Good day, and welcome to the Kingsway Full Year 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 the future, including expected revenue, operating margins, expenses and future business outlook. Actual results or trends could materially differ from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission. Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release, as well as in our periodic filings with the SEC. Now, I'd like to turn the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

Thank you, John. Good afternoon, everybody, and welcome to the Kingsway earnings call for full year 2023. Thank you for joining us. I'd also like to quickly apologize. I know that the earnings release just dropped. We had some technical difficulties with our service provider and then a fairly large queue to get those things out. I apologize for the short timing here. So, let's get started. First let me start by saying that 2023 was a year of significant accomplishments. We delivered financial results that are largely in line with our expectations given the current market conditions. And we completed two great acquisitions, which is in line with our previously described internal target of two to three acquisitions per year. Also, during the year, we repurchased a substantial amount of our warrants and common stock, and we completed the repurchase of a substantial portion of our subordinated debt that resulted in a much more simplified and stronger balance sheet. All in all, 2023 was a great year here at Kingsway. Equally important, over the course of the year, we built a firm foundation to advance our strategy of growth through acquisitions and are really energized by the opportunities ahead of us. So we'll start with the financial results. Our first year or rather, our full year financial results include consolidated revenue of 103.2 million, up 11% from a year ago, and consolidated adjusted EBITDA of 9.1 million. Combined adjusted EBITDA for the extended warranty segment and the KSX segment was 14.1 million for the year. If we break this down, our extended warranty segment reported 68.2 million of revenue in 2023 compared to pro forma revenue of 74 million in 2022. Adjusted EBITDA for 2023 was 8.4 million compared to pro forma adjusted EBITDA of 10.7 the year prior. As a reminder, pro forma results exclude those of PWSC, which was sold in July of 2022. Throughout most of the year, as we discussed on the quarterly earnings calls, our Vehicle Service Agreement or VSA companies were impacted by an increase in average claims expense or severity and persistent macro-level revenue headwinds that impacted consumers, primarily tighter credit conditions and high used car prices. In the fourth quarter, claims severity began to moderate as the rate of inflation related to parts and labor began to recede compared to earlier quarters, we've been able to reduce the impact of these headwinds through our tight focus on managing operating expenses. We've implemented price increases to reflect the higher claims environment and expect those to begin rolling through the book this year. IWS, Gemini, and PWI have also been very active on the business development front. IWS added several new credit union partners during the year, and Gemini and PWI have executed a significant reboot of their sales teams and the corresponding goals and incentives, which are starting to yield results. At Trinity, maintenance support business revenues were negatively impacted by decreases in its equipment breakdown and maintenance support services due to both smaller average job sizes and generally mild weather conditions, which resulted in fewer service calls. Equipment warranty sales were negatively impacted by softer demand and long lead times on equipment availability and installations, with some equipment lead times approaching as much as a year. As a reminder, our revenue from warranty equipment sales is not recognized until the underlying equipment is installed. Thankfully, these backlogs are starting to free up, and the Trinity team has also done a nice job adding new distribution partners over the past 12 months to offset these challenges. We expect positive momentum in 2024. In summary, for the extended warranty segment, while it's difficult to predict macroeconomic trends and the resulting impact on our business going forward, our companies remain focused on improving Salesforce production, strategically adjusting pricing and managing our costs. We have seen significant positive progress thus far in 2024 and expect a better year ahead. Switching now to our Search Xclerator or KSX segment, which reported revenue of $35 million in 2023 compared to revenue of $19.2 million in 2022. Adjusted EBITDA for 2023 was $5.7 million compared to $3.8 million in 2022. These increases were driven by the acquisitions of CSuite and SNS, which were completed in November 2022, as well as the acquisitions of SPI in September and DDI in October. Within the segment, Ravix performed better-than-expected from a profitability perspective, especially in Q4 as higher operating margins more than offset lower-than-expected revenues. Since our acquisition, Ravix has performed very well ahead of our original underwriting thesis. CSuite experienced fewer interim engagements and inconsistent search placements amidst the challenging private equity and M&A environment. The team has bolstered its pipeline and is advancing new business opportunities to reignite growth. While it is early in the year, we have begun to see the M&A environment thaw a bit and both Ravix and CSuite have added business development talent to accelerate revenue growth. For SNS, the per diem business is performing quite well, partially offsetting an industry-wide decline in the use of travel nurses, which are typically billable at a higher margin. To address the industry headwinds, the team recently added new recruiting talent and completed upgrades to its technology and operations to better support its clinician recruiting efforts. The team has done a nice job of building a tech-enabled platform to support its anticipated growth. Importantly, we believe long-term demand for nurse staffing will be strong with the projected persistent shortage of registered nurses over the next decade. Secular demand for per diem and travel nurses is expected to remain robust. Growth through acquisitions is central to our corporate strategy. We have developed and follow an underwriting framework that evaluates opportunities based on a pre-defined set of performance criteria that reinforce the thoughtful and disciplined allocation of capital and enable us to acquire high-return cash flow generating operating companies at reasonable valuations. In short, we are targeting opportunities that deliver predictably high returns on tangible capital in large and growing end markets. In September, we acquired Systems Products International or SPI, a privately held vertical market software company. It was the fourth acquisition completed under our Search Xclerator and a great fit for our portfolio with contractual recurring revenue, low customer churn, strong margins and low capital demands. It operates in a growing industry and, as we expected, was immediately accretive upon consolidation into KSX. In October, we acquired Digital Diagnostics Imaging or DDI, a provider of fully-managed, outsourced, cardiac monitoring telemetry services. DDI is the industry standard bearer for outsourced cardiac monitoring in the long-term acute care and rehab hospital space and has established itself as a trusted partner to its customers through its focus on dependable, high-quality service. This business has a high level of recurring revenue with high customer retention and operates in a fast-growing and underpenetrated market. DDI has demonstrated an opportunity to grow at a very fast clip, with revenues growing in excess of 30% year-over-year in our first few months of ownership. The team at DDI is focused on building the internal infrastructure and processes to scale alongside this high level of demand while ensuring continued excellent levels of service and care. We held separate conference calls to discuss each of the SPI and DDI acquisitions. If you missed the original calls, I encourage you to listen to the replays for a more in-depth discussion of those transactions. We are eager to expand our KSX business, but we are also committed to disciplined decision making. The M&A environment is more favorable than it was 12 months ago, and we continue to believe this will translate into the completion of two to three deals over the next year. With the addition of Paul Vidal at the start of 2024, we currently have four fantastic operators and residents who are actively scouring the market and evaluating potential target opportunities. We remain encouraged by the quality of our pipeline and hold a high degree of confidence in our operators. We continue to believe that the future is extremely bright for our search accelerator platform given the talent we have on our team, the quality of the opportunities they are pursuing, and the rigorous framework through which we evaluate acquisition candidates. Inclusive of our recent acquisitions, our trailing 12-month adjusted EBITDA run rate is 17 million to 18 million. This includes the extended warranty companies, the existing KSX companies, as well as pro forma results for SPI and DDI. As a reminder, this metric is intended to capture the 12-month earnings businesses of the company that we currently own and is not intended to be forward-looking guidance. Looking ahead, our priorities for 2024 and beyond remain the same. Operational excellence at our companies while strategically deploying the excess cash flows they generate to grow our portfolio of wonderful businesses. Our goal is to deliver sustainable long-term growth in cash flow from operations and provide an excellent return to our shareholders. We continue to target two to three new acquisitions per year that fit our clearly defined acquisition criteria and will generate annualized EBITDA in the range of $1 million to $3 million each. And as we build our acquisition engine and our cash flows, we believe we are building the flywheel to scale our acquisition pace even further. I'll now turn the call over to Kent for a review of our financials.

