Crawford & Co (CRD.A) 2009 Q2 法說會逐字稿

Good afternoon. I will be your facilitator today. At this time, I would like to welcome everyone to the Crawford & Company second quarter 2009 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 period. Instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded today, Monday August 10, 2009.

Some of the matters to be discussed in this conference call and in the supplemental financial presentation may include forward-looking statements that involve risks and uncertainties including statements regarding liabilities, associated with our defined benefit pension plans and our ability to pay dividends in the future. The Company's actual results achieved in the future quarters could differ materially from the results that maybe implied by such forward-looking statements. The Company undertakes no obligation to publicly release revisions to forward-looking statements made in this conference call to reflect events or circumstances appearing after the date of the call or reflect the occurrence of unanticipated events. For a complete discussion regarding factors which could affect the Company's financial performance please refer to Company's Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission, particularly the information under the headings business, risk factors legal proceedings and management discussion and analysis of financial conditions, and results of operations.

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 directly comparable GAAP measures which is available on our website at www.crawfordandcompany.com/quarterlyreleases. I would like to introduce Mr. Jeffrey Bowman, President and Chief Executive Officer of Crawford & Company. Mr. Bowman, you may begin your conference.

Thank you. A warm welcome to investors, clients and employees this afternoon for a discussion of our 2009 second quarter results together with our current earnings guidance for 2009. I'm Jeff Bowman, President and CEO of Crawford & Company. Joining me from the global executive management team this afternoon are Bruce Swain, our CFO; and Allen Nelson, our General Counsel and Chief Administrative Officer.

Today I will outline a few of the economic trends and opportunities we face in 2009. I will also discuss trends, challenges and issues we see in our insurance carrier and self insured market sectors as well as in the legal settlement administration segment. I will briefly review a new marketing approach we are very excited about called the Crawford system of claims solution then I will give an overview of the group financial highlights for the second quarter 2009. Bruce will the review the second quarter financials in more detail I will wrap up with a brief review and commentary on the segment operating performance and fiscal 2009 guidance.

There is no doubt that the global economic outlook has been challenging in the second quarter. We see this in a number of areas. Particularly continued deterioration in the US job outlook for the second quarter. An additional loss of 810,000 jobs for the period pushed the second quarter unemployment rate up to 9.5% from 8.5% at the end of the first quarter. As reported last week, the jobless rates in the months of July in the US grew nearly another 300,000.

Our consolidated revenues reflect declines driven by currency shifts and the softening of the workers compensation markets. We have implemented further cost saving measures throughout all of our business units. For the half year we have demonstrated operational progress as revenue growth on a constant dollar basis continues in our international operations in US property and casualty, and in legal settlement administration. As previously reported, the under funded basis of our pension obligations has continued to affect operating margins to date compared to the prior year and will do so throughout the second half of the year. Affect for the year to date period is $0.10 per share.

During the second quarter we also reported a $94 million preliminary non-cash nonoperating goodwill impairment charge. Which I will discuss in more detail in a few moments. Offsetting these challenging factors we continue to see some positive common trends in the global marketplace. One, higher insurance carrier expectations regarding the handling of claims. Including claims provider service levels and pricing models. We continue to see many clients making decisions on their claims handling providers based on expectations for increased speed, improved service and operational efficiencies in claims handling and with that a greater focus on customer service. We are able to provide claims solutions to insurance carriers and their policyholders that involve centralized claims solutions that meet these objectives.

Secondly consolidation of the number of vendors among our clients is a growing trend today as the insurance industry continues to come under increased pressure resulting from lower investment income, and rising loss costs. Outsourcing of claims to provide such as Crawford, allows for a better cost of delivery by turning fixed costs in house claims departments in to variable costs and reducing the clients need to invest in claims technology. That is a positive for Crawford.

Three we are seeing our clients seek alternative resources for claims handling as they look for business process improvement. Better automation, and increased data analytics. We are well positioned to handle the increase we are seeing in these low severity. Including the ease of doing business with claims solution companies is paramount to our business proposition. The one business unit under the most pressure from economic factors at this moment is Broadspire. In the TPA market a deteriorating unemployment outlook has negatively affected our Broadspire business. US competitors are becoming very aggressive in pricing for a new business and I renewals as risk managers have become increasingly more cost conscious and are looking for ways to reduce costs and improve efficiencies.

