Crawford United Corp

croco.com under the investor relation 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 period. Instructions will follow at that time. Should anyone need assistance at any time during this conference, please press star, then zero, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, August 5, 2025. Now I would like to introduce Tammy Stevenson, Crawford & Company's General Counsel. Please go ahead.

Thank you, Angeline. Some of the matters to be discussed in this conference call and in the supplementary financial presentations 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, 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 day of the call or to reflect the occurrence of unanticipated events. In addition, you are reminded that 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-Q for the quarter ended June 30, 2025, filed with the Securities and Exchange Commission, particularly the information under the headings risk factors and management's discussion and analysis of financial conditions 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 the SEC rules. As required, a reconciliation is provided for these matters to those most directly comparable GAAP measures. I would like to now introduce Mr. Rohit Verma, Chief Executive Officer of Crawford Company. Rohit?

Thank you, Tammy. Good morning and welcome to our second quarter 2025 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. This quarter, we continue to make progress on our strategic objectives. Consolidated revenue grew year over year. with three of our four segments delivering top-line growth. While we're seeing the effects of lower property claims frequency in the U.S., which puts some pressure on revenues in our North America loss adjusting and platform solution segments, we saw encouraging results across the broader business. Notably, we achieved growth in our non-weather segments, highlighting the effectiveness of our diverse business model and disciplined execution in navigating various market options. This morning, I'll review our segment operations for the second quarter before handing it over to Bruce for a deeper dive into our financial performance. As you've heard me say before, our scale, expertise, and longstanding legacy of service excellence are true differentiators in the marketplace. We operate in over 70 countries with 10,000 employees and access to more than 50 000 field resources and was one of the only companies with the capability to respond to complex claims of any size anywhere each year we manage more than 20 billion dollars in claims globally reflecting our reliability in meeting the needs of the world's leading carriers corporations and public entities our global presence deep technical expertise and over eight decades of experience position us competitively as a critical partner to clients navigating increased complexity and risk across a wide range of geographies and market conditions. We see several core components driving our growth. First, the global frequency of weather events continues to add volatility to claim staffing needs of carriers. That heightens demand for our proven capabilities in managing complex weather-related claims. At the same time, our diversified business model ensures that we're not solely dependent on weather. When one area experiences lower claims volume, like we've been seeing in U.S. property, that downturn can be offset by growth in non-weather-related areas of our businesses, like Broad Spire and parts of international operations. We continue to gain market share where carriers are increasingly prioritizing reliability, scalability, and compliance, signaling a flight to quality service providers. As a trusted, well-established partner, we believe Crawford is uniquely positioned to surpass those expectations. We have formed many valuable strategic partnerships with clients across the globe and remain focused on deepening those relationships