Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Day (May 2023)
63 slides from Kingsway's investor day presentation, May 16, 2023
Slide 1: Investor Day Presentation
NYSE: KFS Investor Day Presentation May 16, 2023 Efficient Operations, Thoughtful Capital Allocation
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 Timi Okah President & CEO, Ravix Financial Inc. Mr. Okah serves as CEO of Ravix Financial Inc., a Kingsway subsidiary, following Kingsway's acquisition of Ravix on October 1, 2021. Mr. Okah joined Kingsway in August 2020 as a member of Kingsway's CEO Accelerator Program. Prior to
Slide 5: Agenda
Agenda | 5 Introduction to Kingsway Kingsway Financial Overview Extended Warranty Kingsway Search Xcelerator Q&A Appendix
Slide 6: Introduction to Kingsway
| 6 Introduction to Kingsway
Slide 7: Company Overview
Company Overview | 7 Ticker: KFS (NYSE) Owns or controls subsidiaries primarily in the extended warranty and business services industries Incorporation Total Employees (1) Based in Incorporated in 1989 434 Chicago, IL Financial Overview (1) Shareholder Information (2) Assets: $201.3 Million Share Pr
Slide 8: Investment Highlights
Investment Highlights | 8 1 A collection of recurring revenue, high margin, asset-light, growing businesses 2 Operating company adjusted EBITDA run-rate of approximately $18 to $19 Million(1) 3 Approximately $610 Million(2) in Net Operating Losses (NOLs) for tax-advantaged cash flow 4 Disciplined M&
Slide 9: Our Structure
Our Structure | 9 Decentralized operating structure with a small corporate team • A small, lean team (10 FTEs) • Makes all capital allocation decisions among OpCos • Acquisitions of new OpCos • Oversight and cadence of accountability with OpCos • Oversees Asset Management (EW Float $44.6M; Argo) • R
Slide 10: Strategy for Growth
Strategy for Growth | 10 Powerful flywheel can significantly grow Adjusted EBITDA both organically and through acquisitions in a tax-advantaged structure Organic Growth Growth through Acquisitions • Grow and Improve Portfolio of • Search Xcelerator Businesses Utilizing proven framework to identify t
Slide 11: Kingsway Financial Overview
| 11 Kingsway Financial Overview
Slide 12: Strong Track Record of OpCo Adjusted EBITDA Growth
Strong Track Record of OpCo | 12 Adjusted EBITDA Growth (in thousands) Annual OpCo Adjusted EBITDA(1)(2)(3) ~$18,000 to $19,000 Sold PWSC July; 12 mos 31% CAGR Ravix $15,178 Full year PWI; $14,419 improved Op Inc. $11,440 Full year Geminus; Acquired Geminus COVID Full year PWSC 3/2019 $7,108 $5,497
Slide 13: Quality Operating Companies
Quality Operating Companies | 13 Core businesses are asset-light, generate recurring revenue and operate in growing industries Extended Warranty (TTM 3/31/23) Kingsway Search Xcelerator (“KSX”) (TTM 3/31/23) Revenue Pro forma adj EBITDA Revenue Pro forma adj EBITDA $72.4M(1) $24.9M(2) Revenue Revenu
Slide 14: Creating Value: Activity in the Last 10 Months
Creating Value: Activity in the | 14 Last 10 Months Action Cash Debt Adj EBITDA July 2022: Sale of PWSC for $51.2 million; 10x ROI +$37.2M -- ($1.8M) (1) September 2022: Sale of Flower real estate portfolio +$5.8M ($6.0M) -- November 2022: Purchase CSuite ($2.5M) $6.0M $1.8M (2) November 2022: Purch
Slide 15: Net Debt Reduced Significantly
Net Debt Reduced Significantly | 15 (in millions) $305.3 $274.5 $260.8 $246.9 $69.4 $35.8 2018 2019 2020 2021 2022 3/31/2023 OpCos Notes Payable TruPs: Fair Value TruPs: Def Int Class A Preferred Unrestricted Cash Refer to the Appendix for details on net debt.
