Kingsway Financial Services Q3 Earnings Call Highlights

Key Points

• Revenue rose 4.5% to $38.9 million, but Kingsway’s net loss widened to $3.2 million and consolidated adjusted EBITDA slipped to $2.0 million. Cash from operations was $4.1 million, and net debt fell to $60.3 million.
• Operating companies delivered strong organic growth: organic segment revenue increased about 8% and adjusted EBITDA about 54%. KSX grew, while Extended Warranty revenue declined overall; management expects strong organic profit growth to continue, with the third-quarter pace likely to normalize.
• Kingsway expects to complete two acquisitions this year, below its previous three-deal possibility, and aims to return to three to five deals annually in 2027. Its Image Solutions acquisition of Romeo Computer was financed at the subsidiary level without additional Kingsway equity.

Kingsway Financial Services NYSE: KWY reported higher third-quarter revenue and strong organic profit growth across its operating companies, although its consolidated net loss widened and consolidated adjusted EBITDA edged lower.

Revenue rose 4.5% to $38.9 million from $37.2 million a year earlier, while the net loss increased to $3.2 million from $2.4 million. Consolidated adjusted EBITDA was $2 million, compared with $2.1 million in the prior-year quarter.

Chief Executive Officer J.T. Fitzgerald said organic segment revenue grew roughly 8% and organic segment adjusted EBITDA rose approximately 54%. It was the first time Kingsway had provided quantitative organic growth figures for its operating companies, and Fitzgerald said the company plans to disclose them quarterly.

Segment Growth and Accounting Items

KSX revenue increased 18.2% to $22.4 million, and its adjusted EBITDA rose 24.5% to $3.3 million. Extended Warranty revenue declined 9.8% to $16.4 million, but increased 5.9% when excluding the sale of Trinity. Extended Warranty adjusted EBITDA rose to $1.4 million from $800,000, or from $400,000 excluding Trinity.

Fitzgerald said quarterly portfolio EBITDA was just over $6 million, up 29% from a year earlier. That figure included $3.3 million of KSX adjusted EBITDA and $2.7 million of Extended Warranty modified cash adjusted EBITDA, a lender-defined measure used for financial covenants. Trailing 12-month portfolio EBITDA was in a range of $23 million to $24 million as of Sept. 30.

Chief Financial Officer Kent Hansen said a $900,000 net decrease in the value of Argo Holdings’ remaining search fund investments affected consolidated adjusted EBITDA. The decline followed a $1.7 million gain in the second quarter, which was primarily related to distributions funded by debt recapitalizations at Argo investees. Hansen said the investment valuations reflect financial information generally available as of the prior quarter-end.

Hansen said Kingsway also had approximately $600,000 of revenue re-deferrals at operating subsidiaries, with the largest effects at SPI and Penn PWI. Management described these as non-cash timing items and said combined segment profitability, adjusted for them, would have been broadly consistent with the second quarter.

Cash from operations was $4.1 million in the quarter. Total net debt stood at $60.3 million at Sept. 30, down from $62.4 million at the end of 2025.

Operating Companies Drive Organic Gains

Fitzgerald identified Penn PWI, Kingsway Skilled Trades and SNS as standout contributors to organic growth. He said most operating businesses posted solid or exceptional year-over-year growth, while DDI was a meaningful detractor.

Penn PWI, which sells automobile warranties through independent dealerships, consolidated two formerly separate companies and moved to a shared cloud-based enterprise resource planning system. Fitzgerald said its financial results improved as the year progressed.

Kingsway Skilled Trades returned to profitability after losing money in the year-ago period. Fitzgerald said AAA had reduced expenses and improved performance tracking and marketing, while Southside completed a legacy construction project that had generated repeated write-downs. SNS also turned profitable after a year-earlier loss, following operational changes and improvements in cash collection, he said.

DDI remained in an investment phase, according to Fitzgerald. The business has invested in technology and operations and recently expanded its sales force ahead of anticipated new business implementations. Fitzgerald said the investments position DDI for improved results in 2027.

Kingsway’s long-term target is consistent double-digit organic segment adjusted EBITDA growth. Fitzgerald said he expects organic profit growth to remain strong in the fourth quarter and into 2027, while noting that the unusually high third-quarter rate should normalize over time as the portfolio broadens and more businesses reach steady-state growth.

Acquisition Pace and Self-Funding Plans

Image Solutions completed its acquisition of Romeo Computer Company in August, financing it at the subsidiary level without additional equity capital from Kingsway. Fitzgerald said the integration was on track and described the deal as a milestone in building self-funding acquisition platforms.

Despite an active pipeline, Fitzgerald said it was becoming more likely that Kingsway would finish the year with two completed deals rather than three. He cited the reassignment of two operators-in-residence to leadership roles and the collapse of several potential tuck-in deals during later-stage diligence. The company expects to return to its target of three to five deals annually in 2027.

In response to an analyst’s question, Fitzgerald said operating companies can build acquisition capacity as they reduce debt, accumulate cash and gain experience, potentially around their second or third year under an operator. He also said Kingsway has been developing an AI-enabled process to source and screen deals and recently hired a business development associate focused on deal flow.

About Kingsway Financial Services (NYSE:KWY)

Kingsway Financial Services Inc NYSE: KWY is a Canadian-based holding company that owns and operates businesses in the specialty insurance and insurance-services sectors. Its portfolio includes companies providing specialty insurance products, extended warranty programs, and related administrative and claims services.

Historically, Kingsway operated primarily as a specialty insurance provider, including nonstandard automobile insurance businesses in the United States and Canada. The company has since focused on managing and developing a diversified group of insurance and non-insurance subsidiaries, with operations serving customers principally in North America.

Kingsway was founded in 1989 and is headquartered in Toronto, Ontario.

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