Q3 2024 Kingsway Financial Services Inc Earnings Call
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Operator: Good day, and welcome to the Kingsway third 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. Please note this conference is being recorded.
Speaker Change: Good day and welcome to the Kingsway third 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. Please note. This conference is being recorded.
Operator: With me on the call are J.T. Fitzgerald, Chief Executive Officer, and Kent Hansen, Chief Financial Officer.
Speaker Change: With me on the call are J P Fitzgerald, Chief Executive Officer, and Ken Hanson Chief Financial Officer.
Operator: Before we begin, I want to remind everybody 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 outlooks. Actual results or trends could materially differ from those contemplated by those forward-looking states. 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 and subsequent Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.
Speaker Change: Before we begin I want to remind everybody 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.
Speaker Change: Actual results or trends could materially differ 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, and subsequent form 10.
Speaker Change: 10-Q, and form 8-K filed with the Securities and Exchange Commission.
Operator: 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 in our periodic filings with the SEC.
Speaker Change: Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance are.
Speaker Change: A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release as well and our periodic filings with the SEC.
John Taylor: Now I would like to turn the call over to J.T. Fitzgerald, CEO of Kingsway. J.T., please proceed.
Speaker Change: Now I would like to turn the call over to J T Fitzgerald CEO of Kingsway J T. Please proceed.
J.T. Fitzgerald: Thank you, John.
Speaker Change: Thank you John and good afternoon, everybody and welcome to the Kingsway earnings call for the third quarter of 2024.
J.T. Fitzgerald: Good afternoon, everybody. And welcome to the Kingsway earnings call for the third quarter of 2024. Let me start by saying that we had another very solid quarter that was largely in line with our expectations. We saw improving performance in our extended warranty segment. which showed strong cash sales and a continuing moderation of claims experience. and exited the quarter with nice momentum heading into the fourth quarter. Our KSX segment also performed to our expectations with adjusted EBITDA improving sequentially and year over year. The third quarter was highlighted by our acquisition of image solutions at the end of September, marking our sixth acquisition in our Accelerator portfolio.
Speaker Change: Let me start by saying that we had another very solid quarter that was largely in line with our expectations.
Speaker Change: We saw improving performance in our extended warranty segment.
Speaker Change: Which showed strong cash sales and the continuing moderation of claims experience.
Speaker Change: And exited the quarter with nice momentum heading into the fourth quarter.
Speaker Change: Our <unk> segment also performed to our expectations with adjusted EBITDA, improving sequentially and year over year.
Speaker Change: The third quarter was highlighted by our acquisition of image solutions at the end of September marking our sixth acquisition in our accelerator portfolio.
J.T. Fitzgerald: Image Solutions is one of the largest IT managed service providers in Western North Carolina, with approximately 85% contractual recurring revenue, with low churn, strong margins and impressive historical organic growth. We acquired the company for $19.5 million, roughly 6.3 times TTM EBITDA. Plus some transaction expenses and a small working capital adjustment. in an all-cash transaction. As a service business operating in an industry with attractive long term growth opportunities, established customer relationships and a high margin asset light business model with 12 month adjusted EBITDA of 3.1 million for the 12 months ended June 30th, 2024. Image solutions met all of our clearly defined investment criteria.
Speaker Change: Image solutions is one of the largest managed service providers in Western North Carolina with approximately 85% contractual recurring revenue.
Speaker Change: With low churn and strong margins and impressive historical organic growth.
Speaker Change: We acquired the company for $19 $5 million roughly six three times TTM EBITDA.
Speaker Change: Plus some transaction expenses and a small working capital adjustment.
Speaker Change: In an all cash transaction.
Speaker Change: As a service business operating in an industry with attractive long term growth opportunities established customer relationships.
Speaker Change: The high margin asset light business model.
Speaker Change: With 12 month, adjusted EBITDA of $3 1 million for the 12 months ended June 32024.
Speaker Change: Image solutions met all of our clearly defined investment criteria.
J.T. Fitzgerald: Davide Zanchi led the deal and has since transitioned from his role as an OIR. to the CEO of the company. Davide and his team will be focusing on scaling the business by further penetration of their existing market. Expanding its service area geographically and eventually expanding its offerings to include services such as cyber security and cloud storage. As you may know, Image Solutions is in the middle of the area that was devastated by Hurricane Helene. Fortunately, our team members and their families were all safe, and the region continues to recover. Image Solutions was one of the first IT providers to get back up and running and has been working tirelessly to help its customers and prospects get back to business.
Speaker Change: <unk> Zhang he led the deal and has since transitioned from his role as an O I R.
Speaker Change: To the CEO of the company.
Speaker Change: Every day and his team will be focusing on scaling the business by.
Speaker Change: Further penetration of their existing market.
Speaker Change: Expanding its service area geographically and eventually expanding its offerings to include services, such as cyber security and cloud storage.
Speaker Change: Yeah.
Speaker Change: As you May know image solutions is in the middle of the area that was devastated by Hurricane Helene <unk>.
Speaker Change: Fortunately our team members and their families were all safe and the region continues to recover.
Speaker Change: Image solutions was one of the first providers to get back up and running and has been working tirelessly to help its customers and prospects get back to business.
J.T. Fitzgerald: We believe any short-term impacts from the storm are delayed revenue rather than lost revenue as hardware installations are being rescheduled to later this year. Operationally, the third quarter was again largely in line with our expectations. Consolidated revenue was $27.1 million, a solid increase of nearly 10% compared to the prior year quarter. Our consolidated adjusted EBITDA was $2.9 million, a 28% improvement over the $2.3 million in the year ago quarter. For the Extended Warranty segment and the KSX segment, combined adjusted EBITDA was $3.4 million in the third quarter, an increase of 5% compared to $3.2 million in the third quarter of last year.
Speaker Change: We believe any short term impacts from the storm are delayed revenue rather than lost revenue as hardware installations are being rescheduled to a later this year.
Speaker Change: Operationally the third quarter was again largely in line with our expectations consolidated revenue was $27 $1 million, a solid increase of nearly 10% compared to the prior year quarter.
Speaker Change: Our consolidated adjusted EBITDA was $2 $9 million or 28% improvement over the $2 3 million in the year ago quarter.
Speaker Change: Okay.
Speaker Change: For the extended warranty segment and the <unk> segment combined adjusted EBITDA was $3 $4 million in the third quarter, an increase of 5% compared to $3 2 million in the third quarter of last year.
J.T. Fitzgerald: Digging into our extended warranty segment, a slight increase in the sale of warranty contracts and higher cash sales drove a 3.4% increase in revenue. Claims expense rose by 7.5% over the third quarter of last year, which is lower than the 12% increase that we experienced in the year ago period. Unidate claims expenses up 7.3% over prior year compared to an 11% increase in the year ago period. Adjusted EBITDA of $2.1 million was essentially flat to prior year as an increase in claims offset gains from increased revenue and ongoing cost savings initiatives. While the impact from claims inflation have not abated quite as quickly as anticipated, they are improving.
Speaker Change: Digging into our extended warranty segment, a slight increase in the sale of warranty contracts and higher cash sales drove a three 4% increase in revenue.
Speaker Change: Claims expense rose by seven 5% over the third quarter of last year, which is lower than the 12% increase that we experienced in the year ago period.
Speaker Change: Year to date claims expense is up seven 3%.
Speaker Change: Over prior year compared to an 11% increase in the year ago period.
Speaker Change: Adjusted EBITDA of $2 1 million was essentially flat to prior year as an increase in claims offset gains from increased revenue and ongoing cost savings initiatives.
Speaker Change: While the impact from claims inflation have not abated as quite as quickly as anticipated they are improving.
