Q2 2023 Kingsway Financial Services Inc Earnings Call
Second quarter 2023 earnings call.
At this time, all participants have been placed on a listen only mode and the phone will be open for your questions and comments after the presentation.
If you are witnessing the webcast you'll need to dial into the number listed on the press release to ask a question.
The address and the press release.
With me on the call or J T Fitzgerald, Chief Executive Officer.
Chief Financial Officer.
Before we begin I want 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.
Extra results or trains can materially different 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 Form 10-K containing the subsequent field reports on Form 10-Q as well as other reports that the company files from time to time with the Securities and Exchange Commission.
Please note too that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance.
Okay reconciliation upset.
Tricks to the most comparable cap measures is available in the most recent press release as well as in a periodic filings with the S. E C.
And I would like to turn the cold over to J T. Fitzgerald C E O of Kingsway J.
J T. Please proceed.
Thank you Matthew.
Noone, everybody and welcome to the King's way second quarter 20 twenty-three earnings call. Thank you for joining us.
Our second quarter results were largely in line with our expectations.
Macroeconomic conditions presented a bit of a headwind for extended warranty business.
We're pleased with the operating performance accelerator segment.
Very encouraged by increased level of activity related to potential acquisitions in the quarter.
Pipeline is in great shape.
Performing well, we believe the future is very bright for the company.
Arkansas dated revenue for the second quarter was up 11% over the second quarter of last year.
June 30th 2023 are trailing 12 months consolidated adjusted EBITDA was $11.1 million, an increase of 40 per cent over the comparable year ago period.
Combine pro forma adjusted EBITDA for extended warranty and K S X.
15.6 million for the trailing 12 months.
Increase of 54% over the year ago period.
Revenue and adjusted EBITDA increases were driven primarily by the continued growth of our Kingsway search accelerator segment, which more than offset.
Slightly challenging market conditions, and our extended warranty segment over the last quarter.
An extended warranty second quarter pro forma revenues were down 1.6% from the same period in 2022 is.
Slightly higher revenue from vehicle service agreements offset most of the decline and maintenance support revenues at Trinity.
Pro forma adjusted EBITDA for this segment was down 26% compared to the second quarter of last year, which I will dive into more than a minute.
As a reminder are pro forma results.
Warranty segment exclude the results with Pwm's C, which was sold in the third quarter of last year.
Diving into the warranty segment.
While our teams continue to execute and find opportunities for cost improvements.
Higher used car prices and increasing financing costs continue to pressure near term industry demand constraining our growth initiatives.
The longer term outlook for extended minority remains healthy.
Looking ahead, we continue to expect that declining used car prices will offset some of the impact of higher borrowing costs.
Particularly at the older end of the spectrum, where our products are most relevant.
The value proposition for extended warranties remains strong automotive dealers use extended warranties to acquire new customers retain existing customers enhanced their profitability and maintain brand loyalty for their product offerings.
Credit unions few extended warranties as a benefit to their members as well as protection for the asset securing alone.
We believe that all of these factors will help stabilize and be a catalyst for growth and our extended related.
Auto related extended warranty businesses going forward.
Extended extended warranty pro forma adjusted EBITDA was down in the quarter, primarily primarily due to increased automobile repair claims expenses incurred.
While the number of claims or frequency. We're in line with expectations the cost per claim or severity increased as a result of rising labor and parts costs.
Claims in the corner, where 834000 higher than the prior year corner, which more than fully explains the negative comp to last year.
Well, while we're still early in Q3 indications suggest that despite can claim severity.
However, we are also proactively assessing our pricing to ensure that we're staying in front of any persistent claims severity increases.
At Trinity or maintenance support business revenues have been impacted by smaller average repair jobs.
The number of calls is consistent the average revenue per job is lower.
Ongoing supply chain backlogs for new equipment.
And a mechanic on each back focus warranty business at Trinity equipment availability also continues to pose challenges.
We have a healthy backlog of orders and as the supply chain freeze up in those machines are shipped and installed we expect that the associated revenues will revert to historical growth trends.
Switching now to our search accelerator, Okay S X segment.
