Good morning. My name is Angela, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Fourth Quarter 2017 Earnings Release Conference Call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawfordandcompany.com under the Investor Relations section. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions will follow at that time. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, March 8, 2018. Now I would like to introduce Joseph Blanco, Crawford & Company’s General Counsel.

Good morning. 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 and 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; expectations regarding the timing, cost and synergies from our global business and technology service centers; our other 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 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 the factors which could affect the Company’s financial performance, please refer to the Company’s Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission, particularly the information under the headings Business, Risk Factors, Legal Proceedings and Management’s Discussion and Analysis of Financial Conditions 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. Harsha Agadi, President and Chief Executive Officer of Crawford & Company. Harsha, you may begin your conference.

Good morning, and welcome to our fourth quarter and full year 2017 earnings call. Joining me today are Bruce Swain, our Chief Financial Officer; and Joseph Blanco, our General Counsel. After our prepared remarks, we will open the call for your questions. 2017 ended solidly. To start, I’d like to frame our recent results in the context of our broader strategy. As you know, over the past 2.5 years, we have been focused on reorganizing Crawford, working to simplify the company and driving a cultural change, all while reducing our expense structure with the goal of delivering financial stability. Our results for the fourth quarter and full year 2017 clearly demonstrate the success we have achieved in streamlining our organization and restoring profitability of the business as our U.S. Services, International and Broadspire segments, all delivered operating margins in excess of 10% for the full year. In addition, we have grown non-GAAP CRD-B diluted earnings per share at a 39% compounded annual rate over the last two years. Crawford is now positioned for a return to revenue growth, which is our number one priority looking forward. Turning to our fourth quarter results in more detail. We delivered fourth quarter operating earnings growth of 19% by strength in our U.S. Services segment, which continued to benefit from the third quarter’s CAT activity, our International segment which experienced strong operating margin expansion, and Broadspire which continued to deliver consistent revenue and earnings growth. On a non-GAAP basis, our diluted earnings per share for our B shares surged by 87% in the fourth quarter of 2017. In addition to our strong results, we have also invested heavily in our business to support our clients through the third and fourth quarters as they manage through an unprecedented level of CAT activity. We believe this…

Thank you, Harsha. Company-wide revenues before reimbursements in the 2017 fourth quarter were $298.8 million, up 10% compared with $272.4 million in the prior year’s fourth quarter. Before reimbursements, cost of services provided totaled $213.3 million or 71.4% of revenues in the 2017 fourth quarter, compared to $193.1 million or 70.9% of revenues in the prior year period. The company’s selling, general and administrative expenses, totaled $64.7 million, up from $61.7 million in the prior year quarter. As a percentage of revenues, these costs decreased to 21.6% of revenues in the 2017 fourth quarter from 22.6% of revenues in the prior year quarter. During the 2017 fourth quarter, the company recorded a non-cash goodwill impairment charge of $19.6 million or $0.22 per share after tax related to its GCG segment. This charge had no effect on the company’s credit agreement, liquidity or operating results. Also, during the 2017 fourth quarter, the company recorded restructuring and special charges of $3.3 million or $0.04 per diluted CRD-B share after tax, compared to $2.1 million or $0.02 per share in the 2016 quarter. These charges were associated with cost-reduction activities in our various operations and lease termination costs. Lastly, during the 2017 fourth quarter, the company recorded the initial estimated impact associated with the enactment of U.S. tax reform of $3.8 million or $0.07 per share, primarily related to the preliminary calculation of the transition tax and remeasurement of deferred tax balances. The company does not anticipate any cash taxes to be paid associated with the transition tax. The estimated 2017 impact of U.S. tax reform enactment is subject to adjustment throughout 2018 as the company completes its calculations and files its 2017 tax returns. Our net income attributable to shareholders of Crawford & Company totaled a loss of $2 million in the…

Thank you, Bruce. This is an exciting time in Crawford’s more than 75 year history, as we have clearly accomplished six key goals. First, we reorganized Crawford into global service lines, which will position our solution-based sales teams to take market share and deliver revenue growth. Second, we successfully reduced our cost structure and streamlined our company. Third, we refreshed our core mission and values, which drives everything that we do as a company. Fourth, we recruited experienced senior leadership. Fifth, we launched new products and services, which will position Crawford as an innovator as technology continues to disrupt the industry. And finally, we position the company to achieve our longer-term target of 5% revenue growth and 15% earnings growth annually. Anything less from my team and I would not be expectable. Thank you again for your time today. Operator, please open the call for questions.

