Q3 2025 Kingsway Financial Services Inc Earnings Call
Speaker #4: Good day . And welcome to the Kingsway , third quarter 2025 Earnings Call . At this time , all participants are in a listen only mode .
Speaker #4: A question and answer session will follow the formal presentation . Please note this conference is being recorded . With me on the call are JT Fitzgerald , Chief Executive Officer .
Speaker #4: And Kent Hansen Chief Financial Officer . Before we begin , I want to remind everyone that today's conference call may contain forward looking statements .
Speaker #4: Forward looking statements include statements regarding the future , including revenue , operating margins , expenses and future business outlook . Actual results of trends could materially differ from those contemplated by those forward looking statements .
Speaker #4: 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 forms 10-q and form 8-K filed with the Securities and Exchange Commission .
Speaker #4: 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 the company's periodic filings with the SEC .
Speaker #4: Now , I would like to hand the call over to JT Fitzgerald , CEO of Kingsway . JT , please proceed .
Speaker #5: Thank you . Morgan . Good afternoon , everyone , and welcome to The Kingsway earnings call for Q3 2025 . Let me start by saying that to our knowledge , Kingsway is the only publicly traded US company employing the search fund model to acquire and build great businesses .
Speaker #5: We own and operate a diversified collection of high quality services companies that are asset light , profitable , growing and that generate recurring revenue .
Speaker #5: Our goal is to compound long term shareholder value on a per share basis , and we believe our business can scale due to our decentralized management model and our talented team of operator CEOs .
Speaker #5: We also continue to benefit from significant tax assets that enhance our returns . In short , Kingsway is uniquely positioned to capitalize on the search fund model at scale within a tax efficient public company framework .
Speaker #5: I'm pleased to report an excellent third quarter for Kingsway . Revenues were up 37% year over year , and the company reached an important milestone as our high growth cash segment represented the majority of our revenue for the first time .
Speaker #5: Our cash segment achieved stellar results with revenue growth of 104% and adjusted EBITDA growth of 90% . Our stable cash generating extended warranty segment also performed well in the quarter , producing top line growth of 2% with robust cash flow and resilient modified cash EBITDA .
Speaker #5: While these headline numbers are impressive , there is reason to believe our underlying operating performance may have been even better than the reported figures show .
Speaker #5: First , in the quarter , there were two one time expenses in our cash segment that were mostly non-cash and should not repeat .
Speaker #5: Late last year , a hospital system filed for bankruptcy . That was a client of our SaaS nurse staffing business . Based on new information received in the quarter , we fully reserved the remaining $325,000 receivable from that client , which ran through our PNL as a non-cash item .
Speaker #5: In addition , we had roughly 180,000 of mostly non-cash expenses recorded in our Kingsway skilled trades segment . As we converted recent acquisitions from cash accounting to accrual accounting .
Speaker #5: Had we excluded these expenses from our adjusted EBITDA calculation , cash adjusted EBITDA would have been roughly 500,000 higher in the quarter , or 3.2 million instead of 2.7 million .
Speaker #5: Second , we made four acquisitions during the quarter , with three completed mid-quarter . We look forward to having a full quarter of benefit from all of these businesses , beginning in Q4 .
Speaker #5: Third , we are seeing tangible business and financial momentum in a number of our operating subsidiaries , Roundhouse and Kingsway skilled trades have performed well since day one and are ahead of our underwriting case .
Speaker #5: Just in the month of September , roundhouse achieved EBITDA of roughly $500,000 and the roundhouse team is actively recruiting for open roles to meet strong customer demand .
Speaker #5: Image solutions saw EBITDA growth sequentially by 100,000 from Q1 to Q2 , and another 150,000 from Q2 to Q3 . DDE also saw a notable improvement in EBITDA from Q2 to Q3 .
Speaker #5: The impressive performance at Roundhouse and Kingsway skilled trades and the clear evidence that Image Solutions and DDE may be exiting their J curves provide confidence that organic growth is likely to play in increasingly key role in driving Kingsway's success .
Speaker #5: Going forward . In short , we are seeing real business momentum across our portfolio that sets us up well as we go into Q4 and 2026 .
Speaker #5: Turning now to some of the strategic developments in the quarter . On our last earnings call , we discussed our acquisitions of roundhouse Advanced Plumbing and Drain and the HR team .
