Kingsway Financial Services Inc. (NYSE:KFS) Q3 2023 Earnings Call Transcript

Kingsway Financial Services Inc. (NYSE:KFS) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Good day, and welcome to the Kingsway Third Quarter 2023 Earnings Call. [Operator Instructions] With me on the call are JT Fitzgerald, Chief Executive Officer; and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everyone that today's conference may contain forward-looking statements. Forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses and future business outlook. Actual results or trends could materially differ from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Form 10-K containing the subsequent field reports on Form 10-Q, as well as others that the company files from time to time with the Securities and Exchange Commission.

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Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release, as well as in our periodic filings with the SEC. Now, I'd like to turn the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

JT Fitzgerald: Thank you, Paul. Good afternoon, everybody, and welcome to the Kingsway third quarter 2023 earnings call. Thank you for joining us. We've been busy since our last earnings call, so let me go over the highlights. Our third quarter results were largely in line with our expectations with consolidated revenue of $24.8 million, up 11% from a year ago, while consolidated adjusted EBITDA decreased to $2.3 million in 2023 compared to $3.6 million last year. Combined pro forma adjusted EBITDA for the Extended Warranty segment and KSX segment was a total of $3.2 million in 2023 compared to a total of $4.55 million in the third quarter of 2022. We continue to repurchase a number of shares of our common stock and warrants, which Kent will detail later.

Our $5 strike warrants expired on September 15, 2023 with all but 39,000 exercising. We believe the overhang concerns that created are now largely behind us. In September, we acquired Systems Products International, or SPI. And in October, we acquired Digital Diagnostics Imaging, or DDI. Our fourth and fifth acquisitions under the Kingsway Search Xclerator platform. And in October, we signed a definitive agreement to purchase 95% of the shares of National Institute of Clinical Research, or NICR. This is a lot to unpack, so I'd like to start with our Extended Warranty segment, which delivered revenue of $17.3 million in the current quarter compared to pro forma revenue of $17.9 million a year ago. Adjusted EBITDA for the current quarter was $2.1 million compared to pro forma adjusted EBITDA of $3.8 million a year ago.

As a reminder, pro forma results exclude PWSC, which we sold in July last year. As we discussed on our last earnings call, our vehicle service agreement or VSA companies continue to be impacted by an increase in claims paid and persistent macro level revenue headwinds that impact consumers. Primarily, tighter credit conditions and persistently high used car prices. At Trinity, our maintenance support business revenues have been impacted by decreases in its equipment breakdown and maintenance support services due to mild weather conditions, which results in fewer service calls. Both of Trinity's segments have also been negatively impacted by long lead times on parts and installations. However, we've been able to mitigate some of this impact through lower operating expenses at all of our Extended Warranty companies in 2023 as compared to a year ago.

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