[Operator Instructions] And your first question – caller, please go ahead. Katelyn Young, please go ahead with your questions. Jack Wang, your line is open.

Hi, good morning. My first question is, do you guys have any – could you guys provide any updates to the gross outlook for Contractor Connections, please?

Sure. Contractor Connection’s growth outlook is robust. As you already may know, we are scaled up quite a bit in the U.S. We’re scaling in Canada as well as the U.K. and Australia. And I’m pleased to tell you that we’ve successfully launched Contractor Connection operations in Germany. And so having said that, Contractor Connection continues to have robust growth and a potential going forward that’s very promising.

Okay, thank you. And also, I’d like to ask what new specific steps are you – being taking to turn around GCG? Also, you said in the past that return to profitability should take several quarters to achieve, any changes to that outlook? And I’m assuming, maybe optimistically, by the end of this year, going in the next year?

Sure. So first of all I think my statement of – it’ll take several quarters is true, and we’re working through it. You have to remember, when we had a large case like Deepwater Horizon, and as that started to scale down, we had to get the infrastructure aligned to the current run rate post the large plays – the large case. So we’re going through that. In addition to that, we also have a higher close rate now than we had even in the past, where we’re winning a larger number of cases. The issue is the cases we’re winning are generally smaller in size, and we’re working on, if you will, obtaining larger cases. The market does have the larger cases – available has gone down a little bit. In addition to all this, I would also say that we’re rolling out a new system that will replace our legacy systems, and therefore, should lower the cost for us and our clients, that will make a difference. And also, we are getting into new areas of offering solutions and services. Case in point is we’re offering crisis management [indiscernible] in the data breach area or in the product recall area, both of those simultaneously. And finally, a very important point to note. Two years ago, we went through a management change at the top, and we are successfully retaining all of our market clients, and in fact, our backlog looks robust and promising going forward.

Understood, thank you. And then finally – and finally, are you seeing any changes to the rate of adoption for WeGoLook?

We are increasing the rate of adoption. Our Crawford Claims Solutions, particularly, in the U.S., followed by Canada, is now partnering with WeGoLook on multiple fronts, as we’re providing solutions to the carriers. WeGoLook steps right in behind the first notice of loss, and actually it speeds up the claim, reduces – as I have mentioned in my prepared remarks, our process called TruLook is reducing the cost of the claim for the carrier and increasing, if you will, the promptness and the quality of the claims’ resolution, which is central to our DNA. That was originally said, interestingly, by our Founder, Jim Crawford, and we’re following it to date, 76 years later.

Got it. Thank you very much. That’s all I have.

Thank you.

Thanks, Jack.

And your next question is from Katelyn Young with William Blair.

Hi, good morning, everybody.

Good morning.

Hey Katelyn.

Hi, sorry about that. Thanks for the questions. First one, looking back on 2017, obviously, a large weather year. How much of 2017 EPS would you say is weather-related? And how do you think about baking weather into – between 2018 guidance?

Yes, so first of all, I would say, when you use the word weather-related, you’re probably meeting the CAT events.

Yes.

And I would say, the CAT events last year, and that is primarily in the fourth quarter, did give us a few cents of EPS, but that’s not the real issue. What it really tested us is how adept we are at handling large CAT events. We were able to mobilize a global adjuster workforce to deploy against Harvey, Maria, Irma, and most recently, Riley, and actually, Quinn, which is right now, going on somewhere in New England, as we speak. So having said that, it did give us some earnings lift. But I think I wouldn’t be too focused on that as much as we we’re able to prove, not only to existing clients, but new clients who came on with a large amount of activity that we were able to deliver on target and we do believe that this CAT business has a lot of potential for Crawford & Company to continue to grow forward.

Great, thank you. And then around the Garden City Group. Understand that group has been pressured, margins are taking, at least, a couple of quarters to turn around. I guess, what has changed in your outlook of this segment, say, versus a year ago that prompted the goodwill write-down? And, I guess, what’s different in terms of thinking about the next couple of years for that segment?

Sure. I think the only change that I see in the market is, there are fewer larger cases available as much as, say, five years ago. They are a flow of smaller cases. Having said that, I think the market is still robust, and we’re having a very good close rate. But I think we need to use more and more one technology to scale the solution, and also gives us more variability in our cost structure. So as large cases come and go, we’re able to bring our cost structure up and down, so therefore, handling, if you will, the size of case appropriately. We do believe, long-term, that GCG should be 10-plus percent margin moving forward, once all of the noise settles.

