Good morning. My name is Misty, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Second Quarter 2021 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, Wednesday, August 4, 2021. 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, 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 and undefined benefit 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, 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 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 this call or to reflect the occurrence of unanticipated events. In addition, we 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 June 30, 2021, filed with the Securities and Exchange Commission, particularly the information under the heading 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 your conference.

Thank you so much, Misty. Good morning, and welcome to our second quarter 2021 earnings call. Joining me today is Bruce Swain, our Chief Financial Officer; Joseph Blanco, our President; and Jim Kochinski, our Deputy General Counsel. After our prepared remarks, we will open the call for your questions. Crawford delivered exceptional results in the second quarter, with revenue increasing 14% and non-GAAP EPS for CRD-A, growing 32% year-over-year to $0.25. Importantly, we saw strength across the business despite the absence of significant weather-related activity, as claim volumes increase and our Platform Solutions business supported the transformation of the loss adjusting industry. Most notably, we have had 3 consecutive quarters of year-over-year revenue growth despite the continued impact of COVID on our business and humanity in general. Our financial position remains strong with a robust balance sheet, which is reinforced by the business' solid cash generation. We have continued to draw on our competitive position in the market and the advantages of our global scale. That said, this performance would not be possible without the unwavering commitment of our global workforce. Their resilience allows us to deliver on our purpose, day in and day out while strengthening our resolve to achieve excellence in client service while maintaining a sharp client focus. In addition, the continuous support and confidence of our clients has been critical in Crawford's success. We are also executing on our enhanced strategy, which is shaping our results very favorably. We are building up our loss adjusting business by acquiring greater expertise and increasing the rigor on quality, which has resulted in double-digit growth in our U.S. market operations. Similarly, our pronounced focus on carrier and managing general agent markets enabled by our digital and analytics capabilities, has resulted in our U.S. TPA business growing by 10% over…

Thank you, Rohit. Turning to our results in a bit more operational detail. From a weather standpoint, there were not any material storms during the second quarter. However, we are still seeing spillover activity from the winter storms in the U.S. earlier this year. From an economic standpoint, although global business activity continues to increase, it has not yet recovered to pre-pandemic levels. This is most notable outside of the U.S. while claims activity increased meaningfully in the quarter driven by the U.S. claims growth of 22%, the varying vaccine rollouts and rolling lockdowns across the world continue to be a headwind for our cash flow business in both loss adjusting and TPA. In terms of CAT events, the impact of all U.S. CAT is up $9.5 million year-over-year. Continued work from Q1 weather events, combined with increased utilization in programs with 2 top 5 carriers, positively impacted our second quarter, with overall surge revenues increasing $6.7 million year-over-year to $37 million. As a reminder, we saw record storm activity in the second half of 2020, which included 30 name storms. As a result, our Q3 and Q4 2020 included approximately $82 million worth of surge revenue. While weather activity, by its nature is unpredictable, we will see more challenging comparisons in the back half of the year given the high activity in the second half of last year. Now I want to point to the employment picture in the U.S. and how it relates to Crawford's business. The unemployment rate versus pandemic levels has come down significantly over the past several months. While our Broadspire business in the U.S. is improving and claims are nearing pre-pandemic levels, our medical management business is still lagging. This is in part because of a natural lag in treatment from claim initiation, but…

