8-K
KINGSWAY Corp (KWY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 10, 2022
KINGSWAY FINANCIAL SERVICES INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware<br><br> <br>(State or Other Jurisdiction of Incorporation) | 001-15204<br><br> <br>(Commission File Number) | 85-1792291<br> (IRS Employer Identification No.) |
|---|
10 S. Riverside Plaza, Suite 1520, Chicago IL 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (312) 766-2144
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | KFS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 Results of Operations and Financial Condition.
On November 10, 2022, Kingsway Financial Services Inc. (the “Company”) issued a press release regarding its financial results for the three and nine-month period ended September 30, 2022. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K provided under this Item 2.02 and Exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
ITEM 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Exhibit Description
99.1
Press Release titled “Kingsway Reports Third Quarter 2022 Financial Results”
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KINGSWAY FINANCIAL SERVICES INC. | ||
|---|---|---|
| Date: November 10, 2022 | By: | /s/ Kent A. Hansen |
| Kent A. Hansen, Chief Financial Officer |
ex_414000.htm
Exhibit 99.1
KINGSWAY REPORTS THIRD QUARTER 2022 FINANCIAL RESULTS
Management to Host Conference Call Today at 5 p.m. ET
Chicago (November 10, 2022) - (NYSE: KFS) Kingsway Financial Services Inc. (“Kingsway” or the “Company”) today announced its operating results for the three and nine months ended September 30, 2022.
Recent Business Highlights
| ● | Completed the sale of its Professional Warranty Service Corporation (“PWSC”) subsidiary for $51.2 million in base purchase price, resulting in net cash proceeds of $37.2 million to the Company and representing an approximate 10x return on its initial investment of $5 million over roughly 4.5 years |
|---|---|
| ● | Entered into option agreements to repurchase five of its six trust preferred debt instruments ("TruPs") for $59.4 million, representing $75.5 million of TruPs principal and $19.3 million of deferred interest. |
| --- | --- |
| ● | Completed the sale of commercial real estate property, Flower Portfolio, resulting in net cash to the Company of $5.8 million |
| --- | --- |
| ● | On November 1, 2022, acquired the privately-held company CSuite Financial Partners (“CSuite”), the second acquisition completed under the Kingsway Search Xcelerator Program. CSuite, based in Manhattan Beach, California (www.csuitefinancialpartners.com), is a national, financial executive services firm providing financial management leadership to companies throughout the United States. |
| --- | --- |
“The company posted another strong operating quarter with net income of $37.3 million and non-GAAP adjusted income growing more than 20% from the prior year quarter,” said John T. Fitzgerald, President and Chief Executive Officer of Kingsway Financial Services. “Our Extended Warranty segment continues to deliver results, and our performance at Ravix has once again exceeded our expectations. We are pleased with the sale of PWSC which, combined with our continued monetization of non-strategic assets, will provide us with capital that can be used to improve our balance sheet and make new acquisitions.”
Third Quarter Consolidated Financial Highlights
| ● | Cash provided by operating activities was $9.3 million for the nine months ended September 30, 2022 compared to cash used in operating activities of $8.0 million in the same period a year ago |
|---|---|
| ● | Net income was $37.3 million, compared to net loss of ($0.2) million for the 2021 period |
| --- | --- |
| ● | Non-GAAP adjusted net income was $2.6 million, compared to Non-GAAP adjusted net income of $2.1 million for the 2021 period |
| --- | --- |
| ● | Extended Warranty segment and Kingsway Search Xcelerator (“KSX”) segment operating income was a total of $3.2 million, compared to a total of $1.4 million for the 2021 period |
| --- | --- |
| ● | Non-GAAP pro forma adjusted EBITDA for the Extended Warranty segment and KSX segment was a total of $3.6 million, compared to a total of $1.0 million for the 2021 period (pro forma excludes the results of PWSC) |
| --- | --- |
| ● | Cash and cash equivalents of $48.6 million as of September 30, 2022 compared to $12.6 million as of December 31, 2021 |
| --- | --- |
The non-pro forma results above include the results of PWSC through the date of sale (end of July 2022).
Reconciliations of GAAP to non-GAAP metrics are presented in the attached schedules. The Company today also filed its third quarter 2022 Quarterly Report on Form 10-Q.
