Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Presentation (January 2024)
50 slides from Kingsway's investor presentation, Jan 16, 2024
Slide 1: Investor Presentation
3 NYSE: KFS Investor Presentation January 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 $18 to $19 Million(1) 3 Approximately $609 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) ~$18,000 to $19,000 Annual OpCo Adjusted EBITDA(1)(2)(3) 24% CAGR $15,521 2018 to TTM 2023 $14,303 $11,440 $7,108 $5,497 $4,844 2018 2019 2020 2021 2022 TTM 9/30/23 Run-rate Full Year Geminus; Sold PWSC 7/22; Acquire SPI 9/23; Ful
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 9/30/23) Kingsway Search Xcelerator (“KSX”) (TTM 9/30/23) Revenue Adj EBITDA Revenue Adj EBITDA $68.7M $33.5M(1) 33% 39% Revenue Revenue 67% 61% 12.6%
Slide 7: Strategy for Growth
Strategy for Growth | 7 Powerful flywheel can significantly grow Adjusted EBITDA both organically and through acquisitions in a tax-advantaged structure Organic Growth Growth through Acquisitions • Grow and Improve Portfolio of • Search Xcelerator Businesses Utilizing proven framework to target 2-3
Slide 8: Extended Warranty
| 8 So Extended Warranty ——————_——$—$——$——__—
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: Kingsway's Extended Warranty Subsidiaries
Kingsway’s Extended | 10 Warranty Subsidiaries Auto (aka “VSA”) 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 11: Extended Warranty Strategic Outlook
Extended Warranty Strategic Outlook | 11 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 Agreements consumers and businesses in the HVAC,
Slide 12: Extended Warranty Financial Overview
Extended Warranty | 12 Financial Overview TTM 9/30/23 Revenue Warranty Segment Adjusted EBITDA(1) (in thousands) 12% CAGR $11,599 2018 to TTM 2023 $10,885 ~$10,000 to $10,500 $8,659 44% 30% $7,108 $5,497 $4,844 2018 2019 2020 2021 2022 TTM Run-rate Acquired 9/30/23 14% 12% Full Year PWI Sold PWSC PW
Slide 13: Extended Warranty Net Debt
Extended Warranty | 13 Net Debt PWI Acquisition (in thousands) $20,427 $15,483 Geminus $10,146 Acquisition $8,635 $5,387 ($2,747) 2018 2019 2020 2021 2022 9/30/2023 Debt Unrestricted Cash Debt / (0.57x) 0.98x 2.87x 1.42x 0.87x 1.0x AEBITDA On February 28, 2023, we entered into an amendment that woul
Slide 14: Managing the Float
Managing the Float | 14 • Extended Warranty has ~$45M in investable float as of 9/30/2023 • 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 September 30, 2023, investment income earned wa
Slide 15: Kingsway Search Xcelerator
| 15 Kingsway Search Xcelerator
Slide 16: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 16 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 17: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 17 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 18: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 18 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 19: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 19 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 20: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 20 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 21: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 21 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 22: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 22 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 23: Kingsway Search Xcelerator
Kingsway Search Xcelerator | 23 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 24: Xcelerator Executives
Xcelerator Executives | 24 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 25: Xcelerator Executives
Xcelerator Executives | 25 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 26: Xcelerator OIR's
Xcelerator OIR's | 26 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 27: Xcelerator OIR's
Xcelerator OIR's | 27 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 28: Xcelerator Business Development
Xcelerator Business Development | 28 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 29: Acquire a Portfolio of Great Businesses
Kingsway Search Xcelerator Entrepreneurship through acquisition | 29 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 30: Kingsway's KSX Subsidiaries
Kingsway’s KSX | 30 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 31: Kingsway's KSX Subsidiaries
Kingsway’s KSX | 31 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 32: KSX Financial Overview
KSX Financial Overview | 32 TTM 9/30/23 Revenue KSX Segment Adjusted EBITDA(2) (in thousands) 319% CAGR 2021 to TTM 2023 ~$8,000 to $8,500 <1%(1) 40% $5,644 $3,783 43% $555 16% 13% 2021 2022 TTM 9/30/23 Run-rate Acq Ravix 10/21 Full year Ravix; Acquire SPI 9/23; Acq CSuite / SNS Acquire DDI 10/23 (1
Slide 33: KSX Net Debt
KSX | 33 Net Debt CSuite, SNS Acquisitions (in thousands) $15,522 $12,130 • All KSX debt is non-recourse to the parent company • Ravix/CSuite debt is Ravix Acquisition collateralized by those entities; • SNS debt is collateralized by $5,041 SNS • Excludes $5.6M of debt incurred with the acquisition
Slide 34: Kingsway Search Xcelerator: Apply Strategic and Operating Support
Kingsway Search Xcelerator Entrepreneurship through acquisition | 34 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 35: Strategic Advisory Board
Kingsway Search Xcelerator | 35 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 36: Case Study: Compound Capital at High Rates of Return
Kingsway Search Xcelerator | 36 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 37: Kingsway Consolidated Overview
| 37 Kingsway Consolidated Overview
Slide 38: Creating Value: Activity in the Last ~12 Months
Creating Value: Activity in the | 38 Last ~12 Months Action Cash Debt Adj EBITDA November 2022: Purchase CSuite ($2.5M) $6.0M $1.8M (1) November 2022: Purchase SNS ($4.4M) $6.5M $2.7M (1) December 2022: Sale of CMC rail yard +$21.4M ($177.2M) -- February 2023: Sale of final NLIG commercial property
Slide 39: Net Debt Reduced Significantly
Net Debt Reduced Significantly | 39 (in millions) $305.3 $274.5 $260.8 $246.9 $69.4 $20.8 2018 2019 2020 2021 2022 9/30/2023 OpCos Notes Payable TruPs: Fair Value TruPs: Def Int Class A Preferred Unrestricted Cash Refer to the Appendix for details on net debt.