Speaker #5: We are excited to welcome all three to the ASX segment and to The Kingsway family . On August 14th , we completed our 12th CSE acquisition with the purchase of South Side Plumbing for a purchase price of 5.625 million , plus a potential Earnout of up to 1.125 million , for a total maximum purchase price of 6.75 million .
Speaker #5: At the time of acquisition , South Plumbing's unaudited pro forma annual revenue was $4 million and its unaudited pro forma annual adjusted EBITDA was $900,000 .
Speaker #5: Based in Omaha , Nebraska , Southside Plumbing is a leading provider of commercial and residential plumbing services . This transaction , which was sourced and led Rob Casper , president of Skilled Trades , marks the third addition under our Kingsway Skilled Trades platform .
Speaker #5: In 2025 . We believe the South that Southside Plumbing has significant potential to accelerate growth through expanded marketing efforts and new service lines , and to increase the proportion of sales that are recurring or reoccurring .
Speaker #5: Given the strong momentum in its service and repair operations . The Southside team has earned an exceptional reputation in its market for quality and service , driving consistently robust growth in its core business .
Speaker #5: We are thrilled to partner with Josh Gruen , who is remaining with the company as president and maintaining an economic interest , ensuring an alignment of incentives and continuity of leadership .
Speaker #5: We look forward to supporting Josh and his team in upholding Southside by Plumbing's long standing legacy of excellence and reliability . Subsequent to quarter end on October 20th , we welcomed we welcomed Coulter Hanson as our newest operator and residence or our his combination of military leadership , strategic consulting experience , and a passion for entrepreneurship make him an exceptional fit for our platform .
Speaker #5: Colter will conduct his search out of Minneapolis , where he intends to pursue an acquisition in the testing , inspection and certification sector with a focus on the Midwest .
Speaker #5: Year to date , we have now acquired six high quality asset light services businesses , exceeding our target of 3 to 5 per year .
Speaker #5: While that remain , while that range remains an important benchmark , it is worth noting that it serves as a target , not a cap .
Speaker #5: Our primary objective is to remain disciplined , investors focused on quality opportunities that meet our strict acquisition criteria , and we continue to see a robust pipeline of attractive opportunities with the addition of Colter , we currently have three actively searching for our next platform acquisitions .
Speaker #5: In addition to our other CSE businesses , which are in many cases evaluating evaluating potential tuck ins in inorganic growth opportunities themselves . We are energized by the pace and quality of acquisition activity .
Speaker #5: Finally , as of quarter end , our trailing 12 month adjusted run rate EBITDA for the businesses we own stands at approximately 20.5 million to 22.5 million .
Speaker #5: This metric provides a view of how the company would have performed over the last 12 months . If Kingsway had owned all of our current businesses for that entire time .
Speaker #5: GAAP results in contrast , only capture the performance of acquired businesses from their respective closed dates onward . We believe this metric is relevant during periods of high M&A activity .
Speaker #5: Like the past few years and better reflects the run rate , earnings power of our current portfolio of businesses . It's important to call out that in calculating this metric , we are not using modified cash EBITDA for our extended warranty businesses as we have discussed in previous earnings calls , many in the extended warranty industry , including our management particularly Kingsway , prefer to use a metric called modified cash EBITDA .
Speaker #5: When assessing and valuing extended warranty businesses . This is because under GAAP accounting , growing extended warranty businesses often see their EBITDA penalized while shrinking extended warranty businesses often see their EBITDA boosted due to timing differences in how revenue and expenses are recognized .
Speaker #5: Kingsway Extended warranty businesses are in growth mode . Cash sales in our extended warranty businesses accelerated from up 9.2% year over year in Q2 to up 14.2% year over year in Q3 .
Speaker #5: However , due to these timing differences , a gap has opened up between adjusted EBITDA and modified cash EBITDA , which widened further in the third quarter .
Speaker #5: This can be seen in the company's financial statements, where deferred service fees from extended warranties are up $2.8 million year over year.
Speaker #5: In addition , hundreds of thousands of dollars of commission expenses associated with issuing new warranty contracts have been booked upfront over time . These timing differences , even out and adjusted EBITDA and modified cash EBITDA converge .
Speaker #5: We expect the same to occur for Kingsway . Our management team at Kingsway assesses the company's earnings power by looking at adjusted EBITDA for our segment and modified cash EBITDA for our extended warranty segment .
