Kingsway Financial Services Q1 2025 Earnings Report

Kingsway Financial Services EPS Results

• Actual EPS: -$0.13
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Kingsway Financial Services Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Kingsway Financial Services Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 5:00PM ET

Kingsway Financial Services (NYSE:KFS) (NYSE: KFS) is a specialty finance company focused on the acquisition, origination and servicing of residential mortgage loans and related assets in the United States. Through strategic portfolio purchases and direct origination channels, Kingsway builds a diversified mix of mortgage assets, including prime, non-QM and other specialty loan products.

The company’s principal activities include investing in and managing mortgage servicing rights (MSRs), holding mortgage loans for investment, and acquiring residential mortgage-backed securities (RMBS). Kingsway leverages partnerships with third-party lenders and servicers to scale its origination and servicing platforms, while employing proprietary data analytics to evaluate credit risk and optimize portfolio performance.

Headquartered in the Midwest, Kingsway serves borrowers and counterparties nationwide, with a focus on building long-term relationships through technology-driven mortgage solutions. Its management team combines experience in mortgage finance, asset management and capital markets to navigate market cycles and deliver stable returns to shareholders.

Kingsway Financial Services Q1 2025 Earnings Call Transcript

Key Takeaways

• Kingsway completed two strategic acquisitions—BUD’s Plumbing (adds ~$800K in annual adjusted EBITDA) and Viewpoint (adds over $1M in annual recurring revenue and ~$200K in EBITDA)—to expand its KSX platform.
• The KSX segment delivered 23% year-over-year growth in both revenue and adjusted EBITDA in Q1, with several businesses (e.g., SNS, Image Solutions) approaching their “J-curve” inflection points.
• Extended Warranty showed signs of recovery as cash sales rose 3.7% year-over-year and 9.3% sequentially, and trailing twelve-month modified cash EBITDA improved by 11.7% despite flat Q1 revenue and lower adjusted EBITDA.
• Governance was strengthened by appointing two new independent directors with significant investment and operational expertise, enhancing board oversight as the company scales.
• On the balance sheet, Kingsway raised $6M through Class C preferred stock, funded a $1.25M seller note for acquisitions, and ended Q1 with $6.4M cash and net debt of $53.1M.

Presentation

[Operator]

And welcome to the Kingsway First Quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. With me on the call are J.T. Fitzgerald, Chief Executive Officer, and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everybody 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.

[Operator]

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 and subsequent Forms 10-Q and Forms 8-K filed with the Securities and Exchange Commission. 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 the company's periodic filings with the SEC. Now, I would like to turn the call over to J.T. Fitzgerald, CEO of Kingsway. J.T., please proceed.

[J.T. Fitzgerald, CEO at Kingsway]

Thank you, Paul. Good afternoon, everyone, and welcome to the Kingsway earnings call for Q1 2025. To our knowledge, Kingsway is the only publicly traded U.S. company employing the Search Fund Model to acquire and build great businesses. We own and operate a diversified collection of high-quality services companies with great growth prospects that generate recurring revenue and that are asset-light and profitable. Our goal is to compound long-term shareholder value on a per-share basis, and we believe our business can scale due to our decentralized management model and our talented team of operator CEOs. We also continue to benefit from significant tax assets that enhance our returns. In short, Kingsway is uniquely positioned to capitalize on the search fund model at scale within a tax-efficient public company framework. Since the start of the year, we've made meaningful progress in advancing our long-term growth strategy.

[J.T. Fitzgerald, CEO at Kingsway]

In March, we completed the acquisition of privately held MLC Plumbing, known locally as Bud's Plumbing, a 100+ year-old residential and commercial service and repair business based in Evansville, Indiana. The transaction was executed through our newly formed platform, Kingsway Skilled Trades, which was created to capitalize on the large and fragmented universe of high-quality trade services businesses across North America. Bud's Plumbing exemplifies the type of high-quality, cash-generative business we seek to bring into the Kingsway family. We acquired it for $5 million plus transaction expenses and a small working capital adjustment. The acquisition was funded with cash on hand and a $1.25 million seller note. We're pleased to report that one of our operators in residence, Rob Casper, has assumed the role of CEO of Kingsway Skilled Trades, while Bud's previous owner, Mark Korn, is staying on as president of Bud's for a one-year transition period.

