Crawford & Company ($CRDB)

Good morning. My name is Dustin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company First Quarter 2026 Earnings Release Conference Call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawco.com under the Investor Relations section. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, May 5, 2026. Now I would like to introduce Tami Stevenson, Crawford & Company's General Counsel.

Thank you, Dustin. Some of the matters to be discussed in this conference call and in the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties. These statements may relate to, among other things, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses, expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectability of our billed and unbilled accounts receivable, financial results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, our long-term capital resource and liquidity requirements and our ability to pay dividends in the future. The company's actual results achieved in future quarters could differ materially from the results that may be implied by such forward-looking statements. The company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events. In addition, you are reminded that operating results for any historical period are not necessarily indicative of results to be expected for any future period. For a complete discussion regarding factors which could affect the company's financial performance, please refer to the company's Form 10-Q for the quarter ended March 31, 2026, filed with the Securities and Exchange Commission, particularly the information under the headings Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations as well as subsequent company filings with the SEC. This presentation also includes certain non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most directly comparable GAAP measures. I would now like to introduce Mr. Bruce Swain, Chief Executive Officer of Crawford & Company. Bruce?

Good morning, and welcome to our first quarter 2026 earnings call. I'm honored to be speaking with you today as President and CEO of Crawford & Company. Joining me today is Holly Boudreau, our Chief Financial Officer; and Tami Stevenson, our General Counsel. After our prepared remarks, we will open the call for your questions. As a reminder, Crawford is a global provider of claims management and outsourcing solutions, serving large insurance carriers and self-insured entities with industry-leading expertise across the claims landscape. Our purpose is to restore lives, businesses and communities by providing our clients with dependable and comprehensive claim solutions and outcomes. As we mentioned on our fourth quarter call, effective January 1, 2026, we began operating under 2 divisions: U.S. operations comprised of our U.S. Property and Casualty and Broadspire businesses; and International operations, which includes all service lines outside of the U.S. We believe this streamlined operating model will strengthen execution, improve client outcomes and drive continued growth across the business. As we've consistently demonstrated, our ability to deliver at scale across more than 70 countries with a team of 10,000 professionals and over $20 billion in claims managed annually sets us apart in a competitive and evolving marketplace. This global reach, combined with over 8 decades of deep technical expertise and an unwavering commitment to service excellence and client success allows us to meet the needs of the world's leading insurers and corporations regardless of the size or complexity of the program. This combination of global presence, technical depth and proven experience positions Crawford & Company as a trusted partner of choice for clients navigating an increasingly complex risk landscape across a variety of geographies and market conditions. Our organic growth opportunities are underpinned by a combination of favorable industry dynamics and core capabilities. First, risk is becoming increasingly complex. As a result, clients are seeking partners with a demonstrated ability to handle high severity claims with speed and efficiency, something that we're uniquely positioned to do globally. Second, as I just touched upon, we streamlined our operating structure at the start of 2026 to further improve efficiency and support continued scalable growth. It's our belief that this strengthened operating model in the U.S. will allow us to be a more agile and unified organization as we look to provide further value to our clients and partners. Third, our deep expertise and technology capabilities remain a true differentiator. Our ongoing commitment to our people and cutting-edge technology translates into service excellence and performance differentiation in the markets we serve. Fourth, natural disasters remain a significant driver of sustained demand for our services. While individual weather events are inherently unpredictable as we've experienced the last few quarters, the broader trajectory points towards an active and complex loss environment in which Crawford service offerings are increasingly needed. Finally, growing complexity across the claims landscape is prompting more carriers and self-insured clients to search for dependable third-party administrators. Our global TPA operations have the scope, scale and specialized knowledge required to help clients in today's increasingly challenging claims environment. Let me take a moment to discuss our first quarter 2026 results. We executed well in the quarter despite weather-related headwinds in the U.S. that we discussed on our 2025 year-end earnings call. First quarter revenues were $309.5 million, down slightly compared to last year and reflected the continued trend of lower industry-wide property claims activity in the U.S. as we saw a continuation of relatively benign weather conditions to start the year. Importantly, our non-weather-dependent businesses reflected quarter-over-quarter growth with Broadspire and International operations reporting increased revenues compared to the prior year period, highlighting the benefit of our diversified operations. Consolidated operating earnings decreased by 23.2% year-over-year as a result of lower results in our U.S. Property and Casualty business and higher unallocated and corporate costs, partially offset by improved operating earnings in International operations. Our non-GAAP EPS was $0.16 for both CRD-A and CRD-B compared to $0.21 for both share classes in the prior year quarter. Operating cash flow was $3.3 million in the first quarter of 2026, improving by $17.2 million year-over-year and providing us with continued financial strength and flexibility. We added $24 million in new and enhanced business during the first quarter. Pipeline activity in the quarter was encouraging, and we have a continued focus on further sharpening our go-to-market approach to turn these opportunities into wins. Our leverage ratio was 1.62x EBITDA, well below industry levels, reflecting our disciplined capital management approach. We continue to have a thoughtful approach to capital allocation, strategically investing in our business with an eye towards long-term growth while ensuring continued balance sheet and liquidity strength. We maintained our quarterly dividend and opportunistically engaged in share repurchases during the quarter. Beyond organic investment and returning capital to shareholders, we continually evaluate external growth opportunities, including targeting acquisitions and acqui-hires that can meaningfully broaden our capabilities and strengthen our position in the market. With that, I'll turn the call over to Holly for a deeper look at our first quarter financial performance.

