Kingsway Financial Services Inc

Roundhouse, Advanced Plumbing and Drain, and the HR team. We are excited to welcome all three to the KSX segment and to the Kingsway family. On August 14th, we completed our 12th KSX acquisition with the purchase of Southside Plumbing for a purchase price of $5.625 million plus a potential earn-out of up to $1.125 million for a total maximum purchase price of $6.75 million. At the time of acquisition, Southside Plumbing's unaudited pro forma annual revenue was $4 million, and its unaudited pro forma annual adjusted EBITDA was $900,000. Based in Omaha, Nebraska, Southside Plumbing is a leading provider of commercial and residential plumbing services. This transaction, which was sourced and led by Rob Casper, President of Skilled Trades, marks the third edition under our Kingsway Skilled Trades platform in 2025. We believe that Southside Plumbing has significant potential to accelerate growth through expanded marketing efforts and new service lines and to increase the proportion of sales that are recurring or reoccurring given the strong momentum in its service and repair operations. The Southside team has earned an exceptional reputation in its market for quality and service driving consistently robust growth in its core business. We are thrilled to partner with Josh Gruen, who is remaining with the company as president and maintaining an economic interest, ensuring an alignment of incentives and continuity of leadership. We look forward to supporting Josh and his team in upholding Southside Plumbing's longstanding legacy of excellence and reliability. Subsequent to quarter end, on October 20th, we welcomed Colter Hanson as our newest operator in residence, or OIR. His combination of military leadership, strategic consulting experience, and a passion for entrepreneurship make him an exceptional fit for our platform. Colter will conduct his search out of Minneapolis, where he intends to pursue an acquisition in the testing, inspection, and certification sector with a focus on the Midwest. Year to date, we have now acquired six high-quality asset light services businesses, exceeding our target of three to five per year. While that range remains an important benchmark, it is worth noting that it serves as a target, not a cap. Our primary objective is to remain disciplined investors focused on quality opportunities that meet our strict acquisition criteria and we continue to see a robust pipeline of attractive opportunities. With the addition of Coulter, we currently have three OIRs actively searching for our next platform acquisitions, in addition to our other KSX businesses, which are, in many cases, evaluating potential tuck-ins and inorganic growth opportunities themselves. We are energized by the pace and quality of acquisition activity. Finally, as of quarter end, our trailing 12-month adjusted run rate EBITDA for the businesses we own stands at approximately 20.5 million to 22.5 million. This metric provides a view of how the company would have performed over the last 12 months if Kingsway had owned all of our current businesses for that entire time. Gap results, in contrast, only capture the performance of acquired businesses from their respective close dates onward. We believe this metric is particularly relevant during periods of high M&A activity like the past few years and better reflects the run rate earnings power of our current portfolio of businesses. It's important to call out that in calculating this metric, we are not using modified cash EBITDA for our extended warranty businesses. As we have discussed in previous earnings calls, Many in the extended warranty industry, including our management team here at Kingsway, prefer to use a metric called modified cash EBITDA when assessing and valuing extended warranty businesses. This is because under GAAP accounting, growing extended warranty businesses often see their EBITDA penalized while shrinking extended warranty businesses often see their EBITDA boosted due to timing differences in how revenue and expenses are recognized. Kingsway's extended warranty businesses are in growth mode. Cash sales in our extended warranty businesses accelerated from up 9.2% year-over-year in Q2 to up 14.2% year-over-year in Q3. However, due to these timing differences, a gap has opened up between adjusted EBITDA and modified cash EBITDA, which widened further in the third quarter. This can be seen in the company's financial statements, where deferred service fees from extended warranty are up $2.8 million year over year. In addition, hundreds of thousands of dollars of commission expenses associated with issuing new warranty contracts have been booked up front. Over time, these timing differences even out, and adjusted EBITDA and modified cash EBITDA converge. We expect the same to occur for Kingsway. Our management team at Kingsway assesses the company's earnings power by looking at adjusted EBITDA for our KSX segment and modified cash EBITDA for our extended warranty segment. Using this framework, Kingsway today has the highest earnings power from its operations during my tenure as CEO. It's a remarkable place to be, though in many ways it feels like we're just getting started in our journey. To conclude, this was an excellent quarter for Kingsway. We grew overall revenue by 37%. Our KSX segment roughly doubled its revenue and adjusted EBITDA relative to last year, and our extended warranty segment once again performed well with resilient cash flow and accelerating cash sales. We remain focused on disciplined execution, scaling our KSX portfolio, and supporting our operator CEOs to deliver sustainable long-term growth. With that, I'll turn the call over to Kent for a closer look at our third quarter financial performance. Kent, over to you.

