Kingsway Financial Services Inc (KFS) 2024 Q2 法說會逐字稿

Good day and welcome to the Kingsway Second Quarter 2024 earnings call. (Operator Instructions)

美好的一天，歡迎參加 Kingsway 2024 年第二季財報電話會議。（操作員說明）

Please note this conference is being recorded. With me on the call are JT Fitzgerald, Chief Executive Officer, and Kent Hansen, Chief Financial Officer.

請注意，本次會議正在錄製中。與我一起參加電話會議的有執行長 JT Fitzgerald 和財務長 Kent Hansen。

Before we begin, I want to remind everybody 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.

在我們開始之前，我想提醒大家，今天的會議可能包含前瞻性陳述。前瞻性陳述包括有關未來的陳述，包括預期收入、營業利潤、費用和未來業務前景。實際結果或趨勢可能與這些前瞻性陳述中預期的結果或趨勢有重大差異。

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-Q's and Form 8-K's filed with the Securities and Exchange Commission.

有關可能導致實際結果與前瞻性陳述中明示或暗示的結果不同的此類風險和不確定性的討論，請參閱公司年度報告表 10-K 和後續表 10-Q 中詳細說明的風險因素。美國證券交易委員會提交的8-K 表。

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.

另請注意，今天的電話會議可能包括使用管理層用來分析公司績效的非公認會計準則指標。最新的新聞稿中提供了此類非公認會計原則指標與最具可比性的公認會計原則指標的協調表。以及我們向 SEC 定期提交的文件中。

Now I would like to turn the call over to J.T. Fitzgerald, CEO of Kingsway JT. Please proceed.

現在我想把電話轉給 J.T.菲茨杰拉德，Kingsway JT 執行長。請繼續。

Thanks, Paul. Good afternoon, everyone, and welcome to the Kingsway Earnings Call for the Second Quarter of 2024. We had a solid quarter that was largely in line with our expectations. We saw improving performance in our extended warranty segment, which showed strong cash sales and moderating claims experience. And we exited the quarter with nice momentum heading into the back half of the year. Our KSX segment also performed well with EBITDA improving sequentially and year over year.

謝謝，保羅。大家下午好，歡迎參加匯富2024年第二季財報電話會議。我們的季度表現穩定，基本上符合我們的預期。我們看到延長保固業務的業績有所改善，這顯示出強勁的現金銷售和緩和的索賠經驗。我們以良好的勢頭結束了本季度，進入了下半年。我們的 KSX 部門也表現良好，EBITDA 連續且逐年提升。

Additionally, this quarter has been marked by very positive deal related activity. We have a couple of promising high quality prospects that we are working on, which, if completed, we'd significantly contribute to our growth trajectory moving forward.

此外，本季的交易相關活動非常積極。我們正在努力實現幾個充滿希望的高品質前景，如果完成，我們將為我們未來的成長軌跡做出重大貢獻。

For the second quarter of 2024, consolidated revenue was $26.4 million, a modest increase of 1% compared to the prior year quarter, while consolidated adjusted EBITDA was $2.4 million, a nice improvement over the $1.8 million in the year-ago quarter. For the extended warranty segment and the KSX segment, combined adjusted EBITDA was $3.4 million in both the second quarter of this year and last year.

2024 年第二季度，合併收入為 2,640 萬美元，與去年同期相比小幅增長 1%，而合併調整後 EBITDA 為 240 萬美元，比去年同期的 180 萬美元有了不錯的改善。對於延長保固業務和 KSX 業務，今年第二季和去年的調整後 EBITDA 合併後均為 340 萬美元。

In our extended warranty segment, the pricing adjustments that were implemented beginning in the second half of 2023 are having a positive impact and helping to offset claims expense, which increased only 2.9% over the prior year.

在我們的延保業務領域，從 2023 年下半年開始實施的定價調整產生了積極影響，有助於抵消索賠費用，該費用僅比上年增長 2.9%。

You may recall that Q1 claims were 13.1% higher than than last year. Also notably, our cash sales for the current quarter increased 4.6% over the prior year. Sequentially, adjusted EBITDA increased 12% from the first quarter of 2024, driven by higher earned revenue, a higher mix of extended warranty revenue at Trinity and our ongoing focus on controlling costs.

