Good morning. My name is Colin, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the Crawford & Company Third Quarter 2022 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 call is being recorded today, Wednesday, November 9, 2022. I would now like to introduce Tami Stevenson, Crawford & Company's General Counsel. Please go ahead.

Thank you, Colin. Some of the matters we discuss in this conference call and the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties. These statements may relate to, among other things, the impact of COVID-19, 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 billed and unbilled accounts receivable, financial results from our recently completed acquisitions, our continued compliance with 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 have been implied in 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 September 30, 2022, 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. Rohit Verma, Chief Executive Officer of Crawford & Company. Rohit, you may begin the conference.

Thank you, Tami. Good morning, and welcome to our third quarter 2022 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer; Joseph Blanco, our President; and Tami Stevenson, our General Counsel. After our prepared remarks, we will open the call for your questions. Before we begin, I want to extend our thoughts to all those who have been impacted by Hurricane Ian, particularly those in Florida who are still struggling as a result of this terrible devastation and actually facing a new risk from Hurricane Nicole. As our response continues, we are tremendously proud of the entire Crawford team, especially our adjusters on the ground who are working tirelessly to help restore communities and businesses that have been impacted by this terrible devastation. Our third quarter results reflect continuing top line momentum driven by the strategic investments we have made across the business. Revenues increased 2%, or 6% on a constant currency basis, compared to a strong prior year period, which included pronounced weather events in the U.S. Looking at our North America business, our efforts to increase penetration with the top 5 carrier clients continues to bear fruit. This ongoing success is a testament to Crawford's technology and people-focused strategy as our clients increasingly depend on Crawford's deep bench of experts and commitment to quality when assessing their outsourcing needs. This has resulted in strengthened relationships and higher claims allocations for us. Platform Solutions experienced strong results, delivering yet another quarter of double-digit revenue growth. This was driven primarily by strength from our Networks business and contributions from our Praxis acquisition. Within North America loss adjusting, we are gaining traction in the marketplace as we bring more experts on board as well as expand our geographic footprint within our volume business across U.S. This differentiated offering…

Thanks, Rohit. Beginning with North America loss adjusting, revenue growth in the third quarter was primarily driven by continued market recovery in Canada, the inclusion of edjuster, as well as increased activity related to Hurricane Fiona that impacted Eastern Canada in September. In the United States, benign weather for most of the quarter resulted in lower claims volumes compared to a strong third quarter in 2021, which included impacts from Hurricane Ida. We continue to make targeted investments in expertise and have added over 80 specialist loss adjusters so far in 2022. We are well ahead of our previously outlined 3-year goal of adding 200 specialist loss adjusters. While this investment has created short-term margin pressures, the results are encouraging. Our new hires enable us to provide improved service to our customers and round out expertise gaps, earning a greater number of loss allocations even when weather activity is low. As clients continue to increase in complexity, Crawford is in a position of strength resulting from our people-focused strategy and the investments we've made to build our bench of experts. For example, we recently utilized a former NASA engineer to review a complex satellite claim. This highlights the expanding breadth of our expertise and exemplifies how Crawford is increasingly becoming the premier long-term destination for talent. We are growing at a steady pace ahead of the industry, resulting in increased market share, which we attribute largely to the hiring and onboarding of these experts. In our international operations, we saw further recovery in our businesses in Latin America, along with weather-driven revenue growth in Australia and Asia throughout the quarter. This partially offset ongoing weakness related to certain business lines in the U.K. and Europe. In Australia, unprecedented flooding in Queensland and New South Wales continued to drive increased claims…