[J.T. Fitzgerald, CEO at Kingsway]

The addition of Bud's Plumbing contributes approximately $800,000 of annual adjusted EBITDA to our KSX segment on a run-rate basis. More recently, one of our wholly owned subsidiaries, SPI Software, acquired Viewpoint, a leading cloud-native timeshare software provider focused on the vacation ownership market. Headquartered in Mount Waverly, Australia, Viewpoint strengthens SPI Software's leadership in the vacation ownership software market and expands its ability to deliver innovative cloud-based solutions to an even broader client base. This acquisition marks the second company added to our vertical market solution software platform. It represents a strong strategic fit given the complementary nature of SPI and Viewpoint's offerings, and both organizations share a deep commitment to exceptional customer relationships and support. By bringing these two organizations together, we aim to accelerate their joint product roadmap and unlock new opportunities for geographic and market expansion.

[J.T. Fitzgerald, CEO at Kingsway]

The Viewpoint acquisition adds over $1 million of unaudited annual recurring revenue and approximately $200,000 of unaudited EBITDA to our KSX segment on a run-rate basis. The acquisition was funded with cash on hand at SPI. On a combined basis, SPI Software and Viewpoint have ARR approaching $5 million, double-digit EBITDA margins, and have achieved Rule of 40 status. Our operator CEO, Drew Richard, who is the president of SPI Software, is building a wonderful business, and we think he's just getting started. We're excited for what the future holds for both SPI Software and Viewpoint. Both the Bud's Plumbing and Viewpoint acquisitions enhance our KSX platform and provide additional levers for growth and long-term value creation. We also took steps to strengthen our leadership and corporate governance. During the quarter, we appointed two new independent directors to Kingsway's board, Adam Patinkin and Josh Horowitz.

[J.T. Fitzgerald, CEO at Kingsway]

Adam is the founder and managing partner of David Capital Partners and brings deep investment expertise as well as board experience with a high-growth private enterprise software company. Josh is a managing director at Palm Management with over 23 years of experience in portfolio management and public company board service. Both individuals have a wealth of investment and operational experience that aligns well with our search accelerator strategy. We believe their addition to the board strengthens our oversight as we continue to scale Kingsway and unlock long-term shareholder value. Turning to our business performance, we are encouraged by the results across both KSX and extended warranty. As a reminder, the first quarter is seasonally the weakest quarter of the year for a number of our operating subsidiaries, so we would expect to see some benefit from seasonality as we move past Q1.

[J.T. Fitzgerald, CEO at Kingsway]

In KSX, revenue and adjusted EBITDA each grew 23% year-on-year. More importantly, however, many of our KSX businesses have built a strong foundation to accelerate growth on both the top line and bottom line. This is the classic J-curve of search. Post-acquisition, there is an investment period as a new operator invests in the business, hiring great people and building the infrastructure to allow the business to scale. The company then reaches an inflection point where the strategic initiatives kick in, the investment pays off, and growth accelerates. For businesses like SNS and Image Solutions, it feels like that inflection point is getting awfully close. This makes me optimistic for the KSX growth path going forward. We also saw encouraging signs in extended warranty. After two challenging years marked by industry headwinds and cyclical pressures, extended warranty appears to be entering a more favorable phase of recovery.

[J.T. Fitzgerald, CEO at Kingsway]

Cash sales have returned to growth and were up 3.7% over the prior year and up 9.3% sequentially. Modified cash EBITDA, a commonly used metric in the warranty industry that more closely tracks the cash flow of warranty businesses, showed strong improvement. Trailing 12-month modified cash EBITDA in extended warranty was 11.7% higher at the end of Q1 2025 relative to the end of Q1 2024. While it's still early days in the recovery, the fact that Kingsway's extended warranty segment has not just stabilized but is now returning to top-line growth is welcome news. As of quarter-end, our trailing 12-month adjusted run-rate EBITDA for the businesses we own, including the pro forma contributions of recent acquisitions, stands at approximately $18 million-$19 million. This figure is intended to illustrate the earnings power of our current portfolio on a 12-month trailing basis and is not meant as forward-looking guidance.

[J.T. Fitzgerald, CEO at Kingsway]

Overall, we're encouraged by the momentum we're seeing in both KSX and extended warranty, and we remain focused on driving growth and profitability. With that, I'll now turn the call over to Kent for a closer look at our first quarter financial performance.