Thank you, Joseph. Company-wide revenues before reimbursements in the 2021 second quarter were $267.5 million, up 14% over the $234.4 million in the prior year second quarter, presented on a constant dollar basis to the prior year, revenues before reimbursements totaled $255.2 million. GAAP diluted EPS in the 2021 second quarter was $0.22 for both CRD-A and CRD-B compared to EPS of $0.11 for both CRD-A and CRD-B in the 2020 period. On a non-GAAP basis, second quarter 2021 diluted EPS was $0.25 for CRD-A and $0.26 for CRD-B compared with $0.19 for both CRD-A and CRD-B in the 2020 period. The company's non-GAAP operating earnings totaled $19.6 million in the 2021 second quarter or 7.3% of revenues, increasing over the $18.2 million or 7.8% of revenues in the prior year period. Consolidated adjusted EBITDA was $29 million in the 2021 second quarter or 10.8% of revenues, up 14% over the $25.5 million or 10.9% of revenues in the 2020 quarter. I will now review the second quarter performance of each of our segments. Crawford loss adjusting revenues totaled $116 million, increasing 6% from $109.1 million reported in last year's quarter. Foreign exchange rate benefits totaled approximately $8.7 million in the second quarter of 2021. The segment reported operating earnings of $6.2 million in the 2021 second quarter or 5.3% of revenues, decreasing from the $10 million or 9.2% of revenues in the prior year quarter. Margins were pressured due to the ongoing investments in talent recruitment and weakness in certain international markets. Revenues for Crawford Platform Solutions were $51.1 million in the 2021 second quarter, up 39% from $36.7 million in the prior year quarter. Foreign exchange rate benefits totaled $700,000 for the quarter. Operating earnings in Crawford Platform Solutions totaled $10.4 million or 20.3% of revenues in the…

Thank you, Bruce. As we look towards the second half of 2021, we are focused on maintaining our leading position within the industry through innovation and best-in-class solutions. Our global footprint and empowered teams all around the world give us the reach and agility to meet the changing needs of the industry. Crawford's emphasis on our people and delivering service excellence to our clients will always remain at the forefront of our priorities. We are confident in our ability to deliver superior results for our shareholders over the long-term as we remain committed to fulfilling our purpose of restoring and enhancing lives, businesses and communities. Thank you for your time today. Operator, please open the call for questions.

[Operator Instructions] Your first question comes from the line of Alex Bolton with Raymond James.

I'm calling in on behalf of Greg Peters. The lower margins and loss adjusting. I know spurs from the 46 adjusters that you're kind of making investments towards. You talked about the demand for these experts. Can you comment if you're seeing wage inflation for these hires?

Alex, thank you so much for your question. Great catch by you. Yes, you're absolutely right. That was the only place where our margin diluted a little bit from 2020. Three factors driving that. First, you already talked about, which is we are investing in getting more experts, no question about it. And I would say that as you bring those experts in, it takes about 6 months or so to ramp up to get the revenue lift from that. And that certainly has been one factor in the margin. The second factor in the margin has been just long tail claims. We've got a pretty significant WIP that's building up as a result of these long tail claims. And in significant parts of the world outside the U.S., we are paid on what is called scaled fees, which basically, we don't get paid until the claim actually settles. So that's the second part. And then the third and final part, there is weakness in some of our operations, which is somewhat impacted by COVID, somewhat impacted by competitive dynamics, as an example, in Asia, we're seeing some weakness, which is putting a drag on our margins. So those are the 3 big factors. Your other question, are we seeing wage inflation? I would say more in pockets than a secular wage inflation in this sector? So where the competitive dynamics are pretty strongly contested. You are seeing some wage inflation, but it's -- I would say it's mainly in pocket so far.

Okay. Perfect. And then maybe just broadly across the board, I guess, seeing expenses other than direct compensation coming down within the segments. Maybe you can touch on initiatives or efforts there and the accomplishments you've made?

Sure. We've -- the thing that we talk about within the organization is that we are a company focused on growth, but we're expense aware. We have been working hard at our non-comp expenses for some time now. And I think if you look at our history, we've taken our non-comp expenses from being somewhere around -- somewhere between 24% to 26% of our revenue down into the very low 20s. Big factors for this, and I'm sure Bruce can touch upon them in greater detail. Obviously, travel is light travel is significantly lower than, say, 2019 levels and even 2020 levels. As well as we've been slowly chopping away at our rent. If you go back and look at our rent at one point, it used to be about somewhere between 4% and 5%. We brought it below 4% and working towards it. So I would say those are probably the 2 predominant factors, but there are other things that we've been doing for a few years now around procurement, around building efficiency in our processes, which is helping the non-comp expenses. I don't know, Bruce, if you want to add anything?

