Good morning. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company Second 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. All lines have been placed on mute to prevent any background noise. [Operator Instructions] As a reminder ladies and gentlemen, this conference is being recorded today, Tuesday, August 9, 2022. Now, I would like to introduce, Tami Stevenson, Crawford & Company's General Counsel.

Thank you, Michelle. 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 underfunded defined benefit pension plans, collectability of our billed and unbilled accounts receivables, financial results from our recently completed acquisitions; and our continued compliance with the financial and other covenants contained in our financing agreements, our long-term capital resource 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 date of the call or to reflect the occurrence of unanticipated events. In addition, you are reminded that the operating results for any historical period are not necessarily inclusive 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, 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 like to now introduce Mr. Rohit Verma, Chief Executive Officer of Crawford & Company. Rohit?

Thank you, Tami. Good morning and welcome to our second quarter 2022 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. Crawford delivered exceptional top line results during the second quarter, with revenues increasing 10% to $293 million compared to the prior year period. This marks our fifth consecutive quarter of double-digit revenue growth, driven by continued strategic investments in our business. I would like to thank our global team for their unwavering commitment to quality and customer excellence, as well as our clients for their confidence, which is enabling us to execute our long-term strategy and bring our envisioned future to life. We saw broad-based revenue increases across the business during the second quarter, led by platform solution and North America loss adjusting. We are actively investing in our North American businesses, which we believe are right for achieving even further growth and gaining additional market share. We are building up our loss adjusting business by acquiring more expertise and increasing the rigor on quality. This effort has resulted in 70 specialist adjuster hires this year and about 120 over the last 18 months. As you will recall, our three-year goal is to add over 200 specialist adjusters. This investment in quality and expertise has allowed Crawford to exceed quality measures, resulting in higher allocation of losses to us. Further, we've continued to invest in platforms and are leading the market in product and quality. Importantly, our Broadspire business also experienced growth with claims activity continuing to pick up post-COVID. This, in addition to expanding our existing client base and securing new account wins. We expect to continue building on this momentum, as we move into the second…

Thank you, Rohit. Company-wide revenues before reimbursements in the 2022 second quarter, were $293.3 million, up 9.7% over the $267.5 million in the prior year second quarter. Foreign currency exchange rates, decreased revenues before reimbursements by $6.3 million or 2.3%. On a constant dollar basis, revenues before reimbursements totaled $299.6 million. GAAP diluted EPS in the 2022 second quarter was $0.12 for both CRD-A and CRD-B compared to $0.22 for both share classes in the 2021 period. On a non-GAAP basis, second quarter 2022 diluted EPS was $0.15 for CRD-A and $0.16 for CRD-B compared to $0.25 for CRD-A and $0.26 for CRD-B in the 2021 period. The company's non-GAAP operating earnings totaled $12.9 million in the 2022 second quarter or 4.4% of revenues, decreasing from $19.6 million or 7.3% of revenues in the prior year period. Consolidated adjusted EBITDA was $21.8 million in the 2022 second quarter were 7.4% of revenues compared to $29 million or 10.8% of revenues in the 2021 quarter. I'll now review the second quarter 2022 performance, for each of our segments. North America loss adjusting revenues totaled $65.8 million in the 2022 second quarter, increasing 17% from $56.2 million reported in last year's quarter. The edjuster Inc. acquisition added $3.6 million in revenues in the 2022 quarter. Foreign exchange rate impacts reduced revenues by less than $1 million. Segment reported operating earnings of $2.7 million in the 2022 second quarter decreasing from $3.1 million reported in last year's quarter. The operating margin was 4.1% in the 2022 quarter compared to 5.5% in the 2021 quarter. The prior year period was aided by a $1 million benefit from the Canada Emergency Wage Subsidy or CEWS. International operations revenues totaled $93.7 million in the 2022 second quarter, increasing 2.7% from $91.3 million reported in last year's…

Thank you Bruce. While we are pleased with the continued momentum and revenue expansion, we're committed to expanding profitability and improving margins across the business. As we set our sights on the second half of 2022, we will continue to advance our long-term growth strategy through technological innovation, best-in-class service and people-focused initiatives. Overall, we remain confident in our ability to deliver superior results for our shareholders over the long-term as we fulfill our purpose of restoring lives businesses and communities. Thank you for your time today. Operator, please open the call for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Mark Hughes of Truist. Please go ahead.

