ITASCA, Ill., March 26, 2021 /PRNewswire/ - (NYSE: KFS)
Kingsway Financial Services Inc. ("Kingsway" or the "Company")
today announced its operating results for the three and twelve
months ended December 31, 2020, which
includes the following highlights:
- Extended Warranty operating income increased 35% for the twelve
months ended December 31, 2020
compared to the same period for 2019, while non-GAAP adjusted
EBITDA increased 27% for the twelve months ended December 31, 2020, compared to the same period
for 2019; both increases were partially driven by the acquisition
of PWI on December 1, 2020;
- Net cash provided by operating activities improved to
$1.7 million for the twelve months
ended December 31, 2020, compared to
cash used in operating activities of ($0.8)
million during the same period in 2019;
- GAAP net loss was ($2.5) million
and ($5.4) million for the three and
twelve months ended December 31,
2020, compared to a GAAP net loss of ($3.1) million and ($4.3)
million for the same periods in 2019; Non-GAAP adjusted
income (loss) was $1.0 million and
($1.0) million for the three and
twelve months ended December 31,
2020, compared to a Non-GAAP adjusted loss of ($0.7) million and ($3.4)
million for the same periods in 2019.
On December 1, 2020, Kingsway
closed on its acquisition of PWI Holdings, Inc. (collectively with
its subsidiaries Preferred Warranties, Inc., Superior Warranties,
Inc., Preferred Warranties of Florida, Inc., and Preferred Nationwide
Reinsurance Company, Ltd., "PWI") for a total purchase price of
$24.4 million (subject to customary
adjustments). The addition of PWI further strengthens Kingsway's
position in the vehicle service contract and extended warranty
industry.
In connection with the acquisition, Kingsway fully repaid a
legacy loan (the "KWH Legacy Loan") to Kingsway Warranty Holdings
LLC ("KWH"). Kingsway financed the acquisition and the payoff of
the KWH Legacy Loan with a combination of debt financing provided
by CIBC Bank USA and cash on hand.
KWH borrowed a total of $25.7
million, $24.7 million in the
form of a term loan and $1 million in
the form of a revolver (together, the "KWH New Loan"). The KWH New
Loan has a variable interest rate, with the initial annual interest
rate equal to 3.75%. The KWH New Loan requires quarterly principal
and interest payments and the term loan matures on December 1, 2025. Based upon current interest
rates, Kingsway anticipates incurring slightly less total interest
expense under the KWH New Loan than the KWH Legacy Loan.
Non-GAAP Adjusted (Loss) Income
For the three months ended December 31,
2020, non-GAAP adjusted (loss) income improved from a loss
of ($0.7) million in 2019 to income
of $1.0 million in 2020, while for
the twelve months ended December 31,
2020 non-GAAP adjusted loss improved from ($3.4) million in 2019 to ($1.0) million in 2020.
Reconciliations of net loss to non-GAAP adjusted (loss) income
are presented in the attached schedules.
Extended Warranty
The Extended Warranty service fee and commission revenue
increased 3.3% (or $1.5 million) to
$47.6 million for the year ended
December 31, 2020 compared with $46.1
million for the year ended December 31, 2019. Service
fee and commission revenue was impacted by the following in
2020:
- A $2.5 million increase due to
the inclusion of PWI in 2020 following its acquisition effective
December 1, 2020;
- A $2.2 million increase at
Geminus primarily due to the inclusion of only ten months of
results in the 2019 period post-acquisition, which was partially
offset by lower contract sales due to the COVID-19 pandemic;
- A $0.3 million increase in PWSC
revenue, driven by the stronger housing market in the second half
of 2020;
- A $2.9 million decrease at
Trinity driven by reduced revenues from its equipment breakdown and
maintenance support services due to the loss of a major customer
and impacts from the COVID-19 pandemic, which was partially offset
by an increase in revenues from its extended warranty services
product; and
- A $0.6 million decrease at IWS,
due primarily to lower contract sales due to the COVID-19
pandemic.
