ITASCA, ILL., Feb. 28, 2022 /PRNewswire/ - (NYSE: KFS)
Kingsway Financial Services Inc. ("Kingsway" or the "Company")
today announced its operating results for the twelve months ended
December 31, 2021, which include the
following highlights:
- Net income improved to $1.9
million for the twelve months ended December 31, 2021, from a net loss of
($5.4) million for the same period in
2020, despite the fact the Company recorded a non-cash, cumulative
adjustment to net income of $0.5
million in the September 2021
quarter relating to its finalization of the purchase accounting for
PWI (see further discussion in the annual shareholder letter)
- Non-GAAP adjusted income grew to $11.7
million for the twelve months ended December 31, 2021, compared to a non-GAAP
adjusted loss of ($0.6) million for
the same period in 2020
- The Company acquired Ravix Financial Inc. ("Ravix") on
October 1, 2021. For the fourth
quarter of 2021 the net income and non-GAAP adjusted income results
above include those of Ravix, which is included in the Company's
newly-formed Kingsway Search Xcelerator segment
- Extended Warranty segment operating income increased to
$12.6 million for the twelve months
ended December 31, 2021 compared to
$6.6 million for the same period in
2020, despite the fact the Company recorded a non-cash, cumulative
reduction to revenue of $1.9 million
– which had a corresponding reduction to operating income – in the
September 2021 quarter relating to
its finalization of the purchase accounting for PWI (see further
discussion in the annual shareholder letter)
- Extended Warranty segment non-GAAP adjusted EBITDA improved to
$13.0 million for the twelve months
ended December 31, 2021, from
$7.5 million for the same period in
2020, despite the fact the Company recorded a non-cash, cumulative
reduction to service fee and commission revenue of $1.9 million – which had a corresponding
reduction to non-GAAP adjusted EBITDA – in the September 2021 quarter relating to its
finalization of the purchase accounting for PWI (see further
discussion in the annual shareholder letter)
- The 2020 results above include only one month of PWI results
given it was acquired on December 1,
2020
"This was a great year for Kingsway", said John T. Fitzgerald, Chief Executive
Officer. "We saw significant operating improvements within
our extended warranty businesses. We added another
high-quality, asset-light business with the acquisition of Ravix
Financial Inc. through our Kingsway Search Xcelerator program, and
at year-end we finalized the acquisition of RoeCo Lafayette, LLC
demonstrating our continued focus on tax advantaged credit-tenant
real estate investments. Throughout the year we made
considerable progress in growing our business while simultaneously
monetizing legacy assets and keeping non-strategic expenses
in-check."
The Company has published its annual shareholder letter
("Shareholder Letter"), which can be found on the Company's website
at http://bit.ly/kfs2021.
Refer to the Shareholder Letter for a complete reconciliation of
GAAP to non-GAAP measures.
The Company today also filed its 2021 Annual Report on Form
10-K.
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 (Loss)
(in thousands)
(UNAUDITED)
|
|
Twelve
Months
Ended
|
|
|
For the Three
Months Ended
|
|
|
|
12/31/2021
|
|
|
12/31/2021
|
|
|
9/30/2021
|
|
|
6/30/2021
|
|
|
3/31/2021
|
|
GAAP Net Income
(Loss)
|
|
$
|
1,860
|
|
|
$
|
1,443
|
|
|
$
|
(226)
|
|
|
$
|
(256)
|
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss on sale
of non-core investments (1)
|
|
|
(408)
|
|
|
|
(240)
|
|
|
|
(97)
|
|
|
|
(71)
|
|
|
|
-
|
|
Change in fair value
of investments (2)
|
|
|
(2,149)
|
|
|
|
(644)
|
|
|
|
(1,172)
|
|
|
|
(686)
|
|
|
|
353
|
|
Change in fair value
of debt (3)
|
|
|
3,202
|
|
|
|
1,033
|
|
|
|
412
|
|
|
|
738
|
|
|
|
1,019
|
|
Change in fair value
of earn-out (4)
|
|
|
263
|
|
|
|
263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Litigation expenses
(5)
|
|
|
465
|
|
|
|
-
|
|
|
|
121
|
|
|
|
-
|
|
|
|
344
|
|
Acquisition and