across multiple service lines and new geographies. Finally, our market leadership is reinforced by our deep bench of technical expertise and our investment in cutting-edge technology. These capabilities not only set us apart from competitors, but are also a key factor in winning new business and enhancing profitability. With these drivers in place, we are confident in our ability to generate sustainable long-term growth regardless of quarter-to-quarter weather fluctuations. In the second quarter, consolidated revenue grew 2.8% with North America loss adjusting, international operations, and Broad Spire each contributing to our top line growth and Broad Spire having another record revenue quarter. Consolidated operating earnings were largely consistent with last year's second quarter and improved sequentially compared to first quarter 2025. excluding the impact of a non-recurring international tax item, consolidated operating margin would have been 7.8% representing an improvement over the second quarter of 2024. Bruce will share more details on that shortly. North America loss adjusting saw an year-over-year decrease in operating earnings due to lower U.S. property claims activity, and broad-spire operating earnings decreased year-over-year due to strategic headcount additions and investment in technology. International operations and platform solutions posted improved operating earnings and margin expansion. We continue to see strong new business momentum, which is encouraging for future growth. Based on the company's solid performance and confidence in our continued growth, our board has approved an increase in the quarterly dividend to 7.5 cents per share for both CRDA and CRDB. Our balance sheet remains strong, with liquidity well maintained and a leverage ratio steady at 1.75 times EBITDA. In the second quarter, storm activity was relatively stable, year over year up just 1%. A 3.8% decline in weather-related revenue in the quarter was offset by revenue growth of 5.2% in our non-weather businesses, enabling us to achieve consolidated revenue growth in the quarter. We are seeing a lower frequency of claims filed for comparable events. We believe this is largely related to affordability dynamics playing in the residential property market in the U.S. Tire deductible and concern for increased insurance pricing has suppressed residential property claims filing. We view the lower U.S. property claims frequency as a temporary dynamic and not a structural shift. As reinsurance pricing stabilizes, we expect this trend to normalize over the next 12 to 18 months. In the meantime, the resilience of our non-weather segments and the strength of our balanced model continues to support steady, sustainable growth. This top-line result demonstrates the effectiveness of our diversified business model, which enables us to respond and grow in an environment of changing weather patterns and market dynamics. Our capital allocation strategy is rooted in discipline and long-term value creation. We remain focused on deploying capital in ways that support sustainable growth, strengthen our competitive position, and return value to short shareholders. We continue to invest in our core business with an emphasis on operational excellence initiatives, technology enhancements, and talent development, ensuring we are well-positioned to serve clients and expand market share. We are also open to evaluating M&A opportunities that can expand our capabilities and our geographic reach. Our balance sheet reflects our progress in reducing leverage and our liquidity position is strong, giving us the financial flexibility to respond to both opportunities and challenges as they arise. We remain committed to returning capital to shareholders and are pleased to have had the opportunity to raise our dividend. With that, let me turn over the call to Bruce for a deeper look at our segment, Operational and Financial Performance.

