Crawford & Company - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered modest top-line growth with revenues before reimbursements up 2.8% year over year to $323.0M, while GAAP diluted EPS was $0.16 versus $0.17 in Q2 2024 and up from $0.13 in Q1 2025.
• Non-GAAP adjusted EPS was $0.22; adjusted operating earnings were $22.0M and adjusted EBITDA rose to $31.4M with an adjusted EBITDA margin of 9.7% and adjusted operating margin of 6.8% (slightly below prior-year), with management citing lower U.S. property claim frequency as a headwind.
• International Operations grew revenue 6.6% and expanded operating margin to 7.0%; Platform Solutions revenue fell 9.2% but operating margin improved sharply to 8.9% on mix-shift and cost reductions; Broadspire posted record revenue but lower margin due to higher administrative costs.
• Board raised the quarterly dividend to $0.075 per share, a potential support catalyst for the stock and a signal of confidence in margin trajectory and liquidity.

What Went Well and What Went Wrong

What Went Well

• International Operations: Revenue +6.6% YoY to $109.1M with operating margin expansion to 7.0%, driven by strength in the U.K., Europe, and Asia.
• Platform Solutions margin improvement: Despite a 9.2% revenue decline, operating margin expanded to 8.9% (from 3.8%) on reduced low-value inspection services and lower administrative costs, indicating better business mix and efficiency.
• Liquidity and capital return: Adjusted EBITDA increased YoY to $31.4M; operating cash flow improved materially YTD ($21.1M provided vs $8.3M used last year). Dividend increased to $0.075 per share.

What Went Wrong

• Headwinds in U.S. property claims: Management highlighted lower claims frequency pressuring revenue in North America Loss Adjusting and Platform Solutions; NALA operating margin fell to 5.9% (from 6.4%).
• Elevated corporate costs: Unallocated corporate costs rose to $7.0M, including a one-time $3.1M indirect tax expense and increased self-insurance reserves, weighing on consolidated margins.
• Broadspire margin compression: Record revenue ($100.6M) accompanied by operating margin decline to 13.6% (from 15.5%) owing to increased administrative/IT costs and strategic headcount additions.

Transcript

Speaker 4

Good morning. My name is Angeline, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Second Quarter 2025 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 5, 2025. Now, I would like to introduce Tami Stevenson, Crawford & Company's General Counsel. Please go ahead.

Speaker 5

Thank you, Angeline. Some of the matters to be discussed in this conference call and in the supplementary financial presentations may include forward-looking statements that involve risks and uncertainties. These statements may relate to, among other things, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses, expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectibility of our billed and unbilled accounts receivable, results from our recently completed acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, our long-term capital resource and liquidity requirements, and our ability to pay dividends in the future. The company's actual results achieved in future quarters could differ materially from the results that may be implied by such forward-looking statements.

The company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call to reflect events or circumstances occurring after the day of the call or to reflect the occurrence of unanticipated events. In addition, you are reminded that operating results for any historical period are not necessarily indicative of the results to be expected for any future period. For a complete discussion regarding factors which could affect the company's financial performance, please refer to the company's Form 10-Q for the quarter ended June 30, 2025, filed with the Securities and Exchange Commission, particularly the information under the headings Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operation, as well as subsequent company filings with the SEC. This presentation also includes certain non-GAAP financial measures as defined under the SEC rules.

As required, a reconciliation is provided for these matters to those most directly comparable GAAP measures. I would like now to introduce Mr. Rohit Verma, Chief Executive Officer of Crawford & Company. Rohit?

Speaker 3

Thank you, Tami. Good morning and welcome to our Second Quarter 2025 Earnings Call. Joining me today is Bruce Swain, our Chief Financial Officer, and Tami Stevenson, our General Counsel. After our prepared remarks, we will open the call for your questions. This quarter, we continue to make progress on our strategic objectives. Consolidated revenue grew year over year, with three of our four segments delivering top-line growth. While we're seeing the effects of lower property claims frequency in the U.S., which puts some pressure on revenues in our North America loss adjusting and platform solution segments, we saw encouraging results across the broader business. Notably, we achieved growth in our non-weather segments, highlighting the effectiveness of our diverse business model and disciplined execution in navigating various market options.

This morning, I'll review our segment operations for the second quarter before handing it over to Bruce for a deeper dive into our financial performance. As you've heard me say before, our scale, expertise, and longstanding legacy of service excellence are true differentiators in the marketplace. We operate in over 70 countries, with 10,000 employees and access to more than 50,000 field resources, and one of the only companies with the capability to respond to complex claims of any size, anywhere. Each year, we manage more than $20 billion in claims globally, reflecting our reliability in meeting the needs of the world's leading carriers, corporations, and public entities. Our global presence, deep technical expertise, and over eight decades of experience position us competitively as a critical partner to clients navigating increased complexity and risk across a wide range of geographies and market conditions.