Yeah, thank you. Good morning. I regret that I missed most of your presentation. I wasn’t just able to join. I did want to ask just a general cost question. You've got costs across most of your business ex-Broadspire rising faster than revenue. You talked about investing in hiring and that all makes sense. What's the visibility for being able to get ahead of those costs and start to show some operating leverage in the business? And again, I apologize if you addressed this, but would be interested in your thought.

Hi, Mark. This is Rohit. Great to have you on the call. You're absolutely right costs have risen higher than or faster than revenues. There are really three dynamics that are playing in our business today. The first dynamic is that there are truly businesses where we need to do some fixing. And that fixing is a combination of making sure we're getting the right price compared to the quality and value that we deliver. There's an element of making sure that there are no pockets of lower productivity or underperformance within the business, that the systems are configured, and the processors that are configured to deliver efficiency. So that's dynamic number one. And that's what we're seeing generally in places like Europe, places like Asia and to some extent in the UK. Then we have a second dynamic where we are very bullish on the long-term prospects of the business, and are making investments in those businesses. So our businesses in North America loss adjusting are a great example, where we believe there is considerable upside and headroom for us to grow in North America, and investing in those businesses make sense for us. The third dynamic that is playing is that there are businesses where the underlying transactional dynamics are actually pretty strong. So like we go look like contractor connection like practice, the underlying dynamics of that transaction is extremely strong, and you will see us continue to push growth for that business, and those businesses should give us a pretty significant operating leverage. And then finally, there are some businesses, which are truly weather dependent, right. The catastrophe business in the US, as an example is significantly weather dependent. So those type of businesses, because it has generally been a benign first half of the year, probably are showing a little bit of a weakening in the margin, but the longer-term prospects on the margin there or the margin over the cycle, we feel very good about. If you look at our fixed cost or infrastructure that fixed cost infrastructure has largely remained fixed. So we believe that the revenue growth that we've seen over the last two years where we've added close to $180 million of revenue to the top line that's giving us a good amount of leverage. So we believe these margin sort of compression is temporary as we go through the business and work on it. As you can imagine that we had not demonstrated growth for many years prior to this, our first order of the business was let's start to grow the business. And then let's continue to make it better from a margin perspective as we add revenue from the top.

You've got a 12-month process. I know you described some different parts and so they're probably going to work on their own schedules, but if you think about where you think margins should be is that 12, 18 months 24 months?

Yes. I would say, admittedly, I think we are behind schedule from where I'd like to be in Europe specifically as well as UK to some extent. I would say that next year we should start to see impact of the margin improvement. It's hard to show it on a total level, because there are different parts of the portfolio as you know, but we're seeing improvements. As an example, Asia is doing better than we expected. UK is probably not doing as well as we would have expected, or Europe is not doing as well as we would have expected. But overall we feel that we're making good progress. And our commitment is towards long-term growth. As a result of that we're not slowing down our investment in North America just as a result of we've got some challenges in international. So we're taking an approach where we're going to make sure that for the long-term we're making the right investments.

And just a general comment on inflation. I'd be curious to hear to what extent does that help your revenue? Do you think it's presumably a benefit when loss costs go up, you're investing larger claims, but then maybe more so of an impact to the expense line? Could you just break out the different as special inflation as it is impacting the business?

