Q1 2024 Kingsway Financial Services Inc Earnings Call

May 8, 2024

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Got it.

Good day and welcome to the King's wait first quarter 2024 earnings call.

Operator: Good day, and welcome to the Kingsway first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Unknown Executive: Please note this conference is being recorded. With me on the call are JT Fitzgerald, Chief Executive Officer, and Kent Hansen, 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. See below 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.

Operator: Please note this conference is being recorded. With me on the call are JT Fitzgerald, Chief Executive Officer, and Kent Hansen, 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. See below 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.

Operator: Please note this conference is being recorded.

Unknown Executive: With me on the call are J T Fitzgerald, Chief Executive Officer, and Kent Hansen, Chief Financial Officer.

Unknown Executive: 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.

Unknown Executive: Actual results or trends could materially differ from those contemplated by those forward looking statements.

Unknown Executive: 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 Companys annual report on Form 10-K, and subsequent form 10, Qs and form 8-K filed with the Securities and Exchange Commission.

Unknown Executive: Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance.

Unknown Executive: 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 our periodic filings with the S. E C.

Unknown Executive: Please see the risk factors detailed in the company's annual report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission. Please note also 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 our periodic filings with the SEC. Now, I would like to turn the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

Operator: Please see the risk factors detailed in the company's annual report on Form 10-K and subsequent Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission. Please note also 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 our periodic filings with the SEC. Now, I would like to turn the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed.

John Taylor: Now I would like to turn the call over to J T Fitzgerald CEO of Kingsway J T. Please proceed.

John Taylor: Thank you Holly good afternoon, everybody and welcome to the Kingsway earnings call for the first quarter of 2024.

John Taylor: Good afternoon, everybody, and welcome to the Kingsway earnings call for the first quarter of 2024. It's been a short time since our last earnings call in March, so thank you all for joining us again today.

Speaker Change: It's only been a short time since our last earnings call in March. So thank you all for joining us again today.

John Taylor: We finished the first quarter of 2024 with financial results that are largely in line with our expert expectations.

John Taylor: We finished the first quarter of 2024 with financial results that were largely in line with our expectations, particularly in light of current market conditions that are impacting certain of our operating entities. Most importantly, our strategy and investment thesis remain the same. Execution at our operating businesses while growing through acquisitions to deliver sustainable long-term growth in cash flows and generate attractive returns for our shareholders. Let's first look at the conduct consolidated financial results for the first quarter of 2024.

John Taylor: Particularly in light of current market conditions that are impacting certain of our operating entities.

John Taylor: Most importantly, our strategy and investment thesis remain the same.

John Taylor: Execution at our operating businesses.

John Taylor: While growing through acquisitions to deliver sustainable long term growth and cash flows and generating attractive returns for our shareholders.

John Taylor: Let's first look at the consolidated financial results.

John Taylor: Consolidated revenue was $26.2 million, roughly in line with the prior year quarter, and adjusted consolidated EBITDA was 2.1 million compared to 2.4 million in the year ago quarter. For the extended warranty segment and the KSX segment combined adjusted EBITDA was $3.0 million compared to $3.5 million for the year ago quarter, and our extended warranty segment, our vehicle service agreement or VSA company, were again impacted by an increase in average claims expense, and Persistent Macroeconomic Conditions, namely tighter credit conditions and lower loan volume, compared to the same period last year, making for a challenging year-over-year comparison.

John Taylor: For the first quarter of 2024.

John Taylor: Consolidated revenue was $26 2 million roughly in line with the prior year quarter and.

John Taylor: And adjusted consolidated EBITDA was $2 1 million compared to $2 4 million in the year ago quarter.

Speaker Change: For the extended warranty segment and the <unk> segment combined adjusted EBITDA was 3.0 million.

John Taylor: <unk> to $3 5 million for the year ago quarter.

John Taylor: And our extended warranty segment, our vehicle service agreement or V. SA companies were again impacted by an increase in average claims expense.

John Taylor: And persistent macroeconomic conditions, namely tighter credit conditions, and lower loan volumes compare compared to the same period last year.

John Taylor: Making for a challenging year over year comparison.

John Taylor: Despite the revenue headwinds facing the industry, we were able to sell more contracts in Q1, 2024 and at a higher average revenue per contract than last year.

John Taylor: Despite the revenue headwinds facing the industry, we were able to sell more contracts in Q1 2024 and at a higher average revenue per contract than last year. However, the claim severity we saw moderating as we exited 2023 ticked back up in Q1, with higher labor costs driving higher claims expenses in the quarter.

John Taylor: However, the claims severity, we saw moderating as we exited 2023 ticked.

John Taylor: Ticked back up in Q1 with higher labor costs, driving higher claims expenses in the quarter.

John Taylor: I would note that we didn't see claims inflation really pick up until Q2 and Q3 last year. So we expect more favorable comparisons in the quarters ahead.

John Taylor: I would note that we didn't see claims inflation really pick up until Q2 and Q3 last year, so we expect more favorable comparisons in the quarters ahead. All in all, challenges faced by the businesses in our extended warranty segment are moderating, and importantly, we remain focused on controlling what we can, improving contract production, and managing our costs. We are seeing positive improvement thus far in 2024, with performance in March better than when we started the year, and importantly, we continue to expect improving financial results in 2024 compared to last year. Moving to our Search Accelerator, or KSX, segment.

John Taylor: All in all challenges faced by the businesses in our extended warranty segment are moderating and importantly, we remain focused on controlling what we can.

John Taylor: Improving contract production and managing our costs were.

John Taylor: We are seeing positive improvement thus far in 2024 with performance in March better than when we started the year and importantly, we continue to expect improving financial results in 2024 compared to last year.

John Taylor: Moving to our search accelerator or <unk> segment.

John Taylor: Higher revenues were primarily driven by the recent acquisitions of SPI and DDI in the second half of 2023. Ravix has continued to perform ahead of our original investment thesis. And in the first quarter, adjusted EBITDA improved compared to last year, despite a slight decrease in revenue. Strong utilization and higher gross margins, combined with tight expense management, delivered improved EBITDA margins in the quarter. Revenue and adjusted EBITDA were lower than the prior year; however, gross margins continue to be strong, and expenses are down from the prior year.

John Taylor: Higher revenues were primarily driven by the recent acquisitions of Spi and DDI and the second half of 2023.

John Taylor: <unk> has continued to perform ahead of our original investment thesis and in the first quarter adjusted EBITDA improved compared to last year. Despite a slight decrease in revenue.

John Taylor: Strong utilization and higher gross margins combined with tight expense management delivered improved EBITDA margins in the quarter.

John Taylor: At C suite Rev.

John Taylor: Revenue and adjusted EBITDA were lower than prior year. However, gross margins continue to be strong and expenses are down from prior year.

John Taylor: Looking ahead, the private equity and M&A environment is showing signs of reinvigoration and the team is bolstering its pipeline of new deals.

John Taylor: Looking ahead, the private equity and M&A environment is showing signs of reinvigoration, and the team is bolstering its pipeline of new deals. While it is early in the year, we have begun to see business activity improve, and both Ravix and C-Suite have added business development talent to accelerate revenue growth. At SNS, consistent with market trends, the per diem business continues to perform well while market demand for travel nurses has continued to be challenged. This has resulted in much lower revenue and adjusted EBITDA in Q1 2024 than a year ago.

John Taylor: While it is early in the year, we have begun to see business activity improve and both <unk> and C suite have added business development talent to accelerate revenue growth.

John Taylor: At S N S consistent with market trends the per diem business continues to perform well while market demand for travel nurses has continued to be challenging. This has resulted in much lower revenue and adjusted EBITDA in Q1 2024.

John Taylor: Then a year ago.

John Taylor: However, our travel business is rebuilding and industry intelligence supports our view that travel demand is stabilizing and long term demand for nurse staffing will be strong given the projected persistent shortage of registered nurses.

John Taylor: However, our travel business is rebuilding, and industry intelligence supports our view that travel demand is stabilizing, and long-term, demand for nurse staffing will be strong, given the projected persistent shortage of registered nurses over the next several years. We remain bullish on this business for the long term. At Systems Products International, or SPI, the team is developing and executing a strategy to grow annual recurring revenue or ARR. Since acquisition, the company has signed a heap of new clients who are at various stages of implementation. Once onboarded, these customers should provide a nice lift to ARR.