J.T. Fitzgerald: We also see opportunity for accelerating growth in our credit union and mechanical business. IWS's Opportunity Pipeline has returned to pre-pandemic levels and is currently onboarding two new significant credit union partners, while Trinity, our commercial HVAC and refrigeration warranty business, continues to grow and hit record levels of revenue and profitability. We also believe that any future interest rate cuts from the Fed could have a positive impact on our extended warranty business. as lower interest rates make auto financing more affordable for the end customer. In our Search Accelerator, or KSX segment, revenues increased 23% compared to the year ago quarter.
Speaker Change: We also see opportunity for accelerating growth in our credit Union and mechanical businesses.
Speaker Change: <unk> opportunity pipeline has returned to pre pandemic levels and is currently Onboarding two new significant credit Union partners.
Speaker Change: While Trinity our commercial HVAC and refrigeration warranty business continues to grow.
Speaker Change: Hit record levels of revenue and profitability.
Speaker Change: We also believe that any future interest rate cuts from the fed could have a positive impact on our extended warranty business.
Speaker Change: As lower interest rates make auto financing more affordable for the end customer.
Speaker Change: In our search accelerated our <unk> segment revenues increased 23% compared to the year ago quarter.
J.T. Fitzgerald: primarily as the result of a favorable comparison due to the acquisition of SPI late in the third quarter of last year and the acquisition of DDI in the fourth quarter of last year.
Speaker Change: Primarily as the result of a favorable comparison due to the acquisition of Spi late in the third quarter of last year and the acquisition of DDI and the fourth quarter of last year.
J.T. Fitzgerald: Q3 2024 results exclude those of Image Solutions as we only own that business for a few days during the quarter. within KSX, talk about each one of those businesses at Ravik. The team focuses on increasing utilization rates and managing costs to improve profitability. Gross margins improved slightly for both the third quarter and year-to-date compared to prior year period. Despite a slight decline in revenue. Adjusted EBITDA was down in the third quarter compared to the third quarter of last Overall, the venture market remains slow in the quarter with deal volume depressed as fewer new companies are being funded and in need of our service.
Speaker Change: Q3, 2024 results exclude those of image solutions as we only owned that business for a few days during the quarter.
Speaker Change: Within K Sx talk about each one of those businesses at <unk>.
Speaker Change: The team focuses on increasing utilization rates and managing costs to improve profitability gross margins improved slightly for both the third quarter and year to date compared to prior year periods. Despite a slight decline in revenue.
Speaker Change: Adjusted EBITDA was down in the third quarter compared to the third quarter of last year.
Speaker Change: Overall, the venture market remained slow in the quarter with fuel volume depressed as fewer new companies are being funded and in need of our services. However, the market is showing signs of recovery.
J.T. Fitzgerald: However, the market is showing signs of recovery. October was a favorable month from a new opportunity perspective as the team's marketing efforts are starting to generate solid leads and the trend of closed deals over prior year turned positive for the first time this year in October. Similarly, at C-suite, persistent challenging market conditions were again an overhang for the business in the third quarter. The team has a solid pipeline of staffing requests, however, with a slower private equity deal market and macro uncertainty, the team is experiencing placement deferrals. Importantly, the placements are being deferred and not canceled, and we continue to believe the business has a healthy outlook and is headed in the right direction strategically.
Speaker Change: October was a favorable months from a new opportunity perspective as the teams marketing efforts are starting to generate solid leads and the trend of closed deals over prior year turned positive for the first time this year in October.
Speaker Change: Similarly at C suite persistent challenging market condition.
Speaker Change: Conditions were again, an overhang for the business in the third quarter.
Speaker Change: The team has a solid pipeline of staffing requests however, with a slower private equity deal market and macro uncertainty. The team is experiencing placement deferrals importantly, the placements are being deferred and not canceled and we continue to believe the business has a healthy outlook and it's headed in the right direction strategically.
J.T. Fitzgerald: For the third quarter, revenue was lower than the prior year period, yet the impact of operating income and adjusted EBITDA was diminished by a lower cost of sales and lower G&A expenditures. At SNS, our nurse staffing company, we made great progress on the rebuild of our travel business in the quarter. The number of total shifts increased 5% year-over-year, while travel shifts increased 73% year-over-year, and the number of travel nurses on assignment has more than doubled since the beginning of the year. In spite of higher shift counts, competitive pressure on pricing caused revenue to decline roughly 1% in the current quarter versus last year.
Speaker Change: For the third quarter revenue was lower than the prior year period, yet the impact of operating income and adjusted EBITDA was diminished by a lower cost of sales and lower G&A expenses.
Speaker Change: At SNS, our nurse staffing company, we made great progress on the rebuild of our travel business in the quarter.
Speaker Change: The number of total shifts increased 5% year over year, while travel shifts increased 73% year over year and the number of travel nurses on assignment has more than doubled since the beginning of the year.
Speaker Change: In spite of higher shift counts competitive pressure on pricing cause revenue to decline roughly 1% in the current quarter versus last year.
J.T. Fitzgerald: Adjusted EBITDA was also slightly down compared to prior year, but the magnitude of decline is much less than we saw in the first half of 2024. We're beginning to see a positive change in the industry and Charles continues to focus on margins, working capital management, technology upgrades, and building a bench of top notch recruiters. We remain optimistic about the outlook for the nurse staffing market and the prospects for this business. At SPI, our global software solutions provider for the management of share owned properties, revenue increased. And in fact, year to date revenue through the first nine months of 2024 is on par with the full year revenue number that we used to base our investment decision just a year ago.
Speaker Change: Adjusted EBITDA was also slightly down compared to prior year, but the magnitude of decline is much less than we saw in the first half of 2024.
Speaker Change: We're beginning to see a positive change in the industry and Charles continues to focus on margins working capital management technology upgrades and building a bench of top notch recruiters, we remain optimistic about the outlook for the nurse staffing market and the prospects for this business.
Speaker Change: At Spi, our global software solutions provider for the management of share owned properties revenue increase and in fact year to date revenue through the first nine months of 2024 is on par with our full year revenue number that we used.
Speaker Change: To base, our investment decision just a year ago.
J.T. Fitzgerald: Since acquisition, SPI has grown its ARR, Annual Recurring Revenue, by 16%. expanded its capabilities through discipline, recruiting and development of its team, added new clients and expanded with existing customers. Operational metrics are also up across the board with solid ARR growth and excellent growth and net retention dynamics. Drew and the team are building a solid pipeline of qualified leads for continued ARR growth. At DDI, our provider of fully managed outsourced cardiac monitoring services, investments that have been made in infrastructure and talent are beginning to pay off. team opened its second operations center in Salt Lake City in the third quarter, which provides not only the capacity needed to grow, but also reduces the business risk associated with having only a single operation.
Speaker Change: Since acquisition Spi has grown its <unk> annual recurring revenue by 16%.
Speaker Change: Standard its capabilities through disciplined recruiting and development of its team added new clients and expanding with existing customers.
Speaker Change: Operational metrics are also up across the board with solid <unk> growth and excellent gross and net retention dynamics <unk>.
Speaker Change: Drew and the team are building a solid pipeline of qualified leads for continued <unk> growth.
Speaker Change: Had DDI are provider of fully managed outsource cardiac monitoring services investments that have been made in infrastructure and talent are beginning to pay off.
Speaker Change: Team opened its second operation Center in Salt Lake City in the third quarter, which provides not only the capacity needed to grow but also reduces the business risk associated with having only a single operation Center.
J.T. Fitzgerald: Revenue continues to grow over prior year pre-acquisition periods, with revenue in the quarter up 20% year-over-year and up 19% year-to-date. Adjusted EBITDA was down modestly in the quarter and from prior year periods due to the aforementioned investments and growth. DDI has a robust backlog of new customers that will be onboarded over the next couple of quarters. and the Near to Midterm Pipeline of Opportunities also remain strong. We expect profitability to improve as the business scales. Based on the performance of our operating businesses, the 12 month run rate adjusted EBITDA improved to $18.5 million to $19.5 million.