Thank you, Joseph. Company-wide revenues before reimbursements in the 2022 third quarter were $294.9 million, 2% over the $288.5 million in the prior year's third quarter and our highest revenue since the 2017 fourth quarter. Presented on a constant dollar basis to the prior year, revenues before reimbursements totaled $306 million. GAAP diluted EPS in the 2022 third quarter was a loss of $0.31 per share for both CRD-A and CRD-B compared to earnings of $0.20 for CRD-A and $0.21 for CRD-B in the 2021 period. On a non-GAAP basis, third quarter 2022 diluted EPS was $0.16 for both CRD-A and CRD-B compared with $0.24 for CRD-A and $0.25 for CRD-B in the 2021 period. The company's non-GAAP operating earnings totaled $14.2 million in the 2022 third quarter, or 4.8% of revenues, decreasing from $20.8 million or 7.2% of revenues in the prior year period. Consolidated adjusted EBITDA was $21.9 million in the 2022 third quarter or 7.4% of revenues compared to $29.5 million or 10.2% of revenues in the 2021 quarter. I will now review the third quarter performance of each of our segments. North America loss adjusting revenues totaled $66.8 million, including $1.9 million from the edjuster acquisition, increasing 3.9% from $64.3 million reported in last year's quarter. Foreign exchange rate impacts reduced revenues by $900,000. The segment reported operating earnings of $3.7 million in the 2022 third quarter were 5.5% of revenues, decreasing from $4.4 million or 6.8% of revenues in the prior year quarter. Margins were pressured due to the ongoing investments in talent recruitment, benign weather activity, and the absence of CEWS benefits in 2022. International operations revenues totaled $86.1 million in the 2022 third quarter, including $1.4 million from the BosBoon and Van Dijk acquisitions, decreasing 6.3% from $91.9 million reported in last year's…

Thank you, Bruce. As we enter fourth quarter, we continue to face an uncertain macroeconomic environment and inflationary pressures. Nonetheless, we remain highly focused on accelerating our market-leading position within the industry through innovation and best-in-class solutions while continuing our pursuit of our purpose. Crawford's continued emphasis on our people, purpose, and strategy, as well as our commitment to service excellence for our clients, continue to be at the forefront of our priorities as we close out 2022. Overall, we remain confident in our ability to capitalize on the many opportunities ahead of us as well as deliver superior results for our shareholders over the long term. Thank you for your time today. Colin, please open the call for questions.

[Operator Instructions] Your first question comes from Mark Hughes from Truist.

Is there -- with interest rates being up and your funded ratio being up as well, are you able to do some sort of more comprehensive solution on the pension? Can you do a pension risk transfer? Or are there some limitations?

Mark, this is Bruce. That's actually something that we're evaluating as a company. We have, over the past several years, been doing kind of small annuity buyouts under the plan, and in fact, have just done one for this year as well. We're kind of systematically taking the tail risk down from the plan. But certainly, with the funding level where it is, I think that we'll have some opportunities in the future to evaluate a more permanent solution to the U.S. defined benefit plan.

Do you think Contractor Connection, does it normally see an uptick in activity related to storms? Or is that not part of their focus?

Hi, Mark, this is Rohit. Contractor Connection usually benefits more from what we call the severe convective storms than they do from just purely hurricane. And the reason is that when you're having severe convective storms, you're typically getting property damage which is above the deductible and is directed by the insurer for repair. What we saw, as an example with Ian so far, is that a lot of damage is below the deductible. That is the reason why we haven't seen as much Contractor Connection activity this year because the overall frequency because of weather has been lower other than the impact of Hurricane Ian in the last month, 1.5 months or so.

Yes. In Broadspire, you mentioned you're returning to pre-pandemic levels. How much further do you think you have to go to get back to those kinds of levels?

I think if you look at purely on our claims volume and the revenue that we generate from the claims side, we're actually not just there, but slightly ahead of where we were pre-pandemic. Mainly because of what we've done with new client wins as well as volume growing. Our challenge continues to be on the medical management side, which had dropped during the time of COVID and has still not recovered. It remains a conundrum for us that what you should see sort of in a correlated manner with medical management to the claims volume that you have, we're not seeing that come back. Now there are various hypothesis that exists. One hypothesis that you still have individuals not going in for elective procedures because of fear of COVID. You still have the hospitals being constrained from a staffing perspective, which is impacting elective procedures. But we do think that there isn't a structural change in the marketplace where this business has gone away. We still believe that it's a timing issue and this part of the business should continue to come back over the coming months and quarters.

You mentioned the U.K. being a little bit more of a challenge. What do you think the timing is on that? And how much of the loss in the quarter is related to the U.K. operation?

