Kingsway(US:KFS)2024-03-05 21:48Acquisitions - Kingsway Financial Services Inc. acquired Systems Products International, Inc. for $2.8 million on September 7, 2023, enhancing its Kingsway Search Xcelerator segment [19]. - The company also acquired Digital Diagnostics Imaging, Inc. for approximately $11.0 million on October 26, 2023, further expanding its service offerings [21]. - The company acquired Systems Products International, Inc. for $2.8 million, expanding its portfolio in the vertical market software space [423]. - The acquisition of Systems Products International, Inc. included intangible assets valued at $1.72 million, comprising customer relationships and developed technology [427]. - The acquisition of DDI was completed with a purchase price of $10.99 million, with total assets acquired valued at $13.50 million and total liabilities of $2.51 million [432]. - Goodwill from the DDI acquisition amounted to $4.76 million, reflecting the premium paid over the fair value of net tangible and intangible assets [431]. - CSuite was acquired for approximately $8.5 million, with a potential contingent consideration of up to $3.6 million based on future financial performance [435]. - Goodwill from the CSuite acquisition was recorded at $4.1 million, representing the premium over the fair value of acquired assets [437]. - The acquisition of Secure Nursing Service, Inc. (SNS) was completed for $11.5 million, with total assets valued at $11.51 million and total liabilities of $6,000 [443]. Financial Performance - Total revenues for 2023 reached $103,244,000, an increase of 10% compared to $93,280,000 in 2022 [336]. - Operating income for 2023 was $954,000, a significant improvement from an operating loss of $3,573,000 in 2022 [336]. - Net income attributable to common shareholders for 2023 was $23,485,000, compared to $24,416,000 in 2022, reflecting a decrease of 3.8% [336]. - Basic earnings per share for continuing operations decreased to $0.97 in 2023 from $1.36 in 2022 [336]. - Total assets decreased to $197,717,000 in 2023 from $285,650,000 in 2022, a decline of 30.7% [334]. - Total liabilities decreased to $173,106,000 in 2023 from $263,529,000 in 2022, a reduction of 34.3% [334]. - Cash and cash equivalents significantly decreased to $9,098,000 in 2023 from $64,168,000 in 2022 [334]. - The company reported claims authorized on vehicle service agreements of $23,066,000 in 2023, up from $20,895,000 in 2022, indicating a rise of 10.5% [336]. - Net income for 2023 increased to $24,012,000, up from $15,065,000 in 2022, representing a growth of 59.5% [340]. - Comprehensive loss attributable to common shareholders was $(4,586,000) in 2023, compared to a comprehensive income of $20,548,000 in 2022, indicating a significant decline [340]. - Other comprehensive loss, net of taxes, totaled $(28,115,000) in 2023, compared to $(4,238,000) in 2022, reflecting a worsening in investment performance [340]. - The total number of common shares outstanding increased to 27,101,613 by December 31, 2023, from 23,190,080 in 2022, indicating a rise in equity [343]. - The accumulated deficit decreased to $(346,868,000) in 2023 from $(370,427,000) in 2022, showing an improvement in retained earnings [343]. - The company reported a net income of $23,559,000 for the year 2022, which contributed to the overall financial health leading into 2023 [343]. Operational Insights - Kingsway's Extended Warranty segment includes subsidiaries that provide vehicle service agreements across all 50 states, with a focus on automotive finance markets [26][32]. - No single customer or group accounts for 10% or more of the company's consolidated revenues, indicating a diversified revenue stream [39]. - The average term of vehicle service agreements (VSAs) offered by Kingsway's subsidiaries ranges from 24 to 36 months, with various coverage options available [35]. - Kingsway's subsidiaries market VSAs through credit unions and independent automotive dealerships, ensuring a broad distribution network [40][42]. - The company has successfully integrated its strategic initiatives, including the disposal of non-core operations, to focus on its warranty and business services segments [30]. - Kingsway's financial performance is influenced by industry trends in the automotive service contract and business services sectors, which are monitored closely [14]. - The company emphasizes risk management and profitability in its operations, particularly in the competitive automotive finance market [41]. - PWI operates in all fifty states, focusing on Vehicle Service Agreements (VSAs) for used car buyers through a network of dealer partners [44]. - PWI's strategy includes adding new products to its existing menu of VSAs and Guaranteed Asset Protection (GAP) to enhance competitiveness in a highly competitive automotive finance market [45]. - Trinity directly markets warranty products to HVAC manufacturers and distributors, emphasizing superior customer service and a broader range of warranty solutions compared to competitors [46][47]. - Claims management is crucial for Extended Warranty's operating results, with a focus on fair settlement for policyholders [48][49]. - The company employs experienced claims staff and utilizes proprietary databases for real-time pricing adjustments and strategic decision-making [50]. Cash Flow and Investments - Cash used in operating activities for continuing operations was $(26,849) million in 2023, compared to $(2,629) million in 2022, indicating a significant increase in cash outflow [345]. - Cash provided by investing activities for continuing operations was $6,468 million in 2023, a decrease from $58,094 million in 2022 [345]. - Proceeds from the exercise of warrants amounted to $16,658 million in 2023, compared to $545 million in 2022, showing a substantial increase [347]. - Cash and cash equivalents at the end of the period were $17,498 million, down from $77,232 million at the beginning of the period [345]. - The company incurred interest expenses of $24.581 million in 2023, up from $1,427 million in 2022, reflecting increased borrowing costs [347]. - The net cash used in financing activities was $(39,963) million in 2023, compared to $(37,932) million in 2022, indicating a higher cash outflow for financing [345]. - The company recognized impairment losses of $229 million in 2023, reflecting challenges in asset valuations [345]. Accounting and Reporting - The Company accounts for acquisitions as asset acquisitions when the fair value of gross assets is concentrated in a single identifiable asset or group of similar assets, with no goodwill recognized [362]. - 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 income, net of tax [363]. - Limited liability investments are accounted for under the equity method, with income or loss recognized based on the Company's share of earnings from these entities [364]. - Investments in private companies are reported at cost, adjusted for observable price changes and impairments, as they do not have readily determinable fair values [366]. - Cash and cash equivalents include cash and investments with original maturities of no more than three months, readily convertible into cash [379]. - The Company recognizes credit losses on service fee receivables based on a forward-looking expected credit loss model, considering various factors such as historical collection experience and current economic conditions [381]. - Deferred contract costs represent incremental costs to obtain or fulfill a contract with a customer, capitalized and amortized over the expected customer relationship period [382]. - The Company measures derivative financial instruments at fair value, with changes recorded in the consolidated statements of operations [390]. - The Company's subordinated debt is reported at fair value, calculated using significant market observable inputs [394]. - Contingent consideration liabilities for acquisitions are measured at fair value and changes are reported as non-operating other expense in the consolidated statements of operations [395]. Future Outlook - The company expects to complete the purchase price allocation for Systems Products International, Inc. in the first quarter of 2024 [424]. - The CEO Accelerator program has four full-time Searchers as of December 31, 2023, with plans to maintain or expand this number based on business opportunities [70].