U.S. Markets closed

Kingsway Announces Second Quarter 2018 Results

TORONTO, Aug. 1, 2018 /PRNewswire/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the second quarter and six months ended June 30, 2018.  All amounts are in U.S. dollars unless indicated otherwise.

As a result of the Company's announcement on July 16, 2018 that it has executed a definitive agreement to sell Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota"), its second quarter financial statements reflect an estimated loss on disposal as well as the classification of Mendota, previously disclosed as part of the Insurance Underwriting segment, as a discontinued operation at June 30, 2018 with its assets and liabilities being classified as held for sale.  The results of Kingsway Amigo Insurance Company, which has been in run off for five years, will continue to be reported as part of continuing operations; however, the Company will no longer report a separate Insurance Underwriting segment.

Management Comments
Larry G. Swets, Jr., Chief Executive Officer, stated, "The sale of Mendota represents the end of an era for Kingsway and its long history of owning property-casualty insurance companies in both the United States and Canada.  Upon the closing, the sales proceeds will be redeployed to acquire limited liability investments and other investments owned by Mendota.  At that point, Kingsway will focus its efforts on growing its extended warranty segment and managing its investment portfolio."

Operating Results
The Company reported net loss attributable to common shareholders of $8.6 million (including a non-cash loss of $0.1 million attributable to change in fair value of debt), or $0.40 per diluted share, in the second quarter of 2018, compared to net loss attributable to common shareholders of $7.9 million (including a non-cash loss of $2.7 million attributable to change in fair value of debt), or $0.37 per diluted share, in the second quarter of 2017.  

For the six months ended June 30, 2018, Kingsway reported net loss attributable to common shareholders of $10.9 million (including a non-cash loss of $1.1 million attributable to change in fair value of debt), or $0.50 per diluted share, compared to $9.7 million (including a non-cash gain of $4.6 million attributable to change in fair value of debt), or $0.45 per diluted share, in the prior year period. 

Included in the Company's operating results for the three and six months ended June 30, 2018 is an $8.0 million loss on disposal of Mendota at June 30, 2018.  The aggregate reporting during the second quarter for all results related to our non-standard automobile businesses, inclusive of the continuing operations of Kingsway Amigo Insurance Company, the discontinued operations of Mendota and the loss on disposal of Mendota, is a loss of $8.4 million.

Following are highlights of Kingsway's second quarter 2018 results.  Operating loss reflects the Company's core operating activities, including its reportable segments, passive investment portfolio and corporate operating expenses. 

  • Operating loss was $0.2 million for the second quarter of 2018 compared to $2.7 million for the second quarter of 2017.
  • Book value decreased to $1.54 per share at June 30, 2018 from $2.02 per share at December 31, 2017. The Company also carries a valuation allowance, estimated to be approximately $8.23 per share at June 30, 2018, subject to final accounting upon the close of the previously announced sale of Mendota, against the deferred tax asset, primarily related to its loss carryforwards.


About the Company
Kingsway is a holding company that owns or controls subsidiaries primarily in the insurance, extended warranty, asset management and real estate industries. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS."

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)





Three months ended June 30,

Six months ended June 30,


2018

2017

2018

2017

Revenues:







Service fee and commission income

$

9,479

$

6,584

$

19,670

$

12,946



Rental income

3,341

3,341

6,682

6,682



Net investment income (loss)

18

(1,347)

(613)

(1,163)



Net realized (losses) gains

(1)

(1)

9

(1)



(Loss) gain on change in fair value of equity investments

(248)

614



Other income

1,081

242

1,308

569

Total revenues

13,670

8,819

27,670

19,033

Operating expenses:







Loss and loss adjustment expenses

2,625

1,338

4,247

2,557



Commissions

932

811

1,817

1,579



Cost of services sold

1,464

1,291

3,716

2,595



General and administrative expenses

7,305

6,508

14,702

12,245



Leased real estate segment interest expense

1,546

1,569

3,098

3,143

Total operating expenses

13,872

11,517

27,580

22,119

Operating (loss) income

(202)

(2,698)

90

(3,086)

Other expenses (revenues), net:







Interest expense not allocated to segments

1,519

1,216

2,905

2,375



Amortization of intangible assets

271

289

543

580



Contingent consideration benefit

(212)

(212)



Loss on change in fair value of debt

142

2,702

1,061

4,591



Equity in net loss (income) of investee

385

145

284

(2,240)

Total other expenses, net

2,317

4,140

4,793

5,094

Loss from continuing operations before income tax expense

(2,519)

(6,838)

(4,703)

(8,180)

Income tax expense

187

1,251

438

1,516

Loss from continuing operations

(2,706)

(8,089)

(5,141)

(9,696)

Income (loss) from discontinued operations, net of taxes

911

(570)