Speaker #5: Using this framework , Kingsway today has the highest earnings power from its operations . During my tenure as CEO . It's a remarkable place to be , though in many ways it feels like we're just getting started in our journey to conclude , this was an excellent quarter for Kingsway , we grew overall revenue by 37% .
Speaker #5: Our cash segment roughly doubled its revenue and adjusted EBITDA relative to last year , and our extended warranty segment once again performed well with resilient cash flow and accelerating cash sales .
Speaker #5: We remain focused on disciplined execution , scaling our cash portfolio and supporting our operator CEOs to deliver sustainable , long term growth . With that , I'll turn the call over to Kent for a closer look at our third quarter financial performance .
Speaker #5: Kent , over to you .
Speaker #6: Thank you , JT , and good afternoon , everyone . For the third quarter , consolidated revenue was 37.2 million , an increase of 37% compared to 27.1 million in the prior year .
Speaker #6: Adjusted consolidated EBITDA was 2.1 million for the three months ended September 30th , 2025 , compared to 3 million in the prior quarter .
Speaker #6: In our case , segment revenue increased by 104% to 19 million . In Q3 , up from 9.3 million in the same quarter a year ago .
Speaker #6: Adjusted EBITDA for SCE increased 90% to 2.7 million , compared to 1.4 million in the year ago quarter . Moving to our extended warranty segment , revenue increased by 2% to 18.2 million in the quarter , up from 17.8 17.8 million in the prior year period .
Speaker #6: Adjusted EBITDA for extended warranty was 800,000 . In the current quarter , compared to 2.1 million a year ago , as JT discussed earlier .
Speaker #6: However , the extended warranty segments modified cash EBITDA , a key industry metric that more closely reflects the cash flow dynamics of warranty businesses , was resilient as our extended warranty businesses continue to perform well .
Speaker #6: The improvement in cash sales in our extended warranty segment reinforces our confidence that GAAP earnings will recover over time , as deferred revenue from our recent cash sales is recognized .
Speaker #6: Overall , the extended warranty segment remains cash generative and well positioned for continued success . Turning now to the balance sheet and the capital structure .
Speaker #6: As of September 30th , 2025 , the company had 9.3 million in cash and cash equivalents . Cash equivalents , up from 5.5 million at year end 2024 .
Speaker #6: Total debt was 70.7 million at quarter end , compared to 57.5 million as of December 30th , 2024 . Our September 30th debt is comprised of 55.8 million in bank loans , $1 million in notes payable , and 13.1 million in subordinated debt .
Speaker #6: Net debt, or debt minus cash at quarter end, was $61.4 million, up from $52 million at year-end 2024. The increase in net debt is primarily related to additional borrowings associated with the recent acquisitions of Roundhouse and Southside Plumbing.
Speaker #6: I'll now turn the call over to JT for a few final thoughts before we open the line for questions . JT .
Speaker #5: Thanks , Ken . To close , I'd like to express my thanks and appreciation to Kingsway's employees , partners , and shareholders . We have an amazing team , a wonderful set of operating businesses , and both cash and extended warranty are performing well .
Speaker #5: This really was an exceptional quarter . The business and financial momentum is tangible and we are positioned to finish the year strong . I'll now turn the call back over to the operator to open the line for questions .
Speaker #5: Morgan .
Speaker #4: At this time , we will conduct the question and answer session . If you would like to ask a question , please press star .
Speaker #4: Then the number one on your telephone keypad . Now and you will be placed in the queue in the order received . Once again to ask a question .
Speaker #4: At this time , please press star . Then the number one on your telephone keypad . Now . Your first question comes from Mitch Wiman with Sumner Financial .
Speaker #4: Your line is open .
Speaker #7: Hi, J.T. Congrats on a great quarter.
Speaker #5: Hey , Mitch .
Speaker #7: How are you doing ?
Speaker #5: Doing great . Thank you .
Speaker #7: Good . So question for you with the current environment , with all the uncertainty regarding Medicare and reimbursements and everything , how is that going to affect secure nursing and digital diagnostics ?
Speaker #7: Because you hear a lot of anecdotal evidence that , you know , hospitals are , you know , going to be , you know , having some issues going forward here .