John Taylor: Over the next several years.

John Taylor: We remain bullish on this business for the long term.

John Taylor: At systems products International or S. P. I the team is developing and executing our strategy to grow annual recurring revenue or <unk>.

John Taylor: Additionally, SPI is executing several promising strategies to increase penetration and grow market share in its core market. The company is also expanding its high-value partnerships to bring innovative solutions to its new and longstanding customers. At Digital Diagnostics Imaging, or DDI, revenue continues to grow both month over month and year over year, with several new hospital customer ads in the quarter. Q1 revenue exceeded the prior year by over 20%. EBITDA trailed the prior year slightly as the company is investing to support the growth they are seeing. DDI is focused on building the internal infrastructure and processes to scale alongside the high level of demand they are seeing, while also ensuring continued excellent levels of quality and care. Now turning to the KSX search activity.

John Taylor: Sure.

John Taylor: Since acquisition the company has signed heap, new clients, who are at various stages of implementation.

John Taylor: Once on boarded these customers should provide a nice lift to <unk>.

John Taylor: Additionally, S. P. I is executing several promising strategy is to increase penetration and grow market share in its core market.

John Taylor: The company is also expanding its high value partnerships to bring innovative solutions to.

John Taylor: So, they're new and longstanding customers.

John Taylor: At digital diagnostics imaging or DDI revenue continues to grow both month over month and year over year with several new hospital customer adds in the quarter.

John Taylor: Q1 revenue exceeded the prior year by over 20%.

John Taylor: EBITDA trailed the prior year slightly as the company is investing to support the growth they're seeing.

John Taylor: TDI is focused on building the internal infrastructure infrastructure and processes to scale alongside the high level of demand. They are seeing while also ensuring continued excellent levels of quality and care.

John Taylor: Now turning to K S ex search activities.

John Taylor: Growth through acquisitions remains central to our corporate strategy targeting opportunities.

John Taylor: Growth through acquisitions remains central to our corporate strategy, targeting opportunities that deliver predictably high returns on tangible capital in large and growing end markets. However, the timing of completing a transaction is challenging to predict. We are encouraged by the strength of our pipeline and continue to target the completion of two to three deals over the next year that can each generate one to three million in annualized EBIT. Given the recent performance noted above, our 12 month run rate adjusted EBITDA for the operating companies is now $16 to $17 million. As a reminder, run rate is intended to capture the last 12 months' EBITDA of the businesses we currently own, including those we've recently acquired. It is not intended to be forward.

John Taylor: Opportunities that deliver predictably high returns on tangible capital in large and growing end markets.

John Taylor: While the timing of completing a transaction is challenging to predict.

John Taylor: We are encouraged by the strength of our pipeline and continue to target. The completion of two to three deals over the next year that can each generate $1 million to $3 million in annualized EBITDA.

John Taylor: Given the recent performance noted above our 12 month run rate adjusted EBITDA for the operating companies is now $16 million to $17 million.

John Taylor: As a reminder, run rate isn't intended to capture the last 12 months EBITDA of the businesses, we currently own including those we have recently acquired.

John Taylor: It is not intended to be forward looking.

John Taylor: Okay.

John Taylor: As a reminder, we currently have four highly talented operators and residents who are actively searching for opportunities and evaluating a number of potential acquisition targets.

John Taylor: As a reminder, we currently have four highly talented operators and residents who are actively searching for opportunities and evaluating a number of potential acquisition targets. Our deal pipeline is the most robust that I have seen it, reflecting both the hard work of our OIRs, as well as the systems and processes we have put in place for effective search. That, combined with an improving overall M&A environment, gives us confidence in our ability to execute our plan.

John Taylor: Yeah.

John Taylor: Our deal pipeline is the most robust that I have seen it reflecting both the hard work of our <unk> as well as our systems and processes, we have put in place for effective sourcing.

John Taylor: That combined with an improving overall M&A environment gives us confidence in our ability to execute our plan.

John Taylor: We are also actively recruiting our next cohort of O I ours.

John Taylor: We are also actively recruiting our next cohort of OIRs. We received interest from over 60 qualified candidates in the first quarter alone. As always, we will remain highly selective about who we bring into the program. We are focused on delivering long-term results for you, our shareholders. We continue to make great progress. With that, I'll now turn the call over to Kent for a deeper review of our finances.

Kent: We received interest from over 60 qualified candidates in the first quarter alone.

Kent: As always we will remain highly selective about who we bring into the program.

John Taylor: Okay.

Kent: We are focused on delivering long term results for you our shareholders, we continue to make great progress.

John Taylor: With that I'll now turn the call over to Kent for a deeper review of our financials.

Kent: Thank you J T.

Kent A. Hansen: As a reminder, during the fourth quarter of 2022, we began executing a plan to sell one of our subsidiaries, VA Lafayette, which owns a medical clinic whose sole tenant is the U.S. Veterans Administration. As part of our strategic shift away from the leased real estate segment, VA Lafayette is included in discontinued operations, and its assets and liabilities are reported as held for sale. The results of its operations are reported separately and are not included in the results I'm about to discuss.

Kent: As a reminder, during the fourth quarter of 2022, we began executing a plan to sell one of our subsidiaries VA Lafayette, which owns a medical clinic, who sold tenant as the U S Veterans administration.

Kent A. Hansen: Part of our strategic shift away from the lease real estate segment VA. Lafayette is included in discontinued operations and as assets and liabilities are reported as held for sale. The results of its operations are reported separately.

Kent A. Hansen: And that included in the results I'm about to discuss.

Kent A. Hansen: Since J T I already covered the results of extended warranty and Castex I wont rehash those now.

Kent A. Hansen: Since JT has already covered the results of extended warranty and KSX, I won't rehash those now. I'll start with our balance sheet and cash flows. At the end of the first quarter of 2024, we had cash and cash equivalents of $12.1 million compared to $9.1 million at the end of 2023. In Q1 2024, we drew $3.5 million on our Delayed Draw Term Loan and $0.5 million on our KWH. Given the delayed draw term loan expired at the end of February, we felt it prudent to have some dry powder on our balance.

Kent A. Hansen: I'll start with our balance sheet and cash flows at the end of the first quarter of 2024, we had cash and cash equivalents of $12 1 million compared to $9 1 million at the end of 2023.

Kent A. Hansen: In Q1, 'twenty 'twenty four we drew $3 5 billion on our delayed draw term loan and a half a million dollars on our kwh revolver.

Kent A. Hansen: Given the delayed draw term loan expired at the end of February we felt it prudent to have some some dry powder on our balance sheet.

Kent A. Hansen: Okay.

Kent A. Hansen: Cash provided by operating activities from continuing operations was $0.2 million for the first three months of 2024, compared to cash used in operating activities of $22.8 million in the year-ago period. A large portion of the cash used in operations in the prior year was related to payment of deferred interest on the trust preferred debt instruments that we repurchased during the first quarter of last year and payment of deferred interest on the remaining. Trust preferred an instrument that we did not buy back.

Kent A. Hansen: Cash provided by operating activities from continuing operations was <unk> 2 million for the first three months of 2024 compared to cash used in operating activities of $22 8 million in the year ago period.

Kent A. Hansen: Large portion of the cash used in operations in the prior year was related to payment of deferred interest on the trust preferred debt instruments that we repurchased during the first quarter of last year and payment of deferred interest on the remaining <unk>.

Kent A. Hansen: The preferred instrument that we did not buy back.

Kent A. Hansen: We had total outstanding debt, which is comprised of bank loans and trust that.

Kent A. Hansen: We had total outstanding debt, which is comprised of bank loans and trust debt, of $47.1 million at the end of the first quarter of 2024, compared to $44.4 million at the end of 2023. Net debt decreased to $34.9 million as of March 31, 2024, compared to $35.3 million at the end of 2023. In March of this year, our securities repurchase program was extended for one year through March of 2025. In 2024, we repurchased 8,000 shares of common stock for an aggregate purchase price of approximately $100,000. To date, the company has repurchased securities at a total cost of $7.2 million. That's the total amount under the program.