We see several core components driving our growth. First, the global frequency of weather events continues to add volatility to claims staffing needs of carriers. That heightens demand for our proven capabilities in managing complex weather-related claims. At the same time, our diversified business model ensures that we're not solely dependent on weather. When one area experiences lower claims volume, like we've been seeing in U.S. property, that downturn can be offset by growth in non-weather-related areas of our businesses, like Broadspire and parts of international operations. We continue to gain market share where carriers are increasingly prioritizing reliability, scalability, and compliance, signaling a flight to quality service providers. As a trusted, well-established partner, we believe Crawford & Company is uniquely positioned to surpass those expectations.

We have formed many valuable strategic partnerships with clients across the globe and remain focused on deepening those relationships across multiple service lines and new geographies. Finally, our market leadership is reinforced by our deep bench of technical expertise and our investment in cutting-edge technology. These capabilities not only set us apart from competitors, but are also a key factor in winning new business and enhancing profitability. With these drivers in place, we are confident in our ability to generate sustainable long-term growth regardless of quarter-to-quarter weather fluctuations. In the second quarter, consolidated revenue grew 2.8%, with North America loss adjusting, international operations, and Broadspire each contributing to our top-line growth and Broadspire having another record revenue quarter. Consolidated operating earnings were largely consistent with last year's second quarter and improved sequentially compared to first quarter 2025.

Excluding the impact of a non-recurring international tax item, consolidated operating margin would have been 7.8%, representing an improvement over the second quarter of 2024. Bruce Swain will share more details on that shortly. North America loss adjusting saw a year-over-year decrease in operating earnings due to lower U.S. property claims activity, and Broadspire operating earnings decreased year over year due to strategic headcount additions and investment in technology. International operations and platform solutions posted improved operating earnings and margin expansion. We continue to see strong new business momentum, which is encouraging for future growth. Based on the company's solid performance and confidence in our continued growth, our board has approved an increase in the quarterly dividend to $0.075 per share for both CRDA and CRDB. Our balance sheet remains strong, with liquidity well maintained and a leverage ratio steady at 1.75x EBITDA.

In the second quarter, storm activity was relatively stable, year over year up just 1%. A 3.8% decline in weather-related revenue in the quarter was offset by revenue growth of 5.2% in our non-weather businesses, enabling us to achieve consolidated revenue growth in the quarter. We are seeing a lower frequency of claims filed for comparable events. We believe this is largely related to affordability dynamics playing in the residential property market in the U.S. Higher deductible and concern for increased insurance pricing has suppressed residential property claims filing. We view the lower U.S. property claims frequency as a temporary dynamic and not a structural shift. As reinsurance pricing stabilizes, we expect this trend to normalize over the next 12 to 18 months. In the meantime, the resilience of our non-weather segments and the strength of our balanced model continue to support steady, sustainable growth.

This top-line result demonstrates the effectiveness of our diversified business model, which enables us to respond and grow in an environment of changing weather patterns and market dynamics. Our capital allocation strategy is rooted in discipline and long-term value creation. We remain focused on deploying capital in ways that support sustainable growth, strengthen our competitive position, and return value to shareholders. We continue to invest in our core business with an emphasis on operational excellence initiatives, technology enhancements, and talent development, ensuring we are well positioned to serve clients and expand market share. We are also open to evaluating M&A opportunities that can expand our capabilities and our geographic reach. Our balance sheet reflects our progress in reducing leverage, and our liquidity position is strong, giving us the financial flexibility to respond to both opportunities and challenges as they arise.

We remain committed to returning capital to shareholders and are pleased to have had the opportunity to raise our dividend. With that, let me turn over the call to Bruce for a deeper look at our segment operational and financial performance.

Speaker 0

Thank you, Rohit. Crawford & Company operates through our four core segments that represent the global reach of our business. North America loss adjusting, which includes our loss adjusting operations in the U.S. and Canada, accounted for 24% of second quarter 2025 revenues. International operations, covering all service lines outside North America, contributed 34% of quarterly revenues. In Broadspire, our U.S.-based third-party administration business represented 31% of quarterly revenues. Platform solutions, which includes Contractor Connection, networks, and subrogation services, accounted for 11% of revenues. Our North America loss adjusting segment delivered 2.7% revenue growth in the second quarter, driven by continued strength in our global technical services business. Performance in U.S. field operations was impacted by reduced property claims activity, an industry-wide trend related to affordability pressures and lower claim frequency.

