Management to Host Conference Call Today at
5 p.m. ET
CHICAGO, Aug. 8, 2023
/CNW/ - (NYSE: KFS) Kingsway Financial Services
Inc. ("Kingsway" or the "Company") today announced its
operating results for the three and six months ended June 30, 2023.
Second Quarter 2023 Consolidated Financial Highlights
- Consolidated revenue increased 11% to $26.2 million for the three months ended
June 30, 2023, compared to
$23.6 million in prior year
period
-
- Extended Warranty revenue was $17.0
million in the second quarter of 2023 compared to
$19.4 million in the second quarter
of 2022; $2.1 million of the
$2.4 million decrease was
attributable to PWSC, which was sold in July
2022
- KSX revenue increased by 121% to $9.2
million in the second quarter of 2023, compared to
$4.1 million for the second quarter
of 2022, primarily due to the inclusion of CSuite and SNS, which
were acquired in November 2022
- Consolidated net loss was ($1.7)
million for the three months ended June 30, 2023, compared to a net loss of
($2.4) million in the prior year
period
- Adjusted consolidated EBITDA was $1.8
million for the three months ended June 30, 2023, compared to $3.1 million in the prior year period (prior year
includes the results of PWSC)
-
- Combined operating income for the Extended Warranty segment and
KSX segment was a total of $3.0
million compared to a total of $3.8
million in the second quarter of 2022 (2022 includes the
results of PWSC)
- Combined pro forma adjusted EBITDA for the Extended Warranty
segment and KSX segment was a total of $3.4
million compared to a total of $3.3
million in the second quarter of 2022 (pro forma excludes
the results of PWSC)
- The Extended Warranty segment results were lower than expected
for Q2 2023, primarily due to higher vehicle service agreement
claims severity; Trinity continues to be impacted by historically
long lead times for components and parts
- KSX segment results for Q2 2023 benefitted from the inclusion
of CSuite and SNS
- Twelve month run-rate adjusted EBITDA for the operating
companies remains at $18 million to
$19 million
"Strength in our higher-margin Kingsway Search Xcelerator
business, resulting primarily from our recent acquisitions of SNS
and CSuite, drove both an increase in revenue and an increase in
adjusted EBITDA in that segment in the second quarter," said
John T. Fitzgerald, President and
Chief Executive Officer of Kingsway. "While revenues were roughly
flat to the prior year, profitability in our Extended Warranty
segment was roughly $600,000 lower
due to rising claim costs in the quarter. Importantly, we are
encouraged by the progress we are making with a number of
potential M&A transactions as deal flow has increased
significantly since the start of 2023. We remain committed to our
target of two to three acquisitions each year, with $1.5 million to $3.0
million of adjusted EBITDA, that will further expand our KSX
business and provide attractive returns on invested capital for our
shareholders."
Recent Business Highlights
- To date, repurchased 558,670 of its warrants and 68,446 shares
of its common stock at a combined cost of $2.6 million under its securities repurchase
program; $7.4 million of securities
repurchases could be made through March 22,
2024
- Year-to-date (through August 7,
2023) exercises of 1,762,560 warrants (Q1 1,258,840; Q2
53,101: Q3 450,619), resulting in $8.8
million of cash to the Company; as of August 7, 2023, there were 2,143,506 warrants
outstanding
- Completed a cashless exercise of all warrants held in Limbach
Holdings, Inc. and received 110,036 shares of common stock.
Recorded an unrealized gain of $1.8
million related to the investment in the second quarter. To
date (through August 7, 2023), sold
46,000 shares for cash proceeds of $1.2
million
- Principal debt payments of $1.6
million in the quarter; the Company now has total net debt
of $27.9 million as of June 30, 2023, compared with $37.9 million as of December 31, 2022
- Added Mr. Davide Zanchi as an
Operator-in-Residence to its innovative Kingsway Search Xcelerator
platform
"Our capital allocation decisions are aimed at striking a
balance between growing our business by acquisition through KSX;
debt reduction at our operating entities; equity repurchases under
our buyback plan; and reinvestment for organic growth in our
existing operating entities; all in a manner that will best serve
our shareholders for the long-term," continued Mr. Fitzgerald. "We
are pleased to have executed on our share buyback plan in the
quarter with the repurchase of a meaningful number of
warrants. Also, while the timing of closing an acquisition is
challenging to predict, we are pleased with the level of activity
we are seeing and are actively working on several exciting
opportunities."