Thank you, JT, and good afternoon, everyone. For the third quarter, consolidated revenue was $37.2 million, an increase of 37% compared to $27.1 million in the prior year. Adjusted Consolidated EBITDA was $2.1 million for the three months ended September 30, 2025, compared to $3 million in the prior quarter. In our KSX segment, revenue increased by 104% to $19 million in Q3, up from $9.3 million in the same quarter a year ago. Adjusted EBITDA for KSX increased 90% to $2.7 million compared to $1.4 million in the year-ago quarter. Moving to our extended warranty segment, revenue increased by 2% to $18.2 million in the quarter, up from $17.8 million in the prior year period. Adjusted EBITDA for extended warranty was $800,000 in the current quarter compared to $2.1 million a year ago. As JT discussed earlier, however, the extended warranty segments modified cash EBITDA, a key industry metric, that more closely reflects the cash flow dynamics of warranty businesses was resilient as our extended warranty businesses continued to perform well. The improvement in cash sales in our extended warranty segment reinforces our confidence that GAAP earnings will recover over time as deferred revenue from our recent cash sales is recognized. Overall, the extended warranty segment remains cash generative and well positioned for continued success. Turning now to the balance sheet and the capital structure. As of September 30, 2025, the company had $9.3 million in cash and cash equivalents, up from $5.5 million at year-end 2024. Total debt was $70.7 million at quarter-end, compared to $57.5 million as of December 30, 2024. Our September 30 debt is comprised of $55.8 million in bank loans, $1 million in notes payable, and $13.1 million in subordinated debt. Net debt, or debt minus cash, at quarter end was $61.4 million, up from $52 million at year end 2024. The increase in net debt is primarily related to additional borrowings related to the recent acquisitions of Roundhouse and Southside Plumbing. I'll now turn the call over to JT for a few final thoughts before we open the line for questions. JT?

Thanks, Ken. To close, I'd like to express my thanks and appreciation to Kingsway's employees, partners, and shareholders. We have an amazing team, a wonderful set of operating businesses, and both KSX and Extended Warranty are performing well. This really was an exceptional quarter. The business and financial momentum is tangible, and we are positioned to finish the year strong. I'll now turn the call back over to the operator to open the line for questions. Morgan?

At this time, we will conduct the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad now, and you will be placed in the queue in the order received. Once again, to ask a question at this time, please press star then the number one on your telephone keypad now. Your first question comes from Mitch Wyman with Sumner Financial. Your line is open.

Hi, JT. Congrats on a great quarter.

Hi, Mitch.

How you doing?

Doing great.

Thank you.

So, question for you. With the current environment with all the uncertainty regarding Medicare and reimbursements and everything, how is that going to affect secure nursing and digital diagnostics? Because you hear a lot of anecdotal evidence that hospitals are going to be having some issues going forward here.

Yeah, I think we've seen that certainly at SNS. We mentioned that customer bankruptcy at the end of last year. I think some of that has to do with the pressure that they're feeling from kind of reimbursement pressure. And so I think it's, you know, kind of looking at each one of those businesses independently. If you start with SNS, I think a real focus on the types of hospitals where we're placing nurses, right? So I think that the most sensitive would obviously be where, you know, the predominant number of your patients are Medicare, Medicaid. And I think that that's, you know, even more acute in some of the more rural hospital settings. I think we feel pretty good about our hospital mix at SNS in terms of both the payer mix and sort of geography and the type of profile of the people that are coming in and their balance sheets and budgets. And a lot of that stuff is publicly available. I think that these hospitals have to file their financials. And so Charles, you know, when he's thinking about new hospital relationships or existing relationships is sort of acutely aware of that and checking the financial positions of his hospital customers. So certainly something to monitor. But I think, yeah, I think hospitals are under quite a bit of pressure. With DDI, I think, you know, these are outpatient rehab and long-term acute care hospitals. I think a little bit less exposure to Medicare and Medicaid and certainly something, you know, after the experience at SNS, something that Peter is very focused on as well in terms of customer selection and credit. extension, right? So something we'll continue to keep an eye on.