Revenues grew by 121% compared to the second quarter of last year, while adjusted EBITDA 1.7 million was up 79%.
Due to the inclusion of C Sweet and S and asked for a full quarter in 2023.
As a reminder, this segment of our business is currently comprised of three operating entities that we have recently acquired.
<unk> to provider of outsource financial services and human resources consulting.
Sweet a provider of financial executive services for both project, an interim staffing engagements as well as search services for full time placement of financial leaders.
And secure nursing services or S N S.
Staffing agency for the nursing and healthcare vertical.
<unk>, which are overseen by Timmy <unk> are performing better than expectations is higher operating margins more than offset lower than expected revenues.
<unk> recently hired a business development specialist a new position to catalyze further growth.
<unk> team continues to refill its pipeline there was impacted during the softer M&A environment earlier in the year.
And S. N S margins are slightly better than expected and cash flows remains strong despite a shift in business mix from travel assignments to per diem assignment.
We believe the long term prospects for nurse staffing remain strong as an aging population drives demand and there remains a persistent shortage of qualified nurses to deliver care.
During the second quarter, we added two new operators and residents or.
To this search accelerator platform, Peter Hearn and diabetes Yankee.
Peter <unk> bring a wealth of experience in strategic and financial matters to kings.
Peter joined US from Centerview partners, where you advise companies across a broad range of industries on strategic matters, including M&A.
You serve as a management consultant in Mckenzie and a number of roles and capital markets and investment banking at credit Suisse Pete.
Peter O J D N M B a from northwestern University.
And a b a from Cornell University.
Derby day previously worked in large pharma at Eli Lilly and Roche as well as several several venture capital firms focused on the biotech and pharmaceutical industries Tabby day has a proven track record in due diligence company formation executive leadership and corporate development.
He graduated with an M b a from Stanford graduate school of business and holds a Phd in neuroscience from the University of Basel in Switzerland.
We now have four highly talented and skilled professionals and roller boy R or actively searching for new acquisitions.
Also during the quarter, we announced the appointment of Charles choice to the newly created role a vice president of business development for a K S X platform.
He is working diligently to build out our deal sourcing engine for future acquisitions.
While the timing of closing transactions is somewhat difficult to predict.
We are experiencing a market increase in activity for potential acquisitions compared to the first quarter.
We expect to have more specific news to share soon but in the meantime, I want to reassure you. They were highly focused on acquiring great businesses at reasonable valuations.
Gross requisition requires patience diligence in our research and discipline to ensure potential targets align with our stated criteria and returned hurdles.
Are trailing 12 month adjusted EBITDA run rate of our operating business continues to be an 18 million to 19 million range.
While we believe that the higher than expected warranty claims costs incurred in Q2 will be at least partially offset by higher returns on our warranty float we now believe the run rate.
Is probably closer to 18 million then to $19 million.
Our priorities for 2023 and beyond remain the same strategically allocating capital to build a business that deliver sustainable longterm growth generates positive cash flow from operations and provides an attractive return for our shareholders.
We're targeting two to three new acquisitions per year that fit are clearly defined acquisition criteria and will generate annualized EBITDA.
In the range of 1.5 to 3 million each.
Now that most of the legacy that and non core investments are behind us.
Assuming we can execute our strategy.
Leave that King's way isn't an inflection point, where the future looks dramatically better than the past.
I'll now turn the call over to camp for review of our financial results.
Thank you J T before I get started as a reminder, during the fourth quarter of 2022, we began executing a plan to sell one of our subsidiaries B E Lafayette a medical clinic.
Part of our strategic shift away from the least real estate segment.
Lafayette is included in discontinued operations.
Assets and liabilities are reported is held for sale <unk>.
The results of its operations are reported separately and not included in the results I'm about to discuss.
Loss from continuing operations was $1.8 billion for the second quarter of 2023.
Compared to a loss from continuing operations of $3.2 million in the second quarter of 2022.
Consolidated adjusted EBITDA was $1.8 million for the second quarter of 2023 compared to 3.1 million last year.
T T M consolidated adjusted EBITDA, It was $11.1 million as of June 30th 2023 a.
