KINGSWAY FINANCIAL SERVICES INC Q4 FY2024 earnings call

• 2024 was a year of significant progress with execution of corporate strategy, including acquisition of Image Solutions and divestment of VA Lafayette. - Extended Warranty segment: revenue grew 1% to $68.9 million; cash sales increased 3.6%; adjusted EBITDA was $7.6 million (down from $8.4 million prior year) due to increased claims costs but saw sequential improvement in Q4. - KSX segment: revenue up 16% to $40.5 million; adjusted EBITDA up 15% to $6.6 million. Acquisitions of SPI, DDI, Image Solutions, and Buds Plumbing were highlighted. Subsegments within KSX like Ravix, CSuite, SNS, DDI, SPI had various operational updates. - Capital allocation actions: sale of VA Lafayette, purchase of IWS interest, issuance of preferred stock to fund acquisitions, and share repurchases.

For the full year 2024, consolidated revenue was $109.4 million, up 6% from the prior year. Consolidated adjusted EBITDA was $10.6 million, up 17% compared to 2023. Breaking down by segments: Extended Warranty segment had revenue of $68.9 million in 2024, a 1% modest growth from 2023's $68.2 million. Extended warranty adjusted EBITDA was $7.6 million versus $8.4 million in the prior year. KSX segment reported revenue of $40.5 million in 2024, an increase of 16% compared to $35 million in 2023. KSX adjusted EBITDA for 2024 was $6.6 million compared to $5.7 million in 2023, an increase of 15%.

• Plan to grow skilled trades vertical within KSX via organic growth (pricing enhancements, SEO, cross-selling) and inorganic growth via acquisitions in fragmented markets. - Targeting acquisition opportunities in existing segments' verticals and new industries, with focus on B2B services, healthcare services, vertical market software, and skilled trades. - Aim for 2-3 acquisitions per year in KSX, focusing on strategic fit and operational/financial metrics.

• Claims cost increases impacting Extended Warranty margins in 2024. - Integration challenges with recent acquisitions like Image Solutions and potential issues with talent identification and screening in KSX segments. - Potential delays or misses in deal flow pipeline for acquisitions.

Q: Could you provide more color on the claims expense moderation you mentioned in the Extended Warranty segment, during the second half of 2024?

A: Yes, claims increased roughly 6.6% in 2024 vs. 10% in 2023. Q1 2024 claims up 13% y-o-y, but Q2-Q4 subsided to ~4.5% with Q4 at 4.1%, showing moderation.

Q: What's your vision for growing the new skilled trade services platform within KSX?

A: First focus on organic growth in existing markets, then potential cross-selling and service line expansion; also look at inorganic growth via consolidation in Tier 2 and Tier 3 markets.

Q: Are you targeting specific verticals within your existing segments, or is most of the pipeline new industries?

A: It's a bit of both; existing OIRs focus on B2B services, vertical market software, and potential skilled trades in other areas like pest control or fire and life safety.

Q: Can you refresh us on how long each existing OIR has been searching for, and how many you still need to backfill?

A: There are 3 current OIRs; Peter Hearne is longest tenured, been ~2 years, Miles ~18 months, Paul Vidal ~1 year; no mention of needing to backfill immediately as there are 3 active OIRs.

Q: Were there areas Kingsway did not do well in 2024, and what are your plans to improve them?

A: Areas like pricing in Extended Warranty, talent identification in KSX segments, and deal flow velocity for acquisitions. Plans include better price re-underwriting, improving top grading for talent, and enhancing deal flow pipeline velocity.