Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Statements contained in this report that are not statements of historical fact are forward-looking statements made pursuant to the "safe harbor" provisions thereof. These statements may relate to, among other things, our expected future operating results and financial condition, including the impact of COVID-19, 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, and our other long-term capital resource and liquidity requirements. These statements may also relate to our business strategies, goals and expectations concerning our market position, future operations, margins, case and project volumes, profitability, contingencies, liquidity position, and capital resources. The words "anticipate", "believe", "could", "would", "should", "estimate", "expect", "intend", "may", "plan", "goal", "strategy", "predict", "project", "will" and similar terms and phrases, or the negatives thereof, identify forward-looking statements contained in this report.
Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations and the forward-looking statements related to our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially adversely affect our financial condition and results of operations, and whether the forward-looking statements ultimately prove to be correct. Included among the risks and uncertainties we face are risks related to the following:
a decline in cases referred to us for any reason, including changes in the degree to which property and casualty insurance carriers outsource their claims handling functions,
changes in global economic conditions,
the impact of global pandemics, such as COVID-19, on claim volumes,
changes in interest rates,
changes in foreign currency exchange rates,
changes in regulations and practices of various governmental authorities,
changes in our competitive environment,
changes in the financial condition of our clients,
changes in the rate of inflation and our ability to recover increased operating costs,
the loss of any material customer,
our ability to successfully integrate the operations of acquired businesses,
regulatory changes related to funding of defined benefit pension plans,
our U.S., U.K. and other international defined benefit pension plans and our future funding obligations thereunder,
our ability to complete any transaction involving the acquisition or disposition of assets on terms and at times acceptable to us,
our ability to identify new revenue sources not tied to the insurance underwriting cycle,
our ability to develop or acquire information technology resources to support and grow our business,
our ability to attract and retain qualified personnel,
our ability to renew existing contracts with clients on satisfactory terms,
our ability to collect amounts due from our clients and others,
continued availability of funding under our financing agreements,
general risks associated with doing business outside the U.S., including changes in tax rates,
our ability to comply with the covenants in our financing or other agreements,
changes in the frequency or severity of man-made or natural disasters,
the ability of our third-party service providers, used for certain aspects of our internal business functions, to meet expected service levels,
our ability to prevent or detect cybersecurity breaches and cyber incidents,
our ability to achieve targeted integration goals with the consolidation and migration of multiple software platforms,
risks associated with our having a controlling shareholder, and
impairments of goodwill or our other indefinite-lived intangible assets.
As a result, undue reliance should not be placed on any forward-looking statements. Actual results and trends in the future may differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements speak only as of the date they are made and we undertake no obligation to publicly update any of these forward-looking statements in light of new information or future events.
28
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with (i) our unaudited condensed consolidated financial statements and accompanying notes thereto for the three and nine months ended September 30, 2021 and 2020, and as of September 30, 2021, and December 31, 2020, contained in Item 1 of this Quarterly Report on Form 10-Q, and (ii) our Annual Report on Form 10-K for the year ended December 31, 2020. As described in Note 1, "Basis of Presentation," the financial results of our operations outside of the U.S., Canada, the Caribbean, and certain subsidiaries in the Philippines are included in our consolidated financial statements on a two-month delayed basis (fiscal year-end of October 31) as permitted by U.S. generally accepted accounting principles ("GAAP") in order to provide sufficient time for accumulation of their results.
Business Overview
Based in Atlanta, Georgia, Crawford & Company (www.crawco.com) is the world's largest publicly listed independent provider of claims management and outsourcing solutions to carriers, brokers and corporations with an expansive global network serving clients in more than 70 countries. Shares of the Company's two classes of common stock are traded on the New York Stock Exchange under the symbols CRD-A and CRD-B, respectively. 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.
In January 2021, the Company has reorganized its global service line structure to consist of Crawford Loss Adjusting, Crawford TPA Solutions, and Crawford Platform Solutions. The Company's revised reportable segments are comprised of the following:
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.
Crawford TPA Solutions, 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.
Crawford Platform Solutions, which consists of the Contractor Connection and Networks service lines and serves the global property and casualty insurance company markets. 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.
As discussed in more detail in subsequent sections of this MD&A, our three reportable segments represent components of our Company for which separate financial information is available, and which is evaluated regularly by our chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing operating performance.
Insurance companies rely on us for certain services such as field investigation and the evaluation of property and casualty insurance claims. Self-insured entities typically rely on us for a broader range of services. In addition to field investigation and claims evaluation, we may also provide initial loss reporting services for their claimants, loss mitigation services such as medical bill review, medical case management and vocational rehabilitation, risk management information services, and loss fund administration to pay their claims. Our Contractor Connection service line provides a managed contractor network to insurance carriers and consumer markets.
The global claims management services market is highly competitive and comprised of a large number of companies that vary in size and that offer a varied scope of services. The demand from insurance companies and self-insured entities for services provided by independent claims service firms like us is largely dependent on industry-wide claims volumes, which are affected by, among other things, the insurance underwriting cycle, weather related events, general economic activity, overall employment levels and workplace injury rates. Demand is also impacted by decisions insurance companies and self-insured entities make with respect to the level of claims outsourced to independent claim service firms as opposed to those handled by their own in-house claims adjusters. In addition, our ability to retain clients and maintain or increase case referrals is also dependent in part on our ability to continue to provide high-quality, competitively priced services and effective sales efforts.
29
We typically earn our revenues on an individual fee-per-claim basis for claims management services that we provide to insurance companies and self-insured entities. Accordingly, the volume of claim referrals to us is a key driver of our revenues. We cannot predict the future trend of case volumes for a number of reasons, including the frequency and severity of weather related cases and the occurrence of natural and man-made disasters, which are a significant source of cases for us and are not subject to accurate forecasting, as well as the economic impact that COVID-19 may have on global case volumes and the duration of any such impact.
Results of Operations
Executive Summary
Consolidated revenues before reimbursements increased $35.4 million, or 14.0%, for the three months ended September 30, 2021 and $84.1 million, or 11.6% for the nine months ended September 30, 2021 compared with the same periods of 2020. This increase was primarily due to an increase in Hurricane Ida activity in the U.S. in our Crawford Loss Adjusting and Crawford Platforms Solutions segments, an increase in new client growth in our Crawford Platform Solutions operating segment, and an increase in our Crawford TPA Solutions segment. Changes in foreign exchange rates increased our consolidated revenues before reimbursements by $9.4 million, or 3.7%, for the three months ended September 30, 2021 and $26.9 million, or 3.7%, for the nine months ended September 30, 2021 as compared with the prior year periods. To illustrate this impact, segment revenues are presented below, using a constant exchange rate, for the three and nine months ended September 30, 2021.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Based on exchange rates for the three months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
% Variance
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
|
$
|
123,965
|
|
|
$
|
110,929
|
|
|
|
11.8
|
%
|
|
$
|
117,336
|
|
|
|
5.8
|
%
|
Crawford TPA Solutions
|
|
|
100,221
|
|
|
|
88,908
|
|
|
|
12.7
|
%
|
|
|
98,075
|
|
|
|
10.3
|
%
|
Crawford Platform Solutions
|
|
|
64,314
|
|
|
|
53,287
|
|
|
|
20.7
|
%
|
|
|
63,707
|
|
|
|
19.6
|
%
|
Total revenues before reimbursements
|
|
|
288,500
|
|
|
|
253,124
|
|
|
|
14.0
|
%
|
|
|
279,118
|
|
|
|
10.3
|
%
|
Reimbursements
|
|
|
9,062
|
|
|
|
8,545
|
|
|
|
6.1
|
%
|
|
|
8,605
|
|
|
|
0.7
|
%
|
Total Revenues
|
|
$
|
297,562
|
|
|
$
|
261,669
|
|
|
|
13.7
|
%
|
|
$
|
287,723
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
Based on exchange rates for the nine months ended September 30, 2020
|
|
(in thousands, except percentages)
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
% Variance
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
$
|
352,458
|
|
|
$
|
327,095
|
|
|
|
7.8
|
%
|
|
$
|
333,470
|
|
|
|
1.9
|
%
|
Crawford TPA Solutions
|
|
298,840
|
|
|
|
275,573
|
|
|
|
8.4
|
%
|
|
|
292,578
|
|
|
|
6.2
|
%
|
Crawford Platform Solutions
|
|
157,840
|
|
|
|
122,403
|
|
|
|
29.0
|
%
|
|
|
156,198
|
|
|
|
27.6
|
%
|
Total revenues before reimbursements
|
|
809,138
|
|
|
|
725,071
|
|
|
|
11.6
|
%
|
|
|
782,246
|
|
|
|
7.9
|
%
|
Reimbursements
|
|
27,124
|
|
|
|
25,519
|
|
|
|
6.3
|
%
|
|
|
25,954
|
|
|
|
1.7
|
%
|
Total Revenues
|
$
|
836,262
|
|
|
$
|
750,590
|
|
|
|
11.4
|
%
|
|
$
|
808,200
|
|
|
|
7.7
|
%
|
Excluding foreign currency impacts, consolidated revenues before reimbursements increased $26.0 million, or 10.3%, for the three months ended September 30, 2021, and increased $57.2 million, or 7.9%, for the nine months ended September 30, 2021. Revenues from the Crawford Loss Adjusting segment increased in the three months ended September 30, 2021 due to the increase in Hurricane Ida activity in the U.S.. Revenues from the Crawford TPA Solutions segment increased for the quarter due to growth in the U.S. and revenues from recent acquisitions, partially offset by a continued reduction as a result of the economic impact of COVID-19 in Canada and Europe. Revenues from the Crawford Platform Solutions segment increased primarily due to an increase in Hurricane Ida related cases in the U.S. and new client growth. There was a net $6.2 million positive increase in total company revenues in the 2021 third quarter and a $10.7 million positive increase in the year-to-date period as a result of acquisitions and dispositions in 2020 and 2021. See Note 13, “Business Acquisitions and Dispositions” of our accompanying consolidated financial statements for more details of this activity.
