Kingsway Financial Services Inc. Q4 FY2025 earnings call

Kingsway is the only publicly traded U.S. company employing the search fund model. In 2025, completed six acquisitions within the KSX segment, launched skilled trades platform, grew revenues and earnings power. KSX segment represented majority of revenue and adjusted EBITDA in third and fourth quarters. Annual budgeting process is comprehensive. KSX businesses have recurring revenues, fragmented customer bases, strong secular growth tailwinds. Image Solutions and Kingsway Skilled Trades had investment years in 2025 but are positioned for growth in 2026. Extended warranty businesses had double-digit cash sales growth in back half of 2025 with moderating claims costs. Completed six strategic acquisitions in 2025. Acquisition pipeline is robust with dual track approach: operators and residents sourcing, and owned businesses pursuing tuck-in acquisitions.

Total revenue for the quarter was up 30.1% to $38.6 million and up 23.4% to $135 million for the year. Consolidated net loss for the quarter was $1.6 million and $10.3 million for the full year. Consolidated adjusted EBITDA for the quarter was $2.7 million and $7.8 million for the year. Within KSX segment, revenue increased by 63.6% to $20.3 million for the quarter and was up 58.5% to $64.2 million for the year. KSX adjusted EBITDA rose by 28.6% to $2.5 million for the quarter and was up 40.8% to 9.5 million for the year. For extended warranty, Revenue increased 6.1% to $18.3 million for the quarter and was up 2.8% to $70.8 million for the year. Cash sales were up 11% for the quarter and 9% for the year. IWS continued to perform well with cash sales up 10% year-over-year. Total extended warranty claims moderated in 2025 and were up 4.4% for the year, compared to an increase of 6.3% in the prior year.

Budgeting for double-digit organic growth across both KSX and extended warranty. Target of three to five acquisitions in 2026. Entering 2026 with momentum, diversified growth levers, and active M&A pipeline.

Q: You didn't talk about digital diagnostics in the prepared remarks. What's going on there?

A: TDI grew high single digits on the year. Focus for first 18 months was on creating foundation for patient safety. Now focus shifting to organic growth and new customer acquisition.

Q: Can you speak to the acquisition pipeline?

A: Dual track acquisition pipeline. Several platforms within KSX looking at tuck-in acquisitions and strong pipelines. OIR pipeline remains robust with disciplined underwriting criteria.

Q: Could you update us on OIR's Peter Hearn and Paul Vidal? They both have great CVs. Why do you think they have not made an acquisition just yet?

A: Honest answer is serendipity in finding right business at right price with right operator fit can take longer. They've evaluated dozens of opportunities and passed on deals not meeting threshold.

Q: Can you share some of the adjustments or the bridge from the consolidated adjusted EBITDA of $7.8 million to portfolio LTM EBITDA of $22 to $23 million?

A: Three main things: pro forma EBITDA, difference between warranty companies' modified cash EBITDA and U.S. GAAP, and adjustment for investment income.

Q: You noted that Image Solutions and the newer skilled trade acquisitions went through an investment period in 2025 that temporarily depressed profitability. Have those investments fully normalized, and what kind of margin expansion should we expect from these businesses in 2026?

A: Image Solutions' sales team rebuilding is in place, feeling good about momentum. Skilled trades businesses like AAA and Southside made deliberate investments but not expecting same level going forward, BUDS is a good template.

Q: Can you provide a little bit of color on how you achieve the double-digit growth in revenue and EBITDA on the KSX holdings given the number of recent acquisitions and the typical J curve?

A: Pretty universal growth across all businesses, combination of pricing, units at top line, and some efficiency gains at bottom line.

Q: How many do you expect to be tuck-ins for the existing platforms versus entirely new platforms sourced by your operators and residents for 2026 acquisitions?

A: With three OIRs, conservatively target at least one to two new platform investments, meaning two to three new tuck-in acquisitions at existing platforms