Kent A. Hansen: Of $47 1 million at the end of the first quarter of 2024 compared to $44 4 million at the end of 2023 net debt decreased to $34 9 million as of March 31, 2024, compared to 35 point.

Kent A. Hansen: 3 million at the end of 2023.

Kent A. Hansen: In March of this year, our securities repurchase repurchase program was extended for one year through March of 2025.

Kent A. Hansen: During 2024, we repurchased 8000 shares of common stock for an aggregate purchase price of approximately $100000.

Kent A. Hansen: Today, the company has repurchased securities at a total cost of $7 2 million that's total under the program.

Kent A. Hansen: In summary, the first quarter financial results were largely in line with our expectations our balance sheet remains healthy and we are poised for improving results as we progress throughout 2024.

Kent A. Hansen: In summary, the first quarter financial results were largely in line with our expectations. Our balance sheet remains healthy, and we are poised for improving results as we progress throughout 2024. Our Annual General Meeting of Shareholders and Investor Day will be held at the New York Stock Exchange on Monday, May 20, 2024. The AGM will begin at 9 a.m. Eastern, and the Investor Day presentation will begin at 9.30 a.m. Eastern. Will Thorndike have agreed to join us for a fireside chat to share his thoughts on capital allocation, the power of long holding periods, and his experience as an original long-term investor in Anyone interested in attending the in-person investor day, as well as the off-site cocktail reception, may RSVP by emailing james at haydenir.com. His email is in today's press.

Kent A. Hansen: Our annual general meeting of shareholders and Investor Day will be held at the New York Stock Exchange on Monday May 20th 2024.

Kent A. Hansen: The AGM will begin at nine am eastern and the Investor Day presentation will begin at 930 a M eastern.

Kent A. Hansen: We will thorndike has agreed to join us for a fireside chat to share his thoughts on capital allocation the power of long holding periods and his experience as an original and long term investor in the search fun ecosystem.

Kent A. Hansen: Anyone interested in attending the in person Investor day, as well as the I'll say cocktail reception. They ours may RSVP by E mailing James at Hayden IR Dot Com is emails in today's press release, we hope to see you there.

Operator: We hope to see you there. I'll now turn the call back over to Holly to open the line for questions. Thank you. At this time, we will be conducting a, I would like to ask.

Operator: I'll now turn the call back over to Holly to open the line for questions.

Holly: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Adam Patinkin with David Capital Partners.

Operator: A confirmation tone will indicate your line is in the question queue.

Adam Patinkin: You May press Star two if you would like to remove your question from the queue for.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Operator: Yeah.

Adam Patinkin: Your first question for today is from Adam Pannikin with David Capital Partners.

Adam Patinkin: Good afternoon, guys how are you.

Adam Patinkin: Good afternoon, guys. How are you?

Adam Patinkin: Hi, Adam Great.

John Taylor: Hi Adam. Great. Hi Adam.

Adam Patinkin: Hey, so I wanted to ask a few questions about your pipeline of new deals. I think that on the call today, you guys expressed a little bit more enthusiasm than we've heard in the past about what your deal pipeline looks like and how robust it is. I'm wondering if you could share a little bit more color about that. So first, maybe you could share maybe what kind of KPIs you look at when you judge how your platform or how your pipeline is coming along, and then maybe you could share a little bit more about, you know, kind of what systems and processes you've put in place, which I think you also alluded to or mentioned outright on the call, to help us just get a better feel for how you've improved your sourcing funnel over time.

Adam Patinkin: Hey, So I wanted to ask a few questions about your.

Adam Patinkin: Your pipeline of new deals I think that.

Adam Patinkin: The call today.

Adam Patinkin: You guys expressed a little bit more enthusiasm than we've heard in the past about what your deal pipeline looks like and how robust it is and I am wondering if you could share a little bit more color about that so first maybe if you could share maybe what kind of Kpis you look at when you judge how your platform how your pipeline is coming along.

Adam Patinkin: And then.

Adam Patinkin: Maybe if you could share a little bit more about.

Adam Patinkin: You know kind of what.

Adam Patinkin: Systems and processes, you've put in place, which I think you also alluded to or mentioned outright on the call.

Adam Patinkin: To help us get a better feel for how you've improved your sourcing funnel overtime.

Speaker Change: Yeah sure happy to chat about that a little bit I mean, I think that we try to break down our kpis between.

John Taylor: Yeah, sure. I'd be happy to chat about that a little bit.

John Taylor: I mean, I think that we try to break down our KPIs between what we call lead measures, which are things that are both influenceable by our OIRs and predictive of what we call our lag metric. And so our lead measures would be a combination of, Industries Identified and Qualified, and then first instance of outreach to primary business owners. So that could be an email campaign, LinkedIn, an in-mail campaign, snail mail, or

Speaker Change: What we call lead measures, which are things that are both Influencer Bowl.

John Taylor: <unk> and predictive of what we call our lag metrics.

John Taylor: And then the lag measures would be NDAs executed, SIMs received, that would be on the like broker and intermediary channel, indications of interest issued, or Conversations with Owners. And then ultimately, letters of intent executed into closed deals, right? So as we sort of trade, it's no different than a typical sort of sales pipeline, but sort of bifurcated between lead and lag measures. And are you tracking all of those data points numerically? Yeah, weekly, monthly, quarterly. That's right on the OIR.

John Taylor: And so our lead measures would be.

John Taylor: A combination of.

John Taylor: And, you know, in terms of the systems, right, so we track all of that in a CRM system; it's called HubSpot, but we, you know, in terms of our NDA execution, we have an electronic platform that allows us to outsource some of the legal work and track all of our NDAs. And we have internal repositories for, you know, handling all of the standard forms for NDAs and indications of interest, all of those kinds of things.

John Taylor: Industries identified and qualified.

John Taylor: And then.

John Taylor: First instance of outreach to primary business owners, so that can be.

John Taylor: Email campaign Linkedin in mail campaign snail, mail or a phone call.

John Taylor: And then the lag measures would be.

John Taylor: N D as executed.

John Taylor: Seems received that would be unlike broker intermediary channel indications.

John Taylor: Indications of interest.

John Taylor: Issued or conversations with owners.

John Taylor: And then ultimately letters of intent executed into closed deals right, so which reached sort of trade. It's no different than a typical sort of sales pipeline, but sort of bifurcated between lead and lag measures.

John Taylor: So all of those data points numerically.

John Taylor: Yes weekly monthly quarterly that's right <unk>.

John Taylor: And in terms of the systems right. So we track all of that in our CRM system, it's called hub spot.

John Taylor: Our NDA execution, we have an electronic platform that allows us to outsource some of the legal and track all of our NDA is in.

John Taylor: We have internal repositories for.

John Taylor: Handling all of that standard forms for NDA and indications of interest all of those kinds of things.

John Taylor: And so just like lots of activity I think in the first quarter, we probably said.

John Taylor: We stood up a new outsource sort of sales development resource and will take will dig into this in the investor day quite a bit more Adam but.

John Taylor: And, and so just like lots of activity, I think, you know, in the first quarter, we probably sent, we spooled up a new outsourced sort of sales development resource. And we'll dig, we'll dig into this at investor day quite a bit more, Adam, but, I think in terms of like outbound first instance of contact with business owners in the first quarter, somewhere like 15,000 contact. You know, the conversion rate that that translates into conversations with owners is a low single-digit percent. But then, you know, dozens and dozens of NDAs executed, and on down through the funnel. So there is a lot of activity.

John Taylor: I think in terms of like outbound first instance of contact with business owners in the first quarter.

John Taylor: Somewhere like 15000.

John Taylor: Contacts.

John Taylor: Conversion rate that that translates into conversations with owners as low single digit percent.

John Taylor: But then.

John Taylor: Dozens and dozens of NDA is executed and on down through the funnel so a lot of activity.

Speaker Change: Got it and you would say that this is more activity or the most activity that you've had.

Adam Patinkin: Got it. And would you say that this is more activity or the most activity that you've had?

John Taylor: Got it. And would you say that this is more activity or the most activity that you've had?

John Taylor: Yeah, there's just a lot of <unk>.