Thank you, JT. As a reminder, during the fourth quarter of 2022, we began executing a plan to sell one of our subsidiaries, VA Lafayette, which owns a medical clinic whose sole tenant is the US Veterans Administration. As part of our strategic shift away from the lease real estate segment, VA Lafayette is included in discontinued operations and its assets and liabilities are reported as held for sale. The results of its operations are reported separately and not included in the results I'm about to discuss. Given that JT covered operating results, I would like to focus on holding company expenses, cash flows, and some balance sheet highlights. Our ongoing holding company expenses, which exclude our KSX search expenses, consist mainly of employee costs of our 10 corporate employees and costs associated with being a publicly traded company. Total expense excluding interest from our last remaining TruPS was 7.7 million in 2023 compared to 7.3 million in 2022. However, 2023 includes the following items: 1 million of stock-based compensation expense, which is non-cash, 1.1 million of expense related to acquisitions and non-recurring items, and about 600,000 in IBNR expense as our employee medical plan was self-insured in 2023. We have since moved to a fully insured plan in 2024 at a lower total cost. We continually challenge our holding company expenses, which has resulted in significant savings over the past few years. We believe our holding company will be able to scale as our underlying businesses expand and grow. Our ongoing KSX search expenses consist of employee costs for our active searchers as well as the tools to support their searches. Total expense was 1.3 million in 2023 compared to about 600,000 in 2022. The increase was mainly due to the average number of operators in 2023 increasing over 2022, the addition of our VP of Business Development in 2023, and due to having a full year of the Strategic Advisory Board in 2023, as well as expanding it by one member this year. We would expect KSX search expenses to fluctuate as we hire new operators and existing operators close deals and move into the newly-acquired businesses. We view these expenses as a long-term investment that will fuel the growth of the entire Kingsway organization. Turning to our balance sheet and cash flows. At the end of 2023, we had cash and cash equivalents of 9.1 million compared to 64.2 million at the end of 2022. Cash used in operating activities from continuing operations was 26.8 million for the 12 months ended December 31, 2023, compared to 2.6 million a year ago. Our cash balance was impacted by the following significant items in 2023. First, the repurchase of a majority of our trust preferred debt for 56.5 million, which retired 96.7 million in principal and deferred interest that was done in the first quarter. 5 million payment of trust's deferred interest also in the first quarter. 2 million for the release of the Mendota escrow in Q1, 1.8 million of management fees paid in Q1 and Q2 related to the final sale of commercial real estate investments, 7.2 million paid for the repurchase of our warrants and common stock, principal debt payments of 9.1 million in 2023, excluding the stock's repurchase, and then also we have 16.7 million of cash received from holders exercising warrants and 3.3 million from the sale of stock. We had total outstanding debt, which is comprised of bank loans and trust debt, of 44.4 million at the end of 2023, compared to 102.1 million at the end of 2022. Net debt decreased to 35.3 million as of December 31, 2023, compared to 37.9 million at the end of 2022. As we've mentioned before, in March 2023, the Board approved a one-year securities repurchase program. Through February 29, 2024, we repurchased nearly 1.1 million of our warrants and repurchased just over 400,000 shares of our common stock under this plan. The repurchase of common stock is being held as treasury stock at cost and has been removed from our common shares outstanding. In summary, we continue to make progress reducing our net debt. We have shed most of the remaining non-core assets and we're able to repurchase a meaningful amount of our securities, all of which we believe will provide more flexibility in pursuing our strategic objectives.