Conference Call and Webcast
Management will host a conference call at 5 p.m. Eastern time today to discuss the results and host a live Q&A session. Additionally, investors may also submit questions via email to: James@HaydenIR.com.
Conference Call Information
Date: November 10, 2022
Time: 5 p.m. Eastern time
Toll Free: 877-545-0523; Participant Access Code: 672163
International: 973-528-0016; Participant Access Code: 672163
Live Webcast Link: https://www.webcaster4.com/Webcast/Page/2928/46844
Conference Call Replay Information
Toll Free: 877-481-4010
International: 919-882-2331
Replay Passcode: 46844
Replay Webcast Link: https://www.webcaster4.com/Webcast/Page/2928/46844
About the Company
Kingsway is a holding company that owns or controls subsidiaries primarily in the extended warranty, business services, asset management and real estate industries. The common shares of Kingsway are listed on the New York Stock Exchange under the trading symbol “KFS.”
Non U.S. GAAP Financial Measure
The Company believes that non-GAAP adjusted net income (loss) and non-GAAP adjusted EBITDA, when presented in conjunction with comparable GAAP measures, provide useful information about the Company’s operating results and enhances the overall ability to assess the Company’s financial performance. The Company uses non-GAAP adjusted net income (loss) and non-GAAP adjusted EBITDA, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Non-GAAP adjusted net income (loss) and non-GAAP adjusted EBITDA allow investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that non-GAAP adjusted net income (loss) and non-GAAP adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provide useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by the factors listed in the attached schedules, the Company believes that non-GAAP adjusted net income (loss) and non-GAAP adjusted EBITDA can provide useful additional basis for comparing the current performance of the underlying operations being evaluated. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. Investors are encouraged to review the Company's financial results prepared in accordance with GAAP to understand the Company's performance taking into account all relevant factors.
Forward-Looking Statements
This press release and/or Shareholder Letter may include “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 those expected and projected. Words such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “seeks” and variations and similar words and expressions are intended to identify such forward-looking statements; however, the absence of any such words does not mean that a statement is a not a forward-looking statement. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including as a result of the COVID 19 pandemic. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the section entitled “Risk Factors” in the Company’s 2021 Annual Report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Additional Information
Additional information about Kingsway, including a copy of its Annual Reports can be accessed on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov, on the Canadian Securities Administrators’ website at www.sedar.com, or through the Company’s website at www.kingsway-financial.com
Kingsway Financial Services Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Income
(in thousands)
(UNAUDITED)
| Twelve Months Ended | For the Three Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 9/30/2022 | 9/30/2022 | 6/30/2022 | 3/31/2022 | 12/31/2021 | |||||||||||
| GAAP Net Income (Loss) | $ | 33,847 | $ | 37,273 | $ | (2,365 | ) | $ | (2,504 | ) | $ | 1,443 | |||
| Non-GAAP Adjustments: | |||||||||||||||
| Realized (Gains) Losses (1) | (851 | ) | (549 | ) | (36 | ) | (26 | ) | (240 | ) | |||||
| Change in fair value (2) | (6,875 | ) | (11,982 | ) | 2,395 | 2,060 | 652 | ||||||||