您可能還記得，第一季的索賠額比去年高出 13.1%。另外值得注意的是，我們本季的現金銷售額比前一年成長了 4.6%。隨後，調整後的 EBITDA 較 2024 年第一季增長了 12%，這主要得益於賺取的收入增加、Trinity 的延長保固收入組合增加以及我們持續關注控製成本。

As we talked about during our last earnings call, the challenges faced by the businesses and extended warranty have moderated, and we feel that we hit an inflection point in the second quarter.

正如我們在上次財報電話會議中談到的那樣，業務和延長保固期面臨的挑戰已經緩解，我們認為我們在第二季度遇到了拐點。

Turning to our search accelerator or KSX segment revenues increased 2% over prior year, primarily due to a favorable comparison resulting from the acquisitions of SPI and DDI in the second half of 2023. Ravix continues to perform both ahead of our original investment thesis and is trending nicely in 2024. The team at Ravix remains focused on increasing utilization rates, optimizing pricing and disciplined cost management. While revenues were down in the quarter, gross margins continue to hold around 37%, a 200 basis point improvement over prior year. EBITDA was essentially flat year over year in the quarter.

轉向我們的搜尋加速器或 KSX 部門收入比上年增長 2%，主要是由於 2023 年下半年收購 SPI 和 DDI 產生的有利比較。Ravix 的表現繼續領先我們最初的投資理論，並且在 2024 年趨勢良好。Ravix 團隊仍專注於提高使用率、優化定價和嚴格的成本管理。儘管本季營收有所下降，但毛利率仍維持在 37% 左右，比去年同期提高了 200 個基點。本季 EBITDA 與去年同期基本持平。

At [ceswe], we the team is building a solid pipeline and we continue to believe the businesses had headed in the right direction despite persistently challenging market conditions. Revenue and adjusted EBITDA were lower in the second quarter compared to the prior year period. However, cost of sales and general and administrative expenses were also down from prior year. The pipeline of qualified new business opportunities looks strong and the team is charting a course for accelerating revenue in the second half of 2024 and beyond.

在 [ceswe]，我們的團隊正在建立堅實的管道，我們仍然相信，儘管市場條件持續充滿挑戰，但業務已朝著正確的方向發展。與去年同期相比，第二季的營收和調整後的 EBITDA 有所下降。然而，銷售成本以及一般和管理費用也較上年下降。合格的新商機管道看起來很強勁，團隊正在製定在 2024 年下半年及以後加速收入成長的路線。

At SNS for the second quarter, revenue was flat sequentially, but both gross margin and adjusted EBITDA improved due to a higher mix of travel nurse shifts in the current quarter. Gross margin was over 200 basis points better in Q2 than in Q1. Travel shifts increased 35.4% from the first quarter and the number of nurses on travel assignment or TOA, has more than doubled since the beginning of the year. For the first time in a long while the Company exited the quarter with more TOA than at the same point last year. We continue to believe the longer-term outlook for the travel nurse market is promising.

在 SNS 第二季度，營收環比持平，但由於本季旅行護理師輪班比例增加，毛利率和調整後 EBITDA 均有所改善。第二季的毛利率比第一季高出 200 個基點以上。出差班次比第一季增加了 35.4%，出差班次或 TOA 的護理人員人數自年初以來增加了一倍多。很長一段時間以來，該公司首次在本季結束時獲得比去年同期更多的 TOA。我們仍然相信旅行護士市場的長期前景是光明的。

At Systems Product International or SPI the team delivered strong revenue and adjusted EBITDA in Q2 with revenues increasing 24% sequentially. The Company has contracted with a number of new clients this year and is executing on its strategy to grow annual recurring revenue. Since acquisition, the Company has grown ARR by 12%.