As a result, operating earnings in the segment declined 6% year over year, and operating margin decreased by 54 basis points. As Rohit mentioned, we don't anticipate this pattern to be a long-term trend, and we expect industry trends to stabilize over the next 12 to 18 months. Crawford & Company remains a destination for top-tier, specialized adjusting talent, and we continue to invest in building a best-in-class team to meet the evolving needs of our clients. International operations delivered another strong quarter, with revenues increasing 6.6% year over year, or 6.9% in constant currency. We saw particularly strong performance across the U.K., Europe, and Asia, where organic new business growth and weather-related claims activity supported the top line. Operating earnings grew 34%, with the operating margin expanding by 143 basis points, reflecting our focus on pricing, productivity, and disciplined execution.

While the second quarter was a strong result for this segment, we are mindful about potential margin fluctuation as we move through the balance of the year. That said, we're pleased by the momentum we're seeing and optimistic about driving continued success in our international business. Broadspire delivered record quarterly revenues of $100.6 million in the second quarter, reflecting year-over-year growth of 3.6%. We saw consistent growth across all service lines, driven by new client wins. We have a strong retention rate of 95.4%, which we view as a testament to the quality of our service and the trust we've built with our clients. In the second quarter, we continued to strategically add headcount to support new client onboarding, and this activity, as well as higher investments in technology, impacted operating earnings and margin.

We believe these investments strengthen our team and position us well to support growth in the second half of the year and beyond. Broadspire continues to build momentum and remains a key contributor to the strength of our non-weather dependent portfolio. Turning to platform solutions, revenues declined 9.2% year over year, primarily due to a significant pullback in claims outsourcing from one of our key networks clients. However, we achieved year-over-year revenue growth in both contractor connection, up 2%, and subrogation, or our practice business, which grew 2.8%. Platforms delivered operating earnings growth of 113% and expanded operating margin by over 500 basis points. This performance was driven by a higher margin business mix and meaningful improvements in operational efficiency, particularly within the networks business. Platform solutions continues to execute well and is an important component of our comprehensive portfolio of offerings. Now for a look at our consolidated financials.

In the 2025 second quarter, company-wide revenues before reimbursements were $323 million, an increase of 2.8% compared to the prior year period. Foreign exchange rates decreased revenues before reimbursements by approximately $500,000, or 0.2%. GAAP net income attributable to shareholders totaled $7.8 million compared to $8.6 million in the same period of 2024. GAAP diluted EPS in the 2025 second quarter was $0.16 for both CRDA and CRDB, a slight decrease from $0.17 for both share classes in the 2024 period. On a non-GAAP basis, diluted EPS was $0.22 for both CRDA and CRDB compared to $0.25 for both share classes in the prior year period. The company's non-GAAP operating earnings totaled $22 million in the 2025 second quarter, or 6.8% of revenues, compared to $22.1 million, or 7% of revenues in the prior year period.

Consolidated adjusted EBITDA was $31.4 million in the 2025 second quarter, compared to $30.6 million in the 2024 quarter. The EBITDA margin of 9.7% was consistent with last year's second quarter. The company's cash and cash equivalents as of June 30, 2025, totaled $58.5 million, compared to $55.4 million at December 31, 2024. Total receivables were $281.4 million as of June 30, 2025, up $8.3 million from the 2024 year-end. The company's total debt outstanding as of June 30, 2025, totaled $225.4 million, up from $218.1 million as of December 31, 2024. Net debt was $166.9 million as of June 30, 2025, while our U.S. pension liability was $20.5 million, reflecting a funded ratio of 93.5%. We made no discretionary contributions to our U.S. defined benefit pension plan during the second quarter of 2025, and we do not intend to make contributions through the remainder of the year.

Operating cash flow for the second quarter of 2025 was $21.1 million, with free cash flow of $2.6 million. This compares to a use of $8.3 million last year, with free cash flow of negative $26.7 million. The significant improvement in operating free cash flow in the 2025 second quarter was primarily due to improved earnings and improvement in working capital levels. Unallocated corporate costs were $7 million in the 2025 second quarter, compared to a cost of $5.1 million in the 2024 period. The increase was primarily due to a non-recurring indirect tax expense of $3.1 million related to an international tax law change and an increase in self-insurance expense, partially offset by a decrease in professional fees. During the 2025 second quarter, non-service pension costs were $2.4 million, consistent with the same period of 2024.

We recognized pre-tax contingent earnout cost of $80,000 in the 2025 second quarter, compared to a cost of $430,000 in the 2024 period. During the second quarter of 2025, the company did not repurchase any shares of CRDA or CRDB. As a reminder, approximately 1.1 million shares are eligible to be repurchased under our 2021 share repurchase authorization. With that, I'll turn the call back over to Rohit for concluding remarks.

Speaker 5

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

Speaker 4

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

Speaker 2

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

Speaker 5

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

Speaker 0

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

Speaker 2

Great, thank you. Do you have any observations you could share with us on how the weather has trended thus far into 3Q? Obviously, no big southeastern storms, but broadly speaking, what are you observing?

