ITASCA, IL, March 14, 2019 /PRNewswire/ - (NYSE: KFS)
Kingsway Financial Services Inc. ("Kingsway" or the "Company")
today announced its operating results for the fourth quarter and
year ended December 31, 2018.
All amounts are in U.S. dollars unless indicated otherwise.
Management Comments
John T.
Fitzgerald, President and Chief Executive Officer, stated,
"While we made substantial progress in our efforts to restructure
the business, 2018 proved to be a challenging year for the
company. In the fourth quarter, continued progress in our
Extended Warranty segment only partially offset the large realized
and unrealized losses in our passive investment portfolio.
These investment losses stem largely from our indirect investment
in the common equity of Limbach Holdings, Inc., which suffered a
large decline in the fourth quarter. We plan to issue a
shareholder letter, which will contain a detailed analysis of our
full-year 2018 performance, when we file our 2018 Annual
Report. Additionally, we were pleased to announce recently
our acquisition of Geminus Holding Company, Inc., which
demonstrates tangible execution of our stated strategy of building
the Extended Warranty segment."
Operating Results
The Company reported loss from
continuing operations of $11.9
million, or $0.54 per diluted
share, in the fourth quarter of 2018, compared to income from
continuing operations of $15.3
million, or $0.48 per diluted
share, in the fourth quarter of 2017.
For the year ended December 31,
2018, Kingsway reported loss from continuing operations of
$20.7 million, or $0.98 per diluted share, compared to income from
continuing operations of $2.6
million, or loss of $0.10 per
diluted share, in the prior year period.
The fourth quarter and full-year 2017 results include a
$19.0 million income tax benefit
related to the Tax Cuts and Jobs Act.
The loss from continuing operations for the fourth quarter of
2018 reflects the following:
- Operating loss of $1.4
million
- Net investment loss of $8.2
million, which reflects a $7.8
million investment loss on limited liability investment, at
fair value and a $1.0 million
investment loss related to the equity pick-up on one of the
Company's limited liability investments focused on making early
venture investments
- Interest expense not allocated to segments of $1.6 million
Following are highlights of Kingsway's fourth quarter 2018
operating loss. Operating loss reflects the Company's core
operating activities, including its reportable segments and
corporate operating expenses.
- Operating loss was $1.4 million
for the fourth quarter of 2018 compared to $0.7 million for the fourth quarter of 2017.
-
- Extended Warranty segment operating income was $1.4 million for the fourth quarter of 2018
compared to $1.8 million for the
fourth quarter of 2017. Extended Warranty segment operating income
for the fourth quarter of 2018 reflects a decrease of $0.4 million due to the adoption on January 1, 2018 of Accounting Standards Update
2014-09, Revenue from Contracts with Customers, as relates
to revenue recognition for Professional Warranty Service
Corporation.
- Leased Real Estate segment operating income was $0.5 million for the fourth quarter of 2018
compared to $0.8 million for the
fourth quarter of 2017.
- Operating expenses not allocated to segments was $3.3 million for the fourth quarter of 2018
compared to $3.3 million for the
fourth quarter of 2017.
- Book value decreased to $0.89 per
share at December 31, 2018 from
$2.02 per share at December 31, 2017. The Company also carries a
valuation allowance, estimated to be approximately $7.85 per share at December 31, 2018, against the deferred tax
asset, primarily related to its loss carryforwards.
The following non-recurring items contributed to Kingsway's
fourth quarter 2018 results.
Sale of Mendota
The
Company closed on October 18, 2018
its previously announced sale of Mendota. Included in the
Company's net loss for the three months ended December 31, 2018 is loss from discontinued
operations, net of tax, of $0.3
million and a gain on disposal of discontinued operations of
$0.7 million. As a result of
the Company's sale of Mendota, its
financial statements for the fourth quarter and year ended
December 31, 2018 reflect a loss on
disposal as well as the classification of Mendota, previously disclosed as part of the
Insurance Underwriting segment, as a discontinued operation at
December 31, 2018. The results
of Kingsway Amigo Insurance Company, which has been in runoff since
2013, will continue to be reported as part of continuing
operations; however, the Company will no longer report a separate
Insurance Underwriting segment.
Change in Jurisdiction of Incorporation
Effective
December 31, 2018, the Company
changed its jurisdiction of incorporation from the province of
Ontario to the State of Delaware in the United States of America.