Systems Product International 或 SPI 團隊在第二季實現了強勁的營收和調整後的 EBITDA，營收季增了 24%。該公司今年已與許多新客戶簽訂了合同，並正在執行其增加年度經常性收入的策略。自收購以來，公司的 ARR 成長了 12%。

At Digital diagnostics imaging or DDI, revenue continues to be strong, increasing 14.6% over the prior year. EBITDA improved by 26.2% over the prior year period. To support its growth strategy and diversify its operational risk, DDI recently signed a new lease for a second operation center in Salt Lake City. We expect to have the location up and running in the second half of the year. The Company continues to meet and exceed our original expectations. Based on the performance of our operating businesses, the 12 month run rate adjusted EBITDA remains at $16 to $17 million.

數位診斷影像 (DDI) 的收入持續強勁，比上年增長 14.6%。EBITDA 較上年同期成長 26.2%。為了支持其成長策略並分散營運風險，DDI 最近簽署了鹽湖城第二個營運中心的新租約。我們預計該地點將在今年下半年投入使用。公司繼續滿足並超越我們最初的期望。根據我們營運業務的業績，12 個月運行率調整後 EBITDA 保持在 1,600 至 1,700 萬美元。

As a reminder, run rate is intended to capture the last 12 months of adjusted EBITDA for the businesses we currently own, including those we have recently acquired growth through acquisitions remains central to our corporate strategy. Targeting opportunities that deliver predictably high returns on tangible capital in large and growing end markets. While the timing of completing transactions is challenging to predict, we are seeing a healthy level of activity related to potential transactions and believe we are on track to meet our target of two to three deals each year that can each generate $1 to $3 million in annualized adjusted EBITDA.

提醒一下，運作率旨在捕捉我們目前擁有的企業過去 12 個月的調整後 EBITDA，包括我們最近透過收購獲得成長的企業，這仍然是我們企業策略的核心。瞄準在大型且不斷成長的終端市場中提供可預測的高有形資本回報的機會。雖然完成交易的時間很難預測，但我們看到與潛在交易相關的活動處於健康水平，並相信我們有望實現每年兩到三筆交易的目標，每筆交易可產生100 到300 萬美元的年化收益調整後的 EBITDA。

We currently have four highly talented operators in residents or OIR's who are actively searching for opportunities and are currently evaluating a number of attractive potential acquisition targets. In addition, we are actively recruiting new OIR's that can backfill and grow our bench of talent as our deal flow evolves. All in all, strong execution in the extended warranty businesses and continued progress against strategic objectives within our KSX businesses drove solid financial results for the second quarter.

目前，我們在居民或 OIR 領域擁有四名才華橫溢的營運商，他們正在積極尋找機會，並正在評估一些有吸引力的潛在收購目標。此外，我們正在積極招募新的 OIR，隨著我們交易流程的發展，他們可以補充和發展我們的人才隊伍。總而言之，延長保固業務的強勁執行力以及 KSX 業務策略目標的持續進展推動了第二季的穩健財務表現。

I'll now turn the call over to Kent for some additional commentary related to our financials.

我現在將把電話轉給肯特，請他提供一些與我們財務狀況相關的額外評論。

Thanks, J.T. 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 such, VA Lafayette is included in discontinued operations and its assets and liabilities are reported as held for sale. The results of operations are reported separately and not included in the results reported today.

謝謝，J.T.提醒一下，在 2022 年第四季度，我們開始執行一項出售我們子公司 VA Lafayette 的計劃，該公司擁有一家醫療診所，其唯一租戶是美國退伍軍人管理局。因此，VA Lafayette 被納入已終止經營業務，其資產和負債被報告為持有待售。經營業績單獨報告，不包含在今天報告的業績中。

Taking a look at our balance sheet and cash flows at the end of the second quarter of 2024, we had cash and cash equivalents of $9.6 million compared to $9.1 million at the end of 2023.

看看我們 2024 年第二季末的資產負債表和現金流，我們的現金和現金等價物為 960 萬美元，而 2023 年底為 910 萬美元。

Cash provided by operating activities from continuing operations was $500,000 for the first six months of 2024 compared to cash used in operating activities of $24.7 million in the year ago period. Cash used in the prior year was primarily due to outflows related to the payment of fees, expenses and interest related to asset sales and debt repurchases, which was partially partially offset by operating income for the businesses in our operating segments.

