Kingsway Financial Services Inc (KFS) Q1 2025 Earnings Call May 08, 2025 05:00 PM ET Speaker0 Good day, and welcome to the Kingsway First Quarter twenty twenty five Earnings Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. With me on the call are J. T. Fitzgerald, Chief Executive Officer and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everybody that today's ...

Core Insights - Kingsway Financial Services Inc. (KFS) reported a net loss of $8.3 million for the year ended December 31, 2024, compared to a net income of $24 million in 2023, despite a revenue increase of 5.9% to $109.4 million [2][4] - The company's stock performance showed a 1.7% gain post-earnings report, contrasting with a 5.6% decline over the past month, aligning with the S&P 500's performance [1] Revenue and Profitability Metrics - Consolidated revenues for 2024 were $109.4 million, up from $103.2 million in 2023, marking a 5.9% increase [2] - Adjusted consolidated EBITDA increased by 16.9% to $10.6 million in 2024 from $9.1 million in 2023 [2] Segment Performance and Operational Trends - Extended Warranty revenues grew slightly to $68.9 million, a 0.9% increase from $68.2 million [3] - KSX revenues rose 15.7% to $40.5 million from $35 million [3] - Combined adjusted EBITDA for both segments remained flat at $14.1 million [3] Extended Warranty Segment Insights - Adjusted EBITDA in the Extended Warranty segment decreased by 10.2% to $7.6 million due to higher claims costs driven by inflation [4] - Claims expense increases moderated in the second half of the year, with a 4.1% rise in Q4 compared to 13% in Q1 [4] - Cash sales increased by 3.6% for the year, indicating underlying demand strength [4] KSX Segment Insights - Adjusted EBITDA for the KSX segment rose 14.9% to $6.6 million, primarily due to acquisitions [5] - DDI revenues grew nearly 20% compared to 2023, while total nurse staffing shifts increased by 8.5% in Q4 [5] Management Commentary - CEO John Fitzgerald emphasized 2024 as a year of progress, highlighting sequential EBITDA growth and diversification through acquisitions [6] - Management expressed confidence in the KSX model and noted that recent acquisitions were immediately accretive [6] Capital Allocation and Debt Management - CFO Kent Hansen highlighted prudent capital allocation strategies, including debt management and the use of preferred equity for acquisitions [7] - Total net debt rose to $52 million at year-end from $35.3 million in 2023, mainly due to the Image Solutions acquisition [12] Guidance and Future Outlook - Management cited a trailing 12-month adjusted EBITDA run rate of $19 million to $20 million for its operating businesses [10] - Leadership expressed optimism about executing two to three acquisitions per year, supported by a growing pipeline of opportunities [10] Acquisition Strategy - Kingsway Financial continued its acquisition strategy, completing the purchase of Image Solutions and acquiring Bud's Plumbing [11] - The Bud's Plumbing deal is valued at $5 million plus adjustments, adding $6 million in annual revenues and $0.8 million in EBITDA [11] - The company also sold its VA Lafayette subsidiary, generating $1.1 million in net cash proceeds [11]

Financial Data and Key Metrics Changes - For the full year 2024, consolidated revenue was $109.4 million, up 6% from the previous year, and consolidated adjusted EBITDA was $10.6 million, up 17% compared to 2023 [7] - Consolidated adjusted EBITDA improved sequentially in each of the four quarters of the year [8] - The trailing 12-month adjusted EBITDA run rate for operating businesses, including pro forma results for recent acquisitions, is estimated at $19 million to $20 million [34] Business Line Data and Key Metrics Changes - In the Extended Warranty segment, revenue grew by 1% to $68.9 million, with a 3.6% increase in cash sales [9] - KSX reported revenue of $40.5 million, an increase of 16% compared to $35 million in 2023, with adjusted EBITDA rising to $6.6 million from $5.7 million [15] - Extended Warranty adjusted EBITDA decreased to $7.6 million from $8.4 million in the prior year due to increased claims costs [10] Market Data and Key Metrics Changes - Claims costs increased by 6.6% in 2024, down from a 10% increase in 2023, indicating moderation in claims expense [50] - The travel nurse market showed signs of recovery, with total shifts increasing by 8.5% and travel shifts up 42% in the fourth quarter [21] Company Strategy and Development Direction - The company aims to grow its skilled trades platform through organic growth and acquisitions, targeting two to three deals per year [32] - The strategy includes focusing on businesses in growing markets that are asset-light and deliver high returns on invested capital [32] - The company is committed to continuous improvement and enhancing operational efficiency across its segments [66] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the easing of margin pressures in the Extended Warranty segment and the overall stability of the business [12] - The company is focused on executing its strategy and creating long-term value for shareholders, entering 2025 with momentum and optimism [75] Other Important Information - The company completed the acquisition of Image Solutions and