A new positive has emerged in the second quarter in the legal settlement administration segment where we are seeing a significant increase in bankruptcy cases received. We project a steady increase in revenue in our bankruptcy cases over the next few quarters. Even in this hot marketplace, however, pricing is a crucial factor. We have been fortunate in securing a number of very high profile cases in the second quarter. However, the economic conditions that have set the stage for robust growth in our bankruptcy business are also having a negative impact on the security class action environment. In short companies and their insurers are just not settling security class actions of the pace we saw in previous years.

In 2009, although there have not been many large cases we are pleased that the Garden City Group has been retained on three of the four security class action cases that settled for more than $100 million. We remain confident that the class action market will turn around. But we cannot predict when that will happen. While we will wait that turn around we expect to benefit from the significant growth in bankruptcy.

In our international operations segment, we are seeing the same service and pricing pressures, accelerating demand for increased operational efficiencies, in a more regulated environment. Globally there is more discussion on service differentiation resulting from handling simple low value claims through to complex high volume claims. This is where our recent investment in technology is playing a large part in our current success. Some recently announced news relates to overseas expansion, in the UK, we recently announced and branded the UK TPA operation under the Broadspire name. We are providing marketing, account management pricing and operational practices knowledge support to the UK operation. However there is no change to the Company reporting or management structure. We are beginning to plan our plans to expand broad spire brand to Europe and Asia Pacific later this year. Given the continuing strength of three of our business segments, and the diversity of earnings of our corporation, we remain optimistic about the growth opportunities ahead.

Now turning from operations to our sales and marketing approach, over the past 18 months as a result of an evaluation of our global business, we have developed an integrated view of our operations that we call the Crawford system of claims solutions. The Crawford system of claims solutions is a way to describe the entire Crawford & Company portfolio of business on a global basis. It includes all services offered by Crawford including Broadspire and Garden City Group it has been created as a central part of the Company's branding to create a clear understanding of our competitive advantage, reinforce our industry leadership, and clarify our portfolio of businesses. Importantly, it provides all of our employees throughout the world with a common vocabulary to present to our clients.

Crawford has strategic assets in every aspect of claims management and we are committed to delivering the ideal suit of solutions to each client. Our current and future investments in technology and in our operating units is always for the express purpose to bring our high level of responsiveness and service to our clients. The entry point in to the system or first level identifies the mode of strategic engagement between our clients and Crawford. There are three ways we provide solutions to our clients.

Claims services. By providing transactional claims adjusting and administration. Business process outsourcing, by outsourcing all or part of the claims function. And consulting which is expertise for hire. These modes of engagement are consistent around the globe. Insurance, after all is a promise to pay when the need arises. The true value of any client relationship emerges only when a claim occurs. Our expertise is then vital and we consider this to be the most important of our services to clients, what we call working together the Crawford difference.

So let me review some of the challenges and progress made in the quarter. While the quarter shows revenue and operating earnings decreasing against 2008 results, we are encouraged that 2009 operating performance is running ahead of our initial expectation in a challenging operating environment. The second quarter shows a revenue decline of 5.2%, but on a constant dollar basis, showed an increase of 4.1% over 2008, of $10.7 million, which is better than expected.

During the second -- 2009 second quarter, the Company recorded a preliminary non-cash nonoperating goodwill impairment charge of $94 million. Or $1.81 per share. This charge was primarily related to declines in the Company's stock price, the Company's Broadspire segments operating results and the impact of declining US employment levels on Broadspire's current and projected claims volume.

Adjusting for the goodwill impairment charge increased defined benefit pension expense, and the negative impact of foreign currency changes, net income attributable to Crawford & Company increased by $2.5 million. Our US property and casualty division had an increase in revenue of 6.5%, and a case increase of 2.6% for the quarter. And 4.6% for the year to date. Which is a good performance. Our international operations segment grew 6.1%, on a constant dollar basis. With improvements in Canada, and Asia Pacific. Nonetheless, the strong US dollar negatively affected international revenue by $24.3 million in the second quarter.