30
We have experienced continued recovery from the negative economic impact of COVID-19 in recent months, particularly in the U.S., compared to the significant reductions experienced in the prior year, where revenues for the three months ended September 30, 2020 were down in the range of $21.0 to $25.0 million, and for the nine months ended September 30, 2020 were down in the range of $46.0 to $54.0 million. Due to continued negative impacts in multiple regions, it is uncertain whether such recovery can be sustained and continue. The economic impact from COVID-19 could have a material impact to our results of operations, financial condition, and cash flows in one or more future quarters. In addition, it is possible that changes in economic conditions and steps taken by international, federal, state and/or local governments in response to COVID-19 could have negative impacts, including labor shortages which could increase compensation costs and other expenses, unless mitigated by government assistance programs to corporations.
Overall, there was an increase in cases received of 3.1% for the three months ended September 30, 2021 compared with the 2020 period, and an increase of 5.3% for the nine months ended September 30, 2021, primarily due to the increase in Hurricane Ida in the U.S. As a result of the impact from the COVID-19 pandemic, cases received in future quarters could be materially negatively impacted, unless offset by the impact of cases received from new clients or weather related activity.
Cases received are presented below by segment for the three and nine months ended September 30, 2021 and 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(whole numbers, except percentages)
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Variance
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Variance
|
Crawford Loss Adjusting
|
|
97,719
|
|
89,558
|
|
9.1%
|
|
270,378
|
|
257,360
|
|
5.1%
|
Crawford TPA Solutions
|
|
193,112
|
|
196,385
|
|
(1.7)%
|
|
578,511
|
|
590,916
|
|
(2.1)%
|
Crawford Platform Solutions
|
|
139,917
|
|
131,958
|
|
6.0%
|
|
387,858
|
|
325,792
|
|
19.1%
|
Total Crawford Cases Received
|
|
430,748
|
|
417,901
|
|
3.1%
|
|
1,236,747
|
|
1,174,068
|
|
5.3%
|
To illustrate exposure to the impact of changes in foreign currencies, revenues before reimbursements are presented below by denominated currency for the three and nine months ended September 30, 2021:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
(in thousands)
|
|
|
|
USD equivalent
|
|
% of total
|
|
USD equivalent
|
|
% of total
|
U.S.
|
|
USD
|
|
$175,554
|
|
60.9%
|
|
$152,720
|
|
60.3%
|
U.K.
|
|
GBP
|
|
35,764
|
|
12.4%
|
|
30,067
|
|
11.9%
|
Canada
|
|
CAD
|
|
21,038
|
|
7.3%
|
|
22,266
|
|
8.8%
|
Australia
|
|
AUD
|
|
27,705
|
|
9.6%
|
|
21,197
|
|
8.4%
|
Europe
|
|
EUR
|
|
14,007
|
|
4.9%
|
|
12,730
|
|
5.0%
|
Rest of World
|
|
|
|
14,432
|
|
4.9%
|
|
14,144
|
|
5.6%
|
Total Revenues, before reimbursements
|
|
|
|
$288,500
|
|
|
|
$253,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
(in thousands)
|
|
|
|
USD equivalent
|
|
% of total
|
|
USD equivalent
|
|
% of total
|
U.S.
|
|
USD
|
|
$476,670
|
|
58.9%
|
|
$419,055
|
|
57.8%
|
U.K.
|
|
GBP
|
|
102,267
|
|
12.6%
|
|
95,009
|
|
13.1%
|
Canada
|
|
CAD
|
|
62,609
|
|
7.7%
|
|
68,339
|
|
9.4%
|
Australia
|
|
AUD
|
|
79,412
|
|
9.8%
|
|
58,410
|
|
8.1%
|
Europe
|
|
EUR
|
|
41,416
|
|
5.1%
|
|
40,137
|
|
5.5%
|
Rest of World
|
|
|
|
46,764
|
|
5.9%
|
|
44,121
|
|
6.1%
|
Total Revenues, before reimbursements
|
|
|
|
$809,138
|
|
|
|
$725,071
|
|
|
Costs of services provided, before reimbursements, increased $34.0 million, or 19.2%, for the three months ended September 30, 2021, and increased $71.1 million, or 13.7%, for the nine months ended September 30, 2021, as compared with the same periods of 2020. This increase was primarily due to an increase in compensation expense, including incentive compensation and other costs in each of our operating segments resulting from the higher revenues, the change in foreign exchange rates, and the impact of recent acquisitions.
Selling, general, and administrative ("SG&A") expenses increased $8.7 million, or 16.7%, in the three months ended September 30, 2021, and increased $14.8 million, or 9.1%, for the nine months ended September 30, 2021, as compared with the 2020 periods. This increase was due to an increase in compensation expense, including incentive compensation, an increase in centralized data processing costs, the change in foreign exchange rates, and the impact of recent acquisitions.
31
We received a benefit from the Canada Emergency Wage Subsidy ("CEWS") totaling $1.8 million and $5.9 million in the three months and nine months ended September 30, 2021, respectively. We received a benefit of $4.7 million and $9.1 million in the three months and nine months ended September 30, 2020, respectively, due to the negative economic impact of COVID-19 in that country. This subsidy is recorded as a credit within Direct Compensation, Fringe Benefits and Non-Employee Labor and is included in "Costs of services provided, before reimbursements” or “Selling, general, and administrative expenses” on the Company's unaudited Condensed Consolidated Statements of Operations, depending on classification of the employees. We expect the benefit from this subsidy in future periods will be minimal.
We recognized a pretax non-cash goodwill impairment in the 2020 first quarter totaling $17.7 million related to our former Crawford Claims Solutions reporting unit. This expense was partially offset by a $1.7 million credit in noncontrolling interest expense. There was no goodwill impairment in 2021.
We recognized pretax restructuring costs totaling $5.7 million in the 2020 first quarter, related primarily to severance and other termination costs in an effort to consolidate and streamline various functions of our workforce. The restructuring costs was comprised of $5.1 million severance expense and related payroll taxes, and $0.6 million asset impairment. There were no restructuring costs in 2021.
We recognized a pretax gain on disposal totaling $14.1 million in the 2020 third quarter related to the disposal of the LWI business in our Crawford Platform Solutions reporting segment. For the nine months ended September 30, 2020, we recognized a net pretax gain on disposal of businesses totaling $13.8 million. There was no gain on disposal in 2021.
Operating Earnings of our Operating Segments
We believe that a discussion and analysis of the segment operating earnings of our three operating segments is helpful in understanding the results of our operations. Operating earnings is our segment measure of profitability presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting." Operating earnings is the primary financial performance measure used by our senior management and CODM to evaluate the financial performance of our operating segments and make resource allocation and certain compensation decisions.
We believe operating earnings is a measure that is useful for others to evaluate segment operating performance using the same criteria used by our senior management and CODM. Segment operating earnings represents segment earnings, including the direct and indirect costs of certain administrative functions required to operate our business, but excludes unallocated corporate and shared costs and credits, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, goodwill impairment, restructuring costs, gain on disposition of business, income taxes, and net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests.
Administrative functions such as finance, human resources, information technology, quality and compliance, exist both in a centralized shared-service arrangement and within certain operations. Each of these functions is managed by centralized management and the costs of those services is allocated to the segments as indirect costs based on usage.
Gross profit is defined as segment revenues, less segment direct costs, which exclude centralized indirect administrative support costs allocated to the business.
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 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 vary significantly by jurisdiction. Net corporate interest expense results from capital structure decisions made by senior management and the Board of Directors, 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.
Unallocated corporate and shared costs and credits include expenses and credits 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 unallocated professional fees, CEWS benefits, and certain self-insurance costs and recoveries that are not allocated to our individual operating segments.
Restructuring costs arise from time to time from events (such as internal restructurings, losses on subleases, establishment of new operations, and asset impairments) that are not allocated to any particular segment since they historically have not regularly impacted our performance and are not expected to impact our future performance on a regular basis.
32
Additional discussion and analysis of our income taxes, net corporate interest expense, stock option expense, amortization of customer-relationship intangible assets, unallocated corporate and shared costs and credits, goodwill impairment, restructuring costs, and gain on disposition of business follows the discussion and analysis of the results of operations of our three operating segments.
Segment Revenues
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 reported on a gross basis when reporting revenues and expenses, respectively, in our unaudited Condensed Consolidated Statements of Operations. In the discussion and analysis of results of operations which follows, we do not include a gross up of 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 total revenues determined in accordance with GAAP is presented on the face of the accompanying unaudited Condensed Consolidated Statements of Operations.
Our segment results are impacted by changes in foreign exchange rates. We believe that a non-GAAP discussion and analysis of segment revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, is helpful in understanding the results of our segment operations.
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.
Costs of administrative functions, including direct compensation, payroll taxes, and benefits, are managed centrally and considered indirect costs. The allocated indirect costs of our shared-services infrastructure are allocated to each segment based on usage and reflected within "Expenses Other Than Direct Compensation, Fringe Benefits & Non-Employee Labor" of each 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 customer-relationship intangible assets.
In addition, we believe that a non-GAAP discussion and analysis of segment gross profit is helpful in understanding the results of our segment operations, excluding indirect centralized administrative support costs. Our discussion and analysis of segment gross profit includes the revenues and direct expenses of each segment.
Unless noted in the following discussion and analysis, revenue amounts exclude reimbursements for out-of-pocket expenses and expense amounts exclude reimbursed out-of-pocket expenses.