No, I think that's a good overview. Those are the main drivers.

Okay. And then within Platform Solutions, I mean, we've seen significant growth there, probably tougher comps going into the back half of the year. Is it right to think that growth will be a little tougher going into the back half?

Yes. Look, we -- so 2 things here, right? First and foremost, we're excited about our platforms business. We think that that's the business that has strong potential, both top line and bottom line for the company looking forward. And over the coming investor events, we are probably going to start to highlight more of what we're doing in that business to create more awareness with you guys and other investors. If you look at our business, despite there being less weather in Q2, we actually had pretty decent growth in that business. And the reason for that is that we're trying to move our business to be less dependent on the Southeastern Gulf wind exposure, but more focused on continuing to build capability, which is being deployed against the severe convective storm market. So yes, the comps for third quarter will definitely be tough. You had 30 name storms last year. If we get another 30 name storms. I don't think that comparison will be difficult. But I think being realistic, it's hard to predict that and say, whether we're going to have 30, 10 or maybe 3 storms. If the storm activity continues, we feel very confident if the storm activity slows, we believe the business is resilient. You've seen the business do well last year despite COVID, and we think we'll continue to do fine. But from a competitive perspective, this would be a difficult comparison between Q3 of last year and this year, if the weather is significantly different from last year.

Okay. And then lastly, maybe you could speak on the auto claims activity you've seen within WeGoLook. I guess has auto insurers have seen frequency increase.

Yes. WeGoLook has been a great story for us. It was -- the growth was certainly triggered through the pandemic, but the experience that our clients are having and what we're hearing from our clients, we believe that there will be continued traction. Today, the bulk of the claim activity that we're seeing in WeGoLook is auto related. And as driving distances increase and driving frequency increases, we believe that we will continue to see growth in that. But also, we are building that solution and have been building for some time and getting the position for property claims, which we believe further diversifies the type of claims that we will handle to WeGoLook. I would say, last couple of quarters, we've had many months of record volume. And I think the way -- the traction that we're seeing, we believe that, that volume will continue to increase. I will further increase as we build a better following of the property solution there in addition to the auto solution.

Your next question is from Kevin Steinke with Barrington Research.

I wanted to start off by asking about the growth you saw in loss adjusting in the U.S.15% year-over-year, you tied that to your hiring of specialty adjusters. And then you mentioned you're on track with your 3-year goal there. Can you just refresh or update us on what that 3-year goal is in terms of driving growth and hiring in the major and complex claims business.

Sure, Kevin. Thank you so much. And by the way, I'm really, really excited about you starting to follow our stock. So you and I have not had a chance to really meet in person. But hopefully, as the pandemic slows down, we'll get a chance to catch up. Great observation. Yes. The loss adjusting business in the U.S. has been growing. I would say the most significant factor has been the addition of people. But also, I would add, the strategy that we have put in place, which is to have a significant quality enhancements in our offering. As well as the additional sales focus that we've had, which has been increasing our market activity. I think we've mentioned that we had over 2,000 interactions in the marketplace this quarter. I think all of those factors are leading to the growth. In terms of our target, we have -- I won't say that we have a U.S. target. We have a global target over the next 3 years to add somewhere around 200 to 250 additional experts. And those experts are in the areas of forensic accounting, cyber, energy, construction, like some of the very specific skill sets that we believe are going to be needed as we look to the future. So our hire of 46, we believe, is a great progress against that goal of $200 million to $240 million over the next 3 years.

Okay. Great. And what's the pipeline of talent look like for you there in terms of your ability to hire? And I guess, Crawford is being an attractive platform for that type of talent.

So the pipeline looks very good. I think the work that we've been doing on our brand, obviously, we've been a known brand for the last 80-plus years now, and people feel Crawford is synonymous to excellence in claims. So we believe that we're becoming an attractive place for adjusters to be. There's a lot of work that we've been doing on culture as well. And I think I've shared that before, the culture that we're creating of empowerment, the culture that we're creating a growth mindset. I think as more and more people are experiencing that, they're realizing what a valuable asset that is. And I think that's creating a lot of attraction for adjusters to join us.