The Extended Warranty operating income was $6.2 million for the year ended December 31,
2020 compared with $4.6 million for
the year ended December 31, 2019. The 35% increase in
operating income is primarily due to the following:
- A $0.7 million increase due to
the inclusion of PWI in 2020 following its acquisition effective
December 1, 2019;
- A $1.1 million increase at
Geminus primarily due to the inclusion of Geminus for the entire
twelve months of 2020 following its acquisition effective
March 1, 2019, as well as cost
control initiatives in place due to the COVID-19 pandemic;
- A $0.8 million increase at PWSC,
primarily due to increased revenue and lower general and
administrative expenses due to cost control initiatives in place
due to the COVID-19 pandemic and continuing operating
efficiencies;
- A $0.3 million decrease at IWS
primarily due to a decrease in revenue, partially offset by cost
control initiatives in place due to the COVID-19 pandemic; and
- A $0.7 million decrease at
Trinity driven by reduced revenues in its equipment breakdown and
maintenance support services, partially offset by a related
decrease in cost of services sold, operating expenses and increased
margin on the extended warranty services product, compared to
2019.
Extended Warranty Non-GAAP adjusted EBITDA increased by
$1.5 million (or 27%) to $7.0 million for the twelve months ended
December 31, 2020, compared with
$5.5 million for the same period in
2019, primarily due to the increase in Extended Warranty operating
income as explained above.
Reconciliations of operating income to Extended Warranty
Non-GAAP adjusted EBITDA are presented in the attached
schedules.
Leased Real Estate
The Leased Real Estate contractually-fixed rental income was
$13.4 million for the years ended
December 31, 2020 and 2019.
Operating (loss) income was ($0.5)
million and $2.8 million for
the years ended December 31, 2020 and
2019, respectively. The 2020 operating loss includes
litigation expenses of $1.3 million
and litigation settlement-related fees of $2.6 million, while 2020 operating income
includes $0.6 million of litigation
expenses.
In March 2021, the Company reached
a settlement agreement that resolves litigation brought against
certain of the Company's subsidiaries (the "CMC Settlement
Agreement"). In connection with the CMC Settlement Agreement,
the Company recorded a liability of $2.6
million for the 80% management fee due to DGI-BNSF Corp.
("DGI") at December 31, 2020, which
is included in general and administrative expenses in the
consolidated statement of operations for the year ended
December 31, 2020. Of the
$2.6 million, $1.6 million relates to rental income collected
in periods prior to 2020.
Refer to Note 29, "Commitments and Contingencies," to the
Company's 2019 Annual Report on Form 10-K for further information
regarding the litigation. Refer to Note 27, "Commitments and
Contingencies," to the Company's 2020 Annual Report on Form 10-K,
that the Company anticipates filing on or before March 31, 2021, for further information regarding
the CMC Settlement Agreement.
Impact of COVID-19
In March 2020, the outbreak of
COVID-19 caused by a novel strain of the coronavirus was recognized
as a pandemic by the World Health Organization, and the outbreak
has become increasingly widespread in the
United States, including in the markets in which we
operate. The COVID-19 outbreak has had a notable impact on
general economic conditions, including but not limited to the
temporary closures of many businesses; "shelter in place" and other
governmental regulations; and reduced consumer spending due to both
job losses and other effects attributable to COVID-19. There
remain many unknowns and the Company continues to monitor the
expected trends and related demand for its services and has and
will continue to adjust its operations accordingly.
The near-term impacts of COVID-19 are primarily with respect to
the Extended Warranty segment. As consumer spending has been
impacted, including a decline in the purchase of new and used
vehicles, and many businesses through which the Company distributes
its products either remain closed or are open but with capacity
constraints, the Company has seen cash flows being affected by a
reduction in new warranty sales for vehicle service
agreements. With respect to homeowner warranties, Kingsway
saw an initial reduction in new enrollments in its home warranty
programs associated with the impact of COVID-19 on new home sales
in the United States.
The Company could experience other potential impacts as a result
of COVID-19, including, but not limited to, potential impairment
charges to the carrying amounts of goodwill, indefinite-lived
intangibles and long-lived assets, the loss in value of
investments, as well as the potential for adverse impacts on the
Company's debt covenant financial ratios. Actual results may
differ materially from the Company's current estimates as the scope
of COVID-19 evolves or if the duration of business disruptions is
longer than initially anticipated. The Company continues to
monitor the impact of the COVID-19 outbreak closely. However,
the extent to which the COVID-19 outbreak will impact Kingway's
operations or financial results is uncertain.
