Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Presentation (August 2024)
48 slides from Kingsway's investor presentation, August 2024
Slide 1: Investor Presentation
3 NYSE: KFS Investor Presentation August 2024 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: Our Leadership: Officers
Our Leadership: Officers | 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 Preside
Slide 4: Investment Highlights
Investment Highlights | 4 1 A collection of recurring revenue, high margin, asset-light, growing businesses 2 Operating company adjusted EBITDA run-rate of approximately $16 to $17 Million(1) 3 Approximately $626 Million(2) in Net Operating Losses (NOLs) for tax-advantaged cash flow 4 Disciplined M&
Slide 5: Strong Track Record of OpCo Adjusted EBITDA Growth
Strong Track Record of OpCo | 5 Adjusted EBITDA Growth (in thousands) Annual OpCo Adjusted EBITDA(1)(2)(3) ~$16,000 to $17,000 $15,521 20% CAGR $14,137 $13,656 2018 to TTM 2024 $11,440 $7,108 $5,497 $4,844 2018 2019 2020 2021 2022 2023 TTM 6/30/24 Run-rate Full Year Full Year Geminus; Sold PWSC 7/22
Slide 6: Quality Operating Companies
Quality Operating Companies | 6 Core businesses are asset-light, generate recurring revenue and operate in growing industries Extended Warranty (TTM 6/30/24) Kingsway Search Xcelerator (“KSX”) (TTM 6/30/24) Revenue Adj EBITDA Revenue Adj EBITDA $68.3M $35.0M(1) Revenue 34% 42% Revenue 66% 58% 11.6%
Slide 7: Strategy for Growth
Strategy for Growth | 7 Powerful flywheel can significantly grow Adjusted EBITDA both organically and through acquisitions in a tax-advantaged structure Organic Growth Growth through Acquisitions • Grow and Improve Portfolio of • Search Xcelerator Businesses Utilizing proven framework to target 2-3
Slide 8: Extended Warranty
| 8 So Extended Warranty ——————_——$—$——$——__—
Slide 9: Extended Warranty Industry
Extended Warranty Industry | 9 A Scalable, High-Margin, Low Capital Intensity Business = Enduringly High ROTC Warranty Industry Advantages Large and Growing Estimated at ~$287B globally and forecast to grow at 8.4% CAGR through 2032(1) Fragmented Management estimates that top companies in industry a
Slide 10: Extended Warranty Industry
Extended Warranty Industry | 10 Demand for F&I Products is Strong Large,Resilient UsedVehicle The HVAC/R and Plumbing and Continues to Grow Market Industry is Large and Growing The US auto extended warranty market has Vehicle sales have remained robust over the past 5 The HVAC/R and plumbing e
Slide 11: Kingsway's Extended Warranty Offerings
Kingsway’s Extended | 11 Warranty Offerings Leading Extended Warranty and Seasoned Expertise in Higher Ability to Distribute VSCs Facilities Management Provider Mileage Vehicles Sold Through through Credit Unions for HVAC/R and Plumbing Independent Dealerships Industries VSCs distributed at point-
Slide 12: Kingsway's Extended Warranty Subsidiaries
Kingsway’s Extended | 12 Warranty Subsidiaries Auto (aka “VSC”) 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 m
Slide 13: Extended Warranty Strategic Outlook
Extended Warranty Strategic Outlook | 13 Continually Searching for Opportunities that Complement Our Existing Offerings Automobile Mechanical Our Businesses PWI, IWS, Geminus TWS Warranty agreements and maintenance support to Services Vehicle Service Contracts consumers and businesses in the HVAC, s
Slide 14: Extended Warranty Financial Overview
Extended Warranty | 14 Financial Overview TTM 6/30/24 Revenue Warranty Segment Adjusted EBITDA(1) (in thousands) $11,599 $10,885 ~$9,500 to $10,000 45% 29% $8,426 $7,948 $7,108 $5,497 $4,844 2018 2019 2020 2021 2022 2023 TTM Run-rate 6/30/24 14% 12% Acquired Sold Continued Full Year PWI PWSC claims
Slide 15: Extended Warranty Net Debt
Extended Warranty | 15 Net Debt PWI (in thousands) Acquisition $20,427 $15,483 $10,146 Geminus $10,712 Acquisition $8,331 $5,387 ($2,747) 2018 2019 2020 2021 2022 2023 6/30/2024 Debt Unrestricted Cash In May 2024, we amended the Extended Warranty debt as follows: $15 million term; $6 million delayed
Slide 16: Managing the Float
Managing the Float | 16 • Extended Warranty has ~$45M in investable float as of 6/30/2024 • Primarily in high-grade government and corporate bonds • Average duration is 2-3 years, designed to match expected claims exposure • For the twelve months ended June 30, 2024, investment income earned was $1.
