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 ...

Revenue Performance - Consolidated revenue increased by 5.9% to $109.4 million for the 12 months ended December 31, 2024, compared to $103.2 million in the prior year[4] - Extended Warranty revenue was $68.9 million in 2024, a slight increase from $68.2 million in 2023, driven by an increase in the number of contracts sold and average price per contract[4] - KSX revenue rose by 15.7% to $40.5 million in 2024, compared to $35.0 million in 2023, primarily due to acquisitions of SPI, DDI, and Image Solutions[4] Profitability and Loss - Consolidated net loss was $8.3 million for the 12 months ended December 31, 2024, compared to net income of $24.0 million in the prior year[4] - Adjusted consolidated EBITDA was $10.6 million for the 12 months ended December 31, 2024, up from $9.1 million in the prior year[4] - Extended Warranty adjusted EBITDA decreased to $7.6 million in 2024 from $8.4 million in the previous year due to higher claims expenses[4] - KSX adjusted EBITDA increased by 14.9% to $6.6 million in 2024, compared to $5.7 million for 2023, driven by the inclusion of recent acquisitions[4] Debt and Share Repurchase - The company repurchased 355,750 shares of its common stock for an aggregate purchase price of $2.8 million during 2024[11] - Total net debt increased to $52.0 million as of December 31, 2024, compared to $35.3 million as of December 31, 2023[11] Future Outlook - The company is encouraged by potential acquisition opportunities and remains confident in its ability to acquire cash flow generating businesses[5] GAAP and Non-GAAP Metrics - GAAP Net Income for the twelve months ended December 31, 2024, was $(8,295) million, compared to $24,012 million for the same period in 2023[19] - Non-GAAP Adjusted Consolidated EBITDA for the three months ended December 31, 2024, was $10,637 million, up from $9,098 million for the same period in 2023, reflecting a year-over-year increase of 17%[19] - Total Non-GAAP Adjustments for the twelve months ended December 31, 2024, amounted to $18,932 million, compared to $(14,914) million for the same period in 2023[19] Segment Performance - GAAP Operating Income for the Extended Warranty segment for the three months ended December 31, 2024, was $5,942 million, a decrease from $6,983 million in the same period of 2023[20] - Non-GAAP adjusted EBITDA for the KSX segment for the three months ended December 31, 2024, was $6,563 million, compared to $5,711 million for the same period in 2023, indicating a growth of 15%[22] - Investment income for the Extended Warranty segment for the three months ended December 31, 2024, was $1,276 million, compared to $1,061 million in the same period of 2023[20] - Non-GAAP adjusted EBITDA for the Extended Warranty segment for the three months ended December 31, 2024, was $7,569 million, up from $8,426 million in the same period of 2023[20] Employee Expenses and Other Items - Employee-related expenses for the twelve months ended December 31, 2024, were $2,259 million, compared to $1,985 million for the same period in 2023, reflecting a 14% increase[19] - The company recorded a total of $1,832 million in other items for the twelve months ended December 31, 2024, compared to $3,639 million in the same period of 2023[19]

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].

