Good morning. My name is Megan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Fourth Quarter 2019 Earnings Release Conference Call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawco.com under the Investor Relations section. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, March 6, 2020. Some of the matters to be discussed in this conference call and in the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties. These statements may relate to, among other things, our expected future operating results and financial condition, our ability to grow our revenues and reduce our operating expenses, expectations regarding our anticipated contributions to our underfunded defined benefit pension plans, collectability of our billed and unbilled amounts, unreceived financial results from our recently compiled acquisitions, our continued compliance with the financial and other covenants contained in our financing agreements, our long-term capital resource and liquidity responsibilities 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 appearance 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-K for the year ended December 31, 2019, 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. 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 2019 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer. After our prepared remarks, we will open the call for your questions. Let me begin by providing a quick overview of our results for 2019. For the year, we reported GAAP revenues before reimbursements of $1 billion and net income to shareholders of $12.5 million. On a non-GAAP basis, we reported revenues before reimbursements of $1.03 billion, net income attributable to shareholders of $37 million, operating earnings of $79 million and adjusted EBITDA of $113 million. Adjusting for the significant reduction in weather-related surge revenues in 2019, which I will discuss in a moment, our underlying revenues grew by 1.3% in 2019. Over the course of 2019, we accomplished many key business objectives while making progress towards achieving Crawford's long-term strategic goals. First and foremost, we added over 600 new client programs this past year, which underscores the strength of our expanded offerings. This momentum is supporting a strong sales culture for our team, and we are aligned and motivated to accelerate our new business initiatives. Also, we further improved our cash flow in 2019 with our free cash flow growing more than $31 million year-over-year. In 2020, we intend to maintain our focus of increasing our cash flow generation and further enhancing our financial strength and flexibility. Despite disappointing top line performance driven by lower weather-related claims volumes and delays in the onboarding of new clients, we believe that we will remain well positioned to execute on our strategy to achieve sustained future revenue and earnings growth. The investments we have made in our global sales teams are beginning to pay off as we expanded our global reach, continue to invest in new product development…

Thank you, Harsha. Company-wide revenues before reimbursements in the 2019 fourth quarter were $247.2 million compared with $263.8 million in the prior year's fourth quarter. On a non-GAAP basis, the company saw revenues before reimbursements of $253.3 million, down 4% from $263.8 million in the 2018 quarter. Our net income attributable to shareholders of Crawford & Company totaled a loss of $7.3 million in the 2019 fourth quarter compared to income of $11.9 million in the 2018 period. Fourth quarter 2019 diluted loss per share was $0.13 for CRD-A and $0.15 for CRD-B compared with diluted earnings per share of $0.22 for CRD-A and $0.20 for CRD-B in the 2018 period. On a non-GAAP basis, fourth quarter 2019 diluted earnings per share were $0.16 for CRD-A and $0.14 for CRD-B as compared to 2018 diluted earnings per share of $0.32 for CRD-A and $0.30 for CRD-B. The company's non-GAAP operating earnings totaled $17.2 million in the 2019 fourth quarter or 6.8% of revenues compared with $32.2 million or 12.2% of revenues in the prior year period. Consolidated adjusted EBITDA was $27.9 million in the 2019 fourth quarter or 11% of revenues compared to $41.4 million or 15.7% of revenues in the 2018 quarter. I will now review the fourth quarter performance of each of our segments. Revenues for Crawford TPA Solutions were $97 million in the 2019 fourth quarter, down from $102.2 million in the 2018 period. Absent foreign exchange rate fluctuations of $1 million, fourth quarter 2019 revenues would have been $98 million. Crawford TPA Solutions operating earnings were $6.1 million during the current quarter compared to last year's fourth quarter operating earnings of $12.9 million. The operating margin in this segment was 6.3% in the 2019 quarter and 12.6% in the 2018 quarter. Revenues from the Crawford Claims…