Speaker Change: Revenue continues to grow over prior year.
Speaker Change: Pre acquisition periods with revenue in the quarter up 20% year over year and up 19% year to date.
Speaker Change: Adjusted EBITDA was down modestly in the quarter and from prior year periods due to the aforementioned investments in growth.
Speaker Change: CDI has a robust backlog of new customers that will be on boarded over the next couple of quarters.
Speaker Change: In the near to midterm pipeline of opportunities also remain strong.
Speaker Change: We expect profitability to improve as the business scales.
Speaker Change: Okay.
Speaker Change: Based on the performance of our operating businesses. The 12 months run rate adjusted EBITDA improved to $18 5 million to $19 5 million.
J.T. Fitzgerald: Those numbers include image solution. As a reminder, run rate is intended to capture the last 12 months of adjusted EBITDA for the businesses we currently own, including those we have recently acquired. Of note, run rate adjusted EBITDA was negatively impacted in the quarter by a roughly 100 basis point reduction in the reinvestment market yield on our warranty float at quarter end.
Speaker Change: Those numbers include.
Speaker Change: Image solutions.
Speaker Change: As a reminder, run rate is intended to capture the last 12 months of adjusted EBITDA for the businesses, we currently own including those we have recently acquired.
Speaker Change: Of note run rate adjusted EBITDA was negatively impacted in the quarter by roughly 100 basis point reduction in the reinvestment market yield on our warranty float at quarter end.
J.T. Fitzgerald: Last week, we announced that Rob Casper has joined Kingsway as our newest operator and resident. Rob previously led private equity-backed consolidations in the veterinary services and HVAC and plumbing industries and has developed a solid investment thesis targeting a couple of attractive service Rob is a graduate of the United States Naval Academy and served three deployments as an officer in the Marine Corps. He holds a Bachelor of Science degree in Systems Engineering from the Naval Academy and an MBA from Harvard Business School. Prov brings really terrific leadership and operational execution experience to the team and has hit the ground running.
Speaker Change: Last week, we announced that Rob Casper has joined Kingsway is our newest operator and residents.
Speaker Change: Rob previously led private equity backed consolidations in the veterinary services and HVAC and plumbing industries and has developed a solid investment thesis targeting a couple of attractive service industries.
Speaker Change: Rob is a graduate of the United States Naval Academy and served three deployments as an officer in the Marine Corps.
Speaker Change: He holds a Bachelor of Science degree in systems Engineering from the Naval Academy and an MBA from Harvard business School.
Speaker Change: Yeah.
Speaker Change: Rob brings really terrific leadership and operational execution experience to the team and has hit the ground running.
J.T. Fitzgerald: With the addition of Rob and Davide transitioning to CEO of Image Solutions, we currently have four OIRs who are actively searching for acquisition opportunities. We have a great current cohort of entrepreneurs and a solid deal flow pipeline to support our strategy of acquisitive growth within our accelerator sector. Summarize solid operational execution and discipline management drove improved consolidated financial results for the third quarter. And we're seeing promising signs of further improving market condition. We're excited about the opportunities with the addition of image solutions to our KSX portfolio and remain committed to our corporate strategy of growth through acquisition.
Speaker Change: With the addition of Rob and David date transitioning the CEO of image solutions. We currently have for <unk>, who are actively searching for acquisition opportunities.
Speaker Change: We have a great current cohort of entrepreneurs and a solid deal flow pipeline to support our strategy of acquisitive growth within our accelerators segment.
Speaker Change: Summarize solid operational execution and disciplined management drove improved consolidated financial results for the third quarter, and we're seeing promising signs of further improving market conditions.
Speaker Change: We're excited about the opportunities with the addition of image solutions to our <unk> portfolio and remain committed to our corporate strategy of growth through acquisitions.
Kent Hansen: I'll now turn the call over to Kent for some additional commentary related to the Thanks, JT. 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 US Veterans Administration. In August, we completed the sale of the VA clinic. The final adjustment between the net carrying value of the assets and the selling price as well as the loss on disposal are recorded below the operating line in this continued operation. As JT discussed, we acquired Image Solutions during the third quarter for $19.5 million plus transaction expenses and a working capital adjustment.
Speaker Change: I will now turn the call over to Kent for some additional commentary related to the financials.
Kent: Thanks J T.
Kent: As a reminder, during the fourth quarter of 2022, we began executing our plan to sell one of our subsidiaries VA Lafayette, which owns a medical clinic, who sold tenant as the U S. Veterans administration in August we completed the sale of the VA clinic.
Kent: The final adjustment the final adjustment between the net carrying value of the assets and the selling price as well as the loss on disposal are recorded below the operating line in discontinued operations.
Speaker Change: As Jason discussed we acquired image solutions during the third quarter for $19 5 million plus transaction expenses and a working capital adjustment.
Kent Hansen: The transaction was funded by $11.4 million in cash and $7.75 million in debt financing. The $11.4 million came primarily from the proceeds of the issuance of 330,000 shares of newly created Class B convertible preferred stock and proceeds from drawing on our existing KWH loan and cash on hand. The $7.75 million of debt financing was provided by Avid Bank in the form of a six-year term loan with a graduated amortization schedule that is non-recourse to Kingsway. Also during the third quarter, we completed in a creative purchase of the 10% interest in IWS that we did not previously own.
Kent: The transaction was funded by $11 4 million in cash and $775 million in debt financing the.
Kent: The $11 4 million came primarily from the proceeds of the issuance of 330000 shares of newly created class B convertible preferred stock and proceeds from drawing on our existing kwh loan and cash on hand.
Speaker Change: The seven $775 million of debt financing was provided by avid bank in the form of a six year term loan with a graduated amortization schedule that is nonrecourse to kingsway.
Speaker Change: Also during the third quarter, we completed an accretive purchase of the 10% interest in AWS that we did not previously own.
Kent Hansen: And as such, IWS is now a wholly owned subsidiary of the company.
Speaker Change: And as such I Ws is now a wholly owned subsidiary of the company.
Kent Hansen: As of September 30, we had cash and cash equivalents of $6.5 million compared to $9.1 million at the end of 2023 and total debt outstanding of $58.5 million compared to $44.4 million at the end of 2023. Our debt balance is comprised of $44.8 million of bank loans and $13.7 million of subordinated debt. Net debt increased to $52 million as of September 30, 2024, compared to $35.3 million at the end of 2023, primarily due to the $7.75 million of acquisition financing for Inmosolutions, and a $1 million draw on the KWH revolver, as well as a $6.5 million draw on the KWH delayed draw term loan.
Speaker Change: As of September 30th we had cash and cash equivalents of $6 5 million compared to $9 1 million at the end of 2023 and total debt outstanding of $58 5 million compared to $44 4 million at the end of 2023.
Speaker Change: Our debt balance is comprised of $44 8 million of bank loans, and $13 7 million of subordinated debt.
Speaker Change: Net debt increased to $52 million as of September 32024, compared to $35 3 million at the end of 2023, primarily due to the $775 million of acquisition financing for <unk> solutions.
Speaker Change: A $1 million draw on the kwh revolver as well as a $6 $5 million draw on the kwh delayed draw term loan.
Kent Hansen: In March of this year, our securities repurchase program was extended for one year through March of 2025. Year-to-date, we have repurchased 312,850 shares of common stock for an aggregate purchase price of approximately $2.5 million.
Speaker Change: In March of this year, our securities repurchase program was extended for one year through March of 2025.
Speaker Change: Year to date, we have repurchased $312 eight 850 shares of common stock for an aggregate purchase price of approximately $2 5 million.