The economic factors I mentioned earlier remain a challenge for Broadspire, particularly in the area of unemployment. We stated last quarter that many customers were continuing their payroll downsizing. We should expect that there will be some contraction of the existing business in workers compensation claims if unemployment increases as we go through the balance of this year. However, we ended the second quarter, we saw the workers compensation claims begin to stabilize.

Let me walk you through the changes in our consolidated revenue, net income and earnings per share, as you can see when you back out the second quarter foreign currency impact in 2009, our revenue grew organically $10.7 million. Our net income attributable to Crawford & Company increased $2.5 million, before the 2009 effects of goodwill impairment, pension and foreign exchange. Net loss per share for the quarter included a goodwill impairment of $1.81, increased pension cost of $0.06, and a negative currency impact of $0.03. Therefore the earnings reflect a 4% improvement in pro forma operating performance against the same quarter in 2008.

We believe this was an encouraging performance in a difficult economic environment. When weighed against the turmoil in the insurance market and the economy in general. We continue to be much focused as always on improving earnings we are also delivering on a strategy to improve our balance sheet and cash flow to working capital management and debt reduction. With a significant emphasis on improving day sales outstanding. This quarter we are able to report that we have reduced our day sales outstanding from the level of which we started the year. After Bruce provides the detailed financial review of the segment results, I will discuss our operational business units and updated guidance for 2009. That concludes my initial remarks, now over to you, Bruce.

Thanks Jeff. Companywide revenues before reimbursements decreased by 5% in the 2009 second quarter to $249.7 million. From $263.3 million in the prior year second quarter. This decrease is primarily attributable to a negative foreign exchange rate impact in our international operations segment and weakness in revenues produced in our broad spire segment. These factors offset double digit growth in our legal settlement administration segment, sustained improvement from our US property and casualty segment and 6.1% in revenue growth when measured on a constant dollar basis in our international operations segment.

Due to declines in Broadspire's operating results, the impact the declining US employment levels have had on Broadspire and the recent weakness the the Company's stock price we performed an interim impairment analysis for all four of our reporting units as of June 30, 2009. We have not completed all of the necessary detailed fair value estimates involved in determining the current implied fair value of the goodwill of Broadspire, however, based on the work we have performed to date we estimated and recorded a preliminary non-cash goodwill impairment charge of $94 million or $1.81 per share, which represented our best estimate of the resulting goodwill impairment. Any revision to the preliminary impairment charge will be recorded during the 3 months ending September 30, 2009. Goodwill impairment charge in any future revisions are not deductible by us for income tax purposes. This impairment charge does not affect the Company's liquidity, or cash flows and has no affect on the Company's credit agreement, or our compliance with the financial covenants under the credit agreement.

The second quarter 2009 net loss attributable to Crawford & Company was $88.1 million. Including the goodwill impairment charge compared to net income attributable to Crawford & Company of $7.9 million in the 2008 second quarter. The second quarter 2009 loss per share was $1.70, compared to earnings per share of $0.16 in the prior year quarter. Excluding the goodwill impairment charge second quarter net income attributable to Crawford & Company was $5.9 million and earnings per share were $0.11.

The Company's selling, general and administrative expenses or SG&A totaled $54.4 million. Or 21.8% of revenues in the 2009 second quarter. Decreasing nearly $1 million from the $55.4 million, or 21% of revenues in the prior year quarter. This decrease in cost is primarily due to lower compensation and benefits in the 2009 period. As compared to the 2008 period during the 2009 second quarter, the US dollar strengthened against most of the major foreign currencies in which we operate globally. Reversing the weak dollar trend we had been experiencing and benefiting from over the past few years. International operations revenue grew 6.1% in the 2009 second quarter on a local currency basis, but after reflecting the negative impact of exchange rate fluctuations international revenues declined by 15.3% in US dollars. To $96.1 million.