Segment Performance Indicators
We typically earn our revenues on an individual fee-per-claim basis for claims management services we provide to carriers, brokers and corporates. Accordingly, the volume of claim referrals to us is a key driver of our revenues. We believe that a discussion and analysis of the segment unit volumes, as measured by cases received, is helpful in understanding the results of our operations.
33
Operating results for our Crawford Loss Adjusting, Crawford TPA Solutions, and Crawford Platform Solutions segments reconciled to net income before income taxes and net income attributable to shareholders of Crawford & Company were follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
|
$
|
123,965
|
|
|
$
|
110,929
|
|
|
$
|
352,458
|
|
|
$
|
327,095
|
|
Crawford TPA Solutions
|
|
|
100,221
|
|
|
|
88,908
|
|
|
|
298,840
|
|
|
|
275,573
|
|
Crawford Platform Solutions
|
|
|
64,314
|
|
|
|
53,287
|
|
|
|
157,840
|
|
|
|
122,403
|
|
Total Revenues before reimbursements
|
|
|
288,500
|
|
|
|
253,124
|
|
|
|
809,138
|
|
|
|
725,071
|
|
Reimbursements
|
|
|
9,062
|
|
|
|
8,545
|
|
|
|
27,124
|
|
|
|
25,519
|
|
Total Revenues
|
|
$
|
297,562
|
|
|
$
|
261,669
|
|
|
$
|
836,262
|
|
|
$
|
750,590
|
|
Direct Compensation, Fringe Benefits & Non-Employee Labor:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
|
$
|
80,961
|
|
|
$
|
66,155
|
|
|
$
|
230,103
|
|
|
$
|
202,299
|
|
% of related revenues before reimbursements
|
|
|
65.3
|
%
|
|
|
59.6
|
%
|
|
|
65.3
|
%
|
|
|
61.8
|
%
|
Crawford TPA Solutions
|
|
|
64,573
|
|
|
|
56,703
|
|
|
|
191,408
|
|
|
|
175,040
|
|
% of related revenues before reimbursements
|
|
|
64.4
|
%
|
|
|
63.8
|
%
|
|
|
64.1
|
%
|
|
|
63.5
|
%
|
Crawford Platform Solutions
|
|
|
42,267
|
|
|
|
33,516
|
|
|
|
100,125
|
|
|
|
75,095
|
|
% of related revenues before reimbursements
|
|
|
65.7
|
%
|
|
|
62.9
|
%
|
|
|
63.4
|
%
|
|
|
61.4
|
%
|
Total
|
|
$
|
187,801
|
|
|
$
|
156,374
|
|
|
$
|
521,636
|
|
|
$
|
452,434
|
|
% of Revenues before reimbursements
|
|
|
65.1
|
%
|
|
|
61.8
|
%
|
|
|
64.5
|
%
|
|
|
62.4
|
%
|
Expenses Other than Direct Compensation, Fringe Benefits & Non-Employee Labor:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
|
$
|
35,941
|
|
|
$
|
30,635
|
|
|
$
|
104,231
|
|
|
$
|
99,942
|
|
% of related revenues before reimbursements
|
|
|
29.0
|
%
|
|
|
27.6
|
%
|
|
|
29.6
|
%
|
|
|
30.6
|
%
|
Crawford TPA Solutions
|
|
|
30,614
|
|
|
|
27,917
|
|
|
|
92,967
|
|
|
|
86,825
|
|
% of related revenues before reimbursements
|
|
|
30.5
|
%
|
|
|
31.4
|
%
|
|
|
31.1
|
%
|
|
|
31.5
|
%
|
Crawford Platform Solutions
|
|
|
11,079
|
|
|
|
9,116
|
|
|
|
31,778
|
|
|
|
26,369
|
|
% of related revenues before reimbursements
|
|
|
17.2
|
%
|
|
|
17.1
|
%
|
|
|
20.1
|
%
|
|
|
21.5
|
%
|
Total before reimbursements
|
|
|
77,634
|
|
|
|
67,668
|
|
|
|
228,976
|
|
|
|
213,136
|
|
% of Revenues before reimbursements
|
|
|
26.9
|
%
|
|
|
26.7
|
%
|
|
|
28.3
|
%
|
|
|
29.4
|
%
|
Reimbursements
|
|
|
9,062
|
|
|
|
8,545
|
|
|
|
27,124
|
|
|
|
25,519
|
|
Total
|
|
$
|
86,696
|
|
|
$
|
76,213
|
|
|
$
|
256,100
|
|
|
$
|
238,655
|
|
% of Revenues
|
|
|
29.1
|
%
|
|
|
29.1
|
%
|
|
|
30.6
|
%
|
|
|
31.8
|
%
|
Segment Operating Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crawford Loss Adjusting
|
|
$
|
7,063
|
|
|
$
|
14,139
|
|
|
$
|
18,124
|
|
|
$
|
24,854
|
|
% of related revenues before reimbursements
|
|
|
5.7
|
%
|
|
|
12.7
|
%
|
|
|
5.1
|
%
|
|
|
7.6
|
%
|
Crawford TPA Solutions
|
|
|
5,034
|
|
|
|
4,288
|
|
|
|
14,465
|
|
|
|
13,708
|
|
% of related revenues before reimbursements
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
5.0
|
%
|
Crawford Platform Solutions
|
|
|
10,968
|
|
|
|
10,655
|
|
|
|
25,937
|
|
|
|
20,939
|
|
% of related revenues before reimbursements
|
|
|
17.1
|
%
|
|
|
20.0
|
%
|
|
|
16.4
|
%
|
|
|
17.1
|
%
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated corporate and shared costs, net
|
|
|
(2,266
|
)
|
|
|
(1,027
|
)
|
|
|
(5,081
|
)
|
|
|
(6,189
|
)
|
Net corporate interest expense
|
|
|
(1,648
|
)
|
|
|
(1,599
|
)
|
|
|
(4,443
|
)
|
|
|
(6,275
|
)
|
Stock option expense
|
|
|
(296
|
)
|
|
|
(457
|
)
|
|
|
(700
|
)
|
|
|
(1,033
|
)
|
Amortization of customer-relationship intangible assets
|
|
|
(2,877
|
)
|
|
|
(3,665
|
)
|
|
|
(8,426
|
)
|
|
|
(9,153
|
)
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17,674
|
)
|
Restructuring costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,714
|
)
|
Gain on disposition of business, net
|
|
|
—
|
|
|
|
14,104
|
|
|
|
—
|
|
|
|
13,763
|
|
Income before income taxes
|
|
|
15,978
|
|
|
|
36,438
|
|
|
|
39,876
|
|
|
|
27,226
|
|
Provision for income taxes
|
|
|
(4,866
|
)
|
|
|
(11,729
|
)
|
|
|
(10,927
|
)
|
|
|
(9,554
|
)
|
Net income
|
|
|
11,112
|
|
|
|
24,709
|
|
|
|
28,949
|
|
|
|
17,672
|
|
Net loss (income) attributable to noncontrolling interests and redeemable noncontrolling interests
|
|
|
83
|
|
|
|
(312
|
)
|
|
|
90
|
|
|
|
1,224
|
|
Net income attributable to shareholders of Crawford & Company
|
|
$
|
11,195
|
|
|
$
|
24,397
|
|
|
$
|
29,039
|
|
|
$
|
18,896
|
|
34
CRAWFORD LOSS ADJUSTING SEGMENT
Operating earnings in our Crawford Loss Adjusting segment totaled $7.1 million, or 5.7% of revenues before reimbursements, for the three months ended September 30, 2021, compared with 2020 operating earnings of $14.1 million, or 12.7% of revenues before reimbursements. For the nine months ended September 30, 2021, our Crawford Loss Adjusting segment reported operating earnings of $18.1 million, or 5.1% of revenues before reimbursements, compared with 2020 operating earnings of $24.9 million, or 7.6% of revenues before reimbursements. The decrease in operating earnings in the 2021 third quarter and year-to-date periods was primarily due to lower profitability in certain international operations and an increase in compensation expense. Additionally, there was a $0.5 million and $1.7 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of the Canada Emergency Wage Subsidy (“CEWS”), and a benefit of $2.3 million and $3.7 million in the three and nine months ended September 30, 2020, respectively.
Excluding centralized indirect support costs, gross profit decreased from $33.2 million, or 29.9% of revenues before reimbursements in 2020, to $28.2 million, or 22.7% of revenues before reimbursements, in the three months ended September 30, 2021. For the nine months ended September 30, 2021, gross profit decreased from $86.2 million, or 26.4% of revenues before reimbursements in 2020, to $80.9 million, or 22.9% of revenues before reimbursements. These decreases are primarily due to lower profitability in certain international operations and an increase in compensation expense.
