Item 7.01. Regulation FD Disclosure
Segment Realignment
Subsequent to December 31, 2020, the Company has reorganized its global service line structure to consist of Crawford Loss Adjusting, Crawford TPA Solutions: Broadspire, and Crawford Platform Solutions. The Company's revised reportable segments are comprised of the following:
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Crawford Loss Adjusting, which services the global property and casualty market. This is comprised of the previously reported Crawford Claims Solutions segment, excluding both Networks (as defined below) and Crawford Legal Services, and including the Global Technical Services service line previously reported within Crawford Specialty Solutions.
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Crawford TPA Solutions: Broadspire, which provides third party administration for workers' compensation, auto and liability, disability absence management, medical management, and accident and health to corporations, brokers and insurers worldwide. This is comprised of the previously reported Crawford TPA Solutions segment and the Crawford Legal Services service line previously reported within the Crawford Claims Solutions segment.
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Crawford Platform Solutions, which consists of the Contractor Connection and Networks service lines. This is comprised of the previously reported Contractor Connection service line within Crawford Specialty Solutions and the Networks service line, which includes Catastrophe operations, WeGoLook, and certain international network businesses previously reported within the Crawford Claims Solutions segment.
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The Company’s financial statements for the succeeding interim and annual periods will disclose the reportable segments under the new basis with prior periods restated to reflect the change. Attached hereto as Exhibit 99.1 and incorporated herein by this reference are the historical results of operations for 2019 and 2020 and for each quarter of 2019 and 2020 revised to conform to the current presentation of the Company’s reportable segments.
Segment Expenses
Our discussion and analysis of segment operating expenses is comprised of two components: "Direct Compensation, Fringe Benefits & Non-Employee Labor" and "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor."
"Direct Compensation, Fringe Benefits & Non-Employee Labor" includes direct compensation, payroll taxes, and benefits provided to the employees of each segment, as well as payments to outsourced service providers that augment our staff in each segment. As a service company, these costs represent our most significant and variable operating expenses.
As part of our segment realignment, costs of certain administrative functions that are dedicated to a specific segment, such as aspects of Information Technology and Finance, are now included as direct costs of each operating segment. Previously, direct compensation, payroll taxes, and benefits for these functions were recorded as indirect costs and allocated to each operating segment based on usage and reflected within "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" of each operating segment.
The transfer of these administrative functions to each segment will increase their direct expenses and result in a lower gross profit, but have minimal impact on segment operating earnings, the Company's primary performance measure. We believe this transfer will improve the management and performance delivery of these functions in each operating segment.
In addition to allocated corporate and shared costs, "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" includes travel and entertainment, office rent and occupancy costs, automobile expenses, office operating expenses, data processing costs, cost of risk, professional fees, and amortization and depreciation expense other than amortization of acquisition-related intangible assets.
Non-GAAP Presentation
In addition, the Company has updated its presentation of non-GAAP EPS to exclude after-tax acquisition-related intangible amortization expense. The Company believes reporting non-GAAP EPS in this manner better reflects its core operating results and offers greater consistency with our other non-GAAP measures. A full reconciliation between GAAP and non-GAAP EPS for the historical results of operations for 2019 and 2020 and for each quarter of 2019 and 2020 is attached hereto as Exhibit 99.2 and incorporated herein.
Acquisition-related amortization expense is a non-cash expense for finite-lived customer-relationship and amortizable trade name intangible assets acquired in business combinations. This expense does not relate directly to the performance of our services or operating activities and, therefore, will be excluded from non-GAAP EPS. Acquisition-related intangible amortization is already excluded from segment operating earnings and Adjusted EBITDA in order to better assess the results of each segment's operating activities on a consistent basis.
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In addition, we will no longer report the impact of foreign exchange movements in our non-GAAP Earnings or EPS reconciliation. We will continue to provide the impact of foreign exchange movements in our revenue disclosures to explain the movement between periods, but the impact will not be presented in our non-GAAP reconciliations.