KINGSWAY Corp Q3 FY2023 Earnings Call

Good day, and welcome to the Kingsway Third Quarter 2023 Earnings Call. With me on the call are JT Fitzgerald, Chief Executive Officer; and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everyone that today's conference may contain forward-looking statements. Forward-looking statements include statements regarding future expectations, including revenue, operating margins, expenses, and business outlook. Actual results or trends could materially differ from those envisioned in these forward-looking statements. For a discussion of the associated risks and uncertainties that could cause actual results to differ, please refer to the risk factors detailed in the company's annual report on Form 10-K and subsequent reports on Form 10-Q, as well as other filings with the Securities and Exchange Commission. Please note that today's call may also include non-GAAP metrics used by management to analyze the company's performance. A reconciliation of these non-GAAP metrics to the most comparable GAAP measures is available in our latest press release and periodic SEC filings. Now, I'd like to turn the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

Thank you, Paul. Good afternoon, everybody, and welcome to the Kingsway third quarter 2023 earnings call. Thank you for joining us. We've been busy since our last earnings call, so let me go over the highlights. Our third quarter results were largely in line with our expectations with consolidated revenue of $24.8 million, up 11% from a year ago, while consolidated adjusted EBITDA decreased to $2.3 million in 2023 compared to $3.6 million last year. Combined pro forma adjusted EBITDA for the Extended Warranty segment and KSX segment was a total of $3.2 million in 2023 compared to a total of $4.55 million in the third quarter of 2022. We continue to repurchase a number of shares of our common stock and warrants, which Kent will detail later. Our $5 strike warrants expired on September 15, 2023 with all but 39,000 exercising. We believe the overhang concerns that created are now largely behind us. In September, we acquired Systems Products International, or SPI. And in October, we acquired Digital Diagnostics Imaging, or DDI. Our fourth and fifth acquisitions under the Kingsway Search Xclerator platform. And in October, we signed a definitive agreement to purchase 95% of the shares of National Institute of Clinical Research, or NICR. This is a lot to unpack, so I'd like to start with our Extended Warranty segment, which delivered revenue of $17.3 million in the current quarter compared to pro forma revenue of $17.9 million a year ago. Adjusted EBITDA for the current quarter was $2.1 million compared to pro forma adjusted EBITDA of $3.8 million a year ago. As a reminder, pro forma results exclude PWSC, which we sold in July last year. As we discussed on our last earnings call, our vehicle service agreement or VSA companies continue to be impacted by an increase in claims paid and persistent macro level revenue headwinds that impact consumers. Primarily, tighter credit conditions and persistently high used car prices. At Trinity, our maintenance support business revenues have been impacted by decreases in its equipment breakdown and maintenance support services due to mild weather conditions, which results in fewer service calls. Both of Trinity's segments have also been negatively impacted by long lead times on parts and installations. However, we've been able to mitigate some of this impact through lower operating expenses at all of our Extended Warranty companies in 2023 as compared to a year ago. In addition to these headwinds, last year, IWS had some very favorable realized gains from some of its investments in search funds coincidentally, as well as a release in GAP product reserves that didn't repeat this year. Even with all of these challenges, it's worth noting that the Extended Warranty segment had its strongest quarter this year with adjusted EBITDA up 23% sequentially from Q2 2023. Switching now to our Search Xclerator, or KSX segment. We had revenue of $7.5 million in the current quarter compared to revenue of $3.8 million a year ago. Adjusted EBITDA for the current quarter was $1.1 million compared to adjusted EBITDA of $0.8 million a year ago. These increases are due to CSuite and SNS acquisitions that were completed in November 2022 and to a lesser extent the acquisition of SPI in September of this year. The Ravix, CSuite business is performing better-than-expected from a profitability perspective as higher operating margins more than offset lower-than-expected revenues. Ravix is performing slightly ahead of where it was last year in terms of operating income and adjusted EBITDA. Through the quality of services provided, Timi Okah and his team are retaining customers at Ravix and in certain instances have improved pricing. At CSuite, the team is rebuilding its pipeline and advancing new business opportunities to reignite growth. Both companies have recently added talent in the business development function to drive revenue growth. SNS is performing at or near our internal plans despite a shift in business mix from higher margin travel assignments to per diem