Okay. Thank you.

Once again, in order to ask a question at this time, please press star, then the number one on your telephone keypad. Your next question comes from Scott Miller with Greenhaven Road Capital. Your line is open.

Hey, JT. Congratulations on all the progress.

Thanks, Scott. Yeah.

It basically seems like the key to this business is buying at reasonable multiples, doing it repeatedly, and then driving organic growth. And the first two pieces, you've been buying at reasonable multiples. I think you've done seven deals this year. So the repetition seems plausible. The organic growth, you called it out, I think, in the press release. Can you talk a little bit about kind of The type of organic growth you're seeing, what you think is possible, how it might differ across businesses?

Yeah, great question. Certainly organic growth is a key component of the flywheel, right? That you grow the cash flows of the businesses you own organically and then redeploy that capital to do more acquisitions either at that business or elsewhere. in some of our activities. And I think that you touched on it. I would add that your ability to attract talent is a key part of the equation as well.

Oh, by the way, your latest guy is incredible. I mean, whatever. Yes.

Yeah. And so organic growth is a key part of the thesis. And it goes into our underwriting as we go into these things, trying to buy businesses in industries where there is long-term secular trends and wind at your back. And we also recognize that you're buying small businesses and that need to be professionalized. They need to come into a public company context and filing and all of those things. And so for the first, you know, many quarters, there is a significant investment in operating expense and those kinds of things to bring the talent, the systems, the technology into those companies to build a platform to support organic growth, right? A lot of times these things, these businesses are operating on the margin and aren't, you know, aren't scalable effectively because they don't have the robust systems and processes and people in place to allow that to happen without making mistakes, right? And so we go in, and this is that whole J-curve concept, right, that we bring in an inexperienced operator, they have to get up their own experience curve, and we invest in these businesses, bring in new people, invest in the companies and their accounting and their HR and their technology systems, in sales and marketing, et cetera, depending on the business, to prepare them to grow. And so as we mentioned with DDI and Image Solutions, they've been on that journey and now are starting to emerge and accelerate growth. And I think that we would expect to see that pattern play out in every instance. I think in terms of individual company potential, I think it depends on the industry. and underlying industry dynamics, but I would say that we ought to be targeting high single-digit organic growth potential at all of the businesses we acquire.

Got it. That's very helpful. Can you talk a little bit about Image Solutions and what's driving the progress there? Yeah.

Yeah, sure. I mean, obviously, Image Solutions had a very steep early J curve because in addition to all of the things that I talked about, they had to weather a pretty significant hurricane and the disruption of the business across all of Western North Carolina and things. But Davide has done an awesome job. He got in there, got his hands around that, built real trust and support with the team, has added to the team, brought in some exceptional people to really professionalize their ITMSP platform, new technology, et cetera, and is now investing in sales leadership to drive new account, recurring revenue accounts in the ITMSP and get that business growing. And so he kind of got through business disruption, onboarded some great people, built an built an operating plan, assigned accountability to the various people to execute that plan, and you're starting to see the benefits of that coming through the business now. And so he's sort of exiting his J curve and in growth mode.

And how big could a business like that be? Are there any, like, what's the ceiling on something like that?

Sorry, you broke up kind of halfway through.

How big could a business like that be? Like, what's the ceiling on a business like Image Solutions?

Well, look, I mean, I think that one of the things, and each one of these businesses, each also has the potential to be their own grower inorganically as well, right? And so ITMSP, very large industry in North America, growing at high single-digit secular growth rate. but also very fragmented. And so, you know, as Davide has gotten through his J curve, he's been de-levering and building cash. And so I think in addition to just organic growth, that there will be a potential there to do additional capital allocation, things like inorganic growth and buying tuck-ins and really scaling that business. And so, you know, I think there's a big opportunity, but we want to do it in a very equity capital efficient way.

Got it. I think my last question is actually in vertical market software. Can you talk a little bit about the acquisition you guys made there? It seemed like it was an interesting setup in terms of there aren't a lot of players in the industry. I think you just took one out. I think you bought well. Can you talk a little bit about how that deal came to be and what you think it looks like going forward?