2024 年前 6 個月，持續經營業務提供的經營活動現金為 50 萬美元，而去年同期經營活動使用的現金為 2,470 萬美元。上年度使用的現金主要是因為支付與資產出售和債務回購相關的費用、開支和利息而流出，部分被我們經營分部業務的營業收入所抵銷。

In May of this year, we amended our extended warranty loan to pay off all current extended warranty debt and replace it with a $1 million revolver, a term loan of $15 million and a delayed draw loan of $6 million. Maturity date was extended to May of 2029. This amendment now gives us additional capacity to fund future acquisitions.

今年 5 月，我們修改了延期保固貸款，以償還所有當前的延期保固債務，並用 100 萬美元的左輪手槍、1500 萬美元的定期貸款和 600 萬美元的延遲提款貸款取而代之。到期日延長至2029年5月。這項修正案現在賦予我們額外的能力來為未來的收購提供資金。

As of June 30th, 2024, we had a total outstanding debt, which is comprised of bank loans and subordinated debt of $47.3 million compared to $44.4 million at the end of 2023. Net debt increased to $37.7 million as of June 30th, 2024, compared to $35.3 million at the end of 2023, primarily due to the extended warranty amendment.

截至 2024 年 6 月 30 日，我們的未償債務總額（包括銀行貸款和次級債務）為 4,730 萬美元，而 2023 年底為 4,440 萬美元。截至 2024 年 6 月 30 日，淨債務增至 3,770 萬美元，而 2023 年底為 3,530 萬美元，這主要是由於延長保固期修訂所致。

In March of this year, our securities repurchase program was extended for one year through March of 2025. Year to date, we have repurchased 141,550 shares of common stock for an aggregate purchase price of approximately $1.1 million. Also of note, in July 2024 we completed the purchase of the minority 10% interest in IWS that we did not previously own. And as such, IWS is now a wholly owned subsidiary of the company. I'll now turn the call back over to Paul to open the line for any questions.

今年3月，我們的證券回購計畫延長一年至2025年3月。今年迄今為止，我們已回購 141,550 股普通股，總購買價約為 110 萬美元。另外值得注意的是，2024 年 7 月，我們完成了對 IWS 10% 少數股權的購買，而我們之前並未擁有這些股權。因此，IWS 現在是該公司的全資子公司。我現在將把電話轉回給保羅，以便解答任何問題。

(Operator Instructions) Adam Patinkin from David capital.

（操作員說明）來自 David Capital 的 Adam Patinkin。

Hey, guys. Thanks for taking my question today. I just wanted to ask quickly about the warranty business, if you don't mind. So I think that you gave a little bit of color that the cost inflation there has moderated pretty significantly. And I think JT, that you said it was up 2.9% year over year. Can you kind of I'll provide a little bit more color there in terms of where your rates are trending relative to cost inflation and how you expect both of those to trend going forward over the duration of the year?

嘿，夥計們。感謝您今天回答我的問題。我只是想快速詢問一下保固業務，如果你不介意的話。所以我認為你給了一點顏色，那裡的成本通膨已經相當顯著地緩和了。我認為 JT，你說它同比增長了 2.9%。我能否提供更多信息，說明您的費率相對於成本通膨的趨勢，以及您預計這兩者在一年內的趨勢如何？

Yes, Hi, Adam. Thanks for the question.

是的，嗨，亞當。謝謝你的提問。

Yeah, so warranty claims were up 2.9% or so in the quarter, mostly driven by severity, not frequency. As you know, we started taking rate from back half of last year and into this year. And I think in the aggregate across the businesses that sort of price increases were in the or in kind of high single digits. How much of that sticks and how much of that comes through in shifting mix and stuff is always a little bit hard, but worse to determine, but we're seeing some probably about 4% or 5% of that come through in rate.

