Kingsway (KFS) Q4 2025 Earnings Call Transcript

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DATE

Thursday, March 12, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — John Fitzgerald
• Chief Financial Officer — Kent Hansen

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TAKEAWAYS

• Consolidated Revenue -- $135 million for the year, representing a 23.4% increase driven by both organic growth and acquisitions.
• Consolidated Adjusted EBITDA -- $7.8 million annually, with portfolio LTM EBITDA at $22 million to $23 million as of December 31, using a new reporting metric aligning external and internal evaluation methods.
• Net Loss -- $10.3 million for the year and $1.6 million in the quarter, reflecting investment activity and segment ramp-up costs.
• KSX Segment Performance -- Annual revenue rose 58.5% to $64.2 million, and adjusted EBITDA climbed 40.8% to $9.5 million, as the segment became the largest contributor to both revenue and adjusted EBITDA in the second half of the year.
• Extended Warranty Segment Performance -- Revenue rose 2.8% to $70.8 million, with cash sales increasing 9% over the year; claims rose 4.4%, which was a slower increase than the 6.3% recorded previously, due to moderating inflation on parts and labor.
• Acquisition Activity -- Six acquisitions completed during the year in the KSX segment, alongside the launch of the Skilled Trades platform.
• Cash and Debt Position -- $8.3 million in cash at year-end, up from $5.5 million, and total debt of $70.7 million, producing a net debt of $62.4 million at December 31; increase mostly due to borrowings for acquisitions.
• Digital Diagnostics, Inc. (DDI) Growth -- Achieved high single-digit growth, with operational focus during the year on infrastructure and patient safety, now pivoting toward customer acquisition and organic growth.
• 2026 Targets -- Management budgets for double-digit organic growth in both KSX and Extended Warranty, with 3 to 5 additional acquisitions planned.
• Segment Investment Periods -- Image Solutions and Skilled Trades underwent significant investments in rebuilding and integration efforts that temporarily reduced profitability but are now expected to drive growth and margin expansion.
• Acquisition Pipeline Structure -- The company described a dual-track pipeline, enabling existing platforms to pursue tuck-in deals independently from operator-sourced new platform acquisitions.
• Reporting Metric Revision -- Chief Financial Officer Kent Hansen explained a change to “portfolio LTM adjusted EBITDA” reporting to better align external disclosures with internal and lender-assessed metrics.

SUMMARY

Management introduced a revised disclosure metric—portfolio LTM adjusted EBITDA—that combines adjusted EBITDA for KSX and modified cash adjusted EBITDA for Extended Warranty, aiming to reflect trailing twelve-month earnings capacity more transparently. This metric will now serve as the standard for both investor disclosure and management evaluation, as it matches the approach required by lenders. The company clarified that additional acquisition debt raised at year-end directly supports recent deals, notably Roundhouse and Southside Plumbing, and included the precise debt composition for full transparency. Management confirmed that recent investments in Image Solutions and Skilled Trades businesses were transitional and are not expected to recur, with future profitability anticipated to improve as these operations mature. For 2026, leadership reaffirmed both internal confidence in double-digit organic growth and commitment to executing three to five acquisitions through an actively managed, diversified pipeline. The company highlighted the separate sourcing strategies for acquisitions, emphasizing that platform teams operate acquisition processes in parallel to operator-sourced opportunities, thus broadening deal flow sources.

• Chief Executive Officer John Fitzgerald said, Importantly, and for the first time, our KSX segment represented a majority of both revenue and adjusted EBITDA in both the third and fourth quarters.
• The company detailed that claims costs in Extended Warranty rose 4.4%, down from 6.3% previously, primarily because the number of claims was slightly lower in 2025 than 2024.
• Debt composition at year-end comprised $55 million in bank loans, $2 million in notes payable, and $13.7 million in subordinated debt—itemized to offer clarity on financial risk profile.
• Management discussed that Roundhouse, acquired mid-year, outperformed acquisition underwriting expectations and remains a major driver for KSX segment growth.
• New guidance indicates that the base of recurring revenue, diversification, and operator-led acquisitions are central to the ongoing value creation model.
• Fitzgerald stated that, in the searcher pipeline, That said, I won't pretend that in Peter's case, 3 years without a close is where we expect it to be, and that's certainly something that we're actively managing. indicating a rigorous, yet time-intensive, acquisition criteria process.