Operating results for our Crawford Loss Adjusting segment, including gross profit, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
123,965
|
|
|
$
|
110,929
|
|
|
|
11.8
|
%
|
Direct expenses
|
|
|
95,782
|
|
|
|
77,758
|
|
|
|
23.2
|
%
|
Gross profit
|
|
|
28,183
|
|
|
|
33,171
|
|
|
|
(15.0
|
)%
|
Indirect expenses
|
|
|
21,120
|
|
|
|
19,032
|
|
|
|
11.0
|
%
|
Total Crawford Loss Adjusting Operating Earnings
|
|
$
|
7,063
|
|
|
$
|
14,139
|
|
|
|
(50.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
22.7
|
%
|
|
|
29.9
|
%
|
|
|
(7.2
|
)%
|
Operating margin
|
|
|
5.7
|
%
|
|
|
12.7
|
%
|
|
|
(7.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Nine Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
352,458
|
|
|
$
|
327,095
|
|
|
|
7.8
|
%
|
Direct expenses
|
|
|
271,592
|
|
|
|
240,882
|
|
|
|
12.7
|
%
|
Gross profit
|
|
|
80,866
|
|
|
|
86,213
|
|
|
|
(6.2
|
)%
|
Indirect expenses
|
|
|
62,742
|
|
|
|
61,359
|
|
|
|
2.3
|
%
|
Total Crawford Loss Adjusting Operating Earnings
|
|
$
|
18,124
|
|
|
$
|
24,854
|
|
|
|
(27.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
22.9
|
%
|
|
|
26.4
|
%
|
|
|
(3.5
|
)%
|
Operating margin
|
|
|
5.1
|
%
|
|
|
7.6
|
%
|
|
|
(2.5
|
)%
|
35
Revenues before Reimbursements
Crawford Loss Adjusting segment revenues are primarily derived from the global property and casualty insurance company markets in the U.S., U.K., Canada, Australia, Europe and Rest of World. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the three months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
43,277
|
|
|
$
|
34,438
|
|
|
|
25.7
|
%
|
|
$
|
43,277
|
|
|
|
25.7
|
%
|
U.K.
|
|
|
27,140
|
|
|
|
24,568
|
|
|
|
10.5
|
%
|
|
|
24,333
|
|
|
|
(1.0
|
)%
|
Australia
|
|
|
18,907
|
|
|
|
18,855
|
|
|
|
0.3
|
%
|
|
|
16,931
|
|
|
|
(10.2
|
)%
|
Canada
|
|
|
13,537
|
|
|
|
13,797
|
|
|
|
(1.9
|
)%
|
|
|
12,783
|
|
|
|
(7.3
|
)%
|
Europe
|
|
|
12,876
|
|
|
|
11,631
|
|
|
|
10.7
|
%
|
|
|
12,055
|
|
|
|
3.6
|
%
|
Rest of World
|
|
|
8,228
|
|
|
|
7,640
|
|
|
|
7.7
|
%
|
|
|
7,957
|
|
|
|
4.1
|
%
|
Total Crawford Loss Adjusting Revenues before Reimbursements
|
|
$
|
123,965
|
|
|
$
|
110,929
|
|
|
|
11.8
|
%
|
|
$
|
117,336
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the nine months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
113,999
|
|
|
$
|
95,973
|
|
|
|
18.8
|
%
|
|
$
|
113,999
|
|
|
|
18.8
|
%
|
U.K.
|
|
|
78,385
|
|
|
|
77,603
|
|
|
|
1.0
|
%
|
|
|
72,438
|
|
|
|
(6.7
|
)%
|
Australia
|
|
|
55,127
|
|
|
|
51,590
|
|
|
|
6.9
|
%
|
|
|
48,284
|
|
|
|
(6.4
|
)%
|
Canada
|
|
|
40,030
|
|
|
|
42,668
|
|
|
|
(6.2
|
)%
|
|
|
37,088
|
|
|
|
(13.1
|
)%
|
Europe
|
|
|
39,525
|
|
|
|
36,137
|
|
|
|
9.4
|
%
|
|
|
36,758
|
|
|
|
1.7
|
%
|
Rest of World
|
|
|
25,392
|
|
|
|
23,124
|
|
|
|
9.8
|
%
|
|
|
24,903
|
|
|
|
7.7
|
%
|
Total Crawford Loss Adjusting Revenues before Reimbursements
|
|
$
|
352,458
|
|
|
$
|
327,095
|
|
|
|
7.8
|
%
|
|
$
|
333,470
|
|
|
|
1.9
|
%
|
Revenues before reimbursements from our Crawford Loss Adjusting segment totaled $124.0 million in the three months ended September 30, 2021, compared with $110.9 million in the 2020 period. This increase was due to an increase in Hurricane Ida case activity in the U.S. and the change in exchange rates, which increased our Crawford Loss Adjusting segment revenues by approximately 6.0%, or $6.6 million, for the three months ended September 30, 2021 as compared with the 2020 period. Absent foreign exchange rate fluctuations, Crawford Loss Adjusting segment revenues would have been $117.3 million for the three months ended September 30, 2021. There was a $0.9 million net increase, or 0.8% increase in Crawford Loss Adjusting revenues in the quarter as a result of recent acquisitions and dispositions. There was an increase in segment unit volume, measured principally by cases received, of 9.1% for the three months ended September 30, 2021, compared with the 2020 period. Changes in product mix and in the rates charged for those services accounted for a 4.1% revenue decrease for the three months ended September 30, 2021 compared with the same period in 2020.
For the nine months ended September 30, 2021, revenues before reimbursements from our Crawford Loss Adjusting segment totaled $352.5 million, compared with $327.1 million for the 2020 period. This increase was primarily due to the increase in Hurricane Ida related case activity in the U.S. in the third quarter, and the change in exchange rates, which resulted in an increase of our Crawford Loss Adjusting segment revenues by approximately 5.9%, or $19.0 million, for the nine months ended September 30, 2021 as compared with the 2020 period. Absent foreign exchange rate fluctuations, Crawford Loss Adjusting segment revenues would have been $333.5 million for the nine months ended September 30, 2021. There was a $4.2 million net decrease, or 1.3% reduction, in Crawford Loss Adjusting revenues in the year-to-date period as a result of dispositions in 2020. There was an increase in segment unit volume, measured principally by cases received, of 5.1% for the nine months ended September 30, 2021, compared with the 2020 period. Changes in product mix and in the rates charged for those services accounted for a 1.9% revenue decrease for the nine months ended September 30, 2021, compared with the same period in 2020.
36
The increase in revenues in the U.S. for both the three months and nine months ended September 30, 2021 was due to the increase in weather related cases in the 2021 period and new client growth. Based on constant foreign exchange rates, there was a decrease in revenues in the U.K. in the 2021 periods, compared with 2020, primarily due to the Lloyd Warwick International ("LWI") disposition in June 2020 and a change in the mix of services provided. There was a decrease in revenues in Australia due to a decrease in weather related cases in 2021. Revenues in Canada decreased in 2021 due to the continued negative economic impact of COVID-19. There was an increase in revenues in Europe in the 2021 period due to increased volumes in several countries in the third quarter, partially offset by a change in the mix of services provided in the year-to-date period. There was an increase in revenues in Rest of World in the 2021 period, primarily due to the acquisition in Chile in October 2020, partially offset by a decrease in Asia.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Crawford Loss Adjusting segment, which are included in total Company revenues, were $5.6 million and $6.1 million for the three months ended September 30, 2021 and 2020, respectively. Reimbursements were $16.9 million and $19.1 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease in reimbursed expenses was due to a decreased use of third parties in the 2021 period.
Case Volume Analysis
Crawford Loss Adjusting segment unit volumes by geographic region, measured by cases received, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(whole numbers, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
U.S.
|
|
|
45,167
|
|
|
|
42,877
|
|
|
|
5.3
|
%
|
|
|
114,776
|
|
|
|
112,359
|
|
|
|
2.2
|
%
|
U.K.
|
|
|
18,996
|
|
|
|
14,503
|
|
|
|
31.0
|
%
|
|
|
54,219
|
|
|
|
42,059
|
|
|
|
28.9
|
%
|
Australia
|
|
|
9,320
|
|
|
|
10,352
|
|
|
|
(10.0
|
)%
|
|
|
32,662
|
|
|
|
37,110
|
|
|
|
(12.0
|
)%
|
Europe
|
|
|
8,422
|
|
|
|
8,048
|
|
|
|
4.6
|
%
|
|
|
25,602
|
|
|
|
26,138
|
|
|
|
(2.1
|
)%
|
Canada
|
|
|
8,054
|
|
|
|
7,877
|
|
|
|
2.2
|
%
|
|
|
20,478
|
|
|
|
22,454
|
|
|
|
(8.8
|
)%
|
Rest of World
|
|
|
7,760
|
|
|
|
5,901
|
|
|
|
31.5
|
%
|
|
|
22,641
|
|
|
|
17,240
|
|
|
|
31.3
|
%
|
Total Crawford Loss Adjusting Cases Received
|
|
|
97,719
|
|
|
|
89,558
|
|
|
|
9.1
|
%
|
|
|
270,378
|
|
|
|
257,360
|
|
|
|
5.1
|
%
|
Overall, there was an increase in cases received of 9.1% and 5.1% for the three and nine months ended September 30, 2021, respectively, compared with the 2020 periods. There was an increase in U.S. case volumes in the third quarter and year-to-date period due to the increase in weather related activity and the change in the mix of services provided. The U.K. case volumes were higher in the 2021 periods due to an increase in high-frequency, low-severity cases. There was a decrease in cases in Australia due to a reduction in weather related case activity in the current period. There was an increase in cases received in Europe in 2021 in the third quarter due to an increase in weather activity, although a decrease in the nine month period due to a change in the mix of services provided. There was an increase in cases in Canada in the third quarter due to a change in the mix of services provided, although a decline for the year-to-date period due to the impact of COVID-19. There was an increase in cases received in the 2021 periods in Rest of World primarily due to our recent acquisition in Chile.
As a result of the impact from the COVID-19 pandemic, cases received in future quarters could be materially negatively impacted, unless offset by the impact of cases received from new client programs or weather related activity.
37
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our Crawford Loss Adjusting segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. As a percentage of revenues before reimbursements, direct compensation, fringe benefits, and non-employee labor expenses were 65.3% for the three months ended September 30, 2021 compared with 59.6% for the 2020 period. For the nine months ended September 30, 2021, direct compensation, fringe benefits, and non-employee labor expenses were 65.3%, compared with 61.8% in 2020. The total dollar amount of these expenses increased to $81.0 million for the three months ended September 30, 2021 from $66.2 million for the comparable 2020 period, and were $230.1 million for the nine months ended September 30, 2021 compared to $202.3 million in 2020. The increase in amounts was due to the increased revenues, change in foreign exchange rates and recent acquisitions, and the increase in the percentage of revenues before reimbursements is because compensation expense did not decrease in line with the lower revenues in certain international operations, and an increase in incentive compensation. Additionally, there was a $0.5 million and $1.7 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of CEWS, and a benefit of $2.3 million and $3.7 million in the three and nine months ended September 30, 2020, respectively. There was an average of 3,432 full-time equivalent employees in this segment in the nine months ended September 30, 2021 compared with an average of 3,321 in the 2020 period.
