Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Day (October 2021)
68 slides from Kingsway's investor day presentation, Oct 6, 2021
Slide 1: Investor Day Presentation October 6, 2021
NYSE: KFS Investor Day Presentation October 6, 2021
Slide 2: Forward-Looking Statements
Forward-Looking Statements | 2 This presentation 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 res
Slide 3: Representatives
Representatives | 3 John T. Fitzgerald Kent Hansen President, CEO, and Director Chief Financial Officer Mr. Fitzgerald has served as CEO of Kingsway since September 2018. Mr. Hansen has served as CFO of Kingsway’s subsidiary, Kingsway Mr. Fitzgerald joined Kingsway as Executive Vice President on Apr
Slide 4: Representatives
Representatives | 4 Peter Dikeos Brian Cosgrove President, Trinity Warranty Services President, Geminus Holding Company Mr. Peter Dikeos Founded Trinity Warranty Inc. in 2009 and was Mr. Cosgrove has served as President of Geminus Holding Company acquired by Kingsway in 2013. Prior to founding Trini
Slide 5: Representatives
Representatives | 5 Edmund Field Tyler Gordy President, Preferred Warranties, Inc. President & CEO, Professional Warranty Service Corporation Mr. Field has served as President of Preferred Warranties since Mr. Gordy, PWSC President and CEO, joined the company in March June 2018 and successfully navi
Slide 6: Representatives
Representatives | 6 Timi Okah Eric Wikander President & CEO, Ravix Financial Inc. President, IWS Acquisition Corp. Mr. Okah serves as CEO of Ravix Financial Inc., a Kingsway subsidiary, Mr. Wikander has served as the President of IWS since following Kingsway's acquisition of Ravix on October 1, 2021
Slide 7: Representatives
Representatives | 7 Peter Dausman Charles Mokuolu Operator-in-Residence Operator-in-Residence CEO Accelerator CEO Accelerator Mr. Dausman joined Kingsway in the summer of 2021 as our Mr. Mokuolu has served as an Operator-in-Residence at Kingsway third Operator-in-Residence in the CEO Accelerator pro
Slide 8: Agenda
Agenda | 8 Introduction to Kingsway Kingsway Financial Overview Extended Warranty Purchase Accounting CEO Accelerator Overview Ravix Real Estate Sum of the Parts Valuation Appendix
Slide 9: Introduction to Kingsway
Introduction to Kingsway | 9 Owns or controls subsidiaries primarily in the extended warranty, asset management, and real estate industries. Ticker: KFS (NYSE) Incorporation Total Employees Based in Incorporated in 1989 290 Itasca, IL (a. 30 Miles West of Chicago) Financial Overview (1) Shareholder
Slide 10: Introduction to Kingsway: Components of Value
Introduction to Kingsway: | 10 Components of Value Decentralized operating structure with a small Corporate team • A small, lean team • Makes all capital allocation decisions among OpCos • Acquisitions of new OpCos • Oversight and cadence of accountability with OpCos • Oversees Asset Management • Re
Slide 11: Introduction to Kingsway: Investment Thesis
Introduction to Kingsway: | 11 Investment Thesis Solid Operating Value Creation With Trades at a Discount Aligned Management Leadership and Businesses Tax Shelter to Intrinsic Value and Board Culture • ~$844(1) million in net • Accountability to living our • Profitable extended • Sum-of-the-parts va
Slide 12: Introduction to Kingsway: Core Tenets of Value Creation
Introduction to Kingsway: | 12 Core Tenets of Value Creation Disciplined Capital Allocation Decisive Execution People • Growing portfolio of operating • Minimize non-strategic expenses • Attract, Develop and Retain World-Class companies with strong cash flow Continued alignment of business objective
Slide 13: Introduction to Kingsway: History and Transformation
Introduction to Kingsway: | 13 History and Transformation Aligned management team and Board of Directors focused on proper capital allocation, operational excellence and people. 1990-2007 2008-2018 2018 2019 - 2020 2021 + Insurance Operations Change in Strategy New Management Turnaround Current and
Slide 14: Kingsway Financial Overview
| 14 Kingsway Financial Overview
Slide 15: Kingsway Financial Overview
Kingsway Financial Overview | 15 Pro Forma Revenue by Quarter(1) Pro Forma Non-GAAP Adjusted (Loss) Income by Quarter(1) 4.0M 24M 1.5M 23M 1.0M 22M 0.5M 0 21M (0.5M) 20M (1.0M) 19M (1.5M) March June September December (2.0M) March June September December 2019 2020 2021 2019 2020 2021 (1) Refer to th
Slide 16: Extended Warranty
So Extended Warranty ——————_——$—$——$——__—
Slide 17: Extended Warranty Industry
Extended Warranty Industry | 17 A Scalable, High Margin, Low Capital Intensity Business = Enduringly High ROTC Warranty Industry Advantages Large and Growing Estimated at over $121B globally and forecast to grow at 7.4% CAGR through 2027(1) Fragmented Management estimates that top companies in indus