INDUSTRY GLOSSARY

• KSX (Kingsway Search Xcelerator): Segment focused on acquiring, operating, and scaling services companies using a search fund model.
• OIR (Operator-in-Residence): Individuals embedded within the company tasked with independently sourcing, evaluating, and executing new platform business acquisitions.
• Portfolio LTM Adjusted EBITDA: A revised earnings metric combining the trailing twelve-month adjusted EBITDA for KSX with “modified cash adjusted EBITDA” for Extended Warranty, reflecting both performance and internal operating assessment.
• Modified Cash Adjusted EBITDA: Segment-level measure that adjusts for timing differences in recognition of contract premiums and commission expenses, and aligns reported performance with cash flows relevant to claim coverage obligations.
• Tuck-in Acquisition: The acquisition of smaller companies that are integrated into an existing platform to expand service offerings, capabilities, or customer base.

Full Conference Call Transcript

John Fitzgerald: Thank you, Matt. Good afternoon, everyone, and welcome to the Kingsway earnings call for the fourth quarter and full year 2025. To our knowledge, Kingsway is the only publicly traded U.S. company employing the search fund model to acquire and build great businesses. We own and operate a diversified collection of high-quality services companies that are asset-light, profitable, growing and that generate recurring revenue. Our goal is to compound long-term shareholder value on a per share basis, and we believe our businesses can scale due to our decentralized management model and our talented team of operator CEOs. We also continue to benefit from significant tax assets that enhance our returns.

In short, Kingsway is uniquely positioned to capitalize on the search fund model at scale within a tax-efficient public company framework. I'm pleased to report a strong fourth quarter and a year of meaningful financial and strategic progress in 2025. During the year, we completed 6 acquisitions within the KSX segment, launched our Skilled Trades platform, significantly grew revenues and earnings power and made meaningful investments in our operating businesses that position Kingsway to accelerate growth in 2026 and beyond. Importantly, and for the first time, our KSX segment represented a majority of both revenue and adjusted EBITDA in both the third and fourth quarters.

For the full year 2025, consolidated revenue grew to $135 million, reflecting both organic growth across our businesses and contributions from recent acquisitions. Consolidated adjusted EBITDA for the year was $7.8 million and portfolio LTM EBITDA was $22 million to $23 million as of December 31. Kent will provide further detail in his remarks on the portfolio LTM EBITDA metric, which we believe more accurately reflects the trailing 12-month earnings capacity of the company. As you may have noticed in our earnings release this afternoon, Kingsway is budgeting for double-digit organic growth across both KSX and Extended Warranty. I'm also pleased to reiterate our target of 3 to 5 acquisitions in 2026.

Our vision at Kingsway is to combine both organic and inorganic growth to drive value creation. And before we get into the details of our 2025 performance, I wanted to share why I am comfortable with these targets and optimistic about where the company is headed. First, it's worth noting that our annual budgeting process is comprehensive, evaluating each business one by one and then setting realistic performance targets for the coming year. The goal is not to underestimate or overestimate. It is to forecast as accurately as we can with a high confidence interval, but the performance of each business is likely to be in the year ahead.

The outcome of our process this year is a budget for strong organic growth across both our segments. It's worth a few words on why we are confident in this forecast. In KSX, it starts with the characteristics of the businesses we own. Our strategy is to purchase companies with recurring revenues, fragmented customer bases and strong secular growth tailwinds. We then match these businesses with talented operator leaders who are motivated and incentivized to drive performance. A few examples highlight the growth prospects for our portfolio.

