Kingsway Financial Reports Mixed Earnings Results for 2024
Shares of Kingsway Financial Services Inc. (KFS) rose by 1.7% following the company’s earnings announcement for the quarter ending December 31, 2024. This performance outshines the S&P 500 Index, which only increased by 0.4% during the same period. By contrast, KFS’s stock has experienced a 5.6% decline over the past month, mirroring the S&P’s losses.
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Key Revenue and Profitability Figures
For the fiscal year ending December 31, 2024, Kingsway reported consolidated revenues of $109.4 million, reflecting a growth of 5.9% compared to $103.2 million in 2023. Adjusted consolidated EBITDA climbed 16.9%, reaching $10.6 million in 2024, up from $9.1 million the previous year. However, the company faced challenges with a reported net loss of $8.3 million, or $0.30 per share, compared to a net income of $24 million, or $0.87 per share, for 2023.
Kingsway Financial Services, Inc. Price, Consensus and EPS Surprise
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Kingsway Financial Services, Inc. Quote
Segment Performance Overview
Breaking down the performance by segment, Extended Warranty revenues increased slightly to $68.9 million, up 0.9% from $68.2 million in the previous year. Additionally, KSX revenues experienced significant growth of 15.7%, reaching $40.5 million from $35 million. However, combined adjusted EBITDA for both segments remained stable at $14.1 million.
In the Extended Warranty segment, the adjusted EBITDA fell to $7.6 million, down 10.2% from $8.4 million in 2023. This decline was largely due to heightened claims costs linked to inflation in auto parts and labor. Notably, the increase in claims expenses eased in the latter half of the year, with a mere 4.1% rise noted in the fourth quarter compared to the 13% increase in the first. Management indicated that the sequential quarterly progress in adjusted EBITDA suggests stabilizing cost pressures and solid underlying demand, highlighted by a 3.6% rise in cash sales for the year.
Conversely, the KSX segment saw its adjusted EBITDA jump by 14.9% to $6.6 million, up from $5.7 million in 2023. This growth benefitted from acquisitions of DDI and SPI in October and September 2023 and Image Solutions in September 2024. The SPI business showed strong annual recurring revenue (ARR) growth and retention metrics, exceeding the Rule of 40 thresholds. DDI revenues surged nearly 20% since 2023, while total nurse staffing shifts increased by 8.5% in the fourth quarter. Despite some supply challenges in certain KSX divisions tied to M&A market pressures, management stressed disciplined margins and favorable year-end performance.
Insights from Management
CEO John Fitzgerald described 2024 as a pivotal year for Kingsway Financial, emphasizing the sequential EBITDA growth and strategic diversification via acquisitions. He articulated that the results aligned with company expectations, particularly with the establishment of the Skilled Trades Services platform as a new avenue for growth. The management’s confidence in the KSX model was evident, noting that Image Solutions was immediately beneficial, despite its challenges post-acquisition from a hurricane.
CFO Kent Hansen highlighted the company’s prudent capital management approach, focusing on managing debt and utilizing preferred equity to support acquisitions without excessive leverage.
Performance Influencers
The drop in profitability within the Extended Warranty segment was largely attributed to cost inflation in claims, especially within the GAP (Guaranteed Asset Protection) product, which has suffered from declining used car prices and high loan-to-value ratios. To counteract this, KFS has implemented approximately 50% price increases in the product. Management does expect this to affect volume.
Talent acquisition and retention emerged as key challenges across KSX in 2024, with some recruits failing to meet expectations. Nevertheless, the company is refining its hiring methodologies employing top-grading strategies to enhance future results.
Forward-Looking Guidance
While formal guidance was not provided, management indicated a trailing 12-month adjusted EBITDA run rate estimated between $19 million and $20 million for its operations, accounting for recent acquisitions. This figure aims to showcase the earnings capacity of the current portfolio rather than serve as a precise earnings forecast. Company leadership expressed a positive outlook on executing two to three acquisitions annually, supported by a robust pipeline of opportunities.
Recent Developments in Acquisitions
Kingsway Financial continues to pursue its acquisition strategy, having completed the purchase of Image Solutions in September and set to acquire Bud’s Plumbing in early 2025 through its new Skilled Trades platform. This acquisition is valued at $5 million plus adjustments, expected to bring an additional $6 million in annual revenues and $0.8 million in EBITDA. Additionally, the company divested its VA Lafayette subsidiary during the third quarter, generating $1.1 million in net cash proceeds while increasing its stake in IWS to 100%, a move characterized as immediately beneficial.
To finance these acquisitions, KFS executed multiple equity placements, raising $8.3 million from Class B preferred shares in September and $6 million from Class C preferred shares in February 2025. As a result, total net debt climbed to $52 million at year-end from $35.3 million in 2023, mainly due to the purchase of Image Solutions.
Management reaffirmed its commitment to sound capital allocation, highlighted by the repurchase of 355,750 shares in 2024 and January 2025, fully utilizing the board-approved buyback program.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