Buds Plumbing, enhancing its portfolio and operational capabilities [28][31] - Total debt outstanding increased to $57.5 million, up from $44.4 million at the end of 2023, primarily due to the acquisition of Image Solutions [43] Q&A Session Summary Question: Could you provide more color on the claims expense moderation in the Extended Warranty segment? - Claims increased by 6.6% in 2024, down from 10% in 2023, with moderation observed in the second half of the year [50] Question: What's the vision for growing the skilled trade services platform? - The focus is on organic growth and potential acquisitions in plumbing and HVAC, leveraging existing market opportunities [52][56] Question: Are you targeting specific verticals within your existing segments for acquisition opportunities? - The pipeline includes both existing segments and new industries, focusing on B2B services, healthcare services, and skilled trades [58][60] Question: How long have existing OIRs been searching for acquisitions? - Current OIRs have been with the company for varying lengths, with a need to backfill positions to maintain acquisition pacing [62] Question: Were there areas Kingsway did not perform well in 2024? - Management acknowledged areas for improvement, particularly in pricing strategies and talent acquisition, while emphasizing a culture of continuous improvement [66][70]

Kingsway Financial Services Inc. (NYSE:KFS) Q4 2024 Earnings Conference Call March 18, 2025 5:00 PM ET Company Participants James Carbonara - Investor Relations John Fitzgerald - Chief Executive Officer Kent Hansen - Chief Financial Officer Conference Call Participants Operator Good day, and welcome to the Kingsway Full Year 2024 Earnings Call. [Operator Instruction]. Please note, this conference is being recorded. With me on the call are J. T. Fitzgerald, Chief Executive Officer and Kent Hansen, Chief Fina ...

Exhibit 99.1 KINGSWAY REPORTS FULL YEAR 2024 FINANCIAL RESULTS Management to Host Conference Call Tuesday, March 18, 2025, at 5 p.m. ET Chicago - (March 17, 2025) - (NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the 12 months ended December 31, 2024. ● Consolidated revenue increased 5.9% to $109.4 million for the 12 months ended December 31, 2024, compared to $103.2 million in the prior year o Extended Warranty revenue was $68.9 million i ...

Acquisitions - Kingsway Financial Services Inc. acquired Image Solutions, LLC for $20.4 million, financed through $7.75 million in debt and cash on hand[21][22][23]. - The company completed the acquisition of a business for $20,054,000, net of cash acquired, in 2024, compared to $13,633,000 in 2023[323]. - The company acquired Systems Products International, Inc. for an aggregate cash consideration of $2.8 million, marking its fourth acquisition under the CEO Accelerator program[404]. - The acquisition of Digital Diagnostics Imaging, Inc. was completed for approximately $11.0 million, further expanding the company's portfolio of businesses with recurring revenue[409]. - The preliminary allocation of the Image Solutions purchase price was $20.354 million, with total identifiable assets and liabilities valued at $13.868 million, resulting in goodwill of $6.486 million[403]. - From the acquisition date through December 31, 2024, Image Solutions generated revenue of $2.5 million and incurred a net loss of $0.1 million[403]. - The final goodwill recorded for the acquisition of Digital Diagnostics Imaging, Inc. was $4.9 million, reflecting the premium paid over the fair value of net tangible and intangible assets acquired[413]. - The company recorded a measurement period adjustment that increased goodwill by $0.2 million for Digital Diagnostics Imaging, Inc. due to changes in estimated fair values[412]. Financial Performance - Kingsway's revenue for the year ended December 31, 2023, exceeded $100 million, qualifying it as an accelerated filer[20]. - Total revenues for 2024 increased to $109,382 thousand, up from $103,244 thousand in 2023, representing a growth of 5.2%[315]. - Operating income rose to $2,162 thousand in 2024, compared to $954 thousand in 2023, marking a significant increase of 126.3%[315]. - The net loss for 2024 was $8,295 thousand, a decline from a net income of $24,012 thousand in 2023, indicating a negative shift of 134.5%[318]. - Basic loss per share attributable to common shareholders for continuing operations was $(0.34) in 2024, down from earnings of $0.97 in 2023[315]. - Total operating expenses increased to $107,220 thousand in 2024, compared to $102,290 thousand in 2023, reflecting a rise of 4.8%[315]. - Comprehensive loss attributable to common shareholders was $8,421 thousand in 2024, compared to a loss of $4,586 thousand in 2023, representing an increase of 83.5%[318]. - The company reported an accumulated deficit of $361.5 million as of December 31, 2024, compared to $346.9 million in 2023, indicating an increase in the deficit of approximately 4.2%[313]. - The company experienced a loss from continuing operations attributable to common shareholders of $9.747 million in 2024, compared to income of $22.942 million in 2023[417]. Assets and Liabilities - Total assets decreased from $197.7 million in 2023 to $186.6 million in 2024, reflecting a decline of approximately 