Great. I wanted to ask about Platform Solutions as well. And specifically, the strong sequential growth in both contractor connection and the network businesses. You mentioned no real significant weather activity. So should we think of that sequential growth, it's just continued ramp-up of new business or any other factors? Or did weather have any sort of meaningful impact in terms of, I think in contractor connection in U.S. Tech?

Sure. So as you know, we've added a number of top 5 carriers, and we've shared before that it takes 12 to 18 months for us to ramp up the large carriers. That ramp-up is still going on. So some of the impact of the growth that you're seeing is purely the ramp-up of those top 5 carriers that we added about 12 to 18 months ago. And I think the other piece, which I mentioned in my answer to Alex's question, we are increasing our footprint to participate in the severe convective storm, which are a lot more frequent than the hurricanes. And there are a lot more localized events than being the events that we see, which are much talked about in the news, which are the wind events in the Gulf and the southeast. And that -- while the weather has not been too severe, you've still seen pockets of these severe convective storms that have led for us to deploy our people and deliver on our mission and deliver on our commitment to our clients. So that's another factor of growth. But the large part of the growth is coming from the continued ramp-up of the top 5 clients.

Okay. Great. And what are the legs that we should think about in terms of the ongoing ramp-up of those top 5? Does that kind of continue to show through for the next couple of quarters here in terms of...

I would imagine that, that we will continue to see ramp-up of those clients. But I remember, the space of ramp up often is impacted or influenced by weather as well. If weather picks up and there is severe pressure on the carrier client to handle claims quickly, they start to ramp up what they have with us. If they have enough internal capacity to handle claims because the weather generally is benign, then that ramp up generally tends to be slow. So yes, we -- I expect that the ramp-up will continue, but there's a possibility of the ramp-up accelerating if the weather becomes too severe.

Okay. Understood. I did want to circle back on platform Solutions in terms of the strong margin, the operating earnings margin there. And you mentioned that margin continue to improve along with the economy. I'm just trying to get a sense, and as you build scale, at least qualitatively, how much more room there is for the margin to improve within platform Solutions?

Yes. Kevin, as you know, that the underlying economics in the platform business are extremely attractive. If you look at a pure transaction basis, the -- at a pure transaction level, the margin is very attractive to us. And our goal is to build the scale of the transaction so that, that margin starts to flow through right to the bottom line because once we cover our fixed costs, we believe that the contribution margin in this business can be very attractive. So our goal right now is to continue to build scale in this business and create more transactions, I should say, create, but handle more transactions so that we can we can get to a better bottom line. So that's the goal. Qualitatively, I would say there is still a significant room for us in this business.

Okay. Great. And maybe a couple more housekeeping type questions here. You mentioned the spillover of weather claims from the first quarter, specifically related to the winter storm. I mean should we think about that spillover is a meaningful number? Or a comment in terms of just the size or impact of that?

Not a material impact. I think we saw most of the benefit in the first quarter, just the tail going through the second, and I think it's kind of largely behind us at this point.

Okay. Good. And then are we past the point here, Bruce, where it makes sense to call out a specific dollar?

That we’ve been disclosing previously has been a consolidated number. Overall, in the second quarter, we didn’t see a net impact from COVID. But we did have certain parts of our company that we’re still continuing to be impacted.

[Operator Instructions] I would now like to turn the call back over to Mr. Verma for closing remarks.

Thank you, Misty, and thank you to all our employees, clients and shareholders for your continued commitment to Crawford and company. Our second quarter results reinforce our confidence in the future of the company, and we look forward to taking you on the journey with us as we make our way through the second half of 2021. Thank you, and God bless.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 11:30 a.m. Eastern Time today through 11:59 p.m. Eastern Time on September 4, 2021. The conference ID number for the replay is 9538728. The number to dial for the replay is (805) 585-8367 or (416) 621-4642. Thank you. You may now disconnect.