Crawford & Company (CRDB) Earnings Call Transcript & Summary

Thank you. Good morning, my name is Carly and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Second 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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. Instructions will follow at that time. Should anyone need assistance at any time during this conference, please press star then zero and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, August 4, 2026. Now I would like to introduce Tammy Stevenson, Crawford & Company's General Counsel.

Thank you, Carly. 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, selectability 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 10Q for the quarter end of June 30, 2026, filed with the Securities and Exchange Commission. Particularly the information under the headings risk factors 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 gap measures. I would now like to introduce Mr. Bruce Sprates, Mr. Bruce Swain, Chief Executive Officer of Crawford & Company. Bruce, you can begin the conference. Good morning and welcome to our second quarter 2026 earnings call. Joining me today are Holly Boudreaux, our Chief Financial.

Officer and Tammy Stevenson, our General Counsel. After our prepared remarks, we will open the call for your questions. As you know, Crawford is a global provider of claims management and outsourcing solutions, bringing deep expertise across the full spectrum of claim services to major insurance carriers and self-insured organizations. At the heart of what we do is a commitment to restore lives, businesses, and communities by delivering reliable and comprehensive claim solutions and outcomes. We have a long and successful track record operating across more than 70 countries, backed by 10,000 professionals, and managing over $20 billion in claims each year. This global footprint, paired with more than eight decades of technical expertise and a steadfast focus on service excellence and client success, that enables us to serve the world's top insurers and corporations, no matter the size or complexity of the program. Our blend of global presence, deep technical knowledge, and proven performance make Crawford and Company the partner clients turn to as they work through an ever-shifting risk environment, no matter where they operate or what market conditions they face. There are several favorable industry dynamics that combine with our core capabilities to form the foundation for our organic growth strategy. First, as risk grows more complex, the major and complex loss market continues to expand, prompting clients to seek partners that combine a deep technical skill set with speed and efficiency in handling high severity claims. Second, the start of 2026 marked the unification of our U.S. operating structure, aimed at improving efficiency and supporting scalable growth going forward. We believe this strengthened, client-centric operating model will allow us to be a more nimble and cohesive organization as we continue delivering value-added outcomes to our clients and partners. Third, the depth of our experience and our investment in technology continue to set us apart. By prioritizing our people and staying at the forefront of technological innovation, we're able to stand out across every market we operate in. Fourth, natural disasters continue to fuel steady demand for our services. While the timing and severity of weather events can't always be anticipated, the overall long-term trends suggest a more active and complex loss environment where Crawford is uniquely positioned to serve. Finally, as the claims environment becomes more difficult to navigate, more carriers and self-insured clients are turning to third-party administrators as strategic partners. Or worldwide TPA footprint offers the reach, scale, and expertise needed to successfully support clients as they navigate the evolving claims landscape. Let me take a moment to discuss our second quarter 2026 results. We delivered a solid second quarter driven primarily by weather related claims volume in international and growth and broadspire. In fact, this quarter had the best overall operating earnings since the 2023 third quarter. Second quarter revenues were $321.4 million, which was down slightly year over year. Our consolidated operating earnings increased 34% over the prior year quarter, related to strong performance in Broad Spire and International, the latter of which was driven by heightened weather-related revenues in Australia and Asia. Our non-GAAP EPS was $0.38 for both CRDA and CRDB, up substantially from $0.22 for both share classes in the prior year quarter. Operating cash flow was 23.1 million year-to-date, improving over the 2025 period and providing us with continued financial resilience and flexibility. We added nearly $22 million in new and enhanced business during the second quarter. I'm encouraged by the number and size of opportunities we're seeing in the marketplace, and the team is focused on closing the deals currently in play. Our leverage ratio was 1.45 times EBITDA at the low end of our targeted range and well below industry levels, and our liquidity remains very strong. Our disciplined capital allocation approach reflects a commitment to steadily building long-term growth. We continue to strategically invest in the business while maintaining a strong balance sheet and continued liquidity strength. In addition to organic investments and opportunistic share repurchases, we actively evaluate inorganic growth opportunities, such as selective acquisitions or acqui-hires that can sharpen our capabilities and expand our competitive positioning in the marketplace. We are committed to paying a quarterly dividend, and given our consistent profitability and strong cash generation, the Board has approved an increase to the quarterly dividend to $0.08 per share. With that, I'll turn the call over to Holly for a deeper look at our second quarter financial and operational performance.