Roundhouse, our most profitable KSX operating business, services electric motors for natural gas compression and transmission infrastructure in the Permian Basin, the most productive hydrocarbon-producing area in the world at a moment when domestic energy infrastructure is expanding at significant scale. The demand for reliable motor maintenance and repair in that environment is essential, growing and structurally undersupplied. Roundhouse was a high-growth business before we acquired it in the middle of last year and is already tracking ahead of our acquisition underwriting. For Image Solutions and Kingsway Skilled Trades, 2025 was an investment year that positioned both companies for growth in 2026.

Image Solutions invested heavily in expanding its business development team in the first half of the year, which temporarily depressed profitability as the sales team ramped up. That rebuilding is complete. The team is in place, the pipeline is developing and the early results are encouraging. We are excited for where this business is headed under the leadership of operator CEO, Davide Zanchi. Kingsway Skilled Trades has followed a similar path. Buds Plumbing, its first acquisition, went through an initial investment period and is now going from strength to strength, ahead of our expectations.

AAA and Southside, which were acquired in the back half of 2025, have received significant investment in recent months and are poised to follow in the footsteps of Buds as we progress into 2026. We see potential for both robust top line and bottom line growth in these businesses in the year ahead. When I look across the KSX portfolio, I see companies with not only attractive business characteristics and talented leadership in place, but also with strong secular growth trends supporting them. That context is important as we think about our 2026 growth targets. In Extended Warranty, our businesses achieved double-digit cash sales growth in the back half of 2025 at a time when claims costs were also moderating.

We are anticipating a much improved 2026 for our Extended Warranty businesses. Turning to inorganic growth. We are pleased to have completed 6 strategic acquisitions in 2025. Our acquisition pipeline remains robust, and I'm pleased to reiterate our target for 3 to 5 acquisitions during the coming year. We got off to a fast start in January, completing our first transaction of 2026 via our subsidiary, Ravix's acquisition of Ledgers Inc. Ledgers is a leading provider of outsourced bookkeeping and accounting services serving nonprofits and small and midsized businesses, primarily in the Midwest.

This addition diversifies Ravix's revenue foundation and expands its geographic reach while bringing a strong base of recurring revenue and an experienced team that fits well with Ravix's service-first culture. We see meaningful opportunities to enhance value through cross-selling and continued organic growth, and we are excited about the role ledgers will play as we continue scaling Ravix into a leading provider of finance and accounting solutions. Underpinning our confidence in our transaction pipeline is our dual-track approach to finding great companies to acquire. First, our operators and residents are dedicated to sourcing, evaluating and executing our M&A activity.

Our active searchers, each focused on identifying new platform and stand-alone acquisitions that meet our asset-light recurring revenue and structural growth criteria. Second, our owned businesses can pursue tuck-in acquisition activity within our existing platforms. The HR team and ledgers at Ravix, Viewpoint at SPI and Buds, Southside and AAA at Skilled Trades are all examples of our operator CEOs identifying and executing acquisitions within the businesses they run. That activity is not dependent on the OIR pipeline. It runs in parallel. It compounds the value of the platforms we've already built. And in many cases, it produces faster integrations and better returns because the acquiring operator already understands the market.

When you look at our 2025 acquisition activity in that context, 6 transactions across both tracks. It reflects a model that is generating deal flow from multiple sources simultaneously, exactly how we designed it. To summarize, 2025 was a year of disciplined execution. We expanded the portfolio through the 6 acquisitions, launched a new platform in Skilled Trades and strengthened our existing businesses with targeted tuck-ins at Ravix, SPI and Skilled Trades. The compounding effect of those investments is reflected in portfolio LTM adjusted EBITDA of $22 million to $23 million. As we look forward to 2026, we expect both double-digit organic growth and a steady cadence of inorganic growth to underpin our value creation aspirations.

We entered the year with momentum, a diversified set of growth levers and an active M&A pipeline across both our searchers and our platform operators. With that, I'll turn the call over to Kent for a few more -- for a more detailed review of the financials.