John Taylor: I'll now turn the call back over to John to open the line for any questions. Thank you.
Speaker Change: I'll now turn the call back over to John to open the line for any questions.
Speaker Change: 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'd 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 key.
Operator: 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'd 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. Once again, please press star one if you have a question or comment.
Speaker Change: One moment, please while we poll for questions. Once again, please press star one if you have a question or comment.
Joshua Horowitz: Next question comes from Joshua Horowitz with Palm. Thank you, RJT.
Speaker Change: Our first question comes from Joshua Horowitz with Palm. Please proceed.
Joshua Horowitz: Thank you Jackie.
Unknown Executive: Hey, Josh, how are you? Good, good.
Speaker Change: Hey, Josh how are you.
Unknown Executive: A couple of questions. I guess, you know, what are you seeing out there? What industries are the most attractive? As you look for new acquisitions, and you know, multiple years into this KSX model, like, is the talent recruitment getting easier? Are you getting to some flywheel?
Joshua Horowitz: Good good.
Speaker Change: Quick couple of questions I guess, what are you seeing out there what industries are the most attractive because you look for new acquisitions and multiple years into this cadence.
Speaker Change: Model y.
Speaker Change: With talent recruitment getting easier as.
Speaker Change: Are you getting some flywheel.
J.T. Fitzgerald: Yeah, maybe I'll take those in reverse order. In terms of talent acquisition, you know, we sort of approach that several different ways. We try to maintain a fairly active presence on the campuses of, of the sort of elite business schools that have ETA programs. So engage with their ETA clubs and do lunch and learns and, and post on their internal job boards. We attend ETA conferences as well, but our best source of talent is, as you might suspect, from referrals from our existing OIRs. And so as the number of OIRs that become CEOs continues to grow, we get more and higher quality referrals from their personal networks.
Speaker Change: Yes, maybe I'll take those in reverse order.
Speaker Change: In terms of talent acquisition.
Speaker Change: We sort of approach that several different ways.
Speaker Change: We try to maintain a fairly active presence on the campuses of.
Speaker Change: The sort of elite business schools that have EPA programs, so engaged with their EPA clubs and do lunch and learns and post on their internal job boards.
Speaker Change: We attend DTA conferences.
Speaker Change: As well.
Speaker Change: And.
Speaker Change: But our best source of talent as you might suspect.
Speaker Change: From referrals from our existing <unk> and so as the number of <unk> that become Ceos continues to grow we get more.
Speaker Change: More and higher quality referrals from their personal networks. So yes, I think that there is a real flywheel.
J.T. Fitzgerald: So yes, I think that there is a real flywheel element to that, and I think as a result we're able to get really, really talented folks interested in the KSX program.
Speaker Change: Element to that and I think as a result, we're able to get really really talented folks interested in the Ks X program.
J.T. Fitzgerald: In terms of industries, in each one of our OIRs, we encourage them to develop a handful of industry theses. I think that we have done white papers on about 45 different industries to date. across the spectrum, but As you might suspect, given our focus on recurring revenue business models, high margin, low capital intensity, they end up being in asset-licensed business services, vertical market software, things like that. So I think, you know, we probably won't buy a manufacturing business, for instance, so. But they're, you know, to say industry, it's really sub-industries within sub-industries. We're really focused in trying to identify opportunities in the niches.
Speaker Change: In terms of industries and each one of our <unk>, we encourage them to develop a handful of industry <unk> I think that we have done sort of white papers on about 45 different industries today.
Speaker Change: And they are sort of.
Speaker Change: Across the spectrum, but.
Speaker Change: As you might suspect given our focus on recurring revenue business models high margin low capital intensity.
Speaker Change: They end up being in.
Speaker Change: Kind of asset.
Speaker Change: Services.
Speaker Change: Vertical market software things like that so I think we probably won't buy a manufacturing business for instance, so.
Speaker Change: But.
Speaker Change: To say industry, it's really sub industries within sub industries, we are really focused in trying to identify opportunities in the niches.
J.T. Fitzgerald: That's where smaller businesses like what we're targeting have the ability to have a competitive advantage is in a specific niche.
Speaker Change: Where smaller businesses like what we were targeting have the ability to have a competitive advantage.
Speaker Change: As in a specific niche.
J.T. Fitzgerald: What is the appropriate time frame to measure your success? That's a great question. You know, I think that we, you know, we acknowledge that there will always be a bit of a J curve when you transition a new CEO into a business that you just acquired from exiting founder starts with sort of assessing and building the team, and then making investments in growth.
Speaker Change: What is the appropriate timeframe measure success.
Speaker Change: That's a great question and I think that we.
Speaker Change: We acknowledge that there will always be a bit of a J curve. When you transition a new CEO into a business that you just acquired from <unk>.
Speaker Change: Existing founder.
Speaker Change: Starts with sort of assessing and building the team.
Speaker Change: And then making investments in growth.
J.T. Fitzgerald: And so You know, you got to kind of get through that first 18 months, once that high attribute, maybe low experience CEO, Learns and develops in the industry, then you start to see things really start to happen. So I would say that you would then really start assessing how it's going kind of at the three year mark, right? You know, so Timmy's right at the three year mark in his acquisition of Ravix. You know, when we bought that business, TTM EBITDA was around 1.7 million. And then he, you know, got in learned the business, assessed the team, built the team.
Speaker Change: And so.
Speaker Change: You've got to kind of get through that first 18 months once that high attribute.
Speaker Change: Maybe low experience CEO.
Speaker Change: Learns and develops in the industry. Then you start to see things really start to happen. So I would say that you would then really start assessing.
Speaker Change: How its going kind of at the three year Mark.
Speaker Change: So Tim is right at the three year Mark in his acquisition of <unk>, we bought that business TTM EBITDA was around $1 7 million.
Speaker Change: He got in.
Speaker Change: Learn the business assess the team built the team.
J.T. Fitzgerald: Optimized pricing, leaned into business development, and, you know, has now almost doubled EBITDA at RAVX since we acquired it. And so, and really starting to get some momentum after kind of a tough first nine months of this year, given the private equity M&A environment.
Speaker Change: Optimized pricing leaned into business development.
Speaker Change: And has now almost doubled EBITDA at <unk> since we acquired it and so and really starting to get some momentum.
Speaker Change: After kind of a tough first nine months of this year, given the private equity M&A environment.
Unknown Executive: Great.
Unknown Executive: Thank you so much. Keep up the good work.
Speaker Change: Great. Thank you so much keep up the.
Speaker Change: Good work.
Unknown Executive: Thanks, Josh.
Speaker Change: Thanks Chuck.
Operator: If you have a question or a comment, please indicate so by pressing star 1.
Speaker Change: Once again, if you have a question or comment please indicate so by pressing star one. The next question comes from Adam Patinkin with David Capital. Please proceed.
Adam Patinkin: The next question comes from Adam Patinkin with David Capital. Please proceed.
Unknown Executive: Hey guys, congrats on the nice quarter and the continued business progress. Thanks, Adam.
Adam Patinkin: Hey, guys congrats on the nice quarter and the continued business progress.
Speaker Change: Thanks, Adam.
Unknown Executive: Alright, I got a couple questions for you. So first, I saw the release about the new OIR who you brought on board. Can you maybe share a little bit more color about him? What do you like about him? What are the categories that you're looking at? And, and what do you like about those categories?
Joshua Horowitz: Alright, I got a couple of questions for you so first.
Joshua Horowitz: I saw the release about the new <unk> you brought on board can you maybe share a little bit more color about what do you like about them what are the categories that youre looking at and what do you like about those categories.