是的，本季保固索賠增加了 2.9% 左右，主要是由嚴重程度而非頻率驅動的。如您所知，我們從去年下半年開始計算利率，一直持續到今年。我認為，從整體來看，所有企業的價格上漲幅度都達到或接近個位數。其中有多少是堅持下來的，有多少是透過改變組合和東西來實現的，總是有點困難，但更難確定，但我們看到其中的一些可能大約有 4% 或 5% 的轉換率。

And also, as you know, beginning in late second quarter and really in the third quarter of last year, we saw accelerating claims inflation, severity inflation, predominantly parts and labor. And so we're coming up against much easier comps in the second half of the year for claims dollars. And so I would expect that year over year inflation will be much lower in that in that rate that I mentioned will still continue to come through.

而且，如您所知，從第二季末到去年第三季度，我們看到索賠通膨加速，嚴重通膨，主要是零件和勞動力。因此，我們在今年下半年的索賠金額方面將面臨更容易的補償。因此，我預計通膨率將比去年同期低得多，而我提到的通膨率仍將繼續實現。

Got it. That's really helpful. I appreciate it. Thank you, guys and routing for some of these acquisitions to come through that. I know you're getting close on or it sounds like you're getting close on. I appreciate it guys. I'll go back in the queue.

知道了。這真的很有幫助。我很感激。謝謝你們，謝謝你們，謝謝你們完成了一些收購。我知道你已經很接近了，或者聽起來你已經很接近了。我很感激你們。我會回到隊列中。

Thanks Adam.

謝謝亞當。

Thank You. (Operator Instructions) I'd now like to pass the call to James, post some E-mail question.

謝謝。（操作員說明）我現在想將電話轉給 James，並透過電子郵件發送一些問題。

Thank you, operator. Yes, we did have two questions come in on e-mail.

謝謝你，接線生。是的，我們確實透過電子郵件收到了兩個問題。

The first one is, as JT you said at the Investor Day, you were very happy with the two most recent acquisitions, although they are recent, the reported numbers of both these businesses, though it doesn't yet demonstrate their superior attributes and performance. Can you talk about why you still like these businesses and how long before performance starts to show up in the financials?

第一個是，正如 JT 您在投資者日所說，您對最近的兩項收購感到非常滿意，儘管它們是最近的，但這兩項業務的報告數字，儘管尚未展示其卓越的屬性和業績。您能談談為什麼您仍然喜歡這些企業以及多久之後業績才會開始體現在財務數據中？

Yes, I mentioned it a little bit in the prepared remarks. SPI, which we acquired in September of last year. Vertical market software business serving the fractional ownership vacation property industry. It has grown ARR since acquisition by roughly 12%. They've also added several new clients that they're in the process of onboarding.

是的，我在準備好的發言中提到了一點。SPI，我們去年九月收購的。服務於部分所有權度假地產產業的垂直市場軟體業務。自收購以來，ARR 成長了約 12%。他們還增加了一些正在入職的新客戶。

And so I would expect by the end of the year that we would have that we will have grown ARR by roughly 20% since inception. So I think that's really strong growth. Drew has done a great job transitioning in there and is focused on investing in growing the number of new customers on their software platform. And so I think a little bit of that would be sacrificing a little bit of near term profitability for growth in recurring revenue. That is very high margin recurring revenue to go out and capture more market share in his addressable market.

因此，我預計到今年年底，我們的 ARR 自成立以來將成長約 20%。所以我認為這是非常強勁的成長。德魯（Drew）在那裡完成了出色的過渡，並專注於投資增加其軟體平台上的新客戶數量。因此，我認為其中一點點會犧牲一點點短期獲利能力來換取經常性收入的成長。這是非常高利潤率的經常性收入，可以走出去並在其目標市場中佔領更多市場份額。

And then DDI, as I mentioned, revenue in the quarter increased roughly 15% over the prior year prior to our ownership and EBITDA improved even more dramatically and so those that financial performance is starting to come through in the financial statements. It's just a really incredible opportunity here. Peter is doing a great job and really growing with the customers that he currently has, who are sending him more facilities to onboard. And as I mentioned, in support of that growth and to create redundancy operationally and also tap a new labor pool for high-quality EKG text, we're opening a new facility in Salt Lake. So yes, I think we're really excited about the trajectory of both of those businesses