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."
Non U.S. GAAP Financial Measure
The Company believes that non-GAAP adjusted net earnings (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 earnings (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
earnings (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 earnings (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 earnings (loss) and non-GAAP adjusted EBITDA can
provide useful additional basis for comparing the current
performance of the underlying operations being evaluated.
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; 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. 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 2019 Annual
Report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed
with the Securities and Exchange Commission. Additional information
will also be set forth in the Company's 2020 Annual Report on Form
10-K, which the Company anticipates filing on or before
March 31, 2021. 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.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
|
December 31,
2020
|
|
December 31,
2019
|
Assets
|
|
|
|
Investments:
|
|
|
|
Fixed maturities, at
fair value (amortized cost of $20,488 and $22,136,
respectively)
|
$
|
20,716
|
|
$
|
22,195
|
Equity investments, at
fair value (cost of $1,157 and $2,895, respectively)
|
444
|
|
2,421
|
Limited liability
investments
|
3,692
|
|
3,841
|
Limited liability
investments, at fair value
|
32,811
|
|
29,078
|
Investments in private
companies, at adjusted cost
|
790
|
|
2,035
|
Real estate
investments, at fair value (cost of $10,225 and $10,225,
respectively)
|
10,662
|
|
10,662
|
Other investments, at
cost which approximates fair value
|
294
|
|
1,009
|
Short-term
investments, at cost which approximates fair value
|
157
|
|
155
|
Total
investments
|
69,566
|
|
71,396
|
Cash and cash
equivalents
|
14,374
|
|
13,478
|
Restricted
cash
|
30,571
|
|
12,183
|
Accrued investment
income
|
757
|
|
562
|
Service fee
receivable, net of allowance for doubtful accounts of $478 and
$634, respectively
|
3,928
|
|
3,400
|
Other receivables,
net of allowance for doubtful accounts of $201 and $201,
respectively
|
16,323
|
|
14,013
|
Deferred acquisition
costs, net
|
8,835
|
|
8,604
|
Property and
equipment, net of accumulated depreciation of $24,441 and $20,503,
respectively
|
95,015
|
|
99,064
|
Right-of-use
asset
|
2,960
|
|
3,327
|
Goodwill
|
121,130
|
|
82,104
|
Intangible assets,
net of accumulated amortization of $15,433 and $13,142,
respectively
|
84,133
|
|
86,424
|
Other
assets
|
4,882
|
|
5,068
|
Total
Assets
|
$
|
452,474
|
|
$
|
399,623
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accrued expenses and
other liabilities
|
$
|
42,502
|
|
$
|
26,993
|
Income taxes
payable
|
2,859
|
|
2,758
|
Deferred service
fees
|
87,945
|
|
56,252
|
Unpaid loss and loss
adjustment expenses
|
1,449
|
|
1,774
|
Bank loans
|
25,303
|
|
9,240
|
Notes
payable
|
192,057
|
|
194,634
|
Subordinated debt, at
fair value
|
50,928
|
|
54,655
|
Lease
liability
|
3,213
|
|
3,529
|
Net deferred income
tax liabilities
|
27,555
|
|
29,015
|
Total
Liabilities
|
433,811
|
|
378,850
|
|
|
|
|
Redeemable Class A
preferred stock, no par value; 1,000,000 and 1,000,000 authorized
at December 31,
2020 and December 31, 2019, respectively; 182,876 and 222,876
issued and outstanding at December 31,
2020 and December 31, 2019, respectively; redemption amount of
$6,658 and $7,696 at December 31,
2020 and December 31, 2019, respectively
|
6,504
|