John Taylor: Yeah, there's just a lot of structure and rigor around both tracking and monitoring. I think what gets measured gets done, and the guys are really leaning into maximizing the lead measures that are then hopefully predictive of the lag.

John Taylor: And rigor around both tracking and monitoring I think what gets measured gets done and the guys are really leaning into.

Adam Patinkin: Got it. And then that's really helpful.

Adam Patinkin: Maximizing on the lead measures.

Adam Patinkin: That are then hopefully predictive of the lag measure right.

Adam Patinkin: Got it and then that's.

John Taylor: And I look forward to hearing more at the annual meeting on the same topic. So then, when do you so I saw that Kingsway recently posted Applications for new OIRs to apply to the company, and I think you mentioned that you've had over 60 applicants for one seat. I assume that you're posting those only when you feel like you're getting closer to transactions or maybe if you can, you know, speak to, obviously, without giving away or saying that you're going to deliver a transaction at any point in time. But when do you make the decision, hey, we need to go out and start recruiting for the next rounds of OIR?

Speaker Change: That's really helpful and I look forward to hearing more at the at the annual meeting.

John Taylor: On the same topic. So then when do you. So I saw that Kingsway recently posted.

John Taylor: Applications for new <unk> to apply to the company and I think you mentioned that you've had over 60 applicants for one seat.

John Taylor: I assume that you are posting those the only when you feel like you're getting closer to transactions or maybe if you can.

John Taylor: Speak to obviously without giving away or saying that youre going to deliver transaction at any point in time, but when do you make the decision hey, we need to go out and start recruiting for the next rounds of OIS.

Speaker Change: Yes, I mean, I think part of it is ongoing right I mean, I think that we firmly believe and have an expectation that each one of our carrier guys who's going to get a deal done in the normal timeframe and so we all we want to be thoughtful about knowing that we want to.

John Taylor: Yeah, I mean, I think part of it is ongoing, right? I think that we firmly believe and have an expectation that each one of our current guys is going to get a deal done in the normal timeframe. And so we all want to be thoughtful about knowing that we want to bring new people on as they move into a president or CEO role that we want to backfill and don't want to be sort of behind the curve. And so it's a lot of it. It's an ongoing process. So I wouldn't read too much into the timing.

John Taylor: Bring new people on as they.

John Taylor: Moving to our president and CEO role, we want to backfill and don't want to be sort of behind the curve and so its a lot of it is an ongoing process. So I wouldn't read too much into the timing, but just know that I think it is indicative of our confidence right that we're still recruiting.

John Taylor: But just know that I think it's indicative of our confidence, right, that we're still recruiting, and so we post those job descriptions and profile descriptions sort of quarterly, and then there's kind of ongoing, a little bit more organic development that comes through other channels as well. And we'll speak about that at investor day too. That's a big part of our process is our talent recruitment pipeline and process as well.

John Taylor: And so.

John Taylor: So that we post those job those job descriptions and 10 profile descriptions.

John Taylor: Sort of quarterly and then there is kind of ongoing.

John Taylor: A little bit more organic development that comes through other channels as well and we'll speak about that at the Investor day, two that's a big part of our processes our talent recruitment.

John Taylor: Pipeline in process as well.

Adam Patinkin: Got it. So then, let me ask one last question, which is, I saw that you guys added Tyler Gordy to your advisory board for KSX. Can you talk about how you utilize your advisory boards? So you've got, you know, Tom Joyce, and you've got Tyler Gordy, and you've got Will Thorndike on there. How do they interact with your OIRs?

Speaker Change: Got it. So then let me ask one last question.

Adam Patinkin: As I saw that you guys added toddler Gordita Your advisory Board for <unk> can you talk about how you utilize your advisory board So you've got.

Adam Patinkin: Tom Joyce and you've got.

Adam Patinkin: <unk> and you've got will thorndike down there how do they interact with.

Adam Patinkin: Your <unk> is it mostly before a deal gets done is it mostly after deal gets done or there.

John Taylor: Is it mostly before a deal gets done? Is it mostly after a deal gets done? Are there, is there a regular line of communication? Is it more structured or informal? Can you just maybe talk through how you utilize that advisory board?

John Taylor: Is there a regular line of communication is it more structured or informal can you just maybe talk through how you utilize that advisory board.

John Taylor: Yes, so the structured part is we meet in person full day three times a year we met in March.

John Taylor: Yeah, so the structured part is we meet in person for a full day, three times a year. We met in March.

John Taylor: And that is a fairly structured day. We start with identifying some critical kinds of operating areas for new presidents. This year, we focused on talent and some sort of development and coaching as the president of a small company, and we focused on time management for a new CEO, and we focused on investment underwriting and key criteria in search acquisitions. And so on those three topics, we took one of them. Tom took one, and Tyler took one, and they kind of did a workshop on that.

John Taylor: And that is a fairly structured day. We start with identifying some critical kinds of operating areas for new presidents. This year, we focused on talent and talent sort of development and coaching as the president of a small company, and we focused on time management for a new CEO, and we focused on investment underwriting and key criteria in search acquisitions. And so on those three topics. [inaudible] Will took one of them.

John Taylor: And that is a fairly structured day.

John Taylor: We start with.

John Taylor: Sure.

John Taylor: Identifying some critical kind of operating areas for new President's this year, we focused on talent.

John Taylor: And talent.

John Taylor: <unk> and coaching.

John Taylor: As the President and a small company and we focused on time management for a new CEO.

John Taylor: And we focused on.

John Taylor: In investment underwriting and key criteria in search acquisitions and so on those three topics.

John Taylor: We'll took one of them.

John Taylor: Tom took one, and Tyler took one, and they kind of did a workshop on that. So that was a big chunk of the day, the rest of the day, was split between operating updates, key challenges, and issues for each one of our KSX. CEOs, a little bit more of like a board meeting, if you will, for each one of those operating companies. And then the last sort of third of the day was pipeline, new opportunities, quick looks at deals we're looking at, key gotta-believes or important bets to help them think about both the attractiveness of the potential targets and valuation criteria.

John Taylor: Tom took one and Tyler took one and they kind of did a workshop on that so that was.

John Taylor: So that was a big chunk of the day, the rest of the day was split between operating updates, key challenges, and issues for each one of our KSX companies, and CEOs, a little bit more of like a board meeting, if you will, for each one of those operating companies. And then the last sort of third of the day was pipeline, new opportunities, quick looks at deals we're looking at, key gotta-believes, or important bets to help them think about both the attractiveness of the potential target and valuation criteria.

John Taylor: Big chunk of the day.

John Taylor: The rest of the day.

John Taylor: Was split between.

John Taylor: Operating updates key challenges and issues for each one of our key Sx Ceos, a little bit more of like a board meeting if you will for each one of those operating companies.

John Taylor: And then the last sort of third of the day was pipeline new opportunities quick looks at deals we're looking at.

John Taylor: Key Gotta believes are important bets to help them think about both the attractiveness of.

John Taylor: The potential target.

John Taylor: And valuation criteria.

John Taylor: So that would be the sort of three times a year more structured formal gatherings and then each one of these.

John Taylor: So that would be the sort of three times a year, more structured, formal gatherings. And then, you know, each one of these advisors has encouraged our guys to develop more informal mentor-mentee relationships that I'm not involved in. And so there is, I think, a lot of natural back and forth via text and phone call whenever they have something that maybe they don't want to bring to me but want some advice on that kind of thing. So it's, it's pretty amazing that they give their time, and we have, I think, very impactful gatherings when we all get together.

John Taylor: Advisors has encouraged.

John Taylor: Our guys to develop more informal mentor mentee relationships.

John Taylor: I'm not involved in.

John Taylor: And so there is I think a lot of natural back and forth via text or phone call whenever they.

John Taylor: Have something that maybe they don't want to bring to me, but want some advice on that kind of thing so.

John Taylor: <unk>.

John Taylor: It's pretty amazing.

John Taylor: That they give their time and we have.

John Taylor: Think very impactful.

John Taylor: Gatherings, when we all get together.

Speaker Change: Got it that's great. That's really helpful color I appreciate it and I will drop off but I look forward to seeing you guys in a couple of weeks at the AGM.

