Kingsway Financial Services Inc

Good day and welcome to the Kingsway Second Quarter 2026 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. For 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 the Forms 10-K and the 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 would like to hand the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

Thank you, Matthew. Good afternoon, everyone, and welcome to the Kingsway earnings call for the second quarter of 2026. 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 business 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. At Kingsway's Investor Day in May, we talked about the encouraging commercial momentum we are seeing across our business. It is gratifying today to report an exceptional second quarter that came in significantly ahead of internal expectations and that represented the strongest quarter of operating performance since my tenure as Kingsway's CEO. Our Kingsway Search Accelerator segment, or KSX, delivered a quarterly record $4.3 million in adjusted EBITDA. Performance was broad-based across the KSX portfolio, with Ravix and SPI producing particularly good results, supported by customer wins and excellent client retention. KSX adjusted EBITDA has more than tripled over the last eight quarters, as we scale our public search fund strategy. Our extended warranty business also had a strong quarter with robust performance at both IWS and PennPWI. IWS is a wonderful business and continued its record of solid execution, growth, and cash flow generation in the second quarter. PennPWI, which is led by KSX style operator CEO, Robbie Humble, has made profitable growth a key point of emphasis in 2026. This quarter showed PennPWI is making tangible progress against this objective as its financial results came in nicely ahead of internal expectations. Adjusted EBITDA for the extended warranty segment was 1.1 million and lender-defined modified cash adjusted EBITDA, which is used as the basis for financial covenant calculations under the company's credit agreements was $2.9 million in the quarter. As a management team, we evaluate the company's performance by looking at portfolio EBITDA, which is adjusted EBITDA in our KSX segment plus modified cash adjusted EBITDA in our extended warranty segment. Portfolio EBITDA of $7.2 million in the quarter is a new quarterly record. We are highly encouraged by this result. But even in a great quarter, it feels like there is still so much more to achieve. Roundhouse and Kingsway Skilled Trades typically benefit from seasonality in the second quarter relative to the first. In 2026, however, both businesses reported flat quarter over quarter adjusted EBITDA from Q1 to Q2. Roundhouse's second quarter financial performance was impacted predominantly by timing issues. Just one example is an electric motor originally expected to ship by the end of June ended up shipping on July 1, deferring several hundred thousand dollars of revenue from Q2 to Q3. Roundhouse continues to grow, to win new customers, and to make strategic and operational progress. And we remain confident regarding where this business is headed in the quarters to come. At Kingsway Skilled Trades, Bud's Plumbing had a great quarter, and AAA showed solid improvement, but Southside continued to face the headwind and distraction of a legacy construction project that resulted in a low six-figure write-down in Q2. We anticipate this project will be wrapped up in the coming weeks. Putting this project in the rearview mirror should serve as a nice financial tailwind to Kingsway Skilled Trades in Q3 and beyond. As previously shared, 2026 is a transition year financially for DDI. Following our purchase of the business, DDI invested heavily in its operations, including building out a second control center and improving detection rates, response times, and service availability. This year, DDI has invested in its sales motion, resulting in a customer pipeline that is now at a record level. That said, there is a natural sales cycle in the business, with sales expense hitting the P&L right away while customer wins filter in over time. We are optimistic DDI is taking the right steps and is well-placed to accelerate growth in the next several quarters. Finally, SNS has had a challenging operating performance since Kingsway's acquisition of the business as the nurse staffing industry has endured a difficult post-COVID down cycle. After years spent wrestling with this industry dynamic, operator CEO Charles Mokuwalu stepped away from SNS at the end of May by mutual agreement with Kingsway. We thank Charles for all his efforts on behalf of Kingsway and wish him the very best in the next chapter of his career. Paul Vidal, one of Kingsway's operators and residents, agreed to lead SNS, and we have been pleased by his energy, fresh ideas, and operating discipline. It also appears the nurse staffing industry may have begun to stabilize in recent months and perhaps even to grow again. We are cautiously optimistic that under Paul's leadership and with an improving industry backdrop, S&S may finally be turning the corner. What I think these examples show is that Kingsway is doing well, but there is so much more to accomplish. We are not yet firing on all cylinders. There are many opportunities to accelerate growth and to further improve profitability across our portfolio. Kingsway is only at the beginning of our journey. Turning now from financial performance to strategy, the second quarter was eventful for Kingsway. On May 11, we announced the sale of Trinity Warranty Solutions for $8 million, or 9.2 times 2025 adjusted EBITDA, and a management buyout transaction, including $5 million paid up front and $3 million paid out over time, subject to discounts for early prepayment. That capital is now available to redeploy in our KSX segment. CEO of Trinity, Peter DeChaos, has been a wonderful partner to Kingsway for many years, and we wish Peter and his entire team every success in the future. On May 15th, Kingsway announced the appointment of Coulter Hansen as president of Kingsway Skilled Trades. Coulter has hit the ground running while demonstrating his commitment to operational excellence and service leadership. Kingsway Skilled Trades is in good hands with Coulter at the helm. On May 18th, Kingsway hosted its annual Investor Day at the New York Stock Exchange. We were thrilled to be joined by operator CEOs Davide Zanchi from Image Solutions and Miles Mammon from Roundhouse, as well as by KSX Advisory Board member Tyler Gordy for a fireside chat. I encourage anyone seeking to learn more about Kingsway to watch the replay of our Investor Day, which is posted on our website. On May 19th, after receiving 99.7% support from shareholders, Kingsway officially changed its name to Kingsway Corporation. and its stock ticker to KWY. Just a few days ago, on August 3rd, we were pleased to welcome Fletcher Vine as our newest operator in residence. Fletch was captain of the varsity baseball team in college before serving eight years in the U.S. Navy as an F-18 naval aviator, including planning and leading more than 40 combat missions over Iraq and Syria and earning two air medals. He then transitioned to the private sector by way of Haas School of Business at UC Berkeley, where he graduated with honors. After earning his MBA, Fletch was a consultant at Boston Consulting Group before joining Risk Mitigation Consulting, or RMC, a cybersecurity and critical infrastructure services firm as a senior executive. RMC was a search backed firm that had a successful exit earlier this year, and Kingsway is thrilled to support Fletch as he seeks an acquisition of an asset-light, tech-enabled services business with recurring revenue. Welcome to the team, Fletch. And finally, earlier today we announced that Kingsway's wholly-owned subsidiary, Image Solutions, closed the acquisition of Romeo Computer Company, or RCC, effective August 1st. RCC is a leading provider of managed IT and cybersecurity solutions based in the state of Michigan with a retiring founder who is looking for a long-term home for his business. The acquisition expands Image Solutions' geographic footprint into Michigan and the upper Midwest and is a strong cultural fit given RCC's service-first approach and long-tenured customer relationships. RCC generated approximately $2.5 million of unaudited pro forma revenue and approximately half a million of unaudited pro forma adjusted EBITDA and the 12 months ended April 30th, 2026. Purchase price was $2.4 million. RCC has achieved double digit annual organic top line growth in recent years and we are thrilled to support RCC's future growth ambitions and welcome RCC to the Kingsway family. Before turning the call over to Kent for a financial review, I would like to highlight that LTM portfolio EBITDA remained stable relative to last quarter at $22 to $23 million, even after subtracting a net $400,000 as a result of M&A activity related to RCC and Trinity. with easier year over year comparisons in the third and fourth quarters of 2026, I am confident in the positive trajectory of this metric in the back half of the year. Kingsway is also today reaffirming the company's targets of three to five acquisitions in 2026 and for double digit organic growth at both KSX and extended warranty. As demonstrated by today's results, we are well on our way. With that, I'll turn the call over to Kent to walk through the financials in more detail.