Conference Call and
Webcast
Management will host a conference call at 5 p.m. Eastern time today to discuss the results
and host a live Q&A session. Additionally, investors may also
submit questions via email to: James@HaydenIR.com.
Conference Call Information
Date: Tuesday, August 8, 2023
Time: 5:00 PM Eastern Time
Toll Free: 877-545-0320; Code:
973443
International: 973-528-0002; Code: 973443
Live Webcast Link:
https://www.webcaster4.com/Webcast/Page/2928/48793
Conference Call Replay Information
Toll Free: 877-481-4010
International: 919-882-2331
Replay Passcode: 48793
Replay Webcast Link:
https://www.webcaster4.com/Webcast/Page/2928/48793
About the Company
Kingsway is a holding company that owns or controls subsidiaries
primarily in the extended warranty and business services
industries. The common shares of Kingsway are listed on the New
York Stock Exchange under the trading symbol "KFS."
The Company serves the extended warranty industry through its
operating subsidiaries IWS (iwsgroup.com), Penn Warranty
(pennwarranty.com), Preferred Warranties (preferredwarranties.com)
and Trinity Warranty Solutions (trinitywarranty.com).
The Company serves the business services industry through its
operating subsidiaries CSuite (csuitefinancialpartners.com), Ravix
(ravixgroup.com) and Secure Nursing Service
(securenursing.com).
Non U.S. GAAP Financial
Measure
Management believes that non-GAAP adjusted EBITDA, when
presented in conjunction with comparable GAAP measures, provides
useful information about the Company's operating results and
enhances the overall ability to assess the Company's financial
performance. Management uses non-GAAP adjusted EBITDA, together
with other measures of performance under GAAP, to compare the
relative performance of operations in planning, budgeting and
reviewing the performance of its business. Non-GAAP adjusted EBITDA
allows investors to make a more meaningful comparison between the
Company's core business operating results over different periods of
time. Management believes that non-GAAP adjusted EBITDA, when
viewed with the Company's results under GAAP and the accompanying
reconciliations, provides useful information about the Company's
business without regard to potential distortions. By eliminating
potential differences in results of operations between periods
caused by the factors listed in the attached schedules, Management
believes that non-GAAP adjusted EBITDA can provide useful
additional basis for comparing the current performance of the
underlying operations being evaluated. Investors should consider
this non-GAAP measure in addition to, not as a substitute for or as
superior to, financial reporting measures prepared in accordance
with GAAP. Investors are encouraged to review the Company's
financial results prepared in accordance with GAAP to understand
the Company's performance taking into account all relevant
factors.
Forward-Looking
Statements
This press release may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 that
are not historical facts and involve risks and uncertainties that
could cause actual results to differ materially from those expected
and projected. Words such as "expects," "believes," "anticipates,"
"intends," "estimates," "seeks" and variations and similar words
and expressions are intended to identify such forward-looking
statements; however, the absence of any such words does not mean
that a statement is a not a forward-looking statement. Such
forward-looking statements relate to future events or future
performance, but reflect Kingsway management's current beliefs,
based on information currently available. A number of factors could
cause actual events, performance or results to differ materially
from the events, performance and results discussed in the
forward-looking statements. For information identifying important
factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer
to the section entitled "Risk Factors" in the Company's 2022 Annual
Report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed
with the Securities and Exchange Commission. Except as expressly
required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or
otherwise.
Additional Information
Additional information about Kingsway, including a copy of its
Annual Reports can be accessed on the EDGAR section of the U.S.
Securities and Exchange Commission's website at www.sec.gov, on the
Canadian Securities Administrators' website at www.sedar.com, or
through the Company's website at www.kingsway-financial.com.