Excluding the negative affect of exchange rate fluctuations our revenue growth in local currencies primarily reflects increased revenues in our Canadian operating region resulting from new business wins during the past two years and the positive impact of claims generated in our Asia Pacific region from recent captivity. International operating earnings declined to $8.2 million, in the current quarter, down 21.3%, from last year's second quarter operating earnings, of 10.4 million. This reflects a decrease in the operating margin from 9.2% in the 2008 second quarter to 8.6% in the 2009 quarter. Revenues from the US property and casualty segment totaled $54.5 million, in the 2009 second quarter. Growing 6.5% from the $51.2 million reported in last year's second quarter.

Revenues generated by our catastrophe adjusters totaled approximately $7.2 million in the 2009 second quarter. Increasing over the $3.5 million produced in the prior year period. This increase was driven by a sharp increase in property claims and increased catastrophe related claims from the severe weather we experienced in the 2009 first and second quarters. Operating earnings in our US property and casualty segment totaled $6.2 million. Or an operating margin of 11.4% of revenues, in the 2009 second quarter. This is compared to operating earnings of $5.1 million or 9.9% of revenues in the prior year quarter. This operating earnings improvement primarily reflects the contribution from increased catastrophe related claims.

Revenues from our Broadspire segment decreased to $73.1 million, in the 2009 second quarter. Down from $79.1 million in the prior year quarter. Reflecting sharply lower industry wide workers compensation referrals as result of weak US employment levels. Broadspire's operating earnings in the 2009 second quarter totaled a loss of $606,000. Or a negative 0.8% of revenues decreasing from operating earnings of $2.5 million or 3.2% of revenues in the 2008 second quarter. Company's goodwill impairment charge did not affect the segment operating results of Broadspire.

Legal settlement administration revenues comprised of class action, and bankruptcy claims administration services rose 32.5% in the 2009 second quarter. To $25.9 million. Up dramatically from the $19.6 million in the prior year quarter. This growth reflects the positive impact of several major bankruptcy and securities class action administration projects awarded to the Company during 2009. Operating earnings totaled $4.3 million, in the 2009 second quarter or 16.5% of revenues. As compared to $3.1 million or 16.1% of revenues in the prior year period.

Legal settlement administration continues to have a very strong backlog of projects awarded totaling a record of approximately $62.8 million at June 30, 2009, compared to $52.8 million at June 30, 2008. Our cash and cash equivalent position at June 30, 2009, totaled $58.1 million, as compared to $73.1 million at the December 31, 2008, and $48.3 million, at June 30, 2008. Our investment in unbilled and billed receivables has declined by $6.1 million in US dollars during 2009 reflecting a 1 day improvement in day sales outstanding or DSO. Total debt has also declined in 2009 by $1.8 million. Stockholders equity declined by $84.8 million, reflecting the $94 million goodwill impairment charge reported in the 2009 second quarter.

Cash provided by operations totaled $3.7 million, for the 2009 six month period, compared to $11.1 million provided in the prior year period. This $7.4 million decrease was primarily due to lower net income during the 2009 period, before reflecting the impact of the goodwill impairment charge. The Company's cash requirements typically peaked during the first fist of the year, and declined over the balance of the year. Our free cash flow deficit stood at a negative $8.8 million, for the 2009 six month period. Increasing from the negative $3.2 million in the 2008 period. That wraps up my initial comments, Jeff.

Thanks Bruce. Let me now add some comments and thoughts about business progress and outlook for each of our business units starting with international operations. We saw strong revenue growth of 6.1% before currency impacts, resulting from wins at our predominantly property and casualty programs in our Canadian and Asia Pacific operations. For the second quarter international operations represented 38.5% of the Company's total revenue. Compared to 42.9% in the previous year. The foreign exchange impact on the second quarter revenue against 2008 was negative 21.4%. Or $24.3 million. Despite the challenging economic conditions we were able to produce operating margin of 8.6% against 9.2% in the previous year. When we look at claims referred and compare 2009 to 2008, we see a decrease in international claims of 7.5% in the second quarter.

This decrease relates primarily to the UK and Canada. In the UK, the decrease has been affected by generally low market volumes, due to benign weather. In Canada both claims received and outstanding have declined steadily, the major reason is softness in the Ontario auto market and reduction in desktop handled claims from our major clients. We continue to adjust our cost base and improve our efficiencies in these operations.