Financial Performance - The Company's revenue for the year ended December 31, 2023, was more than $100 million[281]. - In Q3 2024, Kingsway Financial Services reported segment operating income of $2.8 million, an increase of $0.1 million from Q3 2023, with year-to-date income at $8.0 million, down $0.8 million compared to the prior year[300]. - The company reported a loss from continuing operations of $2.2 million in Q3 2024, compared to a loss of $0.8 million in Q3 2023, with a year-to-date loss of $6.6 million compared to income of $25.2 million in the same period last year[301]. - Kingsway Financial Services experienced a net loss of $2.3 million in Q3 2024, compared to a net loss of $0.7 million in Q3 2023, with a year-to-date net loss of $6.8 million compared to net income of $25.5 million in the prior year[302]. - Extended Warranty service fee and commission revenue was $17.8 million for Q3 2024, up from $17.3 million in Q3 2023, with year-to-date revenue at $51.6 million, compared to $51.0 million in the prior year[303]. - Kingsway Search Xcelerator revenue increased to $9.3 million in Q3 2024 from $7.5 million in Q3 2023, with year-to-date revenue at $28.1 million compared to $26.4 million in the prior year[306]. Segment Information - Kingsway operates through two reportable segments: Extended Warranty and Kingsway Search Xcelerator[282]. - Extended Warranty includes subsidiaries such as IWS, Geminus, PWI, and Trinity, providing various vehicle service agreements and warranty products[283][284][285][286][287]. - Kingsway Search Xcelerator comprises subsidiaries like CSuite, Ravix, and DDI, offering professional services and outsourced financial services[288][289][290][291]. - The operating income for Kingsway Search Xcelerator was $1.1 million in Q3 2024, compared to $1.0 million in Q3 2023, with year-to-date operating income at $3.9 million, down from $4.2 million[306]. - Operating income for the Extended Warranty segment was $1.7 million in Q3 2024, down from $1.8 million in Q3 2023, with year-to-date operating income at $4.0 million compared to $4.6 million in the prior year[304]. Investment and Cash Flow - As of September 30, 2024, the company held cash and cash equivalents, restricted cash, and investments with a carrying value of $56.2 million[334]. - The total carrying value of investments is $56.2 million, a decrease from $59.4 million on December 31, 2023[335]. - The company reported $0.7 million of net cash provided by operating activities from continuing operations for the nine months ended September 30, 2024, a significant improvement from $25.7 million of net cash used in the same period in 2023[355]. - During the nine months ended September 30, 2024, net cash used in investing activities was $16.4 million, primarily due to the acquisition of Image Solutions and purchases of fixed maturities[356]. - Net cash provided by financing activities for the nine months ended September 30, 2024, was $13.3 million, driven by bank loan proceeds of $33.7 million and Class B preferred stock issuance of $8.3 million[357]. Debt and Liabilities - The total bank loans increased to $60.3 million at September 30, 2024, from $46.3 million at December 31, 2023[340]. - The company borrowed $5.5 million under the 2024 KWH DDTL and $1.0 million under the KWH Revolver during the third quarter of 2024[344]. - The carrying value of subordinated debt is $13.7 million as of September 30, 2024, with a principal value of $15.0 million[349]. - The company recorded a loss on extinguishment of debt of $0.2 million for the nine months ended September 30, 2024, related to the 2020 KWH Loan modification[328]. Market and Compliance - The aggregate market value of the Company's shares held by non-affiliate stockholders was between $75 million and $250 million as of the last business day of Q2 2023[281]. - The Company is now deemed an accelerated filer, which requires compliance with auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act[281]. - The Company disclaims any intention to update or revise forward-looking statements unless required by applicable securities law[280]. - The company is classified as a smaller reporting company and is not required to make certain market risk disclosures[364].

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]

Core Points - Kingsway Financial Services Inc. is conducting a conference call to discuss its acquisition of Image Solutions LLC [1][3] - Key participants in the call include the CEO of Kingsway, the CFO, and the incoming CEO of Image Solutions [3] Company Overview - The conference call is hosted by James Carbonara from Hayden IR [2] - The call includes forward-looking statements regarding expected revenue, operating margins, expenses, and future business outlook [4] - The company may use non-GAAP metrics to analyze performance, with reconciliations available in periodic SEC filings [5]