Kingsway Financial Services
Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP
Adjusted EBITDA
(in
thousands)
(UNAUDITED)
|
|
Twelve
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
|
6/30/2023
|
|
|
6/30/2023
|
|
|
3/31/2023
|
|
|
12/31/2022
|
|
|
9/30/2022
|
|
GAAP Net Income
(Loss)
|
|
$
|
46,106
|
|
|
$
|
(1,667)
|
|
|
$
|
27,839
|
|
|
$
|
(17,339)
|
|
|
$
|
37,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
17,131
|
|
|
|
(110)
|
|
|
|
(107)
|
|
|
|
15,678
|
|
|
|
1,670
|
|
Gain on extinguishment
of debt (1)
|
|
|
(31,616)
|
|
|
|
-
|
|
|
|
(31,616)
|
|
|
|
-
|
|
|
|
-
|
|
Gain on sale of PWSC
(2)
|
|
|
(26,447)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,447)
|
|
Changes in fair value;
realized gains/losses (3)
|
|
|
(15,280)
|
|
|
|
(1,225)
|
|
|
|
145
|
|
|
|
(1,249)
|
|
|
|
(12,951)
|
|
Employee related
expenses (4)
|
|
|
1,742
|
|
|
|
368
|
|
|
|
383
|
|
|
|
670
|
|
|
|
321
|
|
Other items
(5)
|
|
|
3,940
|
|
|
|
1,633
|
|
|
|
591
|
|
|
|
1,532
|
|
|
|
184
|
|
Depreciation,
amortization, tax and interest expense
|
|
|
15,570
|
|
|
|
2,780
|
|
|
|
5,164
|
|
|
|
4,053
|
|
|
|
3,573
|
|
Total Non-GAAP
Adjustments
|
|
|
(34,960)
|
|
|
|
3,446
|
|
|
|
(25,440)
|
|
|
|
20,684
|
|
|
|
(33,650)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
EBITDA (6)
|
|
$
|
11,146
|
|
|
$
|
1,779
|
|
|
$
|
2,399
|
|
|
$
|
3,345
|
|
|
$
|
3,623
|
|
|
|
Twelve
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
|
6/30/2022
|
|
|
6/30/2022
|
|
|
3/31/2022
|
|
|
12/31/2021
|
|
|
9/30/2021
|
|
GAAP Net Income
(Loss)
|
|
$
|
(3,652)
|
|
|
$
|
(2,365)
|
|
|
$
|
(2,504)
|
|
|
$
|
1,443
|
|
|
$
|
(226)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
(5,102)
|
|
|
|
(786)
|
|
|
|
(1,495)
|
|
|
|
(1,755)
|
|
|
|
(1,066)
|
|
Changes in fair value;
realized gains/losses (3)
|
|
|
4,069
|
|
|
|
2,479
|
|
|
|
2,035
|
|
|
|
412
|
|
|
|
(857)
|
|
Employee related
expenses (4)
|
|
|
2,928
|
|
|
|
507
|
|
|
|
1,155
|
|
|
|
692
|
|
|
|
574
|
|
Other items
(5)
|
|
|
(35)
|
|
|
|
86
|
|
|
|
(630)
|
|
|
|
300
|
|
|
|
209
|
|
Depreciation,
amortization, tax and interest expense
|
|
|
9,735
|
|
|
|
3,218
|
|
|
|
2,461
|
|
|
|
2,538
|
|
|
|
1,518
|
|
Total Non-GAAP
Adjustments
|
|
|
11,595
|
|
|
|
5,504
|
|
|
|
3,526
|
|
|
|
2,187
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
EBITDA (6)
|
|
$
|
7,943
|
|
|
$
|
3,139
|
|
|
$
|
1,022
|
|
|
$
|
3,630
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
reductions (7)
|
|
$
|
2,801
|
|
|
$
|
-
|
|
|
$
|
944
|
|
|
$
|
-
|
|
|
$
|
1,857
|
|
|
|
(1)
|
Gain on extinguishment
of debt consists of a $31.6 million gain related to the repurchase
of TruPs debt having a principal amount of $75.5 million and
results from removing the fair value of the debt ($56.1 million),
deferred interest payable ($23.0 million) and accumulated other
comprehensive income ($27.2 million) liabilities; the trust
preferred debt repurchase options ($17.7 million) and accrued
income receivable ($0.6 million) assets. See Note 11 "Debt,"
to the unaudited consolidated interim financial statements, for
further discussion
|
|
|
(2)
|
Gain on sale of PWSC,
net of transaction expenses that are included in consolidated
operating expenses, as well as income taxes associated with the
sale. The Company estimates that had the gain not occurred,
the Company would have recorded a tax benefit; therefore taxes of
$6.1 million are included in this line item.