Now reviewing our US property and casualty segment, the US property and casualty operations has performed well on a 2.6% increase in total claims in the second quarter. One trend we continue to see is a slowing number of casualty claims in the US transportation sector. But we saw our cap related claims increase by 51.6%, in the quarter. I will discuss cap more in a moment.

As a result of the investments we incurred in the prior year, in employees, training and quality, we are delivering a market leading product, this is a significant strategy linked with our technology implementation of CMS2. We are benefiting financially and operationally, from increased process efficiencies, to take a bigger share of the claims market as our clients consolidate the independent adjustors they do business with.

As I mentioned earlier we are beginning to see increased outsourcing opportunities from clients the the volume claims business as we grow the business outsourcing arena, global technical services capabilities and contractor connection are leading US direct repair network. In quarter four last year, we focused on executing the implementation of a transformation of US property and casualty business model. Three main components were announced in December and comprised of one, a substantial reduction -- restructuring of field operations; two, the introduction of new command center in Atlanta that provides affective central oversight; and three, the refinement of a business process outsourcing model which will enable delivery of a more comprehensive end to end claim processing for our insurance carrier clients. We launched the improved business process outsourcing model in the second quarter with of 2009.

The US sales team are focused on delivering the Crawford system of claims solution in to the marketplace. All have been trained and equipped to apply it to their sales efforts nd are now focusing on the BPO model which is a key element of our marketing strategy from this point forward.

There were 18 cap events reported by PCS, that is property claims services, in the first half of 2009, versus 25 in the comparable period last year. We reported an increase in catastrophe claims revenue to $7.2 million, for the 2009 second quarter, as compared with the $3.5 million in 2008, and the $4.9 million in the 2009 first quarter. While revenue if the first half of the year was an improvement over 2008, it arrived in a steady flow of events rather than radical deployment spikes. We handled 8,500 claims in 2009 second quarter, versus 5,600 in 2008. Although there were fewer events due to the relative geographic concentration of claims we saw more claims referred to us. At this time of year all attention by the cap division is being ready and prepared for the 2009 traditional fall cap season.

Now moving on to our Broadspire business unit. Our Broadspire segment primarily handles workers compensation claims. And as a result has been most affected by the current economic downturn. The current level of unemployment is resulting in significant lower workplace related claims volume in the US. We are targeting our sales and marketing efforts in this segment to drive market share gains to counteract the industry wide decline. We remain optimistic about the future of this business unit. We experienced a 9.1% decline in claims in the second quarter versus 2008. Which is consistent with the frequency decline of the whole workers compensation market. However, compared to the fourth quarter 2008, and the first quarter 2009 claims volume, we have seen a slight increase in claims assignment in the second quarter of 2009. This fundamental decline has caused a loss in revenue from our existing customer base. The reduction reflects the increase in unemployment levels which we believe is beginning to stabilize in our current clients as we look at claim assignments. Let me discuss some factors we are seeing.

Workers compensation loss time durations are starting to extend which pushes inventories higher, there is less opportunity to return people to work in a bad economy and less interest in settling claims as few jobs exist and the prospect for employment the minimal. We may also be seeing a job in reported claims by those employees remaining. Broadspire's revenue decreased 7.6% from the comparable quarter last year, and produced an operating loss of $606,000 in the quarter. The loss in the quarter is significantly less than the first quarter of 2009 and does include increased severance expenses which should lower the operating costs in the second half of the year as we continue to manage our expenses closely and make our starting model responsive to the current intake of new claims.

Broadspire has revamped their focus and resources in the thousand marketing team -- sales and marketing team to better sales services in the claims and medical management marketplace. We have had a good first half of client wins in 2009, in TPA claims services and stand alone managed care, in fact the account value won in 2009 to date exceeds the total for all of 2008. However, we have recently been notified by a major client of our Broadspire segment that the client does not intend to renew its existing contract with us upon termination of that contract in December 2009. We do not expect such notice to materially impact the Company over the remaining period of 2009. For the six months ended June 30, 2009, revenue and operating earnings related to that contract totaled $10.6 million, and $1.1 million respectively.