40 per cent increase compared to last year.
A reminder, that these metrics include the results of Pwm's see through July of 2022.
Combined operating income for extended warranty and chaos X was $3 million for the second quarter of 2023.
To $3.8 million in the prior year, well combined pro forma adjusted EBITDA, which excludes the results of <unk> PW S. C that was sold last year.
It was 3.4 million in the second quarter of 23 three.
$3.3 million in the second quarter of last year.
I would also like to note that T. T M. Combined adjusted performer EBIT, a it was 15.6 million for the period or 54% higher than the prior T. T M period.
Now breaking this down by reportable segments.
An extended warranty second quarter 20, twenty-three pro forma adjusted EBITDA was 1.7 million.
Or 10.1% a pro forma extended warranty revenue.
$2.3 million or 13.5% a pro forma revenue in the second quarter of last year.
S. J T mentioned earlier revenues from our vehicle service agreements were slightly higher than prior year. Yeah. We continue to be impacted by payment pressures incurred by and consumers as a result of rising interest rates and higher than expected prices for used automobiles.
While the price of used automobiles has fallen since the beginning of 2023.
Clients for the end consumer not occurring as quickly as anticipated at the beginning of the year due to a persistent low level of used car inventory.
Also impacting our extent our auto extended warranties was an increase in claims expense. During Q2 2023 is J T discussed earlier.
Inflationary pressures have driven up the cost of labor and parts at unprecedented rates.
Our claims value remains in check.
We anticipate that as as these pressures Eve claims expense will be more in line with expectations. However, this is difficult to predict with certainty.
Do you believe that claims volume will continue to develop in a predictable fashion.
The increase in claims expenses, partially offset by a decrease in Jean <unk> expenses.
Cost cutting initiatives put in place last year.
As well as continued scrutiny of expenses benefited the 2023 period.
Trinity lower revenue was due to a decrease in its equipment breakdown and maintenance support services due to issues with laundry times, where equipment and installations.
The decrease in revenue was offset by a decrease in cost of services sold any profit sharing payment received from Chinese primary insurer.
Trinity leadership continues to focus on expanding its offerings of warranties and the HVAC and refrigeration sectors and we believe there's a lot of room for growth in this area.
Also contributing to extended warranty results.
The investment income earned from our float.
For the 12 months ended June 30th 2023 investment income earned was 825000 compared with 290000 for the year ago period, an increase of over 280%.
We invest our float in U S bonds, unis and high quality corporate bonds with an average duration of two to three years.
Prior investments mature, we're able to we are able to reinvest at the current higher interest rates.
Total float as of June 30th 2023 was approximately $44 million.
For extended warranty on a trailing 12 month basis pro forma adjusted EBITDA was $10.3 million or.
14.9%, a pro forma revenue compared to 7.8 million.
Seven or pro forma rather than the previous trip trailing 12 month period.
Turning now to K S X.
<unk> was 1.7 million or 18.5 per cent of segment revenue in the second quarter of 2023 compared to 900, and 948000 or 22.9% of segment revenue in the second quarter of last year and is.
A reminder, last year just included paybacks.
First I aerobics results are relatively flat to the prior year.
A decline in revenue was essentially offset by higher gross margin 35 per cent in twenty-three versus 29% a year ago.
<unk> expenses.
The decline in revenue was due to a decrease in billable hours due to lower the next lower than expected number of new clients.
Harshly offset by an increase in billing rates.
S. J T mentioned <unk> recently hired an experienced business development development person to focus on building a pipeline of new clients.
In 2023 Catholics also benefited from the addition of financial results from C. Sweet N S N S.
It's a sweet revenue is being impacted by similar factors impacting <unk>, partially mitigated by higher mix of revenue from search.
Gross margin approved of 40% up from 30 per cent in the first quarter of twenty-three while revenue was essentially fly a quarter to quarter.
This helped adjusted EBITDA increased to 278000 for Q2 of 23 from 135000 for Q1 of 23.
S. J T mentioned to me has been taking proactive steps to refill the pipeline of opportunities since the acquisition closed and recently filled it's open business development position with an internal promotions.