Slide 17: Kingsway Search Xcelerator
| 17 Kingsway Search Xcelerator
Slide 18: Kingsway Search Xcelerator: Entrepreneurship through acquisition
Kingsway Search Xcelerator | 18 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 19: Long history of backing early-in-career managers
Kingsway Search Xcelerator | 19 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 20: Entrepreneurship through Acquisition explained
Kingsway Search Xcelerator | 20 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 21: Search funds as a tested investment vehicle
Kingsway Search Xcelerator | 21 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 22: Private business owner transition opportunity
Kingsway Search Xcelerator | 22 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 23: Attractive Exit Alternative for Retirement-Ready Operators
Kingsway Search Xcelerator | 23 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 24: Opportunity for Value Creation
Kingsway Search Xcelerator | 24 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 • Founder lifestyle constraints and a general aversion to risk
Slide 25: Partner with exceptional entrepreneurs: the 5 H's
Kingsway Search Xcelerator | 25 Entrepreneurship through acquisition Partner with exceptional entrepreneurs – the 5 “H”’s OIR Recruiting Criteria: • Honesty – unimpeachable integrity, transparency, and accountability; • Humility – personal awareness and the willingness to admit what they don’t know;
Slide 26: Xcelerator Executives
Xcelerator Executives | 26 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 27: Xcelerator Executives
Xcelerator Executives | 27 Peter Dausman Drew Richard CEO, Digital Diagnostics Imaging, Inc. CEO, Systems Products International, Inc. (SPI) (DDI) Mr. Dausman joined Kingsway in the summer of 2021 as our Mr. Richard joined Kingsway in August of 2022 as our fourth third Operator-in-Residence in the S
Slide 28: Xcelerator OIR's
Xcelerator OIR's | 28 Davide Zanchi Peter Hearne Operator-in-Residence Operator-in-Residence Kingsway Search Xcelerator Kingsway Search Xcelerator Davide Zanchi joined Kingsway in May 2023. Prior to joining Peter Hearne joined Kingsway in May 2023. Prior to joining Kingsway, Mr. Zanchi worked in sev
Slide 29: Xcelerator OIR's
Xcelerator OIR's | 29 Miles Mamon Paul Vidal Operator-in-Residence Operator-in-Residence Kingsway Search Xcelerator Kingsway Search Xcelerator Miles Marmon joined Kingsway in August 2023. Prior to joining Paul Vidal joined Kingsway in January 2024. Prior to joining Kingsway, Mr. Kingsway, Mr. Mamon
Slide 30: Xcelerator Business Development
Xcelerator Business Development | 30 Charles Joyce VP Business Development Kingsway Search Xcelerator Focus Areas Charles Joyce joined Kingsway in April 2023 from Forest Circle LLC - a Search investment firm - where, as Principal and Chief Executive • Indirect sourcing: will free up OIR’s to focus o
Slide 31: Acquire a Portfolio of Great Businesses
Kingsway Search Xcelerator Entrepreneurship through acquisition | 31 Acquire a Portfolio of Great Businesses Acquisition Criteria: Enduringly high ROTC Industry Attributes: Company Attributes: Large and growing(>2x GDP) due to long-term secular High percentage of recurring revenue trends High
Slide 32: Kingsway's KSX Subsidiaries
Kingsway’s KSX | 32 Subsidiaries Vertical Business Services Market Software ravixgroup.com csuitefinancialpartners.com spisoftware.com Founded in 2000 Founded in 2015 Founded in 2000 Acquired in 2021 Acquired in 2022 Acquired in 2023 Ravix Group is a national CSuite, based in Manhattan SPI, based in
Slide 33: Kingsway's KSX Subsidiaries
Kingsway’s KSX | 33 Subsidiaries Healthcare Services ddimagingusa.com securenursing.com Founded in 2009 Founded in 2002 Acquired in 2023 Acquired in 2022 DDI, based in New Jersey, Based in Los Angeles, SNS provides fully managed outsourced employs highly skilled and cardiac monitoring telemetry prof
Slide 34: KSX Financial Overview
KSX Financial Overview | 34 TTM 6/30/24(1) Revenue KSX Segment Adjusted EBITDA(2) (in thousands) 10% ~$6,500 to $7,000 7% $5,711 $5,708 $3,783 39% 32% $555 13% 12% 2021 2022 2023 TTM 6/30/24 Run-rate Acq Ravix 10/21 Acquired SPI 9/23; Acq DDI 10/23 Full year Ravix; Not full TTM for Acq CSuite / SNS