J.T. Fitzgerald: Yeah, so We've talked in the past at length about our five H's, right? The attributes that we think are indicative of someone being a successful operator in a small business. and Rob demonstrates those at a very, very high level. a little bit later in career than some of our other folks. I don't know exactly how old Rob is. But you know, after HBS, he spent Thank you. And so, you know, Rob's developed based on those experiences, Rob has developed some theses around some very interesting service related industries that are maybe in the very early innings, you know, first inning of consolidation.
Speaker Change: Yeah. So.
Speaker Change: We've talked in the past at length about our five H is right. The attributes that we think are indicative of some of them being a successful operator in a small business.
Speaker Change: Rob.
Speaker Change: Demonstrates those.
Speaker Change: Had a very very high level.
Speaker Change: A little bit later and career than some of our other folks.
Speaker Change: I don't know exactly how old Rob is but after HPLC spent.
Speaker Change: 10, or 11 years in two different private equity backed roll up strategies in the first one was in veterinary care rolled up 300, or so that hospitals.
Speaker Change: And then more recently at alpine.
Speaker Change: Large west coast private equity firm interestingly with its origins in search.
Speaker Change: Doing a roll up in.
Speaker Change: H back end plumbing.
Speaker Change: So rob's based on those experiences Rob has developed.
Speaker Change: Some tcs around some very interesting service related industries that are.
Speaker Change: Maybe in the very early innings first inning of consolidation and the goal there would be the buyer platform.
J.T. Fitzgerald: And the goal there would be to buy a platform, run it, and then use that as a basis to do, you know, follow on acquisitions. And out in front of, you know, what he expects would be Private Equity Backed Consolidation. Got it.
Speaker Change: On it and then use that as a basis to do follow on acquisitions.
Speaker Change: Yes.
Speaker Change: How it in front of what he expects would be.
Speaker Change: Private equity back consolidation.
Unknown Executive: That's great. And that's really helpful to kind of shift to, you know, thank you for the updates on I know you did a little tour de force running through a bunch of the different businesses that you have on the KSX platform, but one of them that stood out a little bit was DDI. And about how, you know, the growth seems really meaningful, but maybe it hasn't been showing up in the financial statements yet in terms of EBITDA. In fact, I think you said that the EBITDA was slightly down year on year. I know that that business has been adding people and expanding very quickly.
Speaker Change: Got it Thats, great Thats really helpful.
Speaker Change: To.
Speaker Change: Kind of a shift too.
Speaker Change: You for the update I know you did a level towards the force running through a bunch of different businesses that you have.
Speaker Change: The <unk> platform, but one of them that stood out a little bit was DDI.
Speaker Change: And about how the growth seems really meaningful but maybe it hasnt been showing up in the financial statements yet in terms of the EBITDA. In fact, I think you said that the EBITDA was slightly down year on year I know that that business has been adding people and expanding very quickly. So maybe that was just building out some costs.
Unknown Executive: So maybe that was just building out some costs ahead of that growth.
Unknown Executive: But maybe could you fill in a little bit more color there about what what that business has been up to? And where or kind of like when you think the EBITDA is actually going to start showing up in the financials from that business? Yeah, great question and great insight that you know, I would say that that's sort of exactly what's been going on. They've been, first of all, all of the growth is entirely inbound, they don't have a sales force yet. And that will be, you know, a project we'll be working on. But given the high level of inbound interest to add this service, you know, we're dealing with may monitoring patients.
Speaker Change: Ahead of that growth, but maybe could you fill in a little bit more color there about what what that business has been up to and where kind of like when do you think the EBITDA is actually going to start showing up in the financials from that business.
Speaker Change: Yeah, Great question, and great insight that I would say that thats sort of exactly what's been going on they've been.
Speaker Change: First of all all of the growth is entirely inbound they don't have a sales force yet.
Speaker Change: As that will be a project, we'll be working on.
Speaker Change: But given the high level of inbound interest to add this service.
Speaker Change: We're dealing with Mei monitoring patients and so.
Unknown Executive: And so There's a real focus and emphasis on safety and quality. And so want to make sure that we aren't adding volume that we can't handle and. perfectly reliable way. And so the goal was to bring on EKG techs in advance of onboarding those customers and get them trained so that we have sort of a perfect monitoring experience. And then also to, you know, air quote, de-risk the business by opening a second operations facility, we looked at a lot of different geographies, up and down the sort of kind of Inland West. and settled on Salt Lake City for a variety of factors, probably most importantly, the availability of really good talent.
Speaker Change: There is a real focus and emphasis on safety and quality and so want to make sure that we arent.
Speaker Change: Adding.
Speaker Change: Volume that we can't handle in.
Speaker Change: Perfectly reliable way and so the goal was to.
Speaker Change: Both.
Speaker Change: Bring an EKG tax in advance of Onboarding, those customers and get them trained.
Speaker Change: So that we have sort of a perfect monitoring experience.
Speaker Change: And then also to.
Speaker Change: Eric will de risk the business by opening a second.
Speaker Change: Operations facility, when we looked at a lot of different geographies up and down the sort of.
Speaker Change: Kind of.
Speaker Change: Inland West.
Speaker Change: And settled on Salt Lake City for a variety of factors, probably most importantly, the availability of a really good.
Speaker Change: Talent.
Unknown Executive: And so, you know, the investment in new people, bringing them on board so that we had the capacity to add these new customers that were in our pipeline, and then the operations facility for redundancy and access to more talent, so that we could continue to scale, given the visibility we have into kind of the mid stage of our funnel and the inbound interest we're having. So you ought to see our bottom line profitability start to scale now that we can bring on these these customers.
Speaker Change: And so.
Speaker Change: The investment in new people, bringing them onboard so that we had the capacity.
Speaker Change: To add these new customers that were in our pipeline and then.
Speaker Change: The operations facility for redundancy and access to more talent.
Speaker Change: So that we could continue to scale.
Speaker Change: Given the visibility we have into kind of the mid stage of our funnel and the inbound interest we're having so.
Speaker Change: You ought to see.
Speaker Change: Our.
Speaker Change: Bottomline profitability start to scale now that we can.
Speaker Change: Bring on these these customers.
Unknown Executive: Got it. So it sounds like, you know, a lot of that investment, I mean, obviously, that you got to build out a biz dev team eventually and do those things.
Speaker Change: Got it so it sounds like.
Speaker Change: A lot of that investment I mean, obviously that you got to build out a bit.
Unknown Executive: But a lot of the big investment is kind of behind you. And you feel like it's not going to be super long before you start seeing at least a little bit of that operating leverage. Yeah, I think we ought to start seeing the operating leverage even, you know, in this quarter, fourth quarter.
Speaker Change: <unk> team eventually and do those things, but a lot of the big investment is kind of behind you and you feel like it's not going to be Super long before you start seeing at least a little bit of that operating leverage.
Speaker Change: Yes, I think we ought to start seeing the operating leverage even.
Speaker Change: In this quarter fourth quarter.
Unknown Executive: Okay, great. And then last question is just on your pipeline. So I know Josh asked a little bit about it. But you know, how are the KPIs tracking? What are you seeing? You've got four OIRs looking? You know, how's, how does it feel? I know that there was just a presidential election. So maybe that I don't know, I assume that there was some hesitancy ahead of that. But maybe that would go away now.
Speaker Change: Okay, Great and then last question is just on your pipeline. So I know, Josh asked a little bit about it but.
Speaker Change: How are the Kpis tracking what are you seeing you have got <unk> looking.
Speaker Change: How does it feel I know that there is just a presidential election, so maybe that.
Speaker Change: I don't know I assume that there was some hesitancy ahead of that but maybe that would go away now, but I'm just curious what your what youre seeing in the pipeline and with your Kpis key metrics there in terms of new deals.