Slide 18: Kingsway's Extended Warranty Subsidiaries
Kingsway’s Extended | 18 Warranty Subsidiaries Auto Home Mechanical iwsgroup.com preferredwarranties.com pennwarranty.com pwsc.com trinitywarranty.com Founded in 1991 Founded in 1992 Founded in 1988 Founded in 1995 Founded in 2009 Acquired in 2012 Acquired in 2020 Acquired in 2019 Acquired in 2017 A
Slide 19: Extended Warranty Strategic Outlook
Extended Warranty Strategic Outlook | 19 Automobile Home Mechanical Kingsway PWI, IWS, Geminus PWSC TWS Businesses Warranty agreements and maintenance support to Home warranty agreements; administrative consumers and businesses in the HVAC, standby Services Vehicle Service Agreements generator, comm
Slide 20: Extended Warranty Financial Overview
Extended Warranty | 20 Financial Overview TTM Pro Forma Revenue 6/30/21(1) Warranty Segment EBITDA (2020 and TTM Pro Forma)(1) $14.9M Full year PWI Geminus; $13M COVID 11% $8M Acquired Geminus 11% $6M Full year 3/1/2019 Acquired PWSC PWSC Oct 2017 $4M 39% JT hired $2M 2015 15% 0 Trinity struggling;
Slide 21: Extended Warranty Financial Overview
Extended Warranty | 21 Financial Overview Extended Warranty Interest Amortization Maturity Leverage Borrowings rate $23.6m 3.75% 15% 2025 2.2x $23.6 million as of 6/30/21 LIBOR + 3.00% 15% per year, November 30, Leverage ratio (includes $1 million revolver) (LIBOR floor of 0.75%) paid quarterly 2025
Slide 22: Impacts of Purchase Accounting
| 22 Impacts of Purchase Accounting
Slide 23: Impacts of Purchase Accounting
Impacts of | 23 Purchase Accounting In accordance with U.S. GAAP, the Company is required to record acquisitions at fair value, with any difference between fair value and consideration paid recorded to goodwill Most extended warranty companies provide multi-year vehicle service contracts (“VSCs”) to
Slide 24: Impacts of Purchase Accounting
Impacts of | 24 Purchase Accounting As a simple example: o Target has deferred revenue of $1 million as of the acquisition date relating to VSCs that have an average remaining term of 3 years; all customer payments for these VSCs were received prior to the acquisition date o Buyer estimates the cost
Slide 25: Impacts of Purchase Accounting
Impacts of | 25 Purchase Accounting The Company estimates purchase accounting has reduced Geminus' operating income by $1.2 million since acquisition (closed in March 2019). Detail by quarter for the last two years: TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 Impact from
Slide 26: CEO Accelerator
CEO Accelerator ——$_$_$_——
Slide 27: CEO Accelerator
| 27 CEO Accelerator Private businesses with enterprise values between $10 and $30 million where the owner/operator is looking to transition from day-to-day operating responsibilities represent a compelling investment opportunity Underserved Acquisition Niche: Approximately $4.8 trillion of net wort
Slide 28: CEO Accelerator
| 28 CEO Accelerator Attractive Exit Alternative for Retirement-Ready Operators: Unlike traditional private equity firms and capital-constrained private buyers, the Kingsway CEO Accelerator offers business owners a novel exit alternative. Kingsway provides capital for the owner to achieve personal l
Slide 29: CEO Accelerator
| 29 CEO Accelerator Opportunity for Value Creation: Owner/operators of lower middle market businesses often consciously decide to limit their investment in many aspects of their businesses. These constraints and a general aversion to risk present an opportunity to take a small business and grow it
Slide 30: CEO Accelerator
| 30 CEO Accelerator Tested Investment Vehicle: Search funds have been in existence since 1984 and have been used by over 400 entrepreneur teams to support efforts to locate, acquire and manage an existing private company. A 2020 study(1) concluded that from 1984 through 2019, at least $1.4 billion
Slide 31: CEO Accelerator
| 31 CEO Accelerator We have a long, successful history of backing early-in-career managers and are building that into Kingsway’s future Have hired early-in-career managers CEO was a searcher out of MBA; acquired Have been investing in search funds to run current Kingsway operating and ran small bus
Slide 32: CEO Accelerator
| 32 CEO Accelerator Building a great company focused on the long term Partner with great entrepreneurs via the CEO Accelerator Program Compound capital at high rates of return over a long time horizon Acquire a portfolio of great Apply operational and strategic businesses support
Slide 33: Ravix
| 33 Ravix (1) (1) Ravix financial information is taken from its internal, unaudited financial statements.