Slide 35: KSX Net Debt
KSX | 35 Net Debt (in thousands) DDI, SPI CSuite, SNS Acquisitions Acquisitions $17,965 $15,522 $15,475 Ravix Acquisition $5,041 2021 2022 2023 6/30/2024 Debt Unrestricted Cash • All KSX debt is non-recourse to the parent company (collateralized by each entity individually; SPI is debt free)
Slide 36: Apply Strategic and Operating Support
Kingsway Search Xcelerator Entrepreneurship through acquisition | 36 Apply Strategic and Operating Support • Leadership Training • Talent Assessment • Effective Communication • Talent Development Process The Kingsway Business System is a comprehensive and • Time Management • Performance Management a
Slide 37: Strategic Advisory Board
Kingsway Search Xcelerator | 37 Strategic Advisory Board Thomas P. Joyce, Jr. William N. Thorndike, Jr. Tyler Gordy Mr. Joyce most recently served as Mr. Thorndike is the Managing Partner of The Mr. Gordy is a Partner at Artesian, a family office President, Chief Executive Officer, and Cromwell Harb
Slide 38: Case Study: Compound Capital at High Rates of Return
Kingsway Search Xcelerator | 38 Case Study: Compound Capital at High Rates of Return Investment Details Why it worked People • Acquired the business in November 2017 • Partnered with an exceptional entrepreneur -- • Purchase Price: $10 million Tyler Gordy (HBS, West Point) • $5 million preferred e
Slide 39: Kingsway Consolidated Overview
| 39 Kingsway Consolidated Overview
Slide 40: Creating Value for Shareholders
Creating Value for Shareholders | 40 Action Cash Debt Adj EBITDA December 2022: Sale of CMC rail yard +$21.4M ($177.2M) -- February 2023: Sale of final NLIG commercial property +$6.9M -- -- March 2023: Repurchase of $75.5M or TruPs, for 60.8 cents on the dollar ($56.5M) ($96.7M) -- H1 2023: Class A
Slide 41: Creating Value for Shareholders
Creating Value for Shareholders | 41 • Under our securities repurchase program we have(1): • Repurchased 1,093,861 of our warrants (warrants expired Sept 2023), and • Repurchased 541,277 shares of our common stock • After considering both stock and warrant repurchases, $1.9 million(1) of stock repur
Slide 42: Net Debt Reduced Significantly
Net Debt Reduced Significantly | 42 (in millions) $305.3 $274.5 $260.8 $246.9 $69.4 $35.3 $37.7 2018 2019 2020 2021 2022 2023 6/30/2024 OpCos Notes Payable TruPs: Fair Value TruPs: Def Int Class A Preferred Unrestricted Cash Refer to the Appendix for details on net debt.
Slide 43: Investment Highlights
Investment Highlights | 43 1 A collection of recurring revenue, high margin, asset-light, growing businesses 2 Operating company adjusted EBITDA run-rate of approximately $16 to $17 Million(1) 3 Approximately $626 Million(2) in Net Operating Losses (NOLs) for tax-advantaged cash flow 4 Disciplined M
Slide 44: Appendix
c= Appendix | 44
Slide 45: TTM Run-Rate Defined
TTM Run-Rate Defined | 45 • This metric is not intended to be guidance by management regarding the future earnings of the Company; rather, it is intended to capture the twelve-month earnings of what the Company currently owns or has recently acquired; as such, it includes: • The actual operating res
Slide 46: Reconciliation of GAAP Operating Income for Extended Warranty Segment
Reconciliation of GAAP Operating Income for | 46 Extended Warranty Segment (in thousands) TTM For the Year Ended 6/30/24 2023 2022 2021 2020 2019 2018 GAAP Operating Income for Extended $6,479 $6,983 $9,879 $12,636 $6,605 $4,611 $4,215 Warranty segment (1) Non-GAAP Adjustments: Investment income, ga
Slide 47: Reconciliation of GAAP Operating Income for KSX Segment
Reconciliation of GAAP Operating Income for | 47 KSX Segment (in thousands) TTM For the Year Ended 6/30/24 2023 2022 2021 GAAP Operating Income for KSX segment $4,843 $5,252 $3,548 $484 (1) Non-GAAP Adjustments: Employee costs (2) 492 380 235 71 Investment Income (3) 105 55 Depreciation (4) 268 24 T
Slide 48: Details of Net Debt
Details of Net Debt | 48 (in thousands) For the Year Ended As of 2018 2019 2020 2021 2022 2023 6/30/24 OpCos $ 3,917 $ 9,240 $ 25,303 $ 26,717 $ 34,281 $ 30,822 $ 33,554 Notes Payable (1) 199,316 194,634 192,057 205,025 - - - TruPs: Fair Value 50,023 54,655 50,928 60,973 67,811 13,594 13,715 TruPs:
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