Slide 40: Other Items
Other Items | 40 • Under our securities repurchase program we have(1): • Repurchased 1,093,861 of our warrants, and • Repurchased 422,727 shares of our common stock • After considering both stock and warrant repurchases, $2.8 million(1) of stock repurchases could be made through March 22, 2024, unde
Slide 41: Investment Highlights
Investment Highlights | 41 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 $609 Million(2) in Net Operating Losses (NOLs) for tax-advantaged cash flow 4 Disciplined M
Slide 42: Appendix
| 42 Appendix
Slide 43: TTM Run-Rate Defined
TTM Run-Rate Defined | 43 • 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 44: Reconciliation of GAAP Operating Income for Extended Warranty Segment
Reconciliation of GAAP Operating Income for | 44 Extended Warranty Segment (in thousands) TTM For the Year Ended 9/30/23 2022 2021 2020 2019 2018 GAAP Operating Income for Extended $7,361 $9,879 $12,636 $6,605 $4,611 $4,215 Warranty segment (1) Non-GAAP Adjustments: Investment income, gain (loss) on
Slide 45: Reconciliation of GAAP Operating Income for KSX Segment
Reconciliation of GAAP Operating Income for | 45 KSX Segment (in thousands) TTM For the Year Ended 9/30/23 2022 2021 GAAP Operating Income for KSX segment (1) (2) $5,322 $3,548 $484 Non-GAAP Adjustments: Employee costs (3) 322 235 71 Total Non-GAAP Adjustments 322 235 71 Non-GAAP adjusted EBITDA for
Slide 46: Details of Net Debt
Details of Net Debt | 46 (in thousands) For the Year Ended As of 2018 2019 2020 2021 2022 9/30/23 OpCos $ 3,917 $ 9,240 $ 25,303 $ 26,717 $ 34,281 $ 28,312 Notes Payable (1) 199,316 194,634 192,057 205,025 - - TruPs: Fair Value 50,023 54,655 50,928 60,973 67,811 12,624 TruPs: Deferred Interest 2,492
Slide 47: Extended Warranty Borrowings
Extended Warranty | 47 Borrowings Extended Warranty Interest Amortization Maturity Leverage Borrowings rate $12.6M(1) 8.2%(1) 15% 2025 1.85x(1) (includes $0.5 SOFR + 2.87% 15% per year, November Leverage ratio million revolver) (SOFR floor of 0.75%) paid quarterly 2025 In conjunction with the purcha
Slide 48: Ravix / CSuite Borrowings
Ravix / CSuite | 48 Borrowings Current Ravix Ravix Ravix Maturity Borrowings Interest rate Amortization 10%/10%/15% $9.8M(1) 9.00%/9.25%(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 loan agreem
Slide 49: SNS Borrowing
SNS Borrowing | 49 SNS Interest Amortization Maturity Borrowings rate I/O one year; $5.9M(1) 9.00% (1) 20% thereafter 2028 $1 million revolver; Prime + 0.50% Interest only first year; November monthly payments $0 drawn (Floor of 5.00%) 2028 thereafter In conjunction with the purchase of SNS on 11/18
Slide 50: DDI Borrowing
DDI Borrowing | 50 SNS Interest Amortization Maturity Borrowings rate I/O one year; $5.6M(1) 9.00% (1) 20% thereafter 2029 $0.4 million revolver; Prime + 0.50% Interest only first year; October 2029 monthly payments $0 drawn (Floor of 5.00%) thereafter In conjunction with the purchase of SPI in Octo
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