About the Company
Kingsway is a holding company that
owns or controls subsidiaries primarily in the extended warranty,
asset management and real estate industries. The common
shares of Kingsway are listed on the New York Stock Exchange under
the trading symbol "KFS."
|
Consolidated
Statements of Operations
(in thousands, except per share
data)
|
|
|
|
|
|
|
|
Three months ended
December 31,
|
|
Years ended December
31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Revenues:
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
Service fee and
commission income
|
|
10,035
|
|
10,069
|
$
|
38,849
|
$
|
30,807
|
|
Rental
income
|
|
3,341
|
|
3,346
|
|
13,376
|
|
13,387
|
|
Other
income
|
|
112
|
|
79
|
|
416
|
|
681
|
|
Total
revenues
|
|
13,488
|
|
13,494
|
|
52,641
|
|
44,875
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Claims authorized on
vehicle service agreements
|
|
1,505
|
|
1,261
|
|
5,711
|
|
5,327
|
|
Loss and loss
adjustment expenses
|
|
3
|
|
138
|
|
1,631
|
|
404
|
|
Commissions
|
|
1,035
|
|
932
|
|
3,756
|
|
3,086
|
|
Cost of services
sold
|
|
1,566
|
|
1,989
|
|
7,315
|
|
6,535
|
|
General and
administrative expenses
|
|
9,289
|
|
8,298
|
|
29,367
|
|
27,038
|
|
Leased real estate
segment interest expense
|
|
1,533
|
|
1,558
|
|
6,171
|
|
6,264
|
|
Total operating
expenses
|
|
14,931
|
|
14,176
|
|
53,951
|
|
48,654
|
|
Operating
loss
|
|
(1,443)
|
|
(682)
|
|
(1,310)
|
|
(3,779)
|
|
Other revenues
(expenses), net:
|
|
|
|
|
|
|
|
|
|
Net investment (loss)
income
|
|
(8,179)
|
|
842
|
|
(8,876)
|
|
968
|
|
Net realized (losses)
gains
|
|
—
|
|
307
|
|
(405)
|
|
306
|
|
(Loss) gain on change
in fair value of equity investments
|
|
(701)
|
|
—
|
|
250
|
|
—
|
|
Non-operating other
income
|
|
13
|
|
38
|
|
1,032
|
|
697
|
|
Interest expense not
allocated to segments
|
|
(1,615)
|
|
(1,341)
|
|
(6,091)
|
|
(4,977)
|
|
Amortization of
intangible assets
|
|
(543)
|
|
(286)
|
|
(2,442)
|
|
(1,152)
|
|
Contingent
consideration benefit
|
|
—
|
|
—
|
|
—
|
|
212
|
|
Gain (loss) on change
in fair value of debt
|
|
791
|
|
(2,718)
|
|
(1,720)
|
|
(8,487)
|
|
Gain on disposal of
subsidiary
|
|
—
|
|
—
|
|
17
|
|
—
|
|
Equity in net (loss)
income of investee
|
|
(194)
|
|
772
|
|
(817)
|
|
2,115
|
|
Total other revenues
(expenses), net
|
|
(10,428)
|
|
(2,386)
|
|
(19,052)
|
|
(10,318)
|
|
Loss from continuing
operations before income tax expense (benefit)
|
|
(11,871)
|
|
(3,068)
|
|
(20,362)
|
|
(14,097)
|
|
Income tax expense
(benefit)
|
|
67
|
|
(18,330)
|
|
358
|
|
(16,694)
|
|
(Loss) income from
continuing operations
|
|
(11,938)
|
|
15,262
|
|
(20,720)
|
|
2,597
|
|
Loss on liquidation
of subsidiary, net of taxes
|
|
—
|
|
(494)
|
|
—
|
|
(494)
|
|
(Loss) income from
discontinued operations, net of taxes
|
|
(331)
|
|
(15,212)
|
|
1,738
|
|
(14,252)
|
|
Gain (loss) on
disposal of discontinued operations, net of taxes
|
|
664
|
|
—
|
|
(7,136)
|
|
1,017
|
|
Net
loss
|
|
(11,605)
|
|
(444)
|
|
(26,118)
|
|
(11,132)
|
|
Less: net income
attributable to noncontrolling interests in consolidated
subsidiaries
|
|
115
|
|
4,053
|
|
468
|
|
4,337
|
|
Less: dividends on
preferred stock, net of tax
|
$
|
(295)
|
$
|
137
|
|
96
|
|
350
|
|
Net loss attributable
to common shareholders
|
$
|
(11,425)
|
$
|
(4,634)
|
$
|
(26,682)
|
$
|
(15,819)
|
|
Loss (earnings) per
share - continuing operations:
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
(0.54)
|
$
|
0.51
|
$
|
(0.98)
|
$
|
(0.10)
|
|
Diluted:
|
|
(0.54)
|
|
0.48
|
$
|
(0.98)
|
$
|
(0.10)
|
|
Earnings (loss) per
share - discontinued operations:
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
0.02
|
$
|
(0.72)
|
$
|
(0.25)
|
$
|
(0.64)
|
|
Diluted:
|
$
|
0.02
|
$
|
(0.68)
|
$
|
(0.25)
|
$
|
(0.64)
|
|
Loss per share – net
loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
(0.52)
|
$
|
(0.21)
|
$
|
(1.23)
|
$
|
(0.73)
|
|
Diluted:
|
|
(0.52)
|
|
(0.20)
|
$
|
(1.23)
|
$
|
(0.73)
|
|
Weighted average