disposition related expenses (6)
|
|
|
387
|
|
|
|
300
|
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
Employee termination
and recruiting expenses (7)
|
|
|
160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160
|
|
Stock-based
compensation expense (8)
|
|
|
3,700
|
|
|
|
692
|
|
|
|
574
|
|
|
|
735
|
|
|
|
1,699
|
|
CMC Settlement
(12)
|
|
|
(645)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(645)
|
|
Amortization
expense
|
|
|
4,901
|
|
|
|
1,476
|
|
|
|
2,432
|
|
|
|
496
|
|
|
|
497
|
|
Total Non-GAAP
Adjustments
|
|
|
9,876
|
|
|
|
2,880
|
|
|
|
2,357
|
|
|
|
1,212
|
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
Income (Loss) (13)
|
|
$
|
11,736
|
|
|
$
|
4,323
|
|
|
$
|
2,131
|
|
|
$
|
956
|
|
|
$
|
4,326
|
|
|
|
Twelve
Months
Ended
|
|
|
For the Three
Months Ended
|
|
|
|
12/31/2020
|
|
|
12/31/2020
|
|
|
9/30/2020
|
|
|
6/30/2020
|
|
|
3/31/2020
|
|
GAAP Net
Loss
|
|
$
|
(5,41
|
6)
|
|
$
|
(2,478)
|
|
|
$
|
(1,124)
|
|
|
$
|
(1,421)
|
|
|
$
|
(393)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss on sale
of non-core investments (1)
|
|
|
(10)
|
|
|
|
(51)
|
|
|
|
101
|
|
|
|
-
|
|
|
|
(60)
|
|
Change in fair value
of investments (2)
|
|
|
(4,568)
|
|
|
|
(2,193)
|
|
|
|
(1,377)
|
|
|
|
(366)
|
|
|
|
(632)
|
|
Change in fair value
of debt (3)
|
|
|
(1,173)
|
|
|
|
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 gain from
discontinued operations, net of taxes (9)
|
|
|
(6)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
-
|
|
Extraordinary audit
and audit-related expenses (10)
|
|
|
771
|
|
|
|
-
|
|
|
|
76
|
|
|
|
305
|
|
|
|
390
|
|
Loss on
extinguishment of debt (11)
|
|
|
851
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMC Settlement
(12)
|
|
|
1,603
|
|
|
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of
assets
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
Amortization
expense
|
|
|
2,290
|
|
|
|
572
|
|
|
|
572
|
|
|
|
573
|
|
|
|
573
|
|
Total Non-GAAP
Adjustments
|
|
|
4,866
|
|
|
|
3,890
|
|
|
|
687
|
|
|
|
904
|
|
|
|
(615)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
(Loss) Income (13)
|
|
$
|
(550)
|
|
|
$
|
1,412
|
|
|
$
|
(437)
|
|
|
$
|
(517)
|
|
|
$
|
(1,008)
|
|
(1)
|
Represents realized
gains and losses on the Company's non-core investments. The Company
has determined that realized gains and losses relating to its Argo
investment fund are core to its strategic operations; therefore,
Argo realized gains and losses have been removed from this line
item, resulting in immaterial increases to prior period
amounts.
|
(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.
|
(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)
|
As part of the Ravix
acquisition, the sellers have the opportunity to earn up to $4.5
million over three years from the acquisition date. The
earn-out is measured at fair value each quarter, with changes in
fair value recorded as other income or expense.
|
(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)
|
Includes charges
relating to severance and consulting agreements pertaining to
former key employees.
|
(8)
|
Non-cash expense
arising from the grant and modification of stock-based awards to
employees. Q4 2021 includes new includes new grants to certain
officers of the Company, as well as a new grant to the President of
one of the Company's subsidiaries. Q1 2021 includes new
grants to certain officers of the Company, a portion of which
vested upon grant. In Q4 2020, the Company modified an award
previously granted to the President of one of its subsidiaries,
resulting in additional non-cash compensation expense associated
with the change in fair value of the award.
|
(9)
|
Includes gains
relating to 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. In 2021, the Company recorded a benefit
related to the finalization of management fees and legal expenses
associated with the settlement of CMC litigation.
|
(13)
|
Includes a benefit of
$2.5 million and $0.4 million from PPP loan forgiveness for the
three months ended March 31, 2021 and December 31, 2020,
respectively.