J.T. Fitzgerald: But I'm just curious what you're what you're seeing in the pipeline and with your your KPIs and key metrics there in terms of Yeah, no, we're very active, right? I think, you know, we were just going through our monthly KPIs yesterday with the team. And, you know, we incredible activity, we kind of focus on lead measures, you know, kind of the things that we can do kind of activity based lead measures that we think are both sort of influenceable and predictive of lag metrics or lag metrics are obviously letter letters of intent with the ultimate goal of doing acquisitions.
Speaker Change: Yeah, No. We're very active right I think we were just going through our monthly kpis yesterday with the team.
Speaker Change: Incredible activity, we kind of focus on lead measures.
Speaker Change: Kind of the things that we can do kind of activity based lead measures that we think are both sort of influence of bohlen predictive of lag metrics are lagged metrics are obviously.
Speaker Change: Letter or letters of intent with the ultimate goal of doing acquisitions and so <unk>.
J.T. Fitzgerald: And so, in terms of top of the funnel proprietary outreach, NDA signed conversation with business owners, we are knocking it out of the park, relative to our internal goals. And so there's a lot of activity. And, you know, just sort of working things through the pipeline. We did experience, you know, some costs in the quarter that show up in SG&A, some broken deal related fees. So, you know, we're working on stuff. The reason we do due diligence that, you know, we end up finding things and not closing things. So we're definitely very active. And, you know, I would anticipate that we would continue to hold with four OARs, we ought to expect to, you know, be able to do two to three acquisitions in any 12 month period.
Speaker Change: In terms of.
Speaker Change: Top of the funnel proprietary outreach.
Speaker Change: NDA signed conversation with business owners, we are knocking it out of the park relative.
Speaker Change: Relative to our internal goals and so theres a lot of activity.
Speaker Change: And just sort of working things through the pipeline, we did experienced some costs in the quarter that show up in SG&A.
Speaker Change: Some broken deal related fees so.
Speaker Change: We're working on stuff.
Speaker Change: Reason, we do due diligence.
Speaker Change: Finding things and not closing things.
Speaker Change: So we're definitely very active in.
Speaker Change: I would anticipate that we would.
Speaker Change: Continue to hold with <unk>, we ought to expect to be able to do two to three acquisitions in any 12 month period, obviously subject to the sort of serendipitous nature of lower middle market.
J.T. Fitzgerald: Obviously, subject to the serendipitous nature of lower middle market buyouts.
Speaker Change: Buyouts.
Unknown Executive: Great, that's helpful. I really appreciate the color, guys.
Speaker Change: Great. That's helpful. I really appreciate the color guys al.
Unknown Executive: I'll check off here. Thanks Adam.
Speaker Change: Check off here.
Speaker Change: Thanks, Adam no further.
Speaker Change: We have no further questions from the phone lines I'd like to turn the floor back to James Carbonara for any questions you may have via email.
Unknown Executive: Sure, thank you, operator. Yes, we do have a number that came in on on email.
James Carbonara: Sure. Thank you operator, yes, we do have a number that came in on.
Speaker Change: An E mail.
Unknown Executive: First one's on claims. You know, why is claims moderating? And then there's a second part to the question, which states current warranty claims expense growth has moderated to seven or percent from 11% last year.
Speaker Change: First one is on claims <unk>.
Speaker Change: <unk> claims moderating and then there's a second part to the question, which.
Speaker Change: States' current warranty claims expense growth has moderated to 7% from 11% last year whats a normal percentage and when do you estimate it returning to that level.
J.T. Fitzgerald: What's the normal percentage? And when do you estimate it returning to that level? So why is claims moderating, I think, was the first one. We tracked this at a very macro level. If you look at the monthly CPI report deep in the tables, they break it out. And there's one line item, CPI for vehicle repair. Not service and maintenance, but the repair, and we've just sort of been tracking that every month. for a long time, but especially over the last year, like in September, that the September over September change was 6%. I think at its peak about a year ago, it was, you know, in 14-15% range.
Speaker Change: So why is claims moderating I think was the first one.
Speaker Change: Let me to retract this at a very macro level. If you if you look at it.
Speaker Change: Monthly CPI report.
Speaker Change: Deepen the tables.
Speaker Change: They break it out and there is one line items.
Speaker Change: CPI for vehicle repair.
Speaker Change: <unk> service and maintenance, but the repair and you just sort of been tracking that every month.
Speaker Change: For a long time, but especially over the last year and like in September that the September over September change was 6% I think at its peak about a year ago.
Speaker Change: The press $14, 15% range. So it is continuing to step down.
J.T. Fitzgerald: So it's continuing to step down. claims severity, you know, the cost per claim is not going down, it is just not going up as fast. You know, claims expense is a function of parts and labor. And I think labor was the driving factor over the last several years. largely absence of qualified technicians to work on cars. And then also just sort of what we've all seen in the labor market. up until recently. So I would think that normal Historically, we would always see that parts and labor inflation kind of closely mirroring CPI. And so I would expect that to moderate over time as increases in labor rates moderate, but that's just speculation.
Speaker Change: It.
Speaker Change: Claims severity the cost per.
Speaker Change: Claim is not going down it is just not going up as fast.
Speaker Change: Claims expense is a function of parts and labor and I think labor was the driving factor over the last several years.
Speaker Change: Yeah.
Speaker Change: Largely absent of qualified technicians to work on cars.
Speaker Change: And then also just sort of what we've all seen in the labor market.
Speaker Change: Uh huh.
Speaker Change: Up until recently so.
Speaker Change: I would think that.
Speaker Change: Normal.
Speaker Change: Historically, we would always see that parts and labor inflation kind of closely mirroring CPI.
Speaker Change: And so I would expect that to moderate over time as increases in labor rates moderate, but thats just speculating.
Unknown Executive: Great.
Unknown Executive: And the next one comes in on image solutions. It says image solutions does, you know, 3.1 million in EBITDA annually and simplifying, you know, that's 775K, sorry, 775K, $775,000 quarterly, what is the expected EBITDA impact in Q4 and 2025 from Hurricane Helene delaying the hardware installation?
Speaker Change: And the next one comes in on image solutions.
Speaker Change: It is image solutions does.
Speaker Change: $3 1 million in EBITDA annually, and simplifying that 775% K, sorry, 775, K $775000 quarterly what is the expected EBITDA impact in Q4.
Speaker Change: In 2025 from Hurricane Helene delaying the hardware installations.
J.T. Fitzgerald: Yeah, I mean, I might probably want to kind of try to sidestep providing any guidance. I think we spoke in the in the prepared remarks about you know, the fact that The portion of their revenue that comes from equipment installs. is just delayed. not gone. And so as businesses come back online in the region and, you know, can focus on replacement of their existing technology, we will be able to get back in those facilities and install install the hardware. You know, a big portion of that business is monthly contractual recurring service and it help desk revenue so.
Speaker Change: Yes, I mean, I would like to probably wanted to.
Speaker Change: Try to sidestep, providing any guidance I think we spoke in the in the prepared remarks about.
Speaker Change: The fact that.
Speaker Change: The portion of their revenue that comes from equipment installs.
Speaker Change: Is just delayed.
Speaker Change: Not gone.
Speaker Change: And so as businesses come back online in the region and can focus on.
Speaker Change: Replacement of their existing technology, we will be able to get back in those facilities and install install the hardware.
Speaker Change: A big portion of that business is monthly contractual recurring service and it helped desk revenue so.
J.T. Fitzgerald: which was not impacted at all.
Speaker Change: Which was not impacted at all.
Speaker Change: So.
J.T. Fitzgerald: I don't want to give guidance, but just, you know, I think that. We believe that the hardware sales and install is really just pushed out of two months kind of thing, as opposed to gone.
Speaker Change: I don't want to give guidance, but just I think that.
Speaker Change: We believe that.