Thank you. In second quarter 2026, U.S. property and casualty, which consists of our U.S. loss adjusting and networks businesses, contributed 23% of revenue. 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 10.2% year-over-year related to softer performance in our network business. Operating earnings in the segment decreased by 300,000 or 4% year-over-year with operating margin up 70 basis points in part due to continued extensive management efforts to mitigate the impact of lower revenues. Although we're continuing to see claims frequency tracking below historical levels, we remain a premier destination for seasoned, high-caliber insurance adjusters dedicated to service excellence, ready and able to serve a wide variety of major and complex claims with speed, efficiency, and expertise. BroadSpire delivered quarterly revenues of $109.4 million, an increase of 1.2% from the prior year period, reflecting the addition of new disability clients as well as improved medical management revenues. Our retention rate during the quarter was 87.5% up sequentially from the first quarter. quarter. Operating earnings was 15.7 million in the quarter, increasing by 1.5 million or 10.8% year-over-year, with operating margins increasing by 130 basis points. We continue to see tailwinds in the alternative market space related to growth and outsource captives and MGMs. the SGA market. International operations second quarter 2026 revenues increased 4.2% to $138 million compared to the prior year. Excluding the impact from the exit of Crawford Legal Services and foreign currency exchange rate movements, revenues increased by 1.6%. Operating earnings increased by 3.5 million or 48.2% with operating margin increasing by 240 basis points. International second quarter operating performance was driven by heightened weather related claims, revenue from Australia and Asia, as well as improved performance in Canada as we continue to recognize efficiency from cost control initiatives. As we look at the ongoing impact of weather-related claims on our business, this slide encapsulates the U.S. severe storm activity, which declined 6.8% in the second quarter of 2026 compared to the prior year period. Nonetheless, our weather-related revenues remained relatively stable, declining by about a modest 1.4% in the second quarter. Furthermore, our non-weather business was consistent year over year, evidence of the diversification of our business and the resilience of our core operations. In the 2026 second quarter, company-wide revenues before reimbursements were $321.4 million, a slight decrease compared to the prior year period. exchange rates increased revenues before reimbursements by $7.7 million, or 2.5%. GAAP net income attributable to shareholders totaled $13.4 million, compared to net income of $7.8 million in the same period of 2025. GAAP diluted EPS in the 2026 second quarter was 27 cents and 28 cents for CRDA and CRDB, respectively, an increase from earnings of 16 cents for both share classes in the prior year period. On a non-GAAP basis, diluted EPS was 38 cents for both CRDA and CRDB, increasing from 22 cents for both share classes in the 2025 order. The company's non-GAAP operating earnings totaled $29.4 million in the 2026 second quarter, or 9.2% of revenues, compared to $22 million, or 6.8% of revenues, in the prior year period. Consolidated adjusted EBITDA was $37.6 million in the 2026 second quarter or 11.7% of revenues, increasing from $31.4 million or 9.7% of revenues in the 2025 quarter. The company's cash and cash equivalents as of June 30th, 2026 totaled $69.4 million compared to $64.1 million at December 31st, 2025. Total receivables were $259.8 million as of June 30th, 2026, up $17.2 million from 2020. year end. The company's total debt outstanding as of June 30, 2026, totaled $198.1 million, up $9 million from December 31, 2025. Net debt was approximately $129 million as of June 30, 2026, while our U.S. pension liability was $16.3 million, reflecting a funded ratio of 94.4%. made no discretionary contributions to our U.S. defined benefit pension plan during the second quarter of 2026. Cash flows provided by operating activities for the first six months of 2026 was 23.1 million, increasing from 21.1 million in the prior year period. Free cash flow was 7.9 million in the 2026 period, improving from 2.6 million in the first six months of 2020. Unallocated corporate costs were $4.3 million in the 2026 second quarter, compared to costs of $7 million in the 2025 period. The variance was primarily driven by the absence of a one-time $3.1 million indirect tax expense that occurred in the second quarter of 2025. caused by a change in international tax law. Non-service pension costs were 1.5 million in the 2026 second quarter, a decrease from 2.4 million in the same period of 2025. In the second quarter of 2026, we recognized a $2.3 million impairment charge related to the curing value of two software assets. Additionally, as mentioned in our fourth quarter 2025 call, we finalized the sale of our Crawford Legal Service operations the UK and Chile. Crawford recognized a net loss on the disposal of $1.3 million in the second quarter of 2026. During the second quarter of 2026, we paid a quarterly dividend of $0.057 a share. And as Bruce mentioned, the Board has approved an increase to the quarterly dividend to $0.08 per share, which will be payable in August. the company repurchased approximately 295,000 shares of CRDA and 38,000 shares of CRDB during the second quarter of 2026. Approximately 1.3 million shares remain eligible to be repurchased under our existing share repurchase program as of June 30, 2026.