5.6%[313]. - Cash and cash equivalents decreased from $9.1 million in 2023 to $5.5 million in 2024, a reduction of about 39.5%[313]. - Goodwill increased from $50.4 million in 2023 to $56.5 million in 2024, representing an increase of approximately 12.5%[313]. - Total liabilities decreased from $173.1 million in 2023 to $168.3 million in 2024, a decline of about 2.8%[313]. - The company's additional paid-in capital decreased from $379.8 million in 2023 to $376.8 million in 2024, a decrease of about 0.8%[313]. - The total shareholders' equity attributable to common shareholders decreased from $27.7 million in 2023 to $8.4 million in 2024, a decline of approximately 69.6%[313]. - The company has a lease liability of $2.7 million as of December 31, 2024, compared to $1.2 million in 2023, reflecting an increase of approximately 124.6%[313]. - The company’s service fee receivable net of allowance for credit losses decreased from $10.1 million in 2023 to $9.4 million in 2024, a decline of about 6.9%[313]. Revenue Recognition and Business Segments - The Extended Warranty segment includes subsidiaries that provide vehicle service agreements across all 50 states, with IWS serving credit unions in 26 states[27][28]. - IWS, Geminus, and PWI focus on the automotive finance market, offering vehicle service agreements and related products[32][40]. - Trinity markets HVAC warranty products and provides maintenance support services across the United States[31][35]. - The average term of vehicle service agreements ranges from 24 to 36 months, with coverage options varying by vehicle type[34]. - No single customer accounts for 10% or more of Kingsway's consolidated revenues, indicating a diversified customer base[36]. - Kingsway's strategic initiatives include expanding its product offerings and enhancing market competitiveness in the automotive finance sector[42]. - The company recognizes service fee and commission revenue based on various agreements with credit unions, consumers, and businesses[380]. - Vehicle service agreement fees are earned over the duration of the contracts, with revenues recognized based on expected claims[381]. - The company estimates refunds based on historical refund rates, which have averaged between 5.83% to 12.00% of the original vehicle service agreement fee[382][383]. Cash Flow and Investment Activities - Cash provided by operating activities from continuing operations was $605,000 in 2024, a significant recovery from a cash used of $(26,849,000) in 2023[323]. - Total cash and cash equivalents and restricted cash decreased to $13,136,000 at the end of 2024 from $17,498,000 at the end of 2023[324]. - The company incurred an impairment of goodwill and intangible assets amounting to $2,848,000 in 2024[323]. - The company recognized a loss on extinguishment of debt of $160,000 in 2024, contrasting with a gain of $(31,616,000) in 2023[323]. - The company’s cash used in investing activities from continuing operations was $(16,846,000) in 2024, compared to cash provided of $6,468,000 in 2023[323]. - The company reported cash paid for interest of $4,659,000 in 2024, down from $24,581,000 in 2023[324]. Internal Controls and Reporting - The company maintains effective internal control over financial reporting as of December 31, 2024, according to independent auditors[292]. - The company accounts for all financial instruments using trade date accounting and conducts quarterly reviews for possible impairment[349]. - The company recognizes credit losses based on a forward-looking current expected credit losses model, estimating expected credit losses from various factors[359]. - The company reports investments in private companies at cost, adjusted for observable price changes and impairments, with changes included in net change in unrealized gain on private company investments[345]. - Investments in fixed maturities are classified as available-for-sale and reported at fair value, with unrealized gains and losses included in accumulated other comprehensive loss[342]. - The company’s subordinated debt is measured and reported at fair value, with changes in fair value related to credit risk recognized in other comprehensive income[371]. - Contingent consideration liabilities for acquisitions are measured at fair value at the date of acquisition, with changes reported as non-operating other revenue or expense[372]. - Deferred contract costs are amortized over the expected customer relationship period, with costs deferred and recorded in commissions and cost of services sold[360]. Employee and Operational Information - As of December 31, 2024, the company employed 433 full-time personnel, with no collective bargaining agreements in place[73]. - The company actively markets its services through industry events and networking, particularly for its business services and healthcare staffing[56][58]. - The company has a dedicated team of Searchers to identify and acquire businesses, enhancing its competitive advantage in the lower middle market[63]. - Claims management is fundamental to operating results, with a focus on settling claims fairly for policyholders[45]. - The company utilizes proprietary databases for real-time pricing adjustments and strategic decision-making in claims management[46].