Thanks, JT, and good afternoon, everyone. For the second quarter of 2026, consolidated revenue increased 27.6% to $39.4 million, compared with $30.9 million in the second quarter of 2025. Within that total, KSX revenue increased 68.3% to $22.3 million compared with $13.3 million in the prior year quarter. Extended warranty revenue decreased 3.1% to $17.1 million compared with $17.6 million a year ago. However, on a pro forma basis for the sale of Trinity, extended warranty revenue increased 6.5% to $16.1 million from $15.1 million a year ago. Proforma extended warranty cash sales increased 6.9%. Consolidated net income for the quarter was $200,000 compared with the net loss of $3.2 million in the second quarter of 2025. Consolidated adjusted EBITDA for the quarter was $5.2 million compared with $1.7 million in the prior year quarter. Turning to segment profitability, KSX adjusted EBITDA increased by 77.9% to $4.3 million compared with $2.4 million in the second quarter of 2025. Extended warranty adjusted EBITDA was $1.1 million compared with $600,000 a year ago. On a pro forma basis for the sale Trinity, extended warranty adjusted EBITDA was $1 million compared with $300,000 a year ago. Portfolio LTM EBITDA for the operating companies was $22 to $23 million as of June 30, 2026. This metric subtracts the contribution from Trinity, which produced adjusted EBITDA of about $900,000 in both 2025 and in the 12 months ended March 31, 2026, but does not include a contribution of positive $500,000 related to the acquisition of RCC. We continue to view portfolio LTM EBITDA as a useful measure of the trailing earnings capacity of the operating portfolio and one that aligns with how we assess the business internally. Turning to the balance sheet, total net debt was $59.9 million as of June 30, 2026, compared with $62.4 million at December 31, 2025. Before I hand the call back to JT, there are a few accounting items worth highlighting during the quarter. First, the sale of Trinity resulted in a one-time gain of $1.3 million, which appears in the income statement below the operating income line as a gain on disposal of subsidiary. It also can be found in the cash flow statement and cash from investing activities. Second, Kingsway received approximately $1.1 million in cash distributions during the quarter from search fund investments, related to ARGO that remain active. These distributions appear in the income statement below the operating line in interest and investment income, and also can be found in the cash flow statement in cash from investing activities. As search is core to Kingsway strategy, the ARGO gains are included in consolidated adjusted EBITDA at the hold code level. Third, Kingsway incurred 1.4 million of non-cash expenses related to the grant and modification of long-term stock-based awards. This non-cash expense ran through the income statement above the operating line during the quarter. We expect the impact of stock-based awards to be lower and more in line with historical levels going forward. Fourth, during the quarter, the company successfully resolved a legacy legal liability related to the 2022 sale of a Texas rail yard to BNSF. This one-time expense totaled about $600,000 and ran through the income statement above the operating line in the Q2 financials. We're glad to have this resolved and this legacy matter behind us. Finally, a brief financing note. As disclosed in our Form 10-Q, three of our operating subsidiaries representing under 10% of LTM portfolio EBITDA were out of covenant compliance during the quarter and we have attained or are in process of obtaining a waiver of each of these violations. These loans are non-recourse to Kingsway Corporation and to our other subsidiaries and they do not cross default to one another. So any individual covenant matter is contained at the operating company level. These are the same businesses we discussed as being in transition earlier. with line of sight to operational improvement that should bring each of them back into compliance over time. We believe all three companies are headed in the right direction and look forward to their operational and strategic progress being reflected in improving results in the quarters ahead. Overall, I'd like to reiterate JT's message. This was an exceptionally strong quarter for Kingsway, both financially and strategically, But it feels like we have an abundant opportunities across our businesses to drive further top line and bottom line growth and to do even better. I'm pleased by the progress we've made and excited for what's ahead. With that, I'll turn the call back to JT.