We have revised our sales approach to get more local sales attention with field case managers spending more time developing local business and having national sales executives focus on national accounts and the disability self carrier market. As you would expect the TPA market has become very aggressive in pricing for new business and renewals. To avoid loss of revenue or increase new revenue. We currently have over 68 new prospects in the pipeline. And the key objective in this marketplace environment is to convert those prospects to one account as quickly as possible. Our technology system Risk Tech, branch outs, dole outs is on track to be complete by mid August, this first phase of the risk take rollout will enable us to exist the focus system by the end of September and eliminate significant fixed cost.

Now our fourth business unit, legal settlement administration, the Garden City Group second quarter revenue of $25.9 million was a 32.5% increase on 2008 revenue of $19.6million. Our operating earnings of $4.3 million, were 36.4% off of from 2008 operating earnings of $3.1 million. Reflecting the positive impact of winning several new major bankruptcy cases in 2009, and securing a major security class action administration project during the second quarter. June ranked as the second best month in the history of Garden City Group and the quarter ranks the sixth best in both earnings and revenues basis since 1999. In respect to the bankruptcy marketplace, we are now solidly among the three main competitors in this arena after the large case assignments made in the first and second quarter's of 2009. The competition in this business line is fierce and we continue to invest in talent and other resources to grow our operation further. As I mentioned earlier, the economic conditions have set the stage for the growth in our bankruptcy business is unfortunately not having the same impact in the security class action environment. In the past years our security class action practice has been a critical part of our success particularly because we have been successful in getting the largest cases in this sector.

In 2009 there have not been many of these cases but we have done a good job in getting a significant share being retained on three of the four security class actions that settled for more than $100 million. Overall the Garden City have been retained in 140 assignments both class action and bankruptcy versus 84 at this time last year. We are pleased with that performance. Although we don't know when we remain convinced that the class action market will turn around and we expect that we will still be benefiting from the growth in bankruptcy market assignments when the class action marketplace returns. Finally our 2009 second quarter backlog at the end of June was a record $62.8 million up from $39 million in the first quarter 2009 and from $52.8 million, in the same quarter of 2008.

Now looking at guidance for the fiscal 2009. We are updating our previously issued guidance for 2009 as follows. Consolidated revenue before reimbursements between 960 million, and $980 million, consolidated operating earnings between $52.5 and $57.8 million. Consolidated cash provided by operating activities between $35 million, and $40 million. After reflecting stock based compensation expense, net corporate interest expense, customer relationships, intangible asset amortization expense, special charges and credits, and income taxes, net loss attributable to Crawford & Company on a GAAP basis between $72 million, and $69 million, or $1.40 to $1.34 loss per share.

Before reflecting the special charge related to goodwill impairment, net income attributable to Crawford & Company on a non-GAAP basis, between $22 million, and $25 million or $0.41 to $0.47 diluted earnings per share.

Now let me finish by stating that while the goodwill impairment charge has substantially impacted our reported GAAP results for this year, we are encouraged by our operating performance. How will Crawford respond we will continue to build on the operational improvements as we move forward through 2009. Our priorities remain threefold, one, disciplined approach to expenses management and working capital to help navigate these difficult economic times, two, focusing on improving operational efficiency, and delivering results to our client, and three, most importantly, gaining new business through all our business units. Through the balance of 2009 we'll continue to grow and build a strong foundation for the corporation and capsize on the opportunities presented. Thank you for your time and we look forward to your questions. Operator?

(Operator Instructions) Your first question comes from the line of Mark Hughes with SunTrust

Thank you very much. Good afternoon. In describing the claims volume stabilizing, is that function of the longer duration, is that the key driver or is there also the fact that the payrolls are flattening out?

We are looking at that from the universe of our client base and it seems from what we are seeing in terms of analysis that that really is a lot of the reductions in employment have taken place in our particular client base and I mean it's just a stabilization.

When we talk about claims markets, it's cases received, so it is not so much cases that we are currently handling it's the intake that we get in the quarter.

Right. So the intake is stabilizing, when we say stabilizing, is that to say that it's flat, at the end of the quarter compared to Q1?

It's slightly up from Q1.

Okay.

Very minimally.

Right. Well, hey. The legal settlement business, I guess I've seen from outside public sources that you're working on the GM bankruptcy, could you talk about how you got that, how long you think that will be making a contribution?