Slide 16: On the Horizon
On the Horizon | 16 • We have 3.2M(1) warrants outstanding, $5 strike that expire in September 2023 • $16M in cash to Kingsway if all are exercised • 30,000 shares of Class A preferred stock with a redemption value of $1.2M (2) • All Class A preferred stock expected to be fully converted by end of Q
Slide 17: Extended Warranty
17 So Extended Warranty ——————_——$—$——$——__—
Slide 18: Extended Warranty Industry
Extended Warranty Industry | 18 A Scalable, High-Margin, Low Capital Intensity Business = Enduringly High ROTC Warranty Industry Advantages Large and Growing Estimated at ~$123B globally and forecast to grow at 8.6% CAGR through 2031(1) Fragmented Management estimates that top companies in industry
Slide 19: Kingsway's Extended Warranty Subsidiaries
Kingsway’s Extended | 19 Warranty Subsidiaries Auto Mechanical iwsgroup.com preferredwarranties.com pennwarranty.com trinitywarranty.com Founded in 1991 Founded in 1992 Founded in 1988 Founded in 2009 Acquired in 2012 Acquired in 2020 Acquired in 2019 Acquired in 2013 IWS is a licensed motor vehicle
Slide 20: Extended Warranty Strategic Outlook
Extended Warranty Strategic Outlook | 20 Continually Searching for Opportunities that Complement Our Existing Offerings Automobile Mechanical Our Businesses PWI, IWS, Geminus TWS Warranty agreements and maintenance support to consumers Services Vehicle Service Agreements and businesses in the HVAC,
Slide 21: Extended Warranty Financial Overview
Extended Warranty | 21 Financial Overview TTM 3/31/23 Pro Forma Revenue (1) Warranty Segment Adjusted EBITDA(2) (in thousands) Sold PWSC; Full year PWI CSuite / SNS acquired $10,885 $10,636 $10,592 Full year $9,704 $9,969 43% 30% Geminus; $8,889 COVID Acquired Geminus $7,108 Full year 3/1/2019 PWSC
Slide 22: Effectively Using Leverage: Net Debt
Effectively Using Leverage: | 22 Net Debt (in thousands) $20,427 $15,483 $10,146 $10,231 $5,387 ($2,747) 2018 2019 2020 2021 2022 3/31/2023 Debt Unrestricted Cash Debt / (0.57x) 0.98x 2.87x 1.42x 0.95x 0.97x AEBITDA On February 28, 2023, we entered into an amendment that would allow an additional $1
Slide 23: Managing the Float
Managing the Float | 23 • Extended Warranty has ~$44.6M in investable float as of 3/31/2022 • Primarily in high-grade government and corporate bonds • Average duration is 2-3 years, designed to match expected claims exposure • Market yields on our portfolios (one each for IWS, Geminus and PWI) have
Slide 24: Kingsway Search Xcelerator
| 24 Kingsway Search Xcelerator
Slide 25: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 25 Entrepreneurship through acquisition Building a unique platform focused on long-term value creation Partner with exceptional Acquire great businesses Apply operational and Compound capital at high entrepreneurs strategic support rates of return over a long time horizo
Slide 26: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 26 Entrepreneurship through acquisition We have a long, successful history of backing early-in-career managers Success with early-in-career CEO was a searcher post-MBA; Investing in search funds for 17+ years managers running Kingsway acquired and ran small business oper
Slide 27: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 27 Entrepreneurship through acquisition Entrepreneurship through Acquisition (“ETA”) is a method of entrepreneurship where an individual or a team acquires an existing, profitable business and then uses their entrepreneurial skills and strategies to improve and grow it.