The first question comes from Adam Patinkin with David Capital.

So let's see. I've got a few questions that I wanted to go into and granted I didn't have a ton of time to read through the results, but first I wanted to ask just about the VA Lafayette process. I know that that asset has been for sale for a little bit and has been held as discontinued operations. Can you maybe provide an update on where things stand there?

We currently have the VA under an LOI, and so we're progressing through the process at this point.

The second question I had is just I'm trying to understand the run rate EBITDA metric. So I guess my question on that is, when you do the calculation for run rate EBITDA for the operating businesses, are you taking the 12 months trailing operating profit? In other words, does the 17-18 million, is that essentially including the depressed warranty results from 2023? Or are you normalizing that to say, hey, in a normal year, once we put through some of the different things that you mentioned on the call already to improve the profitability of that business, are you taking those into account that the improvements you're making? Or is it literally just, hey, here's the 12 months trailing, so you're including kind of a depressed warranty EBITDA number?

So run rate EBITDA, the way we define it, it's probably a little bit of a misnomer, right? It is truly the last 12 months of earnings power of the businesses we currently own. So it is the trailing 12 months of all of the warranty businesses, plus the trailing 12 months of CSuite, Ravix, and SNS. And then the last 12 months of operating performance of DDI and SPI as if we had owned them for the whole 12 months. The only normalizing adjustment, Adam, we make is to make an estimate of the increase in investment income we would receive on the warranty float. If we reinvest all of that at current market yields, that normalizing adjustment has compressed over time as we have rolled over a lot of those securities.

