Yahoo Finance Kingsway Financial Services Inc (KFS) (Q1 2024) Earnings Call Transcript Highlights: Stability ...
Consolidated Revenue: $26.2 million, consistent with the prior year.
Adjusted Consolidated EBITDA: $2.1 million, down from $2.4 million in the previous year.
Extended Warranty Segment Adjusted EBITDA: $3 million, decreased from $3.5 million year-over-year.
KSX Segment Revenue: Increased due to acquisitions of SPI and DDI in the second half of 2023.
DDI Revenue: Grew over 20% compared to the previous year.
Cash and Cash Equivalents: $12.1 million, up from $9.1 million at the end of 2023.
Total Outstanding Debt: $47.1 million, increased from $44.4 million at the end of 2023.
Net Debt: Decreased slightly to $34.9 million from $35.3 million at the end of 2023.
12 Month Run Rate Adjusted EBITDA: Between $16 million to $17 million.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Kingsway Financial Services Inc reported consolidated revenue of $26.2 million, maintaining stability compared to the previous year.
The company successfully sold more contracts in Q1 2024 at a higher average revenue per contract than in the previous year.
Recent acquisitions in the second half of 2023, such as SPI and DDI, have driven higher revenues and are performing ahead of initial expectations.
Kingsway Financial Services Inc has a robust deal pipeline with the potential to complete two to three deals over the next year, each expected to generate significant annualized EBITDA.
The company has a healthy balance sheet with cash and cash equivalents increasing to $12.1 million from $9.1 million at the end of 2023.
Negative Points
Adjusted consolidated EBITDA for Q1 2024 decreased to $2.1 million from $2.4 million in the same quarter the previous year.
The extended warranty segment faced challenges due to increased average claims expense and tighter credit conditions, impacting year-over-year performance.
Claims severity, which had moderated at the end of 2023, increased again in Q1 2024 due to rising labor costs.
The travel nurse segment experienced significantly lower revenue and adjusted EBITDA in Q1 2024 compared to a year ago, although there are signs of stabilization.
DDI's EBITDA trailed the previous year slightly as the company continues to invest heavily to support growth, impacting short-term profitability.
Q & A Highlights
Q: Can you provide more details about the robustness of your deal pipeline and the key performance indicators (KPIs) you focus on? A: John Fitzgerald, CEO: We focus on lead measures like industries identified and initial outreach to business owners, and lag measures like NDAs executed and deals closed. We track these metrics weekly, monthly, and quarterly. Our systems, including a CRM like HubSpot, help us manage and track all activities related to these KPIs.
Q: How do you utilize your advisory board in relation to your Operators-in-Residence (OIRs)? A: John Fitzgerald, CEO: Our advisory board meets three times a year for structured sessions focusing on critical areas like talent development and investment underwriting. Advisors also have informal mentor-mentee relationships with OIRs, providing guidance through less formal interactions like texts and calls.
Q: What are the economic characteristics and cyclicality of the extended warranty business? A: John Fitzgerald, CEO: The extended warranty business is cyclically affected by economic and consumer credit cycles. Despite this, it offers high-margin, low-capital requirements, and generates significant cash, making it an attractive business despite its cyclicality.
Q: How does the extended warranty business support your acquisition strategy, particularly for KSX? A: John Fitzgerald, CEO: The cash flow from the extended warranty business is crucial for funding acquisitions through KSX, acting as a significant source of capital for our serial acquisition program.
Q: Can you discuss the integration and initial performance challenges when acquiring new businesses? A: John Fitzgerald, CEO: Newly acquired businesses often experience a short-term performance drag as we professionalize and integrate them into our systems. This includes adding overhead like audit and HR systems, which initially impacts financial performance.
Q: What is the outlook for the insurance float and portfolio yield? A: Kent Hansen, CFO: Our bond portfolio is managed to optimize yield, currently positioned with a two-year duration to match the yield curve's sweet spot. We anticipate the portfolio yield to align with market rates of over 5% in about a year as securities mature and reinvest at higher rates.
These insights from the Q&A session of Kingsway Financial Services Inc's earnings call highlight the company's strategic focus on robust deal pipelines, the utilization of advisory boards for operational guidance, and financial strategies to manage cyclicality and support growth through acquisitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