Slide 34: Investment Highlights
Investment Highlights | 34 On October 1, 2021, Kingsway acquired 100% of the shares of Ravix Financial, Inc. for $11 million, representing a multiple of approximately 4.0x trailing twelve month adjusted EBITDA(1). Additionally, there is earn-out consideration of up to $4.5 million payable over a thr
Slide 35: Industry Overview
Industry Overview | 35 Ravix sits at the intersection of three large, …all projected to grow over the next five years fragmented, and mature industries aided by lasting secular tailwinds Projected Industry Performance $67B 8.0 7.0 7.9 Projected Growth (%) Human Resources 6.0 5.8 5.5 and Benefits 5.0
Slide 36: Company History and Timeline
Company History and Timeline | 36 Dan Saccani founds Ravix 2000 Ravix, a provider of outsourced accounting and human resources in San Jose, CA services, was founded in 2000 by Dan Saccani after he left David Powell Inc., the Silicon Valley’s oldest outsourced financial services firm, where he spent
Slide 37: Business Unit Detail
Business Unit Detail | 37 % of 2020 revenue • Manages financial reporting, monthly closes, bookkeeping, accounts Operational payable, and financial modeling and forecasting. & Strategic • Provides strategic services including risk-management and insurance 68% Accounting planning, long range planning
Slide 38: Revenue Characteristics
Revenue Characteristics | 38 2020 Revenue Composition by Type 11.9 12 Recurring 10 Revenue ~70% 8.1 8 Project Based Revenue 6 67% of Ravix’s revenue 80% is open-ended 4 recurring revenue 2.8 2 0.7 0.3 Recurring components of 30% 95% 0 Technical Accounting include Total Operational Technical Human Ad
Slide 39: Client Concentration
Client Concentration | 39 % of 2020 Rev 2020 Revenue Top Client ~5% $591K Top 5 Clients ~19% $2.27M Ravix enjoys a fragmented base of ~250 clients, with none contributing Top 20 greater than 5% of Clients ~50% $5.91M 2020 revenue All Client 100% $11.82M (n=251)
Slide 40: Client and Revenue Retention
Client and Revenue Retention | 40 Ravix has outstanding revenue retention and low levels of attrition within core customer segment(1) (1) Smallest number of customers producing 80% of Ravix’s consulting revenue, i.e. the Pareto customer set Net revenue retention year by segment 130% Top 20 Net reven
Slide 41: Financial Performance - Revenue
Financial Performance - Revenue | 41 Ravix was not materially impacted by COVID-19, growing 19% year-over-year in 2020. Historically, the company has grown at an annual rate of 15% from 2017- 2020. Revenue Performance 12 15% Revenue ($M) 8 4 0 2016 2017 2018 2019 2020
Slide 42: Management Plans
Management Plans | 42 Following the closing of the transaction, Timi Okah will be joining Ravix Group as its President & Chief Executive Officer. In his role as President, Mr. Okah will oversee all commercial and operational aspects of Ravix Group in coordination with Kingsway management. The former
Slide 43: Growth Opportunities
Growth Opportunities | 43 Details Time horizon Impact • Establishing tenure-based benchmark billing rates for positions and tracking on a Maintain pricing per client basis and correcting rates on clients receiving above a threshold discount Immediate discipline • Raise prices annually based on contr
Slide 44: Ravix Financial Overview
Ravix | 44 Financial Overview Ravix Acquisition Interest Amortization Maturity Borrowings rate 10%/10%/15% $6.0m 3.75% 20%/20%/25% 2027 $6 million as of 10/1/21 Prime + 0.50% Starts at 10% October 1, $1 million revolver undrawn (floor of 3.75%) for first 2 years 2027 In conjunction with the purchase
Slide 45: Real Estate
S Real Estate ———$_$ ——____
Slide 46: Real Estate: Overview