Thank you, Bruce. 2019 was a year of challenges as well as achievements for Crawford. From a governance perspective, we were proud to recently announce a new Board member, Dame Inga Beale, who comes to us from Lloyd's of London. She was the first female CEO in the global insurance and reinsurance market's 352-year history. With the election of Dame Inga, 3 of 9 directors are female, which elevates Crawford to a select group of companies that push above the 30% threshold of female directors. We are proud of the company's commitments and actions as we know that our diversity initiatives make us a stronger and smarter company. This initiative, in conjunction with our recently established Office of Diversity and Inclusion, further encompasses our continued efforts to promote an inclusive culture across our more than 700 offices globally. We are excited as we view these milestones as essential in advancing Crawford's mission of restoring and enhancing lives, businesses and communities. Our momentum from new business is stronger than ever. Our investments within our sales teams globally are expected to continue the excitement surrounding our pipeline and client acquisition as we target improvements in the velocity of our revenue growth. We will continue to make strategic investments in technology that will add value to our clients and provide Crawford with an innovative edge. Beginning in 2020, our Claims Fabric platform serving our loss-adjusting business in Crawford Claims Solutions and Global Technical Services will provide real-time integration of Crawford's systems with external clients and partners. This single platform will become the hub of all information sharing within Crawford Claims Solutions and will start to roll out in the second quarter of 2020. With our continued focus on improving our financial strength, we are driving cash flow growth while continuing to deliver meaningful returns to shareholders. As always, we will continue to carefully evaluate the company's capital expenditures and increasing operating and administrative efficiency where we see opportunities to do so. Over the long term, we are confident we're building the right platform to serve small, medium and large insurance carriers, and we are committed to the strategic direction we have set for the company. Even with the benign weather in 2019, our robust pipeline and the extensive number of new client wins from the year show Crawford's potential and how we're building to capitalize on additional areas of growth. Given the market conditions, we continue to believe carriers of all sizes will be attracted to our outsourcing model and look for a partner of the size, scale and quality of Crawford to provide claims solutions anywhere in the world. With that in mind, we are increasingly confident in Crawford's outlook and optimistic about the opportunities for the company that lay ahead in all aspects of the business as we pursue the path to achieving sustained revenue and earnings growth. Thank you again for your time today. Operator, please open the call for questions.

[Operator Instructions] Our first question is from Mark Hughes with SunTrust.

The 1.3% underlying revenue growth, was that for full year? Or is that fourth quarter?

That's for full year.

Yes.

When you think about the guidance for 2020, how are you looking at that underlying growth number?

So as we think about the guidance for 2020, we're giving some recognition to the fact that there's a significant part of our business that's impacted by weather, and there's an inherent unpredictability in that. So we had a few drops in our guidance in 2019. We want to set ourselves up for '20 by establishing what we hope to be a conservative figure initially for 2020 and wait to see our growth initiatives take hold as we go throughout the year. As Harsha mentioned, the soft weather that we saw ending 2019, we've seen continue into the first quarter of 2020. So that also colors our outlook for the year.

And I think in addition, Mark, with the number of wins we've had in 2019, the clients have started up, and they're spread throughout the year in terms of start times. And as each quarter progresses, we should see this continue to build in a forward momentum. And as also Bruce mentioned, we are being conservative and careful with the guidance.

You think if we look at it on an underlying basis, kind of adjusting for weather, are you looking at positive growth? Is it low single digit for 2020?

We are definitely looking at positive growth, and I would say low single digits would be a good answer.

The...

And -- sorry, one more thing, Mark. As I mentioned, we signed a brand-new contract with a top-5 carrier, where we're 1 of 2 service providers. And we're going to be focusing on daily cat and flood claims. And that -- we've just signed a contract. That will start building, and it's a significant contract. So all of that is helping us point in the right direction.

As we think about the TPA business, I think the margins that -- you've seen some top line pressure. The margins were down there. What -- is that just a timing issue? Are you -- do you anticipate that you'll be able to streamline costs perhaps to fit the revenue? I think you were down -- maybe the margin was 6% versus 12% last year. How do we think about that margin in 2020?

Sure. So first of all, the first response to you is it is timing as we have had significant number of new clients sign up as well as some have already started and some others are starting. So when there is delayed timing, that puts pressure. The second is we did see cost opportunities, as you rightly pointed out, and we've actually taken some early action in Q1 already to reflect and recognize that slowness in revenue. So to us, 2020, we should see TPA continuing to move in the right direction and kind of going back onto its trajectory in terms of upward growth as well as margin accretion.

And at Crawford Claims Solution, your gross profit was up as a percentage year-over-year. Your operating profit was down a few points. Is that another opportunity to probably get some cost improvement?

Correct. It is another opportunity. Your conclusion is accurate, and we've actually taken some action there as well. And going back to TPA, I should mention one more thing. The other big change that we went through last year, positive changes, we've started to gain a lot of carrier traction in TPA. And we have a number of clients that have signed up and that have started up business in the new year.