Thank you, Rohit. Crawford operates through our four core segments that represent the global reach of our business. North America loss adjusting, which includes our loss adjusting operations in the U.S. and Canada, accounted for 24% of second quarter 2025 revenues. International operations, covering all service lines outside North America, contributed 34% of quarterly revenues. In Broad Spire, our U.S.-based third-party administration business represented 31% of quarterly revenues. Platform Solutions, which includes contractor connection, networks, and subrogation services, accounted for 11% of revenues. Our North America loss-adjusting segment delivered 2.7% revenue growth in the second quarter, driven by continued strength in our global technical services business. Performance in U.S. field operations was impacted by reduced property claims activity, an industry-wide trend related to affordability pressures and lower claim frequency. As a result, operating earnings in the segment declined 6% year-over-year, and operating margin decreased by 54 basis points. As Roeth mentioned, we don't anticipate this pattern to be a long-term trend, and we expect industry trends to stabilize over the next 12 to 18 months. Crawford remains a destination for top-tier, specialized adjusting talent, and we continue to invest in building a best-in-class team to meet the evolving needs of our clients. International operations delivered another strong quarter, with revenues increasing 6.6% year-over-year or 6.9% in constant currency. We saw particularly strong performance across the UK, Europe, and Asia, where organic new business growth and weather-related claims activity supported the top line. Operating earnings grew 34%, with the operating margin expanding by 143 basis points, reflecting our focus on pricing, productivity, and disciplined execution. While the second quarter was a strong result for this segment, we are mindful about potential margin fluctuation as we move through the balance of the year. That said, we're pleased by the momentum we're seeing and optimistic about driving continued success in our international business. Broad Spire delivered record quarterly revenues of $100.6 million in the second quarter, reflecting year-over-year growth of 3.6%. We saw consistent growth across all service lines driven by new client wins. We have a strong retention rate of 95.4%, which we view as a testament to the quality of our service and the trust we've built with our clients. In the second quarter, we continued to strategically add headcount to support new client onboarding, and this activity, as well as higher investments in technology, impacted operating earnings and margin. We believe these investments strengthen our team and position us well to support growth in the second half of the year and beyond. Broad Spire continues to build momentum and remains a key contributor to the strength of our non-weather dependent portfolio. Turning to platform solutions, revenues declined 9.2% year-over-year, primarily due to a significant pullback in claims outsourcing from one of our key networks clients. However, we achieved year-over-year revenue growth in both contractor connection, up 2%, and subrogation, or our Praxis business, which grew 2.8%. Platforms delivered operating earnings growth of 113%, and expanded operating margin by over 500 basis points. This performance was driven by a higher margin business mix and meaningful improvements in operational efficiency, particularly within the networks business. Platform Solutions continues to execute well and is an important component of our comprehensive portfolio of offerings. And now for a look at our consolidated financials. In the 2025 second quarter, company-wide revenues before reimbursements were $323 million, an increase of 2.8% compared to the prior year period. Foreign exchange rates decreased revenues before reimbursements by approximately $500,000, or 0.2%. GAAP net income, attributable to shareholders, totaled $7.8 million, compared to $8.6 million in the same period of 2024. GAAP diluted EPS in the 2025 second quarter was $0.16 for both CRDA and CRDB, a slight decrease from $0.17 for both share classes in the 2024 period. On a non-GAAP basis, diluted EPS was $0.22 for both CRDA and CRDB compared to $0.25 for both share classes in the prior year period. The company's non-GAAP operating earnings totaled $22 million. in the 2025 second quarter were 6.8% of revenues, compared to $22.1 million, or 7% of revenues in the prior year period. Consolidated adjusted EBITDA was $31.4 million in the 2025 second quarter, compared to $30.6 million in the 2024 quarter. The EBITDA margin of 9.7% was consistent with last year's second quarter. Companies cash and cash equivalents as of June 30, 2025 totaled $58.5 million, compared to $55.4 million at December 31, 2024. Total receivables were $281.4 million as of June 30, 2025, up $8.3 million from the 2024 year end. The companies total debt outstanding as of June 30, 2025 totaled $225.4 million, up from $218.1 million as of December 31, 2024. Net debt was $166.9 million as of June 30, 2025, while our U.S. pension liability was $20.5 million, reflecting a funded ratio of 93.5%. We made no discretionary contributions to our U.S. defined benefit pension plan during the second quarter of 2025. and we do not intend to make contributions through the remainder of the year. Operating cash flow for the second quarter of 2025 was 21.1 million with free cash flow of 2.6 million. This compares to a use of 8.3 million last year with free cash flow of negative 26.7 million. The significant improvement in operating free cash flow in the 2025 second quarter was primarily due to improved earnings and improvement in working capital levels. Unallocated corporate costs were $7 million in the 2025 second quarter, compared to costs of $5.1 million in the 2024 period. The increase was primarily due to a non-recurring, indirect tax expense of $3.1 million related to an international tax law change and an increase in self-insurance expense, partially offset by a decrease in professional fees. During the 2025 second quarter, non-service pension costs were $2.4 million, consistent with the same period of 2024. We recognized pre-tax contingent earn-out costs of $80,000 in the 2025 second quarter compared to costs of $430,000 in the 2024 period. During the second quarter of 2025, the company did not repurchase any shares of CRDA or CRDB. 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 Rohit for concluding remarks.