1,318

(447)

(Loss) gain on disposal of discontinued operations, net of taxes

(6,611)

1,017

(6,611)

1,017

Net loss

(8,406)

(7,642)

(10,434)

(9,126)



Less: net income attributable to noncontrolling interests in consolidated subsidiaries

108

100

243

205



Less: dividends on preferred stock, net of tax

130

154

259

328



Net loss attributable to common shareholders

$

(8,644)

$

(7,896)

$

(10,936)

$

(9,659)

Loss per share - continuing operations:






Basic:

$

(0.14)

$

(0.39)

$

(0.26)

$

(0.48)


Diluted:

$

(0.14)

$

(0.39)

$

(0.26)

$

(0.48)

(Loss) earnings per share - discontinued operations:






Basic:

$

(0.26)

$

0.02

$

(0.24)

$

0.03


Diluted:

$

(0.26)

$

0.02

$

(0.24)

$

0.03

Loss per share – net loss attributable to common shareholders:







Basic:

$

(0.40)

$

(0.37)

$

(0.50)

$

(0.45)


Diluted:

$

(0.40)

$

(0.37)

$

(0.50)

$

(0.45)

Weighted-average shares outstanding (in '000s):






Basic:

21,708

21,458

21,708

21,458


Diluted:

21,708

21,458

21,708

21,458


 

Consolidated Balance Sheets

(in thousands, except share data)






June 30, 2018


December 31, 2017


(unaudited)



Assets




Investments:






Fixed maturities, at fair value (amortized cost of $11,605 and $14,707, respectively)

$

11,361


$

14,541


Equity investments, at fair value (cost of $2,325 and $4,854, respectively)

2,189


4,476


Limited liability investments

5,217


4,922


Limited liability investment, at fair value

4,869


5,771


Other investments, at cost which approximates fair value

1,916


2,321


Short-term investments, at cost which approximates fair value

151


151

Total investments

25,703


32,182

Cash and cash equivalents

24,713


20,781

Investment in investee

4,947


5,230

Accrued investment income

161


331

Service fee receivable, net of allowance for doubtful accounts of $315 and $318, respectively

5,173


4,286

Other receivables, net of allowance for doubtful accounts of zero and zero, respectively

7,907


6,536

Deferred acquisition costs, net

6,662


6,325

Property and equipment, net of accumulated depreciation of $13,794 and $11,633, respectively

105,246


107,327

Goodwill

80,112


80,112

Intangible assets, net of accumulated amortization of $8,876 and $8,333, respectively

79,519


80,062

Other assets

3,592


4,302

Assets held for sale

138,804


137,126

Total Assets

$

482,539


$

484,600

Liabilities and Shareholders' Equity






Liabilities:






Unpaid loss and loss adjustment expenses:







Property and casualty

$

2,594


$

1,329


Vehicle service agreements

2,615


2,779

Total unpaid loss and loss adjustment expenses

5,209


4,108

Note payable

184,567


186,469

Bank loan

4,417


4,917

Subordinated debt, at fair value

52,822


52,105

Net deferred income tax liabilities

28,796


28,745

Deferred service fees

41,221


39,741

Income taxes payable

2,801


2,644

Accrued expenses and other liabilities

10,946


10,612

Liabilities held for sale

112,866


105,949

Total Liabilities

443,645


435,290





Class A preferred stock, no par value; unlimited number authorized; 222,876 and 222,876 issued and

outstanding at June 30, 2018 and December 31, 2017, respectively; redemption amount of $5,572

5,477


5,461





Shareholders' Equity:




Common stock, no par value; unlimited number authorized; 21,708,190 and 21,708,190 issued and

outstanding at June 30, 2018 and December 31, 2017, respectively


Additional paid-in capital

356,609


356,021

Accumulated deficit

(364,917)


(313,487)

Accumulated other comprehensive income (loss)

36,322


(3,852)

Shareholders' equity attributable to common shareholders

28,014


38,682

Noncontrolling interests in consolidated subsidiaries

5,403


5,167

Total Shareholders' Equity

33,417


43,849

Total Liabilities, Class A preferred stock and Shareholders' Equity

$

482,539


$

484,600

 

Forward-Looking Statements
This press release includes "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. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management's current beliefs, based on information currently available and include statements relating to the proposed sale of our insurance subsidiaries.  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, including the failure to consummate the proposed sale of our insurance subsidiaries, the failure to obtain necessary regulatory approvals and the diversion of management time on transaction-related matters.  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 2017 Annual Report on Form 10-K.  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 2017 Annual Report and filings on Forms 10-Q and 8-K, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com

Cision

View original content:http://www.prnewswire.com/news-releases/kingsway-announces-second-quarter-2018-results-300690600.html