In U.K., we have a couple of things going on. We've had 1 or 2 problematic contracts that we've been working through. We believe that we have successfully worked those contracts through, so the bulk of that should be addressed. However, we do have a little bit of a tail risk that flows with it because we still have claims that we had taken in as part of those original contracts that we still have to work through. But we're not taking any more new claims as part of those contracts. We believe that we should see a continuously improving position in U.K. as we head into the new year.

And then you mentioned the increased penetration with the top 5 carrier relationship. Could you expand on that a little bit? Is that just more geography? What's driving that?

Yes, it's more wallet share. As we continue to perform for these top 5 carriers, and we continue to deepen our relationships with these top 5 carriers, it gives us the ability to not just increase volumes in businesses that we have right now, but also demonstrate our capability across other businesses where we could be helping these carriers out, and that's what we're seeing. Something which started off as an engagement purely in loss adjusting maybe expanding to include Contractor Connection, maybe expanding to include contents, maybe expanding to include subrogation. We're just seeing an expansion of our relationship across these customers, and that's what we're attributing the growth with this customer base to be.

Your next question comes from Kevin Steinke from Barrington Research.

I wanted to start out by asking about the 4 profitability improvement initiatives that you discussed on the second quarter call. Just maybe if you could update us on progress with each of those initiatives?

Sure, Kevin, this is Rohit. Kevin, the 4 things that we had talked about, let me just go back and reframe. We had said that there are really 3 key sort of issues that are driving. One is that we're making deliberate investments in certain places where the margin is lower because we're making deliberate investments. Examples of those would be our North America loss adjusting business where we are making investments both to bring on new experts as well as geographically expand our footprint within U.S. We then have businesses where we have -- we believe that there is a temporary pullback on profitability, mainly because of what's happening with weather. And those, examples of those would be things like Contractor Connection. And then we have businesses where we need to do some active work, particularly in International, to improve margins and get them back to where what we would call them as our target margins. From that standpoint, we've had issues with some problematic contracts. We've addressed that already, as I mentioned earlier to Mark. We wanted to make sure that our pricing was in line with the quality and the type of service that we're providing. We're actively addressing that, so that's a work in progress. We had also said that we were going to change our staffing levels to more clearly reflect the market dynamics that we see. We have done a number of those changes. As you can imagine, given the labor laws that we operate under, particularly in the international market, sometimes those can take longer than what you and I would like them to take. We believe that we are well on that journey. Places where we've already made impact are places like Latin America, where we made the changes that we wanted to make, and we're seeing signs of recovery from a profitability standpoint already. Australia has always been in a strong position for us and continues to remain extremely strong. I really -- Asia is something that still requires more work from a profitability standpoint, but it's performing better than what we had originally expected it to perform. It's really the timing has mainly been on the U.K. and European businesses.

Okay. Great. That's a helpful overview. And when we kind of think about the timing of when we should start to see some of the benefits of those various initiatives flowing through more materially, do you think -- I guess what's your perspective on timing there, I guess? I'll just leave it open-ended.

Yes. No, I absolutely understand the question. I would say that we should be able to signal you at the end of Q1 where things are heading and then a more material impact going through the income statement you should see in Q2. That's our target.

Okay. Great. You didn't -- you mentioned the potential for a recession or the more uncertain economic environment currently. Are you seeing anything in any of your businesses that would indicate that they're being impacted by an economic slowdown? Or what's your overall view of the economy and potential impact going forward?

Yes. Kevin, if you look at our historical performance, we typically -- if you think about our business and break it down into property side of the business and casualty side of the business, the property side of the business typically does not get impacted by a recession. As you can imagine, hail falling or wind blowing or rain coming down doesn't really look at what the economic environment is. I think we expect that that part of our business should continue to perform just the way overall property market and the weather performs. I think 50% of our business is, I would say, is casualty based, which does have a strong tie to economic activity. So far, we have not seen any indicator in any of our markets related to a slowdown in economic activity. If anything, we continue to see higher levels of economic activity. As a result of that, we're seeing increase in claims volumes as we discussed in Broadspire, which is the strongest indicator of economic activity for us in our portfolio. We don't see any of that yet, but there is clearly a lot of discussion, a lot of talk about it. I'm sure if you saw the Wall Street Journal today, there were some large tech companies that were starting to do some retrenchment, so we're watching it carefully. We want to make sure that our balance sheet is strong, our financial health is strong, our liquidity is strong as we enter into 2023. And that's the reason you heard what the work that Bruce and team have been doing in sort of strengthening that balance sheet.