Slide 28: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 28 Entrepreneurship through acquisition Tested Investment Vehicle: Search funds have been in existence since 1984 and have been used by over 500 entrepreneur teams to support efforts to locate, acquire and manage an existing private company • A 2022 study(1) concluded th
Slide 29: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 29 Entrepreneurship through acquisition Private businesses with enterprise values between $5 and $30 million where the owner/operator is looking to transition from day-to-day operating responsibilities represent a compelling investment opportunity Demographic Trend: • Ap
Slide 30: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 30 Entrepreneurship through acquisition Attractive Exit Alternative for Retirement-Ready Operators • Unlike traditional private equity firms and capital-constrained private buyers, ETA offers business owners a novel exit alternative • Kingsway provides capital for the ow
Slide 31: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 31 Entrepreneurship through acquisition 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
Slide 32: Xcelerator Executives
Xcelerator Executives | 32 Timi Okah Charles Mokuolu President & CEO, Ravix Financial and President & CEO, Secure Nursing Service, Inc. CSuite Partners Mr. Okah serves as CEO of Ravix Financial Inc., a Kingsway subsidiary, Mr. Mokuolu serves as CEO of Secure Nursing Service Inc., a Kingsway followin
Slide 33: Ravix Financial
Ravix Financial | 33 Acquired Ravix Financial, Inc. for $11 Million (~4.0X TTM Adjusted EBITDA) Company Profile One Year Post-Acquisition Ravix is a provider of outsourced accounting and Year-over-Year, Adjusted EBITDA(1) was up 19% human resources services In Thousands $3,302 $15.2M 6.1% TTM 3/31/2
Slide 34: CSuite Partners
CSuite Partners | 34 On 11/1/2022 Acquired CSuite Financial Partners for $8.5 Million (~4.5X TTM Adjusted EBITDA) Company Profile Terms of the Transaction CSuite is a national, financial executive services firm that provides financial management leadership $8.5 million paid at close, earnout poten
Slide 35: Ravix Financial
Ravix Financial | 35 TTM snapshot at acquisition vs March 2023 Efficient growth over the past five quarters of Kingsway ownership September 2021 March 2023 • TTM Revenue: $12.6M • TTM Revenue: 15.2M (+21%) • TTM EBITDA: $2.35M • TTM EBITDA: $3.3M (+40%) • # of Employees: 59 • # of Employees: 59 (+0%
Slide 36: Ravix Financial
Ravix Financial | 36 How Well Did Our Thesis Hold Up? Our thoughts… …vs our experience 1. Strong financial profile and favorable 1. Strong financial profile and favorable industry trends… industry trends… • Stable revenues and consistent historical growth Stable revenue growth with minimal seasona
Slide 37: Ravix Financial
Ravix Financial | 37 A Deeper Dive Into the Growth Opportunities Operator has spent time on initiative Our original outlook on growth levers Outcomes Time horizon Impact • Of the three initiatives we’ve spent time on the Maintain most impactful has been pricing: pricing Immediate discipline Our av
Slide 38: The Operator's Experience
Ravix Financial | 38 The Operator’s Experience Time Allocation in Year One Reflections from Year One • I’m very pleased with how the transition with the seller has gone. Dan has been an incredible mentor and remains involved with business. • Equally as important, I’m very pleased with the performanc
Slide 39: CSuite Partners
CSuite Partners | 39 The ‘Tuck-In’ Acquisition History of Acquisition First Six Months • On November 1st , 2023, Kingsway acquired CSuite • The acquisition started off on a strong foot. We quickly Financial Partners to run alongside Ravix Group. integrated accounting and benefits onto Kingsway platf
Slide 40: Secure Nursing Service ("SNS")
