Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Presentation (August 2017)
33 slides from Kingsway's investor presentation, Aug 8, 2017
Slide 1: Kingsway Financial Services Inc. Investor Update
KINGSWAY FINANCIAL SERVICES INC. INVESTOR UPDATE AUGUST 8, 2017
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results
Slide 3: Kingsway Opening Remarks
I< Kingsway Opening Remarks
Slide 4: Value Building Philosophy
Value Building Philosophy Kingsway focuses on building long‐term value by compounding capital with investments/acquisitions/financings that offer asymmetric risk/reward potential with a margin of safety supported by private market values using a merchant banking approach We aspire to compound our bo
Slide 5: How We Think About Building Value
How We Think About Building Value Compounding Capital Utilization of insurance company investment portfolios and available net operating loss tax attributes to compound and leverage investment results Focus on a 15-30 year perspective when creating/building value, while recognizing A Long-term Persp
Slide 6: Adjusted Operating (Loss) Income
Adjusted Operating (Loss) Income Segment Operating Income (Loss) (in thousands) Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Segment operating income (loss) represents one measure of the Segment operating income (loss) $ 1,140 $ (599) $ 1,902 $ (994) pretax profitability
Slide 7: Insurance Underwriting Segment
Insurance Underwriting Segment 7
Slide 8: Mendota
Mendota INSURANCE
Slide 9: Why We Like the NSA Business
Why We Like the NSA Business Required Industry Attributes Non-standard Auto Insurance Industry Industry estimates calculate the market at around $36 to $44 billion in annual premium. Large Industry Large markets in states with growing populations (Texas, Florida, California, Arizona) Growing dri
Slide 10: Improvement Priorities Presented at 11.30.16 Investor Day
Improvement Priorities Presented at 11.30.16 Investor Day Process reorganization and software implementation Bad debt reduction Policy fee income Claims reorganization Streamline workflows Outsource first notice of loss function Outsource of Subrogation Loss severity reduction Additional rate taking
Slide 11: 2017 Improvement Priorities
2017 Improvement Priorities ____________________________________________________________________ • Process reorganization and software implementation Consolidating Multiple Policy and Claims Systems to advanced Cloud Based platform Bad Debt Reduction • A greater than 35% reduction in bad debt ex
Slide 12: 2017 Improvement Priorities
2017 Improvement Priorities ____________________________________________________________________ Outsource of Subrogation • Reflecting over 13% additional recoveries Improved Salvage Returns • Average Net Return per vehicle increased by 50.1% YTD vs 2016 Loss severity reduction • A greater foc
Slide 13: 2017 Improvement Priorities
2017 Improvement Priorities ____________________________________________________________________ • Additional Improvements Reduced ALAE expenses (AO/DCC) • Photo method of inspection • Legal bill review audit Greater emphasis on retention of existing customers • Accomplished via improved billing
Slide 14: Extended Warranty Segment
Extended Warranty Segment 14
Slide 15: Why We Like the Warranty Industry
Why We Like the Warranty Industry Desired Attributes Extended Service Contract Industry Large Industry The service contract industry is huge and growing in the U.S. A market worth over $40 billion this year Growing The US Extended Warranty Market has been growing strongly since 2009. VSC sales h
Slide 16: Improvement Priorities Presented at 11.30.16 Investor Day
Improvement Priorities Presented at 11.30.16 Investor Day 1. Get Trinity to positive Operating Profit by year-end while focusing resources on growing the higher margin ESA (Warranty) component of the business and improving margins on Facilities Management (TNA) 2. Improve IWS Operating Margins and p
Slide 17: Trinity Warranty Services
Trinity Warranty Services Revenues $7,000,000 $6,529,374 In 2016 our priorities were to align expenses and $5,911,020 improve margins in order to demonstrate earnings $6,000,000 power at current sales levels. Having $5,000,000 $4,335,171 accomplished that, in 2017 we have shifted our $4,000,000 focu
Slide 18: Trinity Warranty Services
Trinity Warranty Services Gross Operating Margins* 40.00% 37.99% 35.00% 31.87% 30.00% 28.04% An ongoing focus on margin improvement is driving enhanced gross profits. We have placed a 25.00% strategic focus on allocating resources to growing 20.00% the higher-margin Extended Service Agreement busine
