Kingsway Financial Services Inc

Good day and welcome to the Kingsway Fourth Quarter 2025 and Full Year Earnings Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. With me on the call are J.T. Fitzgerald, Chief Executive Officer, and Kent Hansen, Chief Financial Officer. Before we begin, I'd like to remind everyone that today's conference may contain forward-looking statements. forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses, and future business outlook. Actual results or trends could differ materially from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Forms 10-K, subsequent Forms 10-Q, and Forms 8-K, filed with the Securities and Exchange Commission. Please note that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release, as well as in the company's periodic filings with the SEC. Now I'd like to hand the call over to J.T. Fitzgerald, CEO of Kingsway. J.T., please proceed.

Thank you, Matt. Good afternoon, everyone, and welcome to the Kingsway earnings call for the fourth quarter and full year 2025. To our knowledge, Kingsway is the only publicly traded U.S. company employing the search fund model to acquire and build great businesses. We own and operate a diversified collection of high-quality services companies that are asset-light, profitable, growing, and that generate recurring revenue. Our goal is to compound long-term shareholder value on a per-share basis, and we believe our businesses can scale due to our decentralized management model and our talented team of operator CEOs. We also continue to benefit from significant tax assets that enhance our returns. In short, Kingsway is uniquely positioned to capitalize on the search fund model at scale within a tax-efficient public company framework. I'm pleased to report a strong fourth quarter and a year of meaningful financial and strategic progress in 2025. During the year, we completed six acquisitions within the KSX segment, launched our skilled trades platform, significantly grew revenues and earnings power, and made meaningful investments in our operating businesses that position Kingsway to accelerate growth in 2026 and beyond. Importantly, and for the first time, Our KSX segment represented a majority of both revenue and adjusted EBITDA in both the third and fourth quarters. For the full year 2025, consolidated revenue grew to $135 million, reflecting both organic growth across our businesses and contributions from recent acquisitions. Consolidated adjusted EBITDA for the year was $7.8 million, and portfolio LTM EBITDA was $22 to $23 million as of December 31st. Kent will provide further detail in his remarks on the portfolio LTM EBITDA metric, which we believe more accurately reflects the trailing 12-month earnings capacity of the company. As you may have noticed in our earnings release this afternoon, Kingsway is budgeting for double-digit organic growth across both KSX and extended warranty. I'm also pleased to reiterate our target of three to five acquisitions in 2026. Our vision at Kingsway is to combine both organic and inorganic growth to drive value creation. And before we get into the details of our 2025 performance, I wanted to share why I am comfortable with these targets and optimistic about where the company is headed. First, it's worth noting that our annual budgeting process is comprehensive. evaluating each business one by one and then setting realistic performance targets for the coming year. The goal is not to underestimate or overestimate. It is to forecast as accurately as we can with a high confidence interval what the performance of each business is likely to be in the year ahead. The outcome of our process this year is a budget for strong organic growth across both our segments. It's worth a few words on why we are confident in this forecast. In KSX, it starts with the characteristics of the businesses we own. Our strategy is to purchase companies with recurring revenues, fragmented customer bases, and strong secular growth tailwinds. We then match these businesses with talented operator leaders who are motivated and incentivized to drive performance. A few examples highlight the growth prospects for our portfolio. Roundhouse, our most profitable KSX operating business, services electric motors for natural gas compression and transmission infrastructure in the Permian Basin, the most productive hydrocarbon-producing area in the world at a moment when domestic energy infrastructure is expanding at significant scale. The demand for reliable motor maintenance and repair in that environment is essential, growing, and structurally undersupplied. Roundhouse was a high-growth business before we acquired it in the middle of last year and is already tracking ahead of our acquisition underwriting. For Image Solutions and Kingsway Skilled Trades, 2025 was an investment year that positioned both companies for growth in 2026. Image Solutions invested heavily in expanding its business development team in the first half of the year, which temporarily depressed profitability as the sales team ramped up. That rebuilding is complete. The team is in place, the pipeline is developing, and the early results are encouraging. We are excited for where this business is headed under the leadership of Operator CEO Davide Zanchi. Kingsway Skilled Trades has followed a similar path. Bud's Plumbing, its first acquisition, went through an initial investment period and is now going from strength to strength ahead of our expectations. AAA and Southside, which were acquired in the back half of 2025, have received significant investment in recent months and are poised to follow in the footsteps of Bud's as we progress into 2026. We see potential for both robust top-line and bottom-line growth in these businesses in the year ahead. When I look across the KSX portfolio, I see companies with not only attractive business characteristics and talented leadership in place, but also with strong secular growth trends supporting them. That context is important as we think about our 2026 growth targets. In extended warranty, our businesses achieved double-digit cash sales growth in the back half of 2025 at a time when claims costs were also moderating. Excuse me. We are anticipating a much improved 2026 for our extended warranty businesses. Turning to inorganic growth, we are pleased to have completed six strategic acquisitions in 2025. Our acquisition pipeline remains robust, and I'm pleased to reiterate our target for three to five acquisitions during the coming year. We got off to a fast start in January, completing our first transaction of 2026 via our subsidiary Ravix's acquisition of Ledgers, Inc. Ledgers is a leading provider of outsourced bookkeeping and accounting services serving nonprofits and small and mid-sized businesses primarily in the Midwest. This addition diversifies Ravix's revenue foundation and expands its geographic reach while bringing a strong base of recurring revenue and an experienced team that fits well with Ravix's service-first culture. We see meaningful opportunities to enhance value through cross-selling and continued organic growth, and we are excited about the role ledgers will play as we continue scaling Ravix into a leading provider of finance and accounting solutions. Underpinning our confidence in our transaction pipeline is our dual track approach to finding great companies to acquire. First, our operators and residents are dedicated to sourcing, evaluating, and executing our M&A activity. are active searchers, each focused on identifying new platform and standalone acquisitions that meet our asset-light recurring revenue and structural growth criteria. Second, our owned businesses can pursue tuck-in acquisition activity within our existing platforms. The HR team and ledgers at Ravix, Viewpoint at SPI, and Bud's Southside and AAA at Skilled Trades are all examples of our operator CEOs identifying and executing acquisitions within the businesses they run. That activity is not dependent on the OIR pipeline. It runs in parallel. It compounds the value of the platforms we've already built, and in many cases, it produces faster integrations and better returns because the acquiring operator already understands the market. When you look at our 2025 acquisition activity in that context, six transactions across both tracks, It reflects a model that is generating deal flow from multiple sources simultaneously, exactly how we designed it. To summarize, 2025 was a year of disciplined execution. We expanded the portfolio through the six acquisitions, launched a new platform in skilled trades, and strengthened our existing businesses with targeted tuck-ins at Ravix SPI and skilled trades. The compounding effect of those investments is reflected in portfolio LTM adjusted EBITDA of 22 to 23 million. As we look forward to 2026, we expect both double-digit organic growth and a steady cadence of inorganic growth to underpin our value creation aspirations. We enter the year with momentum, a diversified set of growth levers, and an active M&A pipeline across both our searchers and our platform operators. With that, I'll turn the call over to Kent for a more detailed review of the financials.