And as soon as we continue to see a shift and make some travel staffing to per diem staffing.
Year to date 55 per cent of the shifts per D M.
The total number of shifts in Q2 2023 was flagstad in Q1 of 23, but the shift in mixed to per diem staffing resulted in a lower operating margin than expected.
For the quarter S. N S had adjusted EBITDA of 491000 down from 650000 in the first quarter.
Focusing on current clients and collections S. N S has been able to build a strong cash balance and pay off it's 350000 dollar revolver in Q2.
Near term growth is expected to come from expanding its base of travel nurses as well as well as an expansion into new geographic areas.
S N S as more seasonalities than our other businesses and the number of number of travel shifts is expected to go up as traveled demand increases during the upcoming cold and flu season.
Turning now to our balance sheet at the end of the second quarter of 2023, we had cash and cash equivalents of 14 point $14.2 million compared to 64.2 million at the end of 2022.
As a reminder, re repurchases substantial portion of our subordinated debt and Q1 for $56.5 million.
Cash used an operating activities from continuing operations was 8.6 million for.
For the six months ended June 30th 2023, compared to cash provided a 4.3 million in the first six months of 2022.
The current period is impacted by the following items.
Five 5 million payment I've trups deferred interest in Q1 of 2023.
2 million for the release of the Mendota Escrowed Q1 of 2023.
$1.8 million a management fees paid in Q1, and Q2 of this year related to the sale of commercial real estate investments.
No inflows from Peter PW S C, which was sold in July of last year.
And lower operating income from the extended warranty segment.
Okay.
Our total outstanding debt is comprised the bank loans and one remaining tranche I've dropped a Trump staff.
That associated with a V E. Lafayette is included in a separate line item on our balance sheet as liabilities.
Liabilities held for sale.
As a result, we had total outstanding debt of 42 million at the end of the second quarter of twenty-three compared with 100 102.1 million at the end of 2022.
Net debt decreased to $27.9 million as of June 30th 2023, compared to 37.9 million as of December 31st 2022.
Earlier this year the board approved a one year securities repurchase program.
To date, we have repurchased 558670 of our warrens and repurchase 68446 chairs of our common stock.
After considering both stock and warrant repurchases $7.4 million of stock repurchases or securities repurchases could be made through March 22nd of 2024.
The repurchase common stock is being how this treasury stock at cost and has been removed from our common shares outstanding.
Okay.
Year to date through August 7th 2023 about 1.8 million of our warrants have been exercise.
Can see breakdown by quarter in today's earnings release.
These exercises have resulted in $8.8 million of cash to the company.
As of August 7th 2023, the company had 2.1 million warrants outstanding that expire in September 15th 2023.
During the second quarter of 2023.
He also completed a cashless exercise up all warrants held in Limbach Holdings, Inc. And recorded an unrealized gain of 1.8 million related to the investment in the second quarter.
Through August 7th 2023, we have sold 46000.
Limbaugh common shares for cash proceeds of $1.2 million.
In summary, while extended warranty segment experienced some softness to the claims expense.
We are pleased with the performance of our business and progress in Chaos X.
We made further progress reducing or not that.
We were able to repurchase a meaningful amount of our securities and we have a robust pipeline of acquisition opportunities.
I'll now turn the call back over to the operator to open the line for questions Matthew.
Certainly.
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Please hold while I pull for questions.
Your first question is coming from Adam Pattinson from David Capital. Your line is live.
Hey, guys congratulations on the corner and it's exciting to hear the commentary about the pipeline.
Pipeline picking up a little bit.
Yeah. Thanks, Adam.
So I guess on that subject I wanted to ask a few questions about the M&A pipeline.
Specifically, you know again I'm.
Kind of focused on it because I noticed that J T. You mentioned it not once but twice in the press release I'm talking about how it seems like some deals are getting a little bit closer can you may be first talk you know obviously earlier. This year there was a bit of a banking crisis here in the U S and you generally <unk>.
Finance part of the purchase price of the acquisitions that you make through that.
I F X search accelerator can you talk about what your strategy is around you know choosing your banking partners and also whether you've found the financing markets have changed in any way relative to what it was maybe a year ago.