Speaker #5: Yeah , I think we've seen that certainly at SNS . You know , we mentioned that customer bankruptcy at the end of last year .
Speaker #5: I think some of that has to do with the pressure that they're feeling from kind of reimbursement pressure . And so I think it's , you know , kind of looking at each one of those businesses independently , if you start with SNS , I think a real focus on the types of hospitals where we're placing nurses .
Speaker #5: Right ? So I think that the most sensitive would obviously be where , you know , your the predominant number of your patients are Medicare , Medicaid .
Speaker #5: And I think that that's , you know , even more acute in some of the more rural hospital settings . I think we feel pretty good about our hospital mix at SNS in terms of both the payer mix and sort of geography and the type of profile of the people that are coming in and their balance sheets and budgets , and a lot of that stuff is publicly available .
Speaker #5: I think that these hospitals have to file their financials . And so , Charles , you know , when he's thinking about new hospital relationships or existing relationships is sort of acutely aware of that .
Speaker #5: And checking the financial positions of his hospital customers . So certainly something to monitor . But I think , yeah , I think hospitals are under quite a bit of pressure with DD , with Didi , I think , you know , these are these are outpatient rehab and long term acute care hospitals .
Speaker #5: I think a little bit less exposure to Medicare and Medicaid and certainly something , you know , after the experience at at SNS , something that Peter is very focused on as well in terms of customer selection and credit extension .
Speaker #5: Right . So something we'll continue to keep an eye on .
Speaker #7: Okay . Thank you .
Speaker #4: Once again , in order to ask a question at this time , please press star . Then the number one on your telephone keypad .
Speaker #4: Your next question comes from Scott Miller with Greenhaven Road Capital . Your line is open .
Speaker #8: Hey , JT , congratulations on on all the progress .
Speaker #5: Thanks , Scott .
Speaker #8: Yeah , yeah , I basically seems to like the key to this business is , you know , buying it reasonable multiples , doing it repeatedly .
Speaker #8: And then driving organic growth . And , you know , the first two pieces you've been buying at reasonable multiples . I think I think done seven deals this year .
Speaker #8: So the repetition seems plausible . The the organic growth . You called it out I think in the press release . Can you talk a little bit about kind of the type of organic growth you're seeing , what you think is possible , how it might differ across businesses .
Speaker #5: Yeah . Great question . Certainly organic growth is a key component of the flywheel , right . That you grow the cash flows of the businesses you own organically .
Speaker #5: And then redeploy that capital to do more acquisitions , either at that business or in some of our activities . And I think that you touched on , I would add that your ability to attract talent is is a key part of the equation as well .
Speaker #5: But oh .
Speaker #8: By the way , your latest guy is incredible . I mean , whatever . Yes .
Speaker #5: Yeah . And so organic growth is a key part of the thesis . And it goes into our underwriting as we go into these things , trying to buy businesses in industries where there is , you know , long term secular trends and wind at your back .
Speaker #5: And we also recognize that you're buying small businesses that need to be professionalized . They need to come into a public company context and filing and all of those things .
Speaker #5: And so for the first , you know , many quarters , there is a significant investment in operating expense and those kinds of things to bring the talent , the systems , the technology into those companies to build a platform to support organic growth .
Speaker #5: Right . A lot of times these things , these businesses are operating on the margin and aren't , you know , aren't scalable effectively because they don't have the robust systems and processes and people in place to allow that to happen without making mistakes .
Speaker #5: Right . And so we go in and this is that whole j-curve concept , right ? That we we bring in a inexperienced operator .
Speaker #5: They have to get up their own experience curve . And we invest in these businesses , bring in new people , invest in the companies and their accounting and their HR and their technology systems in sales and marketing , etc.
Speaker #5: depending on the business to prepare them to grow . And so , as we mentioned with Dei and image solutions , like they've been on that journey and now are starting to emerge and accelerate growth , and I think that we would expect to see that pattern play out in every instance .
Speaker #5: I think in terms of individual company , you know , sort of potential . I think it depends on the industry and kind of underlying industry dynamics .
Speaker #5: But I would say that , you know , we would we ought to be targeting high single digit organic growth potential at all of the businesses we acquire .
Speaker #8: Got it . That's that's very helpful . And can you talk a little bit about image solutions and what's driving the progress there .
Speaker #8: And yeah . .