If I'm trying to think about it, and I think the way that most investors think about the companies that they invest in is thinking about what are the prospective cash flows of the business? In other words, what's the earnings power today and going forward? So if I'm going to think about what kind of a normalized earnings power is here, it actually should be a good bit higher than that number that you've provided just because I think the hope or expectation would be that the warranty business is going to recover from kind of this depressed year for all the reasons you outlined. And then obviously each of your businesses, you're continuing to grow them and improve them. You just got SPI and DDI under your umbrella, et cetera. Is that a fair comment to make?

I think that's a very fair comment. I think that you heard in my prepared remarks that we feel pretty good about where we stand today, certainly compared to several months ago and there are nice things happening. We believe we have momentum, and therefore I think that's a fair comment.

Okay, great. I appreciate that and the clarity around that. Just one last question, which is in your press release, in your commentary, you noted that the transition has gone smoothly for SPI and DDI and you said some positive things about those businesses. Would you mind just providing a little extra color on SPI and DDI, how those transitions have gone with the operators taking over and how those deals have been performing so far, just a little bit more granularity so we can get a feel for those two kind of new businesses under the KSX umbrella?

Yes, great. I'll start with SPI. That is led by Drew Richard, a really talented young guy. If you recall, this was a sort of a family-owned small software business. We really like the fundamentals of it. The business, as is often the case in these small founder-led businesses, probably had a lot of unlocked opportunity, particularly around organic growth. And so, obviously, the first 100 days, Drew has to transition in, establish sort of the new regime, get to know all of the folks there and build rapport, and then talk to customers and based on that sort of start to begin articulating a vision for the business and the strategy to achieve that vision. Drew's thesis is that there is ample opportunity to grow this company organically through new customer acquisition in its existing market segment. We've got a wonderful new Head of Sales there that had only been onboard at the company for a couple of months prior to our closing and they've been building out their sales process sort of top of the funnel all the way down through and have had some early success on adding new customers onto the software platform. That will probably take some time, as they kind of start from scratch to build this sales team and processes. But so far, things are going really well, and we're very pleased with the company we bought. Turning to DDI, again, Founder-led business. The Founder has largely transitioned out. Peter Dousman is our President there. This is a sort of unique situation where DDI has been growing pretty rapidly. As I mentioned in the prepared remarks, in our first couple of months of ownership in 2023, year-over-year revenues were up over 30%. And that's through inbound existing customers trying to expand their business in new rehab and LTAC hospitals and more recently some inbound interest from other hospital systems. Peter is very busy creating the internal processes, structure, and team to be able to support a really wonderful opportunity to grow, but do it in a very thoughtful way so that we most importantly ensure a very high-quality level of service and quality of care for the patients that we're monitoring. And so that's the dynamic he's balancing, but I think that he's got a really nice growth runway ahead of him.

But operator, before you take the next question, I just wanted to point out to people on the call that we do get a lot of questions about run rate, and we published an investor deck in January of this year. In the appendix, we did add a slide giving a little bit more color on that. So, I encourage people to take a look at that and hopefully it will help digest what we're trying to communicate with that.

It appears there are no more questions in the queue. I would like to hand it back to James Carbonara for any questions he may have via email.

Thank you, Operator. Hi, JT and Kent. We had a few come in on email. Many were already answered. I'll start with this one that I know you touched on in the prepared remarks but we'll go ahead and ask anyway. It says, now that we are in March, are you still hoping to close two to three new acquisitions by the end of 2023?

Yeah, that's certainly the goal, right? We're out pounding the pavement every day. And we have a set of sort of what I would call leading measures that we think are both predictive and influenceable by our guys, and predictive of the lag metric, which is getting these acquisitions done. And so, the activity is great. We've been engaged in a lot of conversations with business owners, and so standing here today that's still certainly our hope. Again, these things, there is some serendipity to them, and so it's hard to make a hard target, but based on the level of activity we're seeing, that's definitely our hope.

You did touch on this before with Adam, but it talks about the warranty business and how do you see it performing in 2024? If you just wanted to reiterate your outlook.