Sure you bet yeah. So we we work with a traditional commercial banks that provide traditional bank financing to help finance.
Finance or acquisitions, we have.
Kind of a stable of five or so banks that we work with and and show our opportunities to and solicit term sheets.
All of those banks have very.
Very stable deposit bases and so we're not impacted by some of the dislocation in February and March with sort of.
Deposit flight.
And so they're.
They're fine they are open for business.
And in terms of the change in in.
Terms surfing, obviously pricing is higher than it was a year ago, but generally we we have never been out looking for tons of leverage sort of two and a half to three times.
Leverage ratio is funded debt to EBITDA ratio and those leverage ratios any indications are coming back right around there I would say probably more towards two and a half and three times.
Because higher interest expense uhm comes through fixed charge coverage in.
They just want to see higher.
Covenant had room.
Higher interest expenses, so I would say that.
The bank financing is there the pricing is a last a little higher maybe some of the amortization terms might be a little different where whereas in the past <unk> interest only your one and then sort of five years after that it's a six year am or maybe five year amortization moving towards more straight line, but in general.
You know availability it hasn't been a problem in the banks we work with.
Okay, I'd be very stable with stable deposits.
I don't know if that answered all your question no. That's great. That's that's really helpful. So then it sounds like you know obviously, there's little tweaks, but it sounds like the financing markets are generally open and you're a good competition between a number of different lenders who are willing to support the deals can you maybe talk a little bit about the deals that you're seeing.
Are you still seeing the possibility of getting deals and kind of mid single digit EBITDA range like what you've done in the past you know it is the size of deals kind of similar to what you've seen in the past or the smaller or larger I'd just love any color you have cause it. It just seems like you've got a number of them in the pipeline and it would be helpful to take care of a little bit more about those.
Yeah size and multiples sort of right down the center of the Fairway you know, we talk about multiples and therefore to seven times range and really that's just a function of of the growth of historical in perspective growth of the of the target, but certainly you know kind of right in the middle of the fairway, both sides and valuation.
Got it that's helpful and then in terms of the quality of the businesses that you are looking at you know, it's obviously one of the <unk>.
It seems like M&A activity has started to pick up a little bit in the markets and I'm wondering if you've seen any you know or have any observations on the quality of businesses that you're looking at so are they you know maybe skewing a little faster growing are slower growing do you see them as you know similarly.
High quality to the kinds of asset like businesses, you've got in the past are you still able to find those kind of you know quality businesses that you look for in and are there any observations you have on and their characteristics.
Yeah, I would say in general we have been leaning into and really screening for high growth opportunities with very high gross margins.
And if if not high growth than you know.
Very very high percentage of recurring truly recurring revenue.
Got it that's great. Those are those are good criteria to look for I will ask one last question and then I will chop off the line in that simply that I saw that for the first time. The company has started doing some buybacks Apple shares, but then primarily actually of warrants.
Kind of warrant overhang, hopefully it'll be cleared up in the next month or so when those warrants reach exploration could you maybe talk about what your thought process has been in terms of allocating capital towards buybacks and towards the warranties, especially you know with consideration of the upcoming expiration.
<unk> potential exercise of a large number of warrants and.
And thank you guys very much.
Yeah, you bet, Adam Yeah look I mean.
Part of a broader capital allocation exercise right on the one hand, just sort of you know obviously, we've we've said before our businesses don't they're capitalized so they don't require a lot of capital to grow organically, we are hoping to grow.
[noise] Mana, we are delevering at a at the businesses as well and paying down debt.
But we also feel it's prudent to like not hang on to excess cash and we have a pipeline of exciting acquisition opportunities, we want them to have adequate capital of fun those and so it's really a balance of returning capital to shareholders via buybacks.
While while preserving adequate liquidity to fund our acquisition pipeline and so that's just sort of the backdrop.
Obviously, the warrant buybacks, you'll get a little bit of leverage because.
You can buy back more sort of effective shares by by acquiring the warrants and so you get sort of leverage on the dollar spent.
So those will not be new dilutive shares and so we think it's a great place to dedicate our securities repurchases.