Speaker #5: Yeah sure . I mean obviously Image Solutions had a very steep early j-curve because in addition to all of the things that I talked about , they had to weather , you know , pretty significant hurricane and the disruption to the business , you know , across all of western North Carolina and things .
Speaker #5: But Davide has done an awesome job . He got in there , got his hands around that , built real trust and and support with the team has added to the team , brought in some exceptional people to to to really professionalize their it MSP platform .
Speaker #5: New technology , etc. and is now investing in sales leadership to drive new account recurring revenue points in the it MSP and get that business growing and so kind of got through business disruption .
Speaker #5: Onboarded some great people built a built an operating plan , assigned accountability to the various people , to execute that that plan . And you're starting to see the benefits of that coming through the business now .
Speaker #5: And so he's sort of exiting his J curve and , and in growth mode .
Speaker #8: And how big could a business like that be ? Are there any like what's the ceiling on something like that ?
Speaker #5: I sorry you broke up kind of halfway through . I got , I got the how .
Speaker #8: How big , how big could a business like that be . Like what's the ceiling on a business like Image Solutions ?
Speaker #5: Well , look , I mean , I think that one of the things and that , you know , each one of these businesses , each also has the potential to be their own grower in organically as well .
Speaker #5: Right . And so it MSP very large industry in North America growing at , you know , high single digit secular growth rate but also very fragmented .
Speaker #5: And so you know , as Davide has gotten through his j-curve , he's been delivering and building cash . And so I think in addition to just organic growth , that there will be a potential there to , to do .
Speaker #5: Additional capital allocation , things like inorganic growth and buying tuck ins and really scaling that business . And so , you know , I think there's a big opportunity .
Speaker #5: But we want to do it in a very equity capital efficient way .
Speaker #8: Got it . And I think my last my last question is actually in vertical market software . Can you talk a little bit about the acquisition you guys made there ?
Speaker #8: It seemed like it was an interesting setup in terms of there aren't a lot of players in the industry . I think you just took one out .
Speaker #8: I think you bought I think you bought . Well , can you talk a little bit about like kind of how that deal came to be and what you think it looks like going forward ?
Speaker #5: Yeah . So the original acquisition so it's run by a young guy named drew and drew acquired the business from the widow of the founder , built a relationship with her , and we were able to buy a great business with a long history and a super loyal customers .
Speaker #5: Mission critical software , you know , kind of operating system of record for their customers and was able to structure a deal that , you know , was was a was attractive for us and attractive for the sellers as well .
Speaker #5: Continuity and continued legacy , etc. . And and then more recently , he did a small tuck in acquisition of a small competitor in Australia , which gave him acquisition , you know , access to that region and some customers and , and so , you know , Drew's pulling on all of the levers , right ?
Speaker #5: He's he's improving the application layer . And the technology . He's , you know , has rolled out a couple of significant upgrades to the core software product .
Speaker #5: And is investing in sales and marketing for new customer acquisition to continue to grow . RR . So he's done a really nice job growing , growing that business .
Speaker #5: And RR and did one small tuck in acquisition and is really focused on sort of the organic execution . But also becoming a solid operator in vertical market software with like a longer term view that that could be a platform to do other interesting niche VMs acquisitions .
Speaker #8: All right . Well , that's it for me . Thanks . Keep it up . That's awesome .
Speaker #4: Your next question is a follow up from Mitch Wyman with Sumner Financial . Your line is open .
Speaker #7: Hi . Two more quick questions on the with the current infrastructure , what is the ideal number in your mind to have on board searching ?
Speaker #5: Yeah , I mean , I think we're trying to balance being . Super selective with respect to the attributes . And background of the people .
Speaker #5: Right . And I think we can be . Our ability to support them , to run an effective search and our capital constraints to deploy capital , right .
Speaker #5: And pacing . And so I would I would suspect that , you know , this kind of talent flywheel that we're building here as we continue to demonstrate success , we will have access to even more and higher quality offers over time .
Speaker #5: And , you know , concurrently , we're building the systems to support more and and the the cash flow generation of the businesses .
Speaker #5: You know , hopefully will grow and we can deploy even more capital . So right now we like to say 3 to 5 at any given time .
Speaker #5: But I would expect that we could scale that over time as well .
Speaker #7: Okay . And then one last question on the skilled trades platform . You know , we've come out of the gates pretty quick here and you know , made three acquisitions .
