Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Presentation (May 2021)
37 slides from Kingsway's investor presentation, May 2021
Slide 1: Kingsway Investor Presentation May 2021
K KINGSWAY NYSE: KFS Investor Presentation May 2021 Through March 31, 2021
Slide 2: Forward-looking statements and non-GAAP measures
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 to differ materially from
Slide 3: John T. Fitzgerald and Kent Hansen
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 April 21, America Inc.,
Slide 4: Owns or controls subsidiaries in extended warranty, asset management, and real estate
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 235 Itasca, IL (a. 30 Miles West of Chicago) Financial Overview (1) Shareholder Information (1) Assets: $439.
Slide 5: Decentralized operating structure with a small Corporate team
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 • Responsible for SEC and other regulatory filings • Al
Slide 6: Investment highlights
Solid Operating Value Creation With Trades at a Discount Aligned Management Leadership and Businesses Tax Shelter to Intrinsic Value and Board Culture • ~$845(1) million in net • Accountability to living our • Profitable extended • Sum-of-the-parts valuation • Board and Management operating losses (
Slide 7: Disciplined Capital Allocation, Decisive Execution, People
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 objectives and Talent • Seek acquisitions and internal incentives arou
Slide 8: CEO progress since 2018 and resolved financial reporting difficulties
Our current CEO, JT Fitzgerald, was appointed in September Our significant progress has been overshadowed by financial 2018; since that time he has installed new leadership reporting difficulties that are now resolved throughout the Company Since being appointed CEO, JT has • During the 2018 audit o
Slide 9: Kingsway Financial Overview
B Kingsway Financial 2 Overview
Slide 10: Pro Forma Revenue and Adjusted Income by Quarter
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 the Appendix for a reconciliation o
Slide 11: Extended Warranty
Extended Warranty
Slide 12: A Scalable, High Margin, Low Capital Intensity Business
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 industry account for only 32.5% of re
Slide 13: Auto, Home, Mechanical warranty businesses
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 Acquired in 2013 IWS is a licensed motor PWI is
Slide 14: Automobile, Home, Mechanical segments
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, commercial LED lighting and services to build
Slide 15: TTM Pro Forma Revenue and Warranty Segment EBITDA
TTM Pro Forma Revenue 3/31/21(1) Warranty Segment EBITDA (2020 and TTM Pro Forma)(1) $15.9M Full year PWI Geminus; $13M COVID 10% $8M Acquired Geminus 10% $6M Full year 3/1/2019 Acquired PWSC PWSC Oct 2017 $4M 40% JT hired $2M 2015 16% 0 Trinity struggling; $(1M) IWS not growing TTM 24% 2015 2016 20
Slide 16: Extended Warranty Borrowings
Extended Warranty Interest Amortization Maturity Borrowings rate $24.5m 3.75% 15% 2025 $24.5 million as of 3/31/21 LIBOR + 3.00% 15% per year, November 30, (includes $1 million revolver) (LIBOR floor of 0.75%) paid quarterly 2025 In conjunction with the purchase of PWI on 12/1/2020, executed a loan
Slide 17: Real Estate
Bes Real Estate
Slide 18: Focus on CTLs with high quality assets and credit-worthy tenants
We focus on zero cash flow CTL’s with high quality assets and credit-worthy tenants. Acquisitions are structured with relatively limited equity contribution and mortgage debt that is non-recourse to KFS. We utilize KFS’ tax attributes to absorb “phantom income” and build value via debt amortization.
Slide 19: Kingsway owns 81% of CMC Industries Inc.