Look, 2023 was a tough year in the warranty businesses from a revenue standpoint and on the claim severity. Claim severity seems to have receded a bit. Certainly in terms of the inflation kind of year-over-year inflation, we're starting to see that moderate. And all of those businesses have done a really nice job in spite of some of the revenue headwinds, adding new distribution partners, new distribution channels, increasing the activity with existing customers, getting higher conversion and attachment rates. And so we feel pretty sanguine about how they're going to do this year without giving guidance obviously, but fairly optimistic.

Another question was, if you buy businesses for five to seven times EBITDA, why should Kingsway trade at a higher multiple than those acquisition multiples?

That's one we get from time to time. First, I would say, I'm not going to say why something should or shouldn't. Probably not. My role to say what someone should or shouldn't do, but I can give you my perspective. And so I think first kind of unpack it from like why are these businesses available to these high-quality businesses available to acquire for 5x to 7x EBITDA. I would say, first, every one of these small companies probably has some amount of what I would call hair on them; cash basis financials filed in QuickBooks, etc. In essentially every case, you've got a founder, operator, leader who's looking to retire. And for that reason, and these processes take a very long time, and we are sourcing them more often than not proprietarily. And that's just really hard to do. And so as a result, there's a relatively small universe of buyers out there relative to the number of companies in that size range that because of the demographics we've discussed in the past are coming available for sale. And on the flip side, why should I think that they should trade at a higher multiple? If you think about what happens to those businesses when they come into Kingsway and onto the KSX platform. First, they get cleaned up, right? We put them through what we call the Kingsway Car Wash, right? So consistent, accrual-based, audited financials, internal control environments, risk mitigation, etc. And then we install really great leadership to unlock that latent growth that often is there, certainly what we're targeting. We shield those cash flows from taxes because of our NOL, our tax attributes. Each one of these small companies also has some risk, often there's customer concentration or something like that. I would say that a portfolio of those businesses is probably less risky than buying one individually, and it would be hard to reconstruct that portfolio. And then I think my final thought would be that the highest multiples for companies get afforded to those that can reinvest their free cash flow at very high rates of return for a long time. I think that we are building that with the KSX platform. This demographic silver tsunami of opportunities to buy great businesses, combined with our pipeline of talent and the cash flow to redeploy, I think creates a really nice flywheel that will give us a very long and wide runway.

Great. And then the last one, just on the software business. It's a two-parter. It says, do you think you will be able to organically grow the software business? And do you have any concrete examples you are able to offer regarding growth?

Yes. I touched on this briefly with Adam. I do think more importantly, Drew thinks. He's the President of the company. We run a very de-centralized operation here. I fundamentally believe in the power of de-centralization both in the ability to attract and, more importantly, retain really great people, and Drew absolutely believes that he has the ability to grow that organically. This is mission-critical software for its customers, and so the sales cycle is a little longer. But I think in terms of concrete examples, I think that some early successes with some new client ads that they're onboarding now. And I'm very optimistic about his opportunity to grow that organically.

I see no further questions coming in on the email, operator, I'll turn it back to you to close the call.

I would say, the demand challenge in 2023 was sort of a post-pandemic hangover. During the pandemic, hospital systems had to be very reliant on contingent labor, which is obviously a lot more expensive, and they pushed back very hard to eliminate contingent labor in those hospitals maybe overly so. And that impacted the, in the near term, the demand for travel nurses for SNS. They have contracts with several about 70 hospitals in the state of California, and there is unmet demand. And so hiring recruiters to bring more nurses onto our platform to satisfy the requirements and criteria for those open positions is Charles's strategy to rebuild the travel business. In the meantime, the per diem business, which is harder to fill, is something that the company has done very effectively for a very long time. And he's done a nice job of continuing to grow that per diem business. So I don't know if that fully answers the question, but. I think it's just sort of crawl, walk, run there, right? New manager, new company, get in, understand your team, your people, your customers, their needs and desires. And we talk a lot about glass balls and rubber balls, and just make sure you don't drop any glass balls. And he is building and professionalizing his background as a nuclear engineer. And he is building all kinds of processes and protocols around safety. And so as he builds that foundation, I think that he will be able to lean into that growth that the demand is there. And it's about sort of being very deliberate about how quickly you want to onboard new hospital locations while still delivering a very high standard of care, given that patients' lives are being monitored. Peter's background, he is going to do a great job.

Thank you. Absolutely. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.