assignments. As we head into winter, we have not yet seen the typical spike in demand for travel nurses, but we are still early in the season. Importantly, we believe long-term demand for nurse staffing will be strong and the shortage of qualified nurses to deliver care persists. In September, we acquired SPI, a privately held vertical market software company. It was the fourth acquisition completed under our Search Xclerator. SPI fit our investment criteria with recurring revenue, strong margins, and low capital demands. It operates in a growing industry and we expect it will be immediately accretive. SPI has world-class software products for the timeshare and vacation rental industries. Its platform includes a comprehensive set of modules with software solutions that cover the entire vacation ownership enterprise. Operator-in-Residence, Drew Richard, has transitioned into the day-to-day operating role as CEO of the company. In October, we acquired DDI, a provider of fully managed outsourced cardiac monitoring telemetry services. We are excited about this transaction because DDI has a high level of recurring revenue is scalable and operates in a stable growing market. DDI is the industry standard for outsourced telemetry and has established itself as a trusted partner to its customers through its focus on a dependable, high-quality service offering. Peter Dausman, the Operator-in-Residence for this transaction, has transitioned into the CEO role for DDI. We held separate conference calls to discuss each of the SPI and DDI acquisitions and I encourage you to listen to those replays if you weren't able to make those calls. Also in October, we announced the signing of a definitive agreement to purchase 95% of the shares of National Institute of Clinical Research, or NICR. The remaining 5% will remain with the seller. NICR is a provider of clinical trial site management and recruitment services for nephrology, cardiometabolic, infectious diseases, and gastroenterology clinical trials. NICR participates in the development of innovative and life-saving therapies through its dedication to, and focus on, clinical research. NICR was attractive to us because of its track record of growth and profitability with a strong pipeline of clinical trials with some of the world's largest pharmaceutical companies. The outlook for clinical trial site management is favorable and NICR has an impressive reputation as a provider of quality services. Its commitment to delivering the highest level of service to clients and patients is foundational and we are committed to continuing in this legacy. Dr. Davide Zanchi, the Operator-in-Residence responsible for finding and executing this transaction, has a successful career in pharma and biotech and will transition to Chief Executive Officer following the close of the transaction. We expect the closing, which is subject to certain closing conditions, will occur in the first quarter of 2024. Shortly after the deal closes, we intend to host a conference call to discuss NICR further. As we've said in the past, the timing of closing an M&A transaction is difficult to predict, but in recent weeks, we have taken several deals across the finish line. For several quarters, we have spoken about the quality of our pipeline and conveyed the confidence we have in our OIRs to identify attractive targets and execute transactions. In the third quarter, we added a new Operator-in-Residence, or OIR, Miles Mamon to the KSX platform. Miles joined us from Morgan Stanley, where as Vice President he was responsible for acquisitions and asset management within the Merchant Banking and Real Estate Investing group. He began his career as an air and missile defense officer in the United States Army, where he served in a patriot missile unit supporting a NATO operation to protect the Turkish southern border during the Syrian Civil War. Miles holds a JD and an MBA from Northwestern and also a BA from Northwestern. We continue to believe that the future is extremely bright for the company given the talent we have on our team and the quality of opportunities they are identifying, pursuing, and closing. I'd like to turn now to our trailing 12-month adjusted EBITDA run rate. On our last earnings call, we reiterated our range of $18 million to $19 million and indicated it was likely closer to $18 million than to $19 million. As a result of our recent acquisitions, we are increasing our trailing 12-month adjusted EBITDA run rate range to $19 million to $20 million. This includes the Extended Warranty companies, the existing KSX companies, as well as SPI, DDI, and NICR results. Kent will unpack this further in his comments. Looking ahead, our priorities for 2023 and beyond remain the same. Operational excellence, while strategically deploying capital to build a business that delivers sustainable long-term growth, generates positive cash flow from operations, and provides an attractive return for our shareholders. We continue to target 2 to 3 new acquisitions per year that fit our clearly defined acquisition criteria and will generate annualized EBITDA in the range of $1.5 million to $3 million each. I'll now turn the call over to Kent for a review of our financials.

