Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Q2 2017 Earnings Presentation
33 slides from Kingsway's earnings presentation, Aug 8, 2017
Slide 1: Kingsway Financial Services Inc. Investor Update August 8, 2017
KINGSWAY FINANCIAL SERVICES INC. INVESTOR UPDATE AUGUST 8, 2017
Slide 2: Forward-Looking Statements
Forward-Looking Statements 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 results
Slide 3: Kingsway Opening Remarks
Id Kingsway Opening Remarks
Slide 4: Value Building Philosophy
Value Building Philosophy 4 Kingsway focuses on building long‐term value by compounding capital with investments/acquisitions/financings that offer asymmetric risk/reward potential with a margin of safety supported by private market values using a merchant banking approach We aspire to compound our
Slide 5: How We Think About Building Value
Utilization of insurance company investment portfolios and available net operating loss tax attributes to compound and leverage investment results Focus on understanding private market values, which better match long-term perspective Consider upside and downside probabilities, with focus on investin
Slide 6: Adjusted Operating (Loss) Income
Adjusted Operating (Loss) Income 6 (in thousands) Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Segment operating income (loss) $ 1,140 $ (599 ) $ 1,902 $ (994 ) Net investment (loss) income (2,366 ) 1,072 (1,663 ) 1,000 Net realized gains (losses) 734 67 1,132 (104 ) Equ
Slide 7: Insurance Underwriting Segment
Insurance Underwriting Segment 7
Slide 8: 8
8
Slide 9: Why We Like the NSA Business
Why We Like the NSA Business Required Industry Attributes Non-standard Auto Insurance Industry Large Industry Industry estimates calculate the market at around $36 to $44 billion in annual premium. Growing Large markets in states with growing populations (Texas, Florida, California, Arizona) dri
Slide 10: Improvement Priorities Presented at 11.30.16 Investor Day
Improvement Priorities Presented at 11.30.16 Investor Day 10 Process reorganization and software implementation Claims reorganization Streamline workflows Outsource first notice of loss function Outsource of Subrogation Loss severity reduction Reconfigure sales model (expense reduction) Additional r
Slide 11: 2017 Improvement Priorities
2017 Improvement Priorities ____________________________________________________________________ • Process reorganization and software implementation Consolidating Multiple Policy and Claims Systems to advanced Cloud Based platform Bad Debt Reduction • A greater than 35% reduction in bad debt ex
Slide 12: 2017 Improvement Priorities (continued)
____________________________________________________________________ Outsource of Subrogation • Reflecting over 13% additional recoveries Improved Salvage Returns • Average Net Return per vehicle increased by 50.1% YTD vs 2016 Loss severity reduction • A greater focus on payment accuracy and C
Slide 13: 2017 Improvement Priorities (additional improvements)
____________________________________________________________________ • Additional Improvements Reduced ALAE expenses (AO/DCC) • Photo method of inspection • Legal bill review audit Greater emphasis on retention of existing customers • Accomplished via improved billing cycle and reduced customer
Slide 14: Extended Warranty Segment
Extended Warranty Segment 14
Slide 15: Why We Like the Warranty Industry
Why We Like the Warranty Industry Desired Attributes Extended Service Contract Industry Large Industry The service contract industry is huge and growing in the U.S. A market worth over $40 billion this year Growing The US Extended Warranty Market has been growing strongly since 2009. VSC sales h
Slide 16: Improvement Priorities Presented at 11.30.16 Investor Day
Improvement Priorities Presented at 11.30.16 Investor Day 1. Get Trinity to positive Operating Profit by year-end while focusing resources on growing the higher margin ESA (Warranty) component of the business and improving margins on Facilities Management (TNA) 2. Improve IWS Operating Margins and p
Slide 17: Trinity Warranty Services: Revenues
Trinity Warranty Services In 2016 our priorities were to align expenses and improve margins in order to demonstrate earnings power at current sales levels. Having accomplished that, in 2017 we have shifted our focus back to profitably growing the business. YTD Revenues for Trinity through 6.30.17 ar
Slide 18: Trinity Warranty Services: Gross Operating Margins
Trinity Warranty Services An ongoing focus on margin improvement is driving enhanced gross profits. We have placed a strategic focus on allocating resources to growing the higher-margin Extended Service Agreement business while working on improving margins and efficiency in our National Accounts bus