Adam Patinkin: Got it. That's great. That's really helpful, Culler. I appreciate it, and I will drop off, but I look forward to seeing you guys in a couple weeks at the AGM.

Speaker Change: Thanks, Adam Thanks, Adam.

Douglas Ott: Your next question is from Douglas Ott with Anvery Associates.

Operator: Your next question is from Douglas Ott with Anvery Associates.

Adam Patinkin: Your next question is from Douglas <unk> with <unk> Associates.

Douglas Ott: Hi, J T and Kent.

Douglas Ott: Hi, JT, and Kent. Hey, Doug. My first question is regarding the extended warranty business, even though there are current headwinds. I'd just like for either or both of you to talk about why this is, or isn't, a good standalone business over the long term.

Speaker Change: Hey, Doug Hey, Doug.

Douglas Ott: My first question is regarding the extended warranty business, even even though there has been.

Douglas Ott: Current headwinds.

Douglas Ott: I would just like for either or both of you did talk about why this is or isn't.

Douglas Ott: A good standalone business over the long term.

John Taylor: Yeah, it's a great question. Obviously, when you have companies whose product sales are tied to the sale of used vehicles, you have natural exposure to. The economic cycle, in this case, you know sort of the consumer credit cycle, right? And so there is some cyclicality, and we've been living with that for, you know, several quarters, call it six quarters since the Fed started raising interest rates. So I, you know, probably even before that with the pandemic and the disruption in the used car market, and all of that.

Speaker Change: Yes, it's a great question obviously.

John Taylor: When you have companies that.

John Taylor: Whose product sales are tied to.

John Taylor: The sale of used vehicles that you have natural exposure to.

John Taylor: The economic cycle in this case sort of consumer credit cycle right and so there is some cyclicality and we've been living with that for.

John Taylor: Several quarters call it six quarters since the fed started raising interest rates.

John Taylor: Probably even before that with the pandemic and the dislocation in the used car market and all of that and so start with there is some cyclicality to the business that would be viewed as a negative but.

Douglas Ott: And so to start with, there is some cyclicality to the business that would be viewed as a negative, right? But the underlying economic fundamentals of these businesses also tick a lot of boxes for us, right? So it is, diversified contractual revenue, at a high margin, and Lowe, working capital requirements, negative, negative working capital, right? So these are prepaid contracts. And so The returns on tangible capital are almost infinite because they require negative capital, right? And so we like the economic characteristics a lot. We don't love the cyclicality of it.

John Taylor: And so to start with, there is some cyclicality to the business that would be viewed as a negative, right? But the underlying economic fundamentals of these businesses also tick a lot of boxes for us, right? So it is, diversified contractual revenue, at a high margin, and Lowe, working capital requirements, negative, negative working capital, right? So these are prepaid contracts. And so The returns on tangible capital are almost infinite because they require negative capital, right? And so we like the economic characteristics a lot. We don't love the cyclicality of it.

John Taylor: The underlying economic fundamentals.

John Taylor: These businesses also tick a lot of boxes for us right. So it is.

John Taylor: Diversified contractual revenue.

John Taylor: At high margin.

John Taylor: And LOE.

John Taylor: No.

John Taylor: Working capital requirements negative negative working capital right. So these are prepay contracts and so.

John Taylor: The returns on tangible capital.

John Taylor: Like infinite because they required negative capital right and so we like the economic characteristics a lot we don't love the cyclicality.

Speaker Change: Alright, alright.

John Taylor: And perhaps you could also talk about the pros and cons of the extended warranty business, being paired with a business like KSX.

John Taylor: And perhaps you could also talk about that.

John Taylor: The pros and cons of.

John Taylor: The extended warranty business.

John Taylor: <unk> paired with a business like <unk> Sachs.

John Taylor: Sacks.

Speaker Change: Yes, I mean I think.

Douglas Ott: From the beginning, we have always said that the warranty business is just like wonderful cash-generating businesses. There's obviously a little bit of volatility in that given the cyclicality, but they, you know, they see their profits in cash, right. And so we have always viewed them as And, you know, we've got wonderful managers running those businesses that are focused on growing them organically. And we've been able to buy a few over the years at reasonable prices, and, and, and, in the absence of our ability to redeploy the cash they generate by buying more warranty businesses, which has been very hard.

John Taylor: From the beginning, we have always said that the warranty business is just like wonderful cash-generating businesses. There's obviously a little bit of volatility in that given the cyclicality, but they, you know, they see their profits in cash, right. And so we have always viewed them as And, you know, we've got wonderful managers running those businesses that are focused on growing them organically. And we've been able to buy a few over the years at reasonable prices, and, and, and, in the absence of our ability to redeploy the cash they generate by buying more warranty businesses, which has been very hard.

John Taylor: From the beginning we have always said that the warranty business Theyre, just wonderful cash generating businesses Theres, obviously, a little bit of volatility on that given the cyclicality, but.

John Taylor: They see their profit in cash right and so we have always viewed them has.

John Taylor: And we've got wonderful managers running those businesses that are focused on growing them organically and we've been able to buy a few over the years at reasonable prices.

John Taylor: And in the absence of our ability to redeploy the cash they generate bye.

John Taylor: By buying more warranty businesses, which has been very hard.

John Taylor: We have said well this is a wonderful source of cash flow that we can.

Douglas Ott: We have said, well, this is a wonderful source of cash flow that we can allocate to funding our serial acquisition program by leveraging KSX. All right, so it is, or the cash generator for now. And then as KSX scales, it will also be, you know, a cash generator to fund ongoing acquisitions as, Yeah, well.

John Taylor: We have said, well, this is a wonderful source of cash flow that we can allocate to funding our serial acquisition program by leveraging KSX. All right, so it is, or the cash generator for now. And then as KSX scales, it will also be, you know, a cash generator to fund ongoing acquisitions as, Yeah, well.

John Taylor: Allocate to funding our serial acquisition program by leveraging PSX right. So it is sort of a cash generator.

John Taylor: For now and then as <unk> scales. It will also be.

John Taylor: Our cash generator to fund ongoing acquisitions as well.

John Taylor: Yeah, well, maybe I can ask a follow-up on that response, you know, all things being equal, you know, whatever that means to you. Is there a preference for funding either KSX or the warranty business, or would you like to do both as much as you can, you know, given... Attractive opportunities?

Douglas Ott: Yeah, well, maybe I can ask a follow-up on that response, you know, all things being equal, you know, whatever that means to you. Is there a preference for funding either KSX or the warranty business, or would you like to do both as much as you can, you know, given... Attractive opportunities?

John Taylor: Yeah.

John Taylor: Maybe I can ask a follow up on that response, you know all things being equal.

John Taylor: That means to you.

John Taylor: Is there a preference.

John Taylor: For funding either can have sex or the warranty business or would you like to do both as much as you can given.

John Taylor: Active opportunities.

John Taylor: Okay.

John Taylor: Yeah.

Douglas Ott: Yeah, you know, warranty businesses require zero capital to scale, right? Because of the capital-light nature of the businesses. And so any capital that is required to build more in the warranty would be via acquisition. And we have just found these are very attractive businesses, and people really like them. And so we have found that a good business in the warranty industry is very difficult to buy; valuations are much higher than we would be willing to pay.

John Taylor: Yeah, you know, warranty businesses require zero capital to scale, right? Because of the capital-light nature of the businesses. And so any capital that is required to build more in the warranty would be via acquisition. And we have just found these are very attractive businesses, and people really like them. And so we have found that a good business in the warranty industry is very difficult to buy; valuations are much higher than we would be willing to pay.

John Taylor: Warranty businesses requires zero capital to scale right because the capital light nature of the businesses and so any capital that we're required to build more in the warranty with BV acquisition.

Douglas Ott: We have just found these are very attractive businesses and people really like them and so we have found that.

Douglas Ott: Good business in the warranty industry is very difficult to buy the evaluations are much higher than we would be willing to pay they trade it.

Douglas Ott: You know, they trade it, you know, 15 times, right? And so we're just not going to be a good buyer of those businesses. And so, all things being equal, except valuation, we would rather direct our capital to backing really talented young people looking for businesses with similar attributes in the Search Accelerator segment.