Thank you, JT. Before I begin, I want to remind everyone that in the fourth quarter of 2022, we started a plan to sell VA Lafayette, one of our subsidiaries that owns a medical clinic primarily utilized by the U.S. Veterans Administration. This move is part of our strategic shift away from the Leased Real Estate segment, and VA Lafayette is reported under discontinued operations with its assets and liabilities categorized as held for sale. The performance of VA Lafayette will not be included in the results I will discuss now. For the third quarter of 2023, we experienced a loss from continuing operations of $797,000, compared to an income of $38.9 million in the same quarter last year, which included a one-time net gain of $37.9 million from the sale of PWSC. Our consolidated adjusted EBITDA for the third quarter of 2023 was $2.3 million, down from $3.6 million a year ago. The combined operating income for Extended Warranty and KSX came in at $2.8 million for Q3 2023, compared to $3.2 million the previous year. The combined pro forma adjusted EBITDA, excluding results from the sold PWSC, was $3.2 million in Q3 2023 against $4.6 million last year. Breaking this down by segments, in Extended Warranty, the pro forma adjusted EBITDA was $2.1 million, which is 12.3% of pro forma revenue for Q3 2023, compared to $3.8 million or 21.1% of revenue the previous year. This decline was due to reduced revenues, increased VSA claims, and lower realized investment gains, partially mitigated by reduced operating expenses. Revenues fell in both our VSA companies and Trinity, with VSA revenues down just 1.1% year-over-year, largely due to ongoing payment pressures from consumers resulting from high interest rates and persistent elevated prices for used cars. While prices for used cars have decreased since the start of the year, the benefits for consumers are not materializing as swiftly as we hoped. However, IWS, which sells through credit unions, is performing better than the overall market in terms of contract sales. At Trinity, lower revenues were a result of decreased equipment breakdown and maintenance support services due to milder weather, which led to fewer service calls, along with lengthy lead times for parts and installations. Despite this, we maintain a strong backlog in the Trinity Warranty business, and as the supply chain improves, we anticipate revenue growth will return to previous trends. The rise in VSA claims is attributed to increased costs per claim, although the number of claims remained stable. Increased claim severity reflects rising labor and parts costs, outpacing general market inflation. Claims in Q3 were $600,000 higher than the prior year but showed a slight decrease from Q2 2023 on both a dollar basis and relative to revenue. Operating expenses across Extended Warranty companies decreased by about $600,000, excluding PWSC, thanks to measures implemented at Geminus and PWI over the past year and ongoing careful management of expenses. Extended Warranty results also benefited from investment income and any gains or losses from other investments. In Q3 2022, IWS had favorable realized gains from investments and a release of GAP product reserves totaling approximately $1.1 million, which we did not replicate in 2023. We continue to invest our float, currently about $45 million as of September 30, 2023, in U.S. bonds, municipal securities, and high-quality corporate bonds, enabling us to take advantage of higher current interest rates with maturing investments. Consequently, the trailing twelve-month investment income as of September 30, 2023, was $953,000 compared to $369,000 for the same period last year. We remain optimistic about the long-term viability of Extended Warranty as a business. At KSX, adjusted EBITDA reached $1.1 million, representing 14.5% of segment revenue in Q3 2023, compared to $778,000 or 20.4% last year. Last year’s figures solely reflected results from Ravix, which saw a slight increase in profitability due to a higher gross margin of 34.7% in Q3 2023 compared to 28% in the prior year, despite decreased revenue resulting from fewer new clients. CSuite achieved a gross margin of 35.6%, which aligned with our expectations but was accompanied by lower revenues. CSuite is currently working to rebuild its pipeline, which faced disruptions during its acquisition phase. SNS delivered a gross margin of 26.9%, exceeding our expectations despite lower revenues, as we witnessed a shift from travel staffing to per diem staffing. Year-to-date, 58% of shifts were per diem, matching the percentage from the first half of 2023. The total number of shifts in Q3 2023 was down 20% from the previous year. Our initial valuation of SNS at the time of acquisition anticipated a performance return to pre-pandemic levels. We expect SNS's near-term growth to stem from expanding its travel nurse base and entering new geographic markets. The seasonality of SNS is more pronounced than in our other businesses, and we anticipate improvement in travel shifts as demand rises during the colder months. Regarding our balance sheet, by the end of Q3 2023, we had cash and cash equivalents totaling $20.2 million, a decrease from $64.2 million at the end of 2022. Cash used in operating activities for the first nine months of 2023 was $9.6 million, in contrast to cash generated from operations of $4.9 million during the same period last year. Various factors have impacted our cash balance this year, including a $5 million TruPS deferred interest payment, a $2 million release of Mendota escrow, management fees related to the sale of commercial real estate investments, diminished operating income from Extended Warranty, and $16.7 million received from warrant exercises. Our total outstanding debt, now consisting of bank loans and one tranche of TruPS debt, amounts to $40.9 million as of Q3 2023, down from $102.1 million last year. Net debt has decreased to $20.8 million as of September 30, 2023. Earlier this year, we initiated a one-year securities repurchase program, during which we repurchased over 1 million warrants and just over 250,000 common stock shares through October 31, 2023. After accounting for these repurchases, we have $4.1 million available for further stock repurchases through March 22 of next year. We had numerous $5 strike warrants expire on September 15, 2023, with nearly all but 39,000 warrants exercised before expiration. In total, over $3.3 million of warrants were exercised in 2023, contributing $16.7 million to the company’s cash. In Q3 2023, we completed the sale of all our shares in Limbach Holdings, Inc., realizing a gain of $600,000 from cash proceeds of $3.3 million. To conclude, our trailing twelve-month adjusted EBITDA run rate now ranges from $19 million to $20 million. This metric is not guidance on future earnings but reflects the company’s current assets and operations. It includes verified operating results from our Extended Warranty businesses, our investment income affected by the current interest rates, actual results from Ravix and CSuite, adjusted performance from SNS to align with anticipated pre-pandemic levels, and results for SPI, DDI, and NICR based on due diligence reports. Despite the challenges faced in the Extended Warranty segment, we achieved the best quarterly results thus far this year. We have added two companies to our KSX portfolio and aim to acquire a third early next year to support our growth strategy. We have also made significant strides in reducing net debt, repurchasing a considerable number of our securities, and have a strong pipeline of acquisition opportunities ahead. I’ll now turn the call back to the operator for questions.