Okay. Yes, that's helpful. I just wanted to circle back on one of the initiatives you mentioned there and have discussed is just pricing and wondering how you're feeling about traction and your ability to gain some pricing as you are kind of working on that initiative?

Yes. We believe that we enjoy a very strong relationship with our partners, whether on the carrier side, on the corporate side, or other sort of risk-bearing entity side. And as a result of that, we believe that when we have true transparent relationship health conversations, pockets where we do believe that we have pricing issues, we can have that conversation pretty robustly. We believe that pockets of our business or specific client situations where we've got issues in the price adequacy of our business, we're addressing those, and we're getting good support and traction from our clients. I have yet to hear or see that we've lost a client because of pricing where we needed price. We feel good about that and feel that that traction should continue.

Okay. Great. I wanted to ask also about your efforts to add specialist adjusters. And certainly, you mentioned that you're actually ahead of schedule on your goal of adding 200, or you're ahead of pace, I guess. Is that -- can you, first of all, speak to what you think is driving your success in being able to add those specialists? And if you had the opportunity to, would you look to add more than that 200 goal? Or is that kind of a number that you think gives you the right amount of capacity for your business overall?

Yes, Kevin, if you look at our strategic pillars, one of our strategic pillars is to have expertise that is deep and eminent. We believe that we are in the business of expertise, so having the right expert base on our bench actively serving our clients is extremely important to us. I don't think that -- 200 was a good target for us, but I don't have a problem if we exceed that target because as long as we have the right client base and we can keep our staff utilized and productive, there's no reason why we shouldn't have that. Our people are our largest assets and having the expertise just adds to that asset base that we have. In terms of why we have been successful in doing that, I would say 3 primary reasons. One is focus to make sure that we're focused on adding expertise. Second is having the relationships that we have with clients that allows us to demonstrate and execute on that expertise, which enables experts to come join us and frankly, deepen their own expertise, increase their own eminence and continue that development. And third, I'd say the unique culture that we're building in the industry, which enables individuals to come in and really shine. We've always said that we were building a culture of growth, of a growth mindset and empowerment. And as experts join in and become part of the team, they feel that they can be at their best being part of our team. Those are the 3 big reasons I believe that we're seeing the traction that we have.

Okay. Great. Just more of a financial housekeeping question here. But what should we expect for tax rate in the fourth quarter roughly? You talked about some of the puts and takes related to the goodwill impairment, Bruce. I don't know if it's possible to provide any visibility there or not?

Yes. Our tax rate is going to be a little funny looking, given how the goodwill impairment is treated. It's not just treated as a discrete item that just sits in the third quarter. The tax impact is spread over too, so we're going to expect about $12.5 million of tax expense to come in the fourth quarter related to that impairment. And that's why we mentioned the overall full year benefit is $3.4 million on the impairment. Normally, but for the goodwill impairment, if you strip all of that noise out, we were kind of expecting our rate to be in the 31% to 32% range, which I think is a rate that's kind of safe to assume for normal course of business.

Okay. Great. And then lastly, in terms of the $25 million of new and enhanced business that you mentioned, it's another solid number. Should we think of that as mostly falling in Broadspire? I guess that's how you can measure it most easily, or is it a little bit more broad-based?

Kevin, this is Rohit. I would say it's more broad-based. We have actually had a good traction for new business throughout this year, and we expect that traction to continue. It's a much more broad-based number than just Broadspire. Obviously, you're absolutely right, Broadspire business is a lot more quantifiable, but we have our ways in which we estimate the contribution from other lines of business as well, so this is a broad-based number.

Okay. Great. Thank you for taking the questions.

[Operator Instructions] Okay, there are no further questions at this time. I'll turn it back for closing remarks.

Thank you so much, Colin. Thank you, everybody. I want to thank all of our employees, all of our clients, everybody who is working in Florida right now supporting the policyholders who have been impacted. Our third quarter results reinforce our confidence in the future of the company, and we look forward to closing out 2022 on a positive and impactful note. As always, we wish you all well. Thank you and God bless.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.