| Gain on sale of PWSC, net (3) | (26,435 | ) | (26,435 | ) | - | - | - | ||||||||
| Other items (4) | 4,923 | 2,837 | 593 | 501 | 992 | ||||||||||
| Amortization expense | 5,873 | 1,409 | 1,494 | 1,494 | 1,476 | ||||||||||
| Total Non-GAAP Adjustments | (23,365 | ) | (34,720 | ) | 4,446 | 4,029 | 2,880 | ||||||||
| Non-GAAP Adjusted Income (7) | $ | 10,482 | $ | 2,553 | $ | 2,081 | $ | 1,525 | $ | 4,323 | |||||
| Includes reduction due to IWS change in estimate (5) | $ | 944 | $ | - | $ | - | $ | 944 | $ | - | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||
| Twelve Months Ended | For the Three Months Ended | ||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 9/30/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| GAAP Net (Loss) Income | $ | (2,061 | ) | $ | (226 | ) | $ | (256 | ) | $ | 899 | $ | (2,478 | ) | |
| Non-GAAP Adjustments: | |||||||||||||||
| Realized (Gain) Loss (1) | 632 | (97 | ) | (71 | ) | - | 800 | ||||||||
| Change in fair value (2) | (763 | ) | (760 | ) | 51 | 1,372 | (1,426 | ) | |||||||
| Other items (4) | 7,020 | 782 | 736 | 1,558 | 3,944 | ||||||||||
| PPP forgiveness (6) | (2,877 | ) | - | - | (2,494 | ) | (383 | ) | |||||||
| Amortization expense | 3,997 | 2,432 | 496 | 497 | 572 | ||||||||||
| Total Non-GAAP Adjustments | 8,009 | 2,357 | 1,212 | 933 | 3,507 | ||||||||||
| Non-GAAP Adjusted Income (7) | $ | 5,948 | $ | 2,131 | $ | 956 | $ | 1,832 | $ | 1,029 | |||||
| Includes reduction due to PWI final purchase accounting (5) | $ | 1,857 | $ | 1,857 | $ | - | $ | - | $ | - | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (1) | Includes realized gains and losses on the Company’s non-core investments and loss on the extinguishment of debt. |
|---|---|
| (2) | Includes unrealized gains and losses on non-core investments; change in the fair value of subordinated debt (net of the portion of the change attributable to instrument-specific credit risk); and change in the fair value of the Ravix earn-out (changes in fair value recorded as other income or expense). The 9/30/22 period includes an unrealized gain on the change in fair value of the trust preferred security options of $13.5 million. |
| (3) | Gain on sale of PWSC, net of transaction expenses that are included in consolidated operating expenses, as well as income taxes associated with the sale. The Company estimates that had the gain not occurred, the Company would have recorded a tax benefit; therefore taxes of $6.1 million are included in this line item. |
| (4) | Other items includes: legal expenses associated with the Company's defense against significant litigation matters; acquisition-related expenses; charges relating to severance and consulting agreements pertaining to former key employees; non-cash expense arising from the grant and modification of stock-based awards to employees; expense relating to the settlement of all remaining Amigo claims; and net expense incurred as a result of legal settlement reached with DGI in Q1 2021. The 9/30/22 period also includes $2.5 million related to an indemnity from the sale of Mendota in 2018, which is recorded in Loss on disposal of discontinued operations, net of taxes in the consolidated statement of operations. |
| (5) | The three months ended 3/31/2022 include a non-cash net charge of $0.9 million relating to change in estimate in accounting for IWS deferred revenue and deferred contract costs associated with vehicle service contract administration fees. The three months ended 9/30/2021 include a $1.9 million non-cash, cumulative reduction to service fee and commission revenue relating to the finalization of the PWI purchase accounting. |
| (6) | Given the non-recurring nature of the PPP forgiveness benefit, the Company has concluded this should be excluded from non-GAAP adjusted net income (loss). |
| (7) | Includes the results of PWSC through the date of sale (end of July 2022). |
Kingsway Financial Services Inc.