Thank you, Bruce. As we enter the second half of the year, we remain focused on delivering high quality outcomes for our clients. Historically, the second half of any year often brings heightened weather activity and our teams are well prepared to respond. We remain confident in our strategy and the long-term growth opportunity ahead for Crawford. Our second quarter results reflect continued execution across our global platform, strong performance in key segments, and progress on our journey towards margin improvement. With a solid balance sheet, a robust business model, and a highly experienced team, we remain focused on delivering for our clients, deepening strategic partnerships, and continuing to drive value for our shareholders. Thank you for your time today. Angeline, please open the call for questions.

Thank you. At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. To review your question, press the pound key. If you are using a speakerphone, please pick up your handset before asking your question. We'll pause for a moment to compile the Q&A roster. Your first question comes from Maxwell Fritcher with Truist Securities. Please go ahead.

Hi, good morning. I'm on for Mark Hughes. Did you call out the specific GTS growth number? If not, what was the exact number there? And what has been your experience lately with adding headcount in GTS?

I'll let Bruce get to you on the number. But our experience continues to be very strong in terms of adding expertise. As you know, we had a target of adding 200 back in 2023, and we hit that target well before time. Since then, we've continued to add resources to our GTS unit in the US as well as globally. Our GTS US had modest growth this year, mainly because of the suppressed frequency of weather claims. But overall, we are very pleased with the trajectory of what's happening with GTS, both in the U.S. as well as globally.

Yeah, I don't have the specific GTS growth number, but I would tell you that substantially all of our growth in North America loss adjusting is coming from the GTS business.

Great, thank you. And then do you have any observations you can share with us on on how the weather has turned it thus far into 3Q? Obviously no big southeastern storms, but broadly speaking, what are you observing?

Yeah, the weather continues to be, you know, sort of flat to last year. I think the biggest thing that we continue to see is the suppressed frequency of claims being filed in US property. And we believe, as I said on the call, generally related to the affordability challenges that we're seeing with insurance in the U.S. market, where deductibles have increased and pricing on insurance has increased. And that is dissuading filing of any claims or comparable claims, I should say, or similar weather events as we've seen in the prior years.

Thank you. Understood. And then in regards to workers' comp, are you seeing any change in severity or frequency there? Any signs of emerging medical inflation?

No, I mean, nothing out of the ordinary. I mean, the workers' comp claims continue to be a similar trend as we've seen in the past. And then, you know, you're seeing the general inflation in medical costs that we've seen on a year-to-year basis, but nothing that I would say is off-trend.

Great. Thank you very much.

Thank you, Max. Angeline, do we have another question?

Angeline?

Have we lost the operator?

I think we may have lost her.

Folks, give us just one minute.

Angeline?

Apologies. One moment.

We're waiting for the next person that is in queue for question, Angeline.

Angeline, we're waiting for the next person, please.

Sure. Your next question comes from Kevin Strickey with Barrington. Please go ahead.

Hey, good morning. I just wanted to follow up on the discussion about lower property claims frequency in the U.S. related to affordability. You mentioned that you expect that to be temporary and stabilize over the next 12 to 18 months, just based on industry adjusting, I guess. But so can you just dig into that comment a little bit more and why you expect that?

Sure, Kevin, as you're very familiar with that, the insurance industry has overall been experiencing what would be termed as a hard market for property over the last, I would say, three to five years. The reinsurance rates are particularly hardened as a result of it. And we have seen significant severity in the property space coming from wildfires as well as severe convective storms and to some extent, hurricane activity that created some pressure. in terms of pricing, and many of the carriers responded with higher deductibles and higher pricing. You can actually see that now in the results that we're seeing from the carriers as far as their property loss ratios are concerned. The most recent reinsurance renewals that we've been watching seem to have softened quite a bit, and we believe that that will continue to soften unless we see some major storm activity. As they continue to soften, we believe market dynamics will play out, pricing will start to ease up and deductibles will start to come down, which will then trigger back the sort of normalization of claims frequency. And we believe that it could take anywhere from 12 to 18 months for this dynamic to play out. So that's the reason why we're thinking that the claims frequency should return back to normalcy because market dynamics will eventually play out as reinsurance pricing eases up.

Okay, thanks. That's helpful. Also wanted to ask about Broad Spire. Talked about the continued new business momentum there and some continued investments in staffing and technology to meet that demand and business momentum. I'm just kind of wondering where we are in the cycle of those investments relative to margins and if we start to see margins or if we continue to see margins improve as we move through the back half of the year as revenue growth ramps up and you leverage those investments?

Yeah, I think, Kevin, margin from my perspective has been well within the tolerance range of 100 to 200 basis points going up or down. So we believe that this is a very normal margin fluctuation for us in Broad Spire as we go through the investment cycle. We have quite a lot of new business that we expect to start early part of next year and some later part of this year, and we've been staffing for that. As you know, a key element of service in this business is making sure that we have solid staff that is trained and ready to go as new clients are onboarded. And that's what leads to a higher level of NPS that we continue to see and a higher level of retention that we see in this business. I expect that, you know, we would probably stay on that same investment journey and it'll be more like next year when we start to see some of the results of this. But as we continue to add new business, we will continue to add the staffing. I think that the margin fluctuation somewhere between, say, 13% to 16% is where we will fluctuate.