Real Estate: Overview | 46 We focus on zero cash flow CTL’s with high quality assets and credit- worthy tenants. Re a l Esta te Acquisitions are structured with relatively limited equity contribution and Se gme nt mortgage debt that is non-recourse to KFS. Stra te gy We utilize KFS’ tax attributes t
Slide 47: Real Estate: CMC Industries
Real Estate: CMC Industries | 47 Kingsway owns 81% of the stock of CMC Industries 81% Inc. CMC owns, through an indirect wholly owned subsidiary, a parcel of real property consisting of approximately 192 acres located in the State of 19 2a c Texas. The property serves as a railcar storage in transit
Slide 48: Real Estate Financial Overview
Real Estate Financial Overview | 48 Real Estate Revenue by Quarter Real Estate Non-GAAP Adjusted Operating Income 4M 2M 3M One-time impact of 1M CMC settlement 2M 0.5M 1M 2019 2019 0 2020 0 2020 2021 March 2021 March June September December June Sept Dec Rents are contractually Non-GAAP adjusted Arr
Slide 49: Real Estate: RoeCo Lafayette, LLC
Real Estate: RoeCo Lafayette, LLC | 49 Kingsway has entered into an Agreement to acquire 10 0 % 100% of the membership interests in RoeCo Lafayette, LLC. RoeCo Lafayette, LLC owns real property consisting of approximately 6.5 acres and a 29k s.f. building 29 ,224 located in Lafayette, LA. The proper
Slide 50: Sum of the Parts Valuation
| 50 Sum of the Parts Valuation
Slide 51: Sum of the Parts: Asset Management
Sum of the Parts: | 51 Asset Management (in millions) US GAAP 6/30/21 6/30/21 View Accounting Balance Sheet Economic Interest Consolidated – Argo Search Fund Strategic $3.3 $1.9 fair market value Equity Investments Non-strategic Fair market value $0.2 $0.2 Consolidated – Real Estate Investments (LLC
Slide 52: Sum of the Parts: Holding Company
Sum of the Parts: Holding Company | 52 Trust preferred debt Class A Preferred Stock Warrants instruments (“TruPs”) • $90.5 million in principal owed ($58.2 • 182,876 issued and outstanding; each • 4,923,765 outstanding as of 6/30/21 million fair value as of 6/30/21) with share is convertible into 6.
Slide 53: Sum of the Parts: Valuation
Sum of the Parts: Valuation | 53 Management believes Kingsway’s total intrinsic value should be viewed as a sum of its parts: (in millions, except per share data) Estimated Value Rationale Commentary Based on observed multiples in private market transactions, as well 12x to 15x of TTM EBITDA Operati
Slide 54: Sum of the Parts: Balance Sheet
Sum of the Parts: Balance Sheet | 54 The Company’s consolidating condensed balance sheet – assets – is comprised of the following as (in thousands) of June 30, 2021 (unaudited): EW Real Estate Hold Co Elims Consolidated Total Investments $22,533 $- $35,123 $- $57,656 Cash and cash equivalents 4,612
Slide 55: Sum of the Parts: Balance Sheet
Sum of the Parts: Balance Sheet | 55 The Company’s consolidating condensed balance sheet – investments – is comprised of the (in thousands) following as of June 30, 2021 (unaudited): EW Real Estate Hold Co Elims Consolidated Fixed maturities, at fair value $21,602 $- $- $- $21,602 Equity investments
Slide 56: Sum of the Parts: Balance Sheet
Sum of the Parts: Balance Sheet | 56 The Company’s consolidating condensed balance sheet – liabilities and equity – is comprised of the (in thousands) following as of June 30, 2021 (unaudited): EW Real Estate Hold Co Elims Consolidated Accrued expenses and other liabilities $21,371 $1,608 $19,412 $(
Slide 57: Conclusion
Conclusion | 57 We are building a holding company that aspires to compound intrinsic value per share at high rates over the long term through efficient operations and thoughtful, tax-advantaged capital allocation. Thoughtful capital Apply operational and Partner with great Tax advantaged allocation
Slide 58: Appendix
| 58 Appendix
Slide 59: Class A Preferred Stock: Redemption Status