Speaker Change: The hardware sales and install is really just pushed out of two.
Speaker Change: Two months kind of thing as opposed to.
Speaker Change: Gone.
Unknown Executive: Got it. Understood.
Speaker Change: Got it understood.
J.T. Fitzgerald: And then the next one was on Ravix and C-suite, you know, are business volumes likely to always be tied to the venture market for Ravix or do you see opportunities to diversify into new verticals? And the same on C-suite, are there opportunities to diversify away from private equity or are they likely always to be tied to that market? Yeah, I mean, I think in terms of the original part of the original thesis on the C-suite acquisition is that there would be opportunities to cross sell complimentary services into those sort of different verticals. Ravix was historically...
Speaker Change: And then the next one was on <unk> and C suite.
Speaker Change: Our business volumes.
Speaker Change: Likely to always be tied to the venture market.
Speaker Change: For <unk> or do you see opportunities to diversify into new verticals and the same on C. Suite are there opportunities to diversify away from private equity or are they likely to be tied to that market.
Speaker Change: Yeah, I mean, I think in terms of the original part of the original thesis on the C suite acquisition is that.
Speaker Change: There would be opportunities to cross sell complementary services into those.
Speaker Change: Sort of different verticals <unk> was historically.
J.T. Fitzgerald: venture exposed, and C-suite was historically private equity exposed. And so both of those businesses are sort of cross-selling into those. each other's verticals. In terms of diversifying away from private equity venture capital, you know, one, it's, you know, there's like always an acute need on a on a sort of new investment by a PE or VC fund to have like more sophisticated accounting, but maybe not the necessity for a full time resource. So we think it's a really good fit for fractional accounting and, and obviously, interim and the placement business at C suite.
Speaker Change: Kind of venture.
Speaker Change: <unk> and C suite was historically private equity exposed and so both of those businesses are sort of cross selling into those.
Speaker Change: Each other's verticals.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: In terms of diversifying away from <unk>.
Speaker Change: Private equity venture capital one.
Speaker Change: <unk> always an acute need.
Speaker Change: On a sort of new.
Speaker Change: Investment by FTE or VC fund to have like more sophisticated accounting.
Speaker Change: But maybe not the necessity for a full time resource. So we think it's a really good fit for fractional accounting and and obviously interim in the placement business at C suite.
J.T. Fitzgerald: And so but then like stepping back when we think about strategy, like, you know, we use this this framework called the Ansoff matrix. And so where we focus is kind of the penetration quadrant of that matrix. Start with pricing optimization, right, Timmy did a great job of that. Then move to upsell and cross-sell. And we've been doing that with the C-suite acquisition, the ability to cross-sell those two different verticals. And then penetrate those existing markets and add new customers, right? And so I think that there's still just a lot of room to go in penetrating those verticals before you would move to the next harder thing to do, which is to take on a new vertical.
Speaker Change: And so but then stepping back when we think about strategy.
Speaker Change: We use this framework called the and soft matrix and so where we focus is kind of the penetration quadrant of that matrix start with pricing optimization right. Tim you did a great job of that than.
Speaker Change: And then move to upsell and cross sell and we've been doing that with the C suite acquisition, the ability to cross sell those to different verticals.
Speaker Change: And then and then penetrate those existing markets and add new customers right and so I think that there is still just a lot of room to go in penetrating those verticals before you would move to the next harder thing to do which is to take on a new vertical.
J.T. Fitzgerald: And so I think we would want to fully exhaust that quadrant of the ANSOF matrix before we move to something that is harder to access.
Speaker Change: And so I think we would want to fully exhaust that quadrant of of the and soft matrix before we move to something that is harder to execute.
J.T. Fitzgerald: Got it. Okay. The next one here is on S&S and it says glad to hear you are optimistic about the outlook for the market and prospects for the business. Can you reiterate those attractive dynamics of the S&S market and business? Yeah, I mean, I think at a very high level, long term, big picture macro, you know, that the attractive dynamics are a function of supply and demand, right on the supply side. There is an acute and persistent shortage of nurses in the U.S. And that doesn't get resolved anytime soon, as far as I can tell, like if you look at the number of people in nursing school, the number of nursing schools, they're just not going to churn out enough nurses to even kind of refill the aging demographic in that workforce, let alone meet the expanding demand for healthcare services because of demographic trends.
Speaker Change: Got it okay. The next one here is on SNS and glad.
Speaker Change: Glad to hear you are optimistic about the outlook for the market and prospects for the business can you reiterate those attractive dynamics of the SNS market and business.
Speaker Change: Yes, I mean, I think at a very high level long term big picture macro.
Speaker Change: Attractive dynamics are a function of supply and demand on the supply side.
Speaker Change: There is an acute and persistent shortage of nurses in the U S.
Speaker Change: And that doesn't get resolved.
Speaker Change: Anytime soon as far as I can tell like if you look at the number of people in nursing school and the number of nursing schools.
Speaker Change: We're just not going to churn out enough nurses to.
Speaker Change: To even kind of refill.
Speaker Change: The ageing demographic in that workforce, let alone.
Speaker Change: Meet the expanding demand for healthcare services because of demographic trends. So that's sort of the attractive dynamic of that obviously.
J.T. Fitzgerald: So that's sort of the attractive dynamic of that.
J.T. Fitzgerald: Now, obviously. More recently, sort of, we had, you know, we had a big pandemic boom, that, you know, a lot of demand for nurses. And so the hospitals rushed into the travel market to get contingent labor. And that put a lot of pressure on those hospital systems from the on the cost side. And, and you also had a lot of new kind of upstart staffing businesses enter the market during those boom times. And so for the last 12 to So in the last 15 months or so, 12 to 18 months, there's been kind of a large sorting out in the industry.
Speaker Change: More recently sort of.
Speaker Change: We had a big pandemic boom.
Speaker Change: A lot of demand for nurses.
Speaker Change: And so the hospitals rushed into the travel market to get contingent labor and I put a lot of pressure on those hospital systems.
Speaker Change: From the cost side.
Speaker Change: And.
Speaker Change: And you also had a lot of new kind of upstart staffing businesses enter the market during those boom times.
Speaker Change: And so for the last 12 months.
Speaker Change: 15 months or so 12 to 18 months theres been kind of a large sorting out in the industry.
J.T. Fitzgerald: Hospitals sort of pushing back and trying to, minimize or limit the amount of contingent labor they're using, pressing the boundary on staffing levels, being tough negotiators on price, and you've also seen some sorting out of those sort of new entrants into the into the travel market and ultimately some of them will probably go away.
Speaker Change: Hospitals sort of pushing back and trying to.
Speaker Change: Minimize or limit the amount of contingent labor they are using.
Speaker Change: Pressing pressing the boundary on staffing levels.
Speaker Change: Being tough negotiators on price.
Speaker Change: And you've also seen some sorting out of those sort of new entrants into the into the travel market and ultimately some of them will probably go away. So I think the business is really well positioned to take advantage of those long term secular trends around supply and demand and we're just kind of going through this sorting out period and I feel like in the quarter we find.
J.T. Fitzgerald: So I think the business is really well positioned to take advantage of those long-term secular trends around supply and demand and we're just kind of going through this sorting out period and I feel like in the quarter we finally sort of turn the turn the corner you know we travel. Travel shifts were up 73% year over year in the quarter. Our per diem business was down a little bit, but some of that is kind of hospital census driven, and we're seeing that come back in cold and flu season. So I think Charles has done a good job professionalizing that business.
Speaker Change: Turning to turn the corner.
Speaker Change: Travel.
Speaker Change: Travel shifts were up 73% year over year in the quarter.
Speaker Change: Our per diem business was down a little bit, but some of that is kind of hospital census, driven and we're seeing that come back.