John Taylor: You know, they trade it, you know, 15 times, right? And so we're just not going to be a good buyer of those businesses. And so, all things being equal, except valuation, we would rather direct our capital to backing really talented young people looking for businesses with similar attributes in the Search Accelerator segment.

Douglas Ott: 15 times right and so we're just not going to be a good buyer of those businesses and so all things being equal except valuation.

Douglas Ott: We would rather direct our capital to backing really talented young people looking for businesses with similar attributes.

Douglas Ott: In the search accelerators.

Douglas Ott: Got it got it.

Douglas Ott: Next question. For the KSX segment, I'd like you to remind us of a few of the most important things that you guys continue to do today that are going to benefit shareholders over the very long term.

Speaker Change: Next question.

Douglas Ott: For the Cat segment.

Douglas Ott: I'd like you to remind us.

Douglas Ott: A few of the most important things that you guys continue to do today that.

Douglas Ott: Are going to benefit shareholders over very long term.

John Taylor: That's a great question. Right?

Speaker Change: So that's a great question right. So I think it's I think it's a very unique model Doug.

Douglas Ott: So I think it's a very unique model, Doug. I, you know, I've been involved in the search for a long time. But the idea of matching really wonderful talent to go into a small business that otherwise probably couldn't attract, alignment of incentives, and then focus on buying the right kind of businesses, right, large and growing industries, where that growth is supported by long-term secular trends. And then within that industry, businesses that have great business models, recurring revenue at high margins and low capital intensity, and then paying, you know, very fair multiples for those businesses.

John Taylor: So I think it's a very unique model, Doug. I, you know, I've been involved in the search for a long time. But the idea of matching really wonderful talent to go into a small business that otherwise probably couldn't attract, alignment of incentives, and then focus on buying the right kind of businesses, right, large and growing industries, where that growth is supported by long-term secular trends. And then within that industry, businesses that have great business models, recurring revenue at high margins and low capital intensity, and then paying, you know, very fair multiples for those businesses.

John Taylor: I've been involved in the search for a long time.

Douglas Ott: But the idea of matching.

Douglas Ott: Really wonderful talent to.

Douglas Ott: To go into a small business that otherwise probably couldnt.

Douglas Ott: Attracted.

Douglas Ott: Alignment of incentives and then focus on buying the right kind of businesses right.

Douglas Ott: Large and growing industries.

Douglas Ott: That growth is supported by long term secular trends.

Douglas Ott: And then within that industry businesses that have great business models.

Douglas Ott: Recurring revenue.

Douglas Ott: At high margin and low capital intensity and then paying.

Douglas Ott: Very fair multiples for those businesses.

Douglas Ott: And, you know, history has proved that we can buy great businesses in growing industries from a founder, a retiring founder, for under seven times EBITDA, and then take a really talented young entrepreneur and put them in and accelerate growth, right? And that's the model in search. That's what we're doing in Kingsway, and I think Kingsway is a really exciting platform to do that, both the long-term nature of our outlook and our ability to hold businesses for a long time and the tax efficiency because of our NOLs.

John Taylor: And, you know, history has proved that we can buy great businesses in growing industries from a founder, a retiring founder, for under seven times EBITDA, and then take a really talented young entrepreneur and put them in and accelerate growth, right? And that's the model in search. That's what we're doing in Kingsway, and I think Kingsway is a really exciting platform to do that, both the long-term nature of our outlook and our ability to hold businesses for a long time and the tax efficiency because of our NOLs.

Douglas Ott: History has proved that we can buy great businesses and growing industries.

Douglas Ott: I'm, a founder retiring founder.

Douglas Ott: For under seven times, EBITDA, and then take a really talented young entrepreneur and put them in and accelerate.

Douglas Ott: Growth alright.

Douglas Ott: That's been the model in search that's what we're doing in Kingsway in I think king's ways like a really exciting platform to do that in both the two.

Douglas Ott: Long term nature of our outlook and our ability to hold businesses for a long time.

Douglas Ott: And the tax efficiency because of our because of our Nols.

Speaker Change: Got it and one last kind of Nitty gritty question I'm I'm curious.

John Taylor: And one last kind of nitty-gritty question. I am curious, from the prior questioner. When it comes to communications with potential OIRs, I'm just curious how much of the communication is outbound versus inbound and has that changed any at all over time?

Douglas Ott: And one last kind of nitty-gritty question. I am curious, from the prior questioner. When it comes to communications with potential OIRs, I'm just curious how much of the communication is outbound versus inbound and has that changed any at all over time?

John Taylor: From the prior questioner.

John Taylor: When it comes to communications with potential OE ours.

Douglas Ott: I think it's both, right? We do outbound just to build awareness, but the best quality is inbound through the networks that continue to get stronger and bigger, right? Each one of our current presidents and OIRs has a large networks, you know, Tyler, Will, Tom, etc. And so the communication is in both directions. I would say the higher quality communication is inbound.

John Taylor: I think it's both, right? We do outbound just to build awareness, but the best quality is inbound through the networks that continue to get stronger and bigger, right? Each one of our current presidents and OIRs has a large networks, you know, Tyler, Will, Tom, etc. And so the communication is in both directions. I would say the higher quality communication is inbound.

Speaker Change: I'm just curious how much of the communication is outbound versus inbound and has that changed any at all over time.

Douglas Ott: Look I think it's both right.

Douglas Ott: We do outbound just to build awareness, but.

Douglas Ott: Best quality.

Douglas Ott: Is inbound through the networks that continue to get stronger and bigger right. Each one of our.

Douglas Ott: Current President's and <unk> have there have large networks Tyler.

Douglas Ott: Well, Tom et cetera, and so.

Douglas Ott: The communication is both directions, I would say the higher quality communication is inbound.

Speaker Change: Yeah, well I mean, it makes sense that the <unk> that you've attracted.

John Taylor: Yeah, well, it would make sense that the OIRs that you've attracted have their own networks and, You know, they wind up becoming brand ambassadors, so to speak, right? That's right. All right. Thank you for your time. I appreciate it.

Douglas Ott: Yeah, well, it would make sense that the OIRs that you've attracted have their own networks and, You know, they wind up becoming brand ambassadors, so to speak, right? That's right. All right. Thank you for your time. I appreciate it.

John Taylor: They have their own networks and.

John Taylor: They wind up becoming brand ambassadors so to speak right.

John Taylor: That's right.

Speaker Change: Got it alright. Thank you for your time I appreciate it.

Douglas Ott: Yeah, no; I appreciate the question. Thanks.

John Taylor: Yeah, no; I appreciate the question. Thanks.

Speaker Change: Yeah, No I appreciate the questions. Thanks, Doug.

Douglas Ott: There are no further questions from the phone lines I would now like to turn a floor over to James for email questions.

Operator: There are no further questions from the phone lines. I would now like to turn the floor over to James for email questions.

James Carbonara: Thank you, operator. Yes, a number of questions did come in by email. I'll start with the first one. It says you have talked about how you think the business conditions at many of the company divisions look to improve over the next six to twelve months. Can you give two or three anecdotes or signs of improvement in this business?

James: Thank you operator.

James Carbonara: Yes.

James Carbonara: Number of questions did come in on E Mail I'll start with the first one.

James Carbonara: Because you have talked about how you think the business conditions at many of the company divisions look to improve over the next six to 12 months can you give <unk>.

James Carbonara: Anecdotes or signs of improvement in these businesses.

John Taylor: Yeah, thanks, James. Yeah, so to kind of break it apart, start with the warranty businesses. I think we mentioned it in the prepared remarks, but I point out that, you know, cash revenue in the quarter was actually up year over year by about one and a half percent, and our operating expenses were down 4%. And so we're seeing that pricing that we pushed through at the end of last year starting to come through, and that will come through earned revenue over time.

Speaker Change: Yes, Thanks James.

James Carbonara: Yes. It was it was just kind of break it apart and start with the warranty businesses.

John Taylor: I think we mentioned it in the prepared remarks, but I would point out that cash revenue in the quarter was actually up year over year about one 5% and our operating expenses were down 4% and so we're seeing that pricing that we pushed through at the end of last year, starting to come through and that will come through earned revenue overtime.