|
|
|
(3)
|
Includes realized and
unrealized gains and losses on non-core investments; change in the
fair value of subordinated debt (net of the portion of the change
attributable to instrument-specific credit risk); unrealized gain
on the change in fair value of the trust preferred security
options; and change in the fair value of the Ravix earn-out
(changes in fair value recorded as other income or
expense).
|
|
|
(4)
|
Employee related
expenses includes charges relating to severance and consulting
agreements pertaining to former key employees; non-cash expense
arising from the grant and modification of stock-based awards to
employees; and costs associated with employees assisting during a
transition period and are not expected to be replaced once
transition period has ended (approximately one year from
acquisition date).
|
|
|
(5)
|
Other items
include: legal expenses associated with the Company's defense
against significant litigation matters; acquisition-related
expenses; expense relating to the settlement of all remaining Amigo
claims; and other non-recurring items.
|
|
|
(6)
|
Includes the results of
PWSC through the date of sale (end of July 2022).
|
|
|
(7)
|
The three months ended
3/31/2022 include a non-cash net charge of $0.9 million relating to
change in estimate in accounting for IWS deferred revenue and
deferred contract costs associated with vehicle service contract
administration fees. The three months ended 9/30/2021 include
a $1.9 million non-cash, cumulative reduction to service fee and
commission revenue relating to the finalization of the PWI purchase
accounting.
|
Kingsway Financial Services
Inc.
Reconciliation of Extended Warranty Segment
Operating Income to Non-GAAP Adjusted EBITDA
and Pro
Forma Non-GAAP Adjusted EBITDA
(in
thousands)
(UNAUDITED)
|
|
Twelve
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
|
6/30/2023
|
|
|
6/30/2023
|
|
|
3/31/2023
|
|
|
12/31/2022
|
|
|
9/30/2022
|
|
GAAP Operating
Income for Extended
Warranty segment
|
|
$
|
8,044
|
|
|
$
|
1,392
|
|
|
$
|
1,432
|
|
|
$
|
2,759
|
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
(1)
|
|
|
825
|
|
|
|
256
|
|
|
|
231
|
|
|
|
193
|
|
|
|
145
|
|
Gain (loss) on sale of
investments (2)
|
|
|
1,048
|
|
|
|
12
|
|
|
|
98
|
|
|
|
(23)
|
|
|
|
961
|
|
Depreciation
|
|
|
257
|
|
|
|
62
|
|
|
|
64
|
|
|
|
61
|
|
|
|
70
|
|
Total Non-GAAP
Adjustments
|
|
|
2,130
|
|
|
|
330
|
|
|
|
393
|
|
|
|
231
|
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for Extended
Warranty segment
|
|
$
|
10,174
|
|
|
$
|
1,722
|
|
|
$
|
1,825
|
|
|
$
|
2,990
|
|
|
$
|
3,637
|
|
PWSC operating
(income) loss (3)
|
|
|
147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
PWSC depreciation
(3)
|
|
|
(8)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
Pro forma Non-GAAP
adjusted EBITDA for
Extended Warranty segment
|
|
$
|
10,313
|
|
|
$
|
1,722
|
|
|
$
|
1,825
|
|
|
$
|
2,990
|
|
|
$
|
3,776
|
|
|
|
Twelve
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
|
6/30/2022
|
|
|
6/30/2022
|
|
|
3/31/2022
|
|
|
12/31/2021
|
|
|
9/30/2021
|
|
GAAP Operating
Income for Extended
Warranty segment
|
|
$
|
9,385
|
|
|
$
|
2,936
|
|
|
$
|
1,723
|
|
|
$
|
3,326
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
(1)
|
|
|
290
|
|
|
|
96
|
|
|
|
76
|
|
|
|
52
|
|
|
|
66
|
|
Gain (loss) on sale of