Sure, yes. I'll start there and then I'll probably lean on Bruce a little bit. I think when we look at inflation, there's obviously an impact on the expense line that you can imagine and we can't be immune from that just like anybody else's. As far as the loss costs are concerned, loss costs when they go up, they don't impact directly our revenue for the most part, because our fee structure isn't tied to the size of the loss necessarily or the -- it's tied more to the hours that we put in the time that we put in, which doesn't change just because the cost of certain goods go up. So I don't see a change there. There is a slight benefit in contractor connection only because that is based on the percentage of project sizes. And as a result of that inflationary pressures do give us a little bit of advantage in contractor connection. But there are lots of other things going on there like material shortage and labor shortage, which is causing projects to take a lot longer than they would take. So there are other dynamics in the business that are having a little bit of a compensating effect I think. And finally in our Broadspire business or our TPA business again, we don't see an inflationary impact from a revenue perspective again, because we're not tied to the size of claim there. I think my bigger concern will be that if the inflationary pressures start to impact the overall economic activity and that starts to slow down economic activity and that results in claim volume to slow down, particularly in our casualty sign of business, which is largely on our TPA side. Then yes that would have some impact. But so far we've not seen that. Bruce anything you want to add to that as well?

Yes, I think you covered it pretty well. Maybe the other thing looking at the competitive landscape to the extent a lot of our privately held competitors have significantly higher leverage levels than us six times, seven times EBITDA. Rising interest rates are going to put pressure on them. And to the extent that they're focused on managing through a higher rate environment and not on growth in the marketplace that could create open doors for us to go in given the relatively strong financial position that we have heading into this period of economic uncertainty. So we feel good about where we are.

But I just – Bruce, I'm compelled to add that that's not what we're banking on.

Yes, yes good point.

How about within Broadspire, I don't know if you mentioned workers claim frequency severity. I think last quarter you talked about you're seeing maybe some uptick in demand for the medical case management services. How does that stand today?

Yes. And actually our claim volume is back up to 2019 levels, if not higher than 2019 level. And that's a combination of both new business wins as well as sort of economic activity returning and claim activity returning. We haven't seen a major change in the severity of the claims. And candidly speaking Mark, it's hard to say that is that because overall severity in the industry is down or just our book mix has shifted over time because we have made some concerted efforts to diversify our book and not be focused purely on hospitality or travel. So we haven't seen a major change in severity. Medical management continues to have a slow pace of recovery but it is recovering. It's a little bit better than what it was last quarter and a little bit better than what it was last year but it's not close to the 2019 level that you could probably look at it from our Q.

Great. Thank you very much.

Thank you, Mark.

Thank you. The next question comes from Kevin Steinke of Barrington Research. Please go ahead.

Good morning. I wanted to just drill down a little bit on one of the levers you talked about there in terms of improving margins and that is adjusting pricing. And I recall when I was kind of getting up to speed on the company a year ago that I guess we talked about pricing just being able to adjust that to reflect the value of the services you're providing and it sounds like that's really why you're adjusting pricing it's not necessarily tied to trying inflation or anything like that but just simply again trying to get better value for your services. Is that the right way to think about it?

Hi, Kevin. This is Rohit. Thank you for being on the call. I won't say that that's the only reason to do it. I do think that actually the inflationary environment that Mark just alluded to gives us a favorable backdrop to have those conversations with our clients and they are much more open to it. I also believe that we enjoy a strong partnership with most of our clients. So it enables us to have those conversations. I just think that over the past few years we've not had those conversations. And now we're sort of forcing those conversations. And candidly so far we feel that we've made good progress. And as the renewal book works its way, which largely will start to show in last quarter of this year and the quarters next year, we should start to see an impact of that improved pricing. But it's not just on service and that it's definitely there's an element of inflationary piece to it.

Okay. Understood. It’s helpful. And when we think about margins for North American was adjusting, obviously you talked about your success in hiring specialist adjusters there and your goals for hiring there? It sounds like that's also leading to new business wins, new revenue. But think about margins in that particular segment continuing to kind of lag the improved revenue growth, just as you continue hiring, or do we get to a point where that growth starts to really leverage that hiring more significantly. I'm just trying to get a sense as to the timeframe for kind of margins to start leveraging the investments or growth of leveraging investments.