Kent Hansen: Great. Thank you, JT, and good afternoon, everyone. Total revenue for the quarter was up 30.1% to $38.6 million and up 23.4% to $135 million for the year. Consolidated net loss for the quarter was $1.6 million and $10.3 million for the full year. Consolidated adjusted EBITDA for the quarter was $2.7 million and $7.8 million for the year. Within our KSX segment, revenue increased by 63.6% to $20.3 million for the quarter and was up 58.5% to $64.2 million for the year. KSX adjusted EBITDA rose by 28.6% to $2.5 million for the quarter and was up 40.8% to $9.5 million for the year.

It is worth noting here that while KSX adjusted EBITDA declined slightly from Q3 to Q4, this is the result of seasonality in our Plumbing businesses and Roundhouse, which typically have their lowest seasonality profitability during the winter and their seasonality best quarters in Q2 and Q3. Turning to Extended Warranty. Revenue increased 6.1% to $18.3 million for the quarter and was up 2.8% to $70.8 million for the year. Cash sales were up 11% for the quarter and 9% for the year. IWS, which sells warranty products exclusively through credit unions, continued to perform well with cash sales up 10% year-over-year.

Total Extended Warranty claims moderated in 2025 and were up 4.4% for the year compared to an increase of 6.3% in the prior year, primarily due to inflation on parts and labor as the number of claims was slightly lower in 2025 than 2024. Overall, Extended Warranty is performing well. Cash sales are robust, and the segment is positioned for improved performance in the periods ahead. Turning now to the balance sheet and the capital structure. As of December 31, 2025, the company had $8.3 million in cash and cash equivalents, up from $5.5 million at year-end 2024. Total debt was $70.7 million at the end of 2025 compared to $57.5 million as of December 31, 2024.

Our year-end '25 debt is comprised of $55 million in bank loans, $2 million in notes payable and $13.7 million in subordinated debt. Net debt or debt minus cash at year-end was $62.4 million, up slightly from $61.4 million at the end of 2024. The increase in net debt is primarily related to additional borrowings related to the recent acquisitions of Roundhouse and Southside Plumbing, partially offset by continued debt amortization payments. I'd like to conclude by sharing additional detail on the portfolio LTM adjusted EBITDA metric that JT referenced earlier. Following a review, we concluded it made sense to update our portfolio earnings metric for 2 reasons.

First, we received feedback that the name run rate adjusted EBITDA was confusing for investors. The metric actually describes trailing 12-month performance, not a forward run rate. Second, for the Extended Warranty segment specifically, we have always evaluated performance internally using modified cash adjusted EBITDA, and it didn't make sense to report one metric externally while managing to a different one internally. Importantly, our lenders also use the modified cash adjusted EBITDA metric when assessing the operating performance of our Extended Warranty businesses. Aligning our internal and external reporting metrics eliminates any disconnect and provides investors a clearer view of how we actually run and evaluate the business.

Portfolio LTM adjusted EBITDA represents the pro forma trailing 12-month performance of our operating businesses and is calculated using adjusted EBITDA for KSX and modified cash adjusted EBITDA for Extended Warranty. Modified cash reflects timing differences between GAAP revenue recognition and GAAP commission expense to the timing of cash receipts and cash commission expense associated with warranty contracts as well as an adjustment to investment income for the difference between actual book yield and current market yield. No other adjustments are made. For clarity, modified cash adjusted EBITDA defers only the portion of contract premium needed to pay claims over the life of the underlying contract and does not defer any commission expense.

We believe this change better aligns our external disclosure with how management and our lenders evaluate the performance of the Extended Warranty business, provides a clearer view of the operating performance of Kingsway's portfolio of businesses and is consistent with the metric used in our credit agreements for financial covenant purposes. I'll now turn the call over to JT for a few final thoughts before we open the line for questions. JT?