Speaker 5

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

Speaker 2

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

Speaker 5

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

Speaker 2

Great. Thank you very much.

Speaker 5

Thank you, Max.

Speaker 0

Angeline, do we have another question?

Speaker 4

Angeline?

Speaker 0

Have we lost the operator?

Speaker 4

I think we may have lost folks. Give us just one minute. Angeline?

Apologies. One moment.

We're waiting for the next person that is in queue for questions. Angeline?

Speaker 5

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

Speaker 4

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

Speaker 1

Hey, good morning.

Speaker 5

Hi, Kevin.

Speaker 1

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

Speaker 5

Sure. Kevin, as you're very familiar with, the insurance industry has overall been experiencing what would be termed as a hard market for property over the last, I would say, three to five years. The reinsurance rates are particularly hardened as a result of it. We have seen significant severity in the property space coming from wildfires as well as severe convective storms and, to some extent, hurricane activity. That created some pressure in terms of pricing, and many of the carriers responded with higher deductibles and higher pricing. You can actually see that now in the results that we're seeing from the carriers as far as their property loss ratios are concerned. The most recent reinsurance renewals that we've been watching seem to have softened quite a bit. We believe that will continue to soften unless we see some major storm activity.

As they continue to soften, we believe market dynamics will play out and pricing will start to ease up and deductibles will start to come down, which will then trigger back the sort of normalization of claims frequency. We believe that it could take anywhere from 12 to 18 months for this dynamic to play out. That's the reason why we're thinking that the claims frequency should return back to normalcy because market dynamics will eventually play out as reinsurance pricing heats up.

Speaker 1

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

Speaker 5

Yeah, I think, Kevin, margin from my perspective has been well within the tolerance range of 100 to 200 basis points going up or down. We believe that this is a very normal margin fluctuation for us in Broadspire as we go through the investment cycles. We have quite a lot of new business that we expect to start early part of next year and some at the later part of this year. We've been staffing for that. As you know, a key element of service in this business is making sure that we have solid staff that is trained and ready to go as new clients are onboarded. That's what leads to a higher level of NPS that we continue to see and a higher level of retention that we see in this business.

I expect that we would probably stay on that same investment journey, and it'll be more like next year when we start to see some of the results of this. As we continue to add new business, we will continue to add the staffing. I think that the margin fluctuation somewhere between, say, 13% to 16% is where we will fluctuate.

Speaker 1

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

Speaker 5

Absolutely. As you know, international has continuously been a turnaround story for us for the last three years or four years, I would say, as we've tried to change the mix of business and improve the margin as a result of that mix post-COVID. When we look at the international business and the growth that we've seen, which is about 7% in revenue, it's largely been coming from our operations in the U.K., as well as Europe. Both those regions, we believe we have significant headroom still to grow. We've also seen a return in our Asia business, a return to revenue growth in our Asia business. Largely, I believe that our largest, more near-term opportunities lie in Europe as well as the U.K., and we'll continue to see that.

Speaker 1

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

Speaker 5

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

Speaker 1

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

Speaker 5

Yeah, I'll probably start and then let Bruce comment on that. Look, our first priority for capital allocation, as you know, has always been to invest in our margin for the long-term growth and profitability and the health of the business. That'll always be the first priority. You'll see that in the form of CapEx. You'll see that in the form of any acquisitions that we make. That'll always remain the first priority. When we looked at our cash flow, the health of our business, the quality of earnings, the growth prospects in the business, and our leverage position, we felt very comfortable that putting a $0.005 increase was well within our comfort zone to do, and that's the reason why we did that.

We have been signaling this to you and others that we have a real desire to continue to have not just revenue and earnings growth, but then implied dividend growth from that. As far as share repurchase is concerned, as you know, we are buyers of shares when it's below our intrinsic value. We still have 1.1 million shares left to our authorization. So far, our approach has been to be opportunistic to buy large blocks of business that come in the market. We haven't seen any of that come in, and as a result of that, you didn't see us buy any shares this quarter. I don't know, Bruce, if there's anything else you want to add to that.

Speaker 0

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

Speaker 5

We have been doing much more acquihires, which is, you know, sort of acquisition of teams as opposed to acquisition of companies or legal entities.

Speaker 0

Yeah, that's where a lot of the GTS growth has come from.

Speaker 5

Yeah.

Speaker 1

Okay, great. Thanks again for all the insights.

Speaker 0

Okay, thank you, Kevin.

Speaker 5

Thank you, Kevin. Always a pleasure.

Speaker 4

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

Speaker 5

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

Speaker 4

Thank you for the participation 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 August 12, 2025. The conference ID number for the replay is 35518 POUND, and the number to dial for the replay is 1-888-660-6264. Thank you, and you may now disconnect. Have a great day.