you feel like you're getting relative to prior spikes in severe weather activity, you know, given your onboarding of clients, etc., Do you feel like you're gaining share of the weather related claims?

We definitely feel that, Kevin, that we are gaining share and doing well through these cycles of storms. As you know, particularly Milton, we would have had a very different result had Milton crossed over Tampa versus it was south of that.

um but you know um all things considered we thought that we got a very fair share of claims during the weather during the severe weather okay thanks and um the broad spire margin just to follow up on that again um you noted the uh investments in staffing levels um it sounds like That's something you might leverage pretty quickly given the ramp up of new business. Are there more investments to be made there? Just kind of thinking about the trajectory of the broad spire margin as we enter 2025.

Yeah, I think BroadSpire, we believe that our biggest differentiator in BroadSpire has been our technology. And as we've stated before, that the lion's share of our CapEx technology investment has been in BroadSpire. We expect similar levels of investment to continue in 2025 as we continue to not just shore up some of the things that we've done, but also advance into new areas that relate to analytics and AI. I think you will see a combination of people as well as tech investment to continue in BroadSpot.

Okay. Thanks. And just again, also on the international operating – international operations margin in the quarter, obviously very strong. Bruce, I think you mentioned some one-time benefits as well in the quarter. I don't know if that's something very meaningful to call out quantitatively or not, but I don't know if there's any additional color you can offer there.

Yeah, we had a one-time indirect tax benefit that came in in the quarter, about a million and a half or so, which... which helped in the fourth quarter, it'll be non-continuing. But even when you back that out, still a solid quarter for international and a good year for them overall.

Okay, that's helpful.

If you look at 2024, every quarter we bumped up the international margin. And I think that as we head into 2025, our goal is to make sure that on a quarterly comparison that international continues on that positive trajectory.

Okay, that's great. And the very strong growth you had in global technical services, I think you set up 37% year over year. Should we think of that being influenced meaningfully by weather, or is that just kind of a continued trajectory of hiring and people getting more productive as they join your platform?

Yeah, I would say it's largely because of the continued acqui-hires that we've been focused on in that segment. We still believe that we have a low market share in that space. And there's more room for us to grab. Obviously, you know, the growth levels are not going to be similar on a percentage basis, given we were coming off a low base. But as we get to a critical mass, those would start to stabilize. But we still think that, you know, mid-single digit to low double digit is not out of question.

Okay. Makes sense. And you also mentioned hiring, I think, three teams in Spain. Can you just maybe give us a little bit more color on that, what business those folks are in, and just the overall strategy there internationally?

Yeah, look, I think that when we look at our AQUIHAR strategy, which is to acquire teams of experts wherever we can. That is something that we have been trying to execute globally. We've had more success in the U.S., certainly, but we've also seen success internationally. We had reported on teams that we had brought on board in the Netherlands before. We had an opportunity in Spain to pick these three teams up that are going to add significant depth to our loss-adjusting capabilities in Spain, and we have several others in the pipeline across the world that we're working on.

Okay, and lastly, do you expect any meaningful carryover in terms of claims volume and revenue generation into the first quarter of 2025 from the hurricanes Helene and Milton?

Not really. Both those hurricanes did not have long tails, so we largely addressed the backlog of claims in 2024 itself. And, you know, as we look at 2025, we feel that the trajectory of our core non-weather businesses remains strong. From a weather perspective, it has been light, you know, absent any polar vortex-like events. So everything seems as we would expect. And if normal weather patterns were to happen this year, we feel pretty good about where we stand.

Okay. Well, thanks for taking the questions. And congratulations. I'll turn it back over.

Thank you, Kevin.

And at this time, I would like to turn the call back over to Mr. Verma for closing remarks.

Thank you, Sylvie. And thank you to all our employees, clients, and shareholders for your continued commitment to Crawford & Company. This concludes our call today. Thank you so much, and God bless.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 11.30 a.m. Eastern Time today,