Financial Data and Key Metrics Changes - Consolidated revenue for Q3 2024 was $27.1 million, a nearly 10% increase compared to the prior year quarter [9] - Consolidated adjusted EBITDA improved to $2.9 million, a 28% increase from $2.3 million in the same quarter last year [9] - The 12-month run rate adjusted EBITDA improved to between $18.5 million and $19.5 million, including the recently acquired Image Solutions [21] Business Line Data and Key Metrics Changes - The Extended Warranty segment saw a 3.4% increase in revenue driven by higher cash sales and a slight increase in warranty contract sales [10] - Claims expense in the Extended Warranty segment rose by 7.5% year-over-year, which is lower than the 12% increase experienced in the previous year [10] - The KSX segment's revenues increased by 23% compared to the prior year quarter, primarily due to acquisitions made in the previous year [12] Market Data and Key Metrics Changes - The venture market remained slow, but there are signs of recovery with increased marketing efforts generating solid leads [14] - The nurse staffing market is experiencing a persistent shortage of nurses, which is expected to continue driving demand [49] Company Strategy and Development Direction - The company is focused on growth through acquisitions, as evidenced by the acquisition of Image Solutions for $19.5 million [5][26] - Management is optimistic about the opportunities in the Extended Warranty and KSX segments, particularly with the potential for growth in credit union and mechanical businesses [11] - The company is committed to a strategy of penetrating existing markets and cross-selling services between its various business lines [48] Management's Comments on Operating Environment and Future Outlook - Management noted that claims inflation is moderating, which could positively impact the Extended Warranty business [11] - The company is optimistic about the recovery of the nurse staffing market and the potential for growth in the SNS segment [51] - Management believes that the hardware sales and installations for Image Solutions are merely delayed due to Hurricane Helene, not lost [46] Other Important Information - The company completed the sale of a subsidiary, VA Lafayette, which had a cash impact of approximately $1 million [25][57] - The company has repurchased 312,850 shares of common stock for about $2.5 million year-to-date [27] Q&A Session Summary Question: What industries are the most attractive for new acquisitions? - Management indicated a focus on asset-light business services and vertical market software, avoiding manufacturing businesses [30] Question: What is the appropriate time frame to measure success? - Management suggested assessing success around the 3-year mark post-acquisition, as new CEOs transition into their roles [31] Question: Can you provide more details about the new OIR? - The new OIR, Rob Casper, has extensive experience in private equity-backed roll-ups and is expected to target attractive service industries for consolidation [33][34] Question: What is the outlook for DDI's EBITDA? - Management noted that DDI's growth investments are expected to yield profitability improvements as customer onboarding progresses [36][39] Question: What are the attractive dynamics of the SNS market? - The persistent shortage of nurses in the U.S. is expected to drive demand, despite recent market pressures [49][50]

Core Viewpoint - Kingsway Financial Services Inc. reported a wider loss per share in Q3 fiscal 2024 compared to the previous year, despite an increase in revenues driven by both business segments [1][5]. Revenue Analysis - Kingsway Financial registered revenues of $27.1 million in Q3 fiscal 2024, reflecting a 9.5% year-over-year increase [2]. - The Extended Warranty segment generated $17.8 million in service fee and commission revenues, up 3.4% year over year [3]. - The Kingsway Search Xcelerator segment saw revenues of $9.3 million, marking a 23.3% year-over-year increase [3]. Operating Expenses - General and administrative expenses rose by 15% year over year to $11.9 million [4]. - The cost of services sold increased by 9.5% year over year to $6.8 million [4]. - Claims authorized on vehicle service agreements increased by 7.5% year over year to $6.3 million, while commissions rose by 8.9% to $2.8 million [4]. Profitability Metrics - The operating loss for Q3 fiscal 2024 was $0.7 million, compared to a loss of $0.2 million in the same quarter last year [5]. - The net loss for the quarter was $2.3 million, wider than the $0.7 million loss reported in the prior year [5]. - Adjusted EBITDA increased by 27.8% year over year to $2.9 million [5]. Liquidity and Cash Flow - Kingsway Financial ended Q3 fiscal 2024 with cash and cash equivalents of $6.7 million, down from $9.8 million at the end of Q2 [6]. - Cumulative net cash provided by operating activities was $1.2 million, a significant improvement from the $25.3 million used in operating activities a year ago [6]. Strategic Developments - During the reported quarter, Kingsway Financial acquired Image Solutions LLC, an IT managed services provider, and completed the sale of the VA Layfette subsidiary, which raises optimism about the company's future prospects [7].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share KFS New York Stock Exchange FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _ ...