[Kent Hansen, CFO at Kingsway]

Thank you, J.T., and good afternoon, everyone. For the first quarter, consolidated revenue was $28.3 million, an increase of 8.4% compared to $26.2 million in the first quarter of 2024. This growth was driven by our Kingsway Search Xcelerator segment. Consolidated adjusted EBITDA declined $800,000 versus the prior year quarter, reflecting lower profitability in our extended warranty segment and higher [hold code costs], primarily related to M&A expenses, partly offset by improved results at KSX. Breaking down performance by segment, in KSX, results were in line with our expectations. Revenue was $11.7 million in the first quarter, up 23.3% compared to $9.5 million in the same period last year. Adjusted EBITDA for KSX was $1.9 million, an increase of 23.3% year-over-year. I'll now provide a bit more detail on each of our KSX operating companies other than SPI Software, which has already been discussed.

[Kent Hansen, CFO at Kingsway]

Ravix and C Suite, which are operated by Common Management and provide outsourced finance and CFO services, experienced a small year-over-year decline in revenue and a small year-over-year increase in adjusted EBITDA. We continue to be impressed by operator CEO Timi Okah and believe there is opportunity for both organic and inorganic growth in this business. At SNS, our nurse staffing business, revenue grew by 7.5%, underpinned by a significant increase in travel nurse shifts that we believe is sustainable. While adjusted EBITDA declined slightly year-over-year, we are encouraged by the improving revenue momentum, and our view is that operating leverage is not far behind. After a challenging period for nurse staffing businesses over the last couple of years, we believe SNS has positioned itself for growth and is on the road to a significant recovery. DDI, our cardiac monitoring services provider, also delivered solid results.

[Kent Hansen, CFO at Kingsway]

Revenue increased 10.9% year-over-year in Q1, driven by the successful addition of new customers. Adjusted EBITDA for DDI trailed the prior year quarter modestly, as the company has been investing in additional talent and infrastructure to support future growth. We view these investments as positioning DDI to scale efficiently as demand increases. Finally, our results this quarter benefited from the inclusion of two businesses that were not in our portfolio a year ago: Image Solutions and Bud's Plumbing. The contributions from these recent acquisitions strengthen our platform and expand our capabilities in both technology-enabled services through Image Solutions and skilled trades through Bud's. We see meaningful potential for both of these businesses. Turning now to our extended warranty segment, first quarter revenue was essentially flat at $16.7 million compared to the first quarter of 2024.

[Kent Hansen, CFO at Kingsway]

While top-line growth was unchanged, it is important to note that cash sales, a leading indicator for future revenue, increased 3.7% year-over-year in Q1 and were up 9.3% sequentially from year-end. This uptick in cash sales reflects healthy underlying consumer demand for our warranty products. Extended warranty adjusted EBITDA for the first quarter of 2025 was $800,000 as compared to $1.4 million in the year-ago quarter. Despite the dip in reported adjusted EBITDA, we are encouraged by the momentum building in the extended warranty segment. As J.T. mentioned, the segment has returned to growth in cash sales, and trailing 12-month modified cash EBITDA was up 11.7% year-over-year. As mentioned, modified cash EBITDA is a commonly used metric to evaluate the performance of warranty businesses, as it more closely tracks the cash flows of the business.

[Kent Hansen, CFO at Kingsway]

The recent healthy growth in this metric gives us confidence that GAAP earnings should rebound over time as deferred revenue from cash sales is recognized over future periods. In short, the extended warranty segment remains profitable, cash-generative, and positioned for future success. Let's briefly turn now to these three extended warranty businesses. IWS, our credit union-focused auto warranty business, had a strong first quarter with cash sales up more than 20% year-over-year. While adjusted EBITDA declined year-over-year, revenue was up and modified cash EBITDA was flat, mainly due to higher claims and operating expenses in the quarter than a year ago. IWS has been proactively adjusting pricing to mitigate higher claims inflation over the last three years, and we expect the combination of strong cash sales and pricing action to benefit IWS's earnings over time. Next is PWI and Penn, our dealer-focused auto warranty businesses.

[Kent Hansen, CFO at Kingsway]

Both revenue and adjusted EBITDA were down year-over-year in the first quarter as a decline in earned premiums and higher operating expenses offset the benefit of lower claims incurred. But modified cash EBITDA actually increased in the quarter. At quarter end, we appointed Robbie Humble as the new President and CEO of PWI and Penn. Robbie brings deep industry experience and a strong leadership track record. Notably, his background and incentives are aligned more closely with our KSX approach. In the handful of weeks he's been at the helm, Robbie has already attracted new leadership talent to the business. We are confident that under his direction, PWI and Penn will be reinvigorated to drive growth and improve results. Lastly, at Trinity, our mechanical equipment warranty and maintenance business, revenue was up in the first quarter, but this was outweighed by higher expenses in the seasonally low quarter for this business.