Secure Nursing Service (“SNS”) | 40 On 11/18/2022 Acquired Secure Nursing Service, Inc. for $10.9 Million (~4.0X TTM Adjusted EBITDA) Company Profile Terms of the Transaction SNS employs highly-skilled medical staff for assignment in hospitals located in Southern California $10.9 million paid at c
Slide 41: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 41 Entrepreneurship through acquisition Building a unique platform focused on long-term value creation Partner with exceptional entrepreneurs via the Kingsway Search Xcelerator Program Compound capital at high rates of return over a long time horizon Acquire a portfolio
Slide 42: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 42 Entrepreneurship through acquisition Mission: “Bend the Curve” in Search – alter the conditions of the problem to improve the results Search Fund asset class has generated attractive returns over time (1) A majority (52%) of • 35.3% net IRR to investors searchers fail
Slide 43: Altering the conditions to improve the results
Kingsway Search Xcelerator | 43 Entrepreneurship through acquisition Altering the conditions to improve the results Phase Problem & Likely Reason KSX Mitigation • Time • Search platform / dealflow Search Startup Standing start • Open-ended structure Exhaust search funds • Effective tools (sourci
Slide 44: Xcelerator Business Development
Xcelerator Business Development | 44 Charles Joyce VP Business Development Kingsway Search Xcelerator Charles Joyce joined Kingsway in April 2023 from Forest Circle LLC - a Search investment firm - where, as Principal and Chief Executive Officer, he was responsible for sourcing and evaluating invest
Slide 45: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 45 Entrepreneurship through acquisition Altering the conditions to improve the results Wrong People Bad Deal Poor Execution Searcher issues Wrong Industry Searcher unable to… • Lack of leadership ability • Low or negative industry • Manage multiple facilities or • Lack o
Slide 46: Partnering with exceptional talent – the 5 "H"'s
Kingsway Search Xcelerator | 46 Entrepreneurship through acquisition Partnering with exceptional talent – the 5 “H”’s OIR Recruiting Criteria: • Honesty – unimpeachable integrity; • Humility – personal awareness and the ability to know what they don’t know; • Hustle – high energy and a gritty willin
Slide 47: Xcelerator OIR's
Xcelerator OIR's | 47 Peter Dausman Drew Richard Operator-in-Residence Operator-in-Residence Kingsway Search Xcelerator Kingsway Search Xcelerator Mr. Dausman joined Kingsway in the summer of 2021 as our Mr. Richard joined Kingsway in August of 2022 as our fourth Operator- third Operator-in-Residenc
Slide 48: Xcelerator OIR's
Xcelerator OIR's | 48 Peter Hearne Davide Zanchi Operator-in-Residence Operator-in-Residence Kingsway Search Xcelerator Kingsway Search Xcelerator Peter Hearne joined Kingsway in May 2023. Prior to joining Davide Zanchi joined Kingsway in May 2023. Prior to joining Kingsway, Mr. Hearne was a princip
Slide 49: Strategic Advisory Board
Kingsway Search Xcelerator | 49 Strategic Advisory Board Thomas P. Joyce, Jr. William N. Thorndike, Jr. Mr. Joyce most recently served as President, Chief Executive Officer, Mr. Thorndike is the Managing Partner of The Cromwell Harbor and Director of Danaher Corporation, from which he retired in 202
Slide 50: Acquire a portfolio of great businesses on reasonable terms
Kingsway Search Xcelerator | 50 Entrepreneurship through acquisition Acquire a portfolio of great businesses on reasonable terms Industry Attributes: Company Attributes: Deal Attributes: • Large and growing(>2x GDP) • High percentage of recurring revenue • Acquire at reasonable valuation (5-7X • Fra
Slide 51: Provide operational and strategic support for effective execution