|
6,819
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
Common stock, no par
value; 50,000,000 and 50,000,000 authorized at December 31, 2020
and December
31, 2019, respectively; 22,211,069 and 21,866,959 issued and
outstanding at December 31, 2020 and December
31, 2019, respectively
|
—
|
|
—
|
Additional paid-in
capital
|
355,242
|
|
354,101
|
Treasury stock, at
cost; 247,450 and 247,450 outstanding at December 31, 2020 and
December 31, 2019,
respectively
|
(492)
|
|
(492)
|
Accumulated
deficit
|
(394,807)
|
|
(388,082)
|
Accumulated other
comprehensive income
|
38,059
|
|
35,347
|
Shareholders' equity
attributable to common shareholders
|
(1,998)
|
|
874
|
Noncontrolling
interests in consolidated subsidiaries
|
14,157
|
|
13,080
|
Total Shareholders'
Equity
|
12,159
|
|
13,954
|
Total Liabilities,
Class A preferred stock and Shareholders' Equity
|
$
|
452,474
|
|
$
|
399,623
|
Kingsway Financial Services Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
|
|
|
Years ended December
31,
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
Service fee and
commission revenue
|
$
|
47,607
|
|
$
|
46,111
|
Rental
revenue
|
13,365
|
|
13,365
|
Other
revenue
|
390
|
|
472
|
Total
revenues
|
61,362
|
|
59,948
|
Operating
expenses:
|
|
|
|
Claims authorized on
vehicle service agreements
|
9,922
|
|
9,141
|
Loss and loss
adjustment expenses
|
149
|
|
711
|
Commissions
|
5,530
|
|
4,477
|
Cost of services
sold
|
2,692
|
|
4,701
|
General and
administrative expenses
|
41,950
|
|
36,261
|
Leased real estate
segment interest expense
|
5,950
|
|
6,066
|
Total operating
expenses
|
66,193
|
|
61,357
|
Operating
loss
|
(4,831)
|
|
(1,409)
|
Other revenues
(expenses), net:
|
|
|
|
Net investment
income
|
2,625
|
|
2,905
|
Net realized
gains
|
580
|
|
796
|
Gain on change in fair
value of equity investments
|
1,267
|
|
561
|
Gain on change in fair
value of limited liability investments, at fair value
|
4,046
|
|
4,475
|
Net change in
unrealized loss on private company investments
|
(744)
|
|
(324)
|
Other-than-temporary
impairment loss
|
(117)
|
|
(75)
|
Non-operating other
(expense) revenue
|
(58)
|
|
257
|
Interest expense not
allocated to segments
|
(7,719)
|
|
(8,991)
|
Amortization of
intangible assets
|
(2,291)
|
|
(2,548)
|
Gain on change in fair
value of debt
|
1,173
|
|
1,052
|
Loss on extinguishment
of debt, net
|
(468)
|
|
—
|
Equity in net income
of investee
|
—
|
|
169
|
Total other expenses,
net
|
(1,706)
|
|
(1,723)
|
Loss from continuing
operations before income tax benefit
|
(6,537)
|
|
(3,132)
|
Income tax
benefit
|
(1,115)
|
|
(363)
|
Loss from
continuing operations
|
(5,422)
|
|
(2,769)
|
Gain (loss) on
disposal of discontinued operations, net of taxes
|
6
|
|
(1,544)
|
Net
loss
|
(5,416)
|
|
(4,313)
|
Less: Net income
attributable to noncontrolling interests in consolidated
subsidiaries
|
1,309
|
|
1,573
|
Less: Dividends on
preferred stock
|
1,066
|
|
1,019
|
Net loss attributable
to common shareholders
|
$
|
(7,791)
|
|
$
|
(6,905)
|
Loss per share -
continuing operations:
|
|
|
|
Basic:
|
$
|
(0.35)
|
|
$
|
(0.25)
|
Diluted:
|
$
|
(0.35)
|
|
$
|
(0.25)
|
Earnings (loss) per
share - discontinued operations:
|
|
|
|
Basic:
|
$
|
—
|
|
$
|
(0.07)
|
Diluted:
|
$
|
—
|
|
$
|
(0.07)
|
Loss per share – net
loss attributable to common shareholders:
|
|
|
|
Basic:
|
$
|
(0.35)
|
|
$
|
(0.32)
|
Diluted:
|
$
|
(0.35)
|
|
$
|
(0.32)
|
Weighted average
shares outstanding (in '000s):
|
|
|
|
Basic:
|
22,176
|
|
21,860
|
Diluted:
|
22,176
|
|
21,860
|
Kingsway Financial Services Inc.
Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
|
|
|
Years ended December
31,
|
|
2020
|
|
2019
|
Cash provided by
(used in):
|
|
|
|
Operating
activities:
|
|
|
|
Net loss
|
$
|
(5,416)
|
|
$
|
(4,313)
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
(Gain) loss on
disposal of discontinued operations, net of taxes
|
(6)
|
|
1,544
|
Equity in net income
in investee
|
—
|
|
(169)
|
Equity in net income
of limited liability investments
|
(30)
|
|
(36)
|
Depreciation and
amortization expense
|
6,728
|
|
6,917
|
Stock based
compensation expense, net of forfeitures
|
826
|
|
1,230
|
Net realized
gains
|
(580)
|
|
(796)
|
Gain on change in
fair value of equity investments
|
(1,267)
|
|
(561)
|
Gain on change in
fair value of limited liability investments, at fair
value
|
(4,046)
|
|
(4,475)
|
Net change in
unrealized loss on private company investments
|
744
|
|
324
|
Gain on change in
fair value of debt
|
(1,173)
|
|
(1,052)
|
Deferred income
taxes, adjusted for PWI and Geminus liabilities assumed
|
(1,001)
|
|
(785)
|
Other-than-temporary
impairment loss
|
117
|
|
75
|
Amortization of
fixed maturities premiums and discounts
|
140
|
|
8
|
Amortization of note
payable premium
|
(888)
|
|
(915)
|
Loss on
extinguishment of debt, net
|
468
|
|
—
|
Changes in operating
assets and liabilities:
|
|
|
|
Service fee
receivable, net, adjusted for PWI and Geminus assets
acquired
|
931
|
|
547
|
Other receivables,
net, adjusted for PWI and Geminus assets acquired
|
438
|
|
(4,478)
|
Deferred acquisition
costs, net
|
(231)
|
|
(1,700)
|
Unpaid loss and loss
adjustment expense
|
(325)
|
|
(299)
|
Deferred service fees,
adjusted for PWI and Geminus liabilities assumed
|
(2,333)
|
|
(1,442)
|
Other, net, adjusted
for PWI and Geminus assets acquired and liabilities
assumed
|
8,576
|
|
9,617
|
Net cash provided by
(used in) operating activities
|
1,672
|
|
(759)
|
Investing
activities:
|
|
|
|
Proceeds from sales
and maturities of fixed maturities
|
14,168
|
|
12,742
|
Proceeds from sales
of equity investments
|
3,249
|
|
1,355
|
Purchases of fixed
maturities
|
(12,560)
|
|
(18,075)
|
Net proceeds from
limited liability investments
|
179
|
|
355
|
Net proceeds from
(purchases of) limited liability investments, at fair
value
|
787
|
|
(118)
|
Net proceeds from
investments in private companies
|
719
|
|
824
|
Net proceeds from
other investments
|
390
|
|
1,121
|
Net (purchases of)
proceeds from short-term investments
|
(4)
|
|
49
|
Proceeds from sale of
investee
|
—
|
|
395
|
Acquisition of
business, net of cash acquired
|
(2,706)
|
|
(4,902)
|
Net disposals of
property and equipment, adjusted for PWI and Geminus assets
acquired
|
(213)
|
|
(212)
|
Net cash provided by
(used in) investing activities
|
4,009
|
|
(6,466)
|
Financing
activities:
|
|
|
|
Contributions from
noncontolling interest holders
|
(243)
|
|
—
|
Taxes paid related to
net share settlements of restricted stock awards
|
(83)
|
|
(89)
|
Principal proceeds
from bank loans, net of debt issuance costs of $403 and $981 in
2020 and 2019,
respectively
|
25,297
|
|
9,019
|
Principal payments on
bank loans
|
(10,062)
|
|
(3,855)
|
Principal proceeds
from notes payable
|
2,858
|
|
—
|
Principal payments on
notes payable
|
(4,164)
|
|
(3,767)
|
Net cash provided by
financing activities
|
13,603
|
|
1,308
|
Net increase
(decrease) in cash and cash equivalents and restricted
cash
|
19,284
|
|
(5,917)
|
Cash and cash
equivalents and restricted cash at beginning of period
|
25,661
|
|
31,578
|
Cash and cash
equivalents and restricted cash at end of period
|
$
|
44,945
|
|
$
|
25,661
|
Kingsway Financial Services Inc.
Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Loss
For the Years Ended December 31, 2020
and 2019
(in thousands)
(UNAUDITED)
|
|
YTD
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
12/31/20
|
|
12/31/20
|
|
9/30/20
|
|
6/30/20
|
|
3/31/20
|
GAAP Net
Loss
|
$
|
(5,417)
|
|
$
|
(2,478)
|
|
$
|
(1,124)
|
|
$
|
(1,421)
|
|
$
|
(393)
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss on sale
of non-core investments (1)
|
|
(484)
|
|
(425)
|
|
88
|
|
-
|
|
(147)
|
Change in fair value
of investments (2)
|
|
(4,568)
|
|
(2,193)
|
|
(1,377)
|
|
(366)
|
|
(632)
|
Change in fair value
of debt (3)
|
|
(1,172)
|
|
767
|
|
503
|
|
202
|
|
(2,645)
|
Litigation expenses
(5)
|
|
2,692
|
|
997
|
|
535
|
|
19
|
|
1,141
|
Acquisition and
disposition related expenses (6)
|
|
412
|
|
238
|
|
139
|
|
-
|
|
35
|
Employee termination
and recruiting expenses (7)
|
|
352
|
|
-
|
|
11
|
|
46
|
|
295
|
Stock-based
compensation expense (8)
|
|
1,535
|
|
1,106
|
|
127
|
|
131
|
|
171
|
Net loss from
discontinued operations, net of taxes (9)
|
|
(6)
|
|
-
|
|
-
|
|
(6)
|
|
-
|
Extraordinary audit
and audit-related expenses (10)
|
|
771
|
|
-
|
|
76
|
|
305
|
|
390
|
Impairment of
assets
|
|
117
|
|
-
|
|
-
|
|
-
|
|
117
|
Loss on
extinguishment of debt (11)
|
|
851
|
|
851
|
|
-
|
|
-
|
|
-
|
CMC Settlement
(12)
|
|
1,603
|
|
1,603
|
|
-
|
|
-
|
|
-
|
Amortization
expense
|
|
2,291
|
|
572
|
|
572
|
|
573
|
|
573
|
Total Non-GAAP
Adjustments
|
|
4,392
|
|
3,516
|
|
674
|
|
904
|
|
(702)
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjusted (Loss) Income
|
$
|
(1,025)
|
|
$
|
1,038
|
|
$
|
(450)
|
|
$
|
(517)
|
|
$
|
(1,095)
|
|
|
|
|
|
|
|
YTD
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
12/31/19
|
|
12/31/19
|
|
9/30/19
|
|
6/30/19
|
|
3/31/19
|
GAAP Net
Loss
|
$
|
(4,313)
|
|
$
|
(3,098)
|
|
$
|
(4,006)
|
|
$
|
(398)
|
|
$
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss on sale
of non-core investments (1)
|
|
(753)
|
|
(32)
|
|
(1,004)
|
|
598
|
|
(315)
|
Change in fair value
of investments (2)
|
|
(4,712)
|
|
(1,803)
|
|
3,736
|
|
(2,284)
|
|
(4,361)
|
Change in fair value
of debt (3)
|
|
(1,052)
|
|
1,052
|
|
(610)
|
|
(918)
|
|
(576)
|
Equity in net (gain)
loss of investee (4)
|
|
(169)
|
|
(127)
|
|
126
|
|
(201)
|
|
33
|
Redomestication
expenses (13)
|
|
72
|
|
-
|
|
-
|
|
41
|
|
31
|
Litigation expenses
(5)
|
|
685
|
|
124
|
|
65
|
|
104
|
|
392
|
Acquisition and
disposition related expenses (6)
|
|
46
|
|
-
|
|
23
|
|
6
|
|
17
|
Employee termination
and recruiting expenses (7)
|
|
1,134
|
|
715
|
|
63
|
|
85
|
|
271
|
Stock-based
compensation expense (8)
|
|
575
|
|
145
|
|
145
|
|
143
|
|
142
|
Net loss from