Yes. We have been retained on the GM bankruptcy, Mark. That was a big win for us in that segment of our legal settlement business. We expect to be handling aspects of that case over the next few quarters, and perhaps into next year. But as with any large case that we handle, there is twists and turns along the way and you really -- it's hard to predict how much that will impact us in the future or when. Because it's due to how the case is ultimately administered by the bankruptcy court.

Right. Jeff, you mentioned increasing outsourcing opportunities with insurance carriers I believe, I think you've been pursuing that idea for sometime. Was there anything in this quarter that especially jumped out at you or were you emphasizing the longer term prospects there?

It's both really, long-term prospects are that we are tracking down on prospects where the clients are looking to transfer fixed to variable cost as we go through a fairly difficult economic situation for everybody. We are also seeing a number of clients doing what we call panel reconstructions where they may have ex number of vendors on their panels at the moment and are reducing them to a smaller number. Implicit in that is a increase in the number of claims that will come to the Crawford organization. We see through our technologies, our regulation, our compliance, all the attributes we -- we have a model which is very vibrant at the moment.

Final question, the risk tech, when it kicks in in September, could you give us an update on what you think that might mean in terms of the expense reduction?

Mark, this is Bruce. For a full year the cost that we believe we will be able to turn off is about $7.2 million, a year just associated with the system hosting cost for the focus system, which is system that we inherited when we acquired Broadspire that we would be decommissioning at the end of the third quarter. So we will get a roughly a quarter of the savings in 2009 and then a full year benefit in 2010.

Are there any offsetting capitalization or I guess amortization or depreciation charges that will come on line?

There will be amortization costs that come on line.

How much is that going to be.

I do not have that figure off the top of my head.

Okay, I will follow up.

(Operator Instructions) We have a follow-up question from Mark Hughes with SunTrust.

The loss of the customer in the Broadspire segment you described a $10.6 million revenue and then $1.1 million in -- is that net or pretax? And then was that a six month or full year number?

That's a six month number, and that's an operating earnings figure.

After tax or?

Before tax.

Then any color you can shed on what the alternative direction for that customer is, another one of your more direct competitors or did they go with an insurance carrier that offered, I guess the risk coverage as well?

Well, we don't speculate on that issue, Mark, but I mean from -- we are not at liberty to divulge the name. Sometimes clients renew for different reasons. One thing I will say that in this particular situation we were providing very good quality products. Our audience are absolutely first class. So from a technical aspect we were working very diligently on that. Sometimes these situations arise. From the positive side, I mean at this moment, the new business that we have contracted in 2009, is currently standing at about $15 million, in annualized revenue.

Will that begin to come on line--?

Some of it has come on already. Then obviously there is a balance in to 2010, and we still have as I said earlier 68 prospects that we are working hard to bring on board at this very moment.

Right. If you look at the Broadspire business now that we are obviously well into it, it sit that the pricing, do you think the pricing is adequate that you are charging? Obviously you have to challenges from a margin prospective and I understand that the volumes have been under pressure lately, assuming you don't get any dramatic recovery in the job market, what does it take to get the margins up to an adequate level?

Well, I think there are several parts to that. The first part is the technology rollout. Getting to one system has been an objective that we've obviously spoken about a number of times. The final part of that is in a few days time, actually, that gives us the base then to have one system for about 75 to 80% of our staff to work on. That is when you start to see better efficiencies and information to be able to manage in a better basis the claims that are coming in.

The pricing, I mean pricing is in all divisions under immense pressure at this moment. We see that, really it's no different than it's been for many years. It's just a little bit more heightened at this moment. We do see the model being -- because we've got a fixed overhead cost, the future potential incremental margins that we can get on client wins being absolutely first class for that particular unit we are very confident about getting the Broadspire unit to that stage.

Thank you.

There are no further questions at this time. I will now turn the call over to Mr. Bowman for closing remarks.

Thank you very much. I would like to thank everyone for joining us this afternoon. Wish you all a good rest of the week. Thanks very much.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay at 6:00 p.m. today, through 11:59 p.m. on August 18, 2009. The conference ID number for the replay is 21519530. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you. You may now disconnect.