I'll turn the call back over to Bruce. Thanks, Holly. The second quarter of 2026 marked a nice rebound from the slow start to the year as we achieved our highest quarterly operating earnings in nearly three years thanks to operational execution and weather related activity internationally, the latter of which was episodic in nature. We're making solid progress on continuing to strengthen sales effectiveness, accelerate our U.S. integration, and improve operating discipline to move our company forward. As we look towards the remainder of the year, organic revenue growth and profitable market share gains remain our top priorities. We remain focused on increasing client centricity and continued operational execution to drive long-term growth. We remain confident in the strength of our underlying operations and the depth and experience of our leadership team, and will continue working to deliver measurable long-term value to our clients, employees, and shareholders. Thank you for your time today and for your continued interest in Crawford. We look forward to keeping you apprised of our progress through the remainder of 2026. Carly, please open the call for questions.

At this time, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. To withdraw your question, press the pound key. If you are using a speakerphone, please pick up your handset before asking your question. We'll pause for just a moment to compile the Q&A roster. Your first question is from Mark Hughes with Truist. Yes, thank you. Good morning. Hey, good morning, Mark.

Bruce, you talked about, in the release at least, reduction in centralized indirect support expenses. Could you expand on that a little bit?.

What will that mean on a go-forward basis for the margin? Yes, we have seen some reduction in our SG&A cost and in our administrative expenses. this year. You know, always a focus of ours is on administrative cost efficiency and we're certainly, we're certainly, you know, keyed in on that this year as well. You know, the primary vehicle that we're looking for for earnings improvement, though, is on, you know, profitable revenue growth. And as we can hold our administrative expenses in check and even reduce them a bit, then that's going to deliver the incremental margins that we need to get us to our target operating margins that we've talked about.

Yes. What is the – on that topic, any carryover in the international, obviously, some beneficial weather trends from a claim standpoint? What's the duration? How much visibility do you have in the 3Q? Yes.

Yes, so, you know, we've benefited a bit this year from carryover of events. in Australia and Asia. We saw some benefit of that in the second quarter. Those projects are winding down and I think that you'll see much less of an impact as we go through the third quarter and especially the fourth quarter.

Same sort of question on the expense front. The US P&T margin was up. year despite a decline at the top line is that the some of the SG&A you're talking about, or is there another dynamic at play there?.

bit of that's SG&A some of its a mix in in business that we've that we've got We have reductions in some of our staff augmentation business that was in the catastrophe services business. As that's been internalized by the carriers, that was lower margin work, so, you know, That mix shift has helped us to increase our margins. There's also a cost focus within the business, not just within the US P&C business, but you see that in Broad Spire and our international operations as well.

Then in front of you talked about the outsourced MGA Could you talk about kind of the magnitude of that? and, you know, what sort of end markets those MGA's for instance are operating in?.

Yes, so we see that as a tremendous market opportunity for us, and there's a lot of capital moving into the alternative space, whether that's MGAs or MGUs. There's also a lot of captive formation that's happening, and when that occurs, those vehicles really aren't creating their own internal claims organization. like a carrier would. And so they look for partners and turnkey claim solutions, and we're seeing a lot of opportunity there. Our pipeline has a number of material opportunities. Some of the increases in new business that we put on in the second quarter was related to that. to that space and we see that as a fertile ground for us in the future for growth. The end markets we see a lot of it's casualty and complex casualty. We also see some property out there, but Overall, it's an area that we're investing resources in from a sales and marketing perspective to help unblock the gap.

unlock those opportunities for us. And then the corporate expense of $4.3 million, it was obviously down year over year, I think some non-recurring expense in the year-ago quarter. Is 4.3 million kind of a good starting point run rate for corporate?.

Yes, that is a good starting point run rate for it. We have that one time expense in prior year that's non-recurring.

Okay, very good. And then a final question, networks, business. you've had lower claims volume there. Is that the broader market or are there any customer moves within networks? And, What's the potential for a turnaround recovery in that operation?.

DAVID BURRAGE- It's a bit of a mix. So with property claim volumes in the US down you know, pretty significantly given the absence of major events, you know, kind of severe convective storm activity in the second quarter notwithstanding. But, you know, over the last couple of years, there's been an absence of major events. Property losses are down. And that drives networks revenues. Within networks, in the catastrophe business, we had some large staff augmentation programs, if you go back several years. And as property losses have come down, those carriers have internalized that volume. I think if we see heightened events in the future, that that's going to help unlock the potential but it's largely property. and weather is going to drive property losses there. Very good. Thank you.

Again, if you would like to ask a question, press star 1 on your telephone keypad. The next question is from Kevin Steinke with Barrington Research. Thank you. Good morning.