Summary of Kingsway Financial Services Inc. Conference Call on Acquisition of Image Solutions LLC Company and Industry Overview - **Company**: Kingsway Financial Services Inc. (NYSE: KFS) - **Acquisition Target**: Image Solutions LLC - **Industry**: IT Managed Services and Hardware as a Service Key Points from the Conference Call Acquisition Details - Kingsway acquired Image Solutions LLC for **$19.5 million** in cash, plus transaction expenses and a small working capital adjustment [7] - The acquisition is funded through **$11.4 million** in cash and a **$7.7 million** debt facility [12] - Image Solutions is the **sixth acquisition** in Kingsway's growing Kingsway Search Xcelerator (KSX) portfolio [8] Financial Performance of Image Solutions - For the 12 months ending June 30, 2024, Image Solutions reported **$9.8 million** in unaudited revenue and **$3.1 million** in unaudited adjusted EBITDA [11] - The acquisition valuation represents approximately **2.3 times revenue** and **6.3 times adjusted EBITDA** [11] - Image Solutions has maintained EBITDA margins exceeding **30%** over the last two years [11] Business Model and Growth Potential - Image Solutions operates in a **highly fragmented** and growing industry, with both managed service provider (MSP) and hardware as a service sectors expected to grow at **11% to 12% CAGR** over the next decade [33] - Approximately **30%** of Image Solutions' revenue comes from MSP services, which have grown at an average rate of **25% year-over-year** for the past three years [18] - The company has a **2% revenue churn rate** and **80%** of its revenue is contractually recurring, indicating strong client retention [19][20] Strategic Focus and Future Plans - The company plans to leverage the Kingsway Business System Playbook to establish processes and dedicated business development capabilities [25] - Future growth opportunities include expanding service lines such as **cybersecurity** and **cloud storage**, as well as geographic expansion beyond current markets [26][40] - The management emphasizes the importance of customer retention and new customer acquisition as key components of their growth strategy [25] Impact of Hurricane Helene - Image Solutions was minimally affected by Hurricane Helene, maintaining operations and power throughout the storm [23] - The company anticipates a full recovery by year-end, with only temporary deferrals in installations expected [24] Management Insights - The transition of Davide Zanchi from Operator-in-Residence to CEO of Image Solutions is seen as a positive move, with expectations for strong leadership and growth under his guidance [27] - Kingsway is actively seeking additional Operator-in-Residence candidates to support future acquisitions and growth goals [28] Market Dynamics - The IT managed services market is characterized by increasing outsourcing of IT management, making MSPs essential for operational efficiency [18] - Image Solutions is well-positioned to capitalize on this trend, integrating equipment sales and support into long-term contracts [18] Additional Important Insights - The acquisition is viewed as a milestone in Kingsway's Xcelerator program, with expectations for significant shareholder value creation [27] - The management team is focused on maintaining high margins while investing in business growth [35] This summary encapsulates the key points discussed during the conference call regarding the acquisition of Image Solutions LLC by Kingsway Financial Services Inc., highlighting the financial performance, strategic focus, and market dynamics of the IT managed services industry.

Core Insights - The ongoing debate in the investment community revolves around whether to focus on the industry (the horse) or the management team (the jockey) of a company [1][2]. Company Analysis: Kingsway Financial Services (KFS) - Kingsway Financial Services operates through two segments: Extended Warranty and Kingsway Search Xcelerator (KSX) [4]. - The Extended Warranty segment generated $68.2 million in service fee and commission revenues in 2023, reflecting a 7.8% decrease from 2022 [4]. - The KSX segment, focusing on business services, achieved $35 million in revenue in 2023, marking an 81.9% increase from 2022 [5]. - The KSX segment is expected to grow as it is based on the "search fund" model, which has shown superior returns from 1984-2021 according to a Stanford Business School study [5]. - Kingsway emphasizes hiring CEOs from top MBA programs and those with proven leadership skills, including military experience [6]. - The stock is trading at 2.1X trailing 12-month EV/Sales TTM, compared to 2.3X for the Zacks sub-industry and 1.2X for the Zacks sector [8]. Company Analysis: TSS Inc. (TSSI) - TSS Inc. operates in the growing data center industry, benefiting from the demand for AI-enabled infrastructure [9]. - The company provides IT solutions, including rack and systems integration, and has seen significant growth due to the surge in demand for AI [10]. - TSS's net income increased by 345% year-over-year to $1.4 million, driven by higher profitability in core businesses [11]. - Adjusted EBITDA rose by 62%, reaching $2 million, indicating improved overall profitability despite revenue declines in some segments [11]. - The stock is currently trading at 1.80X trailing 12-month EV/Sales TTM, compared to 2.10X for the Zacks sub-industry [12].