Kingsway Search Xcelerator | 51 Entrepreneurship through acquisition Provide operational and strategic support for effective execution • An operating framework and set of business tools we call the Kingsway Business System “Common sense, vigorously applied” Cadence of accountability • Accountabi
Slide 52: Policy Deployment as an execution framework
Kingsway Search Xcelerator | 52 Entrepreneurship through acquisition Policy Deployment as an execution framework 01 02 • Vision 01 Planning • Strategic Plan; 3-5 year • Strategy - Annual Focus on the Act on Lead Wildly Important Measures • Improvement Priorities 02 Implementation Self Diagnosis • Re
Slide 53: Case Study: PWSC
Kingsway Search Xcelerator | 53 Case Study: PWSC Investment Details Why it worked • Acquired the business in November 2017 • People • Purchase Price: $10 million • Partnered with Tyler Gordy (HBS, West Point) • $5 million preferred equity, $5 million senior debt • Who was able to attract a great tea
Slide 54: Investment Highlights
Investment Highlights | 54 1 A collection of recurring revenue, high margin, asset-light, growing businesses 2 Operating company adjusted EBITDA run-rate of approximately $18 to $19 Million(1) 3 Approximately $610 Million(2) in Net Operating Losses (NOLs) for tax-advantaged cash flow 4 Disciplined M
Slide 55: Questions and Answers
| 55 Questions and Answers
Slide 56: Appendix
| 56 Appendix
Slide 57: Reconciliation of GAAP Operating Income for Extended Warranty Segment
Reconciliation of GAAP Operating Income for | 57 Extended Warranty Segment (in thousands) TTM For the Year Ended 3/31/23 2022 2021 2020 2019 2018 GAAP Operating Income for Extended $9,588 $9,879 $12,636 $6,605 $4,611 $4,215 Warranty segment (1) Non-GAAP Adjustments: Investment income, gain (loss) on
Slide 58: Reconciliation of GAAP Operating Income for KSX Segment
Reconciliation of GAAP Operating Income for | 58 KSX Segment (in thousands) TTM For the Year Ended 3/31/23 2022 2021 GAAP Operating Income for Extended $4,319 $3,548 $484 Warranty segment (1) Non-GAAP Adjustments: Employee costs (1) 267 235 71 Total Non-GAAP Adjustments 267 235 71 Non-GAAP adjusted
Slide 59: Details of Net Debt
Details of Net Debt | 59 (in thousands) For the Year Ended TTM 2018 2019 2020 2021 2022 3/31/23 OpCos $ 3,917 $ 9,240 $ 25,303 $ 26,717 $ 34,281 $ 31,041 Notes Payable (1) 199,316 194,634 192,057 205,025 - - TruPs: Fair Value 50,023 54,655 50,928 60,973 67,811 11,808 TruPs: Deferred Interest 2,492 8
Slide 60: Extended Warranty Borrowings
Extended Warranty | 60 Borrowings Extended Warranty Interest Amortization Maturity Leverage Borrowings rate $13.8M(1) 7.49%(1) 15% 2025 1.3x(1) (includes $0.5 SOFR + 2.87% 15% per year, November 30, Leverage ratio million revolver) (SOFR floor of 0.75%) paid quarterly 2025 In conjunction with the pu
Slide 61: Ravix / CSuite Borrowings
Ravix / CSuite | 61 Borrowings Original Ravix Ravix Ravix Ravix Maturity Borrowing Interest rate Amortization 10%/10%/15% $10.95M(1) 8.25%/8.50%(1) 20%/20%/25% 2027/2028 $1 million revolver undrawn Starts at 10% for first 2 years In conjunction with the purchase of Ravix on 10/1/2021, executed a loa
Slide 62: SNS Borrowing
SNS Borrowing | 62 SNS Interest Amortization Maturity Borrowing rate I/O one year; $6.5M(1) 8.50% 20% thereafter 2028 $1 million revolver; $0.35 Prime + 0.50% Interest only first year; November 18, monthly payments million drawn (repaid as of (Floor of 5.00%) 2028 thereafter 4/30/23) In conjunction
Slide 63: Other Assets
Other Assets | 63 (in millions) 3/31/23 Economic Interest (1) Argo Search Fund (2) $1.7 Amigo (3) $0.3 Equity Investments $1.2 NLIG / VA Clinic (4) $9.4 LLCs / Private Companies $1.7 Other $0.4 Total Other Assets $14.7 (1) Economic interest is adjusted to reflect the amount of any non-controlling in
Kingsway Financial Services — Investor Day (May 2023) on 6ix