Okay. That makes sense. Appreciate that. I also wanted to ask about international operations. Can you just also discuss the new business momentum there that you mentioned? Maybe dig into that a little bit more. And then I had a follow up on international as well.

Absolutely. As you know, international has continuously been a turnaround story for us for the last three years or four years, I would say, as we've tried to change the mix of business and improve the margin as a result of that mix post COVID. when we look at the international business and the growth that we've seen which is about seven percent in in revenue it's largely been coming from our operations in in uk as well as as well as europe both those regions we believe we have significant headroom still to grow we've also seen a return in our asia business a return to revenue growth in our asia business but largely I believe that our largest more near-term opportunities lie in Europe as well as UK. And we'll continue to see that.

Okay, great. And then you also mentioned in your comments potential margin fluctuation in international. Is there something specific we should be thinking about there or is that just kind of typical quarter to quarter potential volatility?

I would say it's typical quarter to quarter volatility. I mean, if you compare our margins this year to last year, it's about 140 basis points better. And that's been sort of a continuous trend for us to move the margin up. However, as we look at quarter to quarter, you know, there are weather fluctuations, there are investment fluctuations, there's some technology fluctuations, and I think those things will drive the margins. So I think we were just trying to make sure that there was an understanding of that.

Okay, great. And then lastly, maybe if you can touch on capital allocation a bit more, you raised the dividend, which was nice to see. Didn't repurchase any shares, but, you know, I assume you still might have an appetite for that. You know, market conditions are favorable. But any more comments on how you intend to approach that?

I'll probably start and then let Bruce comment on that. Look, our first priority for capital allocation, as you know, has always been to invest in our margin for the long-term growth and profitability and the health of the business. that'll always be the first priority so that you'll see that in the form of CapEx, you'll see that in the form of any acquisitions that we make. So that'll always remain the first priority. Then when we looked at our cash flow, the health of our business, the quality of earnings, The growth prospects in the business, we felt that and our and our leverage position, we felt very comfortable that, you know, putting a half a cent increase was was well within our comfort zone to do. And that's the reason why we, why we did that. And we have been signaling signaling this to you and others that we have a real desire to continue to have not just revenue and earnings growth, but then implied dividend growth from that. As far as share repurchase is concerned, as you know, we are buyers of shares when it's below our intrinsic value. We still have 1.1 million shares left in our authorization. So far, our approach has been to be opportunistic to buy large blocks of business that come in the market. We haven't seen any of that come in, and as a result of that, you didn't see us buy any shares this quarter. So I don't know, Bruce, if there's anything else you want to add to that.

I think maybe the only other thing to add to that is, you know, organic growth is our primary strategy. We also want to look at inorganic growth opportunities and feel we've got the balance sheet strength and liquidity to be opportunistic out in the marketplace if there are compelling assets that come on the market. So while we haven't done any M&A this year, that doesn't mean we're not out there scouting for businesses that could

add value to the company's platform and we have been doing much more aqua hires which is you know sort of acquisition of teams as opposed to acquisition of companies or legal entities yeah that's where a lot of the gts growth has come from yep okay great thanks again uh for all the insights okay thank you kevin thank you kevin always a pleasure

Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one. There seem to be no further questions at this time. I'd now like to turn the call back over to Mr. Verma for closing remarks. Please go ahead.

Thank you, Angeline, and thank you to all our employees, clients, and shareholders for your continued commitment to Crawford & Company. Thank you, and God bless.

Thank you for the participation in today's Crawford and Company conference call. This call will be available for replay beginning at 11.30 a.m. Eastern Standard Time today through 11.59 p.m. Eastern Standard Time on August 12th of 2025. The conference ID number for the replay is 35518-POUND and the number to dial for the replay is 1-888-660-7000. Thank you and you may now disconnect. Have a great day.