Yeah. So the original acquisition, so it's run by a young guy named Drew and Drew acquired the business from the widow of the founder, built a relationship with her and we were able to buy a great business with a long history and super loyal customers, mission critical software, kind of operating system of record for their customers and was able to structure a deal that you know, was attractive for us and attractive for the sellers as well. Continuity and, you know, continued legacy, et cetera. And then more recently, he did a small tuck-in acquisition of a small competitor in Australia, which gave him access to that region and some customers. And so, you know, Drew's pulling on all of the levers, right? He's improving the application layer and the technology. He has rolled out a couple of significant upgrades to the core software product and is investing in sales and marketing for new customer acquisition to continue to grow ARR. So he's done a really nice job growing that business and ARR. and did one small tuck-in acquisition. And it's really focused on sort of the organic execution, but also becoming a solid operator in vertical market software with like a longer-term view that that could be a platform to do other interesting niche VMS acquisitions.

All right. Well, that's it for me. Thanks. Keep it up. That's awesome.

Your next question is a follow-up from Mitch Wyman with Sumner Financial. Your line is open.

Two more quick questions. On the OIRs, with the current infrastructure, what is the ideal number in your mind to have on board searching?

Yeah, I mean, I think we're trying to balance being...

super selective with respect to the attributes and background of the people, right? And I think we can be. Our ability to support them to run an effective search and our capital constraints to deploy capital, right, and pacing. And so I would suspect that, you know, this kind of talent flywheel that we're building here As we continue to demonstrate success, we will have access to even more and higher quality OIRs over time, and concurrently, we're building those systems to support more, and the cash flow generation of the businesses hopefully will grow, and we can deploy even more capital. So right now, we like to say three to five at any given time, but I would expect that we could scale that over time as well. Okay.

And then one last question. On the skilled trades platform, you know, we've come out of the gates pretty quick here and, you know, made three acquisitions. How do we look at that going forward? You know, is it going to be it's safe to assume a couple a year? Am I low in assuming that?

I don't want to give any guidance on how many acquisitions we're going to do, but I would say, Mitch, I'm not trying to be cute or dodge the question, but I would say in Rob, we have high attribute OIR qualities, but coupled with deep industry experience. And so we're comfortable really leaning in and doing acquisitions at maybe a faster pace than we would with an operator turned president who's getting up the experience curve. And so I think the pacing is just a little faster there. I think, you know, kind of all of those things coupled with what we see is like a really interesting, exciting opportunity set. Yeah, I think we'll go a little faster than we otherwise would.

Okay. Thank you.

This concludes the audio question and answer portion. I'd like to turn the call over to James for further questions.

Thank you, Operator, for the emailed questions that came in. We'll try to move past ones that may have already been asked. Seeing one that says, can you please discuss how Roundhouse and the plumbing businesses are doing in the first quarter or two since acquiring them?

Yeah, I mean, I think I spoke to that a little bit in the prepared remarks, but, you know, it's early days, but both of them are doing great, right? I think they're both operating, you know, at or above our underwriting plan. We've got really talented young guys in there running the business, Roundhouse, you know, Miles, plus the management team that was there. So we're really excited about the combination of Miles plus Lee, who stayed and rolled equity in the business, and that, you know, their ability to continue to truck ride along without a J curve because Miles has the support of Lee, who's, you know, been an owner and an operator in that business for a long time. And then obviously with Kingsway skilled trades, we, you know, I just was talking about that with Mitch. We've got a very experienced operator. We think we bought great businesses. He's got his playbook and benchmarks and he gets right to work. There's no kind of learning curve there. So yeah, early days, but you know, certainly at or above our original underwriting plan, which makes us happy.

Great. And the next one is cash sales are up a lot in extended warranty. Can you speak to what is leading to this growth?