Thank you. As Bruce noted earlier, effective January 1, 2026, we streamlined our operating structure and began operating under 2 divisions: U.S. operations, which includes our U.S. Property and Casualty business and Broadspire; and International operations, which is made up of all service lines outside the U.S. In first quarter 2026, U.S. Property and Casualty, which consists of our U.S. Loss Adjusting and Networks businesses contributed 23% of revenues. Broadspire, our U.S. based third-party administration business, represented 34% of revenues and International operations accounted for 43% of revenue. U.S. Property and Casualty revenues decreased 11.3% year-over-year, reflecting the absence of revenues associated with Hurricanes Helene and Milton recognized in the first quarter of 2025 and continuing the trend of lower industry-wide property claims activity in the U.S. Operating earnings in the segment decreased by $2.2 million or 22.1% year-over-year, with operating margin down 150 basis points. Despite the extended trend of benign weather we're seeing, we remain well positioned to serve our clients with a strong pool of high-caliber, experienced adjusters with expertise serving major and complex claims to drive future growth. Broadspire delivered quarterly revenues of $104.8 million, an increase of 1% from the prior year period, reflecting a slow ramp for certain new client wins. Our retention rate of 86% is related to the loss of a client in the quarter and is not indicative of any broader trend. The segment delivered operating earnings of $10.9 million, decreasing by $1.1 million or 9.4% year-over-year, with operating margin decreasing by 120 basis points, reflecting planned hiring in anticipation of new business wins. International Operations' first quarter 2026 revenue increased 4.5% to $131.9 million compared to the prior year. Revenue decreased 1.7% on a constant currency basis due to foreign exchange fluctuations. Operating earnings increased by $1.8 million or 80% with operating margin increasing by 120 basis points. International's first quarter operating performance reflects the strong demand across key markets as Australia and Asia specifically saw an increase in catastrophe-related claims events. Additionally, Canada saw margin accretion from cost control initiatives started in 2025. For further context around the ongoing weather cycle, the first quarter of 2026 saw a 16% decline in U.S. severe storm support compared to the prior year, translating into a roughly 6% reduction in weather-related revenues to Crawford in the quarter. Notably, our weather-related revenues remained stable on a year-over-year basis, a testament to the balanced nature of our business and the strength of our underlying operations. And now, for a look at our consolidated results. In the first quarter of 2026, company-wide revenues before reimbursements were $309.5 million, a decrease of 1% compared to the prior year period. Foreign exchange rates increased revenues before reimbursements by $7.8 million or 2.5%. GAAP net income attributable to shareholders totaled $4.9 million compared to net income of $6.7 million in the same period of 2025. GAAP diluted EPS in the 2026 first quarter was $0.10 for both CRD-A and CRD-B, a decrease from earnings of $0.13 for both share classes in the 2025 period. On a non-GAAP basis, diluted EPS was $0.16 for CRD-A and CRD-B, decreasing from $0.21 for both share classes in the prior year period. The company's non-GAAP operating earnings totaled $13.7 million in the 2026 first quarter or 4.4% of revenues compared to $17.8 million or 5.7% of revenues in the prior year period. Consolidated adjusted EBITDA was $22.4 million in the 2026 first quarter or 7.2% of revenues, decreasing from $26.8 million or 8.6% of revenues in the 2025 quarter. The company's cash and cash equivalents as of March 31, 2026, totaled $54.5 million compared to $64.1 million at December 31, 2025. Total receivables were $260.8 million as of March 31, 2026, up $18.2 million from 2025 year-end. The company's total debt outstanding as of March 31, 2026, totaled $194.1 million, up $5 million from December 31, 2025. Net debt was approximately $140 million as of March 31, 2026, while our U.S. pension liability was $16.7 million, reflecting a funded ratio of 93.2%. We made no discretionary contributions to our U.S. defined pension benefit plan during the first quarter of 2026. Cash flow provided by operating activities for the first quarter of 2026 was $3.3 million, increasing from a use of cash of $13.9 million in the prior year quarter. Free cash flow was negative $4.6 million in the 2026 first quarter, improving from negative $23.2 million in the first quarter of 2025. Unallocated corporate costs were $8.8 million in the 2026 first quarter compared to cost of $6.1 million in the 2025 period. The variance was driven by an increase in unallocated compensation expense and self-insurance reserves. Non-service pension costs were $2 million in the 2026 first quarter, a decrease from $2.3 million in the same period of 2025. During the first quarter of 2026, we paid a quarterly dividend of $0.075 a share. The company repurchased over 525,000 shares of CRD-A and CRD-B during the first quarter of 2026. Approximately 1.6 million shares remain eligible to be repurchased under our existing share purchase program as of March 31, 2026. And now I'll turn the call back over to Bruce.

