Atlanta-based Crawford & Company, an independent provider of claims management solutions to insurance companies and self-insured entities, announced its financial results for the third quarter ended Sept. 30, 2004.
Third quarter 2004 revenues before reimbursements totaled $185.9 million, up 8% over the $172.2 million reported in the 2003 third quarter. Third quarter 2004 net income was $9.5 million compared to a net loss of ($3.7) million for the 2003 third quarter. Third quarter 2004 net income per share was $0.20 per share compared to a net loss per share of ($0.08) in the prior- year quarter. Net income in the 2004 third quarter includes a special credit of $5.2 million, net of related income taxes, or $0.11 per share, resulting from the sale of an undeveloped parcel of real estate during the quarter.
Net income in the 2003 third quarter included an after-tax charge of $8.0 million, or $0.17 per share, under an agreement reached with the Department of Justice to resolve an investigation of the company’s billing practices. Operating earnings (earnings before special credit/charge, net corporate interest, and taxes) in the 2004 third quarter totaled $8.4 million, up 3% over the $8.1 million reported in the prior year quarter.
U.S. revenues before reimbursements were $123.5 million in the third quarter of 2004, increasing nearly 5% over the $117.7 million in the 2003 third quarter. Revenues from the insurance company market were $58.0 million in the 2004 third quarter compared with $56.9 million in the 2003 period, reflecting a $4.0 million increase in revenues generated by the company’s catastrophe adjusters in response to the recent hurricanes which struck the southeastern United States during the third quarter.
Revenues from self-insured clients were $39.5 million in the 2004 third quarter compared with $40.9 million in the 2003 quarter, due primarily to a reduction in claim referrals from the company’s existing clients, only partially offset by new business gains. Class action services revenues grew to a new quarterly record of $26.0 million during the 2004 third quarter, compared with $19.9 million in the 2003 third quarter. This increase is primarily the result of work commenced on several new projects awarded during 2004.
Third quarter 2004 international revenues grew to $62.4 million from $54.6 million for the same period in 2003. This growth is partially due to foreign currency fluctuations. During the 2004 third quarter, the U.S. dollar weakened against the British pound and the euro, resulting in a net exchange rate benefit in the quarter. Excluding the benefit of exchange rate fluctuations, international revenues would have been $58.5 million in the 2004 third quarter, reflecting growth in revenues on a constant dollar basis of 7.0%. In addition, during the 2004 third quarter, international operating expenses increased by $8.0 million in U.S. dollars, a 15.0% increase, and by 7.7% on a constant dollar basis.
Thomas Crawford, CEO of Crawford & Company, stated, “Our third quarter results reflect a sharp increase in property claims referred to us due to the four hurricanes that hit Florida and other southeastern states during August and September. Industry-wide, approximately two million claims have been incurred as a result of these storms. This influx in claims helped to drive the first quarter-to-quarter increase in revenues from our insurance company clients since the fourth quarter of 2001, and has generated a strong backlog of cases which we will handle in the 2004 fourth quarter and the first half of 2005. The surge in our catastrophe related revenues complemented the strong growth we enjoyed in our class action services unit during the current quarter, as our class action unit recorded record quarterly revenues, and led to the first increase in overall U.S. revenues since the 2001 fourth quarter.
“Although we enjoyed a rebound in claims from our core U.S. market, we continue to endure challenging industry circumstances. However, we do expect the declining claims frequency trends we have experienced over the past several years to begin to reverse as a result of an emerging softening of market conditions in the U.S. property and casualty insurance industry. In fact, exclusive of recent storm-related claims in the month of September, our 12-month moving average of claims received in the U.S. has shown the first increase in nearly three years, indicating that we may have reached the bottom of the long claims cycle we have had to endure. We were pleased with the improvement in our U.S. operating margin to 5.7% as compared to 5.6% for the 2003 third quarter, but disappointed by the third quarter 2004 operating margin in our international operations of 2.2%, which declined from 2.7% in the 2003 third quarter. Strong case referrals, primarily as a result of recent client wins in our United Kingdom operations, should help generate higher international operating margins in future quarters.”
Total revenues before reimbursements for the nine months ended Sept. 30, 2004 were $527.7 million compared with $515.8 million in 2003. Operating earnings declined to $19.2 million from $25.2 million in 2003, due primarily to a decline in revenues from the U.S. insurance company market. Net income for the current nine-month period totaled $17.5 million, or $0.36 per share, compared with $5.6 million, or $0.11 per share, reported in the prior year. During the 2004 second quarter, the company settled a tax credit refund claim with the Internal Revenue Service which increased net income by $2.8 million, or $0.06 per share.
U.S. revenues before reimbursements for the 2004 nine-month period were $342.4 million compared with $354.6 million in 2003. International revenues before reimbursements were $185.4 million in the 2004 year-to-date period compared with $161.2 million during 2003. Excluding the benefit of exchange rate fluctuations, international revenues would have been $167.7 million in the current year-to-date period, reflecting growth in revenues on a constant dollar basis of 4.0%. In addition, during the 2004 nine-month period, international operating expenses increased by $23.1 million in U.S. dollars, a 14.7% increase, and by 3.8% on a constant dollar basis.
Crawford concluded, “We are pleased with the growth in our class action services business this year and are delighted with the record quarterly revenues for this unit. We benefited from the award of several new contracts during the year and have a strong backlog of cases, which will contribute to revenues during the balance of 2004 and into 2005. In addition, we closed the previously announced sale of an undeveloped parcel of real estate for a sales price of $9.7 million in cash and notes, recognizing a pretax gain of approximately $8.6 million during the quarter.”
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