And then the -- Bruce, the cash from operations, obviously quite strong this year. Was there some help from acceleration of receivables, anything like that, that would be not necessarily repeatable in 2020? Or is -- this kind of $75 million, is that a decent baseline?

Well, for 2020, we certainly look to exceed this and continue to grow our cash flow from operations. We think there's still room to improve our unbilled and billed accounts receivable, and we're going to be pushing on that through 2020. One benefit that we got in '19 was a lack of defined benefit pension plan contributions. So we basically didn't make any contributions to our DB plan in the U.S. during 2019. We didn't make any in the U.K. either. For 2020, we expect to make $9 million of contributions in the U.S., still 0 in the U.K. In the U.K., we think we're, at this point, done funding those plans. They're in an overfunded position currently. But in the U.S., we expect to make $9 million of contributions each year over the next 5 years. So that will be a piece of it. But we don't think that, that contribution is going to result in a material change in our outlook of growing our operating and free cash flow year-over-year.

Are you able to do some sort of pension risk transfer in the U.K. and just take that off your books completely?

We're looking at that, and we've actually annuitized in the U.S. for a couple of years, looking at transferring off some of those liabilities. So that's an ongoing effort that we have. It's not a complete transfer of the book, but we are transferring tranches of those liabilities, and we'll continue to look at that in 2020 as well.

Your next question is from Greg Peters with Raymond James.

Well, I'm going to have to say that Mark covered all of the questions I had. So maybe in the -- since he covered those questions, maybe you can just step back. Harsha, I understand and appreciate the enthusiasm and optimistic outlook that you have painted for the company for this upcoming year. And I just -- one of the challenges we have as we're sitting here crunching numbers is just trying to reconcile the optimism with the reality of the fourth quarter results and the challenges. So maybe you could just step back and tell us how strategically you think the company is positioned for the next 3 to 5 years because clearly, this past year was a challenge for the company.

Okay. Good question, Greg. So let me just go by line of business to keep it simple and straight. First, the company's emphasis on an overall basis on growth and sales being front and center, we have beefed up our sales force and continue to do so. So for example, we're adding sales talent into our CCS branches. Within TPA, we have enforced and improved our relationships with brokers, who play a big role in the TPA space. Within GTS, we've done the same with broker relationships, and we beefed up our GTS sales force. And we have signed up, Greg, as I mentioned -- we have a new contract with a top-5 carrier. It is significant, and it is starting to get ready. We, in fact, are going to have a center in Dallas. We're hiring lots and lots of people to get ready for this. Weather, even though that was our, if you will, complaint, in 2019 weather carrier had record results and actually, the record results was lower claims due to the benign weather. Interestingly, the Australian bushfires, the U.K. floods, the European winter storms, all of that has kicked in already, and it's more ramp-up going on. The other piece I should mention is I do believe, and so does the team, there is reduction possible in our operating expenses and also to make some of our expenses variable to revenue and, therefore, have a better bottom line. We've taken action already in February as it relates to that, and we should have sufficient, if you will, cushion to withstand if benign weather continues forward. Having said that, despite the optimism, I do believe, Greg, our guidance is fairly conservative as we're showing in our guidance just a little bit of growth, and we're showing that…

It strikes to me that you're in a delicate balance because you're trying to invest in sales initiatives and yet manage your costs. And you highlighted some of the investments you've made in the sales initiatives and deepening your outreach. What about some of the initiatives that you've deployed to reduce expenses? Can you talk about that in a little more detail?

Sure. We have kind of gone through company-wide, I should say, in identifying opportunities where either you have duplication of processes or look for opportunities to reduce layers in management, and we see some more that might exist. And having said that, we've already gone ahead and taken, I'll use the word, preemptive action. Regardless of what the outcome for the year is, we said we'll move early so that we get a majority of the gain into 2020. So we've done some of that already. There might be some more to do, but we've taken a large piece of the action already. You don't see that because we're yet to report Q1 and Q2 and Q3. So you don't see that, but you should see that come through in the future years -- future quarters, sorry.

At this time, I'll turn the call back to management for closing remarks.

I do want to take a moment and thank the management team, all levels of the management team, immensely for going through a challenging 2019 and thank the investors and the Board for supporting the team throughout this last year as well as really looking forward to the growth in both top line and bottom line in 2020. Thank you very much.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 11:30 a.m. today through 11:59 p.m. on April 6, 2020. The conference ID number for the replay is 6458497. The number to dial for the replay is 1 (855) 859-2056 or (404) 537-3406. Thank you, you may now disconnect.