Speaker #7: How do we look at that going forward . You know , is it going to be you know it's safe to assume a couple of years .
Speaker #7: Am I low in assuming that .
Speaker #5: I don't want to give any guidance on like what how many acquisitions we're going to do . But I would say , Mitch , I'm not trying to be cute or dodge the question , but I would say , you know , in Rob , we have like high attribute qualities , but coupled with like deep industry experience .
Speaker #5: And so we're comfortable really leaning in and , you know , doing acquisitions at maybe a faster pace than , than we would with a with an operator turned president who's getting up the experience curve .
Speaker #5: And so I think the pacing is just a little faster there . I think , you know , kind of all of those things coupled with what we see is like a really interesting , exciting opportunity set .
Speaker #5: Yeah , I think we'll go a little faster than we otherwise would .
Speaker #7: Okay . Thank you .
Speaker #4: This concludes the audio question and answer portion . I'd like to turn the call over to James for further questions .
Speaker #9: Thank you . Operator , for the emailed questions that came in . We'll try to move past ones that may have already been asked , seeing when the is .
Speaker #9: Can you please discuss how roundhouse and the plumbing businesses are doing in the first quarter or two since acquiring them ?
Speaker #5: Yeah , I mean , I think I just spoke to that a little bit in the prepared remarks , but , you know , it's early days , but both of them are doing great .
Speaker #5: Right ? I think they're both operating , you at or above our underwriting plan . We've got really talented young guys in there running the business .
Speaker #5: Roundhouse . You know , miles plus the the management team that was there . So we're really excited about the combination of of miles plus Lee , who stayed and rolled equity in the business and that , you know , their ability to continue to truck ride along without a j-curve because Miles has the support of Lee , who's , you know , been an owner and an operator in that business for a long time .
Speaker #5: And then obviously with Kingsway Skilled Trades , you know , I just was talking about that Mitch . We've got a very experienced operator .
Speaker #5: We think we've got great businesses . He's got his playbook and benchmarks , and he gets right to work . There's no kind of learning curve there .
Speaker #5: So yeah , so early days . But you know certainly at or above our original underwriting plan which makes us happy .
Speaker #9: Great . And the next one is cash sales are up a lot in extended warranty . Can you speak to what is leading to this growth .
Speaker #5: Yeah . I mean sort of three different businesses , maybe just kind of take them in order . I'll start with Trinity . Yeah , I would say that Trinity is with up modestly , but has higher growth within its ESA segment , which is the warranty segment .
Speaker #5: So that's encouraging . Peter has invested in a new sales team on the national account side . The vendor managed service side and he had some , you know , large customers that are going through one of their largest customers is Leslie's Pools .
Speaker #5: I think many of you probably know what's going on there . So he's been working hard to replace that . And so to still , you know , to have modest growth in light of some of that sort of customer turnover is great .
Speaker #5: And he's got a great team and they're out executing and adding new customers and new accounts . And the underlying warranty business is starting to to really truck along as well .
Speaker #5: So doing great there . The next is IWM . That's our credit union focused business . AWS is doing great . It's a really it's a really good business .
Speaker #5: Six consecutive quarters of of growth in cash sales I think that's a combination of both units and pricing . And the unit . You know the kind of the unit driver is they've been adding new credit union partners .
Speaker #5: You know , ticking over every every month or adding new credit union partners . And then they onboard them and get more opportunities to sell extended warranty at at those credit unions when the credit unions are doing direct loans .
Speaker #5: So just really nicely chugging along . Great team . Been been at that business for a long time . Have a lot of deep industry expertise and knowledge and like I said , six consecutive quarters of growth in cash sales after , coming off of the pandemic high in 2022 , bottomed out probably , you know , kind of mid , mid 23 and then been chugging along ever since .
Speaker #5: And then finally in Geminus , which has seen some significant growth in the third quarter , as many may recall , we transitioned management in at the end of the first quarter and brought in Robbie Humble , who is a .
Speaker #5: He is a search accelerator type president , but also has extensive auto warranty experience . So kind of a twofer , sort of .
Speaker #5: Rob Casper , but for auto warranty and you know , that business had been declining even in Q1 and almost immediately with Robbie's energy enthusiasm , he brought some great new people to the team that he had relationships prior to coming over to Kingsway .