Sure. We did have a few questions come in on the email. The first one is a 2-part question. It says, what is run rate EBITDA pro forma for the recent acquisitions? What is pro forma debt at KFS? And what is the run rate interest expense for the acquisitions and current base rates? I can re-read any of that if necessary.

Sure. I believe I understand. The run rate EBITDA pro forma for our recent acquisitions has been adjusted to the range of $19 million to $20 million, which reflects the trailing twelve months EBITDA of our current and expected assets. As of September 30, our pro forma net debt stood at approximately $20.8 million. This figure includes the new acquisitions, where we have taken on an additional $5.6 million to finance the DDI transaction and plan to borrow around $3 million more for the NICR acquisition. We did not incur any debt for the SPI acquisition. Therefore, when you total these amounts, $5.6 million plus $3 million plus $20.9 million results in $29.5 million of net debt. Now, James, could you remind me what the last part of your question was?

Sure. It concluded with, what is the run rate interest rate expense for the acquisitions and current base rates?

Yes, I'll take that in reverse order. So current base rates, the DDI acquisition debt has an interest rate of prime plus 50 basis points. So prime is at 8.5% today, I think. So that would be 9%. And we would expect similar pricing on the NICR acquisition debt. So base plus spread. And that translates into an additional $500,000 of interest expense, give or take, at DDI. And somewhere around $270,000 or so of interest expense at NICR.

Great. And I do see we have a live question in the queue. Operator, can we take that before reverting back to these email questions?

Congratulations on a nice quarter and all of the progress along the way. Great. So I have a few questions that I wanted to jump through. And I'm sorry, they're a little bit disjointed. So they're kind of unrelated to one another. So my first question is, I guess, the way that I think about the value of the company is based on what, I guess, you would call normalized earnings would be or what go-forward earnings would be. And so, I guess, what I'm trying to do is to track the trailing 12 months adjusted EBITDA number of $19 million to $20 million, which is a really helpful number to know. But then to try to look forward. And obviously, there's no guidance and you're not predicting. But I can do some of that math where I say, "Hey, this is where I think the growth might be in some of the acquisitions that you've made through the KSX Xclerator". The one that I'm a little less clear on is warranty. So you've talked about how maybe warranty has been going through a tougher period, but there is an opportunity for it to maybe revert to the mean, which I think is partly underway with the improvement in profits this quarter versus last quarter. You mentioned on the call like a $600,000 reduction. And so, if I annualize that, I get to between $2 million and 3 million of EBITDA above where you currently are, maybe in a more normal environment. So I'm not talking about a peak environment, but I'm also not talking about a poor environment. Is that the right way to think about it? Or how do you think about what kind of a normalized earnings power would be for the warranty business compared to where you have it over the last 12 months?