Great. Thank you, J.T., and good afternoon, everyone. Total revenue for the quarter was up 30.1% to $38.6 million and up 23.4% to $135 million for the year. Consolidated net loss for the quarter was $1.6 million and $10.3 million for the full year. consolidated adjusted EBITDA for the quarter was $2.7 million and $7.8 million for the year. Within our KSX segment, revenue increased by 63.6% to $20.3 million for the quarter and was up 58.5% to $64.2 million for the year. KSX adjusted EBITDA rose by 28.6% to $2.5 million for the quarter and and was up 40.8% to 9.5 million for the year. It is worth noting here that while KSX adjusted EBITDA declined slightly from Q3 to Q4, this is the result of seasonality in our plumbing businesses and roundhouse, which typically have their lowest seasonality profitability during the winter and their seasonality best quarters in Q2 and Q3. Turning to extended warranty, Revenue increased 6.1% to $18.3 million for the quarter and was up 2.8% to $70.8 million for the year. Cash sales were up 11% for the quarter and 9% for the year. IWS, which sells warranty products exclusively through credit unions, continued to perform well with cash sales up 10% year-over-year. Total extended warranty claims moderated in 2025 and were up 4.4% for the year, compared to an increase of 6.3% in the prior year, primarily due to inflation on parts and labor, as the number of claims was slightly lower in 2025 than 2024. Overall, extended warranty is performing well, cash sales are robust, and the segment is positioned for improved performance in the periods ahead. Turning now to the balance sheet and the capital structure. As of December 31, 2025, the company had $8.3 million in cash and cash equivalents, up from $5.5 million at year-end 2024. Total debt was $70.7 million at the end of 2025, compared to $57.5 million as of December 31, 2024. Our year-end 2025 debt is comprised of $55 million in bank loans, $2 million in notes payable, and $13.7 million in subordinated debt. Net debt, or debt minus cash at year end, was $62.4 million, up slightly from $61.4 million at the end of 2024. The increase in net debt is primarily related to additional borrowings related to the recent acquisitions of Roundhouse and Southside Plumbing, partially offset by continued debt amortization payments. I'd like to conclude by sharing additional detail on the portfolio LTM adjusted EBITDA metric that JT referenced earlier. Following a review, we concluded it made sense to update our portfolio earnings metric for two reasons. First, we received feedback that the name run rate adjusted EBITDA was confusing for investors. The metric actually describes trailing 12-month performance, not a forward run rate. Second, For the extended warranty segment specifically, we have always evaluated performance internally using modified cash adjusted EBITDA, and it didn't make sense to report one metric externally while managing to a different one internally. Importantly, our lenders also use the modified cash adjusted EBITDA metric when assessing the operating performance of our extended warranty businesses. Aligning our internal and external reporting metrics eliminates any disconnect, and provides investors a clearer view of how we actually run and evaluate the business. Portfolio LTM adjusted EBITDA represents the pro forma trailing 12-month performance of our operating businesses and is calculated using adjusted EBITDA for KSX and modified cash adjusted EBITDA for extended warranty. Modified cash reflects timing differences between GAAP revenue recognition and GAAP commission expense to the timing of cash receipts and cash commission expense associated with warranty contracts, as well as an adjustment to investment income for the difference between actual book yield and current market yield. No other adjustments are made. For clarity, modified cash adjusted EBITDA defers only the portion of contract premium needed to pay claims over the life of the underlying contract and does not defer any commission expense. We believe this change better aligns our external disclosure with how management and our lenders evaluate the performance of the extended warranty business, provides a clearer view of the operating performance of Kingsway's portfolio of businesses, and is consistent with the metric used in our credit agreements for financial covenant purposes. I'll now turn the call over to JT for a few final thoughts before we open the line for questions. JT?