Slide 19: Trinity Warranty Services: EBITDA
Trinity Warranty Services Growing sales at higher margins is allowing us to leverage our fixed cost base for improved profitability. YTD EBITDA of $393k is a positive variance of $733k versus the same period last year. Trailing twelve month EBITDA is $615k through 6.30.17. 19 ($1,339,378) ($117,632)
Slide 20: Intercontinental Warranty Services: Earned Service Fee
Intercontinental Warranty Services Earned Service Fee and Commission income is up 10.9% YTD as we continue to earn into contract sales growth that we began to add in 2016. Sales focus is on continued penetration of the Credit Union channel. 20 40,500 41,000 41,500 42,000 42,500 43,000 43,500 44,000
Slide 21: Intercontinental Warranty Services: EBITDA
Intercontinental Warranty Services Growth in earned revenue combined with consistent underwriting results and prudent management of our operating expenses has delivered strong results. YTD EBITDA of $925k represents a positive variance of $512k versus the same period last year.** Investment income,
Slide 22: Intercontinental Warranty Services: Investment Float
Intercontinental Warranty Services In addition to a strong operating profit, IWS provides over $25mm of investment ‘float.’ 22 $20,000,000 $21,000,000 $22,000,000 $23,000,000 $24,000,000 $25,000,000 $26,000,000 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cash and Investments 2015 2016 2017
Slide 23: Segment Operating (Loss) Income Non-GAAP Note
Segment operating (loss) income is a non-U.S. GAAP measure. Refer to the section entitled "Non-U.S. GAAP Financial Measures" in Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 for a detailed description of this non-U.S. GA
Slide 24: Extended Warranty Segment
Extended Warranty Segment IWS and Trinity are now both profitable and growing. YTD segment operating income has improved by $2.2 million as compared to first half of 2016. We are actively seeking additional warranty acquisitions to add to the platform. • Currently under letter of intent to acquire a
Slide 25: Leased Real Estate Segment
Leased Real Estate Segment 25
Slide 26: CMC
CMC 26 • Acquired 81% of CMC Industries the sole asset of which is BNSF rail yard in Dayton, TX • Specific attributes of CMC include deferred tax liability and phantom income • Credit tenant NNN lease with approximately $13.3 million in annualized lease payments following execution of $25 million le
Slide 27: Future Focus
Future Focus 27
Slide 28: Growth Strategy
Growth Strategy • Enhance existing operations • Pursue potential bolt-on acquisitions to build out warranty business • Pursue additional triple-net lease real estate acquisitions with similar characteristics to CMC • Develop a strategic approach to leveraging our managerial skills over a larger capi
Slide 29: Key Takeaways
Key Takeaways • Kingsway provides an opportunity to invest in a diverse pool of insurance assets and insurance- related businesses led by experienced leadership team with a history of success • Through our merchant bank platform, we have the opportunity to capitalize on changing markets through a va
Slide 30: Contact Us
Contact Us INVESTOR RELATIONS Hassan Baqar Kingsway Financial Services Inc. 1.847.700.8064 hbaqar@kingswayfinancial.com Adam Prior The Equity Group 1.212.836.9606 aprior@equityny.com 30 KINGSWAY FINANCIAL SERVICES INC. INVESTOR CALL AUGUST 8, 2017
Slide 31: Trinity EBITDA Reconciliation to Extended Warranty Segment Operating Income
Trinity EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income 31 2015 January February March Q1 2015 April May June Q2 2015 YTD 6 Months July August September Q3 2015 October November December Q4 2015 YTD 2015 Trinity EBITDA (1) $ (131,690) $ (146,335) $ (179,573) $ (457,598) $
Slide 32: Trinity Gross Margin Reconciliation to Extended Warranty Segment Operating Income
Trinity Gross Margin Reconciliation to Extended Warranty Segment Operating (Loss) Income 32 2015 Jan Feb Mar Q1 2015 Apr May Jun Q2 2015 6 Months Jul Aug Sep Q3 2015 Oct Nov Dec Q4 2015 2015 YTD Service fee and commission income $ 362,174 $ 328,397 $ 315,495 $ 1,006,066 $ 485,011 $ 494,609 $ 571,731
Slide 33: IWS EBITDA Reconciliation to Extended Warranty Segment Operating Income
IWS EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income 33 2015 January February March Q1 2015 April May June Q2 2015 YTD 6 Months July August September Q3 2015 October November December Q4 2015 2015 YTD IWS EBITDA (1) $ 63,916 $ 87,182 $ 158,009 $ 309,107 $ 117,360 $ 252,266
Kingsway Financial Services — Q2 2017 Earnings Presentation on 6ix