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Crawford Loss Adjusting expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $35.9 million for the three months ended September 30, 2021 compared with $30.6 million for the 2020 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 29.0% for the three months ended September 30, 2021 compared with 27.6% for the 2020 period. The increases in the current year were due to technology investments, an increase in the allowance for credit losses, and an increase in administrative support costs. For the nine months ended September 30, 2021, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $104.2 million, compared with $99.9 million for the 2020 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 29.6% for the nine months ended September 30, 2021, compared with 30.6% for the 2020 period. The decrease in expenses as a percent of revenues before reimbursements were due to cost reduction initiatives.
CRAWFORD TPA SOLUTIONS SEGMENT
Our Crawford TPA Solutions segment, which operates under the Broadspire brand, reported operating earnings of $5.0 million, or 5.0% of revenues before reimbursements, for the three months ended September 30, 2021 as compared with $4.3 million, or 4.8% of revenues before reimbursements, for the third quarter of 2020. For the nine months ended September 30, 2021, our Crawford TPA Solutions segment reported operating earnings of $14.5 million, or 4.8% of revenues before reimbursements, compared with 2020 operating earnings of $13.7 million, or 5.0% of revenues before reimbursements. These increases were due to the increase in revenues in the U.S. and lower operating and administrative costs. There was a $0.2 million and $0.7 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of CEWS, and a benefit of $0.4 million and $1.1 million in the three and nine months ended September 30, 2020, respectively.
Excluding centralized indirect support costs, third quarter gross profit increased from $17.9 million, or 20.1% of revenues before reimbursements, in 2020 to $19.8 million, or 19.7% of revenues before reimbursements, in 2021. For the nine months ended September 30, 2021, gross profit increased from $55.4 million, or 20.1% of revenues before reimbursements in 2020, to $58.0 million, or 19.4% of revenues before reimbursements, due to the increased revenues in the U.S. and reduction in expenses.
Operating results for our Crawford TPA Solutions segment, including gross profit, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
100,221
|
|
|
$
|
88,908
|
|
|
|
12.7
|
%
|
Direct expenses
|
|
|
80,439
|
|
|
|
71,048
|
|
|
|
13.2
|
%
|
Gross profit
|
|
|
19,782
|
|
|
|
17,860
|
|
|
|
10.8
|
%
|
Indirect expenses
|
|
|
14,748
|
|
|
|
13,572
|
|
|
|
8.7
|
%
|
Total Crawford TPA Solutions Operating Earnings
|
|
$
|
5,034
|
|
|
$
|
4,288
|
|
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
19.7
|
%
|
|
|
20.1
|
%
|
|
|
(0.4
|
)%
|
Operating margin
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
|
|
0.2
|
%
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Nine Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
298,840
|
|
|
$
|
275,573
|
|
|
|
8.4
|
%
|
Direct expenses
|
|
|
240,819
|
|
|
|
220,180
|
|
|
|
9.4
|
%
|
Gross profit
|
|
|
58,021
|
|
|
|
55,393
|
|
|
|
4.7
|
%
|
Indirect expenses
|
|
|
43,556
|
|
|
|
41,685
|
|
|
|
4.5
|
%
|
Total Crawford TPA Solutions Operating Earnings
|
|
$
|
14,465
|
|
|
$
|
13,708
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
19.4
|
%
|
|
|
20.1
|
%
|
|
|
(0.7
|
)%
|
Operating margin
|
|
|
4.8
|
%
|
|
|
5.0
|
%
|
|
|
(0.2
|
)%
|
Revenues before Reimbursements
Crawford TPA Solutions revenues are derived from the global casualty and disability insurance and self-insured markets in the U.S., U.K., Canada and Europe and Rest of World. Revenues before reimbursements by major region, based on actual exchange rates and using a constant exchange rate, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the three months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
75,804
|
|
|
$
|
70,726
|
|
|
|
7.2
|
%
|
|
$
|
75,804
|
|
|
|
7.2
|
%
|
Europe and Rest of World
|
|
|
14,003
|
|
|
|
8,548
|
|
|
|
63.8
|
%
|
|
|
12,720
|
|
|
|
48.8
|
%
|
U.K.
|
|
|
6,063
|
|
|
|
4,145
|
|
|
|
46.3
|
%
|
|
|
5,435
|
|
|
|
31.1
|
%
|
Canada
|
|
|
4,351
|
|
|
|
5,489
|
|
|
|
(20.7
|
)%
|
|
|
4,116
|
|
|
|
(25.0
|
)%
|
Total Crawford TPA Solutions Revenues before Reimbursements
|
|
$
|
100,221
|
|
|
$
|
88,908
|
|
|
|
12.7
|
%
|
|
$
|
98,075
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the nine months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
225,982
|
|
|
$
|
217,992
|
|
|
|
3.7
|
%
|
|
$
|
225,982
|
|
|
|
3.7
|
%
|
Europe and Rest of World
|
|
|
42,183
|
|
|
|
27,675
|
|
|
|
52.4
|
%
|
|
|
38,239
|
|
|
|
38.2
|
%
|
U.K.
|
|
|
16,512
|
|
|
|
12,385
|
|
|
|
33.3
|
%
|
|
|
15,236
|
|
|
|
23.0
|
%
|
Canada
|
|
|
14,163
|
|
|
|
17,521
|
|
|
|
(19.2
|
)%
|
|
|
13,121
|
|
|
|
(25.1
|
)%
|
Total Crawford TPA Solutions Revenues before Reimbursements
|
|
$
|
298,840
|
|
|
$
|
275,573
|
|
|
|
8.4
|
%
|
|
$
|
292,578
|
|
|
|
6.2
|
%
|
Revenues before reimbursements from our Crawford TPA Solutions segment totaled $100.2 million in the three months ended September 30, 2021 compared with $88.9 million in the 2020 period. This increase was primarily due to an increase in the U.S. and a $5.4 million, or 6.0%, increase in revenues due to recent acquisitions in Chile and Australia which are reported in Europe and Rest of World. Changes in foreign exchange rates resulted in an increase of our Crawford TPA Solutions segment revenues by approximately 2.4%, or $2.1 million, for the three months ended September 30, 2021 as compared with the 2020 period. Absent foreign exchange rate fluctuations, Crawford TPA Solutions segment revenues would have been $98.1 million for the three months ended September 30, 2021. Revenues were negatively impacted by a decrease in unit volumes, measured principally by cases received, of 1.7% for the three months ended September 30, 2021 compared with the same period of 2020. Changes in product mix and in the rates charged for those services accounted for a 6.0% revenue increase for the 2021 third quarter compared with the 2020 period.
For the nine months ended September 30, 2021, revenues before reimbursements from our Crawford TPA Solutions segment totaled $298.8 million, compared with $275.6 million for the 2020 period. This increase was primarily due to the increase in U.S. and U.K. cases received and a $15.0 million, or 5.4%, increase due to recent acquisitions. Changes in foreign exchange rates resulted in an increase of our Crawford TPA Solutions segment revenues by approximately 2.2%, or $6.3 million, for the nine months ended September 30, 2021 as compared with the 2020 period. Absent foreign exchange rate fluctuations, Crawford TPA Solutions segment revenues would have been $292.6 million for the nine months ended September 30, 2021. There was a decrease in segment unit volume, measured principally by cases received, of 2.1% for the nine months ended September 30, 2021, compared with the 2020 period. Changes in product mix and in the rates charged for those services accounted for a 2.9% revenue increase for the nine months ended September 30, 2021, compared with the same period in 2020.
39
The increase in revenues in the U.S. for the three and nine months ended September 30, 2021 was due to an increase in the mix of services provided as business activity continued to improve from the impact of COVID-19 economic conditions that were present in the prior year. Based on constant foreign exchange rates, there was an increase in revenues in the U.K. in the 2021 periods due to client case volume increases in our legal services business line. Revenues in Canada decreased in the current year as a result of continued negative COVID-19 economic conditions and the exit from a service line in that country. Revenues increased in Europe and Rest of World in 2021 primarily due to recent acquisitions in Chile and Australia which strengthened our legal services offerings in those countries.
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Crawford TPA Solutions segment were $2.5 million for the three months ended September 30, 2021, compared with $1.8 million in the comparable 2020 period. Reimbursements were $7.8 million and $5.5 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in reimbursed expenses in the 2021 period was due to the increased revenues and increased use of third parties from the recent acquisitions.