Great. Thank you so much guys appreciate it and congrats again on the corner.
Thanks that'll make that'll.
Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Your next question is coming from Douglas Art from Anthony Associates Your lines lives.
Hi, guys can you hear me.
Yeah Yeah.
I can thank you for taking my question and before I ask my questions I'd like to say that we are officially shareholders now myself personally and my clients.
Uhm. So first question is you got two pipelines when it comes to the Kingsway search accelerator one is the actual M&A pipeline, but also.
I'm looking for operators and residents.
Can you talk more about what it looks like for the search for new Oh I ours.
Yeah. So obviously, we want to maintain an active pipeline of perspective on why are so that when we launch launch lawyers to into the C. E O seats in their acquisitions that we don't lose momentum [laughter].
On the search platform so.
We've been very active in fact, we have assigned offer letter we hope to have another joining.
Joining us here in the third quarter, which is very exciting.
I mentioned in the prepared remarks that we hired Charlie Joyce who himself was the searcher and has a great network with his H B S classmates and things and part of his role in business development, obviously building the pipeline of M&A opportunities, but another big part of his.
<unk> responsibilities is uhm, maintaining and building our recruiting pipeline. So as we head into the fall here. There are a lot of ETA'S are fun related conferences, we'll be posting on the business school job words networking within personal networks are vulnerable I ours and C E O.
And and building that pipeline of additional I ours for you know later this year in 2024.
And and how it evolved over the last two or three years that search effort to find the searchers.
Yeah, I think that look I think that as we demonstrate success and people have been able to see us backing people and successfully closing acquisitions E. T. A community is a pretty small community and word of mouth is very strong and so people do due diligence when they're thinking about E T. A as a career path.
Witnessed AD and reach out until that is a really nice sort of natural.
Two a cycle that is self reinforcing as we continue to build this thing obviously the.
Visibility of our Advisory Board is Super helpful. And you know Derby day came to us through a foreign dyke as a matter of fact, and so you know.
I think that there are.
That evolution, our success and then the conversation that is happening and the visibility and awareness of King's way and what we're doing.
Gives us.
More higher quality looks we've always been doing the recruiting on business school campuses and those kinds of things and so we'll continue to do that but I I think that you know it will.
The combination of all of those things will continue to to bill better recruiting effort in quality and in numbers.
Alright, and and speaking of will and Tom.
I was hoping you could chair maybe if you think there are any under appreciated.
Pieces of wisdom, either from Willard Tom that you've.
Come to appreciate over the last year or two since it become advisors.
Yeah, absolutely I mean, I I don't even know where to start they're they're both really amazing people and very generous with their time and insights and super thoughtful so.
Yes earlier this year with.
Did a.
Long workshop with will.
Kind of using his history as an investor and searched.
Sort of tap is pattern recognition of the attribute that make for a good search acquisition and some identified a couple of industries that typically.
Have those attribute and so really kind of leaning into those those things and you know part of that is informed by his history.
Track record as an investor, but also has access to the stand for database of search fund returns and things and so true like attribution analysis, so like really.
Double and then you know.
Things around valuation you know what.
For a business with 98%.
You know recurring revenue in 105 per cent net revenue retention you know how much could you pay and still have.
Top decile type returns so those types of conversations have been really amazing and then.
With Tom <unk>.
Just developed a really great personal relationship and and he has done the same with each one of our President's uhm he's available via tax they talk to them all the time.
And as I've said in the past we've been using Dan her business system tools for a long time, but to have the guy that actually helped build the house.
Teaching us how to use them. The right way is is really powerful so we've learned a lot about the tools and how to implement them and in what sequence to implement them and what to focus on and whatnot to focus on and really prioritize has been really amazing.
Great. Thank you very time and keep up the good work. Thank you.
Thanks for being a new shareholders. We appreciate it.
Thank you we will now proceed to the next session.
Thank you operator, we did have some questions that came in online.
The first question is can you give us an update on how C sweet and secure nurse staffing about doing.
Yeah. So can talk about the financial performance in the prepared remarks, but you know from very high level, we're really pleased.
The model.