Revenue Performance - Consolidated revenue increased by 9.5% to $27.1 million for Q3 2024, compared to $24.8 million in Q3 2023[1] - Extended Warranty revenue rose by 3.4% to $17.8 million in Q3 2024, while Kingsway Search Xcelerator (KSX) revenue surged by 23.3% to $9.3 million[1] Profitability and Loss - Consolidated net loss for Q3 2024 was $2.3 million, compared to a net loss of $0.7 million in the prior year period[1] - Adjusted consolidated EBITDA increased by 27.8% to $2.9 million for Q3 2024, compared to $2.3 million in Q3 2023[2] - The twelve-month run-rate adjusted EBITDA for operating companies is projected between $18.5 million and $19.5 million[2] Debt and Equity - Total net debt increased to $52.0 million as of September 30, 2024, up from $35.3 million as of December 31, 2023[6] - The company repurchased 312,850 shares of common stock at a cost of $2.5 million year-to-date through November 1, 2024[5] - The company issued 330,000 shares of convertible preferred stock for proceeds of $8.25 million, which were utilized for the Image Solutions acquisition[6] Segment Performance - GAAP Operating Income for the Extended Warranty segment for the twelve months ended September 30, 2024, was $6,405,000, compared to $7,361,000 for the same period in 2023, representing a decrease of approximately 13%[17] - Non-GAAP adjusted EBITDA for the Extended Warranty segment for the three months ended September 30, 2024, was $2,072,000, an increase from $2,122,000 in the same period of 2023, indicating a slight decline of about 2%[17][18] - GAAP Operating Income for the KSX segment for the twelve months ended September 30, 2024, was $4,984,000, down from $5,322,000 in 2023, reflecting a decrease of approximately 6%[20][21] - Non-GAAP adjusted EBITDA for the KSX segment for the three months ended September 30, 2024, was $1,313,000, compared to $1,105,000 in the same period of 2023, showing an increase of about 19%[20][21] - The Extended Warranty segment's total Non-GAAP adjusted EBITDA for the twelve months ended September 30, 2024, was $7,898,000, compared to $8,659,000 for the same period in 2023, representing a decrease of approximately 9%[17][18] - The KSX segment's total Non-GAAP adjusted EBITDA for the twelve months ended September 30, 2024, was $5,916,000, compared to $5,687,000 for the same period in 2023, indicating an increase of about 4%[20][21] Investments and Acquisitions - The company completed the acquisition of Image Solutions LLC for $19.5 million in cash, enhancing its IT services portfolio[4] - Kingsway appointed Rob Casper as the newest Operator-in-Residence in the KSX platform, indicating ongoing expansion efforts[4] Other Financial Metrics - Total Non-GAAP adjustments for the Extended Warranty segment for the twelve months ended September 30, 2024, amounted to $1,493,000, compared to $1,298,000 for the same period in 2023, representing an increase of approximately 15%[17][18] - Investment income for the Extended Warranty segment for the three months ended September 30, 2024, was $327,000, up from $273,000 in the same period of 2023, indicating an increase of about 20%[17][18] - Employee costs for the KSX segment for the three months ended September 30, 2024, were $120,000, compared to $87,000 in the same period of 2023, reflecting an increase of approximately 38%[20][21] - Depreciation for the KSX segment for the three months ended September 30, 2024, was $22,000, a decrease from $64,000 in the same period of 2023, indicating a decline of about 66%[20][21]