Kingsway (KFS) Q4 2025 Earnings Call Transcript

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DATE
Thursday, March 12, 2026 at 5 p.m. ET
CALL PARTICIPANTS
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Chief Executive Officer — John Fitzgerald
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Chief Financial Officer — Kent Hansen
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Full Conference Call Transcript
John Fitzgerald: 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 6 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 million to $23 million as of December 31. 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 3 to 5 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, but 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. Buds 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 Buds 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.
We are anticipating a much improved 2026 for our Extended Warranty businesses. Turning to inorganic growth. We are pleased to have completed 6 strategic acquisitions in 2025. Our acquisition pipeline remains robust, and I'm pleased to reiterate our target for 3 to 5 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 midsized 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.
Our active searchers, each focused on identifying new platform and stand-alone 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 Buds, 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, 6 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 6 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 million 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 entered 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 few more -- for a more detailed review of the financials.
Kent Hansen: Great. Thank you, JT, 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 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 '25 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 2 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?
John Fitzgerald: Thanks, Kent. To close, I want to thank Kingsway's employees, partners and shareholders for their continued dedication and support. 2025 was a year of tremendous progress, 6 acquisitions completed, a new platform launched and a portfolio that enters 2026, generating $22 million to $23 million in platform LTM EBITDA. We have budgeted for double-digit organic revenue and EBITDA growth this year across both our segments, and I believe the work we did in 2025, expanding platforms, diversifying revenue streams, investing in our businesses and strengthening our operator bench has set us up to deliver on those expectations. I'm confident in the plan, and I'm excited about what this team is capable of and where Kingsway is headed.
I'll now turn the call over to Matt to open the line for questions.
Operator: [Operator Instructions] Your first question is coming from Nick Weiman (sic) [ Mitch Weiman ].
Mitchell Weiman: Congrats on a good quarter.
John Fitzgerald: You said Nick, but I know it's Mitch.
Mitchell Weiman: Correct. One question I had was what is -- you didn't talk about digital diagnostics in the prepared remarks. What's going on there? We kind of -- I just remember in prior conversations kind of 6 months ago or so, you really thought they'd start to grow in the second half of the year.
John Fitzgerald: Yes. DDI, I think, grew high single digits on the year. And plugging along here. I think that we've got a great operator. He's building the team there on the ground, got a new leadership team alongside him and is now really -- it's a very -- because of the criticality of the service they're providing, Mitch, the focus for the first 18 months or so is really on creating a foundation upon which they felt comfortable growing. We're dealing with patients' lives here and patient safety is first and foremost.
So hardening the infrastructur