Got it, thank you. And last question just on the tax rate for 2018, this 31.7%. I guess you would’ve expected it to be a little lower, what are kind of the high-level determinants that got you guys that number?

Right, so this is Bruce. The U.S. federal rate went down to a 21% from 35%, but that’s just the U.S. rate. So about half of our income comes out of the U.S. So we certainly see a benefit there. From the – to that 21% rate, you have to then add in the states. And so the state rate is going to be around 6%. And then, you have to consider the foreign aspects. A key change this year compared to prior years is, it used to be the U.S. with the high – one of the highest tax jurisdictions in the world, now it’s one of the lowest. So when we look at the composition of our international income, a lot of those countries have rates that are higher than the U.S. So that adds to our effective tax rate. If we look at 2017 and back out the one-time benefit we got from some international tax planning and the impact of tax reform and the goodwill impairment, our effective tax rate was about 37% or so. So we’re going to see close to a 6% drop on an apples-to-apples basis in our ETR in 2018.

Got it. That’s helpful. Thank you very much.

Thank you.

[Operator Instructions] Your next question is from the line of Mark Hughes with SunTrust.

Yes, thanks. Good morning.

Good morning, Mark.

What the – I don’t know whether I had – I jumped on late. But the – Bruce, did you give any thoughts on expected cash flow this year? It’s been kind of a little more volatile the last couple of years. What do you think about – thinking about 2018?

Yes, we’re not, specifically, giving guidance on operating cash flow, but what I would tell you is that directionally, we expect to see a significant improvement over where we ended 2017. At the end of 2017, we had a fair amount of receivables hung up on the balance sheet related to our catastrophe work. And so that should all come in and get collected this year. And we think that, that’s going to provide a little bit of the tailwind to us from an operating cash flow perspective. But directionally, we expect some significant improvement in 2018 over our 2017 levels.

Mark, one other piece is, we as a executive team is very focused on free cash flow generation. So we should have 2018 – should be definitely a better year as we move forward, only because we do believe free cash flow will be the long-term indicator of health for any company, so we’re very focused on that.

Bruce, I’m not sure if you were able to respond to the point about the – when we think about weather contribution this year above the normal kind of trend in terms of the catastrophes. We’re just thinking this is, obviously, unusually, a large year in terms of CAT losses. Is there any way to quantify that? How many sense of earnings or proportion of your net income that might’ve been kind of above trend?

Yes, I think that if you look at hurricanes Harvey, Irma and Maria, and the contribution we got there is probably about $0.04 or $0.05.

Okay. And then on the Broadspire. Yes, you’ve been working to try to rollout [indiscernible] more of a disability offering as a compliment to your workers comp. Any commentary on the progress there? I’m not sure whether you touched earlier on kind of your overall backlog and thoughts about growth within Broadspire, but I’m curious as to the broader question, and specifically, about your progress on disability?

Sure, I think, Mark, this is Harsha. We’re continuing to ramp up disability. There’s no question. And we are also targeting, if you will, certain sectors, quite focused and heavily to go after disability. So our narrowing of the focus will actually help us and to start driving more market share there. Having said that, the other lines of business, whether workers comp or medical management within Broadspire, also continue to grow robust.

Just a question about the economics of the catastrophe claims. $0.04 to $0.05 is a good contribution, but it’s not overwhelming. Have the economics changed there? Is there more of the upside being captured by adjusters? Is there, perhaps, more competition on these large catastrophes?

Yes, let me respond to that. I think the $0.04 or $0.05 is not stellar necessarily but it was reasonably good. But I would say that we did err purposefully, on the side of delivering, not just meeting expectations, but exceeding expectations to our clients, because it was a multi-CAT event situation. Now in addition to that, we did not hesitate to bring in our adjusters from overseas. There is a real pressure, more than competition, it’s a demand/supply shift between adjusters and independent claims providers. So we had to take on a little more cost than we typically would. But having said that, I think it was worthwhile because we have established ourselves as a serious player in the CAT business. We also understood some of our own weaknesses through that process, and therefore, have strengthened it. Mark, an interesting point to note, even though there were four or five large CAT events, there are literally hundreds of very small CATs, all over. And we have now have a system that we can capture, a lot of that activity and actually generate a decent margin.

Thank you very much.

Thank you, Mark.

And we have no further questions.

Yes, thank you very much for the time today, and I appreciate everybody listening in. One last thing. Thank you to all of the Crawford employees globally for a very good 2017, and looking onward and upward to 2018. Goodbye.