Speaker Change: Cold and flu season, So I think Charles has done a good job professionalizing that business. It was a pen and paper business. When we bought it is put in a whole new tech stack is hired some great recruiters and I think well poised to.
Unknown Executive: It was a pen and paper business when we bought it. He's put in a whole new tech stack. He's hired some great recruiters, and I think well poised to take advantage of the opportunity once things sort of settle out.
Speaker Change: To take advantage of the opportunity once things sort of settle out.
Unknown Executive: Excellent. The next one comes in on SPI and it says, congrats on SPI.
Speaker Change: Excellent next one comes in on Spi and it says congrats on Spi what steps do you have taken a business when it's growing so well do you continue to focus on the organic growth or possibly tuck in acquisitions or more sales hires.
J.T. Fitzgerald: What steps do you take in a business when it's growing so well? Do you continue to focus on the organic growth or possibly tuck-in acquisitions or more sales? Yeah, go back to that.
Speaker Change: Yes, if you go back to that.
J.T. Fitzgerald: You know, we had a No reason why anyone on the call would remember but we when we did the acquisition, we had a investor call to announce the acquisition and as part of Drew's strategy, it was kind of a Not exactly either or, but a yes and type strategy. And the first was to really focus on organic growth. felt like the market in which this company provides its software is growing faster than GDP. There is some white space there, opportunity to add customers and get adoption. And so he's really right for now, really focused on growing organically.
Speaker Change: We had a.
Speaker Change: No reason why anyone on the call would remember, but we when we did the acquisition we had a investor call to announce the acquisition and as part of <unk> strategy. It was kind of a.
Speaker Change: Not exactly either or but.
Speaker Change: Yes, and type strategy in the first was to really focus on organic growth we felt like.
Speaker Change: The market in which.
Speaker Change: This company provides its software.
Speaker Change: Is growing.
Speaker Change: Faster than GDP there is.
Speaker Change: Some white space, there and opportunity to to add customers.
Speaker Change: And get adoption and so he is really right for now really focused on growing organically.
J.T. Fitzgerald: And, you know, unless and until we sort of exhaust that thesis. He's very focused on growing the business that he has.
Speaker Change: And.
Speaker Change: Unless and until.
Speaker Change: We sort of exhaust that.
Speaker Change: Thesis.
Speaker Change: He is very focused on growing the business that he has.
J.T. Fitzgerald: But the kind of and part of the yes and strategy was always that we created vertical market solutions, the holding company, and that once Drew got his sort of muscle built, developed on running a small vertical market software business, he could use those practices to explore doing, you know, more acquisitions of vertical market software business. But we're really happy with, we're really happy with the with what he's done, you know, he's grown ARR, what, 16%. gross retention in the mid 90s, net retention, you know, well over 100% and just getting started really just getting Terrific.
Speaker Change: But the kind of and part of the <unk> strategy was always that we created vertical market solutions, the holding company and at once drew.
Speaker Change: Got his sort of.
Speaker Change: <unk> built developed on running a small vertical market software business he could use those practices.
Speaker Change: To explore doing.
Speaker Change: More acquisitions of vertical market software businesses.
Speaker Change: But we're really happy with we're really happy with the.
Speaker Change: With what he's done he has grown <unk>.
Speaker Change: 16%.
Speaker Change: Yeah.
Speaker Change: Gross retention in the mid Ninety's net retention well over 100%.
Speaker Change: And just getting started really just getting started.
J.T. Fitzgerald: And the next one comes in on DDI, and it says, would you possibly use debt in the future for expansion or always self fund your expansion? We used acquisition debt, so we're focused on paying down debt, right? That's one of the value creation levers that we have, right? And, you know, as is the case with most of these businesses, they're generally fairly capital light and so don't require a lot of incremental cash to grow.
Speaker Change: Terrific and the next one comes in on DDI and it says would you possibly use.
Speaker Change: In the future for expansion or always self fund your expansion.
Speaker Change: Okay.
Speaker Change: We used acquisition debt.
Speaker Change: We're focused on paying down debt right. That's one of the value creation levers that we have right.
Speaker Change: And as is the case with <unk>.
Speaker Change: Most of these businesses are generally fairly capital light and so don't require a lot of incremental cash to grow in the case of DDI, we got to lean into.
J.T. Fitzgerald: You know, in the case of DDI, we got to lean into headcount and open a new facility in anticipation of that volume coming online. You know, I think that the plan here would be to use cash flow to delever and fund, fund the growth which would mostly be in the form of like a working capital right if you're If your cash conversion cycle is 30 days, right, your customers are taking longer to pay you than you're paying your suppliers, then there with growth, there will be a natural investment in working capital. And so I think that that would be the only sort of source.
Speaker Change: Head count and opening a new facility.
Speaker Change: In anticipation of that volume coming online.
Speaker Change: But.
Speaker Change: I think that the plan here would be to use cash flow to de lever and fund.
Speaker Change: Fund the growth which would.
Speaker Change: Mostly be in the form of like working capital right here.
Speaker Change: So your cash conversion cycle is 30 days right.
Speaker Change: Customers are taking longer to pay you. Then you are paying your suppliers with growth there will be a natural investment in working capital and so I think that that would be the only sort of source of.
Unknown Executive: rather use of cash to grow.
Speaker Change: Rather use of cash to grow.
Unknown Executive: Great, and last couple here, first is OIRs.
Speaker Change: Great and last couple here first is <unk>.
J.T. Fitzgerald: Aside from Rob Casper, who is brand new, how long have your other OIRs been with the firm? Yeah, so Peter Hearn joined us in May of last year. So that was about 17-18 months. Miles joined us in September of last year. So 14 months or so. And then Paul Vidal joined us at the beginning of this year.
Speaker Change: Aside from Rob Casper, who is brand new.
Speaker Change: How long have your other <unk> been with the firm now.
Speaker Change: Yes.
Speaker Change: So Peter Hearn joined US in May of last year. So that was about 17 to 18 months.
Speaker Change: Myles joined US in September of last year. So.
Speaker Change: 14 months or so and then Paul that al joined US at the beginning of this year. So we kind of got a nice sequence here.
J.T. Fitzgerald: So we kind of got a nice sequence here of OIRs and where they are in their gestation period, if you will. And so just kind of continue to bring these guys on board, you know, kind of one a quarter kind of thing. And, and and hopefully match that cadence with new acquisitions. At least that's the goal.
Speaker Change: <unk> and where they are in their gestation period, if you will and so.
Speaker Change: Just kind of continue to bring these guys onboard kind of.
Speaker Change: One a quarter kind of thing.
Speaker Change: And.
Speaker Change: And hopefully match that cadence with new acquisitions at least that's the goal.
Kent Hansen: Great. And the last one was just on the VA. Can you share or reiterate what was the financial impact with respect to the VA?
Speaker Change: Great and the last one was just on the VA can you share or reiterate what was the financial impact.
Speaker Change: With respect to the VA.
Kent Hansen: Kent, you want to take that one? Yeah, we got about a million dollars of cash out of that sale. P&L impact? P&L will be shown in discontinued operations.
Speaker Change: Kent, you want to take that one yes, we've got about $1 million of cash out of that sale.
Speaker Change: No P&L impact P&L will be shown in discontinued operations.
Unknown Executive: Great. That concludes the questions from email.
Speaker Change: Great that concludes the questions from E Mail I'll pass it back to pass it back over to you operator.
Operator: I'll pass it back over to you, operator.
Operator: Thank you. We have no further questions from the phone lines.
Speaker Change: Thank you we have no further questions from the phone lines. This does conclude today's conference call and you may disconnect. Your lines at this time. Thank you thanks for everyone's participation.
Operator: This does conclude today's conference call, and you may disconnect your lines at this time. Thank you for your participation.