Case Volume Analysis
Crawford TPA Solutions unit volumes by geographic region, as measured by cases received, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(whole numbers, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
U.S.
|
|
|
124,703
|
|
|
|
130,272
|
|
|
|
(4.3
|
)%
|
|
|
370,840
|
|
|
|
358,169
|
|
|
|
3.5
|
%
|
Europe and Rest of World
|
|
|
44,659
|
|
|
|
44,522
|
|
|
|
0.3
|
%
|
|
|
138,848
|
|
|
|
150,089
|
|
|
|
(7.5
|
)%
|
U.K.
|
|
|
15,182
|
|
|
|
10,378
|
|
|
|
46.3
|
%
|
|
|
42,871
|
|
|
|
35,400
|
|
|
|
21.1
|
%
|
Canada
|
|
|
8,568
|
|
|
|
11,213
|
|
|
|
(23.6
|
)%
|
|
|
25,952
|
|
|
|
47,258
|
|
|
|
(45.1
|
)%
|
Total Crawford TPA Solutions Cases Received
|
|
|
193,112
|
|
|
|
196,385
|
|
|
|
(1.7
|
)%
|
|
|
578,511
|
|
|
|
590,916
|
|
|
|
(2.1
|
)%
|
Overall case volumes were 1.7% lower for the three months ended September 30, 2021 due to a decrease in the U.S. and Canada, partially offset by an increase in the U.K. Case volumes were 2.1% lower for the nine months ended September 30, 2021, compared with 2020, due to decreases in Canada and Europe. The decrease in the U.S. in the third quarter was due to a reduction in casualty and disability claims, although the increase in the U.S. in the year-to-date period was due to the general economic recovery and impact of the pandemic in the prior year. The decrease in Canada was primarily due to the continued negative impact from COVID-19 economic conditions and the exit from a service line in that country. The decrease in cases received in Europe and Rest of World in the year-to-date period was due to a decrease in high-frequency, low-complexity cases received in Germany, partially offset by an increase in cases from recent acquisitions, although there was a slight increase in the quarter. The increase in cases in the U.K. was due to an increase in high-frequency, low-severity liability cases.
Crawford TPA Solutions unit volumes are sensitive to overall employment levels and workplace reported injuries. As a result of the varying level of unemployment in the U.S. due to the COVID-19 pandemic, as well as economic contraction globally which could impact other geographic regions, future case referrals could be materially negatively impacted unless offset by new client programs.
Direct Compensation, Fringe Benefits & Non-Employee Labor
The most significant expense in our Crawford TPA Solutions segment is the compensation of employees, including related payroll taxes and fringe benefits, and the payments to outsourced service providers that augment the functions performed by our employees. For the three months ended September 30, 2021, direct compensation, fringe benefits, and non-employee labor, as a percent of the related revenues before reimbursements, increased from 63.8% in 2020 to 64.4% in 2021. For the nine months ended September 30, 2021, direct compensation, fringe benefits, and non-employee labor expenses were 64.1%, compared with 63.5% in 2020. The total dollar amount of these expenses increased to $64.6 million for the three months ended September 30, 2021 from $56.7 million for the comparable 2020 period, and were $191.4 million for the nine months ended September 30, 2021 compared with $175.0 million in 2020. The increase in the amounts were due to the increased revenues and an increase in average full-time equivalent employees from the recent acquisitions. The increase in expense as a percent of revenues before reimbursements is due to an increase in compensation, including incentive compensation, and higher compensation expense in our legal services business. There was a $0.2 million and $0.7 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of CEWS, and a benefit of $0.4 million and $1.1 million in the three and nine months ended September 30, 2020, respectively. Average full-time equivalent employees in this segment totaled 3,541 in the first nine months ended September 30, 2021, compared with 3,121 in the comparable 2020 period, increasing primarily due to recent acquisitions.
40
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Crawford TPA Solutions segment expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor as a percent of revenues before reimbursements were 30.5% for the three months ended September 30, 2021, compared with 31.4% in the comparable 2020 period. The amount of these expenses increased from $27.9 million for the three months ended September 30, 2020 to $30.6 million in 2021. The decrease in expenses as a percent of revenues in the third quarter was due to the increased revenues. For the nine months ended September 30, 2021, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $93.0 million, compared with $86.8 million for the 2020 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 31.1% for the nine months ended September 30, 2021, compared with 31.5% for the 2020 period. The increase in the overall expense was due to higher revenues, recent acquisitions and the change in exchange rates. The slight decrease in the percent of revenues before reimbursements was due to the increased revenues in the U.S.
CRAWFORD PLATFORM SOLUTIONS SEGMENT
Our Crawford Platform Solutions segment reported operating earnings of $11.0 million for the three months ended September 30, 2021, increasing over operating earnings of $10.7 million in the comparable 2020 period. The related segment operating margin decreased from 20.0% for the three months ended September 30, 2020, to 17.1% in the comparable 2021 period. The increase in operating earnings was due to an increase in revenues in our Networks service line resulting from an increase in Hurricane Ida case activity and new client growth in the U.S. The decrease in margin was due to an increase in compensation expense, including incentive compensation. For the nine months ended September 30, 2021, our Crawford Platform Solutions segment reported operating earnings of $25.9 million, or 16.4% of revenues before reimbursements, compared with 2020 operating earnings of $20.9 million, or 17.1% of revenues before reimbursements. The increase in operating earnings in 2021 was due to an increase in weather related cases and a reduction in administrative support expenses. There was a $0.1 million and $0.2 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of CEWS, and a benefit of $0.1 million and $0.3 million in the three and nine months ended September 30, 2020, respectively.
Excluding indirect support costs, gross profit in the third quarter increased from $14.4 million, or 27.0% of revenues before reimbursements in 2020 to $16.4 million, or 25.6% of revenues before reimbursements, in 2021. For the nine months ended September 30, 2021, gross profit increased from $32.5 million, or 26.5% of revenues before reimbursements in 2020, to $41.6 million, or 26.4% of revenues before reimbursements, as a result of the Networks revenue increase in the U.S., a change in the mix of services provided in the U.K., and the absence of client start-up expenses that were present in 2020.
Operating results for our Crawford Platform Solutions segment, including gross profit, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Three Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
64,314
|
|
|
$
|
53,287
|
|
|
|
20.7
|
%
|
Direct expenses
|
|
|
47,879
|
|
|
|
38,886
|
|
|
|
23.1
|
%
|
Gross profit
|
|
|
16,435
|
|
|
|
14,401
|
|
|
|
14.1
|
%
|
Indirect expenses
|
|
|
5,467
|
|
|
|
3,746
|
|
|
|
45.9
|
%
|
Total Crawford Platform Solutions Operating Earnings
|
|
$
|
10,968
|
|
|
$
|
10,655
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
25.6
|
%
|
|
|
27.0
|
%
|
|
|
(1.4
|
)%
|
Operating margin
|
|
|
17.1
|
%
|
|
|
20.0
|
%
|
|
|
(2.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands (except percentages)
|
|
|
|
Based on actual exchange rates
|
|
Nine Months Ended September 30,
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Revenues
|
|
$
|
157,840
|
|
|
$
|
122,403
|
|
|
|
29.0
|
%
|
Direct expenses
|
|
|
116,213
|
|
|
|
89,950
|
|
|
|
29.2
|
%
|
Gross profit
|
|
|
41,627
|
|
|
|
32,453
|
|
|
|
28.3
|
%
|
Indirect expenses
|
|
|
15,690
|
|
|
|
11,514
|
|
|
|
36.3
|
%
|
Total Crawford Platform Solutions Operating Earnings
|
|
$
|
25,937
|
|
|
$
|
20,939
|
|
|
|
23.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
26.4
|
%
|
|
|
26.5
|
%
|
|
|
(0.1
|
)%
|
Operating margin
|
|
|
16.4
|
%
|
|
|
17.1
|
%
|
|
|
(0.7
|
)%
|
41
Revenues before Reimbursements
Crawford Platform Solutions segment revenues are primarily derived from the global property and casualty insurance company markets in the U.S., U.K., Canada, and Rest of World. Revenues before reimbursements by major region, based on actual exchange rates, using a constant exchange rate for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the three months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
56,473
|
|
|
$
|
47,556
|
|
|
|
18.8
|
%
|
|
$
|
56,473
|
|
|
|
18.8
|
%
|
Canada
|
|
|
3,150
|
|
|
|
2,980
|
|
|
|
5.7
|
%
|
|
|
2,972
|
|
|
|
(0.3
|
)%
|
U.K.
|
|
|
2,561
|
|
|
|
1,354
|
|
|
|
89.1
|
%
|
|
|
2,292
|
|
|
|
69.3
|
%
|
Europe and Rest of World
|
|
|
2,130
|
|
|
|
1,397
|
|
|
|
52.5
|
%
|
|
|
1,970
|
|
|
|
41.0
|
%
|
Total Crawford Platform Solutions Revenues before Reimbursements
|
|
$
|
64,314
|
|
|
$
|
53,287
|
|
|
|
20.7
|
%
|
|
$
|
63,707
|
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Based on actual exchange rates
|
|
|
Based on exchange rates for the nine months ended September 30, 2020
|
|
(in thousands, except percentages)
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
September 30,
2021
|
|
|
Variance
|
|
U.S.
|
|
$
|
136,689
|
|
|
$
|
105,090
|
|
|
|
30.1
|
%
|
|
$
|
136,689
|
|
|
|
30.1
|
%
|
Canada
|
|
|
8,416
|
|
|
|
8,150
|
|
|
|
3.3
|
%
|
|
|
7,797
|
|
|
|
(4.3
|
)%
|
U.K.
|
|
|
7,370
|
|
|
|
5,021
|
|
|
|
46.8
|
%
|
|
|
6,817
|
|
|
|
35.8
|
%
|
Europe and Rest of World
|
|
|
5,365
|
|
|
|
4,142
|
|
|
|
29.5
|
%
|
|
|
4,895
|
|
|
|
18.2
|
%
|
Total Crawford Platform Solutions Revenues before Reimbursements
|
|
$
|
157,840
|
|
|
$
|
122,403
|
|
|
|
29.0
|
%
|
|
$
|
156,198
|
|
|
|
27.6
|
%
|
Revenues before reimbursements from our Crawford Platform Solutions segment totaled $64.3 million in the three months ended September 30, 2021, compared with $53.3 million in the 2020 period. This increase was primarily due to an increase in Hurricane Ida case volumes in the U.S. and an increase in new client growth. Changes in foreign exchange rates resulted in an increase of our Crawford Platform Solutions segment revenues by approximately 1.1%, or $0.6 million, for the three months ended September 30, 2021, as compared with 2020. Absent foreign exchange fluctuations, Crawford Platform Solutions segment revenues would have been $63.7 million for the three months ended September 30, 2021. Overall case volumes were 6.0% higher for the three months ended September 30, 2021, compared with the same period of 2020. Revenues in our U.S. Crawford Networks segment include revenues where we provide staff augmentation for our clients, which resulted in $6.4 million revenue increase in the 2021 third quarter, or a 12.0% increase in Crawford Platform Solutions revenue. The revenues from these clients do not typically result in cases received. Changes in product mix and in the rates charged for those services accounted for a 1.6% revenue increase for the three months ended September 30, 2021 compared with the same period in 2020.