[Kent Hansen, CFO at Kingsway]

About a year ago, we brought in a new sales leader for the maintenance business, and we are now seeing positive momentum. The team at Trinity is focused on improving the sales mix and managing costs, and we remain confident in the prospects for this business. Having recapped each of the businesses, let's now turn to the balance sheet and capital structure. In February, we completed a $6 million private placement issuing 240,000 shares of a new Class C convertible preferred stock. This capital raise provided the funds necessary to execute the Bud's Plumbing acquisition. In March, at the closing of the Bud's deal, we financed a portion of the purchase with a $1.25 million seller note to the former owner. That note is recorded as a note payable on our March 31, 2025 balance sheet.

[Kent Hansen, CFO at Kingsway]

As of March 31, 2025, we held $6.4 million in cash and cash equivalents, up from $5.5 million at year-end. Total debt was $59.5 million at quarter end compared to $57.5 million as of December 31, 2024. This slight increase in debt primarily reflects the addition of Bud's Plumbing seller note, as well as an increase of the Ravix debt as we refinanced that debt and used the proceeds to pay off the original acquisition earn-out in full. Our debt consists of $45 million in bank loans, $1.1 million in notes payable, the seller note, which is held at fair value, and $13.4 million in subordinated debt. Net debt, or debt minus cash, at quarter end was $53.1 million, up slightly from $52 million at year-end. Let me now turn things back over to J.T. for a few final thoughts before we open the line for questions. J.T.

[J.T. Fitzgerald, CEO at Kingsway]

Thanks, Kent. Before we go to Q&A, I just want to reiterate our excitement about the progress we're making. The addition of Bud's Plumbing and Viewpoint, the continued build-out of KSX, and the positive sales momentum and extended warranty all reinforce our conviction in our strategy. Our deal pipeline is robust, in fact, the most active it has ever been, which is reflected in the fact that we've already executed two deals in the first four months of the year. I'm excited for what the rest of 2025 holds in store for Kingsway. Finally, we'd like to remind everyone that we are hosting our annual Investor Day on Monday, May 19th, at the New York Stock Exchange. We look forward to spending time with many of you, walking through the building blocks of our strategy and introducing some of the leaders driving execution across our portfolio.

[J.T. Fitzgerald, CEO at Kingsway]

In late-breaking news, I'm excited to report that Tom Joyce, the former CEO of Danaher and a member of our KSX Advisory Board, will be joining us on the 19th for a fireside chat. If you haven't already RSVPed, please reach out to James Carbonara at james@haydenir.com. The event will also be webcast if you can't participate in person. I'll now turn the call back over to Paul to open the line for any questions.

[Operator]

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone at this time if you wish to ask a question. There were no questions currently from the line, so I'd now like to hand the call over to James Carbonara for some email questions.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Thank you, Operator. Yes, a handful of questions did come in by email. The first one is, "The Viewpoint acquisition seems interesting. Could you please provide any color on how the transaction came about and why it might make sense strategically?

[J.T. Fitzgerald, CEO at Kingsway]

Yeah, sure. How it came about, it was sourced by Drew at SPI. He developed a relationship with the company and its former owners and advanced the conversation in, I think, probably the middle of the fourth quarter last year. In terms of why it makes sense strategically, I think you got to break it down, kind of look at it based on product, customer profile, and geography. Just sort of to set the table, SPI is a hosted and on-prem software solution for enterprise customers, predominantly in North America. Viewpoint, very differently, is a cloud-native software with smaller customers, single location in many cases, resort operators in Asia-Pacific and Australia. When Drew was evaluating his strategy, there's a large segment in North America of smaller single-location property resort managers who are looking for a cloud-native software solution.

[J.T. Fitzgerald, CEO at Kingsway]

Looking sort of to expand geographically, envied the Asia-Pacific region and Australia for a larger enterprise client. The combination of these two businesses solves a couple of problems. One, it gives Drew a cloud-native software solution for a segment that he was going after in North America without having to rewrite all that code. It also gives him access to a new geography for his enterprise solution. We think it really makes a lot of sense.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Thank you. The next question is, "Can you please explain what you mean by the J-curve with search acquisitions and how it works in practice"?