John Taylor: And then sort of anecdotally, you know, Trinity, you know, in the past, we didn't talk about equipment backlogs, you know, I think those are clearing up, and that business is starting to pick back up, which is great. And then, you know, IWS, which is our vehicle service contract company that distributes to credit unions, you know, they recently signed a very large new credit union customer. I mean, they've onboarded several new credit union customers this year and last year, but you know, they recently signed a deal with a very large one, which is slated to launch late in the second or early third quarter this year, which could be, you know, a really nice needle mover. So we're super excited about that.

Speaker Change: And then sort of anecdotally.

John Taylor: Trinity in the Peg, we didn't talk about equipment backlogs I think those are clearing up and that business is starting to pick back up which is great.

John Taylor: And then <unk>, which is our vehicle service contract company that distribute to credit unions. They recently signed a very large new credit union customer onboarding.

John Taylor: On boarded several new credit Union customers this year than last year, but they recently signed a deal with a very large one which is.

John Taylor: Is slated to launch late second early third quarter, this year, which could be.

John Taylor: Really nice needle mover, so we're super excited about that.

John Taylor: And then.

John Taylor: [inaudible] And then, in KSX, I mean, I think that the big drag on performance there for several quarters has been SNS, our nurse staffing business. [inaudible] You know, we think that the industry has sort of found a bottom, you know, travel nurse demand has stopped going down. And at the same time, over the last many months, Charles has first built a kind of the tech stack internally and then recruited three new recruiters to bring more nurses onto our platform.

John Taylor: In <unk> I think the big drag on performance there for several quarters has been SNS, our nurse staffing business.

John Taylor: We think that the industry has sort of found a bottom.

John Taylor: Travel nurse demand.

John Taylor: Has stopped going down and at the same time over the last many months. Charles is first built kind of a tech stack internally and then recruited three new recruiters to bring more nurses onto our platform.

John Taylor: And in the first quarter, the number of travel nurses on assignment, we call TOAs, was up sort of 40% from the same time last year, right? So at the end of March, there were 40% more TOAs than there were at the end of December. And most of that happened in March, and that ramp will continue in April as these recruiters get up to speed. And so the trajectory of TOAs at SNS was going down last year and going up this year.

John Taylor: And in.

John Taylor: In the first quarter the number of <unk>.

John Taylor: Travel nurses on assignment we call.

John Taylor: <unk> was up 40%.

John Taylor: From the same from year end trade. So at the end of March there were 40% more than there were at the end of December.

John Taylor: And most of that happened in March in that ramp continues in April as these recruiters get up to speed and so the trajectory of Tos and SNS was going down last year and going up this year and we think that those two lines will cross very soon and we'll have a much better.

John Taylor: And we think that those two lines will cross very soon, and we'll have a much better back half, and then DDI, which we mentioned the significant growth with no corresponding sort of improvement in EBITDA, you know, they're onboarding new hospital customers every week and a half, I think, and there's pretty significant upfront expenses to bring a new hospital into their system, like technology expenses, and in some cases, they're purchasing And so we would say, you know, that business is ramping up very significantly. And we're just trying to kind of keep up with the growth while maintaining the very high level of patient care and quality of our services. So, you know, we're pretty excited about what's going on.

John Taylor: Back half of the year.

John Taylor: And then DDI, which we mentioned as significant growth with no corresponding sort of improvement in EBITDA, they're onboarding New hospital customers.

John Taylor: One every week and a half I think.

John Taylor: And there's pretty significant upfront expense to bring that a new hospital into their system like technology expenses and in some cases, they are purchasing monitors and many many of those on boarding costs get expensed, but they have a very.

John Taylor: Quick payback period, and so we would.

John Taylor: That business is ramping very significantly and we're just trying to kind of keep up with the growth while maintaining.

John Taylor: The very high level of patient care and quality of our services. So we're pretty excited about what's going on.

John Taylor: Great.

Speaker Change: You answered a few of the other questions here, but there are some additional ones.

John Taylor: That came in it it says.

Speaker Change: Yes can you talk about how the first quarter or two of results might look at new businesses. We buy do you experienced some economic drag in the early financial results, even if the businesses are doing well and meeting or exceeding expectations.

James Carbonara: Great, and I think you answered a few of the other questions here, but there are some additional ones that came in. It says, "Yeah, can you talk about how the first quarter or two of results might look for new businesses we buy? Do you experience some economic drag in the early financial results, even if the businesses are doing well and meeting or exceeding expectations?"

Speaker Change: Yes, I think I think that's a great question Ryan.

John Taylor: Yeah, I think I think that's a great question, right? I mean, I, first of all, we have a very long-term view, right? And, and so, one or two quarters is not sort of make or break our thesis, and we would absolutely expect some, I think the word you used is drag here in the first couple of quarters. If you think about when we buy a small business, they're generally small and relatively unsophisticated. And more often than not, well, I think I think we can say, have never been part of a public company report.

John Taylor: First of all we have a very long term view right.

John Taylor: And so one or two quarters is not sort of make or break our thesis and we would absolutely expect some I think the word you used is drag here in the in the first couple of quarters.

John Taylor: If you think about when we buy a small business, they're generally small and relatively unsophisticated in.

John Taylor: Yes.

John Taylor: More often than well I think I think we can say I have never been part of a public company reporting.

John Taylor: On the <unk> side, Yes, correct, yes, and so theres a lot of work we have to do right and so we add incremental overhead out of the gate audit.

John Taylor: On the KSX side, that's correct. Yep. And so there's a lot of work we have to do, right? And so we add incremental overhead out of the gate, you know, audit, both external and internal. We put them on new accounting systems, new HR policies, and benefits that are maybe enhancements to what was there in the past. You know, professionalization of these small businesses and creating a foundation that will support their growth. And so, yeah, there's a J curve is probably not the right term, but, you know, a couple quarter drag, and then they get going.

John Taylor: Both external and internal we put them on new accounting systems.

John Taylor: New HR.

John Taylor: And benefits that may be enhancements to what was there in the past.

John Taylor: Okay.

John Taylor: Professionalism mission of these small businesses and creating a foundation.

John Taylor: That will support their growth and so yes, there's a J curve is probably not the right term, but a.

John Taylor: A couple of quarter drag and then they get going and let's let's be honest. These are young young managers first time President's in there.

John Taylor: And, you know, let's be honest, these are young, young managers, first time presidents. They, and we, and I make mistakes and have to work through that too and learn from that and get better. So yeah, I think that would be expected for sure.

John Taylor: And we and I make mistakes and got to work through that to and learn from that and get better. So yeah I think.

John Taylor: That would be expected for sure.

John Taylor: Great.

James Carbonara: Great. And then continuing along, and feel free to say, you know, nothing additional to add if you feel like you've already answered it. But the next one says, it sounds like the software and cardiac monitoring businesses are doing well, but the financials don't yet reflect their upward trajectory. Can you speak to this and tell us when the financials will start to show positive momentum in these two?

John Taylor: And then continuing along and feel free to say.

James Carbonara: Nothing additional to add if you feel like you've already answered it but the next one is it sounds like the software and cardiac monitoring businesses are doing well, but the financials don't yet reflect our upward trajectory can you speak to this and tell us when the financials will start to show positive momentum in these two businesses.

Speaker Change: Yes, I mean, I think I spoke to it just sort of.

John Taylor: Yeah, I mean, I think I spoke to that, but I'll just sort of underline it. As SPI mentioned in its prepared remarks, we added eight new enterprise customers. And once those customers get onboarded, there's a little bit of customization of the software.

John Taylor: Underscore Spi mentioned in the prepared remarks, we added eight new enterprise customers and once those customers get on boarded theres, a little bit of customization of the software.

John Taylor: Once they come on board, well, you know, that will see a nice uplift in ARR, and Drew's very focused on, you know, continued penetration in his markets. He has a great strategy and a great team, and Yeah, so, you know, I'm very happy about that. And, you know, the software business is really in his case, you know, about growing ARR. We talk about the rule of 40, right, ARR growth plus EBITDA margin greater than 40.

John Taylor: Once they've come on will that we'll see a nice uplift in <unk> very focused on.