discontinued operations, net of taxes (9)
|
|
1,544
|
|
1,544
|
|
-
|
|
-
|
|
-
|
Extraordinary audit
and audit-related expenses (10)
|
|
886
|
|
149
|
|
359
|
|
378
|
|
-
|
Impairment of
assets
|
|
75
|
|
-
|
|
-
|
|
-
|
|
75
|
Amortization
expense
|
|
2,548
|
|
676
|
|
675
|
|
676
|
|
521
|
Total Non-GAAP
Adjustments
|
|
879
|
|
2,443
|
|
3,578
|
|
(1,372)
|
|
(3,770)
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjusted Loss
|
$
|
(3,434)
|
|
$
|
(655)
|
|
$
|
(428)
|
|
$
|
(1,770)
|
|
$
|
(581)
|
|
|
(1)
|
During 2020, the Company realized a gain on its investment in
FIMC and Savant, as well as a gain
on sale of certain investments held within
Argo Holdings that was partially offset by a loss realized on other
investments. During 2019, the Company realized a gain upon the sale
of New Aera Assets, 1347 Energy and FIMC that was partially offset
by a realized loss on the sale of Redseal SPV, LLC.
|
|
|
(2)
|
The Company has
investments in several entities that are not essential to the
ongoing operations and strategy of the Company. The investments are
recorded at fair value and changes to fair value are recorded as
unrealized gains or losses.
|
|
|
|
|
YTD
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
12/31/20
|
|
12/31/20
|
|
9/30/20
|
|
6/30/20
|
|
3/31/20
|
(Gain) loss on change
in fair value of limited liability investments,
at fair value
|
$
|
(4,046)
|
|
$
|
(1,995)
|
|
$
|
(274)
|
|
$
|
123
|
|
$
|
(1,899)
|
Net change in
unrealized (gain) loss on private company
investments
|
|
744
|
|
-
|
|
74
|
|
-
|
|
670
|
(Gain) loss on change
in fair value of equity securities
|
|
(1,267)
|
|
(198)
|
|
(1,177)
|
|
(489)
|
|
597
|
Total
|
$
|
(4,568)
|
|
$
|
(2,193)
|
|
$
|
(1,377)
|
|
$
|
(366)
|
|
$
|
(632)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD
|
|
For the Three
Months Ended
|
|
|
12/31/19
|
|
12/31/19
|
|
9/30/19
|
|
6/30/19
|
|
3/31/19
|
(Gain) loss on change
in fair value of limited liability investments,
at fair value
|
$
|
(4,475)
|
|
$
|
(1,219)
|
|
$
|
3,356
|
|
$
|
(2,347)
|
|
$
|
(4,265)
|
Net change in
unrealized (gain) loss on private company
investments
|
|
324
|
|
-
|
|
343
|
|
-
|
|
(19)
|
(Gain) loss on change
in fair value of equity securities
|
|
(561)
|
|
(584)
|
|
37
|
|
63
|
|
(77)
|
Total
|
$
|
(4,712)
|
|
$
|
(1,803)
|
|
$
|
3,736
|
|
$
|
(2,284)
|
|
$
|
(4,361)
|
|
|
(3)
|
The Company records
its subordinated debt at fair value and changes to fair value (net
of the portion of the change attributable to
instrument-specific credit risk) are recorded as unrealized gains
or losses.
|
|
|
(4)
|
Represents the
Company's investment in the common stock of Itasca Capital Ltd.