Thank you, Holly. As we conclude the first quarter of 2026, I'm proud of the progress we achieved despite weather-related headwinds to start the year. While recent claims activity has tracked below historical norms, our first quarter emphasis has been on building resilience by strengthening our operating foundation, sharpening our go-to-market approach and positioning Crawford to be prepared when claim volumes return. As we continue through 2026, our focus remains on execution and creating the right conditions for our teams and ultimately, our clients to succeed. We have a strong operational, financial and leadership foundation, and I'm confident that we're executing against the right priorities to deliver further shareholder value moving forward. Thank you for your time today and for your continued interest in Crawford. We look forward to updating you on our progress throughout 2026. Dustin, please open the call for questions.

[Operator Instructions] Your first question comes from the line of Mark Hughes from Truist Securities.

The Broadspire business up a little bit. I think you talked about kind of a delay in new onboarding and maybe a particular client loss. How should that trend through the balance of the year? Are those going to kind of keep it steady to up a little bit? Or would you expect that to potentially accelerate? And then what does that mean from a margin standpoint?

Yes. So for Broadspire, we expect growth this year. So the new business that's coming on, and we brought on a good bit of new business in the first quarter. Within Broadspire, a little bit delayed, some with start dates later in the year. But the impact in the first quarter also was due to the loss of that one program that was a little bit larger than normal, which resulted in the 86% retention rate. But for that particular client, our retention rate would have been 93% or so. So we look at that one loss. It's just kind of an outlier related to relationships that the company had with other providers and they had a change in risk management and those things happen. We win programs that way and sometimes we lose programs that way. And that was just kind of an isolated item that we don't think is indicative of any longer-term trends in the business. But Broadspire has got a great pipeline, and we feel great about that business and look forward to them continuing to grow as they go through 2026.

Any observations about the underlying trend in just claims activity, the workers' comp claims, the need for claims management, any change there?

Our workers' compensation claims year-over-year held pretty steady. I think industry-wide, there's a general decline in comp claims, but severity certainly is going up. And we're seeing severity increase in our book as well. So that's what we're observing.

How about in the U.S. Property and Casualty, the Global Technical Services? I think outside of the weather-related claims, look like you've held steady in U.S. property and casualty. What are you seeing in GTS? And then how do you think about recruiting? I think you mentioned the word acqui-hires. What's the prospect in 2026 there?

Yes. So a lot of our GTS growth in the U.S., in particular, has come from acqui-hire where we've been recruiting teams and bringing them into Crawford to serve our clients. And typically, they bring a book with them as well. So that's really driven a lot of growth in the U.S. We are active in that recruiting or acqui-hire initiative across the globe. It's not just centered in the U.S. We're doing it around the globe as well. And we see global technical services overall, not just within the U.S., but as a global proposition as one of the key growth drivers for us going forward.

And then, unallocated corporate, you had -- it looks like a bump in self-insurance expense. How much was that? I think you referred to little higher administrative payroll. When you take those into account, how does that trend in the coming quarters?

Yes. So that was about $800,000 in the quarter. And I think trend in the coming quarters, I think it's probably, no major increase expected.

[Operator Instructions] Our next question comes from the line of Kevin Steinke from Barrington Research.