然後，正如我所提到的，DDI 該季度的收入比我們擁有所有權之前的上一年增長了約 15%，EBITDA 的改善甚至更加顯著，因此財務業績開始在財務報表中體現出來。這真是一個難以置信的機會。彼得做得非常出色，並且確實與他目前擁有的客戶一起成長，他們為他提供了更多的船上設施。正如我所提到的，為了支持這種增長並在運營上創造冗餘並為高品質心電圖文本挖掘新的勞動力庫，我們將在鹽湖城開設一家新工廠。所以是的，我認為我們對這兩項業務的發展軌跡感到非常興奮

Excellent. And the last question again, something you may have touched on in opening remarks, but maybe something to reinforce and reiterate. The question is, are you seeing any signs of a turnaround in either C-suite or the nursing business, what factors might lead you to believe that better days are ahead for these two businesses?

出色的。最後一個問題，您可能在開場白中提到過，但也許需要加強和重申。問題是，您是否看到首席主管或護理業務有任何好轉的跡象，哪些因素可能會讓您相信這兩個業務的美好日子即將到來？

Yes, SNS will start there, the nurse staffing business for the first time we exit the quarter with more travelers on assignment than we had at the same point in time last year. So that's a great fact. And our and our TOA shifts in the quarter increased its 35% over the first quarter of the year. And so Charles is doing a great job of recruiting nurses onto the platform and getting more TOA shifts. And so that's been really nice progress there. I think broadly, the industry is seeing gross margin compression start to abate and feels like we're kind of settling into a steady state and always in the second half of the year.

是的，SNS 將從這裡開始，護理人員配置業務將在本季結束時首次出現，與去年同期相比，有更多的差派旅行者。所以這是一個很好的事實。本季我們和我們的 TOA 班次比今年第一季增加了 35%。因此，查爾斯在平台上招募護士並獲得更多 TOA 輪班方面做得非常出色。所以這確實是一個很好的進展。我認為，總體而言，該行業的毛利率壓縮開始減弱，感覺我們正在進入穩定狀態，而且總是在下半年。

Seasonally, there's more demand for I'm on for travel and per diem nurses as hospital census increases during cold and flu season. So I think we're in a good position to capture that growing demand in the back half of the year.

從季節性來看，隨著感冒和流感季節醫院人口普查的增加，對出差和按日津貼護士的需求也會增加。因此，我認為我們處於有利位置，可以抓住今年下半年不斷增長的需求。

C-suite, I mentioned that the challenges are a bit persistent. A lot of their business is recruiting for permanent placement of accounting staff at private equity portfolio companies. I think with some challenges around business optimism. People have been slow to hire. We've got a huge backlog of retained searches and some as well as interim CFO work, it's getting people to pull the trigger and close those deals.

最高管理層，我提到挑戰有點持久。他們的許多業務都是在私募股權投資組合公司招募永久的會計人員。我認為商業樂觀面臨一些挑戰。人們招募的速度很慢。我們積壓了大量的保留搜索工作以及一些臨時首席財務官的工作，這讓人們扣動扳機並完成這些交易。

I think Tim has been really trying to push those along, and we're hopeful that the sentiment improves in the second half of the year. It's still hard to tell, but he's been the backlog or pipeline of deals that he has is as strong as we've seen it.

我認為蒂姆一直在努力推動這些工作，我們希望下半年的情緒能有所改善。這仍然很難說，但他所擁有的積壓或管道交易與我們所看到的一樣強大。

Great. Thank you J.T. And operator, that's all from the questions on E-mail.

偉大的。謝謝你，J.T.接線員，這就是電子郵件中的所有問題。

Okay, great. There were no other questions from the lines at this time. So would you like to conclude the call, Kent?

好的，太好了。此時線路上沒有其他問題。那麼您想結束通話嗎，肯特？

Yes, thanks, everyone. Have a great evening. Appreciate your participating on the call.

是的，謝謝大家。祝您有個美好的夜晚。感謝您參與此通話。

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

謝謝。今天的會議到此結束。此時您可以斷開線路。感謝您的參與。