That's a good question with many aspects to consider. Firstly, I believe that the trailing twelve months is the most accurate indicator of future performance in a typical environment. However, the warranty aspect is currently not as reliable. The team has been concentrating on cost management and maintaining a streamlined operating setup amid a tough sales and claims environment. Essentially, the reductions in costs have balanced out the decline in revenue, with claims in the recent quarter being $600,000 higher than in the previous quarter. As we look ahead, we're undertaking a thorough pricing review that involves adjusting vehicle classifications and mileage bands, along with implementing price increases across the board. If these price increases, which are expected to be in the mid- to high single-digit range, take effect, they should help mitigate claim severity. Moreover, if we can sustain improvements in operating expenses, we could potentially see profitability improve by around $2 million. While this is not official guidance, it's a way for me to think through the potential financial improvement.

Got it. That's super helpful. Essentially, what I'm trying to convey is that in a more typical environment, which I believe the car market will return to, we are observing declines in car prices and expect more to come. In a normalized setting, I expect the business could perform similarly to how it has in the past. It's encouraging to know that normalized warranty conditions might mean the adjusted EBITDA could be around $22 million or $23 million, or whatever it turns out to be. My next question is about the VA Lafayette. Can you provide an update on that sales process?

Yes, Adam, this is Kent. We are still marketing it through a national broker and have received several expressions of interest. The commercial real estate market has been somewhat challenging this year, but we continue to target specific individuals or companies that would be interested in this profile. It does have some attractive debt on it, and some buyers are looking for depreciation recapture before the year ends. Therefore, the market remains very active right now.

Got it. Great. That's helpful. And then my next question is just on your searchers. You've got 2 searchers going right now. And I know your goal is to bring on a couple more searchers. Can you maybe speak to both of those? How's it going with the current searchers? And how are they progressing in their searches? And then also, can you speak to your confidence level about attracting high-quality candidates to join as your next 2 searchers?

Yes, sure. Happy to talk about it. So Peter Hearne joined us in early May and then Miles just joined us at the end of the summer, mid to late August. And now as we've launched both Drew and Peter Dausman and soon to launch Davide, we've been actively recruiting and fielding inbound interest through concentric circles of networks of our current CEOs and OIRs talk to dozens and dozens, 60-plus candidates, really high-quality group of folks that we've been talking to. We're in pretty advanced stages with a handful of them. And the goal would always be to have 4 to 5 people actively looking for acquisitions in support of that 2 to 3 acquisitions a year. And so, yes, we're making great progress. Again, we want to maintain our discipline and really target folks that have that set of attributes that we think will make them both effective searchers, but more importantly, great CEOs of small businesses. And so, that work is ongoing. And with respect to Miles and both at Peter, early days, we've built a really nice set of processes around proprietary search, as well as intermediated search. They've got a handful of industries that they're very interested in and they're running that playbook. But I would always go back to sort of average time to close a transaction is probably 17 or 18 months. We've seen that here at Kingsway, right? Some searchers close very quickly, like Davide. Peter Dausman took him over 2 years to finally close a transaction. And so, we're going to support them, focus on what we say is, we derive our margin of safety from business quality. And so, really making sure that we maintain our discipline around the types of acquisitions we're pursuing. And so, they're doing all the right things and we're very optimistic about their prospects, but we also want to maintain discipline.

Got it. That makes a lot of sense. And then maybe this is a question I'm just going to ask 1 last question, which is maybe you haven't gotten there on this, but I just wanted to ask you. So as you acquire more businesses through the Kingsway Search Xclerator, your business is kind of mix shifting away from warranty, which is a wonderful business but maybe a little lower growth business and towards some of these higher growth businesses and you think about something like the last 2 acquisitions that you've made here as being really growthier businesses. And that's going to be more and more of the Kingsway portfolio over time, which I think should be positive when you think about the business quality and positive about the earnings growth ahead of the company, just the mix in a way is a little bit growthier. How do you guys think about disclosures over time? In terms of disclosing where each of the businesses are in terms of their EBITDA or whether you prefer to kind of lump them all together or maybe get snapshots every now and then? I don't know if you guys have had settled on an approach there, but hopefully, there will be a lot more acquisitions to come. And I'm just trying to understand how you are thinking about sharing that information with the market. And I'll step off. That's my last question.