John Fitzgerald: Thanks, Kent. To close, I want to thank Kingsway's employees, partners and shareholders for their continued dedication and support. 2025 was a year of tremendous progress, 6 acquisitions completed, a new platform launched and a portfolio that enters 2026, generating $22 million to $23 million in platform LTM EBITDA. We have budgeted for double-digit organic revenue and EBITDA growth this year across both our segments, and I believe the work we did in 2025, expanding platforms, diversifying revenue streams, investing in our businesses and strengthening our operator bench has set us up to deliver on those expectations. I'm confident in the plan, and I'm excited about what this team is capable of and where Kingsway is headed.

I'll now turn the call over to Matt to open the line for questions.

Operator: [Operator Instructions] Your first question is coming from Nick Weiman (sic) [ Mitch Weiman ].

Mitchell Weiman: Congrats on a good quarter.

John Fitzgerald: You said Nick, but I know it's Mitch.

Mitchell Weiman: Correct. One question I had was what is -- you didn't talk about digital diagnostics in the prepared remarks. What's going on there? We kind of -- I just remember in prior conversations kind of 6 months ago or so, you really thought they'd start to grow in the second half of the year.

John Fitzgerald: Yes. DDI, I think, grew high single digits on the year. And plugging along here. I think that we've got a great operator. He's building the team there on the ground, got a new leadership team alongside him and is now really -- it's a very -- because of the criticality of the service they're providing, Mitch, the focus for the first 18 months or so is really on creating a foundation upon which they felt comfortable growing. We're dealing with patients' lives here and patient safety is first and foremost.

So hardening the infrastructure, all of the technology systems and the telemetry that connects the hospitals to the company, creating redundancy with the second location and building all of the internal protocols to make sure that you have perfect patient safety 24/7, 365 was really the focus. We have a great operator there. And Peter, Navy Nuclear Officer, worked in the nuclear industry for a long time, and so understands how to create safety programs. And so that was a lot of the time and energy spent is investing in the foundation.

In -- I would say, kind of the back half of the year and now into 2025, the focus is now shifting to organic growth and new customer acquisition. And so we're hopeful that we see -- we had nice growth and a nice growth tailwind there. And now with the foundation in place, we hope that Peter and the sales efforts are going to be bringing new customers and therefore, new revenue on board.

Kent Hansen: Operator, before we take the next question, I'd just like to clarify. In my remarks, I said net debt at the end of '24 was $61.4 million. That was not correct. Yes. So a little bit of...

John Fitzgerald: That was end of Q3.

Kent Hansen: That was end of Q3. At the end of 2024, net debt was $52 million. So I just wanted to make that correction. Thank you.

Operator: [Operator Instructions] There are no further questions in the queue. I'll now hand the floor over to James Carbonara for e-mailed questions.

James Carbonara: Our first e-mailed question is, can you speak to the acquisition pipeline?

John Fitzgerald: Yes. Like I mentioned in the prepared remarks, sort of dual track acquisition pipeline. We've got several now platforms within KSX, if you look at VMS, Ravix, Skilled Trades, and I would anticipate probably Image Solutions in the years ahead, all looking at tuck-in acquisitions and very strong pipelines in many of those businesses. And then obviously, our OIR pipeline, as I've said in the past, remains robust. Recognize that acquisitions there have to meet our very disciplined underwriting criteria, and there is an element of serendipity, but there is very strong deal flow, and we're looking at a lot of things.

James Carbonara: Excellent. And the next question is, could you update us on OIRs Peter Hearne and Paul Vidal, please? They both have great CVs. Why do you think they have not made an acquisition just yet?

John Fitzgerald: Yes, that's a fair question. Obviously, Peter and Paul are both highly, highly capable. We wouldn't have brought them in the program if they weren't. I guess the honest answer is there's a huge amount of, as I mentioned, serendipity to finding the right business at the right price with the right operator fit and can sometimes take longer than any of us would like. Between the 2 of them, they've evaluated dozens of opportunities, and we've passed on deals where either the valuation, business quality or cultural fit didn't meet our threshold. We'd rather have them walk away than close on a marginal deal.

That said, I won't pretend that in Peter's case, 3 years without a close is where we expect it to be, and that's certainly something that we're actively managing.