I think, Kevin, that’s a great question. And let me answer this. I believe that you will start to see an expansion of the profit contribution from this segment, because we're growing and adding revenue and you'll start to see that, on a percentage basis on margin improvement will probably take a little bit of time, because we're not slowing down. We believe that, there's significantly more headroom for us to grow in that. We believe that we had pulled back from a geographic presence pretty significantly about 10 or 12 years ago. We're starting to, sort of, bring that back in. On the major and complex side, we believe that there are still a lot of verticals and specialty areas that we can add on and there is a little bit of an upfront investment that you make, which is in the form of either sign-on compensations or you bring people on and if there's just a ramp for them to hit their stride. So I do think that, you will continue to see us making those investments. But I think you should see an expansion in the contribution of profit level from this business.

Okay. Got it. That’s helpful. Can we just drill down a little bit more Q1 that the growth in the networks line of business quarter to strong growth there and what was driving that?

Yes. So in the network side, as you know, we've got our WeGoLook business that continue to benefit from onboarding your clients and deeper penetration with some existing clients. We've also had a couple of one-off projects that we did in that business during the quarter, which have had a helpful impact on revenues. And then, on the catastrophe side, we have been doing providing -- I'm just not putting it in quotes, temp staffing for a client which may or may not be directly related to weather, which has helped us have a strong revenue growth in that area. And again we're doing good with the clients there and we expect that we'll continue to see deployment from clients in that space.

Okay. Yes. That maybe dovetails in another question. You mentioned last quarter, staffing issues at some of your clients and how that was driving more demand for your services. Is that kind of assume kind of the dynamic you're seeing in the market still?

Yes. We're still seeing that dynamic. It has slowed down in some parts. I think some clients have been able to get ahead of that, but we're still seeing that dynamic.

All right. And if I could just circle back on North American loss adjusting and you talked about the volume side of the business there as well. Are you experiencing -- did you experience growth on the volume side as well? You highlighted the large and complex growth. Just wondering what trends you're seeing on the volume side as well?

We did see growth on the volume side, although, not as much as what we would have liked. And I think some of that is related to the benign weather environment. As you know on that side of the business, we have quite a significant presence of weather dependence. But also that is a part of the business, like I said before that we had pulled back on several years ago and we're now in the process of repopulating that business making sure that we've got the geographic footprint and the expertise that we need and the quality. And that's the business where we've seen that because of better quality, we're starting to see greater allocation of losses to us from clients.

Okay. All right. Good. Just for the Platform Solutions margin, you talked about Contractor Connection and how that impacted the margin. Is that something we should think continues for the next couple of quarters or is that something you move past?

No. I think the way we think about it is that it was a difficult comparison to last year where we had storms in Texas where the Contractor Connection impact of that storm really came into the second quarter. As you know that's when the repairs happened and the repairs were completed and that's when we start to see the impact. So that's what we saw last year. So it made the first half comparison difficult. Now, if we don't get any weather activity in the second half of the year compared to last year, yeah then that will make it a difficult comparison to the second half of the year. But right now, we're still expecting a normal weather season. We've just seen something from off the coast of Africa. Not sure, that makes its way all the way here and has an impact or not. But if we don't have a difficult comparison on a weather basis for second half, then I don't see any issues with Contractor Connection on the margin front. We're still the market leader. We still believe that our value proposition is differentiated in the market and we're not losing market share.

Okay. All right. That’s good to hear. All right. Well, thanks for taking the questions. I appreciate the time.

Thank you, Kevin.

Thank you. [Operator Instructions] There are no further questions at this time. I will turn the call back over to Mr. Verma for closing remarks.

Thank you, Michelle, and thank you to all our employees, clients and shareholders for your continued commitment to Crawford & Company. Our second quarter results are not only indicative of Crawford's strength and leading market position, but also evidence of our incredible growth momentum we have experienced throughout the first six months of 2022. Overall, we remain confident 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 2022. As always, we wish you well. Thank you and God bless.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning 11:30 a.m. Eastern Standard Time today through 11:59 p.m. Eastern Standard Time on September 9, 2022. The conference ID number for the replay is 204-978 followed by the numbers line. The number to dial for the replay is (877) 674-7070 or (416) 764-8692. Thank you. You may now disconnect.