Yes, it's a great question, Adam. Currently, we have a reportable segment defined by GAAP, which includes how we manage our businesses. We view them all under KSX as having a similar profile and focusing on the same goals. Therefore, it forms its own reportable segment. Today, we detailed the performance of each individual business within that segment, and I expect we will continue this practice. As we update our investor deck for Q3, we will highlight that performance, and we plan to provide this information quarterly so that stakeholders can see how each business is performing within the Search Xcelerator segment. The same applies to warranty, which may have a different growth profile. We value those businesses for their combination of diversified contractual prepaid revenue and investable float, even though it may be a slightly more mature market. I hope that answers your question, Adam. While we will not have separate reportable segments within KSX, we will disclose and discuss the performance of each of our businesses every quarter in the investor deck.

Yes, this is Kent. I would like to add that the U.S. GAAP rules are quite complex when it comes to identifying reportable segments. It is difficult to determine if we will need to separate KSX in our filings, as this will depend on the characteristics of future acquisitions and their relationship to one another. However, at present, we view KSX as a segment internally, and the Board shares this perspective. We will strive to provide as much information as possible while being cautious not to reveal too much that could be useful to competitors.

And there were no other questions from the lines. Back to you, James.

Yes, we have three more questions from the e-mails, actually one that just came in live. And if you do have a question, you're listening on the webcast, feel free to shoot it over to [email protected]. Happy to get the question teed up. The most recent question that came in was on CSuite. It says, why was CSuite's pipeline disrupted during the acquisition process? Yes, that's all the questions for JT or Kent.

Yes, great question. So, Arthur, the seller, was the primary business development person at his company. And so, as he got deeply involved in the sale of his business, his pipeline of new business suffered a bit, I would say, just through distraction. And so, Timi has internally promoted someone at the company to transition Arthur out. He is now no longer with the company. He satisfied his one-year consulting agreement. And Timi is now focused on rebuilding that pipeline and has been most of the year as well. But I would say that the pipeline of new business activity took a backseat during the sales process because Arthur was selling his business and not focused on business development.

Got it. And the next one was, how does management feel about levered acquisitions given the current interest rate environment? What spreads are they able to get on acquisition debt currently?

Yes, I think we talked about the spreads on acquisition debt. Acquisition debt is sort of 50 basis points over prime on our most recent deal. And that's been pretty consistent in all of our acquisitions. And then levered acquisitions, given the current interest rate environment, I think it's important to point out that we have and will continue to use what we believe to be a relatively conservative amount of leverage in support of these transactions. So 3x senior funded debt-to-EBITDA or less at closing. And so, obviously, the cost of capital, the debt capital is higher. But interestingly, if you sort of model that out in our acquisition models, then because of the amortization of the debt and things, the impact on our modeled IRRs, if you go from sort of 6% debt cost of capital to 9%, only decreases by 100 basis points or so over 6 years. So, the higher cost of debt doesn't really have a big impact on the modeled returns. But as I've said before, we want to use a modest amount of debt to enhance those equity returns, but we're probably more focused on striking the appropriate balance on returns to our invested capital with adequate covenant headroom, right? And so, we want to give these operators plenty of cushion out of the gate. So we don't take on a ton of debt so that we're not in senior funded debt-to-EBITDA challenges or fixed charge coverage ratio challenges. And so, the current rate environment at our level of leverage hasn't really impacted things.

Great. And the last question we have here is, does management have a lower bound for interest coverage, i.e., would they pull back on the acquisition pipeline if interest coverage fell below 1x or a different threshold? You may have just answered that, but just sharing that last one that came in.

Yes. Certainly, if interest coverage was below 1x, that would be not good. So we would absolutely pull back. But it is a good question. I think that it's important to point out that each one of our acquisitions is financed independently. And so, for instance, the DDI debt that we just used to support that acquisition is non-recourse to Kingsway, the parent company, and it is secured only by the cash flows and assets of DDI. And that loan facility has financial covenants that include that sort of maximum senior leverage ratio and a fixed charge coverage ratio of like 1.2x, which includes both principal and interest. And so, we would never get anywhere close to 1x interest coverage at the sort of lower bound. And we're kind of bound to a fixed charge coverage, which includes, again, both principal and interest of 1.2x. And when we model these things out, they have plenty of cash flow coverage on fixed charge.

Got it. Yes, I think that's it. I'm looking at the email and I'm not seeing any additional questions in there. JT, had you finished answering the question?

Yes, that's great. I think if there are no more questions, we'll hand it back to the operator. Thank you, everybody, for participating on the call.

Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.