Yeah, I mean, sort of three different businesses, and maybe just kind of take them in order. Start with Trinity. Yeah, I'd say that Trinity is up modestly, but has higher growth within its ESA segment, which is the warranty segment. So that's encouraging. Peter has invested in a new sales team on the national account side, the vendor managed service side. And he had some large customers that are going through, one of their largest customers is Leslie's Pools. I think many of you probably know what's going on there. So he's been working hard to replace that. And so to still, you know, to have modest growth in light of some of that sort of customer turnover is great. And he's got a great team and they're out executing and adding new customers and new accounts and underlying warranty businesses starting to really truck along as well. So doing great there. The next is IWS. That's our credit union focused business. IWS is doing great. It's a really good business. Six consecutive quarters of growth in cash sales. I think that's a combination of both units and pricing. And the unit driver is they've been adding new credit union partners, ticking over every month. They're adding new credit union partners, and then they onboard them and get more opportunities to sell extended warranty at those credit unions when the credit unions are doing direct loans. So just really nicely chugging along. Great team. Been at that business for a long time. Have a lot of deep industry experience. expertise and knowledge. And like I said, six consecutive quarters of growth in cash sales after, you know, coming off of the pandemic high in 2022, bottomed out probably, you know, kind of mid-2023 and then been chugging along ever since. And then finally, PWI and Geminis, which has seen some significant growth in the third quarter, as many may recall, We transitioned management at the end of the first quarter and brought in Robbie Humble, who is a search accelerator type president, but also has extensive auto warranty experience, so kind of a twofer, sort of like Rob Casper, but for auto warranty. And that business had been declining even in Q1, and almost immediately with Robbie's energy, enthusiasm. He brought some great new people to the team that he had relationships prior to coming over to Kingsway. And that business inflected quickly in Q1, and that cash sales growth actually accelerated pretty significantly in Q2 and Q3. So yeah, I think three different stories there to get all the way back to the original question. But yeah, all of those up, and we're seeing really nice sales growth.

Excellent. And the next one is Kingsway has an interesting structure. Why do you think search works in a public vehicle and what are the advantages versus traditional search?

Okay, kind of a two-parter here. Why does search work in a public vehicle? You know, I think that there are a lot of, maybe not a lot, but there are certainly several public companies that you would describe as serial killers or programmatic acquirers. I think that our model shares a lot of the DNA of other programmatic acquirers. A focus on buying small businesses at reasonable valuations and those businesses have enduring profitability. I think that marrying that model with search is super compelling. One, it sort of gives you access to a very long runway to redeploy capital using this model. I think some of that's demographic. But a lot of it is this exceptional talent that can go and source opportunities, right, really taking advantage of our OIRs as sourcing engines themselves. And then, you know, like I was talking about Scott, you know, many of these searcher-led acquisitions themselves become platforms to do their own organic, so sort of flywheel within a flywheel type concept. So I think it's very compelling. I think it has, you know, programmatic acquisitions have worked. It shares a lot of that sort of common DNA with the added benefit of this talent flywheel concept that I was mentioning when I was talking to Scott. So I absolutely think it works. Second part, with the advantages versus traditional search, you know, I think differentiations, I think, than traditional search where, you know, searcher raises capital from LPs. I think One is, and sort of breaking it into the different phases of search. So you've got the sourcing, the diligence and closing, and then the operating. I think the first would be just sort of trust and track record. And that builds like significant credibility for an OIR when they're talking to business owners who might be sellers. I think it builds tremendous credibility with lender partners during the deal phase to get attractive debt terms and capital. And I think that track record and trust builds a lot of credibility in our ability to attract new OIRs to the platform as well, so talent selection. And then we combine that with really great sourcing tools. That's not unique to being in a public company. It's more like incubated, but you know, in traditional search, you kind of have to start from scratch and build all of this stuff from the ground up. And we have, you know, great sourcing engine and a tech stack to support that. We've got due diligence and lending relationships and lawyers and all of those things that help in the closing. And so speed the time to search and close. And then obviously we're very proud of how we support our operators once they become the president of the business, the operating scaffolding, if you will, of the Kingsway business system, plus our advisory board. And then this expanding peer network of presidents who are all going through the same thing together and sharing best practices across the group. And then finally, I think the permanence of the capital is super unique vis-a-vis traditional search. There's no kind of forced exit for fund life or liquidity motivations. We can own these businesses and compound capital for a very long time. And that's like a unique distinction, I think.

Excellent. Next one is, you mentioned Routhouse and Kingsway skilled trades have performed well since day one and are ahead of budget. What do you attribute that to, and is there a key learning that can be applied to the M&A process going forward?