|
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
|
|
|
|
12/31/2021
|
|
|
12/31/2021
|
|
|
9/30/2021
|
|
|
6/30/2021
|
|
|
3/31/2021
|
|
GAAP Operating
Income for Extended
Warranty segment (1) (2)
|
|
$
|
12,636
|
|
|
$
|
3,327
|
|
|
$
|
1,400
|
|
|
$
|
2,600
|
|
|
$
|
5,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
(3)
|
|
|
203
|
|
|
|
52
|
|
|
|
66
|
|
|
|
42
|
|
|
|
43
|
|
Gain (loss) on sale of
core investments (4)
|
|
|
14
|
|
|
|
19
|
|
|
|
(18)
|
|
|
|
1
|
|
|
|
12
|
|
Depreciation
|
|
|
215
|
|
|
|
95
|
|
|
|
55
|
|
|
|
53
|
|
|
|
12
|
|
Total Non-GAAP
Adjustments
|
|
|
432
|
|
|
|
166
|
|
|
|
103
|
|
|
|
96
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for Extended
Warranty segment (1)
|
|
$
|
13,068
|
|
|
$
|
3,493
|
|
|
$
|
1,503
|
|
|
$
|
2,696
|
|
|
$
|
5,376
|
|
|
|
Twelve
Months
Ended
|
|
|
For the Three
Months Ended
|
|
|
|
12/31/2020
|
|
|
12/31/2020
|
|
|
9/30/2020
|
|
|
6/30/2020
|
|
|
3/31/2020
|
|
GAAP Operating
Income for Extended
Warranty segment (2)
|
|
$
|
6,604
|
|
|
$
|
3,264
|
|
|
$
|
1,205
|
|
|
$
|
1,285
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
(3)
|
|
|
395
|
|
|
|
51
|
|
|
|
100
|
|
|
|
100
|
|
|
|
144
|
|
Gain (loss) on sale of
core investments (4)
|
|
|
95
|
|
|
|
(3)
|
|
|
|
29
|
|
|
|
8
|
|
|
|
61
|
|
Impairment of
assets
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
Depreciation
|
|
|
280
|
|
|
|
112
|
|
|
|
58
|
|
|
|
55
|
|
|
|
55
|
|
Total Non-GAAP
Adjustments
|
|
|
887
|
|
|
|
160
|
|
|
|
187
|
|
|
|
163
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted
EBITDA for Extended
Warranty segment
|
|
$
|
7,491
|
|
|
$
|
3,424
|
|
|
$
|
1,392
|
|
|
$
|
1,448
|
|
|
$
|
1,227
|
|
PWI operating income
(5)
|
|
|
5,474
|
|
|
|
914
|
|
|
|
1,096
|
|
|
|
2,214
|
|
|
|
1,250
|
|
PWI depreciation
(5)
|
|
|
69
|
|
|
|
30
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
Pro forma Non-GAAP
adjusted EBITDA for
Extended Warranty segment
|
|
$
|
13,034
|
|
|
$
|
4,368
|
|
|
$
|
2,501
|
|
|
$
|
3,675
|
|
|
$
|
2,490
|
|
(1)
|
Three months ended
9/30/2021 and twelve months ended 12/31/2021 includes a $1.9
million non-cash, current period cumulative reduction to service
fee and commission revenue relating to the finalization of the PWI
purchase accounting.
|
(2)
|
Includes one month of
PWI operating income for the three months ended December 31, 2020
and excludes PWI for prior periods. Also includes a benefit of $2.2
million and $0.4 million from PPP loan forgiveness for the three
months ended March 31, 2021 and December 31, 2020,
respectively.
|
(3)
|
Investment income
arising as part of Extended Warranty segment's minimum holding
requirements
|
(4)
|
Realized Gains
(losses) resulting from investments held in trust as part of
Extended Warranty segment's minimum holding requirements
|
(5)
|
Includes amounts
related to PWI prior to acquisition (October 2019 through November
2020).
|
View original
content:https://www.prnewswire.com/news-releases/kingsway-reports-full-year-2021-results--publishes-annual-shareholder-letter-301492102.html
SOURCE Kingsway Financial Services Inc.