Class A Preferred Stock: | 59 Redemption Status As of June 30, 2021, there are 182,876 shares of the Company’s Class A Preferred Stock issued and outstanding. Any outstanding Preferred Shares were required to be redeemed by the Company on April 1, 2021 ("Redemption Date") at a redemption value of $6
Slide 60: Reconciliation of GAAP Net Loss to Non-GAAP Adjusted (Loss) Income
Reconciliation of GAAP Net Loss to Non- | 60 GAAP Adjusted (Loss) Income (in thousands) TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 GAAP Net Loss $(2,957) $(256) $899 $(2,478) $(1,124) Non-GAAP Adjustments: (Gain) Loss on sale of non-core investments (1) (21) (71) - (51)
Slide 61: Reconciliation of GAAP Net Loss to Non-GAAP Adjusted (Loss) Income
Reconciliation of GAAP Net Loss to Non- | 61 GAAP Adjusted (Loss) Income (in thousands) TTM For the Three Months Ended 6/30/20 6/30/20 3/31/20 12/31/19 9/30/19 GAAP Net (Loss) Income $(8,919) $(1,421) $(393) $(3,098) $(4,006) Non-GAAP Adjustments: (Gain) Loss on sale of non-core investments (1) (353
Slide 62: Reconciliation of GAAP Net Loss to Non-GAAP Adjusted (Loss) Income: Notes
Reconciliation of GAAP Net Loss to Non-GAAP | 62 Adjusted (Loss) Income: Notes 1. Represents realized gains and losses on the Company’s non-core investments. 2. The Company has investments in several entities that are not essential to the ongoing operations and strategy of the Company. The investmen
Slide 63: Reconciliation of GAAP Net Loss to Non-GAAP Adjusted (Loss) Income: Note 2
Reconciliation of GAAP Net Loss to Non- | 63 GAAP Adjusted (Loss) Income: Note 2 (in thousands) TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 (Gain) loss on change in fair value of limited liability $(2,798) $(731) $202 $(1,995) $(274) investments, at fair value Net change
Slide 64: Reconciliation of GAAP Reported Revenue to Pro Forma Revenue
Reconciliation of GAAP Reported Revenue | 64 to Pro Forma Revenue (in thousands) TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 GAAP Reported Revenue 76,930 $22,096 $22,020 $17,399 $15,415 PWI pro forma revenue (1) 12,146 - - 4,748 7,398 Pro Forma Revenue 89,076 $22,096 $22,
Slide 65: Pro Forma Non-GAAP Adjusted (Loss) Income by Quarter
Pro Forma Non-GAAP Adjusted (Loss) | 65 Income by Quarter (in thousands) TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 GAAP Net Loss ($2,959) ($256) $899 $(2,478) $(1,124) Total Non-GAAP Adjustments (1) 9,216 1,212 3,427 3,890 687 Non-GAAP Adjusted (Loss) Income $6,257 $956
Slide 66: Reconciliation of Operating (Loss) Income to Non-GAAP adjusted Operating Income: Real Estate
Reconciliation of Operating (Loss) Income | 66 to Non-GAAP adjusted Operating Income: (in thousands) Real Estate TTM For the Three Months Ended 6/30/21 6/30/21 3/31/21 12/31/20 9/30/20 Operating (Loss) Income ($2,948) $(2,302) $1,293 $(2,738) $799 Depreciation 4,148 1,037 1,037 1,037 1,037 Other Adj
Slide 67: Reconciliation of GAAP Operating Income (Loss) for Extended Warranty Segment
Reconciliation of GAAP Operating Income (Loss) | 67 for Extended Warranty Segment (in thousands) TTM For the Year Ended 6/30/21 2020 2019 2018 2017 2016 2015 GAAP Operating Income (loss) for Extended Warranty segment (1) $12,378 $6,605 $4,611 $4,215 $3,700 $449 $(686) Non-GAAP Adjustments: Investmen
Slide 68: Reconciliation of Ravix GAAP Income before Income Taxes to Non-GAAP Adjusted EBITDA
Reconciliation of Ravix GAAP Income before | 68 Income Taxes to Non-GAAP Adjusted EBITDA (in thousands) TTM 6/30/21 Ravix GAAP Income before Income Taxes $1,877 Non-GAAP Adjustments: Depreciation and Amortization - Interest - Non core revenue (1) (142) Wages and benefits (2) 1,021 Total Non-GAAP Adj
Kingsway Financial Services — Investor Day (October 2021) on 6ix