Is really oriented to first transitioning out to retiring founder while learning the business.
And then <unk>.
Getting to building a great team.
Professionalizing that business systems and processes.
Then create a platform for growth and so C. Sweet N. S. N S are both now and that professional <unk> stage.
To create the foundation onto which they can go out and execute their growth strategy.
Yeah, I couldn't be more pleased with the Tammy and Charles or performing admirably.
Great. Thank you just a couple of others. Most of these already answered I'm moving to an excellent generally speaking water management principles. When it comes to liberate B <unk> I understand that.
Acquisition, they're leopard, roughly three times EBITDA and that has reduced over time through amerasian, but in the long run is there a sweet spot for leverage at the App goes to enhance.
Return on equity.
For example.
Timely next grows and leverage is effectively one times would there be a scenario where management books to read elaborate higher.
Yeah. So for the first part you know the roughly three times I think for US. It is two and a half times has been sort of our sweet spot and that's sort of where the banks are these days. So I would say that's kind of where we're targeting.
Five times deal that sort of that 50 50 leverage they were taught.
Targeting and then on the second part about sort of Relevering.
I think we would like to keep all options on the table, obviously relevering is a viable scenario, depending on the facts and circumstances at that time, but Ah dividend recap is certainly something there.
Having the toolbox to enhance our equity returns right, both the timing of the cash flow and the Relevering and.
Sort of taking our equity back it really would enhance or something that would absolutely be on the table.
And.
And then finally I'd.
I'd like to point out that fee.
A few years ago, we relever the extended warranty businesses in order to close on our acquisition of PW I, we're able to basically acquired most of that business with almost no equity contributed and very similar situation Etsy sweet and so.
You know, there's a flywheel effect after a few years of a business operating in Delevering and growing that you can relever to finance essentially an equity lists acquisition and so that's certainly something that we think about too as are acquired businesses become sort of platforms in their industries.
Great.
It looks like they're all <unk>, one that just came in an email and let's see how much how much cash all the wonky businesses, bringing in on an annual basis deployable deployable into the search accelerator segment.
Yeah. This is cats, so our extended warranty businesses are covered by by alone and obviously the bank wants to keep as much cash in those companies as possible, but we're committed to the holding companies permitted to take out cash in one of two ways.
One is through an excess cash flow metric and the other one is through taxes.
Tax distributions, so first under the excess cash flow.
Trick you know, there's a calculation that we do that's spelled out in the data agreement.
For 20 twenty-three based upon the results from twice right two or four minutes to take out $3.3 million of cash.
Last year and 2022.
For results for the prior year to that we are allowed to take out $1.7 million, we were able to pick up substantially more this year, because our leverage ratio decline and we were in a 50 50 sure are sorry, it's I think it's 75 twenty-five sure with the bank or last year, we were 40 50.
The the other mechanism is tax distributions. So because we filed consolidated tax return are operating companies pay it's airco tax to the holding company and not to the I R. S are nol's effectively shield all of our income taxes for not really cash taxpayer for federal purpose.
So instead of paying tax to the government they pay it to the holding company.
And I think for last year.
The amount of tax distributions were about $1.6 million.
So that goes to the hold co and then we are permitted to allocate that is J T said you know we're capital Allocators as I said, we think is the best way to do that.
Great. Thank you can add.
The last one that just came in that you may have touched on but I guess they want.
Reiterated one more question can management confirm they did share buy back in the corner and how many shares they acquired.
Yeah, Yeah, we we did mention it so we did two things we bought back some warrants and we bought back some some chairs and I'll.
I'll just say from.
From the beginning of the program. The program was announced in late March of 2023. So we didn't do anything in Q1, just because of when it was announced but since then through yesterday.
We've repurchased 558670 of our warrants.
And we've repurchased 68446 years of our common stock I believe all the warrants were in queue too.
Yeah, and yeah, all the once we're in queue too and I think a substantial portion of the common stock was actually purchase and the last four or five weeks, we have those breakdowns.
I believe our in our earnings release and a further breakdown in our 10-Q that was filed aftermarket today as well.
Great. Thank you can't and that was the last question on emails went back to the operator.
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