Speaker #5: And that business inflected quickly in Q1 . And that and that cash sales growth actually accelerated pretty significantly in in Q2 and Q3 .
Speaker #5: So , yeah , I think three different stories there to get all the way back to the original question , but you add all of those up and we're seeing really nice sales growth .
Speaker #9: Excellent . And next one is Kingsway has an interesting structure . Why do you think search works in a public vehicle . And what are the advantages versus traditional search .
Speaker #5: Okay . Kind of a two parter here . Why does search work in a public vehicle . You know I think that there are a lot of maybe not a lot , but there are certainly several public companies that you would describe as serial or programmatic acquirers .
Speaker #5: I think that our model shares a lot of the DNA of other programmatic acquirers , you know , a focus on buying small businesses at reasonable valuations and those businesses have sort of enduring profitability .
Speaker #5: I think that marrying that model with search is super compelling . One , it sort of gives you access to a very long runway to redeploy capital using this model .
Speaker #5: I think some of that's demographic , I think some , but a lot of it is this exceptional talent that can go and source opportunities .
Speaker #5: Right . Really taking advantage of our as sourcing engines themselves and and then , you know , like I was talking about with Scott , you know , many of these searcher led acquisitions themselves become platforms to do their own organic growth .
Speaker #5: So , flywheel within a flywheel type concept . So I think it's very compelling . I think it's it has , you know , programmatic acquisitions have worked .
Speaker #5: It shares a lot of that sort of common DNA with the added benefit of this talent . Flywheel concept that that I was mentioning when I'm talking to Scott .
Speaker #5: So I absolutely think it works . Second part with the advantage of versus traditional search . You know , I think advantage differentiations I think than traditional search where , you know , searcher raises capital from from LPs .
Speaker #5: I think one is and sort of breaking it into the different phases of search . So you've got the sourcing , the diligence and closing and then the operating .
Speaker #5: I think . The first would be just sort of trust and track record and that builds like significant credibility for an hour when they're talking to business owners who might be sellers .
Speaker #5: I think it builds tremendous credibility with lender partners . During the deal phase to get , you know , attractive debt terms and capital .
Speaker #5: And I think it that track record and trust builds a lot of credibility in our ability to attract new owners to the platform as well .
Speaker #5: So talent selection and then we combine that with like really great sourcing tools . That's not unique to being in a public company .
Speaker #5: It's more like incubated , but you know , in traditional search you kind of have to start from scratch and build all of this stuff from the ground up .
Speaker #5: And we have , you know , great sourcing engine and a tech stack to support that . We've got due diligence and . Lending relationships , and lawyers and all of those things that help in the closing .
Speaker #5: And so speed the time to search and close and then obviously we're very proud of how we support our operators once they become the president of the business .
Speaker #5: The operating scaffolding , if you will , of the Kingsway business system , plus our advisory board . And then this expanding peer network of presidents who are all going through these the same thing together and sharing best practices across the across the group .
Speaker #5: And then finally , I think , you know , the and permanence of the capital is super unique vis a vis traditional search .
Speaker #5: There's no kind of forced exit for , you know , fund life or liquidity motivations . We can own these businesses and compound capital for a very long time .
Speaker #5: And that's that's like a unique distinction . I think .
Speaker #9: Excellent . Next one is you mentioned roundhouse and Kingsway Skilled trades have performed well since day one and are ahead of budget . What do you attribute that to and is there a key learning that can be applied to the M&A process ?
Speaker #9: Going forward ?
Speaker #5: Yeah , sure . There's there's learnings and everything . You know , usually take most of my maybe my learnings from failure . But it's good to learn from from the good ones too .
Speaker #5: You know first of all I'd say it's early days right . But I think that , you know , kind of the unique differentiator of these businesses relative to the other businesses that we've acquired is the operator doesn't have to get up the experience curve .
Speaker #5: These are , you know , Rob , we've talked about that like he's he's done this before . And so he can get in and start moving .
Speaker #5: Day one there's not this , you know , hundred day learning campaign and a little bit of trial and error and a few mistakes .
Speaker #5: Like he can get in and start making an impact immediately . And I think that that same concept holds at roundhouse , where Lee stayed on .
Speaker #5: He was , you know , the operator , you know , VP of ops and president , and he's staying on to help and support Miles .