Reconciliation of Extended Warranty Segment Operating Income to Non-GAAP Adjusted EBITDA
and Pro Forma Non-GAAP Adjusted EBITDA
(in thousands)
(UNAUDITED)
| Twelve Months Ended | For the Three Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 9/30/2022 | 9/30/2022 | 6/30/2022 | 3/31/2022 | 12/31/2021 | |||||||||||
| GAAP Operating Income for Extended Warranty segment | $ | 10,446 | $ | 2,461 | $ | 2,936 | $ | 1,723 | $ | 3,326 | |||||
| Non-GAAP Adjustments: | |||||||||||||||
| Investment income (1) | 369 | 145 | 96 | 76 | 52 | ||||||||||
| Gain (loss) on sale of core investments (2) | (3 | ) | (2 | ) | (16 | ) | (4 | ) | 19 | ||||||
| Depreciation | 326 | 70 | 87 | 74 | 95 | ||||||||||
| Total Non-GAAP Adjustments | 692 | 213 | 167 | 146 | 166 | ||||||||||
| Non-GAAP adjusted EBITDA for Extended Warranty segment | $ | 11,138 | $ | 2,674 | $ | 3,103 | $ | 1,869 | $ | 3,492 | |||||
| PWSC operating (income) loss (3) | (1,440 | ) | 147 | (737 | ) | (298 | ) | (552 | ) | ||||||
| PWSC depreciation (3) | (55 | ) | (8 | ) | (25 | ) | (11 | ) | (11 | ) | |||||
| Pro forma Non-GAAP adjusted EBITDA for Extended Warranty segment | $ | 9,643 | $ | 2,813 | $ | 2,341 | $ | 1,560 | $ | 2,929 | |||||
| Includes reduction due to IWS change in estimate (4) | $ | 944 | $ | - | $ | - | $ | 944 | $ | - | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||
| Twelve Months Ended | For the Three Months Ended | ||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 9/30/2021 | 9/30/2021 | 6/30/2021 | 3/31/2021 | 12/31/2020 | |||||||||||
| GAAP Operating Income for Extended Warranty segment | $ | 12,574 | $ | 1,400 | $ | 2,600 | $ | 5,310 | $ | 3,264 | |||||
| Non-GAAP Adjustments: | |||||||||||||||
| Investment income (1) | 202 | 66 | 42 | 43 | 51 | ||||||||||
| Gain (loss) on sale of core investments (2) | (8 | ) | (18 | ) | 1 | 12 | (3 | ) | |||||||
| PPP forgiveness (5) | (2,566 | ) | - | - | (2,183 | ) | (383 | ) | |||||||
| Depreciation | 232 | 55 | 53 | 12 | 112 | ||||||||||
| Total Non-GAAP Adjustments | (2,140 | ) | 103 | 96 | (2,116 | ) | (223 | ) | |||||||
| Non-GAAP adjusted EBITDA for Extended Warranty segment | $ | 10,434 | $ | 1,503 | $ | 2,696 | $ | 3,194 | $ | 3,041 | |||||
| PWSC operating income (3) | (2,029 | ) | (503 | ) | (500 | ) | (403 | ) | (623 | ) | |||||
| PWSC depreciation (3) | (48 | ) | (7 | ) | (8 | ) | (12 | ) | (21 | ) | |||||
| PWI operating income (6) | 914 | - | - | - | 914 | ||||||||||
| PWI depreciation (6) | 30 | - | - | - | 30 | ||||||||||
| Pro forma Non-GAAP adjusted EBITDA for Extended Warranty segment | $ | 9,301 | $ | 993 | $ | 2,188 | $ | 2,779 | $ | 3,341 | |||||
| Includes reduction due to PWI final purchase accounting (4) | $ | 1,857 | $ | 1,857 | $ | - | $ | - | $ | - | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
(1) Investment income arising as part of Extended Warranty segment’s minimum holding requirements
(2) Realized Gains (losses) resulting from investments held in trust as part of Extended Warranty segment’s minimum holding requirements
(3) Amounts relating to the sale of PWSC (end of July 2022) in order to remove PWSC from all periods presented.
(4) The three months ended 3/31/2022 include a non-cash net charge of $0.9 million relating to change in estimate in accounting for IWS deferred revenue and deferred contract costs associated with vehicle service contract administration fees. The three months ended 9/30/2021 include a $1.9 million non-cash, cumulative reduction to service fee and commission revenue relating to the finalization of the PWI purchase accounting.
(5) Given the non-recurring nature of the PPP forgiveness benefit, the Company has concluded this should be excluded from non-GAAP adjusted EBITDA and pro forma non-GAAP EBITDA.
(6) Includes amounts related to PWI prior to acquisition (October and November 2020).
Kingsway Financial Services Inc.
Reconciliation of KSX Segment Operating Income to Non-GAAP Adjusted EBITDA
(in thousands)
(UNAUDITED)
| Twelve Months Ended | For the Three Months Ended | ||||
|---|---|---|---|---|---|
| GAAP Operating Income for KSX segment | 2,906 | 723 | 893 | 806 | 484 |
| Non-GAAP Adjustments: | |||||
| Employee costs (1) | |||||
| Total Non-GAAP Adjustments | |||||
| Non-GAAP adjusted EBITDA for KSX segment |
All values are in US Dollars.
(1) Costs associated with employees assisting during a transition period and are not expected to be replaced once transition period has ended (approximately one year from acquisition date).