("ICL"). The Company fully disposed of its investment in ICL during
Q4 2019.
|
|
|
(5)
|
Legal expenses
associated with the Company's defense against significant
litigation matters.
|
|
|
(6)
|
Expenses related to
legal, accounting and other expenses associated with completed and
contemplated acquisitions and disposals.
|
|
|
(7)
|
2020 and 2019 include
charges relating to severance and consulting agreements pertaining
to former key employees. 2019 also includes key employee
recruiting expenses.
|
|
|
(8)
|
Non-cash expense
arising from the grant and modification of stock-based awards to
employees. In Q4 2020, the Company modified an award
previously granted to the President of one of its subsidiaries,
resulting in additional compensation expense associated with the
change in fair value of the award.
|
|
|
(9)
|
Includes losses
relating to Assigned Risk Solutions Ltd. and the October 2018
completed sale of the Mendota group of companies. Refer to Note 5,
Disposal and Discontinued Operations, to the Company's 2020 Annual
Report on Form 10-K for further information.
|
|
|
(10)
|
Extraordinary audit
and audit-related expenses incurred as a result of the delayed
filing of the 2018 and 2019 Kingsway audited financial statements
and related quarterly filings.
|
|
|
(11)
|
Early termination
fees and write-off of unamortized debt issuance costs and discount
associated with the early extinguishment of the 2019 KWH loan as
part of the Company's purchase of PWI.
|
|
|
(12)
|
In March 2021, DGI,
TRT LeaseCo, LLC and various other entities affiliated with each of
them entered into a settlement agreement with respect to such
litigation and certain other matters ("CMC Settlement
Agreement"). As part of the settlement, the Company made a
one-time fee payment to DGI of which $1.6 million relates to rental
income collected in periods prior to
2020.
|
|
|
(13)
|
Expenses incurred as
part of redomesticating Kingsway Financial Services Inc. from a
Canadian registered company to be a Delaware registered company as
of December 31, 2018.
|
Kingsway Financial Services Inc.
Reconciliation of Extended Warranty Segment Operating Income to
Non-GAAP Adjusted EBITDA
For the Years Ended December 31, 2020
and 2019
(in thousands)
(UNAUDITED)
|
|
|
YTD
|
|
For the Three
Months Ended
|
|
12/31/20
|
|
12/31/20
|
|
9/30/20
|
|
6/30/20
|
|
3/31/20
|
GAAP Operating
Income for Extended Warranty segment (3)
|
$
|
6,221
|
|
$
|
2,881
|
|
$
|
1,205
|
|
$
|
1,285
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
Investment
income (1)
|
395
|
|
51
|
|
100
|
|
100
|
|
144
|
Gain (loss) on
sale of core investments (2)
|
95
|
|
(3)
|
|
29
|
|
8
|
|
61
|
Depreciation
|
280
|
|
112
|
|
58
|
|
55
|
|
55
|
Total Non-GAAP
Adjustments
|
770
|
|
160
|
|
187
|
|
163
|
|
260
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
adjusted EBITDA for Extended Warranty segment
|
$
|
6,990
|
|
$
|
3,041
|
|
$
|
1,392
|
|
$
|
1,448
|
|
$
|
1,110
|
|
|
|
YTD
|
|
For the Three
Months Ended
|
|
12/31/19
|
|
12/31/19
|
|
9/30/19
|
|
6/30/19
|
|
3/31/19
|
GAAP Operating
Income for Extended Warranty segment
|
$
|
4,611
|
|
$
|
1,431
|
|
$
|
1,579
|
|
$
|
1,035
|
|
$
|
567
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
Investment
income (1)
|
652
|
|
177
|
|
163
|
|
145
|
|
167
|
Gain (loss) on
sale of core investments (2)
|
29
|
|
4
|
|
(3)
|
|
28
|
|
-
|
Depreciation
|
205
|
|
55
|
|
57
|
|
49
|
|
44
|
Total Non-GAAP
Adjustments
|
886
|
|
236
|
|
217
|
|
222
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
adjusted EBITDA for Extended Warranty segment
|
$
|
5,497
|
|
$
|
1,667
|
|
$
|
1,796
|
|
$
|
1,257
|
|
$
|
778
|
|
|
(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)
|
Includes one month of
PWI operating income. Excludes the impact of final purchase
accounting adjustments which will be completed in 2021.
|
View original
content:http://www.prnewswire.com/news-releases/kingsway-reports-fourth-quarter-and-full-year-2020-results-301256981.html
SOURCE Kingsway Financial Services Inc.