investments (2)
|
|
|
(19)
|
|
|
|
(16)
|
|
|
|
(4)
|
|
|
|
19
|
|
|
|
(18)
|
|
Depreciation
|
|
|
311
|
|
|
|
87
|
|
|
|
74
|
|
|
|
95
|
|
|
|
55
|
|
Total Non-GAAP
Adjustments
|
|
|
582
|
|
|
|
167
|
|
|
|
146
|
|
|
|
166
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for Extended
Warranty segment
|
|
$
|
9,967
|
|
|
$
|
3,103
|
|
|
$
|
1,869
|
|
|
$
|
3,492
|
|
|
$
|
1,503
|
|
PWSC operating income
(3)
|
|
|
(2,090)
|
|
|
|
(737)
|
|
|
|
(298)
|
|
|
|
(552)
|
|
|
|
(503)
|
|
PWSC depreciation
(3)
|
|
|
(54)
|
|
|
|
(25)
|
|
|
|
(11)
|
|
|
|
(11)
|
|
|
|
(7)
|
|
Pro forma Non-GAAP
adjusted EBITDA for
Extended Warranty segment
|
|
$
|
7,823
|
|
|
$
|
2,341
|
|
|
$
|
1,560
|
|
|
$
|
2,929
|
|
|
$
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reductions
(4)
|
|
$
|
2,801
|
|
|
$
|
-
|
|
|
$
|
944
|
|
|
$
|
-
|
|
|
$
|
1,857
|
|
|
|
(1)
|
Investment income
arising as part of Extended Warranty segment's minimum holding
requirements.
|
|
|
(2)
|
Realized Gains (losses)
resulting from investments either held in trust as part of Extended
Warranty segment's minimum holding requirements or from the
deployment of excess cash.
|
|
|
(3)
|
Amounts relating to the
sale of PWSC (end of July 2022) in order to remove PWSC from all
periods presented.
|
|
|
(4)
|
The three months ended
3/31/2022 include a non-cash net charge of $0.9 million relating to
change in estimate in accounting for IWS deferred revenue and
deferred contract costs associated with vehicle service contract
administration fees. The three months ended 9/30/2021 include
a $1.9 million non-cash, current period cumulative reduction to
service fee and commission revenue relating to the finalization of
the PWI purchase accounting.
|
Kingsway Financial Services
Inc.
Reconciliation of KSX Segment Operating Income to
Non-GAAP Adjusted EBITDA
(in
thousands)
(UNAUDITED)
|
|
Twelve
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
|
6/30/2023
|
|
|
6/30/2023
|
|
|
3/31/2023
|
|
|
12/31/2022
|
|
|
9/30/2022
|
|
GAAP Operating
Income for KSX segment
|
|
$
|
5,042
|
|
|
$
|
1,616
|
|
|
$
|
1,577
|
|
|
$
|
1,126
|
|
|
$
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee costs
(1)
|
|
|
290
|
|
|
|
78
|
|
|
|
87
|
|
|
|
70
|
|
|
|
55
|
|
Total Non-GAAP
Adjustments
|
|
|
290
|
|
|
|
78
|
|
|
|
87
|
|
|
|
70
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for KSX segment
|
|
$
|
5,332
|
|
|
$
|
1,694
|
|
|
$
|
1,664
|
|
|
$
|
1,196
|
|
|
$
|
778
|
|
|
|
Nine
Months
Ended
|
|
|
For the Three Months
Ended
|
|
|
6/30/2022
|
|
|
6/30/2022
|
|
|
3/31/2022
|
|
|
12/31/2021
|
|
GAAP Operating
Income for KSX segment
|
|
$
|
2,183
|
|
|
$
|
893
|
|
|
$
|
806
|
|
|
$
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee costs
(1)
|
|
|
181
|
|
|
|
55
|
|
|
|
55
|
|
|
|
71
|
|
Total Non-GAAP
Adjustments
|
|
|
181
|
|
|
|
55
|
|
|
|
55
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for KSX segment
|
|
$
|
2,364
|
|
|
$
|
948
|
|
|
$
|
861
|
|
|
$
|
555
|
|
|
|
(1)
|
Costs associated with
employees assisting during a transition period and are not expected
to be replaced once transition period has ended (approximately one
year from acquisition date).
|
View original
content:https://www.prnewswire.com/news-releases/kingsway-reports-second-quarter-2023-financial-results-301896209.html
SOURCE Kingsway Financial Services Inc.