Speaker #5: So Miles is just truly additive . There . And so I think that that kind of not having to go through the experience J curve is a is a big part of it .
Speaker #5: I think those are somewhat unique . I don't think that that's a requirement for for ETA or search to work . In fact , it's it's kind of rare , but it certainly helps .
Speaker #5: And to the extent that we can partner with owners who have deep industry experience and a thesis around buying a business in that industry will definitely do that .
Speaker #5: And I think that it will . You know , as we think about industries that we're interested in , we're also looking that at that as we're talking to potential owners to try to match experience with industries .
Speaker #5: We're interested in .
Speaker #9: Excellent . Next one is if Image Solutions and D are exiting their J curves . How do you manage that positive scenario ? Let them continue to perform .
Speaker #9: Look for tuck in M&A , increase the for organic expansion .
Speaker #5: Yeah I mean there are two totally different businesses , right ? I talked about image solutions with Scott . You know , I think that as as Image Solutions has gone through its J curve and is exiting , you know .
Speaker #5: Davide , the company has been delivering and building cash there in a fragmented market . I would expect that a big part of that story , you know , in the coming quarters , will be the opportunity for tuck in M&A .
Speaker #5: Just a function of the dynamics of the industry . Die is different . You know , I think that J curve was around like this high growth business that needed to be stabilized .
Speaker #5: And professionalized in order to then go invest in sales and marketing to to grow organically . It's kind of a one of one in their industry .
Speaker #5: And a large addressable market that has really barely been penetrated . So no other it's not fragmented . It's kind of a one of one .
Speaker #5: And there's a huge or organic growth opportunity in that . J curve was just around stabilized , professionalized and prepare for scale .
Speaker #9: Great . And I see just two more . First one is can you speak to the testing inspection and certification sector ? The Coulter will be pursuing any market sizing and dynamics that you can share .
Speaker #9: And in success, do you envision that being a platform or a platform-based strategy?
Speaker #5: Yeah . So tic , you know , large and fragmented , with a long tail , probably growing mid to high single digits as an industry with lots of little niches and subsectors .
Speaker #5: And that growth supported by really nice secular trends , you know , aging infrastructure regulation . And then , you know , there's an element of criticality .
Speaker #5: These are mission critical non-discretionary testing , inspection , certification requirements . That are often required by law or insurance . And it's also like a small thing into a big thing , right .
Speaker #5: Low cost of the service relative to high consequence of failure of the asset. And so it's that is all a very nice setup.
Speaker #5: And I think certainly the industry has the hallmarks for this , you know , for anything that we do there to be a platform .
Speaker #5: But you know ultimately it would depend on , you know , the target . We identify and the niche that it's in . And I think we go into these things being open to the idea that they become platforms .
Speaker #5: But you need the operator to find the right opportunity , build the build the operating muscle , and then delever a bit so that we can be equity capital efficient .
Speaker #5: And then explore that . But yeah , I think we would be open to it .
Speaker #9: Excellent . And the last one is related , and you may have just answered , it's just how do you view Csc's search strategy ?
Speaker #9: Moving ahead to pursue more aggressively platform opportunities ? Or Non-platform opportunities , or do you even view them all as platforms ?
Speaker #5: Yeah , I mean , I think with the exception of quest , which we went in with a very specific thesis around platform and pacing of acquisitions , we have always looked first at the industry dynamics and the business quality .
Speaker #5: Right to buy a great business , but also with the view that they could become platforms to do inorganic growth . And so if you look at what we've done at vertical Market Software , we've done a tuck in acquisition .
Speaker #5: There . And , you know , potential to do more it MSP as we've talked about with image solutions , potential to be a platform .
Speaker #5: And then Timmy obviously with outsourced accounting and HR , you know has done a couple tuck in acquisitions and there's an opportunity there .
Speaker #5: So I you know , coming all the way back like first underwrite to like great industry dynamics and a great business with the optionality of it becoming a platform over time .
Speaker #9: Excellent . I don't see any more questions , JT I'll throw it back to you .
Speaker #5: All right James , thank you . Well thanks everyone . Really appreciate it . Great third quarter and appreciate your being with us here .
Speaker #5: This afternoon . This evening . That's it for me . .
Speaker #4: This concludes today's call . Thank you for attending . You may now disconnect and have a wonderful rest of your day .