Yeah, sure. There's learnings in everything. I usually take most of my learnings from failure, but It's good to learn from the good ones, too. You know, first of all, I'd say it's early days, right? But I think that, you know, kind of the unique differentiator of these businesses relative to the other businesses that we've acquired is the operator doesn't have to get up the experience curve. These are, you know, Rob, we've talked about that. Like, he's done this before, and so he can get in and start moving day one. There's not this, you know, 100-day learning campaign and a little bit of trial and error and a few mistakes. Like, he can get in and start making an impact immediately. And I think that that same concept holds at Roundhouse where Lee stayed on. He was, you know, the VP of Ops and president, and he's staying on to help and support Miles. So Miles is just truly additive there. And so I think that that kind of not having to go through the experience J curve is a big part of it. I think those are somewhat unique. I don't think that that's a requirement for ETA or search to work. In fact, it's kind of rare, but it certainly helps. And to the extent that we can partner with OIRs who have deep industry experience and a thesis around buying a business in that industry, we'll definitely do that. And I think that it will... You know, as we think about industries that we're interested in, we're also looking at that as we're talking to potential OIRs to try to match experience with industries we're interested in.

Excellent. Next one is, if image solutions and DDI are exiting their J curves, how do you manage that positive scenario? Let them continue to perform, look for a tuck-in or M&A, increase the investment for organic expansion?

Yeah, I mean, they're two totally different businesses, right? I talked about Image Solutions with Scott. You know, I think that as Image Solutions has gone through its J curve and is exiting, you know, Davide, the company, has been de-levering and building cash. They're in a fragmented market. I would expect that a big part of that story, you know, in the coming quarters will be the opportunity for tuck-in M&A, just a function of the dynamics of the industry. DDI is different. I think that J curve was around this high-growth business that needed to be stabilized and professionalized in order to then go invest in sales and marketing to grow organically. It's kind of a one-of-one in their industry and a large addressable market that has really barely been penetrated. no other, it's not fragmented, it's kind of a one-of-one, and there's a huge organic growth opportunity, and that J-curve was just around stabilize, professionalize, and prepare for scale.

Great, and I see just two more. The first one is, can you speak to the testing, inspection, and certification sector that Coulter will be pursuing, any market sizing and dynamics that you can share, and in success, do you envision that being a platform or non-platform-based strategy?

Yeah, so TIC, you know, large and fragmented with a long tail, probably growing significantly mid to high single digits as an industry, lots of little niches and subsectors. And that growth supported by really nice secular trends, aging infrastructure, regulation. And then there's an element of criticality. These are mission critical, non-discretionary testing, inspection, certification requirements that are often required by law or insurance. And it's also like a small thing into a big thing, right? Low cost of the service relative to high consequence of failure of the asset. And so that is all a very nice setup. And I think certainly the industry has the hallmarks for anything that we do there to be a platform. But ultimately, it would depend on the target we identify and the niche that it's in and I think we go into these things being open to the idea that they become platforms, but need the operator to find the right opportunity, build the operating muscle, and then de-lever a bit so that we can be equity capital efficient, and then explore that. But yeah, I think we would be open to it.

Excellent. And the last one is related, and you may have just answered it. It says, how do you view KSX's search strategy moving ahead to pursue more aggressively platform opportunities or non-platform opportunities, or do you even view them all as platforms?

Yeah, I mean, I think with the exception of KST, which we went in with a very specific thesis around platform and pacing of acquisitions, we have always looked first at the industry dynamics and the business quality, right, to buy a great business. But also with the view that they could become platforms to do inorganic growth. And so if you look at what we've done at Vertical Market Software, we've done a token acquisition there and potential to do more. ITMSP, as we've talked about with Image Solutions, potential to be a platform. And then Timmy, obviously, with outsourced accounting and HR, has done a couple of tuck-in acquisitions, and then there's an opportunity there. So coming all the way back, first underwrite to great industry dynamics and a great business with the optionality of it becoming a platform over time.

Excellent. I don't see any more questions. JT, I'll throw it back to you.

All right, James, thank you. Well, thanks, everyone. I really appreciate it. Great third quarter, and I appreciate your being with us here this afternoon and this evening. That's it for me.

This concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.

The host has ended this call. Goodbye.