Kingsway owns 81% of the stock of CMC Industries Inc. CMC owns, through an indirect wholly owned subsidiary, a parcel of real property consisting of approximately 192 acres located in the State of Texas. The property serves as a railcar storage in transit logistics facility and is subject to a long-
Slide 20: Real Estate Revenue and Non-GAAP Adjusted Operating Income
Real Estate Revenue by Quarter Real Estate Non-GAAP Adjusted Operating Income 4M 2.5M 3M 2M 2M 1M One-time impact of CMC settlement 1M 0.5M 2019 2019 0 2020 0 2020 2021 2021 March June September December March June September December Rents are contractually fixed Non-GAAP adjusted Arrangement allows
Slide 21: Asset Management / Corporate
Asset Management / Corporate
Slide 22: Asset management investments by US GAAP view
(in millions) US GAAP 3/31/21 3/31/21 View Accounting Balance Sheet Economic Interest Consolidated – Argo Search Fund Strategic $3.4 $1.9 fair market value Equity Investments Non-strategic Fair market value $0.3 $0.3 Consolidated – Real Estate Investments (LLCs) Non-strategic $26.9 $18.1 fair market
Slide 23: Trust preferred debt, Class A Preferred Stock, Warrants
Trust preferred debt Class A Preferred Stock Warrants instruments (“TruPs”) • $90.5 million in principal owed ($53.7 • 182,876 issued and outstanding; each • 4,923,765 outstanding million fair value as of 3/31/21) with share is convertible into 6.25 common • Each warrant is entitled to purchase rede
Slide 24: Sum of the Parts = Valuation
6 Sum of the Parts = Valuation
Slide 25: Sum of the parts intrinsic value
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 as Extended Warranty $190.8 to $238.5 12x to 15x of TTM EBITDA no
Slide 26: Building a holding company to compound intrinsic value per share
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 strategic suppor
Slide 27: Appendix
c= Appendix
Slide 28: Company history and management evolution
Aligned management team and Board of Directors focused on proper capital allocation, operational excellence and people. 1989 1990-2007 2008-2018 2018-2019 2020 Insurance Operations The Beginning Change in Strategy New Management Turnaround Growth and Struggle • Kingsway founded as • Underwriting res
Slide 29: Class A Preferred Stock redemption and liquidity
As of March 31, 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 $6.7 million, if the Company had sufficient legal
Slide 30: TTM GAAP to non-GAAP adjustments, 2021
(in thousands) TTM For the Three Months Ended 3/31/21 3/31/21 12/31/20 9/30/20 6/30/20 GAAP Net Loss $(4,123) $899 $(2,478) $(1,124) $(1,421) Non-GAAP Adjustments: (Gain) Loss on sale of non-core investments (1) (359) (22) (425) 88 - Change in fair value of investments (2) (3,583) 353 (2,193) (1,377
Slide 31: TTM GAAP to non-GAAP adjustments, 2020
(in thousands) TTM For the Three Months Ended 3/31/20 3/31/20 12/31/19 9/30/19 6/30/19 GAAP Net (Loss) Income $(7,895) $(393) $(3,098) $(4,006) $(398) Non-GAAP Adjustments: (Gain) Loss on sale of non-core investments (1) (585) (147) (32) (1,004) 598 Change in fair value of investments (2) (983) (632
Slide 32: Footnotes to non-GAAP adjustments
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 investments are recorded at fair value and changes to fair value are recorded as unreali
Slide 33: Change in fair value of investments
(in thousands) TTM For the Three Months Ended 3/31/21 3/31/21 12/31/20 9/30/20 6/30/20 (Gain) loss on change in fair value of limited liability $(1,945) $202 $(1,995) $(274) $123 investments, at fair value Net change in unrealized (gain) loss on private company 74 - - 74 - investments (Gain) loss on
Slide 34: TTM Revenue by Quarter
(in thousands) TTM For the Three Months Ended 3/31/21 3/31/21 12/31/20 9/30/20 6/30/20 GAAP Reported Revenue $68,713 $22,020 $17,399 $15,415 $13,879 PWI pro forma revenue (1) 19,747 - 4,748 7,398 7,601 Pro Forma Revenue $88,460 $22,020 $22,147 $22,813 $21,480 Extended Warranty Reported Revenue $55,1
Slide 35: TTM GAAP Net Loss
(in thousands) TTM For the Three Months Ended 3/31/21 3/31/21 12/31/20 9/30/20 6/30/20 GAAP Net Loss $(4,123) $899 $(2,478) $(1,124) $(1,421) Total Non-GAAP Adjustments (1) 8,499 3,405 3,516 674 904 Non-GAAP Adjusted (Loss) Income $4,376 $4,304 $1,038 $(450) $(517) PWI pro forma net income (2) 1,948
Slide 36: TTM Operating (Loss) Income
(in thousands) TTM For the Three Months Ended 3/31/21 3/31/21 12/31/20 9/30/20 6/30/20 Operating (Loss) Income $192 $1,293 $(2,738) $799 $838 Taxes 231 307 (530) 218 236 Depreciation 4,148 1,037 1,037 1,037 1,037 Other Adjustments (1) 2,001 (645) 2,576 51 19 Non-GAAP adjusted Operating Income Real E
Slide 37: TTM Extended Warranty segment EBITDA
(in thousands) TTM For the Year Ended 3/31/21 2020 2019 2018 2017 2016 2015 GAAP Operating Income (loss) for Extended Warranty segment (1) $11,063 $6,605 $4,611 $4,215 $3,700 $449 $(686) Non-GAAP Adjustments: Investment income, gain (loss) on sale of core investments (2) 358 490 681 479 442 100 6 Ot
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