Slide 19: Trinity Warranty Services
Trinity Warranty Services $500,000 EBITDA* $393,072 Growing sales at higher margins is allowing us to $0 leverage our fixed cost base for improved ($117,632) ($339,770) profitability. YTD EBITDA of $393k is a positive -$500,000 variance of $733k versus the same period last year. Trailing twelve mont
Slide 20: Intercontinental Warranty Services
Intercontinental Warranty Services Earned Service Fee Earned Service Fee and Commission income $20,000,000 $17,702,833 is up 10.9% YTD as we continue to earn into $17,054,475 contract sales growth that we began to add $15,000,000 in 2016. Sales focus is on continued penetration of the Credit Union c
Slide 21: Intercontinental Warranty Services
Intercontinental Warranty Services Growth in earned revenue combined with $2,000,000 EBITDA* consistent underwriting results and prudent management of our operating expenses has $1,500,000 $1,704,187 delivered strong results. YTD EBITDA of $925k represents a positive variance of $1,000,000 $512k ver
Slide 22: Intercontinental Warranty Services
Intercontinental Warranty Services In addition to a strong operating profit, IWS provides over $25mm of investment ‘float.’ Cash and Investments $26,000,000 $25,000,000 $24,000,000 $23,000,000 $22,000,000 $21,000,000 $20,000,000 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2016 2017 22
Slide 23: Extended Warranty Segment Operating Income (Loss)
Extended Warranty Segment Operating Income (Loss) Thousands $1,000 $800 $600 $884 $400 $685 $586 $558 $200 $161 * $0 ($156) ($102) ($185) ($156) -$200 ($186) -$400 Q1 Q2 Q3 Q4 2017 2016 2015 Segment operating (loss) income is a non-U.S. GAAP measure. Refer to the section entitled "Non-U.S. GAAP Fina
Slide 24: Extended Warranty Segment
Extended Warranty Segment IWS and Trinity are now both profitable and growing. YTD segment operating income has improved by $2.2 million as compared to first half of 2016. We are actively seeking additional warranty acquisitions to add to the platform. • Currently under letter of intent to acquire a
Slide 25: Leased Real Estate Segment
Leased Real Estate Segment 25
Slide 26: CMC
CMC • Acquired 81% of CMC Industries the sole asset of which is BNSF rail yard in Dayton, TX • Specific attributes of CMC include deferred tax liability and phantom income • Credit tenant NNN lease with approximately $13.3 million in annualized lease payments following execution of $25 million lease
Slide 27: Future Focus
Future Focus I 27
Slide 28: Growth Strategy
Growth Strategy • Enhance existing operations • Pursue potential bolt-on acquisitions to build out warranty business • Pursue additional triple-net lease real estate acquisitions with similar characteristics to CMC • Develop a strategic approach to leveraging our managerial skills over a larger capi
Slide 29: Key Takeaways
Key Takeaways • Kingsway provides an opportunity to invest in a diverse pool of insurance assets and insurance- related businesses led by experienced leadership team with a history of success • Through our merchant bank platform, we have the opportunity to capitalize on changing markets through a va
Slide 30: Contact Us
Contact Us INVESTOR RELATIONS KINGSWAY FINANCIAL SERVICES INC. Hassan Baqar Kingsway Financial Services Inc. INVESTOR CALL 1.847.700.8064 AUGUST 8, 2017 [email protected] Adam Prior The Equity Group 1.212.836.9606 [email protected] 30
Slide 31: Trinity EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income
Trinity EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income 2015 January February March Q1 2015 April May June Q2 2015 YTD 6 Months July August September Q3 2015 October November December Q4 2015 YTD 2015 Trinity EBITDA (1) $ (131,690) $ (146,335) $ (179,573) $ (457,598) $ (11
Slide 32: Trinity Gross Margin Reconciliation to Extended Warranty Segment Operating (Loss) Income
Trinity Gross Margin Reconciliation to Extended Warranty Segment Operating (Loss) Income 2015 Jan Feb Mar Q1 2015 Apr May Jun Q2 2015 6 Months Jul Aug Sep Q3 2015 Oct Nov Dec Q4 2015 2015 YTD Service fee and commission income $ 362,174 $ 328,397 $ 315,495 $ 1,006,066 $ 485,011 $ 494,609 $ 571,731 $
Slide 33: IWS EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income
IWS EBITDA Reconciliation to Extended Warranty Segment Operating (Loss) Income 2015 January February March Q1 2015 April May June Q2 2015 YTD 6 Months July August September Q3 2015 October November December Q4 2015 2015 YTD IWS EBITDA (1) $ 63,916 $ 87,182 $ 158,009 $ 309,107 $ 117,360 $ 252,266 $ 2
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