I wanted to start off by asking about -- in your prepared comments, you mentioned encouraging pipeline activity. And I believe you kind of tied that to your updated go-to-market strategy under the new segment operating structure. So maybe just any comments on initial traction you're seeing with the go-to-market strategy and what sort of opportunities you're seeing in the pipeline?

Yes. So we do have a very strong pipeline, and it's -- a lot of it's related to the change in the operating structure in the U.S. where we've unified our sales organization in the U.S. to be not just related to Broadspire or U.S. Loss Adjusting or Networks, but it all comes together into one unified whole. We're still in the process of bedding in all of our process changes and organizational changes and go-to-market strategies and approaches in the business. But we are seeing recognition in the marketplace of the benefits of a unified go-to-market approach. We're hearing that from our customers who see us as easier to engage and do business with. And it allows us to bring kind of the full strength of our service solutions to our customers in solving their underlying needs and objectives. And that's the whole reason for doing this. So it's going to allow our teams to operate faster and more efficiently in serving our clients and provide a more integrated client experience. And we think that the benefits are just beginning to unfold and are really quite excited about this change in the U.S. We think it's going to deliver sustained value as we move forward through this year and into the future.

Okay. That's helpful. And when we think about the pipeline activity as well as the $24 million in new and enhanced business that you won in the quarter. Any particular segments that you're really seeing increased activity? Should we think about that as mostly Broadspire? Or is it kind of more broad-based across the segments?

I would say that our strongest pipeline is within Broadspire. The pipeline is building within the U.S. and in property and casualty business as well, and we see that continuing to strengthen. In terms of the wins, a mix of Broadspire wins, a few U.S. property and casualty wins, and then we had a nice win in our International segment as well that made up the $24 million.

Okay. And I think the changes you made with go-to-market were -- you talked about primarily in the U.S., but have there been any tweaks in the International operations segment as well? You just mentioned a win there internationally. So, just wondering if you've kind of changed up the approach at all there as well.

Yes. I mean we're -- within the realignment that we did, we moved Canada, which was previously in our North America Loss Adjusting segment, we moved that into International. So now all non-U.S. operations are in our International segment. I would say that the go-to-market approach change has been most pronounced in the U.S. because in the U.S., as you remember, we were operating under -- as 3 distinct segment operations. And in International, they were one business before they just have another component that got added to them. But their go-to-market approach is, if you were in the U.K., it was a U.K. business approaching the U.K. market as one. That was the same last year, and it hasn't changed. I would say that the overall thing that we're doing within the company and that touches all aspects of our operation is being conscious and working to be more client-centric and putting our client success at the forefront of everything that we do and making client success our North Star and driving that culture within the company is something that's transcending all aspects of our operations. But the core go-to-market approach in international is largely unchanged.

Okay. Great. Yes, that makes sense. So you've been talking about the industry-wide level of outsourced claims activity being down just due to the more benign weather. But any updated thoughts on some of the affordability pressures you've talked about before in the U.S., just the residential property market. Any signs maybe of loosening there in the industry?

Yes. I think there are certainly signs of loosening, particularly in the property market in the U.S. We saw that kind of exiting 2025, I think, in the renewal cycle so far in the first quarter, rates are continuing to grind down. And from everything that I see, it's starting to impact the casualty lines as well. So, as property rates have been coming down, I think the carriers are looking at the casualty lines to compete in, and that's starting to put downward pressure on rates and the excess and surplus market is softening as well. So I see that kind of hitting the -- softening kind of across the board in the U.S., maybe accepting certain really troubling lines. But generally, we're seeing softness. As in the first quarter, in U.S. property and casualty, we had -- we were impacted by the lack of carryover of claims coming from hurricanes that didn't occur in the fourth quarter of '25, and we had some carryover from Hurricanes Helen and Milton that didn't repeat. And you also have some capacity in the marketplace that kind of had our revenues and earnings down quarter-over-quarter. But in March and certainly through April, we're seeing the severe convective storms in the U.S. generate a lot of claims. And those are certainly coming into the market and benefiting us as we sit here today.

We have reached the end of the question-and-answer session. I will now turn the call back over to Mr. Swain for closing remarks.

Okay. Thank you, Dustin, and thank you to all our employees, clients and shareholders for your continued commitment to Crawford & Company. I hope you all have a great rest of the week. Thank you.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 11:30 a.m. Eastern Standard Time today through 11:59 p.m. Eastern Standard Time on May 12, 2026. The conference ID number for the replay is 7962074#. The number to dial for the replay is 1-800-770-2030. Thank you. You may now disconnect.