James Carbonara: Excellent. The next one is, can you share some of the adjustments or the bridge from the consolidated adjusted EBITDA of $7.8 million to portfolio LTM EBITDA of $22 million to $23 million, if that's the right way to look at it?

Kent Hansen: Yes, James, it's Kent. I'll take that one. There's basically 3 main things that are the walk between those 2 numbers. The first is pro forma. So our consolidated EBITDA number that's published in the earnings release does not include any pro forma. It's just the actual results for the companies that we own during the period. The second adjustment would be any difference between -- for the warranty companies between the modified cash EBITDA number and what is reported under U.S. GAAP revenue and commission expense. As we said in the prepared remarks that modified cash doesn't defer 100% of the revenue over the life of the contract, only the portion that relates to claims.

The rest is sort of recognized day 1 and then all commission expense -- no commission expense is deferred. It's all recognized day 1. And then there's a smallish adjustment for the difference between book yield and investment yield on our investment portfolio. And the third difference would be any corporate expenses. So adjusted -- the adjusted consolidated EBITDA number includes everything, all companies. And if you look at the numbers in the earnings release for KSX adjusted EBITDA and Extended Warranty adjusted EBITDA, those do not include the sort of the holding company and the KSX, the OIR expenses.

So those are the -- so just to recap, the 3 main buckets are pro forma, modified cash and corporate expenses.

James Carbonara: The next question is, you noted that Image Solutions and the newer Skilled Trades acquisitions went through an investment period in 2025 that temporarily depressed profitability. Have those investments fully normalized? And what kind of margin expansion should we expect from these businesses in 2026?

John Fitzgerald: Yes. As I mentioned, in both cases, Image Solutions went through hurricane disruption, a full rebuilding of the sales team and that's all kind of in place, and we feel really good about the momentum there. I don't know that I want to give like margin targets, but we feel really good about the trajectory. Similarly, at Skilled Trades, both as I mentioned, AAA and Southside acquired late in the year, and we made some deliberate investments in systems, infrastructure, integration, some transition services with the owners, et cetera. And we don't anticipate that will repeat at the same level going forward.

Buds is a good template for what these businesses look like at maturity, and we feel like it's a good template and these businesses are well on their way to hitting their stride.

James Carbonara: Excellent. Next question, we had a couple of them come in on the double-digit growth, try to merge them here. Can you provide a little bit of color on how you achieved the double-digit growth in revenue and EBITDA on the KSX Holdings, given the number of recent acquisitions and the typical J-curve, pleasantly surprised by the guidance. What are some of the drivers of the growth? Is it a particular company?

John Fitzgerald: No, I would say that we're looking at pretty universal growth across all of the businesses, maybe at slightly different rates. Some businesses have revenue growth as the big driver. In a couple of cases, there's some efficiency gains that will drive bottom line growth. And then obviously, pricing is an important lever as well. And so it's a combination of pricing and units at the top line and in some cases, some efficiency gains at the bottom line.

James Carbonara: Great. And the last one I'm seeing, you touched on this a little bit earlier in terms of the 3 to 5 acquisitions targeted for 2026. How many do you expect to be tuck-ins for the existing platforms versus entirely new platforms sourced by your operators and residents?

John Fitzgerald: Yes, these are sort of targets, not commitments. But I would guess with 3 OIRs, we ought to conservatively target at least 1 to 2 new platform investments. And by deduction, that would mean 2 to 3 new tuck-in acquisitions at our existing platforms.

James Carbonara: Thank you, JT. Seeing no further e-mailed questions in. I'll throw it back to the operator, who will no doubt throw it back to you.

Operator: Thank you. And that concludes our Q&A session. I'll now hand the conference back to JT Fitzgerald, Chief Executive Officer, for closing remarks. Please go ahead.

John Fitzgerald: Wonderful. Thank you. Well, I appreciate everyone taking the time here this afternoon to listen to our remarks and ask some wonderful questions. Thank you for your support and looking forward to a great 2026.

Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

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