shares outstanding (in '000s):
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
21,788
|
|
21,708
|
|
21,728
|
|
21,547
|
|
Diluted:
|
|
21,788
|
|
23,265
|
|
21,728
|
|
21,547
|
|
Consolidated
Balance Sheets
(in thousands, except share
data)
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
Assets
|
|
(unaudited)
|
|
|
|
Investments:
|
|
|
|
|
|
Fixed maturities, at
fair value (amortized cost of $12,432 and $14,707,
respectively)
|
$
|
12,260
|
$
|
14,541
|
|
Equity investments, at
fair value (cost of $2,274 and $4,854, respectively)
|
|
856
|
|
4,476
|
|
Limited liability
investments
|
|
21,456
|
|
4,922
|
|
Limited liability
investment, at fair value
|
|
206
|
|
5,771
|
|
Other investments, at
cost which approximates fair value
|
|
2,079
|
|
2,321
|
|
Short-term
investments, at cost which approximates fair value
|
|
152
|
|
151
|
|
Total
investments
|
|
37,009
|
|
32,182
|
|
Cash and cash
equivalents
|
|
31,914
|
|
20,774
|
|
Investment in
investee
|
|
2,633
|
|
5,230
|
|
Accrued investment
income
|
|
203
|
|
331
|
|
Service fee
receivable, net of allowance for doubtful accounts of $58 and $318,
respectively
|
|
4,570
|
|
4,286
|
|
Other receivables,
net of allowance for doubtful accounts of zero and zero,
respectively
|
|
8,748
|
|
6,536
|
|
Deferred acquisition
costs, net
|
|
6,904
|
|
6,325
|
|
Property and
equipment, net of accumulated depreciation of $15,958 and $11,683,
respectively
|
|
103,142
|
|
108,008
|
|
Goodwill
|
|
73,928
|
|
80,112
|
|
Intangible assets,
net of accumulated amortization of $10,775 and $8,333,
respectively
|
|
83,816
|
|
80,062
|
|
Other
assets
|
|
4,472
|
|
4,302
|
|
Assets held for
sale
|
|
—
|
|
136,452
|
|
Total
Assets
|
$
|
357,339
|
$
|
484,600
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Accrued expenses and
other liabilities
|
$
|
17,007
|
$
|
12,308
|
|
Income taxes
payable
|
|
2,431
|
|
2,644
|
|
Deferred service
fees
|
|
46,016
|
|
40,873
|
|
Unpaid loss and loss
adjustment expenses
|
|
2,073
|
|
1,329
|
|
Bank loan
|
|
3,917
|
|
4,917
|
|
Note
payable
|
|
182,548
|
|
186,469
|
|
Subordinated debt, at
fair value
|
|
50,023
|
|
52,105
|
|
Net deferred income
tax liabilities
|
|
28,532
|
|
28,745
|
|
Liabilities held for
sale
|
|
—
|
|
105,900
|
|
Total
Liabilities
|
|
332,547
|
|
435,290
|
|
Class A preferred
stock, no par value; unlimited number authorized; 222,876 and
222,876 issued and outstanding at December 31, 2018 and December
31, 2017, respectively; redemption amount of $5,572
|
|
5,494
|
|
5,461
|
|
Shareholders'
Equity:
|
|
|
|
|
|
Common stock, no par
value; unlimited number authorized; 21,787,728 and 21,708,190
issued and outstanding at December 31, 2018 and December 31, 2017,
respectively
|
|
—
|
|
—
|
|
Additional paid-in
capital
|
|
354,360
|
|
356,021
|
|
Accumulated
deficit
|
|
(381,203)
|
|
(313,487)
|
|
Accumulated other
comprehensive income (loss)
|
|
40,507
|
|
(3,852)
|
|
Shareholders' equity
attributable to common shareholders
|
|
13,664
|
|
38,682
|
|
Noncontrolling
interests in consolidated subsidiaries
|
|
5,634
|
|
5,167
|
|
Total Shareholders'
Equity
|
|
19,298
|
|
43,849
|
|
Total Liabilities,
Class A preferred stock and Shareholders' Equity
|
$
|
357,339
|
$
|
484,600
|
Forward-Looking Statements
This press release includes
"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. 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. 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 Quarterly Report on Form 10-Q for the period ended
September 30, 2018. 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 2017 Annual Report and filings on
Forms 10-Q and 8-K, can be accessed on the Canadian Securities
Administrators' website at www.sedar.com, on the EDGAR section of
the U.S. Securities and Exchange Commission's website at
www.sec.gov or through the Company's website at
www.kingsway-financial.com.
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SOURCE Kingsway Financial Services Inc.