[J.T. Fitzgerald, CEO at Kingsway]

Yeah. I spoke to it a little bit in the prepared remarks. I think that the J-curve would be just sort of the shape of a performance curve over time. Typically, in a search fund acquisition, there's an element of bringing in, upgrading talent, professionalizing their processes, investing in technology to get the business in a position to grow. That always has a negative impact on profitability in the first several quarters. I'd also say that there's probably a bit of a J-curve on sort of the operator. I'm trying to paint a picture. We've talked about this in the past. If you had on the vertical axis performance and on the horizontal axis time, and you took two different graphs, one with kind of an experienced operator, that would sort of go up and to the right at a modest slope.

[J.T. Fitzgerald, CEO at Kingsway]

If you have a very high attribute inexperienced operator, their performance, because they're going to make mistakes and things, it will lag the experienced operator for a period of time. Those two curves cross, in my experience, somewhere around two to three years. The high attribute operator outperforms thereafter over time. The search J-curve is really two things. One is the impact on the company from investing in growth, and the other is the experience curve of the operator, high attribute operator. What that all means is that it requires patience before value creation is evident. We're certainly seeing that at DDI and had that at Ravix with SNS, all of our businesses, Image Solutions, as well as probably in the early stages of its J-curve.

[J.T. Fitzgerald, CEO at Kingsway]

We have confidence in the attributes of the operator and the investments they're making in future growth.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Thank you. The next question is, "You mentioned a robust deal pipeline. Can you share more about what you're seeing with respect to search M&A"?

[J.T. Fitzgerald, CEO at Kingsway]

Yeah. Look, we have three OIRs right now that are all at full stride, right? They've been doing it a long time. They are very good at building their M&A pipelines. We're really excited about where they are in their sort of gestation period, if you will. We also have a couple of platforms that are looking for bolt-ons, right? I think Skilled Trades was formed specifically for doing transactions with a more experienced and high attribute operator. We just did an acquisition within VMS, and there are a couple you think about other businesses we own that have been operating for a while where that high attribute entrepreneur has now got experience in a fragmented market. There are also lots of opportunities for tuck-in acquisitions there. Yeah, we're very excited.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Thank you. The next question states, "Can you speak to the reasoning for the owner of Bud's staying on as president for a one-year transition period? Could we see that replicated, past owner staying on for a year as president with future acquisitions?

[J.T. Fitzgerald, CEO at Kingsway]

Yeah. I would say in sort of search, that's very typical and actually desirable. If you think about kind of the analogy of kind of a horse racing analogy, since we just had the Kentucky Derby, the industry is the track, the business is the horse, and the entrepreneur is the jockey, it's really helpful to have someone riding alongside that jockey for their first sort of lap around the track. That transition period, transitioning customer relationships, the transfer of all of that institutional knowledge in that organization, very valuable. We are really grateful when owners want to hand over their baby, their legacy to a young entrepreneur and work with them over a long transition period. It's just really a win-win. Yes, I would hope that we would see that on future acquisitions.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Terrific. The last question we have is, "With vertical market solutions and now Skilled Trades, you have a couple of platforms. Are there any other industries you might target for platforms"?

[J.T. Fitzgerald, CEO at Kingsway]

Yeah. It's an interesting question. It's a good question. What is a platform? For us, we sort of evaluate different industries. We have an internal game board. We think game selection is very important, and we sort of bifurcate our game board into two different types, taxonomies of industries. One is power law, and those are high organic growth businesses. The other is Rule of 10, which are maybe lower organic growth industry, higher level of recurring revenue, and very fragmented. The Rule of 10 type industries would be places where we would think would make attractive platforms where most of the growth might come from acquisition, inorganic growth. There are a lot of interesting industries that could be compelling places to build a platform. Some that come to mind, insurance brokerage, wealth management, RIA, accounting services.

[J.T. Fitzgerald, CEO at Kingsway]

We sort of own a platform there already, whether we do not call it that. The key there is that it has got to be a great industry that would support growth via acquisition, but also operator fit, right? It has got to be an industry where one of our OIRs is really keenly interested in spending their life.

[James Carbonara, Partner, IR Strategy and Operations at Kingsway]

Excellent. Thank you, J.T. And Paul, that was the last question that we had coming in on email. I'll throw it back to you to close out the call.

[Operator]

Thank you. There were no other questions from the lines either. That does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Kent Hansen, CFO

Analysts

• James Carbonara, Partner, IR Strategy and Operations at Kingsway
• J.T. Fitzgerald, CEO at Kingsway