John Taylor: Continued penetration and as markets and got a great strategy and a great team in.

John Taylor: Yeah, So I'm very happy about that and software business is really.

John Taylor: In his case.

John Taylor: About growing <unk> talk about the rule of 40, right IRR growth plus EBITDA margin greater than 40 and that he wants to be there and so right now is leaning into AOR growth.

John Taylor: And that's where he wants to be. And so right now, he's leaning into ARR growth. As he, you know, more fully penetrates his market, the focus may shift towards improving EBITDA margins, but for now, he wants to make it a much larger business. And, you know, DDI, as I said, there's a lot of upfront investment to onboard these new hospitals, you know, tech installations, those are upfront costs, but they have an extremely fast payback. And he's growing very quickly, in terms of new hospitals.

John Taylor: More fully penetrate this market.

John Taylor: The focus may shift towards <unk>.

John Taylor: Improving EBITDA margins, but for now he wants to make it a much larger business.

John Taylor: And.

John Taylor: As I said.

John Taylor: There's a lot of upfront investment to onboard.

John Taylor: These new hospitals tech installations, and those are upfront cost, but they have an extremely fast payback and he's is growing very quickly.

John Taylor: In terms of new hospital adds.

John Taylor: Excellent.

John Taylor: Okay.

James Carbonara: Excellent. Okay, and one of the questions is, can you talk about the float at the insurance companies and the size of the portfolio? What is the yield today, and how long will it take to get closer to a market rate at five percent plus?

John Taylor: One of the questions is can you talk about the float at the insurance companies and the size of the portfolio.

James Carbonara: What is the yield today, and how long will it take to get closer to a market rate at 5% plus.

Speaker Change: Yes, I assume they mean warranty not insurance important.

John Taylor: Yeah, I assume they mean warranty, not insurance. An important distinction, but yes.

John Taylor: Distinction, but yes.

John Taylor: So the flow, we have roughly $40 million bond portfolio, and another $8 million or so in restricted cash.

Kent A. Hansen: So the flow, we have roughly $40 million in a bond portfolio and another 8 million or so in restricted, and the bond portfolio is externally managed. And right now, that portfolio sits at about a two-year duration. And that duration has been coming down over the last couple of years and really is trying to match the sweet spot of the yield curve, which is right there, you know, kind of two years to pick up the most yield.

Kent A. Hansen: And the bond portfolio is externally managed.

Kent A. Hansen: Right now we.

Kent A. Hansen: That portfolio sits at about a two year duration.

Kent A. Hansen: And that duration has been coming down over the last couple of years.

Kent A. Hansen: And really is trying to match the sweet spot of the yield curve, which is right. There. Okay two years to pick up the most yield.

Kent A. Hansen: And so with a two-year duration, and we've been in this higher interest rate environment for a year, I would think, Probably one more year as these maturities roll over to be fully invested to get back up to that market rate of five plus. Right now, the market yield on the portfolio is north of five percent. So as we roll over, that should happen in about a year. When you say about a year, I would think so. Yeah.

Kent A. Hansen: And so.

Kent A. Hansen: Yes.

Kent A. Hansen: With a two year duration.

Kent A. Hansen: And we've been in this higher interest rate environment kind of a year I would think.

Kent A. Hansen: Probably one more year as these maturities.

Kent A. Hansen: Rollover to be fully invested to get back up to that market rate of five plus right now the market yield on the portfolio is north of 5%. So.

Kent A. Hansen: As we rollover.

Kent A. Hansen: That should happen about a year.

Speaker Change: When you say, Kevin about a year I would think so yeah. We're currently yielding.

Kent A. Hansen: I would think so. Yeah, we're currently yielding, let's just say low threes right now. So that continues to go up as the portfolio continues to turn over.

Kent A. Hansen: Let's just say, it's low threes right now so in the.

Kent A. Hansen: That continues to go up as the portfolio continues to turnover.

Kent A. Hansen: Okay.

James Carbonara: Okay, the next question is, do you think we will be able to close on two new acquisitions prior to year end 2020?

Speaker Change: Next question is do you think we will be able to close on two new acquisitions prior to year end 2024.

James Carbonara: Well with all of the Safe Harbor language that Holly gave at the beginning of the call.

John Taylor: Well, with all of the safe harbor language that Holly gave at the beginning of the call. Yeah, look, I think we've demonstrated our ability to do it. I feel really good about both the level of activity, we talked about those lead measures that Adam asked about, and you know, the amount of rocks our OIRs are turning over. And, and, you know, a very healthy pipeline. I feel very good about it.

John Taylor: <unk>.

John Taylor: Yeah look I mean, I think we've demonstrated our ability to do it.

John Taylor: I feel really good about both the level of activity, we talked about those lead measures, let Adam asked about and.

John Taylor: The amount of Av.

John Taylor: Rocks are <unk> or turning over.

John Taylor: And very healthy pipeline I feel very good about it but.

John Taylor: Yeah. But, you know, buying a company or buying 100% of a small business is always a very hard endeavor and fraught with risk and things that go wrong. And so, with the proper caveat that it's hard to predict.

John Taylor: Buying a company buying 100% of our small business is always a very hard endeavor and fraught with risk and things that go wrong and so with the proper caveat that it's hard to predict.

Speaker Change: Got it.

James Carbonara: Got it. And the last one here is, without giving guidance, do you think that even our growth will start to turn positive as we move through the next two or three quarters?

John Taylor: And then last one here is without giving guidance.

James Carbonara: Do you think that EBITDA growth will start to turn positive.

James Carbonara: Through the next two or three quarters.

Speaker Change: Yes, yes.

Kent A. Hansen: Yeah, yes. Just because JT mentioned the warranty side, the claims expense really started to increase about this time a year ago in Q2 and Q3. So, you know, we just believe that with, not giving any guidance, but keeping at our pace, we should have favorable year-over-year comps going.

Kent A. Hansen: Because as Jason mentioned.

Kent A. Hansen: On the warranty side the claims expense really started too.

Kent A. Hansen: Increase.

Kent A. Hansen: About this time a year ago in Q2 and Q3, so we just believed with.

Kent A. Hansen: Not giving any guidance but.

Kent A. Hansen: Keeping at our pace, we should have.

Kent A. Hansen: Favorable year over year comps going forward.

Kent A. Hansen: Great.

James Carbonara: Great. I see no further email questions. I'll pass it back to the operator.

Speaker Change: I see no further email questions.

Speaker Change: Pass it back to the operator.

Speaker Change: There are no further questions from the phone lines I will turn the floor over to management for any closing remarks.

Operator: There are no further questions from the phone lines. I'll turn the floor over to management for any closing remarks.

Speaker Change: Okay. Thank you Holly no additional remarks other than we hope to see you all at our Investor Day in New York on May 20th will do kind of a management presentation and a deep dive on <unk>.

John Taylor: Okay, thank you, Holly. No additional remarks other than we hope to see you all at our investor day in New York on May 20. We'll do kind of a management presentation and a deep dive on KSX. Under the Hood on DDI, Peter Dousman will be there to talk about his business, and then a wonderful fireside chat with our KSX advisory board member, Will Thorndyke, in addition to talking about his book, Outsiders, and his podcast, 50 X.

John Taylor: Under the Hood on DDI, Peter Dowsman will be there to talk about his business and then a wonderful fireside chat with our <unk> Advisory Board member will foreign dike.

John Taylor: We'll talk about his experience as a search fund investor and some of the research he's done around that asset class and the power of a long-term holding period. So I think it'll be a really nice way to tie together a bunch of interesting threads and hope you're all there. I think for those that come, I think we'll purchase copies of Will's book and he'd probably sign them for you. So that would be fun.

John Taylor: In addition to talking about his book.

John Taylor: Outsiders and his podcast with Dx will talk about his experience as a search fund investor.

John Taylor: And some of the research he has done around that asset class.

John Taylor: The power of long term holding period, so I think it'll be a really nice way to tie together a bunch of interesting fed threads and hope you are all there I think for those that come I think we have.

John Taylor: Purchased copies of Wills book, probably sign them for you so that will be fun.

Speaker Change: That's all I have Holly.

Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Q1 2024 Kingsway Financial Services Inc Earnings Call

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