For the nine months ended September 30, 2021, revenues before reimbursements from our Crawford Platform Solutions segment totaled $157.8 million, compared with $122.4 million for the 2020 period. This increase was also due to an increase in weather related case volumes in the U.S. and an increase in new client growth. Changes in foreign exchange rates resulted in an increase of our Crawford Platform Solutions segment revenues by approximately 1.4%, or $1.6 million, for the nine months ended September 30, 2021 as compared with the 2020 period. Absent foreign exchange rate fluctuations, Crawford Platform Solutions segment revenues would have been $156.2 million for the nine months ended September 30, 2021. There was an increase in segment unit volume, measured principally by cases received, of 19.1% for the nine months ended September 30, 2021, compared with the 2020 period. 9.4% of the increase was due to an increase of 30,600 high-frequency, low-severity cases received in our WeGoLook service line. Excluding these WeGoLook cases, there was an increase in segment unit volume of 31,466, or 9.7% in Crawford Platform Solutions cases received in 2021. Revenues in our U.S. Crawford Networks segment include revenues where we provide staff augmentation for our clients, which resulted in $22.7 million revenue increase in the 2021 year-to-date period, or an 18.5% increase in Crawford Platform Solutions revenue. The revenues from these clients do not typically result in cases received. Changes in product mix and in the rates charged for those services accounted for a 0.6% revenue decrease for the nine months ended September 30, 2021, compared with the same period in 2020.
The increase in revenues in the U.S. for the three months and nine months ended September 30, 2021 was due to an increase in weather related case activity and an increase in new client growth. On a constant currency basis, there was a revenue increase in the U.K. in 2021 due to an increase in our Contractor Connection service line. Revenues in Canada decreased in 2021 due to the impact of COVID-19. There was an increase in revenues in Rest of World due to new client growth.
42
Reimbursed Expenses included in Total Revenues
Reimbursements for out-of-pocket expenses incurred in our Crawford Platform Solutions segment were $1.0 million for the three months ended September 30, 2021 compared with $0.6 million in the comparable 2020 period. Reimbursements were $2.4 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively. The increases were due to the increase in revenues in 2021.
Case Volume Analysis
Crawford Platform Solutions unit volumes by geographic region, as measured by cases received, for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(whole numbers, except percentages)
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Variance
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Variance
|
U.S.
|
|
114,353
|
|
112,455
|
|
1.7%
|
|
313,049
|
|
270,258
|
|
15.8%
|
Canada
|
|
16,535
|
|
13,216
|
|
25.1%
|
|
49,334
|
|
35,730
|
|
38.1%
|
Rest of World
|
|
5,960
|
|
4,096
|
|
45.5%
|
|
15,117
|
|
13,333
|
|
13.4%
|
U.K.
|
|
3,069
|
|
2,191
|
|
40.1%
|
|
10,358
|
|
6,471
|
|
60.1%
|
Total Crawford Platform Solutions Cases Received
|
|
139,917
|
|
131,958
|
|
6.0%
|
|
387,858
|
|
325,792
|
|
19.1%
|
Overall case volumes were 6.0% and 19.1% higher in the three and nine months ended September 30, 2021 compared with 2020 due to increases in the U.S., Canada and U.K. For the nine months ended September 30, 2021, 9.4% of the increase was due to an increase of 30,600 high-frequency, low-severity cases received in our WeGoLook service line. Excluding these WeGoLook cases, there was an increase in segment unit volume of 31,466, or 9.7% in Crawford Platform Solutions cases received in 2021.
The increase in U.S. case volumes in the three months ended September 30, 2021 was primarily due to an increase in Hurricane Ida case activity. A portion of the increase in revenues in the U.S. is the result of new client growth, however the revenues generated for these clients consist of us providing dedicated employees which is not measured by cases, and accordingly there is no increase in cases received to match the increase in revenues. The increase in cases in Canada are due to an increase in new clients in our Contractor Connection service line. The U.K. case volumes were higher in the three months and nine months ended September 30, 2021 due to an increase in assignments to our Contractor Connection service line. Cases received in Rest of World was higher in 2021 due to new client growth.
As a result of the impact from the COVID-19 pandemic, cases received in future quarters could be materially negatively impacted, unless offset by the impact of cases received from new client programs or weather related activity.
Direct Compensation, Fringe Benefits & Non-Employee Labor
Crawford Platform Solutions direct compensation, fringe benefits, and non-employee labor expenses as a percent of revenues before reimbursements were 65.7% in the 2021 quarter compared with 62.9% in the 2020 quarter. For the nine months ended September 30, 2021, direct compensation, fringe benefits, and non-employee labor expenses were 63.4%, compared with 61.4% in 2020. The dollar amount of these expenses was $42.3 million for the 2021 quarter and $33.5 million for the comparable 2020 period, and were $100.1 million for the nine months ended September 30, 2021 compared to $75.1 million in 2020. The increase in costs was due to the higher revenues in the current year and increased employees to support client growth. The increase in the percentage of revenues before reimbursements in the current year was due to the change in product mix and higher compensation expense to support the new client growth. There was a $0.1 million and $0.2 million expense benefit in the three months and nine months ended September 30, 2021, respectively, as a result of CEWS, and a benefit of $0.1 million and $0.3 million in the three and nine months ended September 30, 2020, respectively. There was an average of 1,217 full-time equivalent employees in Crawford Platform Solutions in the 2021 nine month period, compared with an average of 1,028 for the comparable 2020 period.
43
Expenses Other than Reimbursements, Direct Compensation, Fringe Benefits & Non-Employee Labor
Expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were 17.2% of Crawford Platform Solutions revenues before reimbursements for the three months ended September 30, 2021 compared with 17.1% for the comparable period in 2020. The dollar amount of these expenses increased to $11.1 million in the 2021 third quarter as compared with $9.1 million in the 2020 period. The increase in the amount in 2021 was due to the higher revenues and the change in foreign exchange rates. The slight increase in the expense as a percent of revenues before reimbursements in 2021 is due to an increase in administrative support costs. For the nine months ended September 30, 2021, expenses other than reimbursements, direct compensation, fringe benefits, and non-employee labor were $31.8 million, compared with $26.4 million for the 2020 period. As a percentage of revenues before reimbursements, expenses other than direct compensation, fringe benefits, and non-employee labor expenses were 20.1% for the nine months ended September 30, 2021, compared with 21.5% for the 2020 period. The increase in overall expenses was due to the increased revenues. The decrease in the expense as a percent of revenues before reimbursements in 2021 is due to the higher revenues and a decrease in administrative support costs.
EXPENSES AND CREDITS EXCLUDED FROM SEGMENT OPERATING EARNINGS
Income Taxes
Our consolidated effective income tax rate may change periodically due to changes in enacted tax rates, fluctuations in the mix of income earned from our various domestic and international operations, which are subject to income taxes at different rates, our ability to utilize net operating loss and tax credit carryforwards, and amounts related to uncertain income tax positions. We estimate that our effective income tax rate for 2021 will be approximately 28% to 30% after considering known discrete items as of September 30, 2021.
The provision for income taxes on consolidated income before income tax totaled $4.9 million and $11.7 million for the three months ended September 30, 2021 and 2020, respectively. The provision for income taxes on consolidated income before income tax totaled $10.9 million and $9.6 million for the nine months ended September 30, 2021 and 2020, respectively. The overall effective tax rate decreased to 27.4% for the nine months ended September 30, 2021 compared with 35.1% for the 2020 period primarily due to the impact of goodwill impairment and LWI disposition in the prior year.
Net Corporate Interest Expense
Net corporate interest expense consists of interest expense that we incur on our short- and long-term borrowings, partially offset by any interest income we earn on available cash balances and short-term investments. These amounts vary based on interest rates, borrowings outstanding and the amounts of invested cash. Corporate interest expense totaled $1.6 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively. Interest income was below $0.1 million and $0.1 million for the three months ended September 30, 2021 and 2020, respectively. Corporate interest expense totaled $4.8 million and $6.4 million for the nine months ended September 30, 2021 and 2020, respectively. Interest income was $0.3 million and $0.1 million for the nine months ended September 30, 2021 and 2020, respectively. The 2021 amounts were lower due to lower average borrowings and the change in interest rates between periods.
Stock Option Expense
Stock option expense, a component of stock-based compensation, is comprised of non-cash expenses related to stock options granted under our various stock option and employee stock purchase plans. Stock option expense is not allocated to our operating segments. Stock option expense totaled $0.3 million and $0.5 million for the three months ended September 30, 2021 and 2020, respectively. Stock option expense totaled $0.7 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively.
Amortization of Customer-Relationship Intangible Assets
Amortization of customer-relationship intangible assets represents the non-cash amortization expense for finite-lived customer-relationship and trade name intangible assets. Amortization expense associated with these intangible assets totaled $2.9 million and $3.7 million for the three months ended September 30, 2021 and 2020, respectively. Amortization expense associated with these intangible assets totaled $8.4 million and $9.2 million for the nine months ended September 30, 2021 and 2020, respectively. This amortization expense is included in "Selling, general, and administrative expenses" in our unaudited Condensed Consolidated Statements of Operations.
Unallocated Corporate and Shared Costs, Net
Certain unallocated corporate and shared costs are excluded from the determination of segment operating earnings. For the three and nine months ended September 30, 2021 and 2020, unallocated corporate and shared costs and credits represented costs of our frozen U.S. defined benefit pension plan, expenses for our chief executive officer and our Board of Directors, certain adjustments to our self-insured liabilities, certain unallocated legal costs and professional fees, and certain adjustments and recoveries to our allowances for doubtful accounts receivable.
44
Unallocated corporate and shared costs were $2.3 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively. The increase for the third quarter was due to an increase in professional fees and a decreased credit from CEWS. For the nine months ended September 30, 2021 and 2020, unallocated corporate and shared costs were $5.1 million and $6.2 million, respectively. The decrease for the year-to-date period is primarily due to a decrease in unallocated incentive compensation and severance expense, decrease in self-insurance expenses and pension expense, partially offset by a decreased credit from CEWS.
Goodwill Impairment
There was no goodwill impairment in 2021. We recognized a pretax non-cash goodwill impairment in the 2020 first quarter totaling $17.7 million related to our former Crawford Claims Solutions reporting unit. This expense was partially offset by a $1.7 million credit in noncontrolling interest expense. See Note 9, "Fair Value Measurements" of our accompanying consolidated financial statements for further discussion about goodwill impairment.
Restructuring Costs
There were no restructuring costs in 2021. We recognized pretax restructuring costs totaling $5.7 million in the 2020 first quarter, related primarily to severance and other termination costs in an effort to consolidate and streamline various functions of our workforce. The restructuring cost was comprised of $5.1 million severance expense and related payroll taxes, and $0.6 million asset impairment. See Note 12, "Restructuring Costs" of our accompanying consolidated financial statements for further discussion about restructuring costs.
Gain on Disposition of Business
We recognized a pretax gain on disposal totaling $14.1 million in the 2020 third quarter related to the disposal of the LWI business in our Crawford Platform Solutions reporting segment. For the nine months ended September 30, 2020, we recognized a net pretax gain on disposal of businesses totaling $13.8 million. There were no dispositions in 2021. See Note 13, "Business Acquisitions and Dispositions" of our accompanying consolidated financial statements for further discussion about this activity.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
At September 30, 2021, our working capital balance (current assets less current liabilities) was approximately $91.2 million, an increase of $32.0 million from the working capital balance at December 31, 2020. Our cash and cash equivalents were $36.9 million at September 30, 2021, compared with $44.7 million at December 31, 2020.
Cash and cash equivalents as of September 30, 2021 consisted of $17.2 million held in the U.S. and $19.7 million held in our foreign subsidiaries. The Company generally does not provide for additional U.S. and foreign income taxes on undistributed earnings of foreign subsidiaries because they are considered to be indefinitely reinvested. During 2020, the Company changed its permanent reinvestment assertion on a portion of prior year undistributed earnings for certain foreign operations and accrued deferred taxes attributable to these earnings. The remaining historical earnings and future foreign earnings are expected to remain permanently reinvested and will be used to provide working capital for these operations, fund defined benefit pension plan obligations, repay non-U.S. debt, fund capital improvements, and fund future acquisitions.
However, if at a future date or time funds that remain permanently reinvested are necessary for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto, or the ultimate impact any such action may have on our results of operations or financial condition.
Cash Provided by Operating Activities
Cash provided by operating activities was $20.0 million for the nine months ended September 30, 2021, compared with $57.3 million in the comparable period of 2020. The decrease in cash provided by operating activities was primarily due to an $21.0 million increase in receivables as a result of Hurricane Ida, $6.0 million higher pension contributions, and an $11.2 million impact from the CARES Act and CEWS.
Cash Used in Investing Activities
Cash used in investing activities was $38.8 million for the nine months ended September 30, 2021, compared with $4.4 million used in the first nine months of 2020. The increase in use for 2021 was due to cash paid for the acquisition of edjuster and HBA Legal in the 2021 period, partially offset by the settlement of certain company-owned life insurance policies and a decrease in capital expenditures. Capital expenditures were $20.6 million in 2021 compared to $23.6 million in 2020.
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Cash Provided by/Used in Financing Activities
Cash provided by financing activities was $9.9 million for the nine months ended September 30, 2021, compared with cash used in financing activities of $57.3 million for the 2020 period. We paid $9.6 million in dividends in the nine months ended September 30, 2021 compared with $7.0 million in the 2020 period. During the first nine months of 2021, there was a decrease of $26.6 million of net borrowing from our revolving credit facility, compared with a net increase during the first nine months of 2020 of $47.6 million, due the economic uncertainty in the 2020 period. Share repurchases totaled $6.1 million in the 2021 period, compared with $2.7 million for the first nine months of 2020.
Other Matters Concerning Liquidity and Capital Resources
As a component of our credit facility, we maintain a letter of credit facility to satisfy certain contractual obligations. Including $11.3 million of undrawn letters of credit issued under the letter of credit facility, the available balance under our credit facility totaled $287.7 million at September 30, 2021. Our short-term debt obligations typically peak during the first half of each year due to the annual payment of incentive compensation, contributions to retirement plans, working capital fluctuations, and certain other recurring payments, and generally decline during the balance of the year. However, certain events, such as the COVID-19 pandemic, could impact the level and timing of our short-term debt obligations in the future. The balance of short-term borrowings represents amounts under our credit facility that we expect, but are not required, to repay in the next twelve months. Long- and short-term borrowings outstanding, including current installments and finance leases, totaled $140.6 million as of September 30, 2021 compared with $113.6 million at December 31, 2020.
Our liquidity is defined as cash on hand and borrowing capacity under our then Amended and Restated Credit Agreement with Wells Fargo, as amended (the “Credit Agreement”) based on our trailing twelve month EBITDA, as defined in our Credit Agreement. At September 30, 2021, we had $36.9 million of cash on hand and, based on trailing twelve month EBITDA, additional borrowing capacity of $197.2 million, resulting in total liquidity of $234.1 million at September 30, 2021. We have not applied for governmental loans to support the Company’s operations but did take advantage of certain aspects of the CARES Act in 2020, such as the deferral of payroll tax deposits. In addition, there are numerous international legislative responses that we continue to evaluate, such as the CEWS program where we have received a benefit during 2020 and 2021.
As discussed in Note 14, "Subsequent Events" included in Item 1 and "Other Items" included in Item 5 of our accompanying unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q, on November 5, 2021, the Company entered into a Credit Agreement that replaces our Amended and Restated Credit Agreement dated of October 11, 2017. Proceeds from borrowings under the Credit Agreement were used to repay all amounts outstanding under the Prior Credit Agreement.
Defined Benefit Pension Funding and Cost
We sponsor a qualified defined benefit pension plan in the U.S. (the "U.S. Qualified Plan"), three defined benefit pension plans in the U.K., and defined benefit pension plans in the Netherlands, Norway, Germany, and the Philippines. Effective December 31, 2002, we froze our U.S. Qualified Plan. Our frozen U.S. Qualified Plan and U.K. plans were underfunded by $51.6 million and overfunded by $36.8 million, respectively, at December 31, 2020, based on accumulated benefit obligations of $448.6 million and $267.2 million for the U.S. Qualified Plan and the U.K. plans, respectively.
For the nine months ended September 30, 2021, the Company made $9.0 million in contributions to its U.S. defined benefit pension plan and $0.5 million to its U.K defined benefit pension plans. During the comparable period in 2020 the Company made $3.0 million in contributions to the U.S. defined benefit pension plan and $0.5 million was contributed to the U.K. defined benefit plans. The Company does not expect to make any additional discretionary contributions to its U.S. defined benefit pension plan or its U.K. plans during the remainder of 2021. Anticipated funding for the other international plans is not significant.
Dividend Payments
Our Board of Directors makes dividend decisions from time to time based in part on an assessment of current and projected earnings and cash flows. During the nine months ended September 30, 2021, we paid $9.6 million in dividends. Our ability to pay future dividends could be impacted by many factors including the funding requirements of our defined benefit pension plans, repayments of outstanding borrowings, levels of cash expected to be generated by our operating activities, the impact of the COVID-19 pandemic on our business, and covenants and other restrictions contained in any credit facilities or other financing agreements. The covenants in our existing credit facility limit dividend payments to shareholders.
Financial Condition
Other significant changes on our unaudited Condensed Consolidated Balance Sheet as of September 30, 2021, compared with our unaudited Condensed Consolidated Balance Sheet as of December 31, 2020 were as follows:
Unbilled revenues increased $19.0 million excluding foreign currency exchange impacts. This increase was primarily due to an increase in weather related activity in the U.S., U.K. and Australia in our Crawford Loss Adjusting and Platform Solutions segments.
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Accounts payable and accrued liabilities increased $6.8 million excluding foreign exchange impacts. The increase is primarily due to the timing of employee incentive payments and increase in accrued compensation related to Hurricane Ida activity.
Accrued retirement costs decreased $13.2 million excluding foreign exchange impacts. The decrease is related to increased contributions to our U.S. defined benefit pension plan in 2021 and the timing of annual payments such as our 401K match program.
At September 30, 2021, we were not a party to any off-balance sheet arrangements which we believe could materially impact our operations, financial condition, or cash flows.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, we have certain material obligations under operating lease agreements to which we are a party. The Company records operating lease-related assets and liabilities on our unaudited Condensed Consolidated Balance Sheets.
We also maintain funds in various trust accounts to administer claims for certain clients. These funds are not available for our general operating activities and, as such, have not been recorded in the accompanying unaudited Condensed Consolidated Balance Sheets. We have concluded that we do not have a material off-balance sheet risk related to these funds.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Except as set forth below, there have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
New Accounting Standards Adopted
Additional information related to adoption of accounting standards is provided in Note 2 to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Pending Adoption of